CISG and the Unification ofInternational T

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CISG and the Unification ofInternational T

CISG and the Unification of

    International Trade Law

    Bruno Zeller

     Acknowledgements vii

     Table of cases and documents viii 1 Introduction 1 2 Uniformity of laws: mapping the territory 3

     A. Uniformity of laws 3

     B. Explicit exclusion of the CISG a step in the wrong direction? 7

     C. Harmonisation or unification 11

    3 Unification of sales laws: a discussion 19

     A. Unification of sales laws a futility or a success 19

     B. Uniformity or domestic competition? 21

    4 Article 7 CISG: the tool to unified sales laws? 24

     A. Tensions between international legal order and

     various domestic systems 24

     B. Eliminating municipal divergences 25

     C. The method of interpretation in the CISG 26

     D. Predictability and choice of law 27

     E. Domestic law and international business aspirations 28

     F The mechanism of gap filling 32


    5 Conflict of laws: is uniformity possible? 36

     A. Controversies in the application of the CISG 36

     B. Issues of application of the CISG 38

     C. Conclusion 53

    6 Specific performance and article 28 CISG 55

     A. Specific performance and the rules of the forum 55

     B. Domestic rules of specific performance 56

     C. The CISG and specific performance 57

     D. Article 28 and procedural law 59

     E. Article 28 and the conf lict of laws rules 60

     F. Conclusion 62

    7 Gap filling and unification: where are the boundaries? 64

     A. Gaps and exclusions 64

     B. Concurrent contract and product liability claims 65

     C. Article 4(a): validity exclusion 68

     D. Set-off and article 4 71

     E. Invalidity and illegality: a discussion 72

     F. The question of validity 74

     G. The question of mistake 75

     H. Mistake the conceptual framework 77

     I. Mistake an analysis 78

     J. Conclusion 80

    8 Transplantation of laws 81

     A. Transplantation of uniform international law facts or

     fiction? 81

     B. Conclusion 92

    9 Conclusion 94

     A. Introduction 94

     B. Where are we now? 95

     C. Uniformity critical comments 97

     D. The problem of interpretation 98

     E. Article 7 and the mandate of uniform interpretation 100

     F. The international character of the CISG 101

     G. Conclusion 106

     Bibliography 108

     Index 114


    Not a single book would ever be written without the help of colleagues. I would like to thank Al Kritzer of Pace University School of Law, New York who read an earlier draft and made some useful suggestions.

     However most importantly my thanks must go to Christiana Fountoulakis of Basel University School of Law who not only read the entire book but also made some valuable contribution by adding and subtracting ideas and also by suggesting useful references. It must be noted that Christiana did not agree with all the ideas and expressed some reservations but her help has been greatly appreciated. Without her help the book would not be in its present form. I would also like to thank Christiana’s research assistant Sonja Voegelin who worked on

    the footnotes and bibliography and was of enormous help. Any errors are my own and all controversies are of course also to be attributed to me.

     I would also like to acknowledge the help given to me by my wife Pam who puts up with the necessary single-minded pursuit of writing.

Table of cases and documents



    Air Link Pty Limited v Paterson [2005] HCA 39 (10 August 2005) 37 Kotsambasis v Singapore Airlines Ltd Matter No CA 40154/96 (13 August 1997)

     [http://www.austlii.edu.au] 102

    Laminex (Aust) Pty Ltd v Coe Manufacturing Co [1999] NSWCA 370 44 Mendelsohn-Zeller Inc v T & C Providores Ltd [1981] 1 NSWLR 366 44 Olex Focas Pty Ltd v Skodaexport Co Ltd [1998] 3 VR 380 44

    Povey v Qantas Airways Ltd (2005) 79 ALJR 1215 100

    Roder Zelt- und Hallenkonstruktionen GmbH v Rosedown Park Pty Ltd et al

     [1993] [http://cisgw3.law.pace.edu/cases/950428a2.html] 104

    The Shipping Corporation of India Ltd v Gamlen Chemical Co [1980] 147 CLR

     142 102


    Austrian Supreme Court, Oberster Gerichtshof, 14 January 2002, 7 Ob 301/01t

     [http://cisgw3.law.pace.edu/cases/020114a.3.html] 61

    Vienna Arbitration Proceeding, SCH-4318, 15 June 1994 [http://cisg3.law.pace.

