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Reproduced with permission from 74(9) The Law Institute Journal, Victoria (2000) 73-74

The CISG - Getting off the Fence

Bruno Zeller, Victoria University

Introduction

Globalisation has been an important aspect of the late 20th century. It shaped the "way we do business." It has diminished the importance of national boundaries. "International communication is now so swift and easy, trade and commerce between nations so routine that the legal systems of nation states are being forced to come to terms with a new reality."[1] One of the effects of such a new reality is the creation of International Conventions. The Convention for the International Sale of Goods (CISG) is such a development.[2] It affords traders the opportunity to overcome national differences in favor of an international sales law. Unfortunately anecdotal evidence suggests that the legal profession still takes advantage of article 6 of the CISG and excludes the application of the international law in favor of domestic laws. This is only a short-term solution, as with increased globalisation, more and more attention will be directed towards uniformity and harmonization of laws. In the United States the body of law dealing with the CISG is increasing at a rapid rate and cannot be ignored.

The most important factor in advancing the CISG is the understanding of the underpinning conceptual basis. This necessitates the development of a new approach to interpretation, which is not yet applied in domestic dispute resolutions

The CISG has been ratified by 57 countries, and for that fact, has become the de facto international sales law specially in the EC. It must be pointed out that not all major trading partners of Australia have ratified the CISG. England, Japan and Indonesia just to mention a few, have not yet ratified the Convention.

Ratification is the unstated philosophical underpinning of the system with the acceptance of the paramount rights of sovereign nations.[3] The Vienna Convention on the Law of Treaties (Law of Treaties) regulates the mechanism through which states can enter into binding treaties with each other. It has also created an awareness in the judiciary in the interpretation of Conventions. Section 3 sets out the rules as to interpretation of treaties. Specially article 31(1) of the Law of Treaties is of interest as it states "A treaty shall be interpreted in good faith in accordance with the ordinary meaning to be given to the terms of the treaty in their context and in the light of its object and purpose."

Questions of application

What standing has the CISG within our domestic law? Von Doussa J. explained this clearly when he said: " the Convention, which is now part of the municiple law of Australia, the meaning of that law, and its application to the facts, is to be determined by this Court. It is not a matter for expert evidence. The Convention is not to be treated as a foreign law which requires proof as a fact."[4] Within the Sale of Goods (Vienna Convention) Act 1987 s.6 in the enabling part states that" The Provision of the Convention prevail over any law in force in Victoria to the extent of any inconsistency."[5] This is supplemented by article 1, which states:

"(1) This Convention applies to contracts of sale of goods between parties whose place 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."

At first glance, it appears that the interpretation of this article does not pose any problem. In an ICC arbitration case the arbitrator ruled that the CISG, which is the law of California, applies to matters governed by the CISG pursuant to article 1(1)(a).[6] A second case also indicates a correct application of article 1.

An arbitrator had to decide the choice of law in a contract which was silent on this issue. The seller was from Russia the buyers from Argentina and Hungary and the stipulated forum was Zurich in Switzerland. The Arbitrator applied the law of the forum namely Swiss law. According to Swiss domestic law he had to apply the Hague Convention which led him to apply Russian domestic law. As the CISG is part of Russian domestic law, the arbitrator could apply the CISG as the governing law.[7]

Not all interpretations followed the same line of reasoning. Two Italian decisions illustrate this clearly. The dispute was between an Italian seller and a Japanese buyer. The contract was subject to Italian law. The majority of arbitrators, with one dissenting, came to the conclusion that the choice of law amounted to an implicit exclusion of the CISG.[8] Such a conclusion is patently wrong. The court correctly stated that the conflict of law rule leads to the application of Italian law and should have applied article 1(1)(b) as Japan is not a Contracting State. If a country accepts the CISG, that is ratifies the Convention, it becomes part of its own body of law. If a matter falls within the sphere of application of the CISG then the Convention must be applied.

The second case from the Tribunale Civile di Monza is similar.[9] The court correctly found that article 1(1)(a) is not applicable, as Sweden was not a Contracting State. They went on to reject the applicability of article 1(1)(b) on the grounds that the article only operates in the absence of a choice of law by the parties. The court read the sub-section far too narrowly. Clearly the two Italian cases illustrate that the tribunals did not interpret the CISG correctly.

