Excerpt from John O. Honnold, Uniform Law for International Sales under the 1980 United Nations Convention, 3rd ed. (1999), pages 29-45. Reproduced with permission of the publisher, Kluwer Law International, The Hague.
§39 The Overview (Ch. 2, supra at §12) drew attention to the limited applicability of the Convention. In brief, under Article 1 the Convention will apply only if two basic requirements are met: (1) The sale must be international,—i.e., the seller and the buyer must have their "places of business in different States," and (2) The sale must have a prescribed relationship with one or more States that have adhered to the Convention.
"(1) This Convention applies to contracts of sale of goods between parties whose places of business are in different States:
(a) when the States are Contracting States; or
(b) when the rules of private international law lead to the application of the law of a Contracting State.
"(2) The fact that the parties have their places of business in different States is to be disregarded whenever this fact does not appear either from the contract or from any dealings between, or from information disclosed by, the parties at any time before or at the conclusion of the contract."
(3) Neither the nationality of the parties nor the civil or commercial character of the parties or of the contract is to be taken into consideration in determining the application of this Convention.[page 29]
§40 A. Basic Rules on Applicability
The 1980 Convention lays down a single basic criterion of internationality: The seller and buyer must have their "places of business in different States." The 1964 Conventions used the same criterion but added further tests: Did the contract "involve" international shipment? Where did "the acts constituting the offer and acceptance" take place? The deliberations in UNCITRAL showed that these additional tests did not give predictable answers; the location of the parties’ places of business provided more solid footing.
§41 (a) The Undisclosed Foreign Principal
Paragraph (2) of Article 1 addresses the following case: Example 1A. Agent informed Seller, whose place of business was in State A, that Agent was authorized to purchase goods for a buyer but did not disclose the name or address of the person he represented. Seller and Agent concluded a sales contract; thereafter, it appeared that Agent was acting for a foreign principal, Buyer, whose place of business was in State B. The above transaction would not be governed by the Convention. Paragraph (2) of Article 1 is based on the premise that the facts that involve the Convention should be available to the parties at the time of the conclusion of the contract. This premise is also illustrated by Article 10(a), quoted infra at §42, which states that the choice between multiple places of business—a choice that is important in determining applicability of the Convention—shall be based on "circumstances known to or contemplated by the parties at any time before or at the conclusion of the contract." §42 (b) Multiple Places of Business Example 1B. Seller has places of business in both State A and State B. Buyer has a place of business in State B. In this case, since Seller has a place of business in State A, the parties do have places of business "in different States," but they also have places of business in the same State. If seller negotiated and performed the transaction from its branch in State B, where Buyer has its sole place of business, both parties can be expected to be familiar with and follow the rules of State B. In any event, it is necessary to determine which of Seller’s two places of business should be used to determine whether the sale was international. Surprisingly, ULIS (1964) did not face this common problem. The 1980 Convention addresses this issue in paragraph (a) of Article 10. (Other aspects of Art. 10 will be considered infra. ) Article 10(a) provides:
Paragraph (2) of Article 1 addresses the following case:
Example 1A. Agent informed Seller, whose place of business was in State A, that Agent was authorized to purchase goods for a buyer but did not disclose the name or address of the person he represented. Seller and Agent concluded a sales contract; thereafter, it appeared that Agent was acting for a foreign principal, Buyer, whose place of business was in State B.
The above transaction would not be governed by the Convention. Paragraph (2) of Article 1 is based on the premise that the facts that involve the Convention should be available to the parties at the time of the conclusion of the contract. This premise is also illustrated by Article 10(a), quoted infra at §42, which states that the choice between multiple places of business—a choice that is important in determining applicability of the Convention—shall be based on "circumstances known to or contemplated by the parties at any time before or at the conclusion of the contract."
§42 (b) Multiple Places of Business
Example 1B. Seller has places of business in both State A and State B. Buyer has a place of business in State B.
In this case, since Seller has a place of business in State A, the parties do have places of business "in different States," but they also have places of business in the same State. If seller negotiated and performed the transaction from its branch in State B, where Buyer has its sole place of business, both parties can be expected to be familiar with and follow the rules of State B. In any event, it is necessary to determine which of Seller’s two places of business should be used to determine whether the sale was international.
