CHAPTER 1

THE DEVELOPMENT OF UNIFORM LAWS - A HISTORICAL PERSPECTIVE

Overview

• The aims of this chapter are to consider:

  • The problems of interpretation as Conventions are implemented into domestic law.

  • The interpretation of the CISG within its "Four Corners", that is, without regard to domestic principles and concepts.

  • The influence of internationalization and globalization on the application of international uniform laws.

  • The work by Rabel in 1935 and later by Kötz that laid the foundation for the development of unified international laws.

  • The effects of transplantation of principles on the unification process of international laws.

  • The influence of autonomous concepts on the harmonization process.

The United Nations Convention on Contracts for the International Sales of Goods 1980 (CISG) was adopted in Vienna during a Diplomatic Conference.[1] The CISG came into force in 1988 when the required number of States deposited their instruments of ratification.[2] Through that process the Convention became part of our domestic law. As such any interpretation and application will be effected through domestic courts and tribunals.

This thesis will investigate how domestic courts apply the CISG. The interpretation and application by domestic courts of the Convention referring to domestic law fail to realize the objectives of the CISG. The objectives demand that the CISG be interpreted within its Four Corners.

The diversity is illustrated by two cases using the parol evidence rule.[3] In both instances the courts were asked whether a party can rely on statements made by the parties, which are not contained in the written contract. In MCC-Marble Ceramic Center, Inc. v. Ceramica Nuova D'Agostino, S.p.A (MCC-Marble)[4] the court held that, pursuant to article 8 of the CISG, such statements are to be taken as expressions of the subjective intent of parties and are to be included into the contract. On the other hand in Beijing Metals & Minerals Import/Export Corp. v. American Bus. Ctr. Inc (Beijing Metals) the court stated that "the parol evidence rule would apply regardless of whether Texas law or the CISG governed the dispute."[5] MCC-Marble in contrast to Beijing Metals interpreted and applied the CISG without recourse to domestic principles that is within the Four Corners of the Convention. Beijing Metals did not understand the mandate of the CISG, which simply prohibits recourse to domestic principles and methods.

The premise of this thesis is that the CISG should be interpreted within its "Four Corners" without regard to domestic concepts and principles. Most importantly, it should be interpreted as an international standard. Furthermore, the methods of interpretation are not to be found within domestic techniques but are subject to an autonomous method of interpretation, which is explained in chapter 3. Articles 7 and 8 lay down the interpretational rules and play a pivotal part in the development of the argument for they are essential to achieving the important principle of international uniformity. International case law will be analyzed to investigate how courts and tribunals have followed the mandate of articles 7 and 8.[6]

Academic literature has focused on specific problems associated with the mandate of articles 7 and 8. In Germany, for example, attempts have been made to draw the whole argument together and view article 7 as it affects the Convention as a whole. Most attempts are "doctrinal" in nature. This thesis investigates how the courts and tribunals have contributed towards an interpretation and application of the CISG within stated objectives of the CISG in the "Four Corner approach". Relevant principles are elicited from articles and existing jurisprudence are investigated to illustrate a methodology of interpretation and application of the CISG.

Australian commentary and case law is sparse. No serious attempts have been made so far to explore fully the influence of the CISG within our legal system.[7]

2. Methodology

This thesis is concerned with comparative analysis, statutory interpretation and questions of contract theory. These issues should be placed within the context of internationalization and globalization. However it is not the purpose of this thesis to discuss the major ideas on the above topics in detail.[8] Some general remarks will however be made to understand the basic underlying ideas. Importantly, the concept of globalization is not to be confused with internationalization. Internationalization is understood to refer to cooperative activities of national actors beyond the nation state.[9] Globalization is different.

Whether the development of private international law is to be classed as an expression of internationalization or globalization is not important in this context. Of importance is the recognition that globalization created a new perception of the political process in which UNCITRAL and other bodies could liberalize domestic laws and move beyond national borders. In essence a "qualitative leap in the course of history" has been observed.[11]

Globalization requires that the CISG be interpreted and applied as an international legal instrument without recourse to domestic concepts and principles. For example, a German buyer refused to pay for New Zealand mussels on the grounds that the mussels could not be sold as they contravened German health standards.[12] The court ruled in favor of the seller, as the health standards were not international in character and therefore only known in Germany.[13]

The purpose of this thesis is thus not to compare domestic practices. However, it is argued that domestic law can assist in understanding the application of the CISG within the Australian context. This thesis will also discuss the impact various Restatements on International Contracts have on the understanding of the CISG.[14] This chapter therefore will introduce key concepts which are necessary in understanding the application of articles 7 and 8 and hence the CISG.

3. The Development of Uniform Laws - a Historical Perspective

Arguably the single most noticeable development in the last 40 years in economic terms is globalization, which has naturally increased the importance of cross-border trade. These developments have contributed greatly to the internationalization of trade.

In 1935, a concept that the world was divided into States with their own independent economic, social and legal systems would not have attracted much attention. In 1935, a revolution in substantive law had started which has not yet run its course. Ernst Rabel commenced the debates regarding the introduction of a worldwide uniform sales law.[15] Private international law was considered to be complicated, abstract and had the reputation of being the "nuclear physics of jurisprudence."[16] Scholars were debating the possibility of applying foreign laws within their jurisdiction. Uniformity was not the issue but rather the question of the correct application of the relevant domestic law.

The first tentative steps towards unified international laws resulted in the realization that the conflict of law rule using nationality as a connecting factor would lead to different results according to different domestic laws in use. In France and Italy, domestic law was always kept in "reserve" should the judge experience problems applying foreign laws.[17] Kötz, amongst others, advocated strongly that the solution to the problem is the creation of "general principles". These general principles could be used to create the foundation for harmonization or unification of international laws.[18] Significantly, he argued that the teasing out (Ermittlung) of general principles is not only the task for the legal academics but also for judges.[19] These issues have now come to fruition with the creation of international unified laws in the form of treaties and model laws such as the CISG, which is the focal point of this thesis.

a. The Effects of Globalization

A key factor in the development of international trade laws is globalization. There has been a deliberate effort on the part of government and non-government players to liberalize or deregulate the world markets.[20] As a consequence, global responses to commercial legal issues have changed the perception of countries and boundaries. Technology transfers, the amalgamation of regions and countries into common markets, the demographic shift between old technology countries and new emerging markets as well as the increasing cost differentiation between global industries and national industries have been key points in globalization.[21]

In this context the "[Internet], technology's latest spatio-temporally transforming offering"[23] has become a borderless information center, marketplace and channel for communication and payment and has extended exponentially the global reach of the business community.[24] Such developments point to the need to put in place legal systems, which can fulfill the needs of the international and transnational business community.

The legal systems and professions of many countries have been slow to keep pace with the needs of the new economic reality. One problem has been an ongoing debate between economists and jurists on the need for the creation of a "world law."[25] Economists are of a view that a State intervention through the legal system should be kept to a minimum as individuals and firms will inevitably reach an economic solution through market forces. The majority of jurists on the other hand advocated that legal coordination is required to effectively embrace globalization.[26]

b. Unification of Laws

There are also jurists, notably in England and to a lesser degree in the United States, who believe that it should be left to the market to decide whether the "commercial world prefers the familiar certainties of English law or the Utopian and unpredictable ideals of Conventions."[27] The argument is that unification of law is not as important as one domestic system, namely the common law via the Commercial Court in London, is in effect the compromise solution for parties who cannot agree on a governing law. A paramount need of the commercial community, namely certainty, would be best served by one coherent system rather than through a Convention, which is a "multi-cultural compromise" therefore lacking coherence and consistency.[28] It is the inability to recognize that such views are untenable as comparative law offers the only way by which laws can become international.[29] Consequently such international uniformity will exhibit coherence and consistency.

Historically, England was very active in the development of international law but failed to take the next step and ratify the CISG.[30] The English view as explained by Nicholas[31] is out of step, not only in light of the historical background but also because the common law countries "have long made reciprocal references to each others decisions and are now invoking continental law to a remarkable degree."[32]

As far as unified laws are concerned, history is being repeated. Roman law was the essential source of law on the continent of Europe and only disappeared in the eighteenth century.[33] Also many countries, in their modernization undertook "massive transplants" such as the introduction of the German "Bürgerliches Gesetzbuch" into Japan.[34] As an interesting sideline, the only successful attempt to transplant Common Law was in the context of colonialization.[35]

Some scholars have argued that a "common law" is not achievable simply by a process of unification, harmonization or transplantation.[36] Such a view may be correct if attempts at the creation of a unified or common law are directed at a total body of law. Differences in political or social organization need to be overcome to achieve such unification. Not surprisingly one point of view states:

However the evidence supports the view that laws have been transplanted successfully and such a movement of a rule or a system from one State to another has been common in history.[38] Watson has argued that:

It is exactly for these reasons that Rabel has succeeded in proposing a unified model law. Today many successful Conventions and model laws are enshrined in legislation. It is important that a distinction is made at unification of a total system and harmonization or unification of a segment of the legal system. This is important for the purpose of market integration, or facilitation of commerce. It is the pragmatic approach, which might be thought likely to succeed.

