Presented in "Celebrating Success: 25 Years United Nations Convention on Contracts for the International Sale of Goods" (Collation of Papers at UNCITRAL -- SIAC Conference 22-23 September 2005, Singapore), published and copyright by the Singapore International Arbitration Centre at 186-194. Reproduced with permission of the SIAC.
Shishir Dholakia [*]
Unlike Singapore, China, Australia and several other countries, India has not ratified the United Nations Convention on Contracts for the International Sale of Goods ('CISG'). Although diverse countries have ratified it, quite a few, such as the United Kingdom, have not. Numerous commentators have appraised it; some expressing admiration and some reservation.
For example, while the Singapore Law Reform Committee's Report on the CISG recommends its adoption, commentators like Arthur Rossett  and Professor GH Trietel  express reservations about its adoption.
India's ratification of the CISG would mean that the CISG, and not the well-understood rules of the Indian Sale of Goods Act 1930 ('1930 Act'), would govern the rights of Indian buyers and sellers, when trading internationally. The 1930 Act is modelled on the English Sale of Goods Act of 1893. India's trading community and its legal advisers, assisted by well-developed case law, can predict with some precision the probable outcome of a course of action in the buying and selling of goods. For India, adopting the CISG would be advisable only if the advantages of doing so outweigh the disadvantages. Space consideration prevents full discussion of them; however, the following paragraphs discuss some important ones. [page 186]
II. ADVANTAGES OF RATIFYING THE CISG
First, the CISG achieves simplification and the unification of the law relating to international sale of goods.
Second, over two-thirds of the countries have ratified the CISG.
Third, eminent scholars' commentaries help in the unified interpretation and application of the CISG.
Fourth, the decisions rendered on different provisions of the CISG and collected in the Case Law on Uncitral Texts ('CLOUT') and elsewhere encourage the belief that in due course, there will be greater uniformity in interpretation and application of the CISG.
Fifth, the CISG superseded the Uniform Law on the International Sale of Goods ('ULIS'), which itself took many years to be formulated. The ULIS was not very successful, but the CISG has removed many of its shortcomings. Growing international trade requires that the CISG be used to bolster the trading community's confidence.
The Singapore Academy of Law's Law Reform Committee has summarised the advantages of ratifying the CISG:
Legal Advantages in Ratification
|(1)||Our current Sales Law (represented by the English Sale of Goods Act (SGA) 1979 which is in substance not very different from the SGA 1893) which is 100 years old is not better suited than the Convention for modern commercial contracts.|
|(2)||The Convention serves a 'gap-filling' function when a cross-border contract is made by phone or even by fax or telex but in only a few words.|
|(3)||Having the Convention apply is better than having to choose an unknown foreign law e.g. Russian Law or German Law as the applicable law of the contract.|
|(4)||It serves as a neutral law acceptable to both parties.|
|(5)||The Convention recognises that the parties to international sales contracts may wish to exercise broad contractual freedom. Article 6 enables them to exclude the application of the Convention and to derogate from or vary the effect of any of its provisions.|
|(6)||A prodigious amount of time and work and scholarship has gone into the making of the Convention. [page 187]|
|(7)||The Convention helps to avoid difficult conflict of laws issues.|
Trade Advantages in Ratification
|(1)||The Convention takes into account modern trade practices and realities. It contains provisions on the interpretation of contracts which are wider than the Common Law rules.|
|(2)||The Convention is drafted in simple and plain language for businessmen to understand.|
|(3)||The Convention contains useful provisions to practical problems such as requiring parties to preserve goods in their possession belonging to the other party.|
|(4)||If Singapore does not ratify the Convention, we may be left behind from the rest of the major trading nations in the world.|
|(5)||Convention countries account for 61% of the world's trade in 1992. States which participate in 34.66% of Singapore's external trade for 1993 are parties to the Convention.|
|(6)||The Convention will facilitate cross-border trade and save time, expense and avoid uncertainty.|
|(7)||The Convention is available in all 6 official UN languages including Arabic, English, Chinese, French, Spanish and Russian. It would also have been translated into the languages of the other Convention countries such as German, Italian or Dutch.|
|(8)||The economic powerhouse of China has its Foreign Economic Contracts Law of 1985 modeled after the Convention.|
|(9)||The Convention offers a viable solution to the harmonisation of ASEAN international trade law.|
|(10)||The Convention will provide the legal infrastructure to facilitate the Government's drive to promote economic expansion overseas by providing our businessmen and companies with a uniform sales law with the countries in which they are investing e.g. China.|
|(11)||The Convention will facilitate any move for Singapore to link up with NAFTA as it is the uniform sales law of NAFTA.|
