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Published in J. Herbots editor / R. Blanpain general editor, International Encyclopaedia of Laws - Contracts, Suppl. 29 (December 2000) 1-192. Reproduced with permission of the publisher Kluwer Law International, The Hague.

[For more current case annotated texts by this author, see Bernstein & Lookofsky, Understanding the CISG in Europe, 2d ed. (2003) and Lookofsky, Understanding the CISG in the USA, 2d ed. (2004).]

excerpt from

The 1980 United Nations Convention on Contracts
for the International Sale of Goods

Joseph Lookofsky

Article 7
Convention Interpretation

I.   Uniformity and Good Faith
II.  Matters Governed But Not Settled

I. Convention Interpretation: Uniformity and Good Faith

75. Article 7 contains two rules regarding the interpretation of the Convention itself; the first of these provides as follows:

'(1) In the interpretation of this Convention, regard is to be had to its international character and to the need to promote uniformity in its application and the observance of good faith in international trade.'

76. The Convention is a supranational statute, a binding piece of international legislation. And so the courts of all CISG Contracting States are bound to respect the letter of the law. Indeed, when a question arises as to how a given part of the Convention should be understood, the most natural interpretation is likely to be the 'plain meaning' of the treaty text.[1]

1. See Article 31 of the 1969 Vienna Convention on the Law of Treaties. Regarding the 6 equally authentic, but not always completely consistent versions of the treaty see Article 101 and infra No. 335. Regarding, e.g. the US Supreme Court's 'literal' interpretation of the Hague Evidence Convention, see Société Nationale Industrielle Aerospatiale v. U.S. Dist. Court for Southern Dist. of Iowa, 482 US 522 (1987). See also J. Hellner, 'The UN Convention on International Sales of Goods - An Outsider's View', in Ius Inter Nationes: Festschrift für Stefan Riesenfeld (1983).

77. In many cases, however, the 'plain meaning' and/or proper application of (the six, equally authentic versions of) a given Convention' provision will not be clear, thus giving rise to more than one possible interpretation or application in the concrete case. In these cases, Convention interpreters can seek guidance in secondary sources of the CISG rule of law.[1]

Since the Convention is a statutory instrument (a treaty), some interpreters will seek evidence of the international legislator's intent. Some might, for example, look back to the ULIS (that which came before CISG): but although a number of CISG provisions seem similar to those in ULIS, that does not necessarily mean that the (different) legislators of these (different) treaties possessed the same legislative intent.[2] Indeed, the entire CISG 'legislative history' (travaux préparatoires), while voluminous, it is often inconclusive.[3] Nor should the unofficial 'Secretariat Commentary' to the 1978 draft Convention be allowed to serve (anywhere) as an authoritative CISG guide.[4]

Given these unclear international guideposts, it is understandable that national courts may sometimes - perhaps unwittingly - tend to interpret the CISG in accordance with well-entrenched domestic views, inter alia, in cases where the Convention terminology seems reminiscent of (older) local law.[5] Indeed, the [page 49] problem here is not just the risk of diverging (yet viable) interpretations; in some casest a given 'domestic' interpretation may lead to a clearly wrong CISG result.[6]

In order to guard against such inappropriate consequences, Article 7(1) tells courts and arbitrators that regard is to be had to the international character of the Convention and to the need to promote uniformity in its application. The implication here is that an independent (autonomous) interpretation should be undertakent (at least) with a view towards achieving results acceptable to a significant number of CISG Contracting States.[7] On the other hand, the flexible command set forth in paragraph (1), working in tandem with the equally flexible (governed-but-not-settled) rule in paragraph (2), hardly compels courts and arbitrators to pursue the uniformity goal at all costs.[8]

As regards case law (precedent), it is significant that no international court has been made competent to interpret the CISG.[9] And yet, since Article 7(1) requires courts to display (due) 'regard' to the international character of the Convention and to the need to promote uniformity in its application, national courts are bound to at least take account of CISG foreign precedents [10] - a task made easier by CLOUT (Case Law on UNCITRAL Texts) and other systems which report the numerous CISG decisions rendered by courts and arbitral tribunals around the world.[11] Of course, since the decisions from (even the highest) courts of other jurisdictions can at best achieve status as 'persuasive' (as opposed to binding) precedent, a truly 'international' interpretation of the Convention remains a most difficult task.[12]