Unification of specified areas of law such as the sale of goods has been successful internationally because of the above arguments. It is not surprising that principles or ideas of law have been slowly recognized as being universal. As an example, principles of continental laws have taken a foothold in common law countries. As England is now part of the EU such trends will accelerate especially if current attempts in creating a codified European commercial law are successful.[41] A "flow on effect" can already be observed in continental Europe where a President of the German Federal Court said:

c. The Influence of Autonomous Concepts on the Harmonization Process

A desire for autonomous laws has passed the stage of "looking at" and evaluating general principles only. Private law harmonization, which includes the modeling of a commercial law infrastructure, has been taken up actively not only by the United Nations but also by other broad membership-based organizations such as UNIDROIT and the ICC, which does not exclude an option for commercial law unification amongst economic blocks.[43] Trade blocks such as ASEAN, the EU, NAFTA and others are also involved in providing regional solutions.[44] Trade blocks are already a force to significantly influence international legal developments. As an example, discussions in relation to the Draft Convention on Jurisdiction and Foreign Judgments in Civil and Commercial Matters indicate that the EU is arguing strongly for amendments, significantly to article 37, which deals with the relationship with other Conventions. Article 37 notes that the Hague Convention prevails over any other instruments.[45] The EU proposal is that the Brussels Convention and the Lugano Convention referred to as the "European instrument" should take precedence over the Hague Convention in all European Instrument States.[46] The conclusion is that the EU and other trade blocks are actively involved in the creation of international autonomous law instruments within their sphere of influence. Non-aligned States cannot simply ignore these developments and retreat behind domestic systems of law. Such attitudes are isolationist and will hinder the development and participation of non-aligned States in world trade.

The indication is that the next step in the recognition of uniform principles, namely the "formalization of principles" has been reached. The underlying goal is to unify laws and hence an application and interpretation must be universally acceptable and not constructed with domestic solutions in mind. This thesis will investigate how successfully international uniform laws have been applied.

Only the CISG will be investigated as an example of a unified international law, because the Convention is based on comparative research and deals with the sale of goods.[47] The CISG is not the only set of rules governing the international sales of goods. UNIDROIT and the European Commission have introduced their own "restatements", which are slowly gaining acceptance among the international business community. Both of these restatements in addition to embracing common sets of legal principles also took the opportunity to include principles found and established in the CISG. The list would not be complete if the work of the Pavia group under its chair Guiseppe Gandolfi were not mentioned.[48]

What is the economic reality in respect to the models advanced by economists and jurists? The experience of German unification at the end of the 19^th century and the beginnings of the European Communities in the 1950's shows that legal harmonization follows economic harmonization.[49] The East-West unification of Germany and the further developments of the EU exhibit the same tendencies.

However it should be noted that currently the third economic harmonization process in the EU has begun, that is the Eastern enlargement and its associated institutional reforms.[50] By analogy with earlier economic enlargements and unification moves, new developments in harmonization of trade laws will not be actively pursued for the time being. Efforts are gathering momentum to convert regional groups such as APEC and NAFTA into more active bodies to standardize commercial laws.[51] It is conceivable that in the near future the option to harmonize laws amongst trade blocks will be considered.

The evidence is that the business community, by its political will and driven by economic reality, has opened national borders and is operating within a global economy. Of importance is the Internet and e-mail, which exponentially extends the global reach of the business community. "The various dogmas and beliefs held as sacrosanct by individual sovereign legal parishes are not necessarily so hallowed by the business community."[52]

On the one hand, the business community as contracting parties operate in an international setting whereas legal systems generally hold on to their own national reality. David suggests that the principal reasons for such attitudes stem from conservatism, routine, prejudice and inertia.[53] In relation to unified sale of goods laws, nothing better illustrates this point than the English legal system, which as "another case of splendid isolation"[54] has not yet fully grasped the significance of the EU as a wider community with their own unified laws. Schlesinger who coined the phrase "intellectual isolation" best describes such attitudes.[55] In the 18^th century Lord Mansfield already commented:

Lord Manfield succinctly links reason and justice to the attainment of a uniform homogeneous law. In effect he understood the requirements of a successful international law well ahead of its successful implementation. Globalization and internationalization were the catalysts to reinvigorate Lord Mansfield's thinking. The application of a unified law to cross-border transactions is economically sound and produces superior results compared with the application of domestic law.[57] Even the British legal system has now entered into the phase of "Europeanisation".

d. The Autonomous Contract

The debate of the "autonomous contract" has long ceased to be of academic interest only.[58] It has become an economic and legal reality. In essence to understand the transnational need for sales laws a

What then is the difference between "contract law" and "contract practice"? It is implicit in the description that contract law is tied to a system of law based on a national or domestic body of law. Through that particular municipal system, contract law would have evolved based on known and understood principles. However, contract practices are looking beyond a legal system and the law in general. Practices transcend legal, social and economic thoughts and processes and have become universal. That is, they are common elements, which transcend borders.

It might be argued that, once contract practices have been identified, an international law can be put into practice. Looking at this question, Honnold asks:

The answer he noted is "unhappily no, but that is not the end of the story."[61] It must be remembered that any kind of legal regulation is a potential source of unpredictability but the transnational nature of international business provides an additional source or dimension to the difficulty of securing predictability.[62]

The solution is found in the work done by Kötz and even earlier by Rabel. In essence, an autonomous contract has to be constructed which will not alleviate all the problems but will provide the commercial community with a framework. Within that framework at least one problem of municipal law can be eliminated namely the divergence of idioms which require local knowledge and contribute towards cross border legal risks. In a recent paper, the Australian Law Reform Commission (ALRC) stated that the first principle of an international agreement

On a procedural level, international developments of harmonization or assistance have not kept pace with current circumstances and there is a need for more effective arrangements.

The problem then is twofold. First a clear set of autonomous contract laws should be written which are acceptable to the legal systems of a significant number of countries. Confidence in such a system can be achieved only once it is tested in a practical sense. The second problem is that uniformity and predictability can be achieved only if such a system is applied and most importantly interpreted uniformly.

Amissah has recognized that the autonomous contract as a concept must be based on three ideas. The autonomous contract is first an expression of the will that governs international commerce, secondly is a means of seeking to transcend national boundaries and thirdly is designed to be virtually self-contained and self-governing.[65]

CHAPTER 2

THE CISG

Overview

• This aim of this chapter is to consider the legal status of the CISG in international trade.

• This chapter introduces the notion that courts and tribunals will look for a solution within the "Four Corners" of the Convention in a manner contemplated by those preparing it rather than take recourse to domestic law. In particular the following issues will be analyzed:

  • The advantages of international law in managing of cross border legal risks.

  • The role of uniformity and predictability in achieving a common legal theory.

  • The role of the Vienna Convention on the Law of Treaties on interpretation of the CISG.

  • The application of the CISG in domestic law, particularly articles 1 to 8.

  • The effects of multilingual translations and the choice of words on the development of a methodology of international interpretation.

  • The impact of domestic law on the CISG.

It is apparent that the underlying philosophy of the CISG is that the development of international trade and the removal of legal barriers necessitate the creation of uniform laws. Such uniformity cannot be achieved by taking recourse to domestic concepts, principles or methods of interpretation.

Australia ratified the CISG on April 1, 1989.[67] Legislation concerning it has been enacted by each State and in particular in Victoria through the Sale of Goods (Vienna Convention) Act 1987 (Vic). It should also be noted that s66A has been introduced into the Trade Practices Act 1974 (Cth) [TPA]. It provides that:

The Victorian legislation provides in s 6 that the Convention in case of conflict overrides domestic legislation. Furthermore the CISG is "self-inclusive" but permits via article 6 an exclusion of the international law in favor of domestic law.

In Australia the advantage of using international sales laws has not been fully recognized and anecdotal evidence suggests that business has taken up the option contained in article 6 to exclude the CISG. The CISG will apply automatically and "opting out" is only valid if the parties adequately indicate their agreement to do so.

Australian practitioners are not alone in trying to "opt out" of the CISG and Will suggests that German, French and Italian jurists whenever possible are trying to use article 6.[69] One German global business systematically excludes the Convention in favor of German, Austrian or Swiss domestic law. The Board of Management must approve any deviation from nominated domestic systems, such as reliance upon the CISG.[70]

Some legal advisors continue to believe that a choice of domestic law allows business to move in familiar territory. However such an attitude appears to be "nationally introverted" which is specially highlighted if "nationally extrovert" systems such as the one in Switzerland are used as a comparison.[71]

The following Turkish example can illustrate this point. What would be the effect if Turkey entered into a contract with a German business and insisted on Swiss Commercial Law? At first glance one would assume that a "neutral" domestic law has been chosen favoring neither party. However, that is not the case. Turkey in the modernization of its system of law adopted Swiss commercial law. To opt out of the CISG in favor of the Swiss Commercial Code means that Turkish business uses its own domestic law. One would not consider this to be a compromise or an adoption of a "neutral" system. However to adopt the CISG certainly gives no advantage to either party and is in the true sense a "neutral" system of law.

