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Lex Mercatoria and Arbitration, Thomas E. Carbonneau ed., rev. ed. [reprint of a chapter of the 1990 edition of this text], (Juris Publishing 1998) 173-194. Reproduced with permission of Juris Publishing.

The Vienna Sales Convention and the Lex Mercatoria

Bernard Audit [*]

Introduction

The Vienna Convention represents a statutory framework of law created by states, whereas the lex mercatoria is a body of "spontaneous" law -- law created by standard commercial practices and arbitral decisions. Which of them stands for the law of transnational commerce?

Despite their differences, the Vienna Convention and the lex mercatoria do not compete for the status of being the exclusive source of law for international trade. Although the rules of the Convention are approved by states, they operate in conjunction with international trade usages and the principle of contractual autonomy. Indeed, this chapter argues that the purpose of the Vienna Convention is not only to create new, state-sanctioned law, but also to give recognition to the rules born of commercial practice and to encourage municipal courts to apply them.

The Unification Achieved

Municipal laws are ill-adapted to the regulatory needs of international trade and, in particular, to those of international sales. These laws, by and large, are antiquated and their applicability to international transactions is determined by a choice of law process that varies from [page 173] country to country. The growth of international trade, therefore, makes some kind of unification necessary, but leaves open the question of what form of unification should be attempted.

Domestic laws could be unified. In practical terms, however, unification of law among even a limited group of countries is riddled with difficulty; it is next to impossible at a worldwide level. The differences among underlying legal traditions are sometimes irreconcilable. Moreover, harmonization in one area of law may affect law in other areas. For example, a uniform sales law would have a direct bearing upon domestic property law, a field particularly resistant to unification. Even where unification is substantively feasible, municipal courts can undermine efforts by engaging in divergent interpretations of uniform rules. Envisaging a common supreme court to maintain uniformity is completely unrealistic.

Given these difficulties, an alternative might be to unify choice of law rules. Although international relations would still be governed by municipal rules, agreement would be reached at least on the applicable law in a given case. To a certain extent, the 1955 Hague Convention and the 1980 EEC Rome Convention achieve this type of unification.[1] Experience indicates, however, that problems also afflict this approach.[2] Conflicts determinations are highly intricate and prone to achieve uncertainty in many cases, especially when the rules refer -- in one way or another -- to the law with the most significant relationship.[3] Conflicts rules, therefore, fail to provide the simplicity and predictability of result necessary to international transactions. Moreover, choice of law rules merely refer an international transaction to a given domestic law. Domestic laws are not adapted to the character of these transactions. An international sale is more than a mere domestic sale with incidental foreign elements. It entails special problems of communication and transportation, requires the parties to operate in alien legal and cultural environments, and obliges them generally to speak in different languages in more than the literal sense. [page 174]

The final alternative avoids many, if not all, of the foregoing problems. States can adopt uniform substantive rules that are designed specially for international transactions. Harmonization at this level does not require that states abandon their traditional domestic rules and their accompanying idiosyncrasies. The rules adopted are tailored to the needs of international trade, and are applied less frequently than domestic rules, thereby reducing the possibility of divergent judicial interpretations.

Devising uniform rules specifically for international trade, therefore, appears to be the optimal solution. It is the methodology adopted by the Vienna Sales Convention. In contradistinction to prior instruments, the Vienna Convention does not provide a model law that states enact into their domestic law.[4] Rather, once it is ratified, the Convention provides directly applicable rules. The provisions of the Convention, however, were not meant to fill a vacuum. International business practice did not have the luxury of waiting until states could come to agreement to establish a suitable legal regime for transactions. The Convention, therefore, acknowledges that other rules exist which it supplements.

Party Autonomy and Trade Usages

The Convention's self-effacing character is one of its most striking features. Article 6 allows parties to stipulate out of the Convention or any of its provisions; article 9 gives superior weight to trade usages, regardless of whether the parties specifically designated an applicable law. These two provisions, perhaps the Convention's most significant, clearly demonstrate that the Convention does not compete with the lex mercatoria, but rather that the two bodies of law are complementary (A). Moreover, the Convention itself can be regarded as the expression of international mercantile customs. One may also wonder, therefore, whether parties could make the Convention applicable even when it has not been ratified or when it excludes its own application (B).

A. The Convention's supplementary character

1. Party autonomy: contracting out of the Convention

Article 6 states that the parties "may exclude the application of the Convention or [. . .] derogate from or vary the effect of any of its [page 175] provisions. Rather than reflecting the Convention's lack of confidence in its own rules, article 6 merely expresses the long-recognized rule of "party autonomy": parties to an international contract are free to choose the applicable law.[5] The "international sale of goods" covers a wide range of transactions, ranging from agricultural products, livestock, and oil, to computers and works of art. A framework of uniform rules could not purport to establish provisions that apply to every type of commodity and to every branch of trade. Such frameworks can only offer general rules that the parties are free to adapt to the particular circumstances of their transaction, filling gaps that may remain by reference to usages included in the lex mercatoria. The Convention, therefore, acknowledges the realities and practices of international trade.

2. Trade Usages

In many areas of international business, such as maritime transportation, insurance, or banking, accepted trade practices or usages are applicable to transactions despite a lack of express reference by the parties. This practice also applies in sales for several types of commodities.[6] Accepted usages constitute the major part of the new law merchant. It has long been recognized that these usages in fact have a greater impact on international contracts than domestic laws.[7] The Convention acknowledges unequivocally the paramount importance of usages as a source of law for transactions.[8] Article 9 deals with the question of usages; thereafter, usages come into play in two ways.[9] [page 176]

Usages are applicable by party provision. The parties are bound by any usages to which they have agreed. The most common example is the express reference to a given Incoterm, such as FOB or CIF, or to clauses that are common in the trade of a particular commodity. When express provision is made, questions regarding the place of delivery or the passing of risk will be decided by reference to the chosen usages, rather than Convention rules.

