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Presented in "Celebrating Success: 25 Years United Nations Convention on Contracts for the International Sale of Goods" (Collation of Papers at UNCITRAL -- SIAC Conference 22-23 September 2005, Singapore), published and copyright by the Singapore International Arbitration Centre at 8-17. Reproduced with permission of the SIAC.

CISG - Aspirations and Framework

Chan Leng Sun [*]

  1. Birth
  2. Aspirations
  3. Principles of interpretation
  4. Formation and modification of the contract
  5. Rights and obligations
    1. The sellers' obligations
    2. The buyer's obligations
  6. Breach and remedies
  7. Risk and preservation
  8. Closing remarks

The United Nations Convention on Contracts for the International Sale of Goods ('CISG') celebrated its 25th anniversary in 2005. This paper provides a brief overview of the CISG and how its provisions reflect the aspirations of the Conference that gave birth to it. Extensive bibliographies of detailed commentaries can be found at <http://www.uncitral.org>, <http://www.cisg.law.pace.edu> or <http://www.unilex.info>.

I.  BIRTH

The United Nations Convention on Contracts for the International Sale of Goods ('CISG'), one might say, was long in gestation. We can in fact track its conception back to 1929 when the idea for a uniform law for international sale of goods was first explored by the International Institute for the Unification of Private Law ('UNIDROIT') in Rome. Due to the outbreak of war, the efforts of UNIDROIT bore fruits only in 1964 when a diplomatic conference at The Hague adopted two Conventions: a Uniform Law on the Formation of Contracts for the International Sale of Goods and a Uniform Law for the International Sale of Goods. Although both Conventions came into force in 1972, they did not enjoy widespread acceptance. Only nine States became parties, of whom seven were European countries.

After the United Nations Commission on International Trade Law ('UNCITRAL') was formed in 1968, it considered whether or not to see if more States could be persuaded to sign up to the Hague Conventions. They discovered that there would be continuing resistance to these Conventions due to their being seen as the product of Western European scholarship and traditions - a fair comment.[1] UNCITRAL therefore decided to work on a new text with more representative and diverse participation. This is reflected in the preamble to the CISG, which speaks of the adoption of uniform rules that 'take into account the different social, economic and legal systems'. The diplomatic conference that adopted the CISG text in Vienna in 1980 comprised not only 62 States but also eight international [page 8] organisations with observer status, including the World Bank, the International Chamber of Commerce and UNIDROIT.

As the CISG combined and replaced the provisions of the two Hague Conventions of 1964, it allowed a Contracting State to declare that it would not be bound by Part II of the CISG (on formation of contract) or Part III (on substantive rights and obligations).

The CISG came into effect on 1 January 1988 following ratification by 11 States representing different legal and economic systems and geographical regions. These pioneers are Argentina, China, Egypt, France, Hungary, Italy, Lesotho, Syria, United States, Yugoslavia and Zambia. There are now 65 signatories to the CISG.

II.  ASPIRATIONS

The rationale for a uniform law of international sale of goods is straightforward. The diplomatic conference declared in the preamble of the CISG that international trade on the basis of equality and mutual benefit contributes to friendly relations between States, and a uniform law will remove legal barriers and promote international trade. The CISG applies only to an international sale contract, which it defines in Article 1 to be:

contracts of sale of goods between parties whose places of business are in different States:

(a) when the States are Contracting States; or
(b) when the rules of private international law lead to the application of the law of a Contracting State.[2]

'Goods' are not defined under the CISG but the CISG clearly applies only to tangible chattels, not intangibles like money or intellectual property. Article 2 excludes certain sale transactions, such as auction, consumer purchases and sale of stocks, securities, electricity, ships or aircraft. These are transactions that are more likely to be subject to national policies and regulations. The CISG is aimed at sale transactions that are mercantile in nature, and that may be amenable to universality of practice among traders of different nations. [page 9]

The CISG does not purport to be exhaustive. There is still need for a proper, domestic law that continues to govern matters of validity of contract, passing of title and third party rights. The CISG governs only the formation of the contract of sale and the rights and obligations of the parties.[3]

Article 5 further provides that the CISG does not govern the seller's liability for death or personal injury caused by the goods to any person. This does not mean that there cannot be such liability under general contract law, outside the scope of the CISG.