A further point should also be considered. The UNIDROIT restatement, the Principles of International Commercial Contracts [PICC], which are modeled to a great extent on the CISG, have influenced the drafting of the Russian Civil Code, the Estonian Law of Obligations and the Civil Code of the Republic of Lithuania.[72] It should also be noted that the development of the New Chinese Contract Law was significantly influenced by the CISG.[73]

Such developments indicate that the emphasis in the modernization process of domestic law has changed. The adoption of mature domestic systems as demonstrated by the Turkish hypothetical appears at first glance to have given way to the adoption of international laws. A more global view might enhance a municipal system in its efforts to maintain an international perspective.

Another aspect of the choice of domestic law is that there is a danger of not managing cross border risks effectively. In Roder Zelt und Hallenkonstructionen GmbH v. Rosedown Park Pty. Ltd. (Roder Zelt)[74] the impression is gained that counsel for the defense was not properly prepared as "they made only passing reference to the Convention."[75] Philosophically, they did not understand the impact of the CISG on the domestic system. The problem of understanding the impact of international law is one of education, not only of business but also its legal advisers. This view is strengthened if we consider that only two reported cases have been decided in Australia since ratification in 1989 and both indicate a lack of understanding.[76]

The purpose of this thesis is not to investigate how the CISG has to be brought effectively to the attention of the legal profession, rather it will examine whether courts and tribunals are using the CISG appropriately, that is within the mandate of article 7 and 8.

2. Uniformity and Predictability; The Problem - Restated

It is accepted worldwide that the CISG is not "point zero" in the development and interpretation of international Conventions in general and international sales laws in particular. Rather it is the culmination of attempts. It dates back to Rabel followed by the Cornell Project and is closely linked to the UNIDROIT inspired Hague Uniform Law for International Sales (ULIS and ULF). This was the basis on which the CISG was built.[77]

Tribunals and courts should thus be able to look back at historical models and understand better the impact that ratification of international treaties such as the CISG has on domestic law.

This thesis seeks to show that tribunals and courts will look for a solution within the "Four Corners" of the Convention in a manner contemplated by those preparing it rather than taking recourse to domestic law. It is also argued that the failure to apply the rules contained within the "Four Corners" is an error of interpretation rather than an indication of an unwillingness to depart from domestic laws.

Such an investigation is of importance as the essence of exporting is to sell goods abroad. From a legal point of view the contract of sale is a central feature of the transaction.[78] Many other contracts such as transport and insurance are supported by the central contract for sale. It is therefore important to create a legal climate which supports the central contract in a uniform and predictable manner to confidently operate in an international environment. It has been suggested that international laws in general and the CISG in particular "lack a common legal theory and practice upon which judges and practitioners can rely."[79] This appears to be true and needs to be distinguished from the view that:

The difference between the two opinions is illustrated by the fact that Diedrich recognizes that uniformity and predictability are possible to achieve if a common legal theory and practice can be established. Supportive evidence that a common legal theory and practice is possible can be found in the original 1935 proposal of a Unified Sales Law. A comparison with the CISG indicates that the basic structure of the two laws show remarkable similarities.[81] Rabel indicated that a unification of law is successful only if a compromise is achieved. Such compromise can be achieved through comparative studies especially between the Anglo-American system on one hand and the Continental systems including Japan and South America on the other.[82]

Réczei on the other hand assumes that judges are trapped in municipal thinking and practices. This thesis shows that judges are not unduly trapped in municipal thinking and practice.

In order to create a legal theory and practice, a common tool needs to be applied to the CISG namely the interpretative article 7. This is the key that opens the door to a common unified approach to the interpretation and application of the CISG. By applying this interpretative article, a common interpretive practice supported by case law has been created, which takes on the function of a common legal theory.

It is possible there will be divergent judgments if article 7 is not understood and applied correctly. Réczei had a particular point of time in mind, namely the point of introduction of a unified system of law. It would be difficult to argue that an international unified system of law would not suffer from divergent decisions at the beginning. By analogy, the United Nations Security Council and General Assembly asked for Advisory Opinions of the International Court of Justice as a basis to form decisions. Uncertainties, which required opinions, are typically clustered within the first 10 years of the Court's existence with only a handful of comparable advice sought in the following 30 years.[83]

3. Harmonization of Laws

An intended outcome of international agreements is the harmonization of laws. Some factors have been identified which limit the effectiveness of harmonization through Conventions such as the CISG. One of the factors identified by the Australian Law Reform Commission is that "effective harmonization does not require uniformity but does require a common conceptual basis."[84] Such views need some comments. Undoubtedly a conceptual basis is the foundation upon which any legal system is built. Such a basis varies, as an example, between common law countries and civil law countries. To argue that harmonization in an international setting requires a common conceptual basis is not wrong. Such an argument however requires that harmonization is not expected to be present at the introduction of the international sales law. Common concepts need to be "bedded down" and require therefore some evolutionary process. Courts, tribunals and academic writing can facilitate such processes.

As the CISG had to take into account different social, economic and legal systems, only the outcomes, that is decided cases and doctrinal writings, will contribute to the development of an internationally valued concept. Through the creation of a conceptual basis, independent from domestic systems, harmonization can be achieved.

However, even in such a situation there is still a danger that harmonization is only superficially effective. The CISG is a consensus created by Contracting States from a cross section of various economic, social and legal systems and arguably "the person looking at the currently effective Uniform Law from a certain distance will be surprised by its selective and fragmentary nature."[85]

Uniformity of laws is still a pre-condition to achieve the goal of harmonization. Uniformity indicates that cases are decided in the same way, thus achieving uniformity of outcome. Such matters need careful nurturing and developing.[86]

4. The CISG - some Fundamental Observations

The expected benefit of any Convention, and the CISG is no exception, depends on the fact that it is implemented in a manner contemplated by those preparing it.[87] Importantly the CISG cannot be viewed and interpreted in isolation. If it is based on domestic law, diverging judicial interpretations would lead to a fragmented approach and uniformity could not be achieved. International development plays an important part in interpreting and understanding the CISG. In such a way cross border legal risks such as unfamiliarity with municipal law are reduced and the business community will gain the benefits which can be achieved through the CISG. These benefits are by no means certain or guaranteed and ongoing development and interpretation on an international, rather than a national level will contribute towards uniformity.

The first step towards the goal of uniformity has been achieved by the acceptance of the CISG as a uniform international sales law. The second component of uniformity, the availability of a body of tested and accepted case law, is progressing. We have entered the phase of "predictability". This phase can be demonstrated by examples using article 35(2)(a). This article stipulates that goods must be "fit for the purpose for which goods of the same description would ordinarily be used." The three examples below test the relationship between "ordinary purpose" and domestic industry standards.

The first example is a 1999 German decision.[88] An Austrian seller supplied vine wax to a German buyer. The court stated that the seller was obliged to:

The wax therefore is not in conformity with the contract pursuant to article 35.

This case can be usefully contracted with a second example decided by the Federal Court of Germany.[90] The buyer imported New Zealand mussels, which did not conform to local food standards according to German Law (Lebensmittel und Bedarfsgegenstandesgesetz). The Federal Court affirmed the decision of OLG Frankfurt of April 1994 and stated:

The seller can indirectly rely on the fact that it was unreasonable to rely on his skill and judgment if the place of usage was not communicated to him. The court listed three exceptions to its rule:

The third example, Medical Marketing International, Inc. v Internazionale Medico Scientifica, S.r.l [93] shows that the above rule has been accepted as a persuasive precedent by an American court. The facts were similar and the court noted that the third exception as noted by the German court was applicable. The American decision may not establish the use of foreign decisions as precedents but at least it can be argued that the foreign decision was used as "persuasive authority" and contributes towards predictability of outcome.

Another impact of the CISG is that an international sales law is replacing some domestic laws. The parol evidence rule, which in brief excludes oral evidence, and which contradicts or varies terms of a subsequent or contemporaneous written agreement, can be used to illustrate this point. Article 8(3) of the CISG provides that:

The most important factor in advancing the CISG is the understanding of a common conceptual basis. This necessitates the development of a new approach to interpretation and remedies, which are not yet applied in domestic dispute resolutions. As an example, Von Doussa J. in Roder Zelt [95] (the CISG applied to the contract of the sale of goods) commented that the pleadings "are expressed in the language and concepts of the common law, not in those of the Convention."[96] As noted above, counsel made only passing reference to the Convention. Von Doussa J. also added that the provisions of the Convention replace the common law concepts and common law remedies.[97]

The CISG, to be effective, must become part of our domestic system through ratification, which is the unstated philosophical underpinning of the system with the acceptance of the paramount rights of sovereign nations.[98] This fact is well established in precedent. Lord Atkin suggested that:

The question is what standing has the CISG within our domestic law? Von Doussa J. explained:

6. The Application of the CISG

As stated earlier: "The provisions of the Convention prevail over any law in force in Victoria to the extent of any inconsistency."[101] However, the CISG is not a complete statement in relation to the sale of goods. It is therefore important to understand the application of the CISG, which is regulated in chapter I.[102] Such an understanding is essential to be able to place the Convention within the context of domestic law.