When interpreting the CISG treaty, 'regard is [also] to be had' to the observance of good faith in international trade. Hardly by accident, this aspect of the Article 7(1) mandate might seem to fall short of domestic analogues which lay down the good faith duties of contracting parties (indeed, some Convention drafters feared the 'uncertain' contours of that kind of thing). But the distinction between good faith interpretation and good faith performance is proving to be more apparent than real, especially since 'matters governed by this Convention which are not expressly settled in it are to be settled in conformity with the general principles on which it is based';[13] in fact, general Convention principles of reasonable conduct and venire contra factum proprium have already been identified as specific elements of an even more general Convention principle which requires both CISG parties to act in good-faith.[14]

1. See Article 32 of the 1969 Vienna Convention on the Law of Treaties. Regarding the 6 equally authentic versions of the treaty text see infra No. 335.
2. Many European commentators place great emphasis on decisions interpreting the provisions of ULIS, notwithstanding the fact that numerous CISG States (including the United States) were clearly opposed to - and therefore never ratified - the ULIS: see supra No. 11.
3. For a comprehensive collection of CISG conference documents, see Honnold, Documentary History of the 1980 Uniform Law for International Sales (1989). As regards the use of the CISG documentary history as an interpretative aid, even Professor Honnold (Uniform Law, 1999 at 463 [available at <http://www.cisg.law.pace.edu/cisg/biblio/honnold.html>]) urges restraint: 'Interpretation based on discussions by a large legislative body is more meaningful for decisions of broad issues of policy than for detailed applications'.
4. An American proposal to draft an official Commentary to the 1980 Convention was rejected: see P. Winship, op. cit. (No. 55), at pp. 1-27. The Commentary to the 1978 Draft Convention (A/CONF./97/5), while providing some useful insights, will never attain world-wide recognition as an official and authoritative source of Convention interpretation. For this reason alone, one should reject the proposal by Bailey ('Facing the Truth: Seeing the Convention on Contracts for the International Sale of Goods as an Obstacle to a Uniform Law of [page 50] International Sales', 32 Cornell Int'l LJ. 273 (1999) at 300 to adopt the 1978 Commentary as the 'official' (American) commentary to the CISG.
5. The striking similarity between CISG Article 74 and the Common law Hadley v. Baxendale rule prompted some provincial (American) observations in the Delchi case, noted infra No. 290 with note 1.
6. For example, some German courts seem to have read the inspection and notice rules in CISG Articles 38 and 39 as if they were re-statements of the (very strict) requirements laid down in German domestic law: see infra Nos. 186 et seq.
7. Professor Flechtner, emphasizing the somewhat flexible nature of the (regard is to be had) command in Article 7(1), makes an interesting case for a regional CISG interpretation: see Flechtner, H, 'Another CISG Case in the U.S. Courts: Pitfalls for the Practitioner and the Potential for Regionalized Interpretations,' 15 J.L & Comm. 127 (1995) pp. 132 ff [available at <http://www.cisg.law.pace.edu/cisg/biblio/jlcvol15.html>]. He argues that, e.g. a NAFTA or European Union interpretation of the sales treaty might represent a 'critical first step in transcending familiar but parochial approaches ... the initial stage [of courts] becoming accustomed to adopting an international perspective ...' (id. at 137).
8. For example, so as to preclude reasonable recourse to alternative domestic remedies, even though the outcome of a given kind of case might then vary, depending on the applicable (competing) domestic rule of law. See supra No. 62 et seq. and infra Nos. 78-80.
9. This contrasts, e.g. with the competency of the European Court of Justice to interpret the Brussels Convention on Jurisdiction and Judgments.
10. Accord: Flechtner, H., 'The Several Texts of the CISG in a Decentralized System: Observations on Translations, Reservations and Other Challenges to the Uniformity Principle in Article 7(1),' 17 J.L & Comm. 187 (1998) [available at <http://www.cisg.law.pace.edu/cisg/biblio/flecht1.html>].
11. Regarding the CLOUT system see United Nations document A/CN.9/SER. C/GUIDE/l and Schlechtriem, P., 'Uniform Sales Law - The Experience with Uniform Sales Laws in the Federal Republic of Germany,' Juridisk Tulskrift (vid Stockholms Universitet), Årgång 3/NR 1/1991-1992 [available at <http://www.cisg.law.pace.edu/cisg/biblio/schlech2.html>]. Easy access to CISG decisions (and other secondary CISG sources) worldwide has been further facilitated by the establishment of the Pace Law School Institute of International Commercial Law Website, CISG Database (http://www.cisg.law.pace.edu) and by the creation of the UNILEX database developed by the Centre for Comparative and Foreign Law Studies in Rome, published by Transnational Publishers (New York): see http://www.cnr.it/CRDS/UNILEX.htm. See generally Andersen, C., 'Furthering the Uniform Application of the CISG: Sources of Law on the Internet', 10 Pace Int'l L Rev. (1998) 403 [available at: <http://www.cisg.law.pace.edu/cisg/biblio/andersen1.html>].
12. Accord: Flechtner, supra note 10, at 211.
13. See infra Nos. 78-80.
14. See Herber in Schlechtriem, Commentary (1998) at 63 (party's conduct to be measured by views of 'reasonable person of the same kind'). The good-faith rule in Article 7(1) has been cited, inter alia, in support of a decision which declares estoppel (venire contra factum proprium) to be a general Convention principle: see award No. SCH-4318 rendered by Internationales Schiedsgericht der Bundeskammer der gewerblichen Wirtschaft Wien, 15 June 1994, reported in UNILEX; accord Herber at id. Article 1.7 of the UNIDROIT Principles of International Commercial Contracts clearly accords with the notion of a CISG duty (or general principle) to act in accordance with good faith and fair dealing in international trade. See also the award cited infra No. 178 with note 3.