We now take a look at the principles applicable to different aspects of the international sale contract.

III.  PRINCIPLES OF INTERPRETATION

The aim of promoting uniformity is expressed in Article 7(1), which exhorts the interpretation of the CISG with this purpose in mind, having regard to its international character and to the observance of good faith in international trade. Insofar as this provision specifically mentions good faith, it reveals the intention of its drafters that good faith should have a role to play in an international sale contract. Even though there is no specific provision imposing a duty of good faith, civil jurisdictions frequently apply good faith to determine the merits of a case (as opposed to merely interpreting the Convention in accordance with good faith). Good faith has hitherto not been a principle of the law of contract in common law jurisdictions, but it is expected that common law jurisdictions that are parties to the CISG will pay more regard to it in resolving disputes over an international sale contract.

Article 7(2) provides that, in case of lacuna, the general principles of the Convention are to be used in settling questions on matters governed by the Convention. Where no such principles are found within the CISG on a particular question, the law applicable by virtue of the rules of private international law shall decide the question.

When it comes to interpreting the international sale contract itself, Article 8 contains several provisions, which can essentially be taken to mean that the intent of parties shall prevail. In determining intent, consideration may be given to all relevant circumstances, including negotiations, practices and conduct of the parties. The CISG does away with the oft-criticised and complicated parol [page 10] evidence rule that has survived in various forms in common law jurisdictions, including Singapore, England and the United States.[4]

IV.  FORMATION AND MODIFICATION OF THE CONTRACT

For a uniform law to work, it must be free of idiosyncratic and technical rules peculiar to a local context. Thus, many provisions of the CISG reflect wisdom common to diverse nations, or put bluntly, common sense.

Part II of the CISG, on formation of contract, for instance, is free from formalities. Article 11 provides that a contract of sale need not be concluded in or evidenced by writing and is not subject to any other requirement of form. It may be proved by any means, including witnesses. Article 29 provides likewise for modification or termination of the contract by mere agreement in any form, unless the contract has stated that any modification or termination must be in writing. If so, the CISG gives effect to this condition, consistent with another guiding principle of the CISG - to give effect to the intent of the parties.[5]

'Writing' is wide enough to include 'electronic communication retrievable in perceivable form'.[6] On 23 November 2005, the United Nations General Assembly adopted a new Convention on the Use of Electronic Communications in International Contracting to facilitate the use of electronic communications in international contracts and to keep old international trade instruments relevant in the age of e-mail, electronic data interchange and the internet.

Part II on formation of contract makes offer and acceptance the essential ingredients of a contract, much like common law. It is rather detailed in setting out what makes an offer or an acceptance effective, and when an offer can be withdrawn.[7] Article 19 attempts to solve the problem of 'battle of the forms', so that immaterial variations in a purported acceptance do not amount to a rejection of the offer and thus prevent the contract from coming into existence.

The CISG is free of the common law baggage of 'consideration'. For example, Article 16(2) provides that an offer cannot be revoked within the time that it is expressed to be irrevocable. Under common law, the promise to keep the [page 11] offer open is not supported by consideration, and it is therefore possible for the offeror to change his mind. Under the CISG, there is no need to worry whether consideration is past or current, illusory or simply inadequate. The CISG is clear on what is needed to complete or modify a contract, so there is no spectre of consideration tearing asunder what CISG contractors put together.

V.  RIGHTS AND OBLIGATIONS

Two recurring themes run through Part III of the CISG, on the substantive rights and obligations of parties. The first is freedom of contract. The second is that the expectations of the parties should be met. The CISG sets out consequences following specific factual events that are designed to meet what is fair or reasonable in those circumstances.

1. The sellers' obligations

Article 30 distils the seller's obligation: 'to deliver the goods, hand over any documents relating to them and transfer the property in the goods, as required by the contract and this Convention.' There are two main aspects to this obligation - with regard to delivery, and with regard to the goods.

