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Published by Manz, Vienna: 1986. Reproduced with their permission.

excerpt from

Uniform Sales Law - The UN-Convention on Contracts for the International Sale of Goods

Univ. Prof. Dr. Peter Schlechtriem [*]

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III. The Sphere of Application

A. Initial Questions (Article 1(1))

As Article 1 indicates, the Convention applies to contracts of sale (for the exceptions, see Articles 2-5); barter contracts are not governed by the Convention.[41b] The Convention combines applicability on the basis of "autonomous" requirements [42] with the lex fori's rules of private international law. First, under the "autonomous" requirements, the Uniform Law for International Sales is applicable, under Article 1(1)(a), when the parties to the contract have their places of business - or alternatively, their habitual residence (Article 10(b)) - in different Contracting States. The Convention, however, does not eliminate party autonomy, since, according to Article 6, parties may opt out of the Convention completely, either by choosing a particular domestic law or by allowing the forum's rules of private international law to determine the appropriate law. Second, private international law may direct the application of the Convention when, even though the parties have their places of business in different states, the requirement that these are Contracting States is not met. It would then be sufficient that the forum's conflict-of-law rules point to the law of a Contracting State. It is clear that the Convention applies in those cases where both parties have their places of business in different Contracting States but find themselves in a court of a non-Contracting State whose rules of private international law point to the law of a Contracting State.[43] Article 1(1)(b) also leads to the application of the Convention in cases when the private international law rules of the forum state,[44] whether or not it is a Contracting State, would apply the law of a Contracting State, as long as the basic requirement of Article 1(1) is met, namely, that the parties' places of business are in different states.[45] Of course, Article 1(1)(b) considerably enlarges [page 24] the sphere of application of the Convention.[46] Views on the solution differ. The rule was very controversial in Vienna [47], and the opposition to it finally led to the reservation clause in Article 95.

The pros and cons of this provision must be judged from several standpoints. First, it is advantageous for Contracting States to apply the Uniform Law for International Sales in international transactions not only when their own law is applicable by virtue of Article 1(1)(a), but also when it applies by virtue of private international law, since decisions based on the modern law of the Convention, developed under the auspices of the United Nations and tailored to the intricacies of international sales transactions, often will be far more acceptable to both parties than one party's domestic law that often is entirely alien to the other.[48] Application of the Convention is even more desirable when the private international law of a non-Contracting State invokes the law of a Contracting State. Then, in effect, the court would refer to the Convention rather than to domestic law. It would certainly be easier for the courts of non-Contracting States to understand and apply the Convention than it would be for them to apply the domestic sales law of a foreign country.[48a] Finally, the fact that Contracting States are bound to apply the Convention, even in relation to non-Contracting States which are not bound to do the same, should not influence the appraisal of these provisions.[49] The fact that Contracting States give more than they take cannot give rise to serious apprehensions that this will dissuade states from signing the Convention.

More understandable are the fears that Article 1(1)(b) could make the Convention more difficult to apply.[49a] For example, domestic rules of private [page 25] international law could apply one law to the formation of the contract and a different law to the substantive sales law. In such a case, only parts of the uniform sales law would be applicable.[50] However, a partial application, limited to the rights and obligations arising from the contract already formed, should not present insurmountable obstacles because the Convention was drafted in such a way that Part III (the substantive sales provisions), at least, is compatible with domestic formation-of-contract provisions.[51] The uncertainty which may arise from the parties' choice of law should also not be overestimated. If the parties have chosen the law of a Contracting State, then it is a matter of interpretation whether they meant the Convention or that state's local sales law. Moreover, not only Article 1(1)(b) gives rise to this question. Numerous German court decisions have had to decide the meaning of standard references to "German" law in cases where the requirements for the application of ULIS are met.[52]

Some delegations indicated that laws in their countries already make special provision for the regulation of foreign trade.[53] Despite this serious concern, the majority of delegations voted for the version of Article 1(1)(b) [54] as formulated, but the Plenary accepted the Czechoslovakian proposal [55] to include as a reservation clause - Article 95 - the option for Contracting States not to enact Article 1(1)(b).[56] A reservation under Article 95 restricts the meaning of "Contracting" in [page 26] the phrase "Contracting State" (Article 1(l)(b)). If the forum's conflicts law invokes the law of a Contracting State that has made the reservation, the forum must apply the domestic law of the reservation state and not the Convention.[56a]