The CISG had to narrow its field of application because of the difficulties inherent in formulating a law that needs to be international in scope, application and acceptance. This narrowness led the United States, Australia, Singapore and Canada, countries governed by common law, to ratify the CISG, although ratification led to departure from their domestic sales law. That should encourage India to ratify it too. [page 188]
III. DISADVANTAGES OF RATIFICATION
Sieg Eiselen aptly summarises the disadvantages of ratifying the CISG. He states:
|(i)||The legal uncertainty caused by introducing a new set of rules of sale;|
|(ii)||The legal uncertainty caused by broadly formulated rules containing many undefined and new terms which have to be developed in the international arena by courts and arbitral tribunals without any hierarchy and no principles of stare decisis;|
|(iii)||The introduction of foreign solutions to well-known problems;|
|(iv)||The general irrelevance of the Convention due to the fact that in most instances it is excluded by the parties in practice;|
|(v)||The compromise character of the Convention, which blunts the solutions and evades many of the real issues;|
|(vi)||The absence of certain underlying principles;|
|(vii)||Legislative measures are not the most suitable means to create legal unification or solve the problems created by diverse laws and conflicts issues;|
|(viii)||The law is robbed of its flexibility and is fossilized in a code which is almost impossible to change;|
|(ix)||The integrity of the Convention is threatened by diverse interpretational approaches and tradition.|
The following discusses some of these.
The CISG is not comprehensive. It does not concern itself with the validity of the contract, i.e. with the issues of illegality, misrepresentation or fraud relating to the contract. Barry Nicholas remarked that the CISG 'would not therefore achieve one of the main objectives of the uniform laws'.
Also, the CISG uses imprecise language for a common law lawyer. Professor Farnsworth described the language as giving a 'sense of unease'. Arthur Rossett described it as using 'language which, first of all, is foreign in regard to the law of contract and therefore has no clearly defined meaning and, secondly, is too [page 189] wide and inexact and therefore leads to uncertainty'. Justice Hobhouse said of the CISG:
Only Conventions which demonstrably satisfy the well-proven needs of commercial community should be ratified and legislation should only be agreed to if it is demonstrably fit to be enacted as part of the municipal law of the country. ... The utopian ideals which have led the present situation (ratifying the CISG) have a parallel in those which gave rise to the movement for adoption of Esperanto as a universal language.
Courts of different countries, partly due to imprecise language, have interpreted provisions of the CISG inconsistently, further hindering the object of uniformity and simpl ification. A learned author comments:
A major problem with CISG is that it is, in a sense, international law applied locally. This inevitably puts a local tint on CISG interpretation. The fact that there is no international court that administers CISG is identified by Ronald A Brand and Harry M Flechtner as one of the most 'serious obstacles to achieving the uniform international sales regime at which CISG aims'. The parochialism of domestic courts coupled with their suspicion of foreign judgments that may be differently decided at home is undoubtedly a major impediment to uniform application of CISG.
The CISG is equally authentic in each of the six languages, namely, Arabic, Chinese, English, French, Russian and Spanish. Rossett describes its effect thus: 'Inevitably, the various versions of the Convention are not perfectly faithful to each other since subtle nuances will elude even the most highly skilled translated translators.'
Rossett quotes the then Secretary, United Nations Commission on International Trade Law ('UNCITRAL') Working Group on International Sale of Goods, who wrote:
The most obvious difficulty which arose during the history of art 46 was its mistranslation from French to English. Much has been written about the difficulties of interpreting multilingual legal texts where the different language versions are not identical. Less has been written about the impact of such discrepancies on the negotiation process. It is obvious that much of the misunderstanding of art 46 during its preparation arose of its mistranslation. [page 190]
There are many ways for divergences in the different language versions to occur. Sometimes the text in the original language does not permit precise translation. Sometimes the text is misunderstood by the translator. Sometimes typographical errors are not caught by proofreaders who do not know the subject matter.
These divergences must be isolated and corrected as early as possible so that in the subsequent stages of the drafting process all the participants are working with the same text. There is only one way in which this can be accomplished. The various language versions must be rigorously compared by persons who are concerned with the substance of the project. This is a tedious task, but ideally it should be done each time the text is revised. If it is not, the quality of the comments and proposals of the participants, and therefore the legal solution on which they finally agree, will be adversely affected.