Article 9(2) provides further that the parties, unless they agree otherwise, are considered to have made trade usages impliedly applicable to their contract or to its formation. Article 9(2) is significant in that it acknowledges that rules not made by states can be imposed upon the parties. These rules, therefore, are truly legal rules. Although usages do not have unlimited legal effect,[10] the Convention places them on a footing at least equal to party autonomy, thereby giving them a status superior to the Convention rules themselves. Under the Convention, usages constitute special rules that reflect the accepted practice in the area. Like the rules of the Convention, they are subordinated only to mandatory norms of municipal laws. The Convention rules, therefore, are supplementary to both party autonomy and usages.

B. Opting out of the Convention

Article 1 defines the Convention's scope of application. The Convention applies when the parties have their places of business in different Contracting States or when conflict rules designate the law of a Contracting State.[11] The contracting parties or arbitrators, however, can give Convention rules a broader reach. The principle of party autonomy allows the parties to select the Convention as the applicable law where it would not otherwise apply under article 1.

Some jurisdictions, however, require that the law chosen by the parties have a "reasonable link" with the transaction. The "reasonable link" requirement does not necessarily prohibit the party selection of [page 177] Convention rules. A physical link may exist between the transaction and a Contracting State even if this contact is not sufficient to make the Convention applicable by virtue of article 1. Examples are: the delivery of the goods in a Contracting State even though neither party has a place of business in that state; or one party having its place of business in a Contracting State while the other does not, e.g., the seller in the United States and the buyer in Canada. Where there is no physical contact, the "reasonable link" requirement still could be satisfied. The selection of Convention rules in such circumstances is not tantamount to choosing the law of some remote country. The rules of the Convention have been devised specifically for international sales, and they are in force in a great number of states. Even if a given national court balks at the application of a non-national law, it will normally look for an applicable domestic law designated by traditional conflicts principles; as long as Convention rules do not run afoul of that law's mandatory principles, they should be given effect. [12]

The Convention also can be rendered applicable by arbitrators. If arbitrators are not bound to apply a given domestic law, they might look to the Convention for guidance, especially when they are empowered to rule in equity as amiables compositeurs. Arbitrators also may have recourse to the Convention when the governing arbitration rules allow the parties and the arbitrators relative freedom from domestic laws. For example, the French law on international arbitration provides that, "[t]he arbitrator shall decide the dispute in conformity with the rules of law chosen by the parties; in the absence of a party choice, he shall decide according to the rules that he deems appropriate."[13] These rules need not necessarily be those of a given state. Therefore, whether selected by contract or invoked by the arbitrators, Convention rules represent an expression of general practice in international sales.[14] [page 178]

The Transnational Character of the Convention Rules

Because the parties can choose another law and given the existence of trade usages, Convention rules may not often apply to international sales contracts. The rules, however, can still fill gaps and can be used as a supplementary framework when there are no applicable usages. The Convention also may eliminate party disagreement on the applicable law. The goal of the rules is to provide solutions that do not stray too far from domestic laws and yet take into account the special needs of international trade. In this regard, one may note three essential features in the Convention.

A. The elimination of technicalities and idiosyncrasies

The Convention was drafted, not to meet the needs of courts and litigation, but to respond to the needs of businessmen and lawyers who have no special knowledge of the technicalities of international business law. The rules were meant to be simple, accessible, and effective. Prior conventions failed partly because they contained too much legal doctrine and were too complex to be applied in the commercial sector. The rules of the present Convention also seek to eliminate national peculiarities and idiosyncrasies. This feature of the Convention is in evidence in its title (which contrasts with those of the 1964 Conventions) [15] and in other aspects of its basic framework.

The usual legal jargon associated with the law of sales does not appear in the Convention. Instead, the Convention describes specific circumstances and then elaborates the content of the individual rule. An example is article 79 dealing with the impossibility of performance as an excuse for a defaulting party: concepts such as frustration and force majeure are conspicuously absent. [16] The text refers to "an impediment beyond [a party's] control and which he could not reasonably be expected to have taken [. . .] into account at the time of conclusion of the contract or to have avoided or overcome [. . .] its consequences." Although the language is a little cumbersome, it avoids using legal terms that are too heavily loaded with variable national connotations.[17] [page 179]

Particularities found in various legal traditions also have been eliminated. For example, the notion of consideration, vital to the common law concept of contracts, is not referred to in the Convention. Under the common law, an offer may be revoked at any time prior to acceptance if there is a lack of consideration. [18] The rule of consideration, however, may run afoul of good faith -- for instance, when the offeror has expressly indicated the offer would remain open for a given period of time. Under the Convention, an offer is normally revocable; it cannot, however, be revoked "if it indicates, whether by stating a fixed time for acceptance or otherwise, that it is irrevocable."[19] In this respect, the Convention is more liberal than the U.C.C. which establishes several conditions for firm offers. The U.C.C. approach has no equivalent in the Convention.[20] Under the Convention, an indication of a specific delay, the conduct of the offeror, or simply the particular circumstances of the transaction can make the offer irrevocable.[21] Consideration also is not necessary to modify a contract. "A contract may be modified or terminated by the mere [page 180] agreement of the parties."[22] The idea is that, in international transactions, a party should not be allowed to renege on words or conduct upon which the other party has reasonably relied.

