Sale of Goods, International (Uniform Law)

by Ulrich Magnus

1. Subject and aim

The sale of goods is and always has been the centre of international trade. Transborder sales, however, often pose difficult legal problems resulting from the many and deep-rooted differences between the national sales laws (sale of goods, international (conflicts of laws)). Almost a century ago, therefore, efforts were started to create an internationally uniform global sales law that applies instead of the individual national sales laws. The UN sales law has now essentially reached that aim. The United Nations Convention on Contracts for the International Sale of Goods (CISG) is (as of 2010) in force in 74 countries whose imports and exports (as of 2010) account for about 90 per cent of the world trade of goods.

The uniform sales law (uniform law) does not only aim at the facilitation of international trade and the removal of legal trade barriers in order thereby to facilitate trade relations between merchants of different nations. The unification of sales law also intends to contribute to a more peaceful relationship between nations in the perhaps well-founded hope that nations whose citizens are linked together by closely-knit trade relations may be more reluctant to use military means for the resolution of disputes. The Preamble of the CISG therefore regards the creation of a uniform sales law as ‘an important element in promoting friendly relations among States’.

2. Creation of the uniform sales law

The present uniform sales law goes back to the 1920s. Its creation is inseparably linked to the name of Ernst Rabel, the German-Austrian founder of modern comparative law. It was Rabel who made the proposal to unify the substantive law of international sales and who prepared a fundamental comparative study on the law concerning the sale of goods which still serves as a model of comparative scholarship. The International Institute for the Unification of Private Law in Rome (UNIDROIT), then just founded, followed Rabel’s proposal in 1928 and established a commission of international experts who, under Rabel’s guidance, prepared a first draft regulating the substantive sales law and a further draft concerning the law on the formation of sales contracts. These drafts already contained the fundamental structure, all major concepts and many individual provisions that can still be found in the present uniform sales law. World War II interrupted further work which could be resumed only in 1950, finally leading to the Hague Uniform Sales Conventions of 1964. However, they won little international acceptance and gained practical importance only in Belgium, Germany, Italy and the Netherlands. As early as 1968 the United Nations Commission for International Trade Law (UNCITRAL) therefore also placed the international unification of the law concerning the sale of goods on its agenda and prepared a new convention on the basis of the Hague Uniform Sales Conventions. This new convention, the CISG, was adopted in 1980 in Vienna at a diplomatic conference of 62 states. The CISG (also: UN or Vienna Sales Convention) entered into force in 1988 in the first contracting States. Of the 27 EU Member States, only four, ie the United Kingdom, Ireland, Malta and Portugal, have not ratified it. Outside the EU, most trading nations and major industrialized countries, including Australia, Canada, China, Japan, Russia, South Korea and the United States, have adopted the CISG.

3. Impact of the CISG

Today the CISG is a core element of the global unification of international trade law. This process of globalization is less the result of international conventions than the so-called soft law instruments. They lack any official and formal binding force; parties to international transactions often integrate them nonetheless into their contracts because of their usefulness. The authors of these instruments have no formal legitimation to enact law; they have to rely on the quality of their products. Today, such practically important soft law instruments are in particular the UNIDROIT Principles of International Commercial Contracts (PICC) and the Incoterms created by the International Chamber of Commerce (ICC). The CISG has influenced both of these instruments to a considerable extent: the UNIDROIT PICC, in essence, generalize the solutions of the CISG and transfer them to all international commercial contracts; the Incoterms have been adapted to the CISG and its terminology so that these two instruments seamlessly fit together.

Moreover, the CISG has had a considerable impact as a model for many national and supranational legislative projects. Most of the Middle and eastern European countries, which reformed their private law after the political upheavals of 1989, adapted their general contract law as well as their sales law to the solutions of the CISG. For instance, Russia has taken over many provisions from the CISG and included them into its new Civil Code. Similarly, Germany followed the CISG to a considerable extent when it amended its general contract law and sales law in 2002. Under a supra-regional perspective, the EU Directive 1999/44 on consumer sales, in particular, borrowed from the CISG, making it thereby indirectly the basis of the sales law of all Member States. Moreover, the Principles of European Contract Law (PECL) as well as the provisions on formation of contract and on sales of the Draft Common Frame of Reference (European private law; European Civil Code) have been strongly influenced by the CISG. In addition, in Africa the OHADA, a group of 16 francophone nations, has prepared for application among its members a supra-regional sales law that is, in key respects, hardly more than a modified version of the CISG. These few examples demonstrate the worldwide influence of the CISG.

