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Reproduced with permission from 29 American Journal of Comparative Law (1981) 513-522

Area of Operation of the International Sales Conventions

László Réczei [*]

The 1964 Hague Convention relating to a Uniform Law on the International Sale of Goods (ULIS) has been ratified by nine States,[1] but by no socialist and only one developing country. From the very first the United Nations Commission on International Trade Law (UNCITRAL) strove to elaborate an international convention acceptable not only to the highly industrialized capitalist countries but to the developing and socialist countries as well. As a result of these efforts a diplomatic conference in Vienna, between 10 March and 11 April 1980, adopted a text (VIENNA TEXT) and opened it for signature.[2]

The absence of uniform regulation of international trade has always been considered an obstacle to its development. In establishing UNCITRAL, the United Nations sought to eliminate this impediment. Should the VIENNA TEXT come into operation, international economic circles will have at their disposal two Conventions competing for universal application.[page 513]

The object of this Comment is not to compare the substantive merits of ULIS and the VIENNA TEXT, but to examine their respective fields of application.

ULIS

Art. 1 of ULIS [3] makes the application of the uniform law dependent on the presence of subjective and objective conditions. The subjective condition demands that the places of business of the Contracting parties be in different countries, regardless of the nationality of the parties and whether these countries are signatories. Additionally, any of three objective conditions suffices: (1) carriage of goods from one country to another; (2) offer and acceptance effected in the territories of different countries; (3) goods delivered to a country other than the one where offer and acceptance were effected.

Application via Conflicts Rules

Earlier drafts, prior to 1964, would have made the uniform law applicable only when the conflicts rules of the forum selected the law of a signatory State. This formula would have operated as follows: the forum settles the conflict in conformity with its own municipal conflicts law or with rules based upon an international convention; if these select the law of a country signatory to the Convention, recourse would be had to ULIS rather than to its general sales law. Next arises a question of "qualification": was the transaction a sales contract within the purview of ULIS? Naturally this would be decided by reference to ULIS (secondary qualification): if affirmative, the dispute could then be settled on the merits.

Application without Conflicts Rules

The Hague Conference of 1964 thought that this solution was highly complex and, accepting the recommendation of the Federal Republic of Germany, decided that ULIS should be applied without recourse to conflicts rules. The German delegation proposed that the courts of Contracting States should apply ULIS to all international sales, without more. This proposal was however supplemented by a compromise, viz. the permissible reservation to Art. III by which a Contracting country need apply ULIS only to deals with merchants whose places of business are situated in other Contracting States.[4]

Accordingly, the application of ULIS became unconditional, and [page 514] Art. II categorically precluded recourse to the rules of private international law once ULIS was applied. Since at that time a number of States had already undertaken in conventions to apply the law governing international contracts of sale in conformity with uniform Conflicts rules,[5] and declined to withdraw from these conventions, the reservation in Art. IV entered ULIS as a necessary compromise.[6]

Hence the "uniformity" of the uniform law was undermined at the very outset by allowing recourse to the reservations in Art. II, III and IV. The acceding state could, therefore, in a manner departing from the wording of the Convention, determine when it regarded theother state as "different" (Art. II), make the application of ULIS dependent on conflicts rules (Art. IV), and narrow the sphere of application by applying the uniform law only in respect of another Contracting country (Art. III).

Open Door to the Non-Acceding Countries

The German recommendation met the demand for universality and would have advanced the spread of ULIS. The reservations aside, ULIS is part and parcel of the municipal law of the judge, who can apply it even when the country of neither Contracting party has ratified the Convention and even when the forum has no other connection with the transactions.[7]

This is a novel "legal effect" in the law of international conventions. According to the dominant opinion a country can only apply a convention it has ratified to another such country. A foreign convention cannot be forced upon a non-acceding country, nor can its benefits be conferred on a non-signatory. But according to ULIS this difficulty disappears when the acceding country incorporates ULIS into its own domestic law or promulgates it as such (Art. II).[8] The [page 515] misgiving that ULIS is applicable to merchants of countries which have not ratified the Convention does not concern the states that have ratified it. They have acceded to the Convention precisely because they want to apply it to themselves and to others.[9] If merchants of non-acceding countries desire to avoid the application of ULIS, they must avoid the court of an acceding country that waived the reservation in Art. III, i.e. to apply the Convention to another Contracting country only.[10]

Moreover, consider the following case: the Federal Republic of Germany ratified ULIS with the reservation provided in Art. III: the German courts will not therefore apply ULIS to deals between a German merchant and an alien whose country is not signatory to the Convention. Instead they will look to the German conflicts rule. However, if that rule points to the law of a signatory which ratified, without the Art. III reservation, German courts will still, by a round about way, apply ULIS.[11]

Hence ULIS will have to be applied:

1. between two signatory countries;

2. between a signatory and non-signatory when the forum is in the signatory country; [page 516]

3. between two non-signatories if the forum is in the territory of a signatory;

4. if the country of the forum is a non-signatory, yet in conformity with its conflicts law the law of a signatory has to be applied to the sales contract;

5. if, in conformity with Art. IV of the Convention, the parties stipulate the application of ULIS.