II. Convention Interpretation: Matters Governed But Not Settled

78. Whereas Paragraph 1 of Article 7 provides general rules for the interpretation of the sales treaty, Paragraph 2 contains a special rule designed for the settlement of matters 'governed by' but 'not expressly settled' by the Convention. This provision provides as follows:

'(2) Questions concerning matters governed by this Convention which are not expressly settled in it are to be settled in conformity with the general principles [page 51] on which it is based or, in the absence of such principles, in conformity with the law applicable by virtue of the rules of private international law.'

79. Article 7(2) provides a potentially powerful tool which courts and arbitrators can use to plug 'gaps' in the literal CISG text. By locating a relevant CISG 'general principle' for the resolution of a matter 'governed but not settled' by the Convention text, decision-makers can remain within the four comers of the treaty in situations where they otherwise would need to revert to other (usually domestic) rules of law. In this respect, Article 7(2) might be described as dealing with a 'preemption' problem: when and to what extent should CISG general principles be used to settle matters not expressly settled in the Convention, thus preempting potentially competing (non-CISG) rules of law?

First, it should be emphasized that paragraph (2) can only be applied with respect to matters which are governed by the Convention but which are not expressly settled in it ('les matières régies par la présente Convention et qui ne sont pas expressément tranchées par elle'). Conversely, it seems clear that certain questions - such as those relating to the validity of the sales contract, third party rights, etc. which are not governed by the Convention can only be settled by resort to rules outside the Convention, (usually) domestic rules of law.[1]

It should also be noted some problems which might be solved by the application of Article 7(2) might also/alternatively be solved by means of analogy, even though Article 7(2) surely also authorizes a more fluid kind of judicial decision-making than that associated with analogy in the traditional sense.[2] For example, since CISG Article 13 clearly governs the issue (matter) of how to define a 'writing', one might argue that the possible extension of Article 13 to more modern means of communication (e.g. telefax) is a 'matter' governed-but-not-settled by the CISG,[3] although it might then require some creativity to locate a CISG general principle with which to resolve this matter. But we might also try to resolve the matter by simply making an analogy between telefax and the means expressly listed in the Convention text.[4]

In any case, one can hardly maintain that the CISG governs all 'matters' which relate to sales contract formation and the rights and obligations of the parties, i.e., even though the Convention obviously governs a long list of individual matters within this broad range.[5] For example, although Article 8 contains rules which govern certain aspects of a larger problem - i.e., the interpretation of CISG contracts - we cannot on that basis conclude that the CISG governs the entire (contract interpretation) 'matter'. In other words, Article 8 does not displace (preempt) all other rules of contract interpretation, (e.g.) the familiar rule that unclear terms should be interpreted contra proferentem; and since Article 8 does not even 'govern' this particular 'matter', there is no occasion to search for a 'general [CISG] provision' with which to resolve it.[6]

Still, those decision-makers who favour a highly autonomous interpretation and application of the treaty will be able to open the Article 7(2) flood-gates quite wide, and commentators have already fleshed out numerous CISG 'general principles' for use in pursuing that end, inter alia, the (very general) principle of good faith.[7]