4. Practical importance and suitability of the CISG

For international trade, the CISG has achieved undeniable practical importance, and it is often applied. In many countries, for instance in China, the United States or Germany, there is rich case law on the CISG. Freely accessible databanks on the internet make it possible easily to check whether and in which way certain questions concerning the CISG have already been decided in the international arena. Two case collections deserve particular mention because they contain at least abstracts in English, namely CLOUT (Case Law on UNCITRAL Texts, (<www. uncitral.org>)) sponsored by UNCITRAL and the case collection of the Pace University, which at present contains the most comprehensive and complete collection with more than 2,500 CISG cases (<www.cisg.law.pace.edu>). In addition, UNCITRAL has published a freely accessible digest detailing existing CISG case law article by article in a short and uniform manner. Moreover, commentaries in all major languages comment on each problem arising under the CISG. In the German language alone there are 16 comprehensive commentaries.

Despite this wealth of case law and literature on the CISG, it is still frequently recommended to exclude the application of the convention which would, without such contractual exclusion automatically apply if its conditions were otherwise met. The main reasons generally given are that parties are too unfamiliar with the CISG and that the results achieved under the CISG are not easily foreseeable. Both arguments are unfounded today. The CISG is generally familiar to parties involved in international trade, and in particular to their lawyers. Its results are at least as foreseeable as the results of the application of any national sales law. Regularly, the solution under a national law is, in any event, foreseeable only for that party whose native law it is. Also, the international case law on the CISG has proved its practical usefulness.

Occasionally, it has been argued that the CISG systematically favours the buyer. Yet this assertion is only justified, if at all, in comparison to those national sales laws which, like the German law before its reform of 2002, prefer the seller in a rather extreme manner. The CISG, on the contrary, must be regarded as a well balanced sales law that does not inequitably favour or disadvantage any of the parties.

The CISG’s main advantage is that it regulates international sales transactions in a uniform manner. It allows the determination of almost all sales questions on a clear, easily accessible and uniform basis. Parties from, for instance, China on the one side and Germany on the other can rely on a single, identical legal text accessible in both Chinese and German. It is usually unnecessary to determine which law applies according to the rules of private international law and what solution the applicable law provides for. For enterprises with trade relations to many countries, applying only one law to all sales transactions means a considerable gain in efficiency. A further advantage is the non-mandatory character of the CISG (Art 6). With one rather unimportant exception (concerning mandatory form requirements), the parties are entirely free to modify each provision of the CISG and to tailor their contract according to their needs. Of course, both parties must agree on such modification.

5. Scope of application

Although far-reaching, the CISG is not a complete codification of the law concerning international sales of goods. It governs the formation of international sales contracts as well as the rights and obligations arising from such contracts, in particular the preconditions and remedies for non-performance. The UN Convention regulates neither the material validity of the contract, or any of its provisions, nor the transfer of property (transfer of title (movable goods)). Equally, many doctrines of general contract law, for example avoidance in view of defects of consent, assignment, set-off etc, are governed by the applicable national law as the CISG does not regulate them. The period of limitation (prescription) is, however, the subject of a further convention by the United Nations, ie the UN Convention on the Limitation Period in the International Sale of Goods of 14 June 1974. Because of its mandatory four-year period of limitation, this Convention has significantly fewer contracting states—only 28—than the CISG. The most prominent contracting state is the United States. Few other industrialized countries have ratified it. Among the 27 EU Member States only Belgium, the Czech Republic, Hungary, Poland, Romania, Slovakia and Slovenia have done so.

The CISG applies exclusively to the sale of goods. Goods comprise movable corporeal things but neither immovables nor rights. Standardized computer software is regarded as ‘goods’ and its sale thus falls within the scope of the Convention. The CISG excludes consumer sales and is thus designed for merchants. Yet, it does not require that merchants in a formal sense are involved.

The territorial scope of application requires that, first, both parties have their place of business in different countries and, second, that either these countries are contracting states of the CISG or that the private international law rules of the forum seized lead to the law of a state that has ratified the CISG (Art 1(1)). This generally has the consequence that the CISG becomes applicable also in instances where the parties have chosen the law of a CISG-state. For instance, the choice of German or Swiss law means generally the application of the CISG, which is part of these laws.

In most cases the applicability of the CISG is easy to determine. It is only occasionally that the different reservations allowed by the CISG—and of which few states have made use—complicate the question of applicability. If the requirements for its application are met, the CISG applies automatically and ex officio unless the parties have excluded it. Such exclusion need not explicitly be made; yet it must be made in a clear manner, for instance by choosing the law of a country that has not ratified the CISG.