Delivery is to be at a time and place in accordance with the contract, or if the contract is silent, in accordance with the manner specified in the CISG for various circumstances.[8]

In most international sale contracts, the manner of delivery is easily dealt with by reference to customary trade terms such as those provided by INCOTERMS. Where none is stipulated, Article 31 fills in the gap by requiring delivery to either a carrier or placing the goods at the buyer's disposal.

As will be seen below, while the parties should comply with time stipulations, all is not lost if delivery is missed by an hour or a day. Most breaches can be rectified with additional time being provided by the buyer. And a breach does not necessarily lead to avoidance of the contract unless it is serious in nature.

Where the goods are concerned, they must be of the quantity, quality and description required by the contract[9] and free of third party claims.[10] Article 35 of the CISG specifies certain conditions for conformity, such as fitness [page 12] for purpose, without which the goods do not conform to the contract. Fitness for purpose can be that for which goods of the same description are ordinarily used, or fitness for the particular purpose made known to the seller. These are concepts that appear in some Commonwealth domestic sale of goods legislation, such as those in Singapore, Malaysia and the United Kingdom.

2. The buyer's obligations

The buyer's obligation is straightforward - to pay the price and take delivery of the goods as required by the contract and the CISG.[11]

Where the price is not fixed or provided for by the contract, Article 55 provides the parties are taken to have intended the price 'generally charged at the time of the conclusion of the contract for such goods sold under comparable circumstances in the trade concerned'. Article 55 does not sit easily with Article 14 that states that a proposal for concluding a contract 'is sufficiently definite if it expressly or implicitly fixes or makes provision for determining the quantity and the price'. While Article 14 might give the impression that a proposal that lacks any provision on price might be incapable of giving rise to a contract, Article 55 suggests that this omission can be rectified by reference to a general market price.[12] It has been held in one jurisdiction that where there is no market price for the goods in question, Article 55 does not save the contract by providing a price in the absence of agreement.[13]

Articles 57 to 59 state the manner and time in which the buyer is to pay the price.

The requirements of inspection and mitigation, so familiar to sale transactions, are preserved.[14]

VI.  BREACH AND REMEDIES

Different legal systems have different philosophies towards liability for breach of contract. As the CISG unified the law from diverse legal systems, one question that arose in its formation was whether liability should be strict, or dependent on fault, such as negligence. [page 13]

Under common law, liability for breach of contract may be considered strict. The party in breach has to pay damages, and it is no excuse to say that the breach was caused by a third party or that it occurred despite best endeavours.

Article 79 of the CISG provides a defence to liability if the failure to perform is due to an impediment beyond a party's control, or if it was caused by a third party.[15] This should not be confused with the common law doctrine of frustration, which will terminate the contract if applied. Article 79 merely provides a defence to liability. Whether it is easier to invoke than frustration is debatable. Article 79 does not necessarily provide an easy defence. Article 79 does not excuse a change of heart because of mere difficulties. The failure must be beyond a party's control, although it will not always be easy to tell whether this was the case or whether it was merely beyond his reasonable efforts. Honnold goes so far as to consider the 'likelihood that Article 79 may be the Convention's least successful part of the half-century of work towards international uniformity'.[16] Notice of the impediment must be given to the person expecting performance.

Where there is breach, the CISG simplifies the approach to remedies. There is a set of remedies available to the buyer under Article 45 when the seller 'fails to perform any of his obligations'. Conversely, there is also a set of remedies to the seller under Article 61 when the buyer 'fails to perform any of his obligations'.

There are also common remedies available to both parties where there is anticipatory breach and breach of instalment payments.[17] For example, the remedies of damages and specific performance are available to both buyer and seller, subject to conditions.[18]

Damages must be equal to the loss and can include loss of profit, but within the parameters of foreseeability.[19] The test is not very different from the common law test propounded in Hadley v Baxendale.[20] The CISG also provides for the payment of interest for any sums in arrears, although it is silent on the formula for calculating interest.[21] This may be an improvement over common law, which does not entitle a claimant to interest if the contract does not provide for it.[22] [page 14]

The remedy of specific performance depends on whether a court would order such a remedy under its national laws for similar contracts not governed by the CISG.[23]

One aim of the CISG is to save the contract, and this means inserting provisions that enable either party to make efforts to continue with the contractual relationship. There are provisions for additional time for performance to be given (adopted from the German Nachfrist notice),[24] suspension of the contract in anticipatory breach,[25] opportunity to cure the breach[26] and varied or substituted performance, such as the buyer reducing the price or the seller himself determining the specifications of the goods.[27] Many of these provisions do not have counterparts in common law.