In terms of the civil law, the Convention eliminates the concept of délivrance. Under French law, délivrance implies delivery of conforming goods and, therefore, combines delivery and conformity. This concept was incorporated in the ULIS, which was first drafted in French. Under article 19 of the ULIS, délivrance, the main obligation of the seller, included conformity of the goods. This concept was alien to common-law lawyers; it was alleged that the term could not be accurately translated into English and other languages.[23] It was translated simply as "delivery," a term that did not convey the same meaning. Evident practical difficulties ensued. If the seller delivered goods which later proved to be nonconforming, he was deemed not to have discharged his obligation "to deliver", although the buyer had physical possession of the goods and could use them. Also, to complicate matters even further, the passing of risk from the seller to the buyer was governed by this very peculiar notion of delivery.

In the Vienna Convention, "delivery" has been used for what it means in English: the handing over of the goods (conveyed in French by the term livraison). Delivery is accomplished by the physical acts that the seller must perform in order to discharge his obligation, such as handing over the goods together with the necessary documents to a carrier.[24] Conformity is regulated by a separate set of provisions.[25]

B. Meeting the needs of international trade

To gauge the effectiveness of the Convention as a regime for international transactions, the Convention's response to four typical problems will be examined.

1. Adjusting offer and acceptance

Difficulties can be created by the fact that parties often bargain at a distance. Normally, a contract is not formed unless acceptance matches the offer. The Convention adopts this basic rule: "A reply to an offer which purports to be an acceptance but contains additions, limitations or other modifications is a rejection of the offer and constitutes a counter-offer."[26] Frequently, parties communicate through printed forms that contain different "General Conditions" which leads to the problem, [page 181] well-known in domestic law, of the "battle of the forms." A party in bad faith could attempt to get out of the contract, even after performance, by relying on a minor, perhaps irrelevant, difference, claiming as a result that there has been no true "meeting of the minds." In this regard, the Convention provides that "a reply to an offer which purports to be an acceptance but contains additional or different terms which do not materially alter the terms of the offer constitutes an acceptance. . . ."[27] Acceptance, therefore, does not necessarily have to fit the offer. The exception, however, is greatly qualified; article 19(3) describes, in a non-exhaustive way, modifications that are considered material alterations.[28] The list is such that most situations will be considered modifications rather than non-modification. On the whole, one may find the Convention too conservative on this matter.[29]

2. Failed communications

Large distances also create the possibility that communications between the parties will be confused, delayed, or lost. Which party should bear the risk? As to the formation of the contract, the Convention deals with the issue in specific provisions that take into account the nature and circumstances of the communications.[30] As to matters of performance, an effort has been made to lay down a general rule. According to article 27, if a party gives notice by appropriate means, a delay or error in the transmission of the communication or its failure to arrive does not deprive that party of the right to rely on the communication. The risk is thus placed on the addressee. For instance, if the buyer sends notice that the goods received are nonconforming -- as required by article 39 and the communication does not reach the seller, the buyer nevertheless retains the right to use the available remedies.

The general rule, however, is an advantage given to a deserving party. In the circumstances of article 39, the sender is indeed the innocent party who should not be made to suffer from the mishap. In other circumstances, the "innocent party" may be the addressee. The basic rule, therefore, admits of various exceptions. For instance, article 48 allows a seller to remedy his failure to perform if this does not cause undue inconvenience to the buyer; notice of that intent is not effective unless it is actually received by the buyer.[31] Under article 79, a party is not liable for damages for a failure to perform if the latter is due to an impediment [page 182] beyond his control. He must, however, notify the other party of the impediment; if notice is not received within a reasonable time, the party then is liable for the damages resulting from nonreceipt.[32] Exceptions are so numerous, in fact, that the general rule stated in article 27 may have only limited application.[33] It might have been better to state that the risk of communication is borne by the party who benefits from it or who is in some way blameworthy.[34]

3. The passing of risk

National laws provide for the passing of risk in domestic sales transactions. Comparative law analysis, however, reveals that the domestic rules differ and are based on different theoretical assumptions. Risk may pass at the conclusion of the contract (as it does under Swiss law), or with the transfer of property (as in English and French law), or upon delivery (as in German law).[35] The Convention could not have adopted the second rule because the Convention is not concerned with the effect of the contract on the property of the goods.[36] The first rule was not appropriate because international sales usually are concluded at a distance and deal with goods that have yet to be manufactured. The third rule, adopted by the ULIS,[37] linking the passing of risk to delivery, is workable primarily when goods are actually handed over by the seller to the buyer. International sales, however, normally involve carriage by one or more third parties, leaving -- for a period of time -- neither the seller nor the buyer in physical possession of the goods. Incoterms are of no avail because each Incoterm provides its own approach, thereby not offering buyers and sellers a single solution to their opposing positions. Sellers are anxious to transfer the risk at the earliest stage of the transaction; buyers want to assume the risk much later. The Convention needed to provide balanced rules that took into account various transactional situations.

The Convention does not establish a general rule; rather, it distinguishes between different transport situations. Where the goods must be handed over to a carrier at a particular place, the risk does not pass to the buyer until the goods are actually handed over to the carrier at the designated place. If no particular place was contemplated, the risk [page 183] passes to the buyer when the goods are handed over to the first carrier.[38] Where the goods are sold while they are in transit, the risk normally passes, with some exceptions, to the buyer at the time the contract is concluded.[39] In circumstances in which the buyer is to take the goods from the third party -- for example, at a warehouse -- the risk passes when delivery is due and the buyer is aware that the goods are at his disposal.[40] In all other circumstances, i.e., when the contract does not involve carriage of goods, the risk passes when the goods are placed at the buyer's disposal.[41] On the whole, the Convention imposes the risk of loss on the party in the better position to take care of or insure the goods.