The adoption of uniform rules has been achieved by introducing the same rules into various domestic systems replacing domestic rules. In Australia the CISG would have replaced in parts the Goods Act, the Trade Practices Act and the law on Contracts. The CISG promises to take into consideration the variances and differences encountered through different social, economic and legal systems which would as a result advance different solutions to potentially the same problems. With such a system in place the legal barriers to international trade would be removed hence reduce or manage cross border legal risks faced by Australian firms.

Questions of Interpretation

As seen above such a task is difficult, as the judiciary traditionally base their decisions on a conceptual basis known to them, namely the domestic system. The CISG has, contrary to other Conventions such as the Hague/Visby rules of the Carriage of Goods by Sea, included an article specifically devoted to the interpretation of the CISG. It specifically urges tribunals and courts not to use domestic law unless specifically directed to do so by the Convention itself. Assuming that article 7 is written clearly and is understood by the judiciary, there is great expectation that international trade will be governed by uniform laws. However if the interpretation of the CISG is not understood recourse to domestic law is inevitable. The question therefore is whether the CISG has been drafted clearly. Magnus certainly thinks so when he quotes that the CISG "is well on the way to becoming the Magna Carta of international trade."[10]

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

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

Before we determine the method of interpretation, some of the differences between domestic and international legislation and in particular the CISG need to be examined.

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

Domestic legislation needs to consider the choice and clarity of words. International legislation, in addition, also needs to consider the effects of translation on the meaning of words. This gives rise to a new method of interpretation when meaning must be given to a word which is unclear. Translations of the same word and article in different languages needs to be consulted to possibly find an answer to the original question. Article 3(1) can be used to illustrate this point. The particular issue is that the buyer can supply a "substantial" part of material. What is the meaning of substantial? If we look at the official German and French translations of the CISG we find that the words "Wesentlich," and "un part essentielle" are used. In my view "Wesentlich" does not match exactly the French nor English translation but it corresponds better with the French "un part essentielle" rather than the English "substantial." Hence when we look at "substantial" as found in article 3(1) the word essential must be kept in mind and may help to overcome any ambiguities which may arise otherwise. Such an approach also fits into the policy of uniform interpretation as mentioned above as it views words not in a national but international context. It also overcomes a problem Honnold describes as literary "deconstruction."[11]

Such considerations make the choice of words harder and requires a special solution. The drafters of the CISG solved this particular problem and consciously "rooted out words with domestic legal connotations in favor of non-legal earthy words to refer to physical acts."[12] Keeping the above in mind, legislative interpretation requires a different approach to what the legal profession is used to. Indeed, to appreciate the full meaning of words and to resolve many ambiguities they must be read within the context of the CISG.[13] To use an example we could pose a question, namely what is the definition of goods? Article 2 does not describe what goods are. It states and list those items which are not classed as goods. At first glance the solution to the definition of goods is simple. It is everything not excluded in article 2. This is not very satisfactory but further reading of the CISG supplies us with a more narrowly defined description. Article 35 mentions goods as required by the contract and "which are contained or packaged" in the manner required by the contract.[14] Article 46(3) requires that, if goods do not conform with the contract, the seller can remedy the lack of conformity by "repair".[15] Articles 85 to 88 regulate the preservation of goods and in article 87 specifically mentions "warehousing" of goods. What conclusions do we draw from this? If there are ambiguities, that is whether a particular item can be classified as goods, a court can ask the additional question whether the item in question is a movable tangible property that can be packaged, repaired if necessary and warehoused if required.

Whenever we examine conceptual issues we need to remember that the CISG like any other international convention contains provisions which are a result of negotiations. "amongst wildly different interests over long time periods [and]with narrow windows of political opportunity."[16]

Another point worth remembering is the fact that the CISG was never intended to be an exhaustive source of law on the international sale of goods. As an important example the legislation itself states that it "governs only the formation of the contract of sale and the rights and obligations of the seller and the buyer arising from such a contract."[17] Hence the question of validity is specifically excluded. It follows that the CISG cannot govern without domestic law. The problem with interpretation is not only restricted to what is in the legislation but also what is excluded from it. The view, which needs careful examination, is whether we make the exclusions through interpretation as narrow as possible or as wide as possible. In other words how much is domestic law applicable?

