Sale of Goods, International (Conflicts of Laws)

From Max-EuP 2012

by Ulrich Magnus

1. Subject and aims

Both on the national and the international level, the sale of goods (sale) constitutes the most important as well as the most frequent type of contract. Every person depends on sales transactions for his or her daily existence. It is for these reasons that the international community has long since been concerned with the unification of sales law. With the creation of the UN Sales Convention (CISG), an undisputable success has already been achieved (sale of goods, international (uniform law)). However, there still remains a considerable number of international sales cases and problems not covered by the CISG. They have to be dealt with in the traditional way by the rules of private international law that determine the applicable national law.

For sales contracts, the specific rules apply that have developed in conflicts law for international contracts (contractual obligations (PIL)). In principle, like private international law generally, these rules intend to select from the laws involved the law which is most closely connected with the case at hand. However, to the extent that private international law is national law, its rules may differ from state to state. Consequently, the conflict rules on international sale of goods contracts may differ as well. The connecting factors relevant to the determination of the applicable law for contracts span a broad spectrum: few countries still rely on a strict application of the law of the place of performance; in most countries the parties are allowed to choose the applicable law. In the absence of the parties’ choice, the contract is often governed by the law of the country where the party required to effect the characteristic performance of the contract has its seat. In still other countries, a balancing of all relevant factors and a grouping of contacts is necessary. Though the global unification of these conflicts rules would certainly be useful, this goal has not yet been achieved. A Hague Convention concerning the law applicable to international sales of goods of 15 June 1955 (Hague Conference on PIL) has found little acceptance. However, within the European Union, the Rome Convention on the Law Applicable to Contractual Obligations of 19 June 1980 has largely unified international contract law for over two decades. Yet, due to its concurrent coexistence with the Hague Convention, it has nonetheless not achieved a full unification of the conflicts rules on sales contracts within the EU. However, the Rome Convention contains rather clear conflicts rules for transborder sales. They have been maintained in Reg 593/2008 on the Law Applicable to Contractual Obligations (Rome I Regulation) which entered into force in all EU Member States on 18 December 2009 (except in Denmark). From that date forward, the Rome I Regulation replaces the Rome Convention.

2. Tendencies

In general, the conflicts rules on international sales contracts are not the subject of separate and independent regulation; instead international sales are governed by the general rules on international contract law. For the latter, it was already a considerable achievement to recognize almost everywhere the parties’ autonomy to choose the applicable law for their contract (choice of law by the parties). However, there exists an international special regulation on sales conflicts rules, namely the mentioned Hague Convention of 1955. The Convention, which is in force in only five EU Member States (Denmark, Finland, France, Italy and Sweden), as well as in Norway and Switzerland and outside Europe only in Niger, acknowledges the principle of parties’ freedom of choice of law. Its revised and modernized successor, the Hague Convention on the Law applicable to International Sales of Goods of 22 December 1986, is nowhere in force, and it is unlikely that it will ever enter into force.

Though almost globally accepted in principle, the parties’ freedom to choose the applicable law cannot be granted without limits. In particular, where consumers are involved in transborder transactions it must be ensured that a consumer, as the weaker party, is protected against a choice of law that deprives him or her of the mandatory protection granted by the law otherwise applicable. The Hague Convention of 1955 contains but very rudimentary traces of this insight. Only the Rome Convention of 1980 has fully accepted the idea of consumer protection by means of conflicts law. The Rome I Regulation follows suit. Like the Rome Convention, the Regulation provides that the choice of law must not impair the protection the consumer is granted by ‘his’ or ‘her’ law (being the law of the country of the consumer’s habitual residence) if the business partner has been active in the consumer’s country. The Rome I Regulation has considerably extended the consumer protection in international contract law. Under the Regulation, it is now sufficient that the professional contracting party has directed its activity to the country of the consumer (Art 6(1) Rome I Regulation; for a discussion of ‘has directed’ see ECJ [C-585/08 and C-144/09, Pammer and Hotel Alpenhof]—though limited to jurisdictional purposes). Consumer protection is thus effected such that the more favourable mandatory rules of the consumer’s law remain applicable even if the chosen law provides otherwise. Thereby, the Rome I Regulation reacts less rigidly than, for instance, Swiss law, which excludes any choice of law in case of consumer contracts including international consumer sales (Art 120 Swiss IPRG).

