By Yasser Latif Hamdani
I.
Introduction:
CISG and UNIDROIT
The United Nations
Convention on Contracts for International Sales of Goods (“CISG”) is a
convention that was signed in Vienna in 1980 (though it was not until 1987 that
it had the requisite number of ratifications required to make it a binding
multilateral treaty) and has been ratified since then by 83 countries to date.
Developed by the United Nations Commission on International Trade Law
(“UNCITRAL”), it seeks to harmonize and create unified international sales
law. It was the result of 51 years of
collective efforts initiated by International Institute for the Unification of
Private Law (“UNIDROIT”).[1] It was in 1968 when
UNCITRAL began its efforts that the 1920s proposal of Professor Ernst Rabel, a
German Comparativist and thinker, finally began taking shape. The UNIDROIT
Principles of International Commercial Contracts (“UNIDROIT Principles”) were
drawn up by the efforts of UNIDROIT in 1994 and subsequently enlarged in 2004.
A third edition of the UNIDROIT Principles was drawn up in 2010. Both the CISG
and UNIDROIT Principles are part of the Lex
Mercatoria or the “merchant law” and in particular the merchant law as it
applies internationally. One could
imagine the CISG as a codification of principles and the UNIDROIT Principles as
international common law of contracts.
It may be stated here, however, that even though UNIDROIT Principles
were drafted with CISG very much in the background, UNIDROIT Principles have a
wider application than simply sales of goods and covers a broader field of
contracts and law, including for example Lex
Sportiva (Sports law). For the
purposes of this research paper, however, I will only consider applications of
UNIDROIT Principles as they relate to international sales of goods and in
particular the CISG.
While CISG is an
international treaty which binds its contracting states to the language of the
convention. UNIDROIT Principles on the
other hand are principles that were drawn up by a body of professional
international lawyers, jurists and thinkers with the express purpose, inter
alia, “they may be used to interpret or supplement international uniform law
instruments”.[2]
Nevertheless there were many people who had participated in both endeavors.
Therefore in many ways the UNIDROIT Principles filled up those gaps in the CISG
that were but the obvious result of diplomacy and compromise required to arrive
at a complex multilateral treaty such as CISG. Therefore the UNIDROIT
Principles can be seen an aid and a supplementary device by which CISG can be
applied. This has basis in CISG itself
as I will argue in some detail below in light of case law now before us. To
answer the question broadly however, the nexus between CISG and UNIDROIT is to
be found in the application of UNIDROIT Principles to the interpretation of the
CISG and corresponding domestic law (in to which arbitrators and courts are
duty-bound to read CISG). The basis of
this is Article 7 of the CISG which
states its international character [3] and leaves room open for
application of general principles and private international law.[4] Article 7(1) of the CISG
states:
“…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.”[5]
Article 7(2) of the CISG
states:
“Questions concerning
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
or, in the absence of such principles, in conformity with the law applicable by
virtue of the rules of private international law.”[6]
Professor Michael Joachim
Bonell, one of UNIDROIT’s leading legal consultants and one of the people who
helped frame the UNIDROIT Principles, has written in some detail on the issue
of UNIDROIT Principles being supplementary to the CISG. In one of his seminal papers on the nexus
between the two, he points out that CISG was the best that could be achieved by
way of legislation, while UNIDROIT Principles are the restatement of
international contract law.[7] While explaining the
formulation of UNIDROIT Principles, he explains that CISG was an obligatory
point of reference for the framers of the CISG. The UNIDROIT Principles,
therefore, were designed to explain unclear language and to fill those gaps
that were left by framing of CISG. This being the explicit intent of the
UNIDROIT Principles, as evidenced by Professor Bonell’s aforesaid paper, I will
attempt to analyze the nexus between the two by listing and explaining the case
law (both through arbitral awards and through national courts) that has read
into, for all practical purposes, the UNIDROIT Principles into the CISG as far
as the two are compatible.
II.