6. Interpretation of the CISG

Interpretation plays an important role for international uniform law (interpretation of international uniform law). Without a central court responsible for the interpretation of an international legal instrument, uniform interpretation across all courts is the only means of preventing the practical disintegration of a uniform text. That is also true for the CISG. Its Art 7(1) therefore provides: ‘In the interpretation of this Convention, regard is to be had to its international character and the need to promote uniformity in its application and the observance of good faith in international trade’. Where the text of the CISG poses interpretation problems, first the wording of the original versions (in the six official UN languages Arabic, Chinese, English, French, Russian and Spanish) has to be consulted. In case of doubt, it is in particular the English version that is important because the preparations, materials and negotiations were generally drafted and conducted in English. All other versions, for instance the German, are merely translations. Further, the CISG case law as well as the literature of the contracting states should be used for solving problems of interpretation and application. The already mentioned databanks and the UNCITRAL Digest of case law on the CISG are useful tools for this purpose. Finally and most importantly, those interpreting and applying the CISG must withstand any temptation to adopt a specific national perspective. In its application, judges and lawyers should not follow the concepts, ideas, or arguments of their own laws but should rather follow or develop an understanding that already is or can be internationally accepted. The period for giving notice of defects after non-conforming goods have been delivered can serve as an example. Some national laws, Austrian, German and Swiss law for instance, provide for a rather short period, generally only a few days. Under the CISG, which also includes a duty to give notice of discovered or discoverable defects of the goods within a reasonable period (Arts 38 and 39), case law has established that this period must be longer (from two weeks up to a month) in view of the fact that many countries do not lay down any period at all.

Uniformity in the interpretation and application of the CISG is also supported by the method provided by Art 7(2), namely that gaps should first be filled by recourse to the general principles on which the CISG is based. It is only in the absence of such general principles that unsolved questions of the CISG have to be settled by recourse to the rules of private international law. Private international law therefore plays no more than a subsidiary role under the CISG.

Overall, the requirement of uniform interpretation has in fact resulted in a rather uniform application of the CISG. The divergences among the case law on the CISG are modest. While there are some undeniable differences, mainly in the lower courts, for most questions a clearly prevailing view has established itself as can be seen in the UNCITRAL Digest.

7. Survey of the content and basic concepts of the CISG

The UN Sales Convention is divided into four parts: Part I (Arts 1–13) regulates the scope of application as well as some general questions such as the interpretation of the CISG, or the principle of freedom of form. Part II (Arts 14–24) deals with the formation of contracts. The central part is Part III (Arts 25–88). It determines the rights and obligations of the parties including the preconditions and consequences if a party breaches the contract. Part IV (Arts 89–101) contains the final provisions that are directed to the contracting states and include, in particular, several possibilities for reservations.

The predominant guideline of the CISG is the principle of party autonomy. The provisions of the CISG are mere default rules that only apply if the parties have not agreed otherwise, or if trade usages do not provide for another solution. The CISG gives absolute priority to the parties’ freedom to shape their contract as they like. The parties are entitled to derogate from or vary just about any of the CISG’s provisions (Art 6). However, the validity of any such modification must comply with the validity standards of the otherwise applicable national law. In Germany, for instance, § 307(2) no 1 Bürgerliches Gesetzbuch (BGB) provides that standard contract terms must not significantly deviate from the gesetzlichen Leitbild (statutory model); otherwise they are invalid, even among merchants. In CISG cases the CISG—rather than the otherwise applicable domestic law—serves as the statutory model against whose provisions the standard contract terms must then be measured.

A further general principle is that of freedom of form (Arts 11, 29 CISG). Contracts as well as their modifications generally require no particular form. They can be proved by any means, including witnesses. This rule deviates from provisions, enacted in many countries, according to which transborder sales or sales above a certain sum must be in writing. A small number of countries—Russia being the most important among them—have made use of the reservation provided for by Art 96 CISG, to continue to require writing for international sales. If parties from such countries are involved, they cannot exclude or modify this form requirement. The principle of freedom of form also means that the doctrine of consideration of the common law has no place within the CISG. To be valid and enforceable, neither the contract nor any modification of the contract requires that the other party promises or gives something in return. Likewise, the CISG does not recognize the parol evidence rule of the common law, which excludes proof by witness that the content of the contract deviates from what is contained in the written document.

The CISG obliges both parties to cooperate and to give reasonable attention to the interests of the other party. Both parties must inform each other if obstacles to performance occur; the buyer must give notice of defects in due time; the seller is entitled to remedy any failure to perform his obligations within a reasonable time; termination of the contract is only available as ultima ratio when the contract has been fundamentally breached; each party is obliged to preserve the goods in a reasonable way as long as it holds the goods for the other party.