More importantly. an understanding of articles one to eight is essential as these articles play an important role in understanding the application of the CISG. In essence, an understanding of articles one to eight is fundamental in the development of a method of interpretation and application of the CISG.

a. Article 1

At first glance, it appears that the interpretation of article 1 does not pose any problems. This article states:

An ICC arbitration case is illustrative in the application of article 1(a). The arbitrator ruled that the CISG, which is the law of California, applies pursuant to article 1(1)(a).[103] However. interpretations by courts have shown that the articles of the CISG cannot be read in a vacuum.[104] Article 100(2), has an important bearing on the application of article 1, if the question of acceding to the Convention needs to be answered. In Ytong v. Lasaosa,[105] both Spain and France were Contracting States when the matter was brought before the court. However only France but not Spain had acceded to the CISG at the time of concluding the contract as stipulated by article 100(2) therefore the Court of Grenoble applied article 1(1)(b) and not article 1(1(a).[106]

In an ICC arbitration between a German seller and a Spanish buyer, the arbitrator applied article 1(1)(a)[107] to contracts made after August 1, 1991 and article 1(1)(b) to those made after January 1, 1991.[108] Contracts made before January 1, 1991 had to be dealt with under German Civil Law (choice of law) as neither of the two countries had ratified the CISG.[109]

In another case, an arbitrator had to decide the choice of law in a contract, which was silent on this issue. The seller was from Russia, the buyers from Argentina and Hungary and the stipulated forum was Zürich in Switzerland. The arbitrator applied the law of the forum namely Swiss law. According to Swiss domestic law, he had to apply the Hague Convention, which led him to apply Russian domestic law. As the CISG is part of Russian domestic law, the arbitrator could apply the CISG as the governing law.[110]

The three quoted examples support the view that article 1 must be applied carefully to avoid a wrongful application of the CISG. Not all interpretations followed the same line of reasoning. Two Italian decisions illustrate this clearly. The first dispute was between an Italian seller and a Japanese buyer. The contract was subject to Italian law. The majority of arbitrators, with one dissenting, came to the conclusion that the choice of law amounted to an implicit exclusion of the CISG.[111] Such a conclusion is wrong. The court correctly stated that the conflict of law rule leads to the application of Italian law and should have applied article 1(1)(b) as Japan is not a Contracting State. If a country ratifies the Convention it becomes part of its own body of law. If a matter falls within the sphere of application of the CISG then the Convention must be applied.

The second case, Nuova Fucinati S.p.A. v. Fondmetal International A.B. is similar.[112] The court correctly found that article 1(1)(a) is not applicable, as Sweden was not a Contracting State. The court went on to reject the applicability of article 1(1)(b) on the grounds that the article only operates in the absence of a choice of law by the parties. The court read the sub-section far too narrowly and, through a lack of understanding of article 7, was lead into error. The two Italian cases illustrate that the tribunals did not interpret the CISG correctly and show a lack of understanding of the purpose of the CISG, specifically article 7.

An Austrian Arbitration proceeding best sums up the correct application of article 1.

b. Article 2

Article 2 in brief partly restricts, and partly clarifies the notion of "contracts of sale of goods."[114] It does so by stating to which sales of goods the Convention is not applicable. One of those exclusions relates to consumer contracts. To fall under the category of consumer contracts it is stipulated that the seller either could not know or ought not to have known that the goods were for personal use. Two cases both dealing with the purchase of a motor car illustrate this point. An Austrian decision found the sale of a Lamborghini not to be governed by the CISG due to article 2(a). It noted that the CISG was not applicable because the seller proved that he knew that the car was bought for personal use.[115]

This should be contrasted with a decision by the Landsgericht [District Court] Köln. The buyer again used the car for personal use but the seller of the car knew that the purchaser was a dealer in motor cars and therefore article 2(a) was not applicable.[116] The conclusion is, that article 2(a) limits the application of the CISG to commercial contracts.[117] Article 2(e) may be noted as it indicates that ships or aircraft are excluded but not parts of ships or aircraft. A Yugoslav Foreign Trade Arbitration illustrates this point.[118]

The clause in the contract stipulated that "Yugoslav substantive law" was the applicable law. The subject of the contract was the purchase of a ship. The arbitrator correctly pointed to the fact that both countries, Egypt and Yugoslavia, were signatories of the CISG. However due to the exception in article 2(e) the CISG was not applicable and therefore Yugoslav substantive law must be read as meaning Yugoslav domestic law.[119]

c. Article 3

A contract for work done and material or labor supplied is basically treated as a contract for sale.[120] Neither of the adjuncts to goods can be "a substantial part" of the contract. Courts have interpreted this section with the widest possible view and have not restricted the "substantial part" to only monetary values but also looked in their determination to the intention of the parties concerned. A German court ruling clarifies article 3 as far as the obligations of parties in relation to the supply of value other than goods is concerned.[121] A machinery part had to be delivered and installed in the buyer's factory. The court found it impossible to calculate the value of the goods compared with the installation costs. The court therefore looked at the basic reason for the contract as well as the reason for the dispute and found that the delivery of the precision machinery was the essence of the contract. Everything else was of subordinate concern.[122]

d. Article 4

Article 4 is another restrictive article stating that, except as otherwise expressly provided, the CISG is not concerned with questions of validity therefore "laying down rules for the objective agreement necessary to create a contract of sale."[123] As far as the form of contract is concerned this is settled in article 11 which declares that the international contract is free from any requirements as to form. Furthermore, except as otherwise expressly provided, the CISG is not concerned with "the effects, which the contract may have on the property in the goods sold. This aspect is left to municipal law. Article 4 will be discussed in more detail in chapter 6.

e. Article 5

This article provides that liability of the seller for death or personal injury caused by the goods to any person is not within the scope of the CISG. This ought not to be a contentious article. There is minimal jurisprudence in existence dealing with this matter.

f. Article 6

Article 6 recognizes the principle of contractual freedom, that is, party autonomy by stating: "the parties may exclude the application of the Convention or derogate from the effect of any provision."[124] The indication that, as an example, German law is applicable does not mean that the CISG has been excluded, as the Convention is part of domestic law, hence the choice of German law includes a choice of the CISG.[125] Courts have recognized that not only an express exclusion is possible but that article 6 also includes the possibility that the CISG can be excluded implicitly. However, the Landgericht [District Court] München indicated that merely referring to a domestic law of a country does not constitute an implicit exclusion of the CISG.[126] Article 6 demonstrates that the CISG emphasizes equality between the buyer and the seller and that the rules laid down in the CISG can only be varied through mutual consent.

g. Article 8

Article 8 focuses on the parties' actual intentions as well as laying down criteria to apply where that intent is in doubt.[127] The court will not only look at a statement but also examine the conduct of the parties including "the negotiations, any practice which the parties have established between themselves, usage and any subsequent conduct of the parties."[128] As this article is linked closely to article 7, which is the focal point of this thesis, article 8 is discussed in detail in chapter 7.

7. Interpretation of the CISG

a. Introductory Comments

To give substance to the CISG an understanding of what the Convention attempts to achieve is important. For that purpose, the Preamble should be restated:

Basically, the CISG is concerned with three aspects: the adoption of uniform rules, a contribution towards the removal of legal barriers in international trade, and the promotion and development of international trade.

The adoption of uniform rules has been achieved. The ratification process introduced harmonized laws into various domestic systems replacing municipal rules. In Australia, the CISG would have replaced in part the Goods Act, the Trade Practices Act and the law on contracts. The CISG promises to take into consideration the variances and differences encountered through different social, economic and legal systems, which would as a result advance different solutions to potentially the same problems. With such a system in place, the legal barriers to international trade would be removed reducing or at least managing cross border legal risks faced by Australian firms.

A successful application of any law is influenced by the way it is interpreted. In the case of the CISG, the interpretation must be an "international" one. As seen above, such a task seems difficult as the judiciary traditionally base their decisions on a conceptual basis known to them namely the domestic system. Conventions in this sense are no different from domestic laws.

