Reproduced with permission from 8 Journal of Law and Commerce 1-10 (1988)
The University of Pittsburgh School of Law is to be congratulated on organizing this Symposium to address a current and significant legal development -- the entry into force on January 1, 1988, of a Convention establishing uniform law for the international sale of goods.
Almost a century ago our states responded to the need for uniform rules for basic commercial transactions by cooperating in the preparation and enactment of the Negotiable Instrument Law (1896) and the Uniform Sales Act (1906); within the past four decades the states have strengthened and broadened this development by cooperating in the preparation and virtually unanimous enactment of the Uniform Commercial Code. Throughout the past century this work was impeded by inertia and opposition, but those concerned with commerce would be appalled at the thought of doing without these uniform laws.
The time is more than ripe for similar measures to aid international trade. In recent decades remarkable developments in technology have generated a "second industrial revolution", which has required increased specialization, diversification and exchange. These developments, aided by world-wide networks for communication at the speed of light and transport at the speed of sound, have lead to exponential increases in international trade, which now reaches enterprises [page 1] of moderate size both inland and coastal. In short, the world has been rapidly shrinking in nearly every field but law.
The legal problems that now face international trade are more complex than those that led to the movement to unify commercial law for our states. Many of these problems would disappear if our trading partners would agree to be bound by our domestic law, but it has become increasingly difficult for our enterprises to dictate the terms of contract, and indeed neither party may wish to delay business for extended negotiation on this sensitive point. Fortunately, in most transactions problems are settled amicably; the need for good business relationships is usually a more important sanction than law. However, the negotiation and, if necessary, the adjudication of serious problems may call for a workable legal framework.
Which law applies? In international transactions, the basic problem is often intractable because of the intrinsic vagueness of "conflicts" rules and the differing approaches to "conflicts" among the national jurisdictions to which the controversy may be brought. This threshold problem is then compounded for at least one party (and for both so long as the "conflicts" problem remains in doubt) by the difficulty of negotiating (or litigating) in terms of an unfamiliar foreign legal system -- a difficulty that involves uncertainty and often the expense of employing experts in foreign law.
Uniform law for international sales, of course, does not avoid all of these problems. However, an international consensus is emerging that one uniform sales law, prepared and approved by representatives of each region of the world, offers a substantial improvement over the existing chaos.
The papers in this Symposium are designed to help with the transition to this new legal regime for international trade. My contribution to this Symposium comes in two installments. The first deals with these questions: Where did the Sales Convention come from? How was it made? What does it do? The second installment, appropriately postponed to the end of the Symposium, looks to the future: What approaches to interpreting these uniform international rules will enhance their uniformity in practice?[page 2]
I. Where Did the Sales Convention Come From? UNIDROIT and UNCITRAL
The uniform law for international sales, which went into force on January 1 for the United States and ten other countries, is the product of international work that spans half a century. The history of this remarkable development has been told elsewhere; we need to recall only the highlights.
UNIDROIT and the 1964 Hague Conventions. The work was started in 1930 by the greatest commercial law experts of Western Europe, brought together by the International Institute for the Unification of Private Law (UNIDROIT) -- an intergovernmental organization with headquarters in Rome. The United States, sadly, was not a member of UNIDROIT and joined only on the eve of the 1964 Diplomatic Conference at the Hague that finalized two conventions on international sales -- one on formation of the contract (ULF) and one on rights and obligations under the international contract (ULIS). These two conventions went into force in 1972 among a few countries, primarily in Western Europe; the most important of these are Belgium, Federal Republic of Germany, Italy, and the Netherlands.
The 1964 Hague Conventions were an admirable and remarkable achievement. Why didn't the rest of the world adopt the uniform rules for international sales? The basic problem was that most of the world was not "present at the creation". Many of the countries in Africa and Asia did not exist as independent states when the uniform laws were made; other parts of the world -- nearly all of the common law world, Eastern Europe and Latin America -- for a variety of reasons did not participate.
This lack of world-wide participation was fatal. The drafts, prepared in French, had not been adequately vetted by lawyers from other legal and linguistic systems. Consequently, parts of the 1964 Conventions were built on concepts which could not be translated into words and ideas that were intelligible in other parts of the world. Moreover, the lack of participation in the law-making process created [page 3] a psychological barrier to world-wide adoption, particularly for African and Asian states that had been under colonial domination while the draft was made.
World-Wide Approach: UNCITRAL. The rapid growth of international trade, mentioned above, called for uniform rules in various fields such as sales, arbitration, negotiable instruments and transport. To meet the need for world-wide participation in this work a world-wide specialized legislative body was created -- the United Nations Commission on International Trade (UNCITRAL). To promote efficiency, its membership is limited to 36 States, but world-wide representation is guaranteed by the following regional allocation -- Africa, 9; Asia, 7; Eastern Europe, 5; Latin America, 6; Western Europe and Other, 9. This last "region" (in effect, the industrial West) includes Australia, New Zealand, Canada, and the United States.