     edu/cases/940615a4.html] 35


    La San Guiseppe v Forti Moulding Canada 31 August 1999 Ontario Superior

     Court of Justice [http://cisgw3.law.pace.edu/cases/990831c4.html] 103 Nova Tool & Mold Inc v London Industries Inc [1998] O.J. No. 5381, 84

     A.C.W.S. (3rd) 1089 103

    Tolofson v Jensen Canadian Supreme Court [1994] 3 S.C.R 1022 27 Germany

    Appellate Court of Hamm, Germany, 9 June 1995, 11 U 191/94191/94 [http://

     cisgw3.law.pace.edu/cases/950609g1.html] 61

    Benetton II, OLG Frankfurt, 15 March 1996, [http://cisgw3.law.pace.edu/cases/

     960315g1.html] 51

    Bundesgerichtshof, decision of 9 January 2002 [http://cisgw3.law.pace.edu/

     cases/020109g1.html] 70

    Bundesgerichtshof, decision of 24 March 2005 I ZR 196/02, Recht der

     Internationalen Wirtschaft’ 2005, 625 37–38

    Bundesgerichtshof, VIII. Zivilsenat, 25 November 1998, VIII ZR 259/97 [http://

     cisgw3.law.pace.edu/cases/98112225g1.html] 24

    Bundesgerichtshof, VIII ZR 159/94, NJW 1995, at 2099 89

    District Court Trier, 12 October 1995 [http://cisgw3.law.pace.edu/cases/

     951012g1.html] 7274

    Hamburg Arbitration Proceeding, 30 August 1996 [http://cisgw3.law.pace.edu/

     cases/960830g1.html] 51

    Landgericht Heidelberg, 2. Kammer für Handelsachen, 2 October 1996, O 37/96

     KfH II [http://cisgw3.law.pace.edu/cases/961002g.1.html] 3334

    Oberlandesgericht Düsseldorf 2 July 1993, CISG-online 74 66

    Oberlandesgericht Karlsruhe, 1. Zivilsenat, 25 June 1997, 1 U 280/96 [http://

     www.jura.uni-freiburg.de/ipr1/cisg/urteile/text/263.html] 3335


    ICC Arbitration Case No 7399 of 1993 [http://cisgw3.law.pace.edu/cases/

     937399i1.html] 70

    ICC Award No. 8486, Clunet 1998, 10478 38

    ICC Court of Arbitration No 5713/1989, Yearbook of Commercial Arbitration

     (1990) 70 53


    Italy 19 April 1994, Florence Arbitration Proceeding [http://cisgw3.law.pace.edu/

     cases/940419i3.html] 51


    Jose Luis Morales v Nez Marketing 4 May 1993, M/66/92 [http://cisgw3.

     law.pace.edu/cases/930504m1.html] 61


    P Van den Heuvel v Santini Maglificio Sportivo de Santini, District Court Arnhem


     25 February 1993 [http://cisgw3.law.pace.edu/cases/930225n1.html] 72 Russia

    Russia 6 October 1998, Arbitration Proceeding 269/1997 [http://cisgw3.law.pace.

     edu/cases/981006r1.html] 61

    Russia 11 June 1997 Arbitration Proceeding 255/1994 [http://cisgw3.law.pace.

     edu/cases/970611r1.html] 61

    Russian Arbitration [http://cisgw3.law.pace.edu/cases/97012r1.html] 61 Switzerland

    Appellate Court Luzern 8 January 1997 [http://cisgw3.law.pace.edu/cases/

     970108s1.html] 105

    Bezirksgericht der Saane 20 February 1997 [http://cisgw3.law.pace.edu/cases/

     97022s1.html] 70

    Commercial Court St. Gallen 29 April 2004, 20040429 [http://cisgw3.law.pace.