Examples
of how UNIDROIT Principles have been used to supplement CISG (Non-exhaustive
list of cases and arbitral awards)
A. Determination of Interest Rate in
accordance with UNIDROIT Principles while applying CISG
Some of the earliest
cases or arbitral awards that referred to UNIDROIT Principles applied Article
78 of the CISG in conjunction with Article 7.4.9 of the UNIDROIT Principles.
Article 78 of the CISG does not clarify what the applicable rate of interest should
be and therefore requires Article 7.4.9 as an aid. The first case in this
regard comes in form of an arbitral award from 1994 by Internationales Schiedsgericht der Bundeskammer der gewerblichen
Wirtschaft – Wien in which the arbitrators laid down that the matter of
interest rate was governed but not “expressly settled” by the CISG. Therefore
the Arbitrators referred to Article 7.4.9 of the UNIDROIT Principles which
stated that the average prime rate in the buyer’s country would apply.[8] We see the application of
the same Article 7.4.9 of the UNIDROIT Principles in a decision by ICC International
Court of Arbitration in 1995.[9] Since then arbitral courts around the world
have repeatedly referred to the Article 7.4.9 of the UNIDROIT Principles to
settle the question of interest rates in international commercial
contracts.
B. Question of Hardship
In the case of Scafom International BV vs Lorraine Tubes
s.a.s, the Court of Cassation of Belgium ruled that a contract was silent
on the issue of re-negotiation due to hardship. Therefore reference was made to
Article 7(2) of the CISG (i.e. use of general principles) and correspondingly
to “the general principles governing the law of international commerce,
concluded that according to such principles as laid down, among others, in the
UNIDROIT Principles of International Commercial Contracts”.[10] Re-negotiation due to
hardship was allowed consequently in line with the UNIDROIT Principles. This
was upheld by the Supreme Court of Belgium.
C. Pre-Contractual Negotiation and
Common Intention
In the case of Proforce Recruit Limited v. The Rugby Group
Limited, the Court of Appeal (Civil Division) of the UK ruled that
pre-contractual negotiations and common intention of the parties were relevant
to determination of the dispute. In particular reference was made to UNIDROIT
Principles, Articles 4.1 to 4.3 read with Article 8 of the CISG which was the
governing convention.[11] This was again upheld in
the case of The Square Mile Partnership
Ltd v Fitzmaurice McCall Ltd[12] and in Chartbrook Limited
v. Persimmon Homes Limited.[13]
Another judgment on point
came from New Zealand’s Court of Appeals in the case of Hideo Yoshimoto v Canterbury Golf International Limited which while
applying Articles 4.1 to 4.3 of the UNIDROIT Principles described them as being
“in the nature of a restatement of the commercial contract law of the world
[and which] refines and expands the principles contained in the United Nations
Convention.”[14]
D. Place of Performance of Obligation
In the case of SCEA GAEC Des Beauches Bernard Bruno v.
Société Teso Ten Elsen GmbH & COKG affirming the principle contained in
Article 57 of the CISG, the French Cour
d'appel de Grenoble referred to Article 6.1.6 of the UNIDROIT Principles to
settle the question of obligation pertaining to payment i.e. place of such
payment should be the creditor’s place of business.[15]
E. Reasonable opportunity to be
acquainted with standard terms
Netherland’s Hof 'S-Hertogenbosch applied Article
2.20 of 1994 UNIDROIT Principles to settle the dispute of whether a buyer
should have reasonable opportunity to get acquainted with the seller’s standard
terms, a question on which CISG was silent. [16]
F. Limitation Period
In the case of Castellana Inmuebles Y Locales S.A. v.
Brunello Cucinelli SPA, Spain’s Audiencia
Provincial Madrid SPA noting that CISG was silent on limitation applied
Article 10.2 of the UNIDROIT Principles to determine the limitation period. [17]
G. Formation of Contract
Ruling on a contract
between a Finish company and a French company (which in its Russian version
invoked Swedish law) and applying CISG by virtue of the CISG’s incorporation in
domestic laws of France, Finland and Sweden, the ICC International Court of
Arbitration applied UNIDROIT Principles as a supplementary device to CISG and
also as the governing principles for contract formation.[18]
III.