The need felt for this work and the professional attitude of national representatives produced outstanding success in each of the major fields of the Commission's work.
The UNCITRAL Arbitration Rules (1976) are now widely used, and the Model Arbitration Law (1985) is already being enacted; of special interest here is its enactment by all of the provinces of Canada. Uniform law for international sales will have center stage in this Symposium, but I must bring to your attention a closely related Convention: A uniform statute of limitations for legal actions arising from international sales. This 1974 Convention, without any visible means of support or promotion, has collected 9 of the 10 adoptions needed for entry into force; the current success of the 1980 Sales Convention should now help the closely related 1974 Convention receive the attention it deserves. Also deserving special mention are the 1978 Hamburg Convention on ocean carriage of goods, the 1978 draft Convention on International Bills of Exchange and Promissory Notes (now pending before the U.N.'s Sixth (Legal) Committee),[page 4] the completion in recent months of a 400-page Legal Guide on Drawing Up International Contracts for the Construction of Industrial Works, and the pending work on International Procurement Contracts and Electronic Fund Transfers. All of this work was approved by consensus; this participant in the law-making process can testify that the efficiency of this world-wide body compares very favorably with that of domestic legislatures -- not to mention faculties of law.
II. How Was the 1980 Sales Convention Made?
To collapse a decade into a sentence, ten years of work in UNCITRAL led to unanimous agreement on a draft convention that was submitted to a Diplomatic Conference held in Vienna in 1980. All countries with significant international trade were represented (62 in all) plus major international organizations such as the EEC and the ICC. At the end of 5 weeks the Conference gave unanimous agreement to the Convention, finalized in six languages -- English, French, Spanish, Russian, Arabic and Chinese.
Ratification. National approval of important international agreements is a slow, delicate process, especially in the United States because of our separation of executive and legislative powers and the requirement of Senate approval by a two-thirds majority -- even the slightest opposition makes Senators wary.
At long last, on October 9, 1986, Senate approval came through by an anticlimactic margin of 98-0 and, on December 11, instruments of ratification by Italy, China and the United States were deposited, a total of eleven -- one more than necessary to bring the Convention into force; the uniform law for international sales applies to contracts made after January 1, 1988 (Art. 99).
The eleven initial adoptions include States from each continent and from all important economic and legal systems. With entry into force the ratification process in other countries is accelerating. In short, never has international unification of law received such prompt [page 5] and wide-spread approval. Perhaps, as Galileo insisted, the earth does move.
With this background we turn to some of the basic provisions of the uniform law.
III. The Convention's Sphere of Applicability
A. What Sales are Subject to the Uniform Rules?
The most basic rules on applicability appear in Article 1: (1) The sale must be international and (2) The transaction must have a prescribed relationship with one or more Contracting States.
The international sale. It would be natural to assume that a sale is international only if the goods are shipped from one country to another. International movement of goods will usually occur in sales subject to the Convention, but this could not be used as a decisive test. In contracts for delivery "Ex Ship" the buyer may not know where the seller will procure the goods: in "Ex Works", "Ex Wharf", and "F.O.B." contracts, the seller may not know where the buyer will take the goods. To provide a test for internationality based on facts known to both parties at the time of contracting, under Article 1(1) the internationality requirement is met when the seller and buyer have their "places of business in different States". If the seller or buyer has two or more places of business, the relevant place (Art. 10) "is that which has the closest relationship to the contract and its performance". Under this test close questions of fact can arise; in such cases the contract should state which is the relevant place of business or (preferably) stipulate whether the Convention or a specified domestic law will apply. (See Art. 6 and part C, infra).
Relationship between the transaction and the Contracting State. The 1964 Hague Conventions directed the courts of the Contracting States to apply the Convention to international sales without regard to whether the parties or the transaction had any contact with a Contracting State -- an approach that was supported on the ground that the rules prepared for international transactions were superior to domestic laws. This "universalist" approach was roundly condemned as an invitation to forum shopping and was rejected in the 1980 Convention. For example, sellers and buyers in the United States (a Contracting State) will be subject to the Convention only in transactions with a trading partner in another Contracting State (sub-paragraph (1)(a) of Article 1, herein "Sub(1)(a)").[page 6]
Sub-paragraph (1)(b) of Article 1 ("Sub(1)(b)") provides a second basis for applicability "when the rules of private international law lead to the application of the law of the Contracting State". For example, in a sales transaction between parties in France (a Contracting State) and Morocco (to date, not a Contracting State), suppose that the transaction's most significant contacts (or other applicable "conflict" principles) point to the laws of France. Under Sub(1)(b) the Convention would apply; conversely, if "conflicts" rules point to Morocco the Convention would not apply. In UNCITRAL and at Vienna several States, including the United States, objected (unsuccessfully) to Sub(1)(b) because of the vagueness and international disharmony of "conflicts" rules. In response to this concern, the Convention (Art. 95) permits Contracting States by "declaration" (reservation) to exclude applicability under Sub(1)(b). In ratifying the Convention the United States made this declaration.