Surprisingly, ULIS (1964) did not face this common problem. The 1980 Convention addresses this issue in paragraph (a) of Article 10. (Other aspects of Art. 10 will be considered infra. ) Article 10(a) provides:
Article 10(a) works from the premise that a single party (such as a corporation) may have multiple places of business, and that a selection of the applicable place of business is based on its relationship to an individual sales contract. Consequently, the Convention does not invoke any of the rules for fixing a single location or "nationality" of a corporation, such as determinations based on the place of incorporation, "domicile", or "seat" ( siège, siège social or Sitz ). Article 10(a) must be construed and applied on the basis of its special role in determining the applicability of the Convention.
In Example 1B, let us suppose that the making and performance of the contract are more closely related to State B than to State A. By virtue of Article 10(a), supra, Seller’s relevant place of business is in State B. Consequently, under Article 1(1), the parties’ relevant places of business are not "in different States"; the Convention does not apply.
Suppose that in Example 1B, a business in State B is incorporated in State B but is owned by a parent company incorporated in State A and the sales contract is executed between the company formed in State B and a party located in State B. Even if the corporate subsidiary in State B is closely controlled by the parent in State A the Convention would not apply to the contract. Under Article 1(1), applicability of the Convention is based on the location of the "parties" to the contract, and in this case the [page 31] parties are both in the same State. To avoid circumventing a State’s regulatory policies it may be necessary to "pierce the corporate veil" but it is difficult to imagine circumstances in which this doctrine would apply to free a corporate subsidiary from the domestic law of its place of incorporation. The effect of the active participation by a manufacturer or other supplier in a sale by a seller to a buyer is explored in connection with Article 4, §63 infra.
In Example 1B, suppose that the seller’s place of business in State B is not incorporated in State B but is a branch office of a company formed in State A and having its headquarters in State A. Determining which place of business, under Article 10(a), supra, "has the closest relationship to the contract and its performance" will call for weighing competing considerations. The factors in the scale are reduced by the rule of Article 10(a) that the relationship is to be determined on the basis of the circumstances known to or contemplated by both parties "before or at the conclusion of the contract"; supervision by the head office in State A that is known only to the seller is irrelevant; the same is true of facts learned by the buyer subsequent to the making of the contract. The relative importance of the role of the two places of business in making and in performing the contract will be discussed infra at §43. However, where the balance seems close the parties would be well advised to settle the point by contract—by stating whether the Convention or specified domestic law is applicable.
The multiple places of business involved in consortia necessarily create difficult problems as to applicable law under traditional domestic law and the Convention. Usually such complex arrangements are governed by a detailed contract which should include an express provision on whether the Convention or a specified domestic legal system applies. See Kritzer Manual Ch. 27.
§43 (c) "Place of Business"; Sojourn During Negotiations
Example 1C. Seller, in State A, entered into negotiations with Buyer in State B for a complex and important contract for the manufacture of machinery. To complete the negotiations, Seller sent senior officials and a supporting staff to the city in State B where Buyer had its headquarters. Seller’s representatives rented a suite of rooms for a month; most of the negotiations and the final execution of the contract took place in that suite. [page 32]
Did the suite of rooms Seller rented in State B constitute a "place of business"? If so, was this the place which had the "closest relationship to the contract and its performance" (Art. 10(a))?
For reasons explained more fully in the Commentary to Article 10, infra at §124, the answer to both questions should be No. "Place of business", as used in Article 1, should be construed to mean a permanent and regular place for the transacting of general business, and would not include a temporary place of sojourn during ad hoc negotiations. This interpretation is indicated by Article 10(a) which points to the relationship between the place of business and "the contract and its performance. " The procurement or production of goods to meet the buyer’s requirements is normally of much greater significance to both parties than the place where the contract is negotiated and signed. Moreover, references to "places of business" in other parts of the Convention show that this term excludes a temporary "place" like the hotel room in Example 1C. For example, Article 31(c) provides that where the contract does not "involve carriage of the goods" (para (a)) and the goods are not located at a place known by the parties (para (b)), the seller’s obligation to deliver consists in placing the goods at the buyer’s disposal "at the place where the seller has his place of business at the time of the conclusion of the contract" (para (c)). The meaning of "place of business" as a site of continuing business activity is similarly shown by provisions in Articles 24, 42(b) and 69(2).
In addition, the elusive and insubstantial nature of the place of contracting led UNCITRAL to delete provisions in Article 1(1) of ULIS that made aspects of the making of the contract relevant in determining whether a sale was international. This view is also supported by the emphasis on the place for performance in the 1980 EEC Convention on the Law Applicable to Contractual Obligations (Art. 4(2)).
