Presentation at Union Internationale des Avocats, 75th Convention - Sydney, Australia. Published at 17 Mealey's International Arbitration Report (August 2002) 24-46. Reproduced with permission of the authors.
Marcus S. Jacobs QC, Professor Katrin Cutbush-Sabine,
Philip Bambagiotti 
1. This article considers the United Nations Convention for the International Sale of Goods 1980, called in Australia the 'Vienna Convention' or the 'CISG', and its reception in Australia and indeed, the Australian perspective to the operation and development of the Convention.
2.1 Vienna Convention has been adopted in all the Australian states and self governing territories  and the Commonwealth  so has been brought into the domestic law. The CISG was brought into force in Australia on 1 April 1989.
2.2 However, there is very little reference to it in the decided cases. And of those references, there are less relating to the provisions dealing with good faith in international trade referred to in Article 7(1).
2.3 This relatively modest treatment in the Australian case law belies the importance of the Vienna Convention to commerce. Rather, it is possibly the product of a number of factors that affect and reflect the nature of global commerce, including:
International Arbitration aims to keep disputes out of the court system, which leads to less decided and published cases. International Arbitration is given a primacy in the context of Australian law, see section 7(1) of the International Arbitration Act 1974 (Cth) and the cases that have recognized this, one of the latest being the decision of Austin J in the Supreme Court of New South Wales in ACD Tridon Inc v Tridon Australia Pty Ltd;
2.4 All this means that in order to appreciate the reception and treatment of the Vienna Convention in Australia, one must do so partly by what has actually been said, by the Courts, the commentators and the legislature, and partly by inference.
The International Sale of Goods - Some Principles of the Framework
3.1 At the heart of any international trade transaction is the contract of sale. As a minimum, the contract will identify the parties (the buyer and seller), the subject matter (a description of the goods and their quantity) and the consideration (the price) for that sale. Some contracts are very detailed, describing the obligations of the parties at length. Other contracts are disarmingly short and succinct, especially those that are founded either on standard or well known terms, or specific customs and expectations within a particular industry.
A common phenomenon is the 'battle of forms' which arises when each party formulates its own terms and conditions and presses them for adoption by the other. Sometimes, this 'battle' ends ambiguously leading to inconsistencies and conflicts.
3.2 A contract of sale cannot exist independently of a governing law. The law governing a contract of sale will determine:
3.3 If the existence and the validity of a contract are not in doubt, the role of the governing law will depend on the detail of the contract.
3.4.1 Thus, the Vienna Convention does not and cannot live in a vacuum. It interacts with, and operates within, the framework of domestic law, and does so at many levels. Observers will be well aware of the delicate interfaces between the domestic law of the various European countries in the context of trade between them, and the valiant efforts made to align and streamline, those laws.
3.4.2 A particular interface is that between the Common Law system of the United Kingdom and the Civil Law systems of many of the countries of continental Europe. A similar interface occurs between the Common Law systems found in the United States and Canada and the Civil Law systems of Quebec, and of Central and of South America. Such an interface necessarily arises in the context of Australian law and the Civil Law systems (although to be fair, equally challenging issues quite often arise when we seek to interact the Common Law system of Australia with those of the United Kingdom and of the United States and of Canada).
3.5 Even though the Vienna Convention has been imported into the domestic law, the principles of construction or interpretation that would ordinarily be favoured under the domestic law yield to the rules and practices governing the interpretation of treaties  This involves another prominent Vienna Convention, the Vienna Convention on the Law of Treaties (1969), which provisions, such as article 32 are nevertheless very similar to the equivalent provisions of Australian domestic legislation, such as section 15AB of the Acts Interpretation Act 1901 (Cth).
The removal of the construction and interpretation of the domestic rules means that, in such a matter as construction of the requirements of the convention, 'foreign' law and decisions assume a greater prominence in the deliberations of Australian courts in respect to the construction and application of 'domestic law' than they might otherwise. It is, therefore, necessary to consider the context of the Convention.
4. The Vienna Convention - Background
4.1 The "Vienna Convention" has been said to have created "a truly international law which governs certain contracts for the international sale of goods." It is already regarded as one of the most important and successful international conventions within the framework of international trade law. Honnold  sees the convention 'moving towards virtually unanimous acceptance'.
4.2 In l966, the General Assembly of the United Nations resolved to establish a worldwide representative body to promote "the progressive harmonization and unification of the law of international trade." This body, the United Nations Commission on International Trade Law (UNCITRAL), had its first session in l968 and in 1969 decided to commence the preparatory work for a new convention.
4.3 The General Assembly resolution that established UNCITRAL provided that the Member States shall appoint representatives "in so far as possible from among persons of eminence in the field of international trade law". In fact, UNCITRAL representatives proved to be a "wholesome mix of academic specialists in commercial and comparative law, practising lawyers and members of government ministries with years of experience in international lawmaking". These representatives responded with a "flexible, international approach that embraced the premise that their national interests in having an effective uniform law would not be served by bargaining for the use of the maximum number of scraps of national law". The UNCITRAL Working Group of 14 States - a cross-section of UNCITRAL's world wide representation then proceeded to prepare a text that would facilitate " acceptance by countries of different legal, social and economic systems.". (emphasis added)
4.4 In June l978, a Draft Convention had been prepared which dealt with both international sales contracts and the formation of such contracts and in March l980 a Diplomatic Conference met in Vienna and finalised and adopted the United Nations Convention on Contracts for the International Sale of Goods, popularly known in Australia as the Vienna Convention.
4.5 By August 2002, there were now 61 Contracting States "including States from each region embracing a large majority of the world's population", which have adhered to the Convention.