In transactions with parties in non-Contracting States, if the other party will not agree to a contract clause invoking our domestic law, it may be advisable to suggest a clause invoking the law of the Convention. The reasons for this choice are persuasive: the Convention’s rules are more appropriate for international transactions than most domestic rules and are more accessible to each party than most foreign legal systems.
B. What Transactions and Issues are Included and Excluded?
An airplane, it has been said, is a vehicle that almost doesn't fly. The same could be said of international legislation; the Convention scope has been shaped by design decisions that narrow the law's profile and lighten its load.
It would have been folly to try to overturn domestic rules prohibiting and invalidating various types of transactions and contract provisions; the Convention does not intrude on this sensitive domain. In addition, to avoid collision with domestic protective legislation, sales to consumers (infrequent in international commerce) are excluded [page 7] (Art. 2(a)); for similar reasons, claims based on "death or personal injury" are also left to domestic law (Art. 5).
Article 4 states: "This Convention governs only the formation of the contract of sale and the rights and obligations of the seller and buyer arising from such a contract." In defining this specious domain, the Convention (Art. 4(b)) excludes "the effect which the contract may have on the property in the goods" -- and thereby leaves to domestic law the sensitive issues of creditors' rights and insolvency proceedings. (Laying down international rules on rights against creditors, thereby giving special rights to foreign claimants, would have led to certain disaster.)
To be sure, the Convention gives effect to the buyer's basic expectation that he will receive property in the goods -- an aspect of the contract that in domestic law may be called an implied warranty (or "condition") of title. Whether the sale to a good faith buyer will cut off the ownership claims of third parties is a different problem; the Convention leaves this issue to domestic law. (UNIDROIT has prepared a draft uniform law to unify rules on bona fide purchase, but this draft did not "fly".)
Of course, the Convention does deal with obligations between the seller and the buyer that in some legal systems are related to the "property" concept -- risk of loss, the seller's right to recover the full price (as contrasted with damages) and the buyer's right to compel the seller to deliver. The Convention (like the UCC) avoids the general concepts like "property" and, instead, sets forth rules that are addressed directly to each of these issues.
IV. The Convention and the Contract
The above exclusions made it possible to ground the Convention on an old-fashioned principle -- liberty of contract. Under Article 6 the parties may exclude the Convention; in addition, their contract provisions displace inconsistent rules of the Convention. In short, the Convention plays the same modest role as the Sales Article of the UCC -- to provide answers to problems that parties failed to solve by [page 8] contracts.
No drafting problems arise from contract provisions that are inconsistent with the rules of the Convention, but a bit of care is needed to make clear the parties' intent to completely exclude the Convention in favor of some system of domestic law. Consider a contract clause invoking "the law of the Commonwealth of Pennsylvania". Litigation in the Federal Republic of Germany under the 1964 Sales Convention has concluded that choosing the law of Germany in an international sales contract refers to the Hague Convention rules that Germany made applicable to such contracts. The possibility of such a construction here is enhanced by the emphatic language in Article VI, Para. 2 of the United States Constitution: " . . . all Treaties . . . shall be the supreme Law of the Land; and the Judges in every State shall be bound thereby, any Thing in the Constitution or Laws of any State to the Contrary notwithstanding": in short, the law of the United States and the Commonwealth of Pennsylvania for international sales is the law of the Convention.
Article 6 of the Convention, as we have seen, gives the parties freedom to choose the law for domestic transactions; all that is needed is to make this intent clear. One form of words that should defy mis-construction is given in a footnote.
These pages were designed to play the modest role of providing background for the papers that follow. At the end of this Symposium [page 9] this writer will address this question: What approaches to the uniform rules will promote uniformity in their application?[page 10]
* Schnader Professor of Commercial Law Emeritus, University of Pennsylvania.
1. For example, the draftsmen of the Uniform Sales Act vigorously opposed U.C.C. Article 2: Williston, The Law of Sales in the Proposed Uniform Commercial Code, 63 Harv. L. Rev. 561 (1950); for attacks on Article 3 and 4, see Beutel, The Proposed Uniform [?] Commercial Code Should Not Be Enacted, 61 Yale L.J. 334 (1952). See also Braucher, Legislative History of the Uniform Commercial Code, 58 Colum. L. Rev. 798, 802 (1958). Criticisms of the N.I.L. (the most successful of the early uniform laws) by Professor James Barr Ames were developed in a series of articles: 14 Harv. L. Rev. 241 (1900), 14 Harv. L. Rev. 442 (1901), and 16 Harv. L. Rev. 255 (1903).