Compare: (1) FR. CA Paris, J.D.24410, 24 April 1992, Fauba v. Fujitsu, affirmed, C. de Cass. (Sup. Ct), 4 January 1995. A French buyer (B) ordered electronic components from a German seller (S) through S’s liaison office in France. In a dispute over B’s rejection of a shipment, S argued that CISG did not apply on the ground that B (located in France) ordered the goods through the German seller’s office in France; thus, the parties to the transaction were not located in different States, as required by Article [page 33] 1(1). The court held that S’s liaison office was not an autonomous legal entity but, instead, was a French branch of the German seller. Consequently, the transaction was between parties in different States; the Convention applied. UNILEX D.1995-1; CLOUT 155. (2) Cf. ARB. ICC (Paris), 7531/1993 (1994). An Austrian buyer (B) and a Chinese seller (S) made a contract for the purchase from S of scaffold fittings. B conducted part of the negotiations in China, where S was located. Held: Negotiations in the same country did not bar application of Art.1(1)(a); the parties had their places of business in two different Contracting States. UNILEX D. 1994-31. Accord: Bonell/Ligouri ULR, 1996-1, 153 n.33. See: Schlechtriem, Com. (1998) 24.
As has already been noted, an international sale is subject to the Convention only if the transaction bears a prescribed relation to one or more Contracting States. The Convention in Sub-paragraphs (1)(a) and (1)(b) of Article 1 states two such relationships, either of which will suffice. (These two provisions will sometimes be referred to as "Sub (1)(a)" and "Sub (1)(b).")
§45 (a) Both Parties in Contracting States (Sub (1)(a))
Under Sub (1)(a) of Article 1 the Convention applies when the places of business of the seller and the buyer are in different Contracting States. In such cases the Convention directs the fora of all Contracting States to apply the Convention.
There was prompt agreement that the Convention would apply when the places of business of the seller and buyer were in different Contracting States (Sub(1)(a)). The Convention’s central objective was to reduce the legal uncertainty that plagued trade between different legal systems—uncertainty as to which legal system was applicable under rules of private international law and uncertainty that was inherent in the likelihood that the applicable domestic law would be unknown (and often inscrutable) to at least one of the parties. Applicability based on Sub(1)(a) responds to this central interest in certainty in two ways: (1) Applicability is not subject to the uncertainties inherent in general rules of conflicts (PIL); and (2) When the parties have their places of business in different Contracting States, the applicable domestic law, whether [page 34] chosen by agreement or pursuant to conflicts rules, is likely to be unknown to at least one of the parties; these uncertainties are replaced by the applicability of a single uniform law to which both countries (among many others) have agreed.
The Convention’s function in enhancing certainty through uniform law needs to be emphasized, for in this setting one concern central to conflicts law, the proper allocation of regulatory power among competing sovereignties, has little significance. The "regulatory" aspects of the uniform rules are minimal, evidenced by the parties’ freedom to reject the Convention or modify its rules (Art. 6, §74, infra ) and by the Convention’s deference to the rules on validity under applicable domestic law (Art. 4(a), §64, infra ).
The Convention’s function in reducing the costs of legal uncertainty also supports the decision, made in Sub(1)(a), to apply the uniform rules when the parties have their places of business in different Contracting States even when important aspects of the transaction take place in a non-Contracting State. Uncertainty concerning the parties’ obligations generates planning costs that center in the parties’ places of business and affect the economic success of the enterprise. These enterprise costs are of concern to the parties and to the States where they have their places of business—rather than to States where aspects of the transaction occur.
There was prompt agreement on Sub(1)(a) or Article 1 but the second ground for applicability, Sub. (1)(b), was sharply contested on the ground that basing applicability on rules of private international law would undermine the legal certainty that was the Convention’s central goal. To meet this objection the Conference added Article 95 which permitted Contracting States to reject Sub (1)(b). (The effect of an Article 95 reservation will be considered further in §47, infra. )
To sum up: The 1980 Convention rejected the "universalist" approach of the 1964 Conventions; Article 1(1) provides for applicability based on either of two types of connection between the sales transaction and a Contracting State: (1) In all Contracting States the Convention will apply when (Sub (1)(a)) the seller and the buyer have their places of business in different Contracting States. (2) The Convention will apply (Sub (1)(b)) when the rules of private international law point to a Contracting State, subject to a reservation by Contracting States that they "will not be bound" by this provision.[page 35]
§46 (b) Applicability Under Rules of Private International Law; Sub (1)(b): An Introduction
Example 1D. Seller’s place of business is in State A and the Buyer’s place of business is in State B. State A is a Contracting State; State B is not. Buyer brings an action against Seller in State A; State A has retained Sub (1)(b). The rules on private international law of State A point to the law of Seller’s state—State A.