The CISG does allow the contract to be terminated, or 'avoided', if the breach is serious.[28] In using gravity of breach as a benchmark, the CISG avoids (no pun intended) the complexity in common law classification of conditions, warranties or innominate terms. The concept used in the CISG is fundamental breach, which should not be confused with the common law doctrine of fundamental breach that was used to undermine the operation of exemption clauses. The CISG fundamental breach is one that 'results in such detriment as substantially to deprive him of what he is entitled to expect under the contract', unless the result was unforeseeable.[29] To some, this might be reminiscent of the requirement of deprivation of 'substantially the whole benefit' of the contract under common law, as expressed in Hong Kong Fir Shipping Co Ltd v Kawasaki Kisen Kaisha Ltd.[30]

Avoidance releases both parties from their obligations, but does not affect damages due for breach, or any dispute resolution clause. There is also the right to claim restitution for a wholly or partially performed contract.[31]

VII.  RISK AND PRESERVATION

The CISG does not deal with the passing of property. But it does deal with the allocation of risk. Article 66 enunciates the leading principle that the buyer must [page 15] pay the price even if the goods are lost or damaged after the risk has passed to him, unless the loss or damage was due to an 'act or omission' of the seller. The general rule is that risk passes when the buyer takes over the goods.[32]

Articles 67 and 68 address the passing of risk for goods under carriage or sold in transit. Article 67 provides that risk passes when the goods are 'handed over' to the carrier, whereas risk passes to the buyer under Article 68 for goods sold in transit on conclusion of the contract unless 'the circumstances' indicate that it passed when the goods were handed over to the carrier. These provisions are comparable to modern expectations embodied in trade definitions like 'INCOTERMS', 'CPT' (Carriage Paid to ...) or 'CIP' (Carriage and Insurance Paid to ...). Nonetheless, it is prudent to look out for specific wordings or other trade definitions used in the contract that might depart from the general provisions of the CISG on passing of risk.

The CISG recognises that, despite the rights and obligations of parties regarding delivery and rejection of the goods, the goods might remain in the temporary custody of one party pending resolution of a dispute or late performance by the other. Notwithstanding the rules on passing of risk, it is only right that the person who has possession of the goods does not just stand by and watch them deteriorate just because the risk lies with someone else. Therefore, Articles 85 to 88 require a party in possession to take reasonable measures to preserve the goods. In most cases, reasonable expenses of preservation can be recovered from the one for whose benefit they were incurred.

VIII.  CLOSING REMARKS

This overview is not an empirical study on the extent to which the objectives of the CISG have been met. But the following observations are, hopefully, not out of place.

Detractors and earnest scholars alike will note that uniformity has not been achieved in the 25 years since the birth of the CISG. It is a fact that there is no absolute uniformity. But the CISG never promised absolute uniformity - it recognised that such a lofty target was unrealistic.

First, it does not exhaustively cover all aspects of a sale contract. It is supplemented by domestic law on matters that are traditionally the subject of national policies, such as property and vitiating factors. There will be some variations [page 16] of law and practice on areas outside the CISG, that will have an impact on the transaction.

Secondly, its rules are designed to be flexible, rather than technical and detailed, so that there is room to accommodate changes in commercial practices. If calling on a local legislature to react to trade practices takes time, going back to an international conference will be even slower. Therefore, the adoption of broad standards in the CISG can hopefully keep it relevant over time. But it is also inevitable that this means there will be divergence in application among different tribunals or courts.

Nonetheless, it is better to have some common principles than none at all. The CISG can minimise, if not eliminate, uncertainty and conflicts. It is expressed in clear, straightforward language accessible to merchants of both common law and civil law systems. Its provisions aimed at maintenance of the contract and preserving the goods take account of the trouble and expense that parties go through to put together an international sale contract involving multimodal transport, long distances, banks and other intermediaries. While the CISG tries to anticipate factual scenarios and provide solutions to them, it gives due regard to the autonomy of the parties. They are free to vary or derogate from any of its provisions. Freedom of contract, good faith in performance, reasonableness in conduct and proportionate remedies are widely accepted norms weaved into the framework of the Convention.