2. Statistics on recent developments in international trade are summarized in Note, A Practitioners Guide to CISG, 16 N.Y.U.J. Int. L. & Pol. 81, 83 n.9 (1983).
3. J. Honnold, Uniform Law for International Sales under the 1980 Sales Convention 49-56 (1982) [hereinafter cited as Honnold Commentary].
4. Id. at 49; Honnold, A Uniform Law for International Sales, 107 U. Pa. L. Rev. 299, 302, 304 (1959).
5. The United Kingdom was also a party to the 1964 Conventions, but subject to a reservation calling for application of law under the Convention only when the parties "have chosen that Law as the law of the contract."
6. Honnold Commentary, supra note 3, at 217-18, 238-39.
7. Symposium, UNCITRAL's First Decade, 27 Am. J. Comp. L. 201-563 (1979); Pfund, United States Participation in International Unification of Private Law, 19 Int'l Law. 505 (1985).
8. Hoellering, The UNCITRAL Model Law on International Commercial Arbitration, 20 Int'l Law. 327 (1986); 11 Yearbook: Commercial Arbitration 379 (1986) (includes text of Model Law); Chiasson, Canada: No Man's Land No More, 3 J. Int. Arb. 2 (1986).
9. Smit, The Convention on the Limitation Period in the International Sale of Goods; UNCITRAL's First-Born, 23 Am. J. Comp. L. 337 (1975); Krapp, The Limitation Convention for International Sale of Goods, 19:4 J. World Trade L. 343 (1985).
10. Symposium, UNCITRAL's First Decade, 27 Am. J. Comp. L. 201, 353-448 (1979).
11. Id. at 507-564; Report of UNCITRAL on its 20th session (1987), Gen. Ass. Off. Rec.: Forty-Second Session, Supp. No. 17 (A/42/17) 5-58 (text of draft Convention at 73-107).
12. Report of UNCITRAL on its 20th Session, supra note 11, at 59-62.
13. Honnold Commentary, supra note 3, at 49-56; United Nations Conference on Contracts for the International Sale of Goods, Vienna, 10 March-April 1980, Official Records, A/CONF.97/19, U.N. Pub. E.8.IV.3.
14. Those eleven adoptions were: Argentina, China, Egypt, France, Hungary, Italy, Lesotho, Syria, United States of America, Yugoslavia, Zambia.
15. The reasons were summarized in documents annexed at Message of the President transmitting the Convention to the Senate Treaty, Doc. No. 98-9, at 21-22. Of the eleven initial adoptions China also made this reservation. Under Article 98 "No reservations are permitted except those expressly authorized in this Convention".
16. On the parties' power by agreement to apply the Convention, see Honnold Commentary, supra note 3, at 107-10.
17. Under Article 4, the Convention "is not concerned with : (a) the validity of the contract or any of its provisions or of any usage . . . " Honnold Commentary, supra note 3, at 94.
18. The buyer's right to receive a good title to the goods
is part of broad protection, under Articles 35, 41 and 42, for conformity of goods to the contract. See
Honnold Commentary, supra note 3, at 250-56, 285-92.
On efforts to unify rules on bona fide purchase, see 1 UNIDROIT Yearbook 222 (1967-68).
19. The Convention deals with: risk of loss in Articles 66-70, Honnold Commentary, supra note 3, at 367-90; seller's rights to recover the price in Article 62, id. at 355-59; buyer's right to recover the goods in Art. 46, id. at 299-303.
20. The Convention (art. 9) also gives effect to the parties' established practices and to trade usage. See accord, U.C.C. 1-205 (1978) ("course of dealing" and "usage of trade"). Unless the contract provides otherwise (Art. 6), the parties' practice and trade usage, like provisions of the contract, prevail over inconsistent provisions of the Convention. See Honnold Commentary, supra note 3, at 144-49.
21. The Convention would be made inapplicable by a direct contract provision such as "The United Nations Convention on Contracts for the International Sale of Goods shall not apply to this agreement." This language, however, would fail to answer this important question: Which legal systems will apply? If the foreign party will accept our domestic law, the contract could state: "The rights and obligations of the parties under this agreement shall be governed by the local domestic law of the State of --, including its provisions of the Uniform Commercial Code". The word "local" would be understood to exclude the chosen jurisdiction's rules on private international law ("conflicts") -- an area of law beset by vagueness and controversy. The word "domestic" plus the reference to the UCC should suffice to exclude the Convention. Those who wish to emphasize that exclusion could add the sentence at the outset of this footnote -- at some risk of alarming the foreign party: "Methinks the American doth protest too much".
22. See Honnold, The Sales Convention in Action -- Uniform International Words: Uniform Application?, 8 J.L. & Com. 207 (1988).