4. Performance and rescission of the contract

For both practical and legal reasons, it is more important to avoid the rescission of contract in the context of international sales than in the setting of domestic transactions. Rescission is likely to lead to the unwanted inconvenience and expense of litigation. Litigation, in turn, will generate jurisdictional problems and, in all likelihood, the view by the losing party that the result was not impartial. When rescission follows delivery, the goods will have to be stored and then disposed of, generally at great expense and loss. Accordingly, the Convention limits the right of rescission to fundamental breaches. Even where the breach is fundamental, the Convention exhorts the parties to avoid rescission. Rescission can be a great inconvenience, particularly where the goods were made specifically for the buyer. Therefore, before the buyer may claim rescission, the seller has a right to cure defects in performance not only up to the date of delivery, if performance took place ahead of time, but also after that date.[42] The buyer also may expressly allow the seller additional time to perform.[43] Also, rather than avoiding the contract, the buyer may reduce the price.[44] [page 184]

In other instances, especially in the sale of commodities, rescission can be a functional solution because the buyer is in a position to secure the goods from another source. Under the Convention, domestic law formalities are then to be disregarded. No formal notice is required because the buyer already will have given notice to the seller of the defect.[45] In contrast to some domestic laws, no court decision is necessary.[46] When there is actual litigation, the court or arbitral tribunal may not grant a grace period.[47] On the whole, the Convention seems to have opted for the most practical solution among those offered by domestic laws.

C. The limits of accommodation

Although many Convention rules achieve a compromise between conflicting national positions, the Convention -- in more than one instance and on some important matters -- yields to national peculiarities, sometimes openly referring to the rules proffered by domestic law.[48] For example, a valid contract must contain agreement on the price. Article 14 of the Convention provides that an offer is valid "if it indicates the goods and expressly or implicitly fixes or makes provision for determining the quantity and the price." The rule reflects the position, held in many domestic laws, that price is an essential element of a contract. A sales contract cannot be formed if the price has not been determined in advance or is not objectively determinable when it is due.[49] Other domestic laws, the U.C.C., for example, are not so demanding.[50]

Although a stringent attitude seems to have prevailed in the Convention, other provisions indicate to the contrary. Article 55 provides directions for determining the price "[w]here a contract has been validly [page 185] concluded but does not expressly or implicitly fix or make provision for determining the price. . . ." The rule implies that a contract may be validly concluded not only where there is no fixed price, but also where the parties made no provision to determine the price.[51] In these cases, reference will be made to the law applicable to the formation of the contract.[52] Assuming that the contract is validly formed, the price -- under article 55 -- will be the one generally charged at the time of the conclusion of the contract for such goods under comparable circumstances.

Another example of the Convention's integration of domestic rules is the possibility of obtaining a judgment for specific performance. In civil law jurisdictions, the right to obtain specific performance is generally regarded as fundamental.[53] In common law jurisdictions, damages are the normal remedy; specific performance constitutes equitable relief, granted at the court's discretion when monetary compensation is inadequate.[54] The difference, however, is more one of theory.[55] In civil law jurisdictions, a buyer will rarely insist on specific performance if he can conveniently obtain the goods from another source. In the case of partial performance, the seller generally will be eager to complete, replace, or repair the goods. In common law jurisdictions, when a party asks for specific performance because the goods are unique, one may assume that the court will grant the remedy.

A compromise should have been easy to effectuate on this matter. Civil law countries could have restricted specific performance to those cases where it constituted a reasonable demand, i.e., where no workable alternative solution is available. Common law countries could have recognized the suitability of the remedy in these circumstances.[56] Compromise, however, was not achieved in the Convention. Article 28 provides: "If, in accordance with the provisions of this Convention, one party is entitled to require performance of any obligation by the other party, a court is not bound to enter a judgement for specific performance, unless the court would do so under its own law in respect of similar contracts of sale not [page 186] governed by this Convention."[57] The express reference to national law represents a failure in an instrument meant to unify law for international transactions.

The Ability of the Convention to Generate New Rules

The Convention is meant to adapt to changing circumstances. Amending it is practically impossible. A conference of the magnitude of the one held in Vienna is difficult to organize. Achieving the unanimity of the participating states on proposed changes also would present substantial obstacles. The provisions of the Convention must be flexible enough to be workable without formal amendment for a long period of time. The Convention, therefore, must be regarded as an autonomous system, capable of generating new rules. This feature of the Convention is reflected in article 7, dealing with interpretation and gap-filling.

A. Interpretation

On matters of interpretation, the Convention sets forth directives rather than mandatory rules. A traditional common law approach to statutory interpretation would have been inapposite. It is geared to the concept of written law as an exception to the common law: statutes must be interpreted narrowly.[58] An international instrument requires a more liberal approach.[59] Under article 7(1), consideration must be given to the "international character" of the Convention and "to the need to promote uniformity in its application and the observance of good faith in international trade."

According to this directive, a court interpreting the Convention should take a number of factors into account. The usual techniques of statutory interpretation are not necessarily applicable. Familiar domestic rules and concepts -- such as frustration, force majeure,[60] or vices [page 187] cachés (latent defect) in cases of nonconformity -- should not be brought under the Convention.[61] A legal expression with a well-settled meaning in domestic law may have a less definite or even different meaning under the Convention. Where a Convention rule is directly inspired by domestic law, as in the case of article 47 and the concept of Nachfrist in German law,[62] the court should not fall back on its domestic law, but interpret the rule by reference to the Convention.