     edu/cases/040429s1.html] 61

    Commercial Court Zürich 30 November 1998 [http://cisgw3.law.pace.edu/cases/

     981130s1.html] 70

    District Court Schaffhausen 25 February 2002 [http://cisgw3.law.pace.edu/cases/

     020225s1.html] 61


    Bonython v Commonwealth of Australia [1951] AC 201 41, 45

    Cie d’Armament Maritime SA v Cie Tunesienne de Navigtion SA [1971]

     AC 572 44

    Couturier v Hastie (1852) 8 Ex 40; 155 ER 1250 7980

    Cud v Rutter (1720) 24 ER 521 56

    Donoghue v Stevenson [1932] AC 562 67, 84

    Fothergill v Monarch Airlines [1980] 2 All ER 696 21, 33

    Hadley v Baxendale, 9 Ex. 341, 156 Eng. Rep 145 (1854) 82, 104 Lloyd v Guibert (1865) LR 1 QB 115 45

    Richco International Ltd v Bunge & Co Ltd [1991] 2 Lloyd’s Rep 93 7

    Vita Food Products Incorporated v Unus Shipping Co [1939] AC 277 43 USA

    Asanta Tech. Inc v PMG-Sierra Inc 27 July 2001 U.S. Federal District

     Court [California] [http://www.cisg.law.pace.edu/cisg/wais/db/cases2/010727u1.

     html] 46

    Calzaturificio Claudia S.n.c. v Olivieri Footwear Ltd 6 April 1998 U.S. Federal

     District Court [New York], 96 Civ. 8052 (HB)(THK) 1998 [http://cisgw3.law.

     pace.edu/cases/980406u1.html] 102

    Chicago Prime Packers, Inc v Northam Food Trading Co, et al, 29 May 2003

     U.S. District Court, N D Illinois, East Div, CISG-online 796 82

    Delchi Carrier SpA v Roterex Corp, 6 December 1995, U.S. Circuit Court of

     Appeals (2d. Cir) [http://cisgw3.law.pace.edu/cases/951206u1.html] 82, 102 Filanto S.p.A. v Chilewich International Corp, 14 April 1992 U.S. District Court

     [http://cisgw3.law.pace.edu/cases/920414u1.html] 101

    Kling & Freitag GmbH s.r.l. v Societa Reference Laboratory S.r.l. [http://www.

     unilex.info/case] 47

    Magellan International v Salzgitter Handel, 7 December 1999 U.S. Federal District

     Court [Illinois] [http://cisgw3.law.pace.edu/cases/991207u1.html] 56, 61 Raw Materials Inc v Manfred Forberich GmbH & Co KG U.S. District Court,

     Illinois [http:cisg3.law.pace.edu/cases/040706u1.html] 17, 37

    Reid v Covert 354 U.S. 1, 18 (1957) 98


    (1970) 1 Year Book, UNCITRAL, Doc. a/CN 9/SER A/1970, at 54 25

    (2003) Communication from the Commission to the European Parliament

     and the Council, A more Coherent European Contract Law, COM(2003) 68

     final 15

Chapter 1


    This book starts with the premise that unification of law serves a useful purpose. This is so because internationalisation or globalisation has in effect forced the law

    to take a more global approach. As trade increasingly crosses borders so by necessity has the law. Transplantations, the drafting of model laws and ratification of conventions are the responses of legal systems to internationalisation and are occurring at an increased pace.

     In an ideal world one law would be applicable to cover all transactions of a similar nature wherever they occur. This unfortunately is not the case, nor will it eventuate in the foreseeable future. Municipal interests and ‘sacred cows’ will

    always be stumbling blocks to the unification process. However international conventions in discrete areas of law are the ‘next best thing’ in the process of

    creating a global law. However even international conventions are not codes and hence do not cover a complete area of law. Domestic law is always needed to fill the resulting gaps. The unification process is curtailed as soon as domestic law needs to be applied. This book takes a hard look at the confluence of the spheres of influence of a convention and domestic laws.

