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Article 7 [Interpretation of Convention and relationship with national law] [1]

[TEXT OF THE UNIFORM LAW]

(1) In the interpretation of this Convention [2], regard is to be had to its international character [3] and to the need to promote uniformity in its application [4] and the observance of good faith [5] in international trade [6].

(2) [7] Questions concerning matters governed by this Convention [8] which are not expressly settled in it are to be settled in conformity with the general principles on which it is based [9] or, in the absence of such principles [10], in conformity with the law applicable by virtue of the rules of private international law [11].

[WORDS AND PHRASES, CONCEPTS

[COMMENTARY]

[1] [rule on interpretation and relationship with national laws]

This rule is one of the most discussed rules of the CISG. One of the subjects of the XIIth International Congress on Comparative Law (Australia 1986) was dedicated to this issue, and it also played an important role at the Third UNIDROIT Congress on private law (Rome 1987) (International Uniform Law in Practice, Rome/New York 1988, in particular the second item, ibid, p.163 fol, Enderlein giving the general report, Interpretation). We have to confine ourselves here to explaining some basic ideas.

[2] [interpretation of the Convention]

      [2.1] During the preparation and the holding of the diplomatic conference (O.R., 87) there was an intensive debate regarding the extent to which the principles for interpretation as developed in Article 1, in particular the principle of good faith, were relevant for the interpretation of the Convention and for the relationship between the parties, and possibly even for the conclusion and realization of the contract. Norway suggested (O.R., 87) to consider the observance of good faith at the end of what is now Article 8, paragraph 3, making it clear that the principle would apply to the declarations of the parties and thus the contract. Italy (ibid) expressed even further-reaching considerations, suggesting that in including this principle and that of international co-operation in a separate article, reference should be made more to the conduct of the parties, not just at the time of performance, but also at the time of the conclusion of the contract, rather than to the interpretation of the Convention or of the contract. In the context of discussing these two [page 53] proposals (O.R. 255 fol), which were finally rejected (O.R., 87), it became evident that, as in the case of Article 6, the majority of delegations were cautious not to permit that unjust contracts may be avoided or corrected by way of the CISG. Neutral arguments, such as non-clarity of the principle, no need for its inclusion, were given at the conference mainly to explain the motives for the rejection. These arguments were put forward in another context more clearly by the American delegate Farnsworth (Problems of Unification, 18 fol). In regard to the growing restriction of party autonomy in the industrialized countries (P.-M. Petzow, Rechtsfragen der Verantwortlichkeit aus vor- und nachvertraglichen Abreden in den intersystemaren Wirtschaftsbeziehungen, doctoral thesis B, HfÖ 1989, 73 fol), the situation has changed over the past ten years since the adoption of the Convention (loc sit, 35).

Although the present-day wording refers to the Convention, no strict distinction can be made between the interpretation of the Convention and the agreement of the parties. When certain principles are applied in interpreting the Convention's provisions, they must have an effect on agreements between the parties to which the Convention is applied. It is exactly for party agreements that the principle of good faith must acquire particular importance, for it has to be assumed, in regard to the Convention's provisions, that they observe that principle. This is not always true of party agreements. A provision would have a limited effect if it did not also refer to the interpretation of party agreements. Even though this might have been the intention of some delegations, the final Convention has to be interpreted as a whole and in such a way that each and every of its provisions acquires a meaning. Eörsi (Convention, 348 fol), who had expressed his opinion already in 1983, recognized the limited role of the principle of good faith and regretted it (reserved also Honnold/Freiburg, 144). Quite a number of well-known authors in the meantime voiced their belief that the principle of good faith also addresses the parties and their conduct, and refers to agreements between them (Bonell/BB, 84 giving further examples; Kahn, 961; Ziegel, National Report of Canada on item I.C. of the XIIth International Congress on Comparative Law, 18). Some of the authors want to achieve this in deducing good faith from a number of provisions as being a general principle underlying the Convention, which then is applied in accordance with Article 7, paragraph 2 (note 10.1.) (Honnold, 125; C. Samson, National Report of Canada and Quebec on item I.C. of the XIIth International Congress on Comparative Law, 34; Bonell/BB, 85; Kahn, Caractères, 398, also sees the connection). Others refer to the closely related basic principle under which one would have to behave according to the standards of a "reasonable man" which they consider implemented in the Convention (Schlechtriem, 25). We share the conviction of Winship [page 54] (Commentary, 635) that the criticism, which seeks to broaden the effect of good faith, will in the course of time lead to the recognition of a general obligation of the parties to behave accordingly.