4.6 As indicated above, the Convention entered into force in Australia on l April l989. It was implemented by uniform state legislation, each entitled the 'Sale of Goods (Vienna Convention) Act'. The choice of uniform state legislation, as opposed to national legislation imposed by the Commonwealth, reflects an acceptance of the allocation of the responsibility for the regulation of the sale of goods largely lying with the states/territories.
4.7 Notwithstanding the uniform state legislation, the Commonwealth, in the context of its regulation of trade and commercial matters in the Trade Practices Act 1974 (Cth) also introduced the Vienna Convention in sec 66A of that Act.
Section 109 of the Commonwealth Constitution provides that state legislation covering the same field is subsumed to Commowealth legislation whenever they conflict. One may then wonder whether having the uniform state legislation on the one hand and the Commonwealth provisions on the other leads to greater clarity or greater confusion as to exactly what legal regime is meant to apply.
Section 66A to the Trade Practices Act provides:
"66A. Convention on Contracts for the International Sale of Goods
The provisions of the United Nations Convention on Contracts for the International Sale of Goods, adopted at Vienna, Austria, on l0 April l980, prevail over the provisions of this Division (Divison V) to the extent of any inconsistency."
Division V of the Trade Practices Act contains what are called the 'Consumer Protection' provisions, and might be considered to be the forefront of the Commonwealth's armoury in regulating the conduct of commerce. That being the case, the primacy given to the Vienna Convention by the Commonwealth in this way makes section 66A a remarkable provision.
4.8 Section 5 of the uniform state legislation provides that the Convention has the force of law in the particular state and provides that the Convention prevails over any law in force to the extent of any inconsistency. Even at the State level the Vienna Convention is meant to supersede other domestic law.
4.9 Many of Australia's major trading partners have adopted the Vienna Convention. A significant European exception to this is the United Kingdom which, having adopted the Uniform Law on International Sales (ULIS), has to date not moved from that position.
4.10.1 In addition, a number of Asian countries, including Japan, have not adopted the convention. Significant amongst those that have adopted the Convention are Singapore and China.
4.10.2 Non adoption of the Convention is a significant issue, because Japan is Australia's largest trading partner. And the United Kingdom, as a member of the European Union (EU), ranks third largest after the United States of America.
4.11 Whilst the Vienna Convention is generally considered to have made a major contribution to reducing uncertainty in the interpretation of contracts for the international sale of goods, there are very few reported cases in Australia. None of those have reached the High Court and a number of the aspects, and applications, of the Convention await authoritative consideration.
4.12 The dearth of cases in Australia, even though the Convention has been in force for nearly 13 years, might be said to be attributed to the fact that the United Kingdom and Japan have not adopted it.
4.13 This dearth of case law is, however, not unique to Australia. The United States, might be said to be a jurisdiction that is not shy of litigation, howver, despite it having ratified the Convention in l986 and the Convention coming into force in l988, there have so far only been two cases  interpreting the Convention in the US courts.
5. Sphere of Application of the Vienna Convention or CISG
5.1 Art 1 of the CISG denotes the Sphere of Application of the Convention and states:
5.2 However, the Convention only deals with two basic aspects of the sales transaction:
Part III governs the obligations of the parties under the contract, whereby the "Sales" rules (Arts. 25-88) include Chapters on the seller's obligations with respect to quality of the goods and freedom of the goods from third party claim (CH. II), the buyer's obligations to pay for the goods (CH. III), the allocation of risk of loss (Ch. IV) and the remedies available to both parties for breach (CH. V).
5.3 The dominant theme of the Convention is the role of the contract, construed in the light of commercial practice and usage. Where the Vienna Convention is adopted in wholesale terms, this can cause confusion because, the Convention does not override domestic law that outlaws certain transactions or invalidates proscribed contracts and oppressive terms. Outside this narrow area the Convention protects the contractual arrangements made by the parties.
5.4 While the text of the Vienna Convention was written by legal practitioners who endeavoured to create an integrated legal system for international sales transactions from the multitude of legal systems with rich histories and varying philosophies underpinning contract law and economic theory, no provision has been made to charge a single judicial body with the application of the Convention.
However, for practical purposes, a treaty is only as good as its implementation and interpretation. As will be seen below, having various national tribunals, whether they be national courts or arbitration panels, tends to undermine, predictability and certainty in the application of the Convention, this even though a major goal of the Convention is the unification of the law pertaining to international sales.
5.5 The Vienna Convention is being widely used in Continental Europe, particularly after the demise of the former Soviet Union and the return to democratic rule in the former East European States that began in l989. As the former Soviet dominated countries were restructuring their legal systems, businesspeople sought legal rules that were generally acceptable and would facilitate instant trading across borders.
The CISG was the obvious tailor-made tool to provide a level of homogeneity in the formulation of contracts for the international sale of goods as major European Union states such as Belgium, Denmark, France, Italy and Germany had adopted the Convention from an early date.
5.6 The same, however, cannot be said of many, mainly Common Law based, countries, such as the United States and Australia. The reasons for this are unknown, but one such reason could be the perception, from the point of view of those immersed in the common law system, of unpredictability of the interpretation of the law pertaining to international sales transactions under the Convention. If this were the case, it would largely have to do with the treatment of a convention that has a largely civilian character in the common law context.
Since there is little enunciation of the "general principles" of the Convention, other than an appeal for uniform application, the national courts of common law countries may tend to fill perceived gaps in the CISG with domestic law concepts. As we shall see below, this is what has occurred. This despite the notion that Courts should first ascertain general principles of the CISG that would resolve the issue(s) and fill any perceived gaps in the Convention before moving to import domestic concepts. Equally, the practical application of civilian legal concepts and authorities from civil law countries can have a degree of discomfort from the common law perspective.
