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Excerpt from John O. Honnold, Uniform Law for International Sales under the 1980 United Nations Convention, 3rd ed. (1999), pages 77-87. Reproduced with permission of the publisher, Kluwer Law International, The Hague.

Article 6

The Contract and the Convention

The Primary Role of the Contract

Text of Article
A. Exclusion of Modification
     (1) Exclusion of the Convention; Designation of Domestic Law
     (2) Implied Exclusion or Modification
     (3) Private International Law and Implied Exclusion of the Convention
     (4) Ambiguous Contracts
B. Agreements to Apply the Convention; Effectiveness
     (1) Legislative History
     (2) Agreements to Apply the Convention in Various Settings
          (a) Transactions or Issues Specifically Excluded by the Convention
          (b) Parties Located in Same State
          (c) International Transactions that Lack the
                Prescribed Contact with a Contracting State
          (d) "Mandatory" Rules

(...)

§2 A. Primary Role of the Contract

The dominant theme of the Convention is the role of the contract construed in the light of commercial practice and usage—a theme of deeper significance than may be evident at first glance. In some countries protective rules inspired by the plight of consumers could be superseded by the uniform rules developed for international commerce. To avoid any collision with such protective legislation, consumer purchases are excluded from the Convention. (See the Commentary to Arts. 2(a) and 5, infra at §§ 5055, 71.)

The Convention does not override domestic law that outlaws certain transactions or invalidates proscribed contracts and oppressive terms; outside this narrow area the Convention protects the contractual arrangements made by the parties. (See, e.g., Ch. 2, infra at §27). Moreover, the parties may exclude the Convention, and the terms of their contract will [page 3] prevail over any inconsistent provision of the uniform law. (See the Commentary to Art. 6, infra at §74.) In short, like most domestic sales rules applicable to commercial contracts, the Convention’s rules play a supporting role, supplying answers to problems that the parties have failed to solve by contract.

The Convention in two fundamental ways responds to the power of agreement. The Convention itself was produced by agreement. States from all parts of the world, through collaboration sustained for over a decade, reached consensus on a Convention of over a hundred articles. Then, as Contracting States, they agreed that in international sales they would substitute the Convention’s rules for their domestic laws. Although we can not know whether civilization grew from a social compact those who saw the development of the Convention can not doubt the power to move towards civilization by agreement.

Consistent with these origins, the Convention does not interfere with the freedom of sellers and buyers to shape the terms of their transactions. Nations can control their domestic commerce and can exclude or restrict the flow of trade. However, with the collapse of imperial and economic empires, commercial enterprises can not compel parties in other countries to trade with them and, with the development of international competition, can not dictate contract terms. Domestic trade may be subject to national management but international trade depends on agreement. [page 4]

(...)

Article 6. The Contract and the Convention

§74 The dominant theme of the Convention is the primacy of the contract. See, e.g., Overview, Ch. 1 at §2, Overview, Ch. 2 at §§19, 24, Art. 4 at §61, Art. 31 at §207, Art. 35 at §222. Of the many provisions that develop this theme, Article 6 is the most important.

Article 6 [1]

"The parties may exclude the application of this Convention or, subject to article 12, derogate from or vary the effect of any of its provisions."

The most significant statement in Article 6 is that the parties may "vary the effect" of any of the Convention’s provisions. This rule applies to the formation of the contract (Part II) and supplements the basic principles that the offeror is the master of its offer (Arts. 14–17) and the offeree the master of its acceptance (Art. 18(1)); in addition, the parties by agreement may set rules for the making of their future contracts. Moreover, the Convention’s gamut of provisions on the obligations of seller and buyer and the remedies for breach (Part III) may be reshaped by the agreement. The breadth of the parties’ freedom to modify the Convention’s rules is emphasized by the one exception stated in Article 6—the privilege of an adhering State under Articles 12 and 96 to preserve its domestic rules that require a writing. (See the Commentary to Art. 12, infra at §128.)

This degree of freedom for the parties was made possible by excluding certain transactions and issues from the Convention. The Convention does not apply to consumer purchases (Art. 2(a)) or to liability for death or personal injury (Art. 5). Nor does the Convention displace domestic rules with respect to the validity of the contract or prejudice the rights of third persons (Art. 4).[page 77]

§75 A. Exclusion or Modification

(1) Exclusion of the Convention; Designation of Domestic Law

In the preparation of both ULIS and the present Convention, it was suggested that an agreement excluding the Convention should be effective only if the agreement also designates the applicable domestic law. This suggesting was not accepted; if the parties merely agree that the Convention does not apply, rules of private international law would determine the applicable domestic law.[2]

§ 76 (2) Implied Exclusion or Modification

ULIS (Art. 3) provided that total or partial exclusion of the application of the Law "may be express or implied." In UNCITRAL the reference to "implied" exclusion was deleted on the ground that this language might lead tribunals to exclude the Convention on inadequate grounds; on the other hand, UNCITRAL declined to provide that exclusion must be "express." As a consequence, normal rules of construction of the contract apply to the question of exclusion or modification of the Convention.[3]

A reference in a contract to trade terms, like ICC’s Incoterms, should not be taken as an exclusion of the Convention, any more than such a reference would exclude rules of national law. Such trade terms articulate the parties’ obligations as to loading the goods, risk of loss and related matters, and are similar to contract provisions stating the parties’ duties. But such trade terms ordinarily do not set forth the legal consequences of breach. The Convention (like domestic rules of law) and trade terms are complementary; each performs a function that cannot be well served by the other.[4][page 78]

Even detailed standard contracts or general conditions usually recognize the need for a back-up legal system to supply answers for unanticipated problems. In some cases parties may wish to provide for the settlement of disputes by an arbitral tribunal acting as amiable compositeur or ex aequo et bono. See the UNCITRAL Arbitration Rules, Art. 33–2. However in the absence of such a provision it is unlikely that the parties chose to divorce their contract from all systems of law.

§77 (3) Private International Law and Implied Exclusion of the Convention

Example 6A. The places of business of Seller and Buyer are in States A and B, both of which are Contracting States. A contract of sale was signed by representatives of Seller and Buyer in