The amended Hague Rules (Carriage of Goods by Sea), for example, have not included an article specifically devoted to the interpretation of its articles. In that sense an interpretation can be based on a methodology relying on municipal practices. By contrast, the CISG has, however, introduced an article which specifically dictates the interpretative concepts required to apply the CISG. Article 7 states:

Given that article 7 is written clearly, and assuming that courts and tribunals, as well as the legal profession and their clients understand it, there is great expectation that uniform laws will govern international trade. However if the interpretation of the CISG is not understood, recourse to domestic law is inevitable. The question therefore is whether article 7 is clear and unambiguous. If the interpretative article is unclear the mandate of the CISG as a uniform international sales law will never be achieved. Karollus certainly thinks that this is unlikely when he notes that the CISG "is well on the way to becoming the Magna Carta of international trade."[130]

Experience with domestic legislation has shown that words are never precise. To give legislation life and meaning, interpretation is essential. Domestic as well as international legislation share problems which are common to both. International legislation has to address additional unique concerns. To successfully interpret legislation, two problems need to be analyzed. First, the policy of interpretation needs to be understood; and secondly, a method of interpretation must be devised to implement the policy.

The first step is to recognize the goals or policy of interpretation. The CISG has recognized this requirement, which is addressed in article 7(1). The article sets the goal or policy of interpretation. In its broadest sense, the policy requires a uniform application of the Convention.

Before the method of interpretation is determined to satisfy the mandate of the CISG, some of the differences between domestic and international legislation and in particular the CISG are examined.

At the outset, we need to be aware that interpretation is not only a problem of the application or choice of words, but also of the application of concepts or principles which are contained in the legislation. Any interpretative tool needs to make provision to interpret words within a conceptual framework.

b. Multilingual Implications

Domestic legislation needs to consider the choice and clarity of words. International legislation, in addition, needs to consider the effects of translation on the meaning of words as most conventions unfortunately are not only written in one language alone. This gives rise to a new method of interpretation when meaning must be given to a word, which is unclear. A translation of the same word or article in different languages may be needed to find a possible answer to the original question.

Article 3(1) can be used to illustrate this. The particular issue is that the buyer can supply a "substantial" part of material. What is the meaning of substantial? The German and French translations of the CISG use the words "Wesentlich," and "un part essentielle. " "Wesentlich" does not match exactly the French or English translation. It corresponds better with "un part essentielle" rather than the English "substantial." It is not debated that substantial or essential can be used to translate "Wesentlich". However several German legislations using "Wesentlich" use the translation of "essential."[131] Hence to look at "substantial" as found in article 3(1) the word essential must be kept in mind and may help to overcome any ambiguities, which may otherwise arise.

There is another factor, which is important namely which is the authentic language of the text? Texts, which are not authentic cannot be used authoritatively and must be given only persuasive status. The authentic texts of the CISG are Arabic, Chinese, English, French, Russian and Spanish. All other languages are not authentic as they are official translations only. Considering that all meetings in Vienna were conducted in English or French, these languages should be given priority over other authentic texts as they best represent the intentions of the representatives at the 1980 Diplomatic Conference.[132] Hence looking at the above comparison between the English, French and German translations, the German would carry less weight than the other two. It must also be noted that even between the authentic translations of the CISG solutions to unclear meanings of words is difficult especially if differences need to be understood, which are of a conceptual nature.

The translation of concepts from one language into another one is difficult. Kastely states:

Yet even within one language difficulties may arise. The German text is not only the translation between English and German but also the result of a joint drafting of Austria, Germany, the former German Democratic Republic and Switzerland. As such it could be argued that within the German speaking group of nations a translation was achieved which takes into consideration the "heritage of legal doctrine". However, equally well, one may argue that:

Rabel anticipated such a problem in translation and suggested that the translation of difficult passages should not be according to legislative language (Gesetzessprache) but according to legal language (Rechstsprache).[135]

The conclusion, which can be drawn, is that words to be included into a unified law have to be chosen very carefully. Only through a careful choice of words can problems be minimized, which otherwise may eventuate in translations not only of the word but also of the concept which are expressed by the words in question.

c. Concept of Choice of Words

The approach to the choice of words as required above also fits into the policy of uniform interpretation as it views words not in a national but international context. It also overcomes the problem Honnold describes as literary "deconstruction."[136]

Such considerations make the choice of words harder and require a special solution. The drafters of the CISG sought to solve this particular problem by consciously "root[ing] out words with domestic legal connotations in favor of non-legal earthy words to refer to physical acts."[137] An example is the passing of risk.[138] In domestic legislation whenever passing of risk is examined, words are used such as "title or property" passes to the buyer or seller. The CISG on the other hand uses the words "[goods] handed over"[139] or "[goods] taken over".[140] Such phraseology helps in the determination of the meaning of words or articles. The CISG repeats in essence what one of the great judges namely Lord Mansfield C.J. in 1761 observed:

The trend to use "non-legal earthy words" is not only limited to international Conventions. Within domestic law such moves are becoming well established. The Income Tax Assessment Act 1997 (Cth), as one of its aims, is rewriting the Income Tax Assessment Act (1936 (Cth). The purpose is "[to] rewrite the law with a better structure and [therefore] make it easier to understand."[142]

Keeping the above in mind, it is argued that legislative interpretation requires an approach different from the one traditionally adopted by the legal profession. Indeed, to appreciate the full meaning of words and to resolve many ambiguities they must be read within the context of the CISG.[143] In other words the meaning must be elicited within the "Four Corners" of the Convention.

To illustrate this a question could be asked, namely how does the CISG define goods? Article 2 does not describe positively the meaning of goods. It states and lists exclusions. At first glance, the solution to the definition of goods is everything not excluded in article 2. This is not very satisfactory but by further reading of the CISG a more narrowly defined description can be elicited. Article 35 mentions goods as required by the contract and "which are contained or packaged" in the manner required by the contract.[144] Article 46(3) requires that, if goods do not conform to the contract, the seller can remedy the lack of conformity by "repair".[145] Articles 85 to 88 regulate the preservation of goods and article 87 specifically mentions "warehousing" of goods. What conclusions can be drawn from this? If there is uncertainty as to whether a particular item can be classified as goods, a court can ask additional questions such as whether the item in question is movable, tangible property that can be packaged, repaired if necessary and warehoused if required.

8. Impact of Domestic Law

a. Introductory Comments

Whenever conceptual issues are examined it should be remembered that the CISG like any other international convention contains provisions which result from negotiations "amongst wildly different interests over long time periods [and] with narrow windows of political opportunity."[146]

It is important to note that the CISG from the very beginning was never intended to be an exhaustive source of law on the international sale of goods. As an important example, the legislation itself states that it "governs only the formation of the contract of sale and the rights and obligations of the seller and the buyer arising from such a contract."[147] Rights of third parties are not included, statute of limitations or prescription issues are not included, etc. Except as otherwise expressly provided, the question of validity is specifically excluded. It follows that the CISG cannot govern without domestic or other law. The problem with interpretation is not only restricted to what is in the legislation but also what is excluded from it. The view, which needs careful examination, is whether the exclusions through interpretation are made as narrow as possible or as wide as possible. In other words to what extent is domestic law applicable?

Some of these questions are answered by the Convention itself in the interpretative article 7. However, the article also introduces new problems of a conceptual as well as interpretative nature and at the outset it should be acknowledged that other factors and competing values such as maturity of a domestic economic and political system may intrude.

As an example it is useful to compare the changes to the contract law of China, which have been implemented on October 1, 1999. Most of China's regulations possess unique characteristics. Two features will be looked at briefly to illustrate the above point.

First, Chinese judges or arbitrators tend to take a global view of the resolution of disputes rather than to confine themselves to strictly legal issues. Harmony of outcome is as important as the application of the law. A good example can be found in a judgment where the arbitrator had to address the question of loss of profit. He found that once the goods in question could be purchased elsewhere and the price had fallen no award of loss of profit was appropriate.[148]

Secondly - and most importantly for our purpose - is the fact that these regulations, which should be considered private law, contain elements of public law. It is this particular public law aspect, which makes any interpretation and dispute resolution uncertain. Even if an article of the CISG were clearly applicable, it could be negated by a higher authority on the grounds that the contract as a whole infringes on the public interest pursuant to article 4 of the Foreign Economic Contract Law (FECL).[149] How is that possible when the CISG prevails? It is of no consequence in China that the CISG in its articles declares that it will prevail over domestic law. As stated above, within the Chinese legal system, policy and law are closely interrelated. Policy would dictate that any private matter which infringes on whatever is deemed to be of public interest must be set aside. The law has therefore been framed accordingly as seen in article 4 of FECL. It is precisely for this reason that the CISG does not prevail over but modifies or replaces Chinese law.[150] The theoretical picture that the CISG should prevail is contained in the laws and regulations of the People's Republic of China but many Western firms have learned that, contrary to their lawyer's opinions, a different picture can emerge. Since October 1, 1999 the new Contract Law of China on the surface has abolished State interference as expressed in article 4 of FECL. It brought the contract law in line with Western thinking. Whether the judiciary will ignore the State's interest and interpret the black letter law or will follow subtle pressure of the political system and preserve a de facto State interest remains to be seen. The main point to note is the problem of creating a conceptual framework, which is understood and implemented by all Contracting States.