In this example, Sub (1)(a) is not applicable since the parties do not have their places of business in two different Contracting States. However, Sub(1)(b) does invoke the Convention, since "the rules of private international law lead to the application of the law of a Contracting State"; in this event Article 1(1) states that "This Convention applies."
§46.1 (c) The Effect of Reservations
The Convention permits Contracting States to make a limited number of reservations making specified provisions of the Convention inapplicable to the declaring State. The effect of these reservations sheds light on the interpretation of the rules on applicability in Article 1.
Example 1E. Seller’s place of business is in State A, a Contracting State that has exercised the option provided by Article 92 to exclude Part II on formation of the contract. Buyer’s place of business is in State B, a non-Contracting State. The parties disagree over whether they made a contract—i.e., whether Seller effectively revoked its offer; a provision on this question (Art. 16) appears in Part II of the Convention. This controversy is brought to a forum in State C, a Contracting State; State C has not excluded Part II. The rules of private international law of the tribunal in State C point to the law of State A. Is the forum in State C precluded from giving effect to State A’s reservation excluding Part II by the fact that the forum’s version of Article 1 includes Article 1(1)(b) ("Sub (1)(b)"): "When the rules of private international law lead to the application of the law of a Contracting State" the "Convention applies"?
In this situation Article 92(2), in permitting the declaration excluding Part II, gives a clear answer: State A "is not to be considered a Contracting State within paragraph (1) of Article 1 of this Convention." Consequently, Sub (1)(b) jurisdictions like State C would reach the same result as State A and other Article 92 jurisdictions: The Convention would not apply to questions of formation involving any party whose place of business is in a State that has made the reservation.[page 36]
This reservation was appropriately respected by decisions in Germany and Hungary. See: Bonell/Ligouri, ULR, (1997-3) 589, n. 86 & 87.
Suppose that a State (e.g., Canada) declares under Article 93 that the Convention will not apply to one or more of its territorial units. Under Article 93(3) when a party’s place of business is in such a territorial unit, that place "is considered not to be in a Contracting State ". Again, Contracting States that have not made this reservation are directed to apply the Convention in a manner that respects the decision of States that have made the reservation.
Similar problems can arise under Article 94 involving Contracting States "that have the same or closely related legal rules..."— e.g., Scandinavian States that have adopted substantially the same law for domestic sales. Two or more States in such a group may declare that the "Convention is not to apply...where the parties have their places of business in those States". Article 94, unlike Articles 92 and 93, does not state that for such transactions the States are not to be considered as "Contracting States". Nevertheless, a result comparable to that of Articles 92 and 93 must be implied. For example, assume that a case involving a sale between parties in two such States is brought before a forum in a Contracting State outside the area. In this setting, as one would expect, the rules of PIL point to one of these States. Sub (1)(b), retained by the forum’s State, says that the "Convention applies". Since the forum’s State has not made a relevant reservation, Sub (1)(b) seems to say that all of the Convention applies so that the forum would apply the Convention to the transaction between the Scandinavian States. This, however, would be an inadmissible nullification of the option that Article 92 gave to those States.
In short, when a reservation is made changing the rules on applicability for that State, those rules should be applied by the forum of any Contracting State in a case involving parties whose places of business are in the State that made the reservation. Specifically, in cases like Example 1E, it would be basically wrong for the forum to apply its own rules of unrestricted applicability to parties who, by a valid reservation made by their States, are entitled to different rules.
We shall meet this problem again (§§ 47.4–47.6 infra ) in connection with reservations under Article 95 to exclude applicability based on Article 1(1)(b).[page 37]
B. Alternative Approaches to Applicability
At the 1980 Diplomatic Conference, some representatives proposed the deletion of subparagraph (1)(b) of Article 1. They noted that rules of private international law might point to the law of one State with respect to formation of the contract and to the law of other States with respect to various aspects of performance. Consequently, private international law, invoked by Sub (1)(b), might lead to the applicability of only parts of the Convention whereas the Convention was designed as a unified whole. In this connection, other delegates noted that recourse to private international law became complex where countries (e.g., Czechoslovakia) had enacted a special unified code for international trade. These objections seemed also to stem from the difficulty of applying only part of a unified legal system.
A proposal to delete subparagraph (1)(b) was defeated; as a compromise, the Convention’s Final Provisions (Part IV) included the following:
"Any State may declare at the time of the deposit of its instrument of ratification, acceptance, approval or accession that it will not be bound by subparagraph (1)(b) or article 1 of this Convention."