The
appropriate role for UNIDROIT Principles vis a vis CISG: A contested issue
The upshot of the case
law discussed above is that UNIDROIT Principles have been applied in three main
ways in conjunction with CISG.
a. Application
of UNIDROIT Principles when CISG is silent on an issue (Gap filler).
b. Application
of UNIDROIT Principles as a supplement to CISG and as universal trade usage.
c. Application
of UNIDROIT Principles independently by way of a contractual clause as an aid
to interpret international contracts. This imagines an independent status for
UNIDROIT Principles even when they do not directly correspond to CISG or are
not moored in CISG.
Of the three, the first
two scenarios are directly relevant to the main thrust of the question before
us. The first application i.e. where
CISG is silent has a necessary first step and that is the legal basis for
reference to CISG. This usually happens by one of two ways. The first way is if
the contract is between two parties, either of which is based in a contracting
state and the governing law is of the contracting state. In that case the CISG is to be read into the
domestic law, either automatically (in the event the contracting state is
monist) or by incorporation into domestic legislation (if the contracting state
is dualist). Once the CISG is considered
part of the domestic law, a court taking cognizance of dispute arising out of
such a contract must apply CISG to its interpretation. Second way is when a
clause in the contract refers specifically to CISG as the governing law. It may
be the case that the contract either refers to CISG or both. Professor Bonell
recommends the following clause: “This contract shall be governed by CISG, and
with respect to matters not covered by this Convention, by the UNIDROIT
Principles of International Commercial Contracts.” Once the CISG is found to be
silent on a certain point or non-conclusive, the case law above suggests a
recourse to UNIDROIT Principles to complement the CISG.
So how does UNIDROIT
Principles interact with the CISG? I have given case law above that elucidates
the ratio of various judgments and arbitral awards on specific points. However
the application of UNIDROIT Principles when interpreting, complementing or
supplementing the CISG is wider. As
mentioned earlier the UNIDROIT Principles were not meant to be a binding
document unlike CISG and therefore the leeway available to its drafters was
much greater than what was possible in diplomacy, tact and compromise that was
required in framing the CISG. This means
that UNIDROIT Principles are a more comprehensive framework and one which in
application goes beyond merely CISG.
The international
character of CISG and its deference to general principles and private
international law as given in Article 7 mentioned hereinabove, means that
judges and arbitrators have had to rely on their own devices to interpret and
implement CISG. In this respect UNIDROIT is a veritable guide for
interpretation. Professor Bonell points out that fundamental breach of contract
for example is better defined and laid out in Article 7.3.1 of the UNIDROIT
Principles than in Article 25 of the CISG.[19] He points out that
Article 7.1.4 of the UNIDROIT Principles may be used as the complementary
device to Article 48 of the CISG where doubts about the right to cure by a
non-performing party exist.[20] Professor Bonell also speaks at length about
the application of interest rate under UNIDROIT Principles i.e. Article 7.4.9,
which we have seen above in the case law as well. His view is largely shared by Professor Anna
Veneziano, an Italian professor of law, in her paper on “Change of
circumstances and the duty to renegotiate according Belgian Supreme Court”
where she discusses the Belgian Supreme Court’s decision upholding Belgian
Court of Cassation’s decision in the Lorraine Tubes case mentioned hereinabove.