However, even in these cases ULIS cannot be applied:

1. between two countries if either of them has made the reservations in Arts. II, IV or V;

2. between a signatory and non-signatory state if the signatory state has made the reservation in Art. III;

3. if the Contracting parties preclude the application of ULIS (Art. III).

This multifariousness calls into doubt the success of ULIS as legislation purporting to regulate international sales under a uniform rule.

The VIENNA TEXT

Much criticism has been vented against the omission in ULIS of a "conflicts" orientation among the conditions of its availability.[12] Indeed, this has even been cited as a reason why the developing countries declined to accede to ULIS; it may also account for the demand by UNCITRAL for revision of ULIS. Yet the concept prevailed again in the conference of 1974 which discussed the wording of the Convention on Limitation.[13]

The VIENNA TEXT (Art. 1) defines the scope of its application as follows: "This Convention applies to contracts of sale of goods between parties whose places of business are in different States:

a. when the States are Contracting States;

b. when the rules of private international law lead to the application of the law of a Contracting State."

Hence, the VIENNA TEXT has taken over the subjective condition of ULIS: the places of business of Contracting parties must be in two different States.

Similarly the VIENNA TEXT retained the expedient that in the mutual relationship between two Contracting States the Convention applied unconditionally rather than being made dependent [page 517] on whether the conflicts rules of the Contracting countries or of either of them "approved" the application of the Convention.

Hence for the VIENNA TEXT it is sufficient for the application of the uniform law that the Contracting parties have their places of business in two different countries ratifying the Convention. By contrast, ULIS demands additionally that any three objective conditions -- delivery of goods beyond the frontier, offer-acceptance across the frontier, close of the deal and performance in two different countries -- be established.

Is the scope of application of the VIENNA TEXT any wider than ULIS as a result of abandoning these conditions? It appears not. No doubt it is the common goal of both instruments to bring about uniform regulation of the international sale of goods. Neither positive defines what a sales contract is,[14] but the three objective conditions of ULIS define which contracts should be regarded as "international". ULIS uses a rule of extreme complexity to define this notion, which is perhaps the least contested question in international judicial practice. Since the subsequent articles of both ULIS and the VIENNA TEXT except certain types of sales contracts from uniform law, any incongruity between the spheres of application of the two instruments should be attributed to these exceptions rather than to their first articles.

Condition (a) of VIENNA's Art. 1 will come into full operation only when the forum is also in either of the Contracting countries. In the court of a non-Contracting country the Convention cannot preclude application of the conflicts law of the forum. Hence the VIENNA TEXT will not come into operation if a lawsuit is instituted in a country whose conflicts rule selects the law of the forum or of another non-Contracting State. This possibility however also obtains, under ULIS. On the other hand, if the forum selects the law of either Contracting party, the court of a non-Contracting country will be deciding in accordance with the VIENNA TEXT. However the forum will be mindful of the rule that a foreign law has to be applied as the judge of the foreign country would apply it.

Another Open Door

Under paragraph (b) of Art. 1, even if the Contracting parties have no place of business in the Contracting country, it suffices that under the conflicts rule of the forum the law of a signatory country becomes applicable. This will, of course, hold only when the subjective condition of Art. 1 has also been met, i.e. the parties' places business are in different countries.

Thus the appetite of the VIENNA TEXT reveals itself as much smaller than that of ULIS. Can the forum stem this appetite? Is it proper that when neither the judge nor the two litigants belong [page 518] to a Contracting country, the case should still be decided under a convention that their countries have never ratified? Or is it acceptable that the forum apply the foreign law just like the foreign court? And what will happen when under the conflicts rule of a signatory state the law of some other state will prevail, as in the case of renvoi? Yet if the forum of the non-Contracting State ignores the renvoi, it would not determine the case as would the judge of the foreign forum. On the other hand, if this forum were to take account of the renvoi it would infringe its own law.