      [2.2] In interpreting the Convention a distinction has to be made between Parts I to III, on the one hand, and Part IV, on the other (Honnold, 134 fol). While the classical methods of interpretation under international law are applied to Part IV, the other parts of the Convention are to be interpreted in accordance with the emerging new method under the international uniform law. The latter is governed by such rules of the international uniform law as have just been commented on, and absorbs elements of the methods of interpretation under international law as well as a synthesis of methods which have developed in the national laws (in detail see Maskow, "On the Interpretation of the Uniform Rules of the 1980 UN Convention on Contracts for the International Sale of Goods", in: National Reports for the XIIth International Congress of Comparative Law, Potsdam-Babelsberg 1986, p. 5 fol). Scientific analysis makes its own contribution to that matter.

[3] [international character of the Convention]

To have regard to the international character of the Convention means, above all, not to proceed in interpreting it from national juridical constructions and terms (Introductory remarks 2.6.). This does not only refer to judges but also to the parties which in settling their differences of opinion first and foremost have to interpret the applicable rules. The meaning of terms and rules thus has to be concluded from the context and the function they have (Introductory remarks 2.6.). If reference to other materials is necessary, then those should primarily be international documents, above all those documents which have a connection to the CISG, such as preparatory documents, including protocols; and possibly the Limitation Convention and the Agency Convention. Usages can, in the meaning of Article 9, also be relevant in determining what is in conformance with the international character of the Convention. Likewise, in international trade this can be widely recognized non-governmental codifications, e.g. the INCOTERMS, the Uniform Rules and Practices for Documentary Credits and the Uniform Rules for Collections. This can be done independently of the degree by which they are already regarded as codification of usages. Surely, the rules of the PICC [Principles of International Commercial Contracts] project under preparation in the framework of UNIDROIT can be used in this sense. [page 55]

This also includes that the legal institutes have to be qualified in accordance with the common will of the Contracting States as expressed in the Convention; meaning that once a specific issue has been legally solved under the Convention, there will be no room left for functionally equivalent, but differently construed national rules to be applied.

We believe that it is not generally recommendable to determine the origin of certain provisions and to interpret those rules according to the law of their origin, as Thieffry (378 fol) seems to have in mind.

[4] [uniformity in the application of the Convention]

Since the CISG is applied by the deciding organs in a decentralized fashion, there is a great risk that those organs reach differing solutions, which could reduce the results of the unification of law. Disharmony in decisions cannot be excluded even if the international character of the CISG under Article 3 is strictly observed; additional efforts are required. Those efforts could include the taking into account of decisions which already exist in other countries when looking for a solution pursuant to the Convention. This is a method which was widely used in foreign trade arbitration in regard to the General Conditions of Delivery of Goods/CMEA and has helped making the finding of a decision more objective. In other countries foreign rulings are taken into consideration to a growing extent, but in differentiated form, as can be seen from the reports to the XIIth International Congress on Comparative Law on item I.C.1. (summarizing Honnold/Freiburg, 120 fol). What matters here is not a prejudicial effect of rulings by foreign courts or arbitrational tribunals and not that the decision taken by an organ, which by accident was entrusted first to deal with a specific legal issue, is attached a particularly great importance; rather, the existing material in regard to relevant rulings has to be taken account of when giving the reasons for a decision. A basic prerequisite for this is to make the decisions taken in respect of the CISG known in an appropriate form (Introductory remarks 1.3.).

[5] [observance of good faith]

5. Observance of the principle of good faith means to display such conduct as is normal among businessmen. Hence, no exaggerated demands can be made, and observance of good faith does in no way necessarily include the establishment of material justice between the contracting parties. It is exactly these concerns which give reason to attribute to the principle of good faith only a limited role. Assuming that the provisions of the Convention are themselves an expression of good faith, the underlying principles of the Convention, to be explained below (note 9), have to be also conceived as manifestations of this principle. In applying the Convention to the agreements of the parties, the former has to be interpreted in such a way that the conduct prescribed coincides with the principle of [page 56] good faith, so that deviating conduct must be qualified as unlawful. This means, for instance, that unjust clauses are interpreted, in the case of doubt, in favour of the disadvantaged party. However, a contract with clear wording cannot be modified in this way. When judging what is conduct based on the principle of good faith, the usages and practice in concluding contracts cannot be left out of consideration (Article 9, note 8).