Similarly, the dearth of case law from common law jurisdictions might also enhance a perception of unpredictability and uncertainty. Of course, as case law follows use of the Convention, the matter remains a vicious circle.
5.7 The resolution of an issue arising about the Vienna Convention by application of domestic law concepts, whilst perhaps comfortable to a domestic tribunal, does not promote the creation of a uniform, coherent trade law. Decisions based on domestic law are less likely to be adopted by foreign courts. Honnold urges that national tribunals should resist the temptation to revert to domestic law principles and to fill 'gaps' that might be found in the application of the Vienna Convention though an analogical application of the Code: a civil law approach. As noted by Lookofsky, one "can hardly expect a totally uniform application, but in the hands of the internationally minded judge or arbitrator, the CISG can serve as a starting point, a good ground".
5.8 Even the task of identifying domestic law is not without complication. The Australian adoption of the Vienna Convention has, in fact, made it part of domestic law, so the differentiation between the Vienna Convention on the one hand and the 'domestic law', or the balance of the domestic law on the other hand is a complex and delicate challenge.
5.9 From the US perspective, and noting the near absence of cases in the US courts, regret has to be voiced that in the formative stage of US jurisprudence on the Convention, courts were not given the opportunity to developing a more comprehensive method of interpretation that takes into account the Convention's international character. Despite that legal scholars and commentators have long recognized the enormous potential of the Convention as historic milestone towards unification of international law.
From the perspective of the case law, the Australian situation is potentially even more ripe for development.
6. Interpreting and Construing the Vienna Convention
6.1 Since the CISG is a code  it is logical to assume that that a civil law approach to interpretation is favoured.
6.2 However, the difference between methodologies of interpretation in common law and civil law systems may be more acute in theory than in practice, since the same functions, interpreting the words of the Convention and the contract are being performed by both the civil and the common law judges. Honnold warns of the "natural tendency to read the international text through the lens of domestic law". Indeed, it will take a conscious effort on the part of a judge, whether from the common law tradition or otherwise, to overcome years of legal training and experience and a natural bias towards a particular and familiar legal tradition and to become internationally minded.
6.3 In order to honour the Convention's international character, the legislative history of its drafting should be examined to extrapolate general principles for interpretation.
Article 7's language, involving as it does 'good faith', may indeed create a bias towards civil law so that common law judges might be expected to seek support from scholarly treaties, to reason by analogy, to emphasize conceptual analysis and to employ other interpretative techniques.
As will be seen below, the reception and treatment of implied terms of 'good faith' is topical in Australia at present. The debate continues and the evolutions or revolutions are nowhere near sufficient to identify a general 'consensus' view as to how such an implied term is to be treated in Australia.
6.4 This is not to imply that the drafters intended one system to prevail over any other. In fact, the courts were expected to adopt greater flexibility of interpretation, and inevitably, a blending of techniques would result. Moreover, it is inevitable that precedent will be utilized by common law courts in some form or another, thereby affording the courts a high degree of flexibility, fostering a hybrid or mixed jurisdiction.
6.5 Furthermore, uniform application may be enhanced through regard for the case law of other States.
7. Australian Case Law
7.1 In Roder Zelt und Hallenkonstruktionen GmbH v Rosedown Pty Ltd & Eustace, a l995 interim decision by the Federal Court, von Doussa J held that subject to leave being given, the applicant would be entitled to enforce the rights arising on avoidance under the Vienna Convention. However, no final determination is recorded.
The matter was to be re-listed for further submissions to be heard, but the trial judge did not complete the hearing of the matter.
7.2 At first glance, the facts of case were quite simple, yet the interpretation of the underlying contract of sale between the parties proved complex as a result of the need to draw a demarcation line between the applicability of the Convention as well as German and other domestic Australian law.
7.3 The facts, as set out in the judgment, are as follows:
In June and July l992 the applicant (Roder), a German firm, agreed to sell goods to the first respondent (Rosedown), payment to be made in instalments after delivery to Australia. Ultimately it was a matter of dispute whether the contract provided that title to the goods be retained by Roder until the purchase price was paid in full. The goods were delivered in October l992, but payments fell in arrears.
On 6 October l993 the second respondent (Eustace) was appointed administrator of Rosedown under s 436A of the Corporations Law. Roder then claimed possession of the goods, but his claim was rejected. On 8 November l993 Roder commenced those proceedings claiming possession of the goods, and seeking, inter alia, leave to proceed under s 440C.
Leave was granted on 9 November l993 and the proceedings stood for trial. However, the creditors of Rosedown then passed a resolution under s 439C of the Corporations Law for a deed of company arrangement, and a moratorium was granted which was extended to 31 March l995. Following delays, the matter came to trial in December l994.
The court held, making orders in favour of Roder, that:
7.4 The absence of a final decision by the Court deprived us of a full analysis of the pertinent provisions of the Vienna Convention, such as:
A contract of sale need not be concluded in or evidenced by writing and is not subject to any requirement as to form. It may be proved by any means, including witnesses.
A statement made by or other conduct of the offeree indicating assent to the offer is an acceptance. Silence or inactivity does not in itself amount to acceptance.
A contract may be modified or terminated by the mere agreement of the parties.
Furthermore, whilst Roder alleged, and the respondents denied, that the contract of sale was "repudiated" by Rosedown, and that Roder had "accepted the said repudiation", the Court found that these common law concepts, and the common law remedies which could follow upon them, were replaced by the provisions of the Convention (see 17 ACSR at p 168)
7.5 von Doussa J identified as relevant provisions of the Convention, those addressing Breach, Avoidance and Remedies, such as:
Article 26 (declaration of avoidance of the contract),
Article 53 (the buyer must pay the price for the goods and take delivery of them as required by the contract and und this Convention),
Article 61, which provides:
Article 63, which provides:
Article 64, which provides:
7.6 In addition, the Court held that subject to leave, Roder was entitled to enforce the rights and obligations which arose on the avoidance of the contract under the Convention. So was Rosedown. (see 17 ACSR at p 173)
7.7 von Doussa J then refereed to the relevant Articles of the Vienna Convention, first as to damages for breach of contract under Art. 74, as well as avoidance under Art. 75 and Art. 76. And secondly as to restitution in Art. 81 and Art.84.