She is wholly supportive of the idea of usage of UNIDROIT Principles as a means
to elaborate the CISG and its corresponding impact on domestic law and
jurisprudence.[21]
This position is contested to a certain extent
by Professor John Y Gotanda who argues that UNIDROIT Principles were not meant
to be “gap-fillers” in the CISG. He argues that essential mechanism provided by
the CISG to fill the gaps precludes the application of the UNIDROIT Principles
as the principal source of authority on whose touchstone the CISG can be
interpreted. He argues that UNIDROIT
Principles are not merely the restatement of general principles of
international contract law but are intended to be the embodiment of best
practices and solutions. Professor Gotanda reads the scope of Article 7(2) of
the CISG as being limited to that principle being “moored” to the basic premise
of a provision of CISG. He points in particular to the application of Article
7.4.9 of the UNIDROIT Principles in conjunction with Articles 74 and 78 of the
CISG as being an overreach by arbitrators and judges and argues that the former
actually upends the latter. He argues that by allowing interest at a lending
rate (which the UNIDROIT Principles allow), when read in conjunction with the
provision of Article 74 which allows for actual damages including any loss from
borrowing money, means that an aggrieved party may not borrow against funds
owed and may reinvest leading to the ultimate conclusion that application of
UNIDROIT Principles may overcompensate the aggrieved party.[22] Professor Gotanda further
argues that if CISG is silent on an issue or if there are gaps after
application of its literal text, the recourse must be to domestic law. He also
argues against the application of UNIDROIT Principles as trade usages by
arguing that approach forwarded by UNIDROIT Principles do not constitute
“universal trade usage”. Still he believes that they can inform the CISG as
solutions that can resolve some unanswered dilemmas left open by the text of
CISG.[23]
IV.
Conclusion
The conclusion I draw
from the foregoing discussion is that arbitrators and judges have on numerous
occasions applied UNIDROIT Principles as gap fillers for CISG by relying on
Article 7(2) of the CISG which calls for resolution through application of
general principles of private international law. My view is closer to Professor
Bonell’s view which sees UNIDROIT Principles being drafted in the backdrop of
CISG and therefore, I concur with the view that UNIDROIT Principles are moored
in the premises that led to the adoption of CISG by contracting states. I do
not wholly agree with Professor Gotanda’s view that the recourse must first be
had to domestic law because I believe that the entire purpose of CISG was to
harmonize and unify international law on sales of goods. Furthermore one can
argue that UNIDROIT Principles are not incompatible with domestic law to begin
with. Professor Gotanda’s example using interest rates is too stretched and at
best esoteric given the overall thrust behind the effort to harmonize and unify
transnational commercial law. UNIDROIT Principles, therefore, in my view are
the foremost authority in determining and filling the gaps that may occur in
application of CISG. I also agree with the camp that argues that UNIDROIT
Principles constitute universal trade usages and therefore are directly
applicable. The world needs universal principles for international trade and
commerce and UNIDROIT Principles do an admirable job in supplementing
conventions like the CISG. This is precisely why arbitrators and judges use
them in the manner they have done so in the aforesaid case law on the subject.
[2]
See the Preamble to the UNIDROIT Principles
[3]
Article 7(1) of the CISG
[4]
Article 7(2) of the CISG
[5]
Article 7(1) of the CISG
[6]
Article 7(2) of the CISG
[19]Bonell,
Michael J, THE UNIDROIT PRINCIPLES OF
INTERNATIONAL COMMERCIAL CONTRACTS AND CISG -- ALTERNATIVES OR COMPLEMENTARY
INSTRUMENTS ? http://www.cisg.law.pace.edu/cisg/biblio/bonell.html#mjb64
Accessed on December 11, 2015.
[20]
Ibid
[21]Veneziano,
Anna, UNIDROIT Principles and CISG :
Change of Circumstances and Duty to Renegotiate according to the Belgian
Supreme Court http://www.unidroit.org/english/publications/review/articles/2010-1-veneziano-e.pdf
Accessed on December 11, 2015.
[22]
Gotanda, John Y, Using the Unidroit
Principles to Fill Gaps in the CISG http://digitalcommons.law.villanova.edu/cgi/viewcontent.cgi?article=1089&context=wps
Accessed on December 12, 2015
[23]
Ibid
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