     For the purpose of showing that unification is desirable, the Convention on Contracts for the International Sale of Goods (CISG) will be analysed. One of the reasons is that, unlike earlier conventions, the CISG included a definitional section in its regime, namely article 7. This article is the most significant development as it not only assists to define the instrument itself but it also sets the borderline of influence between the CISG and the application of domestic law. This is so because as pointed out above the CISG is not a code and

    hence gaps exist, which by definition need to be filled by municipal laws.

     Many authors and tribunals have examined the extent to which the CISG is applicable and which areas are excluded from its scope. The internal boundaries of the CISG have arguably been well defined. In other words, what is and what is not governed by the CISG can be easily discovered by examining jurisprudence and academic writing.

     What this book attempts to achieve is to boldly ‘push the boundaries’ of

    unification of international sales laws at the expense of domestic laws. It is not suggested nor is it the intention of the author to find universal agreement. As the title of the book suggests, the idea is to be controversial. No doubt some of the suggestions in this book will be dismissed as either going too far, or being untenable, or even lacking credibility. If that is so and rebuttals are written, one of the aims of this book would have been achieved, namely to foster debate as to how far the boundaries of unification can be pushed.

     However it was thought to be important to at least highlight areas where a possible ‘creeping unification’ can take place. After all the CISG is not a dead

    instrument but a living one, constantly adapting to new ideas and new challenges posed by globalisation.

     Some ideas are simply a push into the unknown and hopefully others will either push further or authoritatively close the gap. Professor Fountoulakis of Basel University, who has patiently read the draft, has already made some suggestions where areas of this book contradict previous writings and in her view some ideas are indeed controversial and need to be abandoned or refined. It is hoped that it is the refining process that will prevail.

     The most important idea is that the dividing line between domestic and international laws cannot be fixed. It must be constantly under attack in order to find a common solution to common problems. It is indeed hoped that this book will be looked at as being thought provoking and will provide a springboard for further debate in the process of defining the legal commitments of buyers and sellers of goods towards each other.

Chapter 2

    Uniformity of laws

    Mapping the territory

    A. Uniformity of laws

    I. The twentieth century the century of internationalisation

    The internationalisation of trade has raised the question of how such trade can be conducted in the most efficient manner. There is no debate that the beginning of the twentieth century has seen some significant law reforms in the area of international trade law. The attacks on the domestically dominated system of contract law, which did not distinguish between municipal contracts and international contracts, have been fought and won by the internationalists. It is now clear that:

     . . . the nineteenth century rules the liberals have been attacking form a

     complex intellectual system whose vitality even in the last quarter of the

     twentieth century is as much or more the product of its ideological power as of

     the direct material dominance of particular economic or political interests.1 As a result of the ideological shift in thinking, it has been questioned: ‘why is

    there international uniform commercial law rather than nothing?’2 The answer

    depends on who is asking the question. From a legal-philosophical point of view, the response could well be that it is a vision that could be called normative, an emphasis on a principle of thought that considers uniform laws to be a virtue.3

     Practically speaking, it is universally accepted that legal risks and costs are reduced if there would be one law and one judiciary dealing with international trade. There is equally no debate that the creation of a single judiciary worldwide will never eventuate. Hence, the only practical possibility is the creation of a universal trade law which is applied in all or at least in most domestic courts. 1 Kennedy (1976: 1722).

    2 Marquis (2005: 2).

    3 Marquis (2005: 238).

    One possible solution is the creation of conventions, which are open for accession by individual nations and which become part of domestic law.

     This book attempts to have a fresh and contentious look at uniform laws

    within the meaning of ‘unified laws’ – and specifically at the United Nations

    Convention on Contracts for the International Sale of Goods (CISG). The starting point in this investigation is the conclusion Marquis reached in his study of international uniform commercial law. He noted:

     For some time, the contemporary world has been undergoing transition. In its

     simplest expression, this transition expresses a changeover from modernity to

     a second modernity. This changeover is currently taking place. It is real and

     current. It represents an interval between a starting point and a target point.