Having a uniform law that establishes common grounds between parties in two different countries reduces the chauvinistic preference of one country's laws over that of the other. There should be less need for forum shopping or tussles over conflicts of law. A neutral law comprising general principles that are easily understood by both parties should allay fear of the unknown effects of a foreign law. [page 17]


FOOTNOTES

* Chan Leng Sun has been a partner at Ang & Partners since 1995, where he currently heads the Shipping & Transport team. He is admitted to practice in Malaysia (1989), Singapore (1993) and England (1997). In addition to over 10 years of experience as an advocate and solicitor, he also taught shipping law and international business transactions at the National University of Singapore from 1990 to 1993. From 2002 to 2003, he served with the United Nations Compensation Commission as legal officer in charge of an instalment of war reparation claims. Mr Chan graduated with 1st Class Honours from the University of Malaya in 1988 and obtained his LLM from Cambridge University in 1990. During law school days, he had represented Malaysia twice at the Jessup Public International Law Moot finals in Washington and Boston respectively. He was a Kuok Foundation scholar, a Pegasus Cambridge scholar and an Honorary Shell scholar. He is a member of the Singapore Institute of Arbitrators and the Chartered Institute of Arbitrators. His principal areas of practice are admiralty and shipping, carriage of goods and logistics, international trade, contract, tort, insurance, general commercial litigation and alternative dispute resolution including arbitration and mediation. He has represented companies in the logistics, shipping and building industries, oil rig managers, insurers, trading companies, manufacturers, conglomerates and offshore law firms.

1. Of the 28 States that attended the Hague Conference, 19 were from Western Europe and three were from Eastern Europe. The other participants were Colombia, Japan and the United Arab Republic.

2. It should be noted that Article 1(1)(b) is not part of Singapore law, as section 3(2) of the Sale of Goods (United Nations Convention) Act 1995 excludes its operation.

3. Article 4.

4. See the decision of the US 11th Circuit Court in MCC-Marble Ceramic Center Inc v Ceramica Nuova D'Agostino S.p.A. 144 F 3d 1384 (11th Cir 1998).

5. States may opt out of Articles 11 and 29 if their legislation requires contracts to be in writing - Article 96.

6. CISG-AC Opinion No 1 Electronic Communications under CISG, 15 August 2003 - <http://www.cisg-online.ch/cisg/docs/CISG-AC_Op_no_1.pdf>.

7. Articles 14 to 24.

8. Articles 31 to 34.

9. Articles 35 to 40.

10. Articles 41 to 43.

11. Article 53.

12. ICC Court of Arbitration, 1999, Award No 7819, Bulletin of the ICC International Court of Arbitration, 2001, 60; also CLOUT Case No 215 (Bezirksgericht St. Gallen, Switzerland, 3 July 1997); cited in UNCITRAL Digest of case law on the CISG, A/CN.9/SER.C/DIGEST/CISG/55.

13. CLOUT Case No 53 (Legfelsóbb Biróság, Hungary, 25 September 1992), cited in UNCITRAL Digest of case law on the CISG, A/CN.9/SER.C/DIGEST/CISG/55.

14. Articles 58(3) and 77.

15. Article 79.

16. Honnold, Uniform Law for International Sales under the 1980 United Nations Convention (1999, 3rd ed), para 432.1.

17. Articles 71 to 73.

18. Articles 46, 62 and 74 to 77.

19. Article 74.

20. (1854) 9 Exch 341; but see The Heron II [1969] 1 AC 350.

21. Article 78.

22. In civil procedure such as that in Singapore, statutory interest may be claimed from the time that proceedings are commenced.

23. Articles 28.

24. Articles 47 and 63.

25. Article 71.

26. Article 48.

27. Articles 50 and 65.

28. Articles 49 and 64.

29. Article 25.

30. [1962] 2 QB 26, 66.

31. Article 81.

32. Article 69.


Pace Law School Institute of International Commercial Law - Last updated May 31, 2006
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