Two arbitral awards from Vienna (both concerning the buyer's refusal to pay for non-conforming metal sheets) illustrate the scope of the gap-filling power of Article 7(2).[8] The first (and more controversial) application relates to the fact that [page 52] Article 78 provides for the payment of interest (on the price and other sums in arrears) but does not set the rate.[9] Most courts and arbitrators have filled this 'gap' by resorting to domestic law, but the tribunal in these cases decided that the rate of interest was a 'matter' governed-but-not-settled by the CISG and then proceeded to settle the 'matter' (the rate) by reference to the (general CISG) 'principle of full compensation', i.e., the principle that a CISG promisee should be compensated for all (foreseeable) losses caused by the other party's breach. Seeking to rise above other, more provincial solutions, this Viennese tribunal thus found the means to 'settle' a matter which (in 1980) could not be settled by the Vienna treaty drafters.[10]

The second Article 7(2) application by the same tribunal concerned the failure by the buyer, upon receipt of the goods, to comply in timely fashion with the notice requirements of Articles 38 and 39.[11] Since the seller previously had led the buyer to believe that the notice defense would not be raised, the question was whether the seller should now be estopped (venire contra factum proprium) from setting it up. Having assumed that this 'matter' (the seller's possible forfeiture of the defense of late notice) is governed but not expressly settled by the Convention, the tribunal held that estoppel was a general CISG principle (a special application of the even more general CISG principle of good faith), thus paving the way for a - just and reasonable - ruling without recourse to non-Convention rules of law.[12]

In a bolder - and more controversial - expedition within the Article 7(2) realm, a German appellate court ruled that, for purposes of determining its jurisdiction vis-à-vis an American defendant-seller, the place at which that seller was to pay damages (if ultimately held liable to the German plaintiff-buyer in respect of third-party personal injury claims) was a matter governed-but-not-settled by the CISG.[13] The court cited Article 57(1)(a), which deals expressly with the buyer's duty to pay the price, as evidence of a CISG general principle that all 'payments' (including damages awarded for a CISG breach) are to be made at the creditor's place of business; and since the plaintiff-buyer's business was in Germany, the German court held it had jurisdiction to decide the case. CISG commentators have criticized this decision on various grounds,[14] and the court's application of Article 7(2) might well head the list.[15]