Another disadvantage is that the CISG makes compromises conceptually and linguistically to accommodate the conflicting demands of the civil law and the common law, leading to lack of clarity.
For example, Article 8(1) declares that a party's statements and conduct are 'to be interpreted according to his intent where the other party knew or could not have been unaware what that intent was'. This is a subjective test. Article 8(2), on the other hand, states that if Article 8(1) does not apply then statements and conduct would be interpreted according to the understanding that a reasonable person would have had. This is an objective test. There is not enough guidance in the CISG to help ascertain when Article 8 would not apply.
Articles 14 and 55 furnish another example. Article 14(1) contains reference to two criteria for making a valid offer:
Article 55 on the other hand makes a contract valid even when the price is not indicated. It states: 'Where a contract has been validly concluded but does not expressly or implicitly fix or make provision for determining the price, the parties are considered ... to have impliedly made reference to the price generally charged [page 191] at the time of the conclusion of the contract ....' Now Article 55 applies when price is not fixed but the contract is validly made; and Article 14 makes the contract invalid if the price is not fixed.
This example led Professor Farnsworth to suggest that Article 55 is essentially an empty set.
A similar situation also arises in respect of the term 'good faith' in Article 7 of the CISG which 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 and the observance of good faith in international trade.'
An author writes:
Apparently this somewhat obscure and, to say the least, limited, if not limitative drafting is the result of disagreement among the drafters, certain having favoured the inclusion of the general principle of good faith in the chapter on formation of contracts and others having opposed it on the grounds that the proposed wording would have been too vague. The first paragraph of Article 7 appears to be the expression of a compromise between these two positions.
The decisions of courts applying the CISG have not helped much. For example, in a commentary published in January 2005, Peter Mazzacano says that the Canadian courts have 'tended to treat the CISG in a cursory manner, and ultimately make decisions on the basis of domestic law'.
The CISG does not specifically deal with standard types of overseas sales, such as CIF or FOB contracts. However, it lays down rules that when applied to such contracts could produce radically different results from the Indian law. Under the Indian law, the buyer would have the right to reject the goods when the goods are of, or the documents of title to the goods refer to, a quantity not agreed. [page 192]
Under the CISG, the relevant Articles, 46(2), 47 and 49 are as follows.
If the goods do not conform with the contract, the buyer may require delivery of substitute goods only if the lack of conformity constitutes a fundamental breach of contract and a request for substitute goods is made either in conjunction with notice given under article 39 or within a reasonable time thereafter.
Unless the buyer has received notice from the seller that he will not perform within the period so fixed, the buyer may not, during that period, resort to any remedy for breach of contract. However, the buyer is not deprived thereby of any right he may have to claim damages for delay in performance.
The buyer may declare the contract avoided (1) if the failure by the seller to perform any of his obligations under the contract or this Convention amounts to a fundamental breach of contract; or ... (b) in case of non-delivery, if the seller does not deliver the goods within the additional period of time fixed by the buyer in accordance with paragraph (1) of article 47 or declares that he will not deliver within the period so fixed.
The CISG thus deprives the buyer of his statutory right under the domestic law to reject the goods when they do not conform to the quantity or quality. The Indian trading community, and their legal advisers would find the departure in the CISG rules troubling because of the imprecise language of the CISG and introduction of the 'fundamental breach' concept (in Article 49).
The term 'fundamental breach' is defined in Article 25 of the CISG as one which: 'results in such detriment to the other party as substantially to deprive him of what he is entitled to expect under the contract, unless the party in breach did not foresee and a reasonable person of the same kind in the same circumstances would not have foreseen such a result.'
As Professor Treitel commented, '[i]t is open to criticism on the ground that it is likely to lead to uncertainty since the open-textured nature of the definition in Article 25 makes it hard to predict just when a breach will be regarded as "fundamental".' [page 193]
The aforesaid discussion highlights only some of the features of the CISG.
As Macaulay says in his essay published in (1977) 11 Law & Society Review 507, the buyers and sellers need to plan and deal with risk. They do so with carefully drafted contracts. To increase the chance that the contract will be performed, the legal system ought to meet the following standards: (a) it must define when the contract would be regarded as validly made; (b) it must provide for application of norms that reflect the customs of the commercial community; and (c) it must offer remedies that either induce performance or compensate for non-performance.