The above declaration permitted under Article 95 has been made by the following States: China, Czech Republic, Singapore, Slovakia and U.S.A.
We may now return to Example 1D (§46, supra ) in which State A, the place of business of the seller, was a Contracting State but State B, where the buyer was located, was not a Contracting State. Now let us assume that State A in ratifying the Convention made the declaration permitted by Article 95. State A will now apply the Convention only to the sales covered by Sub (1)(a)—transactions between parties in two Contracting States. Since Sub (1)(b) is excluded, State A’s rules of private international [page 38] law designating the law of State A now invoke its domestic law rather than the Convention.
The factors favoring and opposing the making of an Article 95 declaration will vary from State to State; only a few general considerations can be mentioned. In brief, as Example 1D suggests, in most situations an Article 95 declaration narrows the applicability of the Convention and enlarges the applicability of the domestic law of the declaring State. A Contracting State whose domestic law is ill-suited for international transactions may well prefer the wider applicability of the Convention that results from Sub (1)(b), and will choose not to make an Article 95 declaration. On the other hand, States whose domestic law is modern and well-suited to international transactions may well conclude that the Convention’s greatest value is within the area defined by Sub (1)(a)—transactions between two Contracting States. Although (in the long run) under Sub(1)(a) in approximately half the cases the Convention will supplant the domestic law of the declaring State, in the other cases the Convention will supplant foreign law, which usually will be less accessible than the Convention and often will be archaic and ill-suited to international transactions. Moreover, this important objective—displacing foreign law with uniform international law—is not well served by Sub (1)(b). In most cases, conflict (PIL) rules will point to the State of either the seller or the buyer. (See the provisions of the 1955 and 1986 Hague PIL Conventions at §45.2, supra and §47.3, infra. ) As we have seen, when both the seller and buyer are in Contracting States Sub (1)(a) invokes the Convention. Thus, the relevant situation for analysis is that of Example 1D (§46, supra ): only one of the parties to the sale is in a Contracting State. The option offered by Article 95 must of course be considered from the point of view of Contracting States since only they can make an Article 95 declaration.
Does the Contracting State effectively displace foreign law by retaining Sub (1)(b)? No: Sub (1)(b) invokes the Convention only when conflicts (PIL) rules points to a Contracting State—and in the cases where Sub (1)(b) is relevant the trading partners of the Contracting States are in [page 39] non-Contracting States. (Non-Contracting States can scarcely reproach Contracting States for choosing to apply their domestic law in transactions with non-Contracting States: If these States are concerned about coping with foreign domestic law they can adhere to the Convention!)
As noted above, five States have made the reservation permitted by Article 95 " not to be bound" by paragraph (1)(b) of Article 1 ("Sub (1)(b)") which provides that the "Convention applies when the rules of private international law lead to the application of the law of a Contracting State". (For simplicity these will sometimes be referred to as "Reservation States" or States that have "rejected" Sub (1)(b). The significance of the latter expression is discussed at §47.5, infra. ) Most States have not exercised the Article 95 option and are bound by Sub (1)(b). Interesting questions arise from the interplay of these differing choices.
As we have seen, Sub (1)(b) is irrelevant when both the seller and buyer are in Contracting States. We now turn to this general situation: One party is in a Contracting State (State A) and the other party is in a non-Contracting State (State B). A dispute between these parties comes before a third State (State C), a Contracting State whose rules of private international law (PIL) point to State A, a Contracting State. The question will be: Does the Convention or the domestic law of State A apply to the transaction? The problem will be: What is the effect of various combinations of choices by States A and C to reject or retain Sub (1)(b).
These cases become interesting only when State A (the place of business of one of the parties) and State C (the forum ) have made different choices with respect to Sub(1)(b). We need to note in passing the following cases where there is no ground for dispute:
(1) When both State A and State C have retained Sub(1)(b), the Convention will apply.
(2) When both State A and State C have rejected Sub(1)(b) the Convention will not apply. Thus, if the forum decides that PIL points to State A the case will be governed by the domestic law of State A.
Now, at long last, we reach the interesting cases where the two Contracting States have taken different decisions about retaining Sub(1)(b). To simplify the discussion let us assume that decisions taken by the forum (State C) on private international law are the same as the decisions of other fora facing the same situation. We shall also assume, as usual, that the parties (unfortunately) have not solved the problem in their contract.[page 40]
§47.5 (a) The Party’s State has Retained and the Forum has Rejected Sub (1)(b)
Example 1F. Seller is in State A, a Contracting State that has retained Sub (1)(b); Buyer is in State B, a non-Contracting State. A dispute under this contract is taken to a tribunal in State C, a Contracting State that has rejected Sub (1)(b). The PIL rules of the forum point to State A. Is the dispute governed by the Convention or by the domestic law of State A?