The international character of the Convention should encourage courts to refer to the Convention's legislative history and prior instruments (i.e., the ULIS and ULFC) in order to ascertain the most likely intent underlying the wording of a given provision.[63] Reference should also be made to the various official texts of the Convention to resolve ambiguities in one of the texts. For example, article 39 states that the buyer must notify the seller of a lack of conformity within a reasonable time after discovery. On this score, the English text refers to the "[lack of] conformity of the goods." Does this restriction mean that article 39 is inapplicable if the non-conformity appears in the documents instead of in the goods -- although delivery of documents is closely associated in the Convention with delivery of the goods themselves?[64] The French text is not as restrictive and speaks of défaut de conformité in general terms.[65]

The Convention must be interpreted with a view to maintaining its uniformity. Divergent interpretations by national courts should not be allowed to undermine the uniform law. A lack of harmony in interpretation would have the unfortunate consequence of reintroducing the conflicts methodology that the Convention was meant to eliminate.[66] [page 188]

Courts, therefore, should consider foreign decisional law and scholarly commentary on the Convention in reaching their determinations.[67]

Good faith must be observed in international transactions and in the interpretation of the Convention. Good faith is certainly a factor in the application of article 8 that deals with the interpretation of the parties' statements and conduct in order to ascertain their obligations.[68] Article 8 also might play a role in the interpretation of the Convention itself. Given the role of good faith, a party who strictly complies with the Convention's requirements might still incur liability in certain circumstances. Mitigation of damages could illustrate this possibility if it were not expressly regulated by the Convention.[69]

The Convention envisages the buyer and seller as abstract entities occupying given positions. In many instances, however, their respective situations are disparate -- rather like that of professional seller and consumer, even though both of them are engaged in trade. Good faith would require the parties' conduct to take this circumstance into account rather than have it exploited to the stronger party's advantage. In addition, the Convention is meant to apply to parties from countries with varying degrees of economic development. Therefore, good faith might require the more sophisticated party to comply with a stricter standard of conduct. A seller from an industrialized country, for example, might have a special duty to describe clearly and thoroughly the character of the goods being offered. [page 189]

B.Gap--filling

Although the Convention is intended to be an all-encompassing framework, unprovided-for circumstances perforce will surface. Article 7(2) deals with these circumstances. Where a gap is found in the Convention, it is not to be filled immediately by reference to an applicable domestic law; the reference to such a domestic law is only subsidiary. Initial reference must be made to the Convention's "general principles." The Convention constitutes an autonomous system; it is not to be regarded as one statute among others.

The concept of "general principles" in statutory interpretation has greater currency in the civil law than in the common law. In common law, statutory law is seen as an amendment to the common law,[70] whereas the civil law tends to look at statutory rules as the particular application of a general principle.[71] According to the "general principles" method, a gap in the Convention should be filled first by trying to equate the unprovided-for circumstances with similar situations, inferring from them a general principle. Examples are elusive, but some Convention rules could be identified or interpreted as implying "general principles."[72] As noted earlier,[73] the Convention favors upholding the contract and favors performance to rescission -- at least once the goods are delivered. The same result prevails when impossibility of performance is only temporary.[74] In international sales, high costs usually accompany the recall of goods, disposing or rejecting them. As a consequence, the Convention provides for negotiation between the parties in the course of performance. In this context and others, the Convention implies a duty of cooperation and a duty to communicate all relevant information between the contracting parties.

Some Roadblocks

In some circumstances, mandatory domestic laws can preempt the provisions of the Convention and prevail over them.[page 190]

A.Vaildity of contract or contract provisions: warranty disclaimers

Under article 6, party autonomy governs the contract on issues covered by the Convention.[75] Under article 4, however, the Convention is "not concerned with the validity of the contract or any of its provisions."[76] Among the issues covered by the Convention is the seller's liability for the goods' lack of conformity.[77] Such liability is often covered by an express provision, particularly in the "General Conditions" tendered by sellers. Indeed, article 36(1) states that the seller is liable "in accordance with the contract"; article 36(2) expressly refers to a specific "guarantee that for a period of time the goods will remain fit for their ordinary purpose or for some particular purpose or will retain specified qualities or characteristics." The parties therefore are free to agree that the seller's liability will deviate from the standards established by the Convention. They may extend it, as article 36(2) seems to suggest, but they may -- and probably often will -- reduce or even eliminate it.

Domestic law, however, frequently restricts the operation of such a clause. In many jurisdictions, disclaimers that favor a professional seller are ineffective against consumers. They also may be void against a merchant. For example, under the U.C.C., a disclaimer of the implied warranty of merchantability must mention merchantability and, if it is in writing, it must be conspicuous.[78] The question, therefore, arises whether such clauses will be effective in international sales regulated by the Convention. Courts and scholars have debated the effect of U. C.C. Section 2-316;[79] similar debates are likely in other jurisdictions. On the one hand, domestic restrictions on disclaimers are adopted for reasons of public policy and, therefore, might be held applicable to international contracts as mandatory norms.[80] On the other hand, a national court [page 191] should not impose a domestic public policy on the entire world. It should strive to give predominant consideration to the special needs of international transactions.[81]

B. Product Liability

Article 5 removes from the Convention's scope of application "the liability of the seller for death or personal injury caused by the goods to any person." The rules relating to personal injury are not contractual in character and are considered mandatory in domestic law. The exclusion does not apply to damages to the buyer's property. Such damages are regarded as coming within the consequences of the contract. Domestic laws nonetheless may purport to cover these circumstances and apply a different rule.

Assume that A has sold goods to B who alleges that the goods have damaged his property. Under the Convention, B will claim a lack of conformity of which he must notify the seller within a reasonable time in -- any event, no later than two years from the date on which the goods were actually handed over to him.[82] B might prefer to rely on the more favorable provisions of a domestic law. Most domestic laws characterize such circumstances as sounding in tort, thereby allowing the buyer to invoke rules that more strongly support recovery. If the objective here were to sustain the Convention, its provisions should constitute the exclusive remedy.[83] State courts, however, may want primarily to assist the plaintiff.