The CISG unlike other conventions did not vest interpretational authority with an international tribunal, nor has any editorial board been created to amend the CISG as the need arises.[151] Two examples to the contrary can be quoted. First, in the United States an editorial board meets regularly with a view to amend, if necessary, the Uniform Commercial Code (UCC). Secondly the European Court of Justice interprets the Brussels Convention on Recognition and Enforcement of Judgments and its decisions are binding on all member states of the EC. The obvious advantage not to have similar practices in place is the fact that it has a bearing on the sovereignty of contracting States. The alternative would have been politically unacceptable. It is doubtful if many States would have accepted the CISG if a court like the European Court of Justice would have influenced domestic law of contracting States with its decisions. A very good example should be noted. In 1992 Switzerland had the opportunity to join the European Economic Zone (EWR), which would have been the first step in joining the EC.[152] The Swiss people rejected the initiative and in 1999 the seven bilateral agreements with the EC were accepted by parliament and ratified by referendum in 2000. The main reason for the 1992 rejection was the fact that the contract with the EWR contained an automatic right to changes in law. If the EC changes legal rules, these changes apply automatically to all member states.[153] Even in retrospect it is still recognized that a loss of sovereign self-determination was unacceptable, as Switzerland would have been subjected to a rule from Brussels.[154] The 2000 acceptance was heavily influenced by the fact that Switzerland has no obligation to adjust or accept EU legal changes.[155] The loss of sovereignty influenced Switzerland to reject such a partnership and would do so again. By analogy the same arguments would be advanced by many States if the CISG would have interpretational authority vested in an international tribunal.

Instead, as far as the CISG is concerned, such tasks have been left to domestic courts. Any decisions, which interpret the CISG wrongly, cannot be amended on an international level. However international legal scholars, who are quick to point out mistakes, scrutinize all decisions by courts and tribunals, which as a result should influence the future thinking of courts and tribunals. It can be suggested that the CISG therefore lacks a mechanism of change and that there could be the danger of stagnation. Such a view is to be rejected.

Articles 6, 8 and 9 allow contractual variations or inclusions of customary practices. The end result will be a uniform sales law, which can be adapted to individual needs, and therefore it will adapt to a changing environment by taking into consideration uniformity as well as the ability to encompass individual needs. By analogy the Partnership Act (1958) Vic can be quoted. It clearly is a framework legislation and specifically allows contractual variations to override the basic legislation thus creating "personalized" uniformity.

b. Conclusion

The CISG has established itself as the benchmark for the unification of commercial law and will indicate the trend into the next century.[156] UNIDROIT has produced two important restatements modeled on the CISG: first, the Principles of International Commercial Contract Law (PICC); and secondly, the Convention on International Factoring. UNCITRAL currently has produced a draft Convention on Assignment in Receivables Financing. It is not surprising that it is also - where appropriate - modeled on the CISG. Furthermore the Commission on European Contract Law has released the Principles on European Contract law (PECL). The evidence is that the CISG has shown that it is possible to produce acceptable international substantive law despite initial scepticism. For these reasons an understanding of the CISG and its interpretation is of importance. Without a sound knowledge of the CISG real advances in harmonization of international laws would not progress as fast and smoothly as possible. PICC and PECL have recognized and improved on the problems, which would initially emerge with the creation of a unified international law. PICC furthermore is increasingly referred to in arbitral matters and a jurisprudence of decided cases is available.[157]

In the final analysis, it is for domestic courts to interpret the Convention not in the light of their own domestic experience but with the help of scholarly writings and a body of international case law. The next chapter poses the question, what approach to interpretation is best suited to fit the requirements pursuant to article 7 and also avoid ethnocentric practices of national courts?

CHAPTER 3

ARTICLE 7(1) OF THE CISG - THE INTERPRETIVE MANDATE

Overview

• The aim of this chapter is to introduce article 7, the interpretive provisions of the CISG. In particular the following will be discussed that:

  • Article 7 is the basis for the creation of a common interpretative methodology.

  • The function of a common legal theory on which the CISG relies is contained in article 7.

  • A methodology of autonomous interpretation can be developed which is unique to international Conventions.

  • Fothergill v Monarch Airlines has introduced principles and methods, which are to be used by domestic courts in the interpretation of international instruments in preference to domestic principles.

  • The interpretative articles in the Vienna Convention on the Law of Treaties have further influenced domestic courts in recognizing that texts of Conventions cannot be fully understood using a domestic interpretative methodology. There is a need to look beyond municipal borders for solutions.

  • Travaux préparatoires are documents frozen in time and are only to be treated as valuable historical insight into the political and social interplay of members of a group.

  • The Convention cannot be read "through the lenses of domestic law" but must be interpreted autonomously within its "Four Corners."

  • International case law is of importance as it is the only expression of an interpretation of the CISG by domestic courts and hence will indicate the level of understanding of the application of the CISG.

A search for a description of article 7, which would attract the least disagreement, one could not go past statements like: "This rule is one of the most discussed rules of the CISG"[158] or, "this article is arguably the single most important provision in ensuring the future success of the Convention."[159] Article 7 has attracted attention beyond the CISG. It has been included fully or partially in several other international Conventions and model laws. The UNCITRAL Draft Convention on Assignment in Receivables Financing has included article 7 fully.

The UNIDROIT Convention on International Factoring used article 7 but provided that "regard is to be had to its object and purpose as set forth in the preamble."[160] Such an inclusion builds on article 7 by stressing that the method of interpretation needs to be focused on the "Four Corners" of the Convention. The Draft UNIDROIT Convention on International Interest in Mobile Equipment [161] follows the combined approach taken by article 7.[162]

The UNIDROIT Principles of International Commercial Contracts (PICC) and the Principles of European Contract Law (PECL) both included sections on interpretation, which relied heavily on article 7 of the CISG. The significance of this development is twofold. First, the CISG has influenced the drafting of interpretational articles in Conventions and restatements of varying subject matters. This suggests that the inclusion of article 7 ought to be regarded as a general principle of international law. Secondly, it is argued that there is common intention to create a methodology for an interpretation and supplementation contained in article 7, which has created a core consensus in drafting future Conventions or model laws.

Article 7 of the CISG has been recognized as the leading exponent in autonomous interpretation on which all subsequent attempts will be modeled. It has been shown that the importance of article 7 has reached beyond the CISG. As an example German domestic law states that if article 7 is not taken into consideration it will give rise to an appeal on "material" grounds.[163] Article 550 of the Zivile Prozess Ordnung (ZPO) stipulates that a breach of the CISG must be resolved through the application of article 7.[164]

It is therefore imperative that article 7 and its jurisprudence is understood. This thesis demonstrates that article 7 is the basis for a common interpretative practice, which in turn will take on the function of a common legal theory on which the CISG is based.

2. Methodology of Interpretation

a. General Remarks

Article 7 is the key to understanding the CISG, as without fully understanding article 7, the application of the CISG cannot produce consistency and hence achieve predictability.

It is recognized that there has been a divergence of opinion in interpreting international Conventions. In Australia it has been argued that Conventions are not self-executing and are included within our domestic law. As a result, it has been contended that the interpretation and application of that law must occur according to domestic techniques and aided by the body of domestic law. Others expressed a contrary view and applied the "autonomous" model that is:

At first glance, using methods founded on a domestic system will contribute towards a predictable and uniform outcome but only within a particular domestic system or at best within a trade bloc. However such an outcome is not attainable between different domestic systems. One only needs to compare the civil law and common law systems to appreciate that differences will occur. The methodology of interpretation in civil law countries is based on the understanding that the guiding principle must be found in the design and structure of the legal text.[166] Common law lawyers are skilled at explaining and applying the common law but these skills are not matched by comparable skills in the interpretation of legal text.[167] Such differences in the approach to and the methodology of interpretation arguably have a high probability of achieving diverse outcomes.

The logical product of failure to achieve uniformity is a search for the best solution resulting in "forum shopping." The variances in interpretation between different domestic systems would need to be significant in order to warrant additional efforts or expense to choose a forum where a party seeks a tactical advantage. At first glance, the occurrence of such variances seem to be remote especially as the difference can only be in the interpretation and not in the substantive law. However such a difference is not impossible. As already indicated in chapter one, two Italian cases interpreting article 1 came to the conclusion that a term "subject to Italian Law" is an implied exclusion of the CISG contrary to the view in other countries.[168] The conclusion is that international Conventions and specifically the CISG require that "regard is to be had to its international character" therefore rejecting the application of domestic concepts.