7.8 However no analysis was provided as to the possible consequences arising from the application of the said provisions. No evidence before the court enabled or warranted the application of these provisions to be further discussed, (see 17 ACSR at p 174).
7.9 The case, unfortunately offers very little future guidance as to the effect of the application of the Convention. The Court noted that (at 17ACSR p 156):
"[T]he pleadings, and the claims for relief in the statement of claim and in the counter claim, are expressed in the language and concepts of the common law, not in those of the Convention (emphasis added). Counsel made only passing reference to the Convention at trial."
7.10 This seems to indicate that whilst von Doussa J found (at 17 ACSR p 156) that:
and (17 ACSR at p158)
with the obvious tendency by Counsel, to simply equate the incorporation of the Convention into Australian law as resulting in the Convention becoming part of the common law of Australia. However, such an approach is clearly irreconcilable (emphasis added) with the purpose of the Convention which states unequivocally in the preamble:
7.11 However, von Doussa J also stated that: (17 ACSR at p 158)
7.12 Therefore it will remain to be seen, which parameters Australian courts are willing to set in order to give credence to the "international character" in the interpretation of the Convention.
7.13 As the Convention only governs the formation of the contract of sale and the rights and obligations of the seller and buyer arising from such a contract, the Convention is not concerned with the effect which the contract may have on the property in the goods sold (Art. 4). Therefore, Article 7 (2) provides that:
7.14 In Roder, von Doussa J concluded that: (17 ACSR at p158)
According to the opinion of Dr. Hoene, the property law effect of a retention of title agreement is determined, as are all property related transactions and relationships, according to German private international law by the lex rei sitae, ie the law of the place in which the relevant property is situated."
7.15 This means that as a result of the Convention only governing the formation of the contract of sale and the rights and obligations of the seller and buyer arising from such a contract and the effects of the same contract having to be judged subject to the different and perhaps conflicting foreign municipal law, which has to be evidenced in an Australian court as a matter of fact, a potential fault line is present in each case.
7.16.1 The fact that the Vienna Convention has been adopted into the domestic law means that the Convention is NOT to be treated as a "foreign law", which would require proof as a fact in an Australian court. Being 'domestic law' albeit one that has civilian origin and characteristics and carrying with it an imperative towards consistency with decisions in other, including civilian jurisdictions, makes its interpretation and application an interesting challenge indeed.
7.16.2 It is nearly inevitable that such a complex web of potentially conflicting legal rules, is unlikely to achieve the stated goal of the Convention, ie to "contribute to the removal of legal barriers in international trade" in the foreseeable future.
7.17 In February 2001,Burley J in the Supreme Court of South Australia, decided Perry Engineering PTY Ltd v Bernold AG. Roder Zelt was considered.
7.18 The plaintiff, Perry, carried on the business of heavy engineering in Australia. The defendant, Bernold,was a company incorporated in Switzerland and carried on the business of a manufacturer of steel constructions and formworks for tunnels, galleries and shafts. The judgment does not disclose where the defendant carried on that business.
7.19 Perry claimed damages for breach of contract, for negligence, and for breach sections 52 of the Trade Practices Act (Cth). Perry had previously obtained an interlocutory judgment in default of appearance, and the matter came before the Court for damages to be assessed.
7.20 On the question of which law to apply, Burley J stated at , that:
Judge Burley has requested me to write to you regarding the above matter. In preparing reasons for the decision in relation to the assessment of damages he has noticed that the Sale of Goods (Vienna Convention) Act l986 operates in South Australia. The Act has the effect of making the Vienna Convention on contracts for the international sale of goods as part of South Australian law. The Convention may be applicable to the question of assessment of damages in this case. It may also be applicable to questions of liability. Normally, on an assessment of damages pursuant to an interlocutory judgment obtained in default of appearance, questions of liability would not be considered by the Court because liability is deemed to be admitted. However, whether or not the Convention is applicable may affect the plaintiff's ability to proceed to an assessment of damages. For example, if the Court comes to the conclusion that the Convention applies, the Court may conclude that it is not possible to assess damages unless and until the statement of claim is amended. That may in turn require the plaintiff to re-serve the amended proceedings."
7.21 Following this request for clarifications, the plaintiff's solicitors furnished a written reply on the basis of which Burley J stated:
7.22 His Honour having reached the conclusion that the Sale of Goods (Vienna Convention) Act 1986 (SA) applied, was then faced with the dilemma that the relevant provisions had not been pleaded. The statement of claim had been drawn up on the assumption that the Sale of Goods Act (SA) applied. This left the Court to conclude that;
7.23 The Court rejected the plaintiff's submission that it was not necessary to plead the specific provisions of the Sale of Goods (Vienna Convention) Act, noting that:
7.24 Burley J followed a path of reasoning that distinguished the Sale of Goods Act (SA) from the Sale of Goods (Vienna Convention) Act stating that:
7.25 For these reasons Burley J declined to proceed to an assessment of damages in respect of the plaintiff's claim based on breach of contract.
7.26 A further case in which the Vienna Convention was applied is Downs Investments Pty Ltd v Perwaja Steel SDN BHD  where the Queensland Court of Appeal (Davies, Williams JJA and Byrne J) confirmed in October 2001 a decision of Ambrose J in the Supreme Court of Queensland.