[6] [good faith in international trade]

National measures for a conduct based on good faith are thus only relevant insofar as they are also the recognized measure for international trade.

[7] [relationship between the Convention and domestic law]

Paragraph 2 also clarifies the relationship between the Convention and domestic law (Introductory remarks 2.3.). Since the laws can of necessity only be unified step by step, it remains unfinished work for now and cannot at once solve all legal issues involved in a concrete manifestation; as it is in this case international contracts of sale.

- The underlying idea of the unification of law is served best when such gaps are closed by way of supporting and complementary conventions (Introductory remarks 2.2.).

- Another possibility would be to close the gaps within the substantive scope of application on the basis of the principles governing the respective convention. This, however, requires a particularly exact formulation of the substantive scope of application. And this is the road followed by ULIS in Article 17. An analysis of the consequences of such rule nonetheless has clearly established the problems involved (Mertens/Rehbinder, 143 fol; Dölle, XXXVI). They result, above all, from the fact that not all problems falling under the substantive sphere of application of the Convention, which are, however, not expressly regulated by it, can be solved in this way and/or that divergent solutions can be expected. But there were sufficient voices welcoming the ULIS principle and requesting a development of it under the CISG in order to promote the achievement of uniformity in international trade law (Bonell, 2 fol).

- A third variant would be to immediately pass on to national law whenever gaps became apparent, as was done in 122, sec. 1 of the General Conditions of Delivery of Goods/CMEA. This was, however, no obstacle for arbitral tribunals to fill gaps also from within the General Conditions of Delivery of Goods/CMEA (Kemper/Strohbach/Wagner, 62 fol).

- And finally, those methods can be combined. [page 57]

For the sake of completeness it must be pointed out that there are parallel methods of gap-filling: 1. the (possibly broadened) interpretation of the contract (Article 8, in a way also Article 7, paragraph 1); and 2. recourse to usages and other practices (Article 9).

At the diplomatic conference Italy made an attempt to have recourse to domestic law excluded and, in the event of lacking general principles under the Convention, to have the parties attain a solution invoking the national law of both parties. Czechoslovakia suggested to immediately apply domestic law in the absence of a rule under the Convention. Bulgaria, in the same breath, wanted to have the conflict-of-law problem regulated in the sense of the law of the place of business of the seller (O.R., 87). A compromise proposal by the former GDR (O.R., 257), providing a combined solution, was eventually adopted.

[8] [scope of problems addressed by the Convention]

Pursuant to Article 4, the Convention governs "the formation of the contract of sale and the rights and obligations of the seller and the buyer", i.e. the substance of the contract. Hence, a very broad scope of problems is addressed. Insofar as Article 4, subparas. (a) and (b) and Article 5 expressly declare the non-applicability of the Convention to certain matters, it is inadmissible to decide on the basis of its underlying general principles. We favour a broad interpretation of the words commented here which also leads to a relatively wide scope of application of the Convention. W.C. Vis ("Aspectos de los contratos de compraventa internacional de mercaderías no comprendidos por la Convención de Viena de 1980, Anuario Jurídico, 1983/X, p. 11 fol), who at the time of the holding of the Conference was director of the International Trade Law Branch, opts in favour of a narrow interpretation. He fears a reduction of legal security because of the insufficient predictability of the principles. We do not see such risk because of the very fact that a broad interpretation does not necessarily have to lead to invoking the general principles.

[9] [gaps in the Convention]

      [9.1] Gaps should be closed in the first place from within the Convention. This is in line with the aspiration to unify the law which, in a way, is established in the Convention itself (paragraph 3 of the preambular part, Article 7, paragraph 1) as one of its underlying principles. Such gap-filling can be done, as we believe, by applying such interpretation methods as extensive interpretation and analogy. The admissibility of analogy is directly addressed in the wording contained in the CISG because it is aimed at obtaining, from several comparable rules, one rule for a not expressly covered fact and/or a general rule under which the fact can be subsumed. When one interpretation reaching this far beyond the wording of the law is expressly approved by the Convention's text, then this must all [page 58] the more apply to an extensive interpretation. But it seems as though the Convention goes one step further permitting decisions which themselves go beyond analogy and reach into the area of a creative continuation of the development of the law. It also appears to be admissible under the Convention that decisions can be the result of principles which the Convention itself formulates and which do not necessarily have to be reflected in individual rules. Such principles include (similarly Bonell/BB, 80) good faith (Article 7, paragraph 1), contract autonomy (Article 6) and the principle of dispatch (Article 27).