Paragraph (b) of Art. 1 gave rise to protracted disputes and provoked a series of counterproposals. Some delegates would have discarded the whole paragraph; others put forward less ambitious suggestions, but finally the above-quoted text was submitted to the diplomatic conference. Still, on the proposal of the Czechoslovak delegation the conference admitted the following new reservation (Art. 95):

"Any State may declare at the time of the deposit of its instrument of ratification, acceptance, approval or accession that it will not be bound by subparagraph l(b) of Article 1 of this Convention."

Article 95

It follows from the permissive character of trade law that before applying the provisions of the Convention, priority be given to the contract of the parties, to their practices (if any) and to trade usages. Like ULIS, the VIENNA TEXT through its reservations opens a possibility of granting priority to other international conventions or even to municipal statutes, thereby weakening the universal character of the Convention. Reservations contained in Art. 90 [15] would give priority to international conventions, reservations in Art. 94 [16] to international conventions or to municipal statutes, as the case may be.[page 519]

The reservation in Art. 95 is due to a recent development in the legal systems of some socialist countries, which deserves a short explanation. The international trade between socialist countries has been regulated by a jointly elaborated set of rules called General Conditions.[17] This regulation has proved to be successful in practice, and one may assume that in case of accession to the VIENNA TEXT socialist countries will resort to the reservation in Art. 94 (exclusion of the Convention between States having the same or closely related legal rules on matters governed by the Convention). Art. 110 of the General Conditions contains a conflicts rule according to which questions not regulated or not fully regulated by the conditions shall be governed by the substantive law of the seller's country. In most of the socialist states the law of the seller's country is the civil code, the generally applied private law. Thus the internal civil code seems to be, as it were, the supplement to the General Conditions. Two socialist countries however have chosen a differed way. Both of them have promulgated laws concerning foreign trade transactions.[18] Contracts concluded between a Czechoslovak or East German (GDR) company and a foreign merchant are governed by this law.

Consequently the situation in these two countries is different from that in the rest of the socialist states. Take the following example:

In a lawsuit between a Hungarian company and its foreign partner from a non-socialist country, the applicable law is the VIENNA TEXT if

- both countries are Contracting States, or,

- when the rules of private international law (of the forum) lead to the application of the law of a Contracting State (Art. l(b)).

If Hungary is not a party to the Convention and Hungarian law is applicable, this will be the Civil Code which generally regulates civil law relations between citizens and legal entities. If Hungary becomes a party to the Convention, the Civil Code cannot be applied, save under Art. 7 of the VIENNA TEXT.

It must be admitted however that in case Czechoslovakia and the GDR accede to the Convention, their Foreign Trade Codes can only be applied in a limited way. This is because in their relations with socialist countries the General Conditions govern, in relations with other countries the VIENNA TEXT. The first consequence of their accession would be that their Foreign Trade Code, enacted and specialized exactly for foreign transactions, would become inapplicable [page 520] to most contracts for the sale of goods. (The Czechoslovak Code contains 726 articles, one third of them dealing with such contracts.) The Code is inapplicable to internal contracts and ratification of the VIENNA TEXT will exclude its application to international contracts. What is left to these Codes then are contracts other than sales and cases where neither rules nor general principles are to be found for settling the particular dispute.

The reservation under Art. 95 extends the application of international legislation to the extent that it reduces the applicability of the Convention itself. In case of accession by these two States the VIENNA TEXT will apply only if both States, that of the seller and the buyer, are parties to the Convention. If Czechoslovakia or the GDR accedes alone to the Convention and not the State of the other Contracting party, the applicable law will be determined by the conflicts rules of the forum. In case Czechoslovak or GDR law thus becomes applicable their Foreign Trade Code will govern the contract.

It is plausible that Czechoslovakia and the GDR when acceding to the Convention will resort to this reservation, though it greatly reduces the Convention's field of application. In addition, the interpretation and gap-filling rule of Art. 7 provides a good chance of keeping the Codes "alive." The rule reads as follows:

"1. In the interpretation of this Convention, regard is to be had to its international character and to the need to promote uniformity in its application and the observance of good faith in international trade.

"2. Questions concerning matters governed by this Convention which are not expressly settled in it are to be settled in conformity with the general principles on which it is based or, in the absence of such principles, in conformity with the law applicable by virtue of the rules of private international law."

Art. 7 by offering another possibility of recourse to domestic legislation thereby significantly reduces the applicability of the Convention and jeopardizes the main objective of UNCITRAL, uniformity.