B. Sufficiency of Foreign Contacts

In order for ULIS, the Hague Sales Law, to apply, it is necessary that borders be crossed, either in the formation or in the execution of the contract, or that formation and execution each take place in different countries. These requirements were not retained in the 1980 Convention. The application of the Uniform Law for International Sales requires only that the parties' places or business be located in different states, even when formation and execution both take place in a single state, and even though that state is not a Contracting State. Since the sole criterion for the Convention's applicability is that the parties' places of business be in different states, there is some risk that the Convention - instead of domestic sales law - would be invoked in a case where the transaction's foreign contacts are not recognizable to one of the parties. For example, a party who has his place of business in a Contracting State may buy in that state and the goods may be delivered and payment made there. For the Convention to apply, the fact that the other party's place of business is in a different state must be recognizable no later than the time of the formation of the contract. This is reflected in Article 1(2), which further specifies that the fact that the parties have their places of business in different states must be apparent either on the face of the contract, from the dealings between them, or from the information disclosed by them.[57]

C. Application of the Convention Independent of the Parties' Commercial Character or Nationality (Article 1(3))

Like Article 7 of ULIS, Article 1(3) of the 1980 Convention also provides that the application of the Convention does not depend on whether the parties are considered "civil" or "commercial". The Convention thereby avoids the intricate problem of defining a "commercial party". It is also irrelevant whether the sales contract is commercial or private in character.[58] Finally, the nationality of the parties is insignificant. Thus, in certain circumstances, a contract between two Germans would be controlled by the Convention, such as if one of the parties has his place of business - or, alternatively, his habitual residence - in France and this fact was known to the other party.[59] [page 27]

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FOOTNOTES

* The author of this book participated at the Conference as a member of the delegation from the Federal Republic of Germany. The views expressed here are personal to the author and do not necessarily represent the position of the F.R.G. or its delegation.

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41b. UNCITRAL'S interest in barter and barter-like transactions indicates that they are regarded as outside the scope of the Convention. See Winship, Scope at 1-24; infra note 49a.

42. The question that was much debated in connection with ULIS, namely whether that and the supplementary provision, ULIS Article 2, "excluding" the application of private international law, really displace it, or whether it simply leads to a "hidden application" of private law rules in regard to the application of the uniform law, seems to be theoretical and fruitless. cf. P. Schlechtriem, Einheitliches Kaufrecht -Wissenschaftliches Modell oder praxisnahe Regelung? 14 et seq. (1978). See also Lwe, Anwendungsgebiet at 13.

43. In such a case the Hague Conventions are only invoked on the basis of domestic conflicts rules. Presumably the Convention would already be applicable on the basis of article 1(1)(a).

44. The Hague Convention on the Law Applicable to International Sale of Movable Goods of 1955 can thus also lead to application of the Convention. See A/Conf. 1979/C.2/SR.2 at 5 32-33 (= O.R. 440) (position of the observer from the Hague Conference for Private International Law).

45. In cases where both parties do not have their places of business in Contracting States, Article 1(1)(b) leads to the application of CISG not only by the courts of Contracting States but also by courts of non-Contracting States, provided the private international law of the non-Contracting States makes applicable the sales law of a Contracting State which applies Article 1(1)(b). Of course, this revives the specters which were raised in conjunction with the Hague Conventions: If two parties with places of business in different non-Contracting States form a contract in a Contracting State, and if disputes then arise in a third non-Contracting State whose conflicts rules make applicable the law of the state where the contract was formed, the court must apply the Convention, which is alien both to the court and to the parties. But the domestic sales law of the Contracting State would be even more alien. It is not CISG that is the stumbling-block but rather the weakness of the contact which determines the controlling law. The same difficulties may arise with the Hague Conventions and on the basis of Article 1(1)(a), even though to a considerably lesser extent. See supra note 43; contra Winship, Scope, at 1-28, 29 with references to the Secretariat's Commentary. Compare also Volken, Lausanner Kolloquium at 28.

46. Compare Huber at 424 (approval) with Herber at 603 ("a regrettable expansion"). cf. also Lwe, Lausanner Kolloquium at 15.