The EEC Directive on Product Liability [84] may produce further conflicts between the Convention and domestic laws. National laws derived from the Directive will apply to damages caused to private property, meaning property "which is of a type intended for private use or consumption and which was used by the injured person mainly for his own private use or consumption."[85] Such national laws will overlap with [page 192] the Convention rules. In many countries, the Convention, as an international treaty, will prevail over laws enacted after the Directive; in other countries, domestic statutes, enacted after the Convention, might prevail over the treaty.[86]

Other difficulties could arise. Assume that the plaintiff, who is not the buyer but is domiciled in an EEC member state, brings an action against defendant for damages caused to his "private" property. In the action, the defendant is characterized as a "producer" under the Directive because he imported the product for sale into the Community.[87] The case will be decided according to the applicable domestic law, which is patterned after the Directive. According to article 3(2) of the Directive, however, the defendant will have been held liable "without prejudice to the liability of the producer," i.e., the actual producer. If the defendant brings an action against the person who sold him the goods, the action will fall under the rules of the Convention. These rules are different from those that applied in the first proceeding.

Conclusion

The relationship between the Convention and the lex mercatoria can be summarized by outlining the hierarchy of norms that may apply to an international sales contract under the Convention:

1. The "mandatory norms" of domestic law, which prevail over the rules of the Convention (art. 4[a]);

2. Trade usages, either expressly referred to by the parties (art. 9[l]) or found applicable by a court or arbitrator (art. 9[2]);

3. Contract provisions (art. 6);

4. The rules of the Convention;

5. The "general principles" on which the Convention is based (art. 7[l]);

6. If no such principles are identified, the non-mandatory norms of the law applicable under the conflict rules of the forum (art. 7[2]).

Although domestic laws appear at the top of the hierarchy, their application should be the exception. Under the Convention, the lex mercatoria is the chief source of the applicable law for international transactions either directly as trade usages (the second heading) or [page 193] indirectly through the application of the principle of party autonomy in contract (the third heading). The Convention elaborates the common law and practices of international sales and the common core of domestic commercial rules. The Convention itself purports to formulate the most common practice and therefore qualifies as an expression of lex mercatoria. But, as its place in the hierarchy indicates, the Convention is above all a recognition by states of the paramount importance of existing and more specific commercial practices, to which the Convention gives the force of law.[page 194]


FOOTNOTES

* Professor of Law, Université Panthéon-Assas (Paris-II).

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

1. Convention sur la loi applicable à la vente internationale d’objets mobiliers corporels of July 15, 1955 (currently in force in various European countries); EEC Convention on the Law Applicable to Contractual Obligations of July 18, 1980 [hereafter EEC Convention]. A draft convention on the law applicable to contracts for the international sale of goods of December 22, 1986, is meant to replace the 1955 Convention.

2. In the case of the Rome Convention, it took ten years or so for countries that share common legal traditions to agree on common rules. The Convention still needs one ratification before it comes into force. The 1955 Hague Convention has been ratified by fewer than ten countries.

3. See Restatement (Second), Conflict of Laws § 188; EEC Convention, art. 4.

4. Uniform Law on International Sale of Goods and Uniform Law on the Formation of Contracts of 1964. These conventions were only a moderate success (eight and seven ratifications respectively), allegedly because they had been negotiated between Western industrialized countries and were too heavily influenced by continental legal techniques.

5. See, e.g., EEC Rome Convention on the Law Applicable to International Contracts, art. 3(1); Restatement (Second), Conflict of Laws, § 187. It is important to note that the Vienna Convention removes from its scope those sales which are most closely regulated by domestic laws (art. 2) as well as "the validity of the contract or of any of its provisions or of any usage" (art. 4[a]).

6. See, e.g., the standard terms of: the London Corn Trade Association, the London Cattle Food Trade Association, and the Grain and Feed Trade Association.

7. See Goldman, The Applicable Law: General Principles of Law – The Lex Mercatoria, in J. Lew, ed., Contemporary Problems in International Arbitration 113 (1986); Goldstajn, The New Law Merchant, [1961] J. Bus. L. 12; C. Schmitthoff, Commercial Law in a Changing Economic Climate (2d ed. 1981); Berman & Kaufman, The Law of International Commercial Transactions (Lex Mercatoria), 19 Harv. Int’l L.J. 221 (1978).

8. See Goldstajn, Usages of Trade and Other Autonomous Rules of International Trade According to the UN (1980) Sales Convention, in P. Sarcevic & P. Volken, eds., International Sale of Goods, Dubrovnik Lectures 55 (1986) [hereafter Dubrovnik Lectures].

9. The Convention does not define usages; in the American context, one may refer to the definition provided by U.C.C. § 1-205.

10. The parties must have been aware of the usage and it must be widely known to, and regularly observed by, parties to international contracts of the type involved in the particular trade concerned (art. 9[2]). The meaning of these conditions is that a given usage should not be imposed worldwide without some caution. Some usages have developed in a domestic setting; they do not belong in international trade. Others are truly international usages, but they developed in a particular setting, frequently that of industrialized countries. Therefore, they either may be unknown to parties from other parts of the world or they may not be adapted to the particular circumstances of these countries. See Bonell, in C. Bianca & M. Bonell, eds., Commentary on the International Sales Law 105 (1987) [hereafter Commentary on the International Sales Law].

11. Article 95 allows a state to declare that it will apply the Convention only in the first situation. The United States has invoked this reservation.

12. A similar solution could prevail even in those situations where the Convention is not applicable because of the nature of the sale involved. Most of the sales contemplated in article 2 were excluded because they generally are regulated by mandatory domestic rules. In the event that the parties designate the Convention applicable to such a sale, it might apply in the interstices of the mandatory rules. In the case of consumer contracts (excluded under article 2[a]), however, one also might take the position that the Convention should not be allowed to come into play at all – in order to discourage sellers from "trying their luck" with the Convention at the consumer’s expense.