7.27 The case involved a damages claim for breach of contract in terms of which the respondent agreed to sell scrap metal to the appellant.
7.28 The contract expressly provided that payment was to be by "Irrevocable Letter of Credit to be established by July 1. Any dispute were to " be settled by the laws prevailing in Brisbane".  (emphasis added).
7.29 The Court at  determined that:
7.30 And at  that:
7.31 Based on the finding of facts Ambrose J reached the conclusion that:
In my view the refusal by Perwaja to establish the Letter of Credit at a time when the 'Dooyang Winner' was standing by at Bells Bay in Tasmania to commence loading the scrap steel Time was of the essence "
7.32 The Queensland Court of Appeal upheld the finding, see  that:
7.33 Interestingly, the Court of Appeal cited two English decisions in support of its findings. Interesting both because the United Kingdom has not adopted the Convention, and also as an illustration of the proposition that judges in a common law jurisdiction tend to prefer to rely on precedent from their own or a related legal system in the interpretation of the Convention.
7.34 The predilection for what might be seen as 'familiar authority' might also be seen at  whereby the Court of Appeal said:
7.35 However, to base an interpretation of provisions of the Convention so forcefully on a synchronization with the Australian domestic law is not in keeping with the spirit of the Convention, pursuant to Article 7, which provides that
7.36 Honnold  emphasises that:
7.37 Contrary to the above stipulation, the Queensland Court of Appeal was consistent in its approach to seek congruity with domestic law in the interpretation of the provisions of the Convention. The Court of Appeal went on to say:
7.38 However, the Act that the Court of Appeal was referring to was the domestic Sale of Goods Act l896 (Qld). The aspiration of the drafters of the Convention, to secure a supra national and thereby distinctly separate interpretation by domestic courts, might well be seen as difficult to achieve.
7.39 This is partly because of what might be seen as the natural tendency of Courts, once recognising that the Convention applies and that it has been adopted as domestic law, to then seek congruity with domestic law. This, paradoxically, contravenes the postulate of Article 7 of the Convention which attempts to sever interpretations of the Convention from a specific domestic context and to apply the internationally developed approach to it.
7.40 This inadvertent consequence resulting from the 'domestication' of the Vienna Convention was particularly striking, when the Court of Appeal dealt with the assessment of consequential losses, stating at, that:
7.41 Finally, in addressing the question of quantum for the loss suffered by the respondent the Appeal Court made reference at  to:
7.42 It will be remembered that even though the Convention entered into force in the United States as early as l January, l988, in the subsequent ten years, only two cases interpreting the Convention had arisen in the courts of the United States. Delchi was one of the two cases.
7.43 In Delchi, the Court, in interpreting Article 25 of the Convention, held that Rotorex's failure to deliver conforming goods constitute a "fundamental" breach, which that substantially deprived Delchi of "[what] it was entitled to expect under the contract". Having found a "fundamental" breach the court examined Article 74 of the Convention to determine the recovery amount that would "equal... . the loss" suffered by Delchi including consequential and incidental damages "suffered by Delchi as a consequence of the breach".
7.44 It is of interest to note Cook's  view that:
A cursory reading of the two formulations of "foreseeability" illustrates the dissimilar content. Article 74 limits recovery for consequential damages to those matters that "the party in breach foresaw or ought to have foreseen at the time of the conclusion of the contract, in light of the facts and matters of which he then knew or ought to have known, as a possible consequence of the breach of contract." In contrast, (emphasis added) the Hadley v Baxendale rule of foreseeability tends to restrict recovery to a greater degree in that it requires the loss to have been "such as may reasonably be supposed to have been contemplated of both parties, at the time they made the contract, as the probable result of the breach of it".
7.55 The above differentiation of the two rules applying to the principle of foreseeability as the applicable limitation to recover under Article 74 of the Convention, as distinguished from Hadley v Baxendale, highlights the inherent difficulties for domestic courts to do justice to the dictate of Article 7 of the CISG, stipulating that regard is to be had to its international character in the interpretation of the Convention.
7.56 As we have seen, Australian courts that have interpreted the Convention have all proceeded to equate the provisions of the Convention with comparable domestic law provisions. Not only is such an approach threatening the uniformity of interpretation of the Convention as stipulated by Article 7, but such a legal ethnocentricity could seriously hinder an evolutionary process, which was to achieve international conformity in the interpretation of the Convention.
7.57 The Vienna Convention was part of a momentous decision by the sixth special session of the General Assembly of the United Nations on the establishment of a New International Economic Order. Despite great hopes at the time, success eluded the NIEO initiative. Courts should try to secure a better fate for the Convention.
8. Interaction of the Vienna Convention with Statutory Remedies in Australia
8.1 As we have said, one of the factors identified as the basis for the paucity of decided cases on the Vienna Convention in Australia is the prominence and prevalence of international arbitration as the forum for the resolution of disputes.
8.2 In this regard, the Commonwealth legislated to give dominance to this form of dispute resolution, in section 7 of the International Arbitration Act 1974 (Cth) which provides:
(2) Subject to this Part, where:
(3) Where a court makes an order under subsection (2), it may, for the purpose of preserving the rights of the parties, make such interim or supplementary orders as it thinks fit in relation to any property that is the subject of the matter to which the first-mentioned order relates.
(4) For the purposes of subsections (2) and (3), a reference to a party includes a reference to a person claiming through or under a party.
(5) A court shall not make an order under subsection (2) if the court finds that the arbitration agreement is null and void, inoperative or incapable of being performed
8.3 Thus, if the transaction involves parties to an 'arbitration agreement' and one or both of them is resident in a convention country, the enforcement of that arbitration agreement will be respected. The Courts are not left with a discretion in this regard.