In the absence of the parties’ valid choice of law, the applicable law must be determined in an objective manner. In Europe, the afore-mentioned Hague Convention of 1955 had already done away with the general application of the law of the place of performance, which was widely used until that time. The Convention specified the law of the seller’s place of business as being applicable. The Rome Convention of 1980 maintained this rule but made it more flexible. It established a presumption that, in general, the law of the seller’s seat (place of business or habitual residence) applies to the sales contract. However, the presumption is rebutted if the case is more closely connected with the law of another country. The Rome I Regulation essentially maintained this flexible solution although a first draft had proposed hard-and-fast rules for the determination of the applicable contract law. Even the most recent European conflicts regulation thus Does not follow the US model whereby the applicable contract law is determined by weighing in each case all contacts and interests involved. The European solution provides greater foreseeability and reliability with respect to the applicable law than the US method with its ‘grouping of contacts’ and ‘governmental interest analysis’.

The objective determination of the applicable contract law also needs to take into account the protection of the weaker party. Therefore, for consumer contracts without a parties’ choice of law the Rome I Regulation designates the law at the consumer’s habitual residence as applicable if the professional party acted there or directed its activity—even via the internet—to that country.

3. Applicable law under the Rome I Regulation

Unless the CISG or the Hague Convention of 1955 applies, today in Europe most transborder sales fall within the scope of the Rome I Regulation. In order to determine the applicable law according to the Regulation, the first step requires establishing whether the parties explicitly or implicitly agreed on a specific law, in which event the sale is then governed by the chosen law. However, in the case of mere domestic sales, this choice, though perfectly admissible, does not exempt the contract from the application of the mandatory provisions of the domestic law. The latter prevail over conflicting provisions of the chosen law. If the sale is solely connected with the territory of the EU, mandatory provisions of EU law or, as the case may be, provisions of implemented directives also prevail over the provisions of the chosen law. In particular, the mandatory provisions of the EU Sales Directive (Dir 1999/44) as implemented in the Member State whose courts are seized enjoy priority in such intra-EU cases over any contradicting provisions of the chosen law, be it even the law of a third state outside the EU.

Absent any choice of law, it is in principle the law at the seller’s place of business that applies. Again, there are some exceptions to this rule. Sales on the spot, at public or private auctions or stock exchanges, are regularly governed by the law of the place where they are concluded. Also, where the contract is manifestly more closely connected with a country other than that of the seller’s seat, the law of that other country applies.

This system of determining the applicable law is modified if the buyer is a consumer who has bought the goods for private use and if the seller has at least directed his or her activities to the buyer’s country. In that case, the provisions of the chosen law are supplanted by any mandatory and more favourable rules of the law that would apply without such choice, namely the law at the buyer’s habitual residence.

The chosen or objectively determined law governs in principle all aspects of the sales contract, in particular its conclusion, its interpretation, its performance, the remedies for any breach of contract and the termination of the sales contract. Nonetheless, for certain aspects specific conflicts rules apply which can lead to a law other than that chosen or objectively designated. This is, for instance, the case with the manner of performance and the steps to be taken in the event of defective performance, especially with any possible requirement to give notice of a defect in the sold goods. Here, regard shall be had to the law of the country in which performance takes place.

In addition, international mandatory rules (overriding mandatory provisions) or lois de police such as, for example, the prohibition against exporting and selling cultural property can override the law that is actually applicable. Consistent with their scope, they may be given effect over contradicting provisions of the chosen or objectively applicable law.

Finally, it is the ordre public that establishes an ultimate boundary where provisions of an applicable foreign law are manifestly incompatible with the public policy and fundamental values of the law of the forum.

4. Unification within the EU

The Rome I Regulation has further enhanced the unification of international contract law and international sales law within the European Union. Nonetheless, achieving full unification of the European conflicts rules in these areas is still far in the distance. Notwithstanding the Rome I Regulation, there still exist considerable differences concerning the law applicable to transborder sales of goods. There is, first, the fact that Denmark did not adopt the Rome I Regulation and still adheres to the Rome Convention of 1980, the application of which can lead to solutions different from those under the Regulation.