As mentioned briefly in the last chapter, the text of the CISG contains "unique supranational collective terms formed out of compromises between State delegates based on several systems of law."[169] The effect of such considerations resulted in the choice of words, which are not based on domestic technical usage. The conclusion is that these words are unsuitable for an interpretative mechanism based on a literal meaning. If the words used in the CISG are a compromise solution of various systems of law it follows that techniques based on municipal systems cannot be used and must be replaced by an autonomous technique.

To devise a methodology, which will achieve the aim of the CISG as stated in the preamble, article 7 and the underlying policy must be understood and applied. It ought to be restated that all uniform laws encounter a structural difficulty of delineation between the application of the international unified law and municipal law. As Magnus already observed in 1989, a Convention like the CISG cannot differentiate between its laws and domestic law in all cases, otherwise a Convention becomes too unwieldy and complicated.[170] Hence article 7 in its solution devised two broad aims. First, article 7(1) sets the policy to interpret the rules within the Convention. Secondly, article 7(2) prescribes the policy to fill gaps and hence describes the boundary between the CISG and domestic law. However article 7 does not prescribe the method used to achieve the policy.

Magnus suggested a simple three-tiered approach to interpretation.[171] First, it needs to be determined whether the subject matter is covered by the Convention, or whether it is expressly excluded. Validity in article 4 is an example, which also needs to be defined through interpretative methods. Secondly, is the matter covered in the CISG but not expressly stated? He suggests the term "secretly regulated" (Heimlich mitgeregelt)[172] which denotes the application of general principles. Should no general principle be discoverable, then as a third step the solution must lie within the application of domestic law. This approach in reality is not a method but rather a mechanical solution to the policy set out in article 7.

However, it is clear from the above that due to the policy requirement, methods based on municipal dogmas must be rejected. If municipal interpretative methods cannot be used, how do we interpret the CISG? The obvious solution would be to use a supranational or autonomous method of interpretation. Such an autonomous method of interpretation was developed in the European Community Convention on the Recognition and Enforcement of Judgments in Civil and Commercial Matters (Brussels Convention/EuGVu).[173] However the autonomous concepts were developed by the Court of Justice and subsequently applied in the individual Member States.[174] However, as indicated earlier this method is politically unacceptable to interpret the CISG autonomously.

b. Autonomous Interpretation and the Interpretation Ladder

An autonomous method of interpretation does not suggest that a completely new method is devised but it indicates that a novel approach to interpretation is being advocated. The novel approach should combine the traditional grammatical, systematic and historical method of interpretation, which is supplemented by a comparative method and is referred to as the "interpretation ladder".[175] The question is whether an autonomous interpretation is merely a label for the uniform interpretation of the CISG separate from domestic law or, as Diedrich suggests a novel approach to interpretation.

There has been an argument put forward that the autonomous interpretation is not an interpretation in addition to other methods such as a systematic or historical method.

Roth goes further by arguing that:

The argument in a philosophical sense is that a distinction ought to be made between autonomous interpretation and autonomous meaning.[178] However, such a distinction although constituting an interesting scholarly endeavor is fraught with danger. What textual methods of interpretation do we adopt in order to arrive at an autonomous meaning of the text within the CISG? Gebauer did not develop the distinction of "autonomous" in a consistent manner. He argued that: "national solutions of a legal problem can serve as an argument in the context of uniform law."[179] Such a statement is not wrong, the socialization process of national solutions should serve as an aid to interpretation specially as universal principles have been included in the CISG. However as soon as such an argument is put forward the possibility of the autonomous meaning of conventional text is no longer possible. In a true sense, concepts which are found in various systems, are imported into the interpretative process therefore making an autonomous meaning impossible. Gebauer also draws attention to the distinction of uniform law and uniform interpretation. Again, such a distinction is not of practical use as it only states the obvious. The CISG is a uniform law, which needs to be interpreted uniformly pursuant to article 7(1). However the problem is that an autonomous interpretation can be reached without achieving uniformity. Gebauer argues against the binding character of foreign precedents.[180] He notes that:

Such a statement indicates that Gebauer in his endeavor to define and explain "autonomous" lost or sacrificed the important concept of uniformity. If courts were to seek better and different solutions, then one could argue that the solution arrived at in the first instance is either flawed or allowed to have a variation leading to a lack of uniformity. If a decision has to be made whether to interpret the CISG autonomously or uniformly then there can be no argument. Article 7(1) clearly prescribes the mandate of uniformity.

An autonomous interpretation must always be subordinate to a uniform interpretation. If this argument is drawn to its logical conclusion, a court or tribunal is obliged to consult academic writing as well as foreign case law otherwise the possibility of a breach of article 7(1) is real.[182] It can be argued that a breach of article 7(1) can give rise to an appeal on a point of law. It is interesting to speculate whether an appeal court in Australia would allow such an appeal to proceed.

Not only is the Convention itself a compromise between different systems, but also the methodology of interpretation must be based on compromise. The problem, however, is that not all methods of interpretation are suitable to be included into the "interpretation ladder." Because the words used in the CISG are not "technical" in nature, the method of interpretation cannot be "technical" in nature either. Furthermore, the literal approach used in the common law system must also be viewed with caution. Even within the common law system the literal approach to interpretation is beyond being questioned.[183]

The CISG, and in particular article 7, do not prescribe a method of interpretation. It follows that due to the policy requirement in article 7, namely the international character of the CISG, a purely municipal method of interpretation is rejected. The "interpretation ladder" consists of elements found in various systems of law. The question then is how do we choose the various elements required to achieve an autonomous method of interpretation? This question is not settled and furthermore it is not the purpose of this thesis to attempt to reach an answer based on a doctrinal methodology. It is sufficient to appreciate that whatever "mix" or ratio Conventionis is advocated it must reflect stability and predictability, which is founded on the principles revealed in the preamble of the CISG. In other words the CISG must be interpreted within its Four Corners free from domestic law principles.

c. Clear and Unclear Terms - a Distinction in Terminology

A distinction can be drawn between clear, unambiguous terms and "unclear" terms of a statute. As soon as a distinction takes place the interpretative process has started. Two problems might be noted. First, what is considered to be a clear and unambiguous term must be determined according to the policy described in article 7, that is, without recourse to domestic law. Secondly, the temptation to interpret clear and unambiguous terms must be resisted. Parliamentary sovereignty demands that courts are subordinate to the will of parliament, which is enshrined in law.[184] As far as "unclear" terms are concerned, a methodology based on the policy of article 7 must be applied to give meaning to these terms.

It has been argued that international uniform law has its origin neither substantially nor methodically in the common law system but follows the civil law in structure.[185] An uncritical acceptance of such a view could lead to the conclusion that the mechanism of interpretation based on common law must be rejected as inappropriate or at least must be viewed with caution.

However, it has been established that the mechanism of interpretation is based on the principles contained in the article 7 and, like the CISG, the "interpretation ladder" consists of elements found in various legal systems. Unless the common law is excluded from the "various legal systems" the above assertion is correct. However, if the rules of the CISG are studied, one can see that several provisions such as article 35 track domestic common law rules. Furthermore, it would also be inconceivable that the representatives of the Common Law States would have allowed an international law to be constructed which is devoid of any influences of the common law. How then are we to understand that "international uniform law has its origin neither substantially nor methodically in the common law system but follows, in structure, the civil law?"[186] It appears that the argument can only be viewed as far as the "origin" of international uniform law is concerned. The origins can be traced back to the work by Rabel and Kötz. The language and interpretation as expressed in article 7 is closer related to the civil law than the common law. Methodologically, civil law has a greater influence on the CISG than common law. However, the common law has substantially influenced the content of provisions to a great extent. In sum, common law systems still contribute to a lesser degree than civil law systems to the mechanism of interpretation used in defining the CISG.

Considering that "officially clear and unambiguous terms" as well as "unclear terms" form the unique rules based on compromise between various legal systems, a clear grasp of the mandate of article 7 is essential.

It is important that domestic law and its methods of applying international Conventions are also understood. There are two important reasons to engage in such an investigation. First, it will explain how domestic law deals with the interpretation of international Conventions in that it explains the relationship between domestic law and international Conventions. Secondly, it will give an indication how domestic methods of interpretation can be used in defining or constructing an "interpretation ladder".

3. Domestic Law and International Conventions

The CISG is not the first international convention which had to be applied by domestic courts. It can be assumed that domestic systems have laws in place which assist in the interpretation of international conventions. The beginning therefore must be an investigation of the jurisprudence of domestic law in the interpretation of international conventions. Whatever the outcome of this investigation, the results should not be used automatically to interpret the CISG. It will provide a level of awareness, which could be of assistance in understanding the mandate of article 7. The purpose of this thesis does not require an in depth discussion but a working knowledge is important as it will highlight differences as well as similarities between the interpretation of the CISG pursuant to article 7 and other conventions where the interpretation is left to domestic techniques and law.

a. Fothergill v. Monarch Airlines

An investigation begins with Fothergill v. Monarch Airlines [187] (Fothergill). The House of Lords decision dealt with the interpretation of the Warsaw Convention on the Liability of Air Carriers. This case is important as it is the foundation on which Australian courts can base their interpretation of international conventions and it is of sufficient persuasive authority that it cannot be ignored. To appreciate the significance of Fothergill, reference must be made to its passage through the courts.