If we look to Article 1 as adopted by the forum we may find only Sub (1)(a), since State C has rejected Sub (1)(b). Thus, Article 1 as adopted by the forum states that the Convention applies only when the states of both parties are located in Contracting States. Using the forum’s rules leads to strange consequences: Article 1 as adopted by the forum suggests that Convention would not apply even though State A chose to retain applicability of the Convention based on PIL and the rules of PIL point to that State. This result seems even stranger when we note that if this controversy had been taken to any of the Contracting States that have retained Sub (1)(b) (including State A) or to any of the non-Contracting States (including the buyer’s State, State B), these tribunals should and probably would apply the Convention. (As noted above we are assuming that these fora come to the same decision on PIL as the tribunal in State C.)
These grotesque consequences force us to this conclusion: The narrower applicability of the Convention that results from rejecting Sub (1)(b) is relevant only in determining the Convention’s applicability to a party located in a State that has rejected Sub (1)(b). (Seller in Example 1F was not such a party since State A, where Seller was located, had chosen to retain applicability of the Convention based on Sub(1)(b).)
The proper effect of an Article 95 reservation becomes clearer when we consider the reason why States requested and exercised this option to reject Sub (1)(b) and thereby confine applicability to Sub (1)(a). One State observed that it would make an Article 95 reservation to protect its traders from being deprived of their familiar domestic law without the countervailing gain of supplanting the foreign law of trading partners in non-Contracting States, e.g., State B in Example 1F.[page 41] Substituting uniform international law for such foreign law was regarded as one of the important advantages of becoming a Contracting State. Certainly Sub (1)(b) was not rejected because of difficulty or distaste with applying the Convention as a neutral forum like State C, for the Article 95 reservation is necessarily made by a Contracting State—a State that is friendly to and willing to apply the Convention.
In short, the proper approach for the forum in State C is to decide which State’s law is indicated by the rules of PIL. Then, when PIL points to the law of a State that retained Sub. (1)(b) (as in Example 1F) the forum should apply the Convention. As we have noted, this approach gives the same result in the fora of all States that have retained Sub (1)(b) and all non-Contracting States, and would eliminate the impossible problems (including forum -shopping) that would arise if fora in States like State C should improperly apply their Article 95 reservation when no party from an Article 95 reservation State is before the court.
Latent in the above solution is this question: By what authority does the forum in State C apply the Convention based on its conflicts (PIL) rules when State C has made an Article 95 reservation " not to be bound" by Sub (1)(b). Has it been wrong to state that an Article 95 reservation "rejects" Sub (1)(b)? When States make a reservation that they are "not bound" by Sub (1)(b) are its tribunals free to apply Sub (1)(b) if they choose? See Pelichet, 1986 PIL Convention 43.
In Example 1F on what ground should the tribunal in State C, a Reservation State, apply the Convention law of State A when State C’s conflicts (PIL) rules point to State A? Suppose that the dispute between the parties in Example 1F were taken to a tribunal in State N, a non -Contracting State, and the conflicts (PIL) rules of N (like those of State C) pointed to State A. The tribunal in State N surely should apply the Convention, since this is the law of State A that applies to this transaction (§47.3, supra ). Sub (1)(b) is irrelevant in State N, a non-Contracting State; State N would apply the Convention because this is the correct application of State N’s rules of private international law. This also is the reason why in Example 1F the tribunal in State C, although a Reservation State, should apply the Convention; here, too, Sub (1)(b) is irrelevant. Cf. Pelichet, 1986 PIL Convention 43.
The approach suggested above may be illustrated and tested by the following case: [page 42]
Example 1G. Seller is in State A, a Contracting State that (unlike State A in Example 1F) has made an Article 95 reservation that it is "not bound" by Sub (1)(b); Buyer is in State B, a non-Contracting State. The forum is in State A which, as was just noted, is a Reservation State. The conflicts (PIL) rules of State A point to State C, a Contracting State that has retained Sub (1)(b).
Should the forum in State A apply the Convention to this transaction? The first step is to recognize that Article 95 does not provide that a State that makes the reservation shall apply its own domestic law; it merely frees that State from Sub (1)(b). Thus, in the present example, if the conflicts (PIL) rules of State A pointed to Buyer’s State (State B), a non-Contracting State, the State A forum would apply the domestic (non -Convention) law of State B. This recourse to conflicts (PIL) is, of course, not in response to a command from Sub (1)(b) but simply in order to decide the case under the most appropriate system of law. This principle also applies if the answer to the conflicts (PIL) inquiry points to a Contracting State such as State C. In Example 1G the forum in State A should apply the Convention rather than the domestic law of State C.