8.4 The Courts have recently wrestled with the issue of the interaction of the international arbitration provisions, and the instance in which parties, usually and obviously plaintiffs, have sought to keep the particular dispute before the court on the basis that what is sought are remedies provided by statute, rather than formally arising from the contract subject of the arbitration agreement.
8.5.1 The most recent authority on the construction and breadth of international arbitration clauses is ACD Tridon Inc v Tridon Australia Pty Ltd.
8.5.2 In that case, the Court had before it claims for statutory remedies under the Corporations Law, for the appointment of a liquidator etc to a company. However, the company itself was a party to an international arbitration agreement with the plaintiff, part of a distributorship agreement. Furthermore, one of the principal defendants was a party to another international arbitration agreement, also with the plaintiff, that was part of a shareholders agreement.
8.5.3 The Court acknowledged the pre-eminence of the arbitration agreements, as required by the International Arbitration Act 1974, and that this extended to the fundamental disputes that underlay the statutory remedies.
8.6 A transaction that will be subject to the Vienna Convention that also contains an arbitration clause will usually lead to the parties being able to exercise the powers of stay and reference to arbitration provided by section 7 if confronted with proceedings in a local court.
8.7 What is intriguing is the situation in which the transaction involves the international sale of goods as well as the provision of services.
8.8 There is, in Australia, the comprehensive laws regulating employment have been quite broadly read and applied. The forum for disputes involving such matters is, in the New South Wales context, the Industrial Relations Commission in Court Session.
In Metrocall Inc v Electronic Tracking Systems P/L, the Full Court of the Industrial Relations Commission in Court Session found that because of the very specialist nature of the Commission, that claims for the relief under section 106 of the Industrial Relations Act 1996 (NSW) are not arbitrable, and hence not amenable to the provisions of section 7 of the International Arbitration Act 1974 (Cth).
8.9.1 The Court in ACD Tridon Inc distinguished Metrocall. Austin J noting (at ) that the Commission characterized the claim in Metrocall under section 106 of the Industrial Relations Act as distinct from the other matters that were in dispute between the parties. Because the statutory question was different to the questions raised in other aspects of the dispute, the Commission found that the statutory claim was a 'separate matter'.
8.9.2 Austin J found that that the approach taken by the Commission in Metrocall was premised upon the specialist skills and powers of the Industrial Relations Commission (see ), and found that Metrocall did compel it to prevent the Corporations Law matters being arbitrable. (at para  and ).
8.10 Whist the authors doubt that Metrocall articulates the final word on the question, the position remains that until the point is taken in the High Court, it stands as authority for the proposition that an international arbitration can be sidestepped in the Industrial Relations Commission in relation to a contract for the supply of services by making the claim for relief under section 106 of the Industrial Relations Act 1996.
8.11 This brings about a serious disadvantage in the application and utility of the Vienna Convention in Australian trade because many sale of goods transactions (including international sales of goods transactions) involve, to some extent, some service component. Under the Metrocall authority, there is a threat to the arbitration regime on these matters. Further still, in order to maintain the proposition of 'non-arbitrability' on such questions, there is a strong danger that that Court, which is imbued in the domestic industrial relations environment (which is what gives it its specialist character) will equally be disinclined to embrace the 'foreign' precedent and authorities on the application of the Vienna Convention.
8.12 Having said this, it is submitted that Metrocall does not, reflect the trend of judicial decision in Australia, of which ACD Tridon is an example. However, the interaction of international arbitration with domestic regulatory legislation rests awaiting further consideration.
9. The Good Faith feature of Article 7 and Australian Law
9.1 One of the challenging aspects of the wholesale adoption of the Vienna Convention is the provisions of Article 7, and specifically that involving 'good faith'.
9.2 Questions of good faith, and the interaction of this concept with free market commerce, are of great interest to Australian law. The implication of a term of good faith is one of the current topics of debate in Australian domestic jurisprudence. And notwithstanding some strident attempts to bring good faith in as an automatically implied term in domestic contracts, the question is not yet settled and, given a recent remark by the High Court, might be considered well open for debate.
9.3 In this regard, the common law development in which the question of the implication of terms requiring 'good faith' should be considered in the context of the intervention of statute, the development of equitable principles. These, and the current environment of corporate collapse and uncertainty, may well be viewed as creating an environment in which there is a community expectation that the fundamentals of good faith are an expected norm of conduct. This would reflect the situation in most of the European systems  and reflects the situation mandated by sec 1-203 of the Uniform Commercial Code in the United States.
9.4.1 Why then should the implication of a term of good faith be subject of a debate in Australia? This arises for many reasons including the fact that the very broad and powerful statutory regime imposed by the Trade Practices Act, especially section 52, has removed, to some extent, the pressure for development of the implied term. This, together with the uncertainty surrounding the scope and content of the implied term, renders its implication problematic, as, in Australia at least, there is a presumption that the term to be implied be necessary and reasonably clearly definable.
9.4.2 These factors lie within the underlying policy, still maintained by the law of contract in Australia, of freedom of contract and economic independence. The High Court has recently articulated the policy issue, and thereby cast doubt upon the almost automatic implication of good faith into domestic contract law. In Royal Botanic Gardens & Domain Trust, v South Sydney City Council, Kirby J said of the implication of a term requiring good faith:
"87. However, in Australia, such an implied term appears to conflict with fundamental notions of caveat emptor that are inherent (statute and equitable intervention apart) in common law conceptions of economic freedom. It also appears to be inconsistent with the law as it has developed in this country in respect of the introduction of implied terms into written contracts which the parties have omitted to include."