     Moreover, the intermediate period that we are currently undergoing is

     marked by a strong ambivalence.4

    Arguably, uniform laws and the CISG is no exception are merely progressing

    towards a target point but have not reached that point yet. This book will show that the CISG is still capable of being shaped and enlarged, as it is not a document frozen in time. Uniform laws are living documents, and their implementation is merely an intermediate period.

    II. Uniform legislation just the first level towards

     unification of laws

    I. Legislation and interpretation first and second level

    The obvious key criterion to the success of such a law is that it should be uniformly applied. The drafters of the CISG attempted to facilitate uniformity by including article 7, the interpretative article, into the regime of the convention. Article 7(1) in the relevant parts states that ‘regard is to be had to its


    character and to the need to promote uniformity in its application and the observance of good faith’. The importance of this article is highlighted by the fact

    that it has been copied into various other documents.5 The process of interpretation is pivotal in the attempt to achieve uniformity.

     Despite a seemingly clear mandate and the inclusion of concise interpretative articles, uniformity of application is not guaranteed or automatically obtainable.

     Every text, however clear on its face, requires to be scrutinized in its context

     and in the light of the object and purpose which it is designed to serve. The

     conclusion which may be reached after such a scrutiny is, in most instances, 4 Marquis (2005: 233).

    5 Art. 1.6 (1) UNIDROIT Principles; Art. 1:106 (1) Principles of European Contract Law.

     hat the clear meaning which originally presented itself is the correct one,

     but this should not be used to disguise the fact that what is involved is a

     process of interpretation.6

    The question which ultimately needs to be asked is whether the CISG facilitates international trade. In that sense, article 7 is ‘a text system that forms a subsystem

    of the CISG’.7 Even after recognising this fact, predictability and hence

    confidence in the CISG can only be achieved through international decisions that show at least an adequate level of uniformity.

     This book also attempts to investigate how far uniformity is achievable. This


    some cases confronting process ultimately will turn on the interpretative question of any uniform legal instrument.

    2. Desirability of uniform laws

    Wishing to create a new international economic order is a proposition that is either boringly old hat or is extremely original. It begs the question whether these international treaties do serve a useful purpose, namely to provide a satisfactory basis not only for international trade but also for domestic legislation.8 To put it differently:

     If the search for uniform solutions is a good thing, then ultimately, ‘Why

     (Not) Seek Uniform Solutions?’ is a matter of understanding what should

     and should not be harmonized.9

     This question is a complex one and depends on the will of the legal profession and sovereign states to abandon domestic laws in favour of a supranational one. A good example of an inward looking legal system is the United Kingdom, which was heavily involved in the design of the CISG. However, it never ratified the convention despite being a member of the EU. Although Lord Steyn in his maiden speech drew the government’s attention to the fact that the United

    Kingdom played a ‘full and constructive role’ in formulating the CISG and

    although the Law Commission recommended ratifying the CISG, no official announcement was made. The Government’s response simply was that ‘it

    continued to take an active part in the business of the convention’.10

     It appears that the United Kingdom is still under the impression that ‘the law

    which applies to international commodities contracts conducted on standard form terms promulgated by London based trading associations [and therefore] the law

     6 Sinclair (1984: 7273).

     7 Charters (2005: 8).

     8 Hobhouse (1990: 531).

     9 Walker (2002: 341).

    10 Hansard, H.L. 3 May 1995, Vol. 563 cols 1457 ff.

    of international sale of goods . . . is but English domestic law writ large’.11 This

    may be true in the case of the commodities market, which has a rich history, which is dominated by very few players and which arguably developed a private language that is incomprehensible to trade outsiders.12 It could be argued that at least in the commodities market a uniform law is applicable, namely United Kingdom law. It follows that it is of no real consequence what law is applicable to the rest of the business community that is not involved in the closed trade of commodities. All involved parties within the trade understand the law and, hence, predictability and certainty is the product of a uniform law, which is applied in this case.