The following represents a sound approach to the issue:
Comprehensive legal and management review of procurement and sales procedures to be followed under the new regime by international persons and their legal advisors is desirable as increasing numbers of countries ratify and increasing use is made of the CISG. Such traders need to identify clients and circumstances in which use of the CISG is preferable over use of domestic law. Moreover, the opportunities, accidentally and unknowingly, to become subject to the CISG remain very real. Failure to think clearly about choice of governing law issues at the time of contracting is quite likely to lead to unpleasant surprises in the event of a dispute. Many similarities between the CISG and the (United States Uniform Commercial Code) UCC are readily observable, and the litigation involving the CISG thus far reported suggests that the CISG is functioning well. Nonetheless, serious pitfalls await those who assume that the differences between the CISG and otherwise applicable law, such as the United States' UCC, are of no moment.
Eventually, India's international traders and their legal advisers must assess if the CISG meets these standards. A good contract law is one that enables the buyer and the seller to approach their lawyer requesting him to predict, as far as possible, what a court would do if a dispute were to arise. The more predictable the outcome, the better the contract law. Ultimately, the CISG would be a good contract law for India only if it turns out that it meets the above standard. [page 194]
* Shishir Dholakia is a Senior Advocate of the Supreme Court of India and the Vice-President of United Lawyers Association in India. He has been practising law since 1966 and has specialist experience in arbitration, commercial and tax laws. Mr Dholakia is a member of the ICC International Court of Arbitration. He is also a member of the Executive Committee, International Law Association (India Region) and the International Committee on Arbitration, International Law Association. Besides being a member of the London Court of International Arbitration, Mr Dholakia is also a member of the Chartered Institute of Arbitrators and a member of Lawasia, and was formerly a senior member of the Supreme Court Bar Association in India.
1. Report of the Sub-Committee on Commercial Law of the Law Reform Committee dated 12 September 1994.
2. Arthur Rossett, 'Critical Reflections on the United Nations Convention on Contracts for the International Sale of Goods' (1984) 45 Ohio State Law Journal 265-305.
3. Professor GH Trietel (Ed), Benjamin on Sale of Goods (4th ed), Chapter 18. The position has not altered in the 5th edition.
4. Subject to reservations that may be made.
5. The 1893 Act continues to be relevant.
6. 'Adoption of the UN Convention on International Sale of Goods in South Africa' (1999) 116 SAL.J, Pt II, 323-370. The article is also available at www.cisg.law.pace.edu/cisg/biblio/eiselen.html.
7. The United Kingdom and the Vienna Sales Convention: Another Case of Splendid Isolation?' available at http://www.cnr.it/CTDCS/frames9.htm, and also at www.worldcatlibraries.org.
8. Quoted by Sieg Eiselen in 'Adoption of the Vienna Convention for the International Sale of Goods (the CISG) in South Africa' (1996) 116 SALR, Pt II, 323-370.
9. Arthur Rossett, 'Critical Reflections on the United Nations Convention on Contracts for the International Sale of Goods' (1984) 45 Ohio State Law Journal 265-305.
10. Hobhouse (1990) 106 LQR 531.
11. Monica Killian, 'CISG and the Problem with Common Law Jurisdictions.'
12. Statement at the end of Article 101.
13. Bergsten and Miller, The Remedy of Reduction of Price (1979) 27 Am J Comp L 255, 276.
14. For a detailed discussion on the formation of Articles 14 and 55, see Burt A Leete (Professor, College of Business and Management, University of Maryland at College Park), 'Contract Formation under the United Nations Convention on Contracts for the International Sale of Goods and the Uniform Commercial Code: Pitfalls for the Unwary' (1992) 6 Temple International and Comparative Law Journal 193-215.
15. A Comparative Study of the UNIDROIT Principles and the CISG' Osgoode Hall Law School, York University Publication, Sylvette Guillemard of Laval University.
16. 'Brown & Root Services v Aerotech Herman Nelson: The Continuing Plight of the UN Sales Convention in Canada.
17. The Sale of Goods Act 1930, section 30 read with section 37.
18. Benjamin on Sale of Goods (4th ed), para 18-116, footnote 31.
19. Louis F Del Duca, 'Practice Under the Convention on International Sale of Goods (CISG) A Primer for Attorneys and International Traders' (1995) 27 UCC Law Journal 331-370.