This approach to Example 1G is also appropriate since it is applicable to various fora to which the dispute might be brought. For example, in this case the plaintiff (e.g. Seller) might choose to bring the action in Buyer’s State (State B), a non-Contracting State. State B’s conflicts (PIL) rules (particularly with the further succeeds of pending measures for unification) may resemble those of State A. In that event, the conflicts (PIL) inquiry by the forum in State B might well point to the law of State C,—or some other similar Contracting State where, for a transaction like this, the Convention is the applicable law.
Example 1H. The facts are the same as in Example 1G in that State A (the Seller’s State) made an Article 95 declaration that A "is not bound" by Sub (1)(b). However, in this case the forum is State C, a Contracting State that has retained Sub (1)(b). As in Example 1F, the conflicts, (PIL) rules of the forum point to State A.
The correct approach follows from the discussion of Example 1F. The forum in State C, having determined that PIL points to State A, should conclude that since State A has rejected Sub (1)(b) the law of State A for this transaction does not include the Convention; consequently the forum in State C should apply the domestic sales law of State A.
This approach respects State A’s option to reject applicability of the Convention under Sub (1)(b) when a party in that State contracts with a party in a non-Contracting State and the rules of PIL point to State A. (Reasons for exercising this option were noted at §47.1, supra. ) Moreover,[page 43] this approach would be like the approach of: (1) other States that have rejected Sub (1)(b) (like State A); (2) all non-Contracting States like State N in §47.5, supra.
In short, the fact that States have responded differently to the option offered by Article 95 should present no serious difficulties once it is understood that the choice is exercised in the interest of parties in a State that makes this choice, and that fora of other States should respect that choice. In addition, as we have seen (§46.1, supra ), this result is consistent with the result of other reservations permitted by the Convention.
Two of the above examples, 1F and 1H, (perhaps unnecessarily) probed the effect of reservations excluding Article l(1)(b) in unusual situations—litigation brought in a State where neither the seller nor buyer has its place of business. ("The expense of spirit in a waste of shame." W.Sh.S#109.) In this rarified atmosphere, this writer’s views have met both support and criticism. See: On the obligations of States (whether or not Contracting) to respect Article 95 reservations excluding Sub 1(1)(b), see Schlechtriem, Comm. (1998) 27–28, §§43–44; idem., 1986 Commentary 27 n.56a; Bonell/Ligouri, ULR (1996-1) 153–154, n. 37–40, (1997-2) 391–393; Evans, M., Bianca-Bonell Commentary (1987) 656–657; Winship, P., 21 Cornell Int. L.J. 487–533 (1988); Gabor, F. A. 7 N.W.J. Int. L.& Bus. 696–726 (1986), 8 id. 538–569 (1988). But cf. Ferrari, F., Sphere of Application (CISG) 15–16, n. 201–206.
Happily, controversies involving the applicability of CISG under Article 1(1)(b), and the rare cases involving reservations to this provision, are diminishing as the number of adhering States increases. The future lies with Article 1(1)(a) and its clear-cut rule: The Convention applies when the places of business of the seller and buyer are in different Contracting States.[page 44]
§48 C. Other Problems of Applicability
The rules on applicability of the Convention do not refer to the nationality of the parties or to their civil or commercial character. Consequently, it was not necessary to add in paragraph (3) that these factors are not to be "taken into consideration in determining the application of this Convention."
The specific rejection of a distinction between "the civil or commercial character of the parties or of the contract" should prevent any misapprehension by those who are accustomed to separate civil and commercial codes. The 1980 Convention is not of this character. True, the typical international transaction is commercial and, as we shall see, Articles 2(a) and 5 specifically exclude most consumer-type transactions. But the central point, emphasized by paragraph (3), is that the traditional classifications in some legal systems between "civil" and "commercial" parties and transactions are irrelevant in determining the applicability of the Convention.
Article 1(1) provides that the Convention applies to the sale of "goods". The meaning of this term will be examined following the discussion of provisions of Articles 2 and 3 which shed light on this question. See §56 infra.[page 45]
FOOTNOTES: Chapter on Article 1
1. This article is substantially the same as Art. 1 of the 1978 Draft Convention. However, as we shall see, infra at §47, under Art. 95 Contracting States may reject subparagraph (1)(b). ULIS 1 and 2 had more complex rules on internationality, and set no limits comparable to subparagraphs (1)(a) and (b).