     This is not to say that the CISG could not perform the same function, but at this stage, the convention is expressly excluded in standard commodity contracts. The problem with the above argument is that it is extremely ethnocentric and does not take into account that a globalised world may demand a different approach.

     As far as the trade in manufactured goods is concerned, English law is far from being the dominant force it once was. What makes the matter worse for English traders is that they are frequently involved in litigation or arbitration where the CISG is governing law. The uniform international sales law is being interpreted and applied by courts other than English ones, and hence, the prospect of an influential interpretation of the CISG by English courts is diminished, as the United Kingdom has not ratified the CISG.13 Bridge argues that:

     To cast all of that experience [in commodities contracts] aside in place of

     something that is incomplete and untested would be wasteful and

     destructive. The practical concerns of English law in the area of commodity

     contracts are a world away from those arising out of the type of contract

     facing a court or arbitrator applying the CISG.14

     To argue that a commodities contract is specialised and a ‘world away’ from

    other economic activities and for that reason should not be subject to a uniform law is not helpful. Schwenzer correctly argued that the problem with an approach as advocated by Bridge amounts to a ‘breach categorization’.15 Simply put, the

    CISG does provide a means by solving any dispute, including commodity sale, ‘in a reasonable manner that extends beyond the narrow confines of national

    pre-conceived views’.16

     If every country would adopt the same attitude, the introduction of a unified law would be impossible. Most trading nations have understood that it is more 11 Bridge (1997: 277).

    12 See Leible (1998: 289).

    13 Bridge (1997: 278).

    14 Bridge (1997: 279).

15 Schwenzer (2005: 800).

    16 Schwenzer (2005: 800).

     elpful to their trade and economy to adopt and ratify a convention than to insist that their well-tested domestic law is superior to an untested convention.

     It is also worth noting that commodities contracts are known to be strict and interpreted literally. As Bridge noted, commodities sales involve a ‘hair trigger

    right of termination’.17 Such endeavours are normally defended as being

    necessary to promote certainty. A case may illustrate this point, namely The New Prosper.18 The case involved the sale of Australian barley. Under the contract, the buyer had to nominate a ship and the seller had the right to nominate a port from an agreed range. The buyer nominated the New Prosper, which was rejected by the seller on the grounds that it could not load the ship due to local restrictions in

    one of the ports allowed under the contract. The literal interpretation of the contractual clause allowed the seller to cancel the contract. The apparent reason the seller rejected the boat was simply to avoid the contract and take advantage of a rise in the market price. It was not the inability to ship the goods, which could have been loaded without any problems from another conforming port. It would be interesting to speculate whether the CISG would have come to the same conclusion by invoking articles 8 and 9.

     There is no debate that in the commodities market, strict standards do apply, especially where the problem of timely delivery is concerned. Therefore, the handing over of clean documents is always of the essence to the contract, and to cure any defects in the documentation does not extend to commodities markets.19 The solution under the CISG would be comparable to any domestic law, as in this instance, the perfect tender rule as known in common law can also be applied under the CISG by taking customary practices20 and the intent of the parties21 into consideration.

     The CISG, in conjunction with the International Commercial Terms (INCOTERMS) and the Uniform Customs and Practices (UCP 500), offers a viable solution to commodity traders. It plays a supplementary role, and pre- conceived domestic views to the contrary must be rejected.22

    B. Explicit exclusion of the CISG a step in

     the wrong direction?

    I. The critics’ voice

    A further point needs to be discussed at the beginning. There have been suggestions that the CISG does not contribute towards uniformity and is not an 17 Bridge (2003: 68).

    18 Richco International Ltd v Bunge & Co Ltd [1991] 2 Lloyd’s Rep. 93.

    19 Schwenzer (2005: 806).

    20 Art. 9.

    21 Art. 8.

    22 Schwenzer (2005: 807).

     mportant regime in practice.23 One of the reasons is that the CISG is often

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