47. For the details of the discussion, see the summary reports of the Conference.

48. See also Herber at 603 ("As a rule it is expedient for a state that has ratified the Convention to apply it to all international sales contracts" (translation); but cf. Honnold, Commentary 47 (some domestic laws are well-suited to international sales transactions).

48a. Nan fears that Article 1(1)(b) will lead to forum shopping. This is unlikely. Forum shopping is favored by conflict-of-law rules that give the plaintiff the choice between several domestic laws. This choice would now include the Convention instead of the domestic law of the Contracting State. The "unforeseeability" of the applicable law (and of the applicability of the Convention) results rather from the uncertainty of national conflict-of-law rules.

49. See Herber at 603; see also Herber, 1977 RIW/AWD 317.

49a. See Winship, Scope, Appendix. Winship examines 54 permutations under Article 1(1)(b) but concludes that "there are only two questions which raise difficulties".

50. This reservation - and others - motivated the F.R.G.'s motion to reject the proposal. See A/Conf. 97/8, S. 6 and A/Conf. 97/C.1/SR.1 at 3 (= O.R. 237). According to Huber at 423, Article 1(1)(b) modifies internal conflicts rules and would yield the abandonment of special conflicts rules for contract formation. This result was not intended and would have been difficult to include in the Conference's mandate.

51. In an alternative motion (A/Conf. 97/9) (= O.R. 71 et seq.), the F.R.G. tried to clarify that Article 1(1)(b) should refer to conflict-of-law norms that concern the rights and obligations arising from an already formed contract. The motion was rejected. In my view, the Convention's provisions on the formation of contract are probably compatible with the substantive provisions of domestic sales law, so that reference by the conflicts rules only to the Convention's provisions on formation of contract should not raise any insurmountable difficulties.

52. See Judgment of Dec. 4, 1985, 1986 RIW 214; Huber at 462 note 30 (further references); Reinhart at 1-5. See also Lausanner Kolloquium at 36 (Farnsworth).

53. See A/Conf. 97/C.1/SR.1 at 3 (= O.R. 237) (statement by Kopác (Czechoslovakia)); A/Conf. 97/C.1/SR.1 at 5 (= O.R. 237 et seq.) (statement by Wagner (G.D.R.)). In the G.D.R.'s International Commercial Contracts Act 1(2), however, there is a reservation in favor of international conventions. Such states, when they become Contracting States, do not apply their special foreign trade laws where the parties to a sales contract have their places of business in a Contracting State. Moreover, if the G.D.R. and Czechoslovakia adopt the Convention, then it will apply to sales contracts between parties that have their places of business in these states on the basis of Article 1(1)(a).

54. In the first Committee, the vote was 25 in favor, 7 against, and 10 abstentions. In the Plenary there were 42 yes votes, 0 no votes and 1 abstention. A/Conf. 97/SR.6 (= O.R. 199 et seq.).

55. Attempts by Czechoslovakia in the Second Committee to restrict the application of the Convention to contracts between parties in Contracting States were unsuccessful. See A/Conf. 97/C.2/L.7 and L.27 (= O.R. 145 and 152); A/Conf. 97/C.2/SR.2 at 2 et seq. (= O.R. 439).

56. Despite the reservations expressed by the F.R.G. with regard to Article 1(1)(b), I would welcome the decision by the F.R.G. not to make this reservation. For a convincing analysis, see Winship, Scope at 28, Lwe, Lausanner Kolloquium at 15.

56a. Convincing Winship, Scope, at 1-27, 28.

57. As an example of the inapplicability of the Convention when the other party's foreign contacts are not recognizable, the Secretariat's Commentary mentions the case of a party who is an agent of an undisclosed principal whose place of business is in a different state. See also Honnold, Commentary 41. Under German law, the inapplicability of the Convention would follow because only the agent would actually be a party to the contract.

58. But see infra at III. D.1. (discussion of Article 2(a)).

59. In UNCITRAL the question was raised whether nationality should be introduced as an (additional) prerequisite for the application of the Convention. However, this thought was not pursued because of the difficulty in determining the "nationality" of legal persons. See 8 UNCITRAL Y.B. 26 14 et seq. (1977).

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