13. Nou. Code Proc. Civ. (Fr.) art. 1496(1). See Audit, in T. Carbonneau, ed., Resolving Transnational Disputes Through International Arbitration 117 (1984).

14. Moreover, many rules of the Convention, notably the whole of Part II on formation of contract, are not specific to the contract of sale. Therefore, they could inspire arbitrators in a number of other situations.

15. See supra note 4 and accompanying text. This observation applies to the French text, where "goods"’ were described as "objets mobiliers corporels."

16. On these notions, see Nicholas, Force Majeure and Frustration, 27 Am. J. Comp. L. 231 (1979).

17. On this question, however, substantial difficulties follow which seem to have been swept under the carpet. One issue is whether the text may apply when the seller delivers defective goods without fault on his part as opposed to a situation of nondelivery or late delivery. According to a common law commentator, article 79 should not apply because "deciding whether the defect results from ‘fault’ may call for enquiry into the manufacturing process of the seller or of a remote supplier" and that "a final resolution of this issue is expensive and uncertain." See J. Honnold, Uniform Law for International Sales 430 (1987) [hereafter Honnold]. Therefore, the author insists that use of the word "impediment" (like the word obstacle) implies that nonperformance consists in nondelivery but not in defective performance. Nevertheless, according to the English text itself, excuse may be brought up by a party for failing to perform "any of his obligations," and conformity of the goods is unquestionably an obligation of the seller (art. 35). Therefore, "the obligation to deliver conforming goods also comes within the scope of Article 79." See Tallon, in Commentary on the International Sales Law, supra note 10, at 577.

18. See Anson’s Law of Contract 45 (26th ed. 1984).

19. Art. 16(2)(a).

20. In addition to being made by a merchants condition that normally will be fulfilled when the Convention applies – the offer must be signed, in writing, and separately signed by the offeror if the contract form is provided by the offeree. In any event, the maximum period of irrevocability is three months (U.C.C. § 2-205).

21. See Eörsi, in Commentary on the International Sales Law, supra note 10, at 158. This is not, however, the only difficulty. See Sono, in Dubrovnik Lectures, supra note 8, at 115-117. Assuming that an offer states that it expires on November 15 if there has been no acceptance, this certainly means that acceptance after that date will be late and, therefore, ineffective. But, does it mean that it is irrevocable until that date? A civil-law lawyer would tend to find that it is: a common-law lawyer would tend to find that it is not. Certainly, article 16(2)(a) allows one to read a presumption of irrevocability in the statement of a fixed time for acceptance, but it is a rebuttable presumption. In order to decide the question, one must turn to article 16(2)(b) under which the offer cannot be revoked if it was reasonable for the offeree to rely on the offer as being irrevocable and the offeree has acted in reliance on the offer.

22. CISG, art. 29(1).

23. See Honnold, supra note 17, at § 210.

24. CISG, art. 30.

25. CISG, Chap. II, Sec. II, art. 35 et seq.

26. CISG, art. 19(1).

27. CISG, art. 19(2).

28. For example, the modifications bearing "among other things" to the price, payment, quality and quantity of the goods, place and time of delivery, extent of one party’s liability to the other, or the settlement of disputes.

29. Compare U.C.C. § 2-207.

30. See CISG, arts. 18(2), 21(1), 21(2).

31. CISG, art. 48(4).

32. CISG, art. 79(4).

33. Other exceptions are to be found in articles 47(2) and 65(2).

34. As the Convention stands, this proposition may be regarded as one of the "general principles on which the Convention is based." See text at note 70 infra.

35. See von Hoffman, in Dubrovnik Lectures, supra note 8, at 265.

36. CISG, art. 4(b).

37. ULIS, art. 97(1) with the complication that "delivery" was to be understood as delivery of conforming goods. See text at note 24 supra.

38. CISG, art. 67(1). The rationale for both rules is that the risk should remain with the seller as long as he has control over any transport. Thereafter, the risk passes to the buyer because it is the buyer who will be in a better position to assess any damage and to pursue the necessary claims. Moreover, the goods will normally be insured to the buyer’s benefit.

39. CISG, art. 68.

40. CISG, art. 69(2). the rationale for the rule is that the risk should pass as soon as the buyer is in a position to collect the goods. The same rule applies where the sale involves carriage but the seller must deliver the goods to the buyer himself at a particular place other than the buyer’s premises (e.g., ex ship).

41. CISG, art. 69(1). The rationale for the rule is that, as long as the seller has the control of the goods, he should be responsible for them.

42. CISG, arts. 34, 37, and 48.

43. CISG, art. 47. This rule is inspired from the German notion of Nachfrist. See 1 E. Cohn, Manual of German Law § 226 (2d ed. 1968).

44. CISG, art. 50.

45. CISG, arts. 39, 43.

46. CISG, art. 49. The contrary rule is inspired by the fear of the parties being their own judges. In French law, however, which contains such a rule (Civil Code, art. 1184), the parties may insert a clause allowing unilateral termination for breach of contract.

47. CISG, arts. 45(3), 61(3). If the parties have expressly referred to an arbitral procedure that allows such feature, the arbitration rule should prevail over article 45 or 61, following the principle of article 6 (see text at note 5 supra). But, the mere fact that the parties are litigating before a court whose procedure allows some "délai de grâce" should not be regarded as an agreement to have such a rule apply.

48. In the case of formal requirements, which are not normally applicable (arts. 11 and 29), a Contracting State may impose its own requirements when a party has its place of business in the state’s territory by way of a general declaration to that effect (arts. 12 and 96).

49. See, e.g., Civil Code (Fr.), art. 1591. This is also a requirement in those countries where foreign trade is more or less controlled by the state.