Second, as mentioned, five EU Member States (Denmark, Finland, France, Italy and Sweden) are at the same time contracting states to the Hague Convention of 1955, which takes priority over the Rome I Regulation—and likewise over the Rome Convention. The Hague Convention provides for conflicts rules which contain neither a flexible exemption clause nor explicit consumer protection. The application of the Hague Convention can thus produce results that differ significantly from those achieved under the Rome I Regulation. Moreover, since the scope of application of both instruments is not identical, the courts of the mentioned states have to apply partly the Hague Convention, and partly the Rome I Regulation (for Denmark, the Rome Convention) to international sales cases.

Third, all EU Member States have had to implement the specific conflicts rule of the European Consumer Sales Directive. Article 7(2) of that Directive obliges the Member States to ensure that consumers cannot be deprived of the protection afforded by the Directive, provided that the contract has a close connection with the territory of the Member States. The implementation of this provision in the Member States has not been identical. In particular, national provisions addressing the central element of ‘close connection’ vary.

Within the EU, one thus finds a perplexing mixture consisting of general conflicts rules on international contracts including sales contracts, partially diverging conflicts rules of the Hague Convention (of 1955) and of a yet further differing specific conflicts rule of the Consumer Sales Directive. Further, it has to be taken into account that the CISG that makes private international law principally superfluous has been ratified by only 23 of the 27 EU Member States. This situation is hardly satisfactory. It is unnecessarily complicated and confusing because of the number of different sources of law, the need of their delimitation and, further, because of the fact that the European Court of Justice has jurisdiction to interpret only some of these sources (the Rome I Regulation and the Consumer Sales Directive). There is no reason or justification for such diversity. Greater transparency and practicability would be achieved if, within the EU, sellers and buyers of international sales were obliged to observe nothing more than the CISG and the Rome I Regulation.

5. Unification projects

The existence of the CISG of 1980, unifying substantive sales law, has reduced the necessity and the attempts to unify specific conflicts rules for international transborder sales of goods. The first attempt of that kind, the Hague Convention of 1955 was, as mentioned, revised in 1986. The new version was designed for global acceptance. However, since it has only been ratified by Argentina and Moldova, the new version is nowhere in force due to the lack of the necessary number of ratifications. The modernization of the rather unimportant 1955 Convention is thus a failure.

Another more important unification project concerned international contract law as a whole. It is the Inter-American Convention on the Law Applicable to International Contracts of 17 March 1994. But its importance is also more theoretical than practical. As of yet, the Convention is in force only in Mexico and Venezuela. The Inter-American Convention does not contain specific conflicts rules for international sales. Thus the Convention’s general conflicts rules for international contracts apply also to sales contracts. According to them, the law chosen by the parties is in the first instance applicable. In the absence of a valid choice by the parties, the law of that state with which the contract has the ‘closest ties’ governs. In order to determine the closest ties, ‘all objective and subjective elements of the contract’ have to be taken into account as well as ‘the general principles of international commercial law recognized by international organizations’. The Inter-American Convention does not provide for specific conflicts rules for consumers. It largely follows the US conflicts model of weighing and balancing all circumstances of the case at hand.

Literature

Frank Vischer, Lucius Huber and David Oser, Internationales Vertragsrecht (2nd edn, 2000); James J Fawcett, Jonathan M Harris and Michael G Bridge, International Sale of Goods in the Conflict of Laws (2005); Franco Ferrari and others, Internationales Vertragsrecht (2007); Richard Plender and Michael Wilderspin, European Private International Law of Obligations (3rd edn, 2009); Franco Ferrari and Stefan Leible (eds), Rome I Regulation—The Law Applicable to Contractual Obligations in Europe (2009); Christoph Reithmann and Dieter Martiny (eds), Internationales Vertragsrecht (7th edn, 2010); Ulrich Magnus, ‘Die Rom I-Verordnung’ [2010] IPRax 27; Joseph Lookofsky and Ketilbjørn Hertz, Transnational Litigation and Commercial Arbitration (3rd edn, 2011).

Retrieved from Sale of Goods, International (Conflicts of Laws) – Max-EuP 2012 on 01 December 2022.

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