The facts are simple. The plaintiff flew from Rome to Luton. Pursuant to article 1 of the Warsaw Convention, the carriage was an "international carriage". The baggage check contained a clause stating: "In case of damage to baggage ... complaint must be made in writing to the carrier forthwith after discovery of the damage and, at the latest, within seven days from receipt."[188] When the plaintiff collected his luggage he discovered that the side seam of his case was completely torn away. He reported the damage, which was duly noted. When Mr. Fothergill opened the suitcase at home he discovered the loss of items and notified his insurance company. Monarch Airlines received notice more than seven days later. The airline admitted liability in relation to the damage to the suitcase but rejected liability in relation to the lost items. They contended that the loss of the articles constituted "damage" pursuant to article 26(2) of the Convention, which states:

The airline supported their contention that the word damage in article 26(2) also includes loss of contents by referring to the published minutes of the negotiations of the Hague Protocol in 1955.[190]

The Court of Appeal rejected the airline's argument affirming the decision reached by the primary judge, Kerr J. [191] On appeal, the House of Lords reversed the decision.

(i) Court of Appeal Decision

The Court of Appeal [192] did not reach a unanimous decision, Lord Denning MR dissenting. The question all judges addressed was the influence of travaux préparatoires in defining "damage" as well as the French text, which was to prevail in case of inconsistency.[193] The court of appeal acknowledged that the word damage in article 26(a) is ambiguous and the question therefore was what tools of interpretation are to be applied to come to a conclusion. Browne LJ. noted the views of Viscount Dilhorne who said:

Browne LJ. did acknowledge that he must have regard to the above statement but he went on to say that he agreed with Kerr J who said:

It is difficult to see the connection between the two statements. It could be argued that Browne LJ. missed the point as the definition of "damage" is not a question of "ordinary English" but one of international understanding. Such an understanding is the underpinning philosophical principles of international interpretation of conventions. In order to elicit the "true meaning" the literal approach to interpretation should be dismissed. Lord Denning MR. showed a much greater insight when he noted that:

The important fact Lord Denning MR. advocates is that the literal approach must give way to a purposive one. English law cannot supply the answer when unclear words need to be given a meaning. The tools at the court's disposition were the travaux préparatoires and the meaning of damage in the French text, which will prevail in the case of inconsistencies. The travaux préparatoires can be used:

The minutes of the Hague Conference of 1955 do shed light on the meaning of damage in article 26(2). Mr. Loaeza (Mexico) who was the chairman of the drafting committee said that it was not necessary to insert the words "or partial loss" after the word "damage" as it was understood that damage included partial loss.[198] Despite the fact that the word "damage" is ambiguous, the evidence is sufficient to include the words "or partial loss" into the interpretation of article 26(2).

Both Browne LJ and Lane LJ dismissed the use of travaux préparatoires but for different reasons. Lane LJ contended that the word "damage" is not ambiguous and hence need not to be interpreted. Furthermore he noted that such an inquiry would be unfair on passengers or consignor.[199] He justified his remarks by stating that:

Browne LJ relied on the fact that there is no authority justifying a departure from the established principles applicable to the construction of purely English statutes.[201] He extended this view to international conventions as in his view only dicta suggested otherwise and furthermore the minutes were never published in England.[202] Arguably, the conclusion can be reached that both judges are of the opinion that it is only for the court to decide what words in a statute mean. However such a view is in conflict with their concern that the public should have access to the travaux préparatoires before they are taken into consideration by the court.

Of interest is also the fact that Lord Diplock undertook to consult the views of foreign text writers and decisions and came to the conclusion that "judicial and academic opinion clearly is in favor of interpreting "damage" as including "partial loss."[203] However, Browne LJ dismissively observed that the opinions of the text book writers "who may be very eminent but about whose status and qualification we have no information" did not contribute to a "corpus of law."[204]

(ii) House of Lords Decision

Considering the facts and the decision of the Court of Appeal the ruling by the House of Lords could be termed as being "revolutionary". It was noted that the semantic approach to statutory construction is being replaced by "an increasing willingness to give a purposive construction to the act."[205] A departure from traditional legal methods of interpretation is observed. These methods are best described by Lord Simonds LC.

In Fothergill, the court concluded that the literal approach had to be rejected as it conflicts with the purpose of the Convention. Lord Scarman commented that if the literal construction had been legitimate he would have used it. However, it does not make sense as it does not meet the commercial purpose of the Convention.[207] It is apparent that the House of Lords indicated a shift in interpretation. As far as international conventions are concerned the plain meaning approach was rejected. Lord Diplock stated:

He went on to say that:

Fothergill should be viewed as a watershed case if we compare the above views of Lord Diplock with his previous statements in Black-Clawson International Ltd v Papierwerke Waldhof-Aschaffenburg AG [210] where he said:

Attention was also drawn to the interpretative rules of the Vienna Convention specially article 31 and 32 despite the fact that the Vienna Convention did not govern this case. (It came into force subsequent to Fothergill). It was pointed out that English courts would be under a constitutional obligation to consider the implications of the Vienna Convention on Conventions concluded after the Vienna Convention came into effect.[212]

Of significance was the opinion of the majority that consideration must be given to travaux préparatoires, foreign case law and scholarly writing. Again the court pointed to differences between interpretations of domestic legislation versus the interpretations of Conventions. It was explained that the above aids would not be legitimate to use in the case of interpretation of domestic legislation.[213] But to deny domestic courts the use of the above aids would be "a damaging blow to the unification of the rules which was the object of signing and then enacting the Convention."[214] However aids to interpretation are only to be used after it is established that the terms of the Convention do not solve the problem. This is because ambiguities or doubts persist.

The court pointed to the shortcomings of the aids of interpretation and concluded that travaux préparatoires must be carefully chosen so they do not represent the views of a few. A parallel to this is the treatment of parliamentary debates. A speech of a member of parliament does not necessarily reflect the future outcome as expressed in the legislation. However the collective arguments may shed some light as to the problems which were debated and can be used as persuasive argument in a way no different from the submissions of counsel in court. The court also recognized the problems associated with foreign judgments. Care and attention must be taken to look only at authoritative statements, that is decisions from superior courts. The reporting is not always accurate and there is difficulty in obtaining these judgments, which are sometimes only obtainable in summary form. However "our courts will have to develop their jurisprudence in company with the courts of other countries from case to case, a course of action by no means unfamiliar to common law judges."[215]

Careful attention was also given to scholarly writing. Lord Diplock was cautious when he said:

Lord Scarman sums it all up when he states:

There are important conclusions, which can be drawn from the Fothergill case. First, tribunals and courts are strongly persuaded to look for a solution within the "Four Corners" of the Convention. Secondly, the Fothergill case also established that no recourse should be taken to principles and methods of interpretation, which have been developed within domestic law. Thirdly, if the meaning of the words as found in the Convention are unclear, recourse can be taken to aids of interpretation such as travaux préparatoires, scholarly writings and foreign case law. Fourthly, the plain meaning or literal approach was rejected in favor of looking at the words within the context or purpose of the Convention.

One observation must be added. In the Court of Appeal, Lord Dennings MR. allowed the cross-appeal on the ground that Mr. Fothergill's initial complaint satisfied the requirements of article 26(2). He justified his decision on a presumed conversation between Mr. Fothergill and the lady at the reception where the complaint was made. He noted that:

Arguably the conclusion of Lord Denning would be attributed today to the principle of good faith. There appeared to be, at least in the mind of Lord Denning, an obligation on the part of Monarch Airlines to fulfill their part of the obligations pursuant to the Warsaw Convention in good faith. The fact that the lady at reception did not investigate further possible hidden damages leads to the conclusion that there was a breach of good faith.

Fothergill might usefully be compared with a recent United States case namely Chan v. Korean Air Lines Ltd.[219] The contrast is remarkable. Justice Antonin Scalia who had the ability to consult Fothergill chose not to do so. He noted:

It indicates that Justice Scalia did not intend to develop the treaty within an international setting. Instead he used a textualism to remain within a framework, which Fothergill clearly rejected. It is remarkable that The Amiable Isabella [221] had to be quoted in order to basically retreat to the application of municipal law to solve an unsettled question. It must be noted that supporters of a "dynamic" interpretation recognize an active rather than static judicial role in ensuring the vitality of statutes.[222]

b. The Vienna Convention on the Law of Treaties

The Vienna Convention [223] 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. However, as the Vienna Convention has its own interpretative articles namely 31 and 32, it is important to investigate how Australian courts interpret jurisprudence where articles 31 and 32 are applicable. It should give an i