50. U.C.C. §§ 2-204(3) and 2-305.

51. For instance, the proposal for concluding a contract will have been accepted without reservation and the alleged offeror will have made no objection. This may be seen as a variation on the rules of the Convention – in that case, article 14 – by the parties under article 6.

52. The issue involves a traditional difficulty in the form of a vicious circle: may one look to applicable choice of law principles in contract where the issue is whether a contract was formed? The affirmative answer is retained, with a reservation, by the EEC Convention, article 8. See note 1 supra.

53. See, e.g., German BGB § 241.

54. Section 52(1) of the 1979 Sale of Goods Act; U.C.C. §§ 2-716 and 2-709.

55. See, e.g., Will, in Commentary on the International Sales Law, supra note 8, at 334.

56. See Lando, in id. at art. 28, § 1.3.5, p. 236. See also Honnold, supra note 17, at § 286.

57. The general rule thus favors specific performance (see also arts. 45(1) and 62); other rules, however, restrict specific performance (see, e.g., art. 46).

58. U.C.C. § 1-102, purports to depart from the tradition. On the different attitudes of the common law and the civil law, see Herman, Quot judices tot sentetiae –A Study in the English Reaction to Continental Interpretative Techniques, 1 Leg. Studies 165 (1981).

59. On the relaxation of the English attitude when the text at issue appears in an international convention, see James Buchanan & Co. Ltd. v. Babco Forwarding & Shipping (UK) Ltd., 1 All E.R. 518 (1977) (Ct. App.) 3 All E.R. 1048 (1977) (H.L.); Fothergill v. Monarch Airlines, Ltd., (1981) A.C. 251, 2 All E.R. 696 (1980) (H.L.).

60. See text at note 16 supra.

61. This applies even to the notion of "fundamental breach," which is indeed defined in article 25 of the Convention, although – one might suggest – not with great success.

62. See supra note 43 and accompanying text.

63. Extensive information on the history of a given provision is to be found in Honnold, note 17 supra and in Commentary on the International Sales Law, note 10 supra.

64. See Chap. 11, § 1.

65. Although he does not refer to the difference in wording, Honnold is of the opinion that it should be so interpreted. See Honnold, supra note 17, at 280, § 256.

66. There is the famous precedent of the Uniform Law on Bills of Exchange (Geneva Convention of 1930, art. 31, § 4), described in David, The International Unification of Private Law, 3 Int’l Ency. Comp. L. ch. 5, §§ 268-326 (1971).

67. UNCITRAL is reportedly seeing to it that national decisions interpreting the Convention are collected and communicated to the member states. See Pfund, United States Participation in Transnational Lawmaking, ch. 10 infra.

68. CISG, art. 8:

"(1) For the purposes of this Convention statements made by and other conduct of a party are to be interpreted according to his intent where the other party knew or could not have been unaware what that intent was.

"(2) If the preceding paragraph is not applicable, statements made by and other conduct of a party are to be interpreted according to the understanding that a reasonable person of the same kind as the other party would have had in the same circumstances.

"(3) In determining the intent of a party or the understanding a reasonable person would have had, due consideration is to be given to all relevant circumstances of the case including the negotiations, any practices which the parties have established between themselves, usages and any subsequent conduct of the parties."

69. CISG, art. 77.

70. U.C.C., § 1-103.

71. Many civil codes expressly refer to general principles in order to fill gaps. See the references to the civil codes of Austria, Italy, Spain, and Egypt by Bonell, in Commentary on the International Sales Law, supra note 10, at 77-78.

72. See Honnold, supra note 17, at § 94.

73. See text at note 42 supra. See also CISG, arts. 25-26, 34, 37, and 48.

74. CISG, art. 79(3).

75. See text at note 5 supra.

76. CISG, art. 4(a).

77. CISG, art. 36.

78. U.C.C., § 2-316(2). Similarly, a disclaimer of fitness for purpose must be "in writing and conspicuous." Under French case law, a disclaimer may be enforceable only if the buyer belong "to the same trade" as the seller. This is to be understood as meaning that he has the necessary technical expertise concerning the goods sold.

79. Honnold, supra note 17, at § 223, p. 258, takes the position that the U.C.C. should not be allowed to interfere with the Convention. For a different view, see Note, Disclaimers of Implied Warranties, 53 Fordham L. Rev. 863 (1985).

80. Their meaning is that a given, domestic rule (or a national rule meant for international relations) will be applied to an international contract notwithstanding the otherwise applicable law. See, e.g., EEC Convention on the Law Applicable to Contractual Obligations, art. 7. In the instant case, the otherwise applicable "law" is represented by the rules of the Convention, and the Convention defers to the parties’ will where they have agreed otherwise.

81. The reasoning is the same as the one according to which domestic restrictions on arbitrability are not necessarily imposed in international contracts. See Scherk v. Alberto-Culver, 416 U.S. 506, reh’g denied 419 U.S. 885 (1974), and Mitsubishi v. Soler, 473 U.S. 614 (1985). The CISG represents the fashioning of a particular law for international transactions.

82. CISG, art. 39. The period may be shorter if a contractual guarantee to that effect is held valid. See text at notes 75-81 supra.

83. See Honnold, supra note 17, at 101-03.

84. Council Directive of July 25, 1985, on the Approximation of the Laws, Regulations, and Administrative Provisions of the Member States concerning Liability for Defective Products [hereafter EEC Directive].

85. EEC Directive, supra note 84, art. 9(b).

86. In this particular situation, the EEC member states might resort to article 94 of the Convention which allows Contracting States that have the same or closely related rules on matters governed by the Convention to declare that they will not apply its rules between parties having their places of business in those states.

87. EEC Directive, supra note 84, art. 3.2.


Pace Law School Institute of International Commercial Law - Last updated August 11, 1999
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