Other Limitations

One of the barriers to the application of para. (a) and (b) of Art. 1 is set up by Art. 1(2), according to which either Contracting party must acquire, somehow, knowledge of the fact that the other's place of business is in a foreign country.[19] If an agent of the same country as the first Contracting party closes the deal and fails to disclose his principal in the other country, no recourse can be had to the Convention when the principal's foreign nationality becomes known [page 521] only after making the contract.[20] In other words, if there are no internal signs that would alert the Contracting parties to the "international" character of the transaction, the Convention cannot be applied. By the time of Contracting, parties will have to know that their contract comes within the sphere of the Convention. No similar restriction is contained in ULIS.

Both Conventions appropriately ignore the nationality of the Contracting parties and whether the deal was made in the capacity of merchants or any other capacity.[21] When preparing the UNCITRAL text, only a single counter proposal was submitted, which would have made the Convention applicable where the Contracting parties were nationals of their places of business in different countries.[22] The UNCITRAL session rejected this suggestion. In international economic life nationality is more and more thrust to the background. The process is accelerated by the fact that "merchants" appear as natural persons only on rare occasions; the corporation has taken their place in international economic relations. The VIENNA TEXT in this respect follows ULIS.[23][page 522]


FOOTNOTES

* Professor of Law, Karl Marx University, Budapest. This is an updated extract from a paper delivered at the Colloquium on the UNCITRAL Convention held by the International Association of Legal Science at the Academy of Sciences of the GermanDemocratic Republic, Potsdam-Babelsberg, August 1979.

The bracket phrase page followed by a number is used to identify the page number of the original publication.

1. United Kingdom, San Marino, Belgium, Israel, The Netherlands, Italy, Federal Republic of Germany, Gambia and Luxembourg. The Convention text is reproduced in 13 Am. J. Comp. L. 453 (1964) and Zweigert & Kropholler, IV Source, of Intern'l Uniform Law E 137 (1971).

2. U.N. General Assembly, A/CONF. 97/18 (10 April 1980); 19 Internat. Leg. Mat. 668 (1980). The draft for the Vienna Text was published in 27 Am J. Comp. L. 325(1979) as part of a Symposium on the Draft Convention.

3. "The present Law shall apply to contracts of sale of goods entered into by parties whose places of business are in the territories of different States, in each of the following cases:

(a) where the contract involves the sale of goods which are at the time of the conclusion of the contract in the course of carriage or will be carried from the territory of one State to the territory of another;

(b) where the acts constituting the offer and the acceptance have been effected in the territories of different States.

(c) where delivery of the goods is to be made in the territory of a State other than that within whose territory the acts constituting the offer and the acceptance have been effected. (Art.1(1))."

4. Riese, "Die Haager Konferenz über die internationale Vereinheitlichung des Kaufrechts vom 2. bis 25. April 1964, Verlauf der materiellen Vereinheitlichung des Kaufrechts," 29 RabelsZ 10 (1965).

5. See in particular the Hague Convention of 15 June 1955; Hague Conference on Private International Law, Documents, 8th Session, II, 225 (1957); English transl.: 1 Am. J. Comp. L. 275 (1952).

6. "1. Any State which has previously ratified or acceded to one or more Conventions on conflict of laws in respect of the international sale of goods may, at the time of the deposit of its instrument of ratification or accession to the present Convention, declare by a notification addressed to the Government of The Netherlands that it will apply the Uniform Law in cases governed by one of those previous Conventions only if that Convention itself requires the application of the Uniform Law. 2. Any State which makes a declaration under paragraph 1 of this Article shall inform the Government of The Netherlands of the Convention or the Conventions referred to in that declaration."

7. Almost all authors call attention to the open door of ULIS: Riese, supra n. 4 at 11; Tunc, "Commentary," Actes et Documents de la Conference Diplomatique sur l'Unification du Droit en Matière de la Vente Internationale 1: Actes 357, 362 (1964) Dölle, Kommentar zum Einheitlichen Kaufrecht xxxii (1976); Honnold, "The Hague Convention of 1964" 1965 Law & Cont. Prob. 327.

8. This is not unprecedented. The Geneva Convention on Bills of Exchange of 1930 is at the same time the Hungarian Act on Bills of Exchange. Thus, if a dispute under an international bill must be decided according to Hungarian law, this will in effect be based on the Geneva Convention, even when the bill was signed by parties whose countries have not acceded to the Convention. Still, there is no special Hungarian law of bills, whereas ULIS exists parallel to municipal law.

9. ". . . [T]hese difficulties will be deposited on the doorsteps of non-adopting states," Honnold, supra n. 7 at 333; Eörsi, "The Hague Conventions of 1964 and the International Sale of Goods," 11 Acta Juridica 321 (1969).