On the Convention’s sphere of application see, in general, Winship, Parker Colloq., Ch. 1 (1984); Siehr, 52 RabelsZ. 587 (1988); Lacasse, Ottawa Colloque 23–42 (1989).
2. Development of Art. 1 in UNCITRAL: II Yearbook (herein "YB") 38–43 Documentary History, (herein " Docy. Hist .") 43–48; 11YB 51–54, 111YB 79, 82–83, VI YB 88–90, 110, 50, IX YB 68–69; Docy. Hist. 57–60, 96, 99–100 213–215, 235, 241, 300–301. The YB and Docy Hist. citations refer to the same documents, in the same order. See also: P. Kahn, La Vente Commerciale Internationale 5 (Paris: Sirey, 1961); Kahn, 33 Rev. Int. Dr. Comp. 951, 959 (1981).
3. Although ULIS (1964) had no provision like CISG 10(a), a German court construed "place of business" in ULIS in accord with CISG 10(a). See Schlechtriem, German Report, 1986 Cong. Comp. L., 141–142, citing BGH of June 2, 1982, LM No. 6 on ULIS.
4. Secretariat Commentary, Art. 9, paras. 7–8, official Records of the Diplomatic Conference (herein O. R. ) 19, Docy Hist. 409.
5. Accord, Schlechtriem, 1986 Commentary 43: In German law a "place of business" is "an establishment of some duration and with certain authorized powers." Contract language identifying the place of business: Kritzer Manual Ch. 2.
[Editor's note: Footnotes 6 and 7 not present in the text]
8. The provision for a reservation was made only in final review by the Plenary. See O. R. 170 (proposal by Czechoslovakia) 229–230, Docy. Hist. 728.
[Editor's note: Footnotes 9 and 10 not present in the text]
11. Article 95 was based on a proposal Czechoslovakia made to the Conference Plenary on April 10, 1980. Official Records 229–230. For earlier rejection in the Second Committee see O.R. 439. For a general discussion see Schlechtriem (1986) 24–27; B-B Commentary 654–657 (Evans), Cf. Réczei, 29 Am. J. Comp. L. 513, 518–521 (1981).
12. See Volken in Dubrovnik Lectures 19, 29 and n. 21; Schlechtriem, 1986 Commentary 24–27; Winship in Parker Colloq., §1.02.
13. See the reasons for the Article 95 reservation made by the U.S.A., set forth in Appendix IB to the Message from the President to the United States Senate. Treaty Doc. No. 98–9, quoted in Parker Colloq. at App. I–27. This statement is also quoted in Nicholas, LQR, (1988) Vol. 105, p. 205 who added that this "reason, it may be thought, would apply to the United Kingdom also." Other States similarly were concerned that traders located in their States should be protected by a reservation excluding Sub (1)(b). E.g., representatives from Czechoslovakia were concerned about the impact of Sub (1)(b) to deny to their traders the benefit of their codes for international trade. See Winship, Cornell Symposium at 508, 525.
14. But cf.: Pelichet, 1986 PIL Convention 43. Portions of the present text have been stimulated by helpful correspondence with Mr. Pelichet about our approaches to Sub (1)(b) and reservations under Article 95.
The Federal Republic of Germany in ratifying the Convention (21 December 1989) retained Sub (1)(b). The Act of Parliament enacting the Convention provided (Art. 2) that Sub (1)(b) would not apply when the rules of private international law lead to the application of the law of a State that has made a reservation under Article 95. See vC-S Kommentar (1990) 762 (Schlechtriem). This action seems to be in accord with the views of the present writer. For a general commentary on Article 1 and the Convention’s sphere of applicability see vC-S Kommentar 44 (Herber). On Article 95 see id. 750.
15. The last seven words of Art. 1(3) were added at the 1980 Convention to avoid the possible implication that these factors would be irrelevant for all purposes. See, e.g., Art. 35(2)(b) (reliance on the Seller’s "skill and judgment").
16. In rare circumstances, nationality could become relevant under Art. 1(1)(b) when a State uses nationality as a part of its rules on private international law.
Part I of the Convention governs the applicability of the Convention as a whole, including, of course, Part II on Formation of the Contract. Consequently, references in Part I to "contracts" (Arts. 1(1) and 3), in the setting of issues under part II, embrace questions as to whether a contract was formed. See also the Introduction to Part II, infra at §131.