The conduct of a reasonable person is relevant in the CISG in several contexts (c. Article 8, paragraph 2, Article 25), in that reasonable conduct is expected from one of the Contracting Parties or from a potential Contracting Party (Article 16, paragraph 2, subpara. (b); Article 35, paragraph 2, subpara. (b)). Article 44 permits a reasonable excuse, and Article 79 mentions conducts which "could not reasonably be expected".

Other formulations, too, like the reference to comparable circumstances (e.g. Article 55) or to a reasonable period of time for performance (e.g. Article 63, paragraph 1), aim at declaring as binding normal commercial conduct in international trade and using it as a yardstick for the parties' conduct. Thus this yardstick can be used for those cases for which it has not expressly been declared binding. Taking it as a basis can, therefore, be considered as a general principle of the Convention. This includes also the principle of good faith (Article 7, note 5).

Another criterion to be conceived as a general principle of the Convention, at least when it comes to assessing the scope of the legal consequences which are liked to non-conformance or failure of a party and/or to the overall legal consequences, can be the predictability of effects (Article 25; Article 35, paragraph 2, subpara. (b); Article 42, paragraph 1, subpara. (a) and Article 74; and in a way also Article 79, paragraph 1).

It appears in a largely generalized form in Article 80, but is recognizable also in the concrete rules of Article 8, paragraph 3; Article 29, paragraph 2; Article 35, paragraph 3; Article 40; Article 41, first sentence; Article 43, paragraph 2; Article 47, paragraph 2; Article 48, paragraph 2, second sentence; and Article 63, paragraph 2. [page 59]

The obligation of the parties to co-operate in performing the contract, in particular in the case of disturbances, with the aim of minimizing the effect of such disturbances on the party who caused it or at whose place it occurred, can be synthesized from a number of articles (Article 34, second sentence; Article 37; Article 48, paragraph 1; Article 85 fol; and also Article 77).

We also count the principle of specific performance (subject to Article 28) among the general principles of the Convention. This follows above all from the provisions governing the rights in the case of breach of contract (Articles 46-52; Articles 62-65).

The discussion held so far has shown that there is gratifying agreement with regard to the principles contained in the CISG (in particular the summary of the principles established from the national reports on item I.C.l. to the XIIth International Congress on Comparative Law, see Honnold/Freiburg, 139 fol, which are largely congruous with the ones developed above). However, agreement on principles does not yet mean agreement on their application.

      [9.2] It is, in our view, not possible to obtain the Convention's general principles from an analysis prepared by comparison of the laws of the most important legal systems of the Contracting States (similarly van der Velden, National Report of the Netherlands to the XIIth International Congress on Comparative Law, 0013) as it was supported, in some cases, in regard to Article 17 ULIS (e.g. Wahl/Dölle, 139) and is occasionally advocated also for the CISG (Bonell/BB, 81). This also follows from the impossibility to choose, on the basis of objective criteria, the most important of the legal systems of the countries which were involved in preparing the Convention. The wording of the Convention does in no way support the application of this method. Where such need arises, domestic law will have to be invoked.

      [9.3] If priorities can be established under the admissible methods of interpretation, the method closest to the wording should in our view be preferred, e.g. analogy before deduction from general principles. Hellner (78) also points to the paramount importance of the Convention's wording for its interpretation.

[10] [absence of a general principle in the Convention]

An overburdening of the first alternative under Article 7, paragraph 2, would certainly not serve the unification of law. One will have to assume, in particular, that entire legal institutes, which are missing in the Convention, cannot be construed from its principles (examples given in Article 4, note 4.1.). This refers, no doubt, also to penalties. It is, however, not excluded in our view that solutions for problems provided for under the Convention, e.g. the reasons for [page 60] exemption (Article 79 fol), will also apply in regard to legal institutes which are not included in the Convention, like exemptions from penalties.

[11] [the conflict-of-law issue]

The conflict-of-law issue itself is not decided under the Convention (Introductory remarks 2.3.; Article 1, note 6). As decisive as the statute of sales contracts is, special connecting factors might apply. We cannot join Kahn (Caractères, 398); who advised to renounce the complementary reference to national law because this would heighten the legal uncertainty. [page 61]

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