9.5 The principles of freedom of contract may be the subject of the inroads of statute, and equity, and indeed the development of common law principles, but these are the inroads to the still maintained underlying principle.
9.6 To put the matter in the context of consideration of the Vienna Convention, in the Federal Court of Australia, Finn J said in South Sydney District Rugby League Football Club Ltd v News Ltd & Ors  said:
394 4 Importantly for the purposes of the present case, recent decisions suggest that the implied duty of good faith and fair dealing ordinarily would not operate so as to restrict decisions and actions, reasonably taken, which are designed to promote the legitimate interests of a party and which are not otherwise in breach of an express contractual term: Alcatel Australia Ltd v Scarcella, above, 369-370; Garry Rogers Motors (Aust) Pty Ltd v Subaru (Aust) Pty Ltd, above, 43, 014; see also Asia Television Ltd v Tau's Entertainment Pty Ltd  FCA 254 at para 77; Advance Fitness Corporation Pty Ltd v Bondi Diggers Memorial & Sporting Club Ltd  NSWSC 264 at para 122; Far Horizons Pty Ltd v McDonald's Australia Ltd  VSC 310; and see further below, "Other Possibilities". "
10.1 Of course, the international sale of goods, normally involves commercial parties in commercial transactions and relationships. Many of these are already governed by detailed contractual regimes, either tailored by the parties for the particular transaction or in the form of standard forms of contract.
10.2 In order to view the reception and response to the good faith principles in Article 7(1), it is appropriate to briefly consider the context in which domestic transactions take place in Australia.
10.3 Perhaps the greatest statutory impact upon the terms of domestic trade in Australia came with the enacting of the Trade Practices Act 1974 (Cth) and in particular, section 52 of that Act which provides:
(1) A corporation shall not, in trade or commerce, engage in conduct that is misleading or deceptive or is likely to mislead or deceive.
(2) Nothing in the succeeding provisions of this Division shall be taken as limiting by implication the generality of subsection (1)."
10.4 This provision, short and simple, has become a feature too much of Australian domestic commercial litigation and has become one of the most heavily litigated statutory provisions in Australia. In Brown v Jam Factory Pty Ltd, Fox J said:
And with such comments, one may see the trend towards good faith that is a feature of the current debate.
11.1 Of course, as Finn J observed, the implication of the term requiring good faith has been done, and the difficulty in defining it should not necessarily prevent the development of the principle and the jurisprudence in this regard. Clearly, the High Court in the Royal Botanic Garden case(above) contemplate having to consider the question of the term and its scope and implication at some point in the future.
11.2 In terms of the difficulty in tackling the metes and bounds of the concept of good faith, Australia is not alone. As might be seen in decisions such as Aiton Australia Pty Ltd v Transfield Pty Ltd, difficulty is not insurmountable, however it may mean that good faith will have to be approached afresh every time it is said to be invoked.
11.3 The exploration and development of good faith principles by the courts might well be hampered, in practice, by a commercial environment in which section 52 of the Trade Practices Act has such dominance.
11.4 Exactly how the High Court will reconcile classical contract theory with the potential width and scope of any implied duty of good faith, especially in the section 52 context, remains to be seen. However, the continuation of the debate can only assist the pursuit of the question: what is meant by good faith? The implication of the requirement in contract subject to the Vienna Convention is unarguable. What it means in practice remains to be determined in depth and in practice.
11.5 Where, however, the question comes as to how it is to be construed or implied, the debate in the Australian cases provides many useful hints as to what is or is not in good faith, but no clear guidance as to what the essence of the notion itself is. This might be expected as there is no general consensus around the world on the point.
11.6 Perhaps then, the perspective from Australia is that the good faith criteria is elusive and awaits comprehensive treatment by the High Court. The debate continues, however, the impact of the Vienna Convention, and through it the reception of a more 'foreign law' into the Australian forum that the rules of construction of the convention require, is likely to lead to that learning and jurisprudence finding its way into domestic law. The continuation of the debate, makes Australian jurisprudence ripe for this and could well lead to a convergence of Australian law relating to good faith with that of her trading partners, and a development away from the strictures of the common law attitude to the implication of requirements of good faith.
MARCUS S JACOBS QC
30 October 2002
1. Barrister at Law, 12th Floor, Selborne Chambers, 174 Phillip Street, Sydney, New South Wales, One of Her Majesty's Counsel in the State of New South Wales; Adjunct Professor of Law, University of Technology, Sydney
2. Professor of Law, University of Technology, Sydney
3. Barrister at Law, 10th Floor, St James Hall Chambers, 169 Phillip Street, Sydney, New South Wales
4. Sale of Goods (Vienna Convention) Act 1987 (ACT), Sale of Goods (Vienna Convention) Act 1986 (NSW), Sale of Goods (Vienna Convention) Act 1987 (NT), Sale of Goods (Vienna Convention) Act 1986 (Qld), Sale of Goods (Vienna Convention) Act 1986 (SA), Sale of Goods (Vienna Convention) Act 1987 (Tas), Sale of Goods (Vienna Convention) Act 1987 (Vic), Sale of Goods (Vienna Convention) Act 1986 (WA),
5. The Commonwealth introduced section 66A into the Trade Practices Act 1974(Cth)
6.  NSWSC 896 (4 October 2002).
7. See paras [2.16-2.17] of Statutory Interpretation in Australia, 5th Ed, 2001, by Pearce & Geddes, Butterwoths Australia
8. John Honnold Uniform Law for International Sales, Third Edition, Kluwer Law International l999.
For a history of the development of the CISG see also INTERNATIONAL SALE OF GOODS; DUBROVNIK LECTURES (Peter Sarcevic & Paul Volken eds., l986); 8 J.L. & COM. 1-244 (l988) (Symposium issue)