8. Formation of contract

The formation part of the CISG (Arts 14–24) follows the traditional concept that a contract is concluded if offer and acceptance correspond in all essential respects (contract (formation)). The CISG contains no special provisions on the incorporation of standard contract terms, on the so-called battle of forms, or on letters of confirmation. Nevertheless, its general provisions suffice to solve all these issues in a reasonable manner. Thus, in order for standard contract terms to become incorporated into a CISG contract, it is necessary that they be sent, or otherwise made easily accessible, to the other party. Concerning the battle of forms, it is the increasingly accepted view that conflicting standard contract terms cancel each other out and are replaced by the CISG or other statutory regulations (the so-called ‘knock out’ rule). Conditions contained in a confirmation letter can become part of the contract only when an international trade usage to that effect exists and can be proved.

9. Main obligations and remedies under the CISG

It is no surprise that under the CISG the contractual duties of the parties correspond to the traditional thinking patterns established for sales contracts. The seller is obliged to transfer possession of and title in the goods to the buyer; the same is true with respect to any pertinent documents; the goods must be free of defects and delivery must be executed at the right time and right place (Arts 31 ff). The buyer is obliged to take delivery of the goods and to pay for them (Arts 53 ff). Further, the buyer who does not want to lose his rights has to examine the goods in a timely fashion and notify the seller of any discoverable defect within a reasonable period (Arts 38 ff); this is a transplant from German law.

The CISG’s system of remedies has been mainly borrowed from the common law: non-performance entitles the innocent party to damages for the loss that was foreseeable at the time of conclusion of contract (Arts 45(1)(b), 61(1)(b), 74). The right to damages does not depend on fault. However, the debtor is exempted from liability if an impediment beyond his control caused the non-performance and if such impediment was unforeseeable and unavoidable (Art 79). In addition, a party can terminate the contract by unilateral declaration if the other party has committed a fundamental breach of contract (termination of a contract). A breach is fundamental if it is of such nature that the aggrieved party has—from an objective point of view—lost its interest in the performance of the contract (Arts 25, 49, 64).

Apart from these main remedies, the aggrieved party can also be entitled to specific performance: thus, the buyer can under certain conditions request replacement or repair of the goods; the seller can request the buyer to accept the goods and to make payment. In order to take account of the very restricted availability of specific performance under the common law, the CISG provides, however, that the court seized is not obliged to grant specific performance where it would not grant specific performance in a comparable case under its own legal system (Art 28). In such instances, only damages are available. Furthermore, the CISG acknowledges a right of price reduction that the buyer of defective goods may exercise (Art 50), as well as the seller’s right to cure a defective performance if such cure is effected within reasonable time after delivery and causes no unreasonable inconvenience to the buyer (Art 48). Finally, the CISG provides that each party can suspend its performance if it becomes apparent that the other party will not perform a substantial part of its obligations (Art 71).

10. Future developments

Uniform sales law is part of a modern lex mercatoria. It is almost certain that the number of contracting states to the CISG will continue to grow and that the convention will continue to gain practical importance. All the more it is therefore necessary that the CISG be interpreted in a globally uniform manner. With its CLOUT system and the CISG Digest, UNCITRAL has undertaken important steps to secure such uniform interpretation. These steps should be continued and intensified. A reform of the CISG, on the other hand, is presently not required.

Literature

Ernst Rabel, Recht des Warenkaufs, vol 1 (1936, reprinted 1957/58), vol 2 (1957/58); Franco Ferrari, Harry Flechtner and Ronald A Brand (eds), The Draft UNCITRAL Digest and Beyond (2004); Ulrich Magnus, ‘Wiener UN-Kaufrecht (CISG)’ in von Staudingers Kommentar zum Bürgerlichen Gesetzbuch (2nd edn, 2005); Peter Schlechtriem and Ingeborg Schwenzer (eds), Commentary on the UN Convention on the International Sale of Goods (CISG) (2nd edn, 2005); UNCITRAL (ed), Digest of Case Law on the United Nations Convention on the International Sale of Goods (2008); Burghard Piltz, Internationales Kaufrecht (2nd edn, 2008); Joseph Lookofsky, Understanding the CISG (3rd edn, 2008); Peter Schlechtriem and Ingeborg Schwenzer (eds), Kommentar zum Einheitlichen UN-Kaufrecht—CISG (5th edn, 2008); Peter Schlechtriem and Petra Butler, UN Law on International Sales. The UN Convention on the International Sale of Goods (2009); John Honnold and Harry Flechtner, Uniform Law for International Sales Under the 1980 United Nations Convention (4th edn, 2009).