10. Belgium, Israel and Italy have not resorted to this reservation. If, therefore the parties can foresee that a lawsuit might be instituted against them in any of these countries, they may by invoking Art. IV of ULIS exclude the application of the reservation. It is, of course, odd to exclude the application of a law that does not apply to the parties. On the other hand, if a party hopes to win on the basis of ULIS, all he has to do is to find grounds for the jurisdiction of any of the three states, and thereby subject the case to ULIS. This is an occasion for forum shopping and an example of uncertainty in law. The system of reservations allows only a ratifying state not to apply ULIS unconditionally; no similar protection is available to non-ratifying countries. So e.g. the Dutch act introducing ULIS (15 December 1971) requires its application even when, by either a foreign or a Dutch conflicts rule, Dutch law has to be applied (Dölle, supra n. 7 at 4). This also entails resort to renvoi, with the result that the Dutch court may apply domestic Dutch law by renvoi from a foreign conflicts rule. As to other acceding countries, the Dutch ratification may call into doubt the effectiveness of their reservation based on Art. III of the Convention: when country A has ratified with this reservation but country B has not acceded to ULIS, the Convention cannot be applied in country A in respect of a transaction in country B. Still, when for one reason or other the lawsuit is instituted in The Netherlands, and according to the Dutch conflicts rule the law of country A has to be applied, the Dutch judge will apply ULIS.

11. Dölle, supra n. 7 at 16. A few questions still have to be answered: e.g. when the acceding country applies ULIS as foreign law, will it apply in conformity with the foreign interpretation? Is there a chance for legal remedy of the third instance (incase of a violation of the law)? According to Kropholler there is: "Der 'Ausschluss' des IPR im Einheitlichen Kaufgesetz," 38 RabelsZ 378 (1974).

12. See Nadelmann, "The Uniform Law on the International Sale of Goods: A Conflict of Laws Imbroglio," 74 Yale L. J. 448 (1964); Kropholler, supra n. 12 at 385. To the contrary, von Caemmerer, ". . . das Haager Rauirecht . . . soll dem Richter und den Parteien bei Raufvertragen über die Grenzen hinweg die Unsicherheiten and Schwierigkeiten des IPR and der Anwendung fremden Rechts ersparen." "Probleme des Haager einheitlichen Raufrechts," 178 AcP 121,122 (1978).

13. The text of this convention, with an Introduction, is reproduced in 23 Am. J.Comp. L. 337 (1975).

14. "'Il a paru aux redacteurs . . . que le concept 'vente' etait suffisamment clair pour qu'il ne dut pas être defini dans l'acte international lui-même." Rigaux, Le contract économique international 70 (1975).

15. This Convention does not prevail over any international agreement which has already been or may be entered into and which contains provisions concerning the matters governed by this Convention, provided that the parties have their places of business in States parties to such agreement.

16. "(1) Two or more Contracting States which have the same or closely related legal rules on matters governed by this Convention may at any time declare that the Convention is not to apply to contracts of sale or to their formation where the parties have their places of business in those States. Such declarations may be made jointly or by reciprocal unilateral declarations. (2) A Contracting State which has the same or closely related legal rules on matters governed by this Convention as one or more non-Contracting States may at any time declare that the Convention is not to apply to contracts of sale or to their formation where the parties have their places of business in those States. (3) If a State which is the object of a declaration under the preceding paragraph subsequently becomes a Contracting State, the declaration made will, as from the date on which the Convention enters into force in respect of the new Contracting State, have the effect of a declaration made under paragraph (1), provided that the new Contracting State joins in such declaration or makes a reciprocal unilateral declaration."

17. General Conditions of Delivery of Goods between Organizations of the Member Countries of the Council for Mutual Economic Assistance 1968. (Amended in 1975 and 1979): Zweigert & Kropholler, supra n. 1, E 155.

18. Czechoslovakia: Law of 4 Dec. 1963 ("Code du Commerce International," 1964 Bull. Dr. Czech 158-298; GDR. Gesetz über internationale Wirtschaftsverträge vom 5 Feb. 1976.

19. "The fact that the parties have their places of business in different States is to be disregarded whenever this fact does not appear either from the contract or from any dealings between or from information disclosed by, the parties at any time or at the conclusion of the contract."

20. VII Yearbook 97 (1966).

21. ULIS Art. I(3) and Art. VII; VIENNA TEXT Art. 1(3).

22. A(CN.9.) 125 p. 41.

23. Eörsi has argued that ULIS nevertheless does not apply to consumer's purchases (supra n. 9 at 342).


Pace Law School Institute of International Commercial Law - Last updated September 8, 1999
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