1. See supra No. 62 et seq., Lookofsky, 'Loose Ends and Contorts ...', 39 Am. J. Comp. L (1991) at 407 [available at <http://www.cisg.law.pace.edu/cisg/biblio/lookofsky6.html>], Hartnell, H., 'Rousing the Sleeping Dog ...' 18 Yale 1. Int. L (1993) at 18 [available at <http://www.cisg.law.pace.edu/cisg/biblio/hartnell.html>] and Herber in von Caemmerer & Schlechtriem. Kommentar (1995), Art. 7 Rd. Nr. 28.
2. The German terms Gesetzesanalogie and Rechtsanalogie seem appropriate to describe the two techniques: see Bernstein & Lookofsky, CISG/Europe 2-11.
3. See infra No. 97 et seq.
4. See sources cited in Kritzer, Guide to Practical Applications of the UN Convention (1989), Suppl. 7, 80-81 (Detailed Analysis of Article 7(2)).
5. See the first sentence of Article 4, supra No. 62.
6. See supra No. 71 with note 3 and infra No. 81 et seq.
7. Previously mentioned supra (No. 77) in connection with Convention 'interpretation' under Article 7(1). Re. estoppel see infra with note 12. Re., e.g. the prohibition against the 'misuse of rights' and the principle of 'reasonableness' see Herber in Schlechtriem. Commentary (1998) at 63 (party's conduct to be measured by views of 'reasonable person of the same kind'). For other suggestions of general principles to be found in the Convention see Magnus in Staudinger, Kommentar, Art. 7 Rd. Nm. 41-57, Ferrari, F., 'Uniform Interpretation of the 1980 Uniform Sales Law,' 24 Georgia Journal of International and Comparative Law 183 (1994) at 225 [available at <http://www.cisg.law.pace.edu/cisg/biblio/franco.html>], Honnold, Uniform Law (1999) 99 and Hyland, 'Conformity of Goods', in Einheitliches Kaufrecht und Nationales Obligationenrecht (Schlechtriem ed. Baden-Baden 1987) at 331-333. [page 53]
8. Arbitral awards No. SCH-4318 and SCH-4366, both decided on 15 June 1994 by Internationales Schiedsgericht der Bundeskammer der gewerblichen Wtrtschaft - Wien, RIW 1995, 590, 591, [reported at <http://www.cisg.law.pace.edu/cisg/text/casecit.html>] and in UNILEX.
9. See infra No. 296 et seq.
10. Whereas the decision of LG Aachen (Germany) of 20 July 1995 (reported in UNILEX) expressly rejected an Article 7(2) solution to the interest-rate problem, noting that the Vienna Convention drafters tried but failed to solve the interest-rate problem, the Vienna arbitrators in the awards cited supra (in note 8) settled the very same problem using Article 7(2)!
11. This issue arose in Arbitral award No. SCH-4318, cited supra, note 8. Regarding the CISG notice provisions, which have been strictly construed by the German courts, see infra No. 186 et seq.
12. Said to be reflected in Article 16(2)(b), discussed infra No. 109, and in the second sentence of Article 29(2), noted infra No. 146. As authority for this proposition (abstraction), the Austrian tribunal cited Professor Bonell in Bianca-Bonell, Commentary at 81 [available at <http://www.cisg.law.pace.edu/cisg/biblio/bonell-bb7.html>] and Herber & Czerwenka, Internationales Kaufrecht at 48 (1991); accord Honnold, Uniform Law (1999) pp. 105 ff. See also the decision of OLG Karlsruhe, Germany, of 25 June 1997, RIW 1998 pp. 235-237, CLOUT Case 230, also reported [at <http://cisgw3.law.pace.edu/cases/970625g1.html> and] in UNILEX. See also infra No. 139 n. 4.
13. Decision of OLG Düsseldorf (2 July 1993). RIW 1993, 845, reported in [<http://cisgw3.law.pace.edu/cases/930702g1.html> and in] UNILEX. The American (Indiana) seller had sold a machine to the German buyer at a time when the CISG had been adopted by the USA, but not by Germany. The machine was delivered to, and installed in, a factory in Russia. In the course of its operation an accident occurred which killed one worker and injured several others. In the action brought by the buyer in Germany, relief was sought from the seller in the form of (a) damages for repair costs incurred by the buyer and (b) a declaratory judgment holding the seller liable for all losses that the buyer might incur as a result of the Russian workers' death and personal injuries.
14. See Schlechtriem, EW1R Art. 1 CISG 1/93, 1075-1076 (also in Kritzer, Guide, Vol. 2, Supp. 9, 1994).
15. As argued by Bernstein & Lookofsky, Understanding the CISG in Europe (The Hague 1997) p. 26, the use of Article 7(2) to determine the place of damages payment has no meaning unless the payment of damages is the relevant 'obligation' for German procedural purposes, which is not the case: in an action by a German buyer against an American seller seeking indemnification against possible third party personal injury claims, the relevant obligation is the seller's (Article 35) duty to deliver conforming goods; see Huber in v. Caemmerer & Schlechtriem, Kommentar, Art. 45, Rd. Nr. 64 with note 117 and BGHZ 78,257,261; see also the decision of OLG Koblenz of 23 February 1990, IPRax 1991, 241 [reported at <http://www.cisg.law.pace.edu/cisg/text/casecit.html>]; but see Herber id., Art. 7, Rd. Nr. 41 and Schlechtriem, previous note at id. Even assuming, arguendo, that the payment of damages is the relevant obligation, the German court's application of Article 7(2) should still be challenged, in that the issue of where a judgment debtor is to pay damages seems hardly a 'matter ... governed by' the CISG. Re. the place of performance of a buyer's obligation to pay the price under Art. 5(1) of the Brussels Convention, see generally Hertz, K., Jurisdiction in Contract and Tort under the Brussels Convention (Copenhagen 1998) Ch. 5.

80. If no relevant CISG 'general principle' can be found, then Article 7(2) provides that the 'matter' in question must be settled 'in conformity with the [substantive] law applicable by virtue of the rules of private international law' (PIL).

Usually, the PIL (choice of law) rules will point to a domestic substantive law rule.[1] In some commercial situations, however, the applicable substantive rule may prove to be an international rule, e.g., a rule located within the larger body of lex mercatoria; in such case, the decision-maker will in all likelihood have located a highly appropriate adjunct to the international CISG regime.[2]

1. See supra No. 79 with note 1.
2. Within an arbitral context, see Lowenfeld, 'Lex Mercatoria: an Arbitrator's View,' 6 Arbitration International 133 (1990) and Lookofsky, Transnational Litigation, Chapter 6.2.3 and pp. 661-6772 (re. the Deutsche Schachtbau case: [1987] 2 All ER 769). The UNIDROIT [page 54] Principles of International Commercial Contracts were drafted to establish a balanced set of rules designed for commercial use throughout the world: see generally Bonell M., An International Restatement of Contract Law (2nd ed. 1997) Ch. 1.

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