9. At p 3, para 1.
10. Id 7
11. Id 9
12. Id 10
13. Mary Hiscock The Vienna Convention on the International Sale of Goods- Thirteen Years on, 24th International Trade Law Conference, AG Canberra October 2002
14. See Delchi Carrier, SpA v Rotorex Corp., 71 F.3d 1024 (2d CIR. L995) and Filanto, S.p.A v Chilewich Int'l Corp., 789 F.Supp. 1229 (S.D.N.Y. l992)
15. Joanne Darkey Recent Development: CISG: A U.S. court's interpretation of damage provisions under the UN Convention on contracts for the International Sale of Goods: A preliminary step towards an international jurisprudence of the CISG or a missed opportunity, 15 J.L. & Com. 139, Fall l995
17. John Honnold The Sales Convention in Action-Uniform International Words: Uniform Application? 8 J.L. & COM. 207, 211 (l988)
18. Joseph M. Lookofsky Consequential Damages in Comparative Context 294 (l989)
19. The extraordinary range of sources, mostly available on-line, can be readily seen on the UNCITRAL website <http://www.uncitral.org> and from the Pace University website <http://www.cisg.law.pace.edu>.
20. It is not a set of decisional rules like the U.C.C., but rather it is in the form of a code utilized by continental systems. Arthur Rosett Critical Reflections on the United Nations Convention on Contracts for the International Sale of Goods, 45 Ohio St. L.J. 265, 297 (l984)
22. Albert Tate, Jr. The Role of the Judge in Mixed Jurisdictions: The Louisiana Experience in The Role of Judicial Decisions and Doctrine 23, 34 (Joseph Dainow ed. 1974) (stating that the enactment of a Code shows a clear legislative intent to adopt the civil tradition in interpretation)
23. Honnold supra 10
24. Tate supra 15
25. Honnold supra l3 at 207. See also Susanne Cook The Need for Interpretation of the l980 United Nations Convention on Contracts for the International Sale of Goods, 50 U.Pitt.L.Rev. l97, 226 (1988) (stating that considerable weight should be granted to foreign decisions on point when interpreting CISG)
26. (1995) 57 FCR 216; (1995) ACSR 153; (1995) 13 ACLC 776
27. Suffice to say that this issue has been subject to an extensive analysis, spawning a great volume of literature particularly with regard to exclusion from the Convention's sphere of application pertaining to Article 2. For one of the most insightful, comprehensive and scholarly works see Franco Ferrari Recent Development: CISG: Specific Topics of the CISG in the Light of Judicial Application and Scholarly Writing, 15 J.L. & Com. 1, Fall l995
28.  SASC 15; BC200100095 ( on-line)_
29.  QCA 433; BC200106210 (on-line)
30. Supra 4 at p 15
31. Supra 10
32. Susanna Cook The UN Convention on Contracts for the International Sale of Goods: A Mandate to Abandon Legal Ethnocentricty l6 J.L. & Com. 2, 257, Spring 1997
33. Ibid citing Arthur G. Murphy, Jr. Consequential Damages in Contracts for the International Sale of Goods and the Legacy of Hadley 23 Geo.Wash..J. Int'l L.& Econ. 415 (1989) (analyzing the differences between Article 74 of the Convention and Hadley v Baxendale); Jacob S. Ziegel Canada Prepares to Adopt the International Sales Convention, 18 C.B.L.J. 1, 14 (1991).
34.  NSWSC 896 (4 October 2002)
35. (2000) 52 NSWLR 1
36. See Renard Constructions (ME) P/L v Minister for Public Works (1992) 26 NSWLR 234, Alcatel Australia Ltd v Scarcella (1998) 44 NSWLR 349, Hughes Bros P/L v Trustees of the Roman Catholic Church for the Archdiocese of Sydney (1993) 31 NSWLR 91, and Aiton Australia P/L v Transfield P/L (1999) 153 FLR 236. See also Overlook v Foxtel  NSWSC 17 (31 January 2002), Mainland Holdings Ltd v Szady NSWSC 699 (22 August 2002), and Central Exchange Ltd v Anaconda Nickel Ltd  WASC128.
37. Royal Botanic Gardens and Domain Trust v South Sydney City Council  HCA 5 (14 February 2002, per Gleeson CJ, Gaudron, McHugh, Gummow and Hayne JJ at 
38. such as the Trade Practices Act 1974 (Cth)
39. such as the development of estoppel viz Waltons Stores (Interstate) Ltd v Maher (1988) 164 CLR 387, and the reach of the doctrine of unconscionability viz Commercial Bank of Australia v Amadio (1983) 151 CLR 447 and Garcia v National Australia Bank (1998) 194 CLR 195, and unjust enrichment viz Pavey & Matthews P/L v Paul (1987) 162 CLR 221.
40. See "Defining the Undefinable; Good Faith and the United Nations Convention on Contracts for the International Sale of Goods", by Paul Powers (1999) 18 Journal of Law & Commerce 333 who sets out the situation in France, Belgium, Italy, and Germany.
41.  HCA 5 (14 February 2002)
42.  FCA 1541 (3 November 2000)
43. (1981) 53 FLR 340 at 348
44. See "Incorporating Terms of Good Faith in Contract Law in Australia" by Peden (2001) 23 Sydney Law Review 222, "Good Faith & Contractual Performance" by Lucke in Finn Ed Essays in Contract (1987) Law Book Co, Sydney; "Law - All in Good Faith" by his Honour, Mr Justice Cole (1994) 10 Building & Construction Law 18; "Good Faith - The Scarlet Pimpernel of the CISG" by Zeller (May 2000) <http://www.cisg.law.pace.edu/cisg/biblio/zeller2.html>
45. (1999) 153 FLR 236