Some of these questions are answered by the Convention itself in the interpretative article 7. However the article also introduces new problems of a conceptual as well as interpretative nature and at the outset we should acknowledge that other factors and competing values such as maturity of a domestic economic and political system like in China may intrude. Another point worth noting is the fact that the CISG unlike other conventions did not vest interpretational authority with an international tribunal nor has any editorial board been created to amend the CISG as the need arises.[18] Such tasks have been left to domestic courts but any decisions which interpret the CISG wrongly cannot be amended on an international level except that all decisions by courts and tribunals are scrutinized by international legal scholars who are quick to point out mistakes. But in the final analysis it is left to domestic courts to interpret the Convention either in the light of their own domestic experience or with the help of scholarly writings and a body of international case law.

Conclusion

Overseas developments have gathered enough momentum to irreversibly establish the CISG as the de facto international sales law. If the first significant case in Australia is any indication, the judiciary is well aware of the conceptual issues involved in applying the CISG. The Convention certainly is not the perfect tool to manage cross border legal risks, but by ignoring or wrongly developing the CISG legal uncertainties will be increased. [19] The Australian legal system can no longer operate within national boundaries and must respond to the challenges of globalisation.


FOOTNOTES

1. Gleeson, M., "The State of the Judicature", The Law Institute Journal", December 1999, at 73.

2. See also Zeller, B., "The Vienna Convention, 11 years on", The Law Institute Journal", March 1999, at 72.

3. Waincymer, J., "Bringing Transparency to the Transparency Debate within the Legal Regime of the World Trade Organisation" CITER 4, Conference on International Trade Education and Research, Melbourne, September 18, 1999, at 2.

4. Roder Zelt und Hallenkonstruktionen GMBH v. Rosedown Park Pty Ltd. (1995) ACSR 153, op cit.

5. S.6, Sale of Goods (Vienna Convention) Act 1987 (No 35).

6. ICC Arbitration Case No. 7399 of 1993 [http://cisgw3.law.pace.edu/cases/937399i1.html].

7. Zürich Chamber of Commerce, Arbitration award ZHK 273/95 of May 31, 1996.

8. As hoc Arbitral Tribunal - Florence, [www.cisg.law.pace.edu/cisg/wais/db/cases2/940419i3/html].

9. Nuovo Fucinati S.p.A. v. Fondmetal Interantional A.B. , Tribunale Civile di Monza, 14,01,1993. [it140193 Abstract Unilex Database].

10. Karollus, M., "Judicial Interpretation and Application of the CISG in Germany 1988-1994," Cornell Review of the Convention on Contracts for the International Sale of Goods (1995) at 68.

11. Honnold, J., "Uniform Laws for International Trade: Early "Care and Feeding" for Uniform Growth", 1 International Trade and Business Law Journal, (1995) at fn 6.

12. Honnold, J., "Uniform Laws for International Trade: Early "Care and Feeding" for Uniform Growth", 1 International Trade and Business Law Journal, (1995) at 2.

13. Ibid.

14. Article 35 CISG.

15. Article 46(3).

16. Waincymer, G. "Bringing Transparency to the Transparency Debate within the Legal Regime of the World Trade Organization", CITER 4 Conference on International Trade Education and Research, The WTO Millennium Round, Sept. 18, 1999, Melbourne.

17. Article 4, CISG.

18. Koneru, P., "The International Interpretation of the UN Convention on the Contracts for the International Sale of Goods: An approach based on General Principles" 6 Minnesota Journal of Global Trade (1997) at 105.

19. Zeller, B., "Is the Sale of Goods (Vienna Convention) Act the perfect tool to manage cross border legal risks faced by Australian Firms?" , E-Law Vol 6 No 3 [http://www.murdoch.edu/au/elaw/indices/issue/v6n3.html].


Pace Law School Institute of International Commercial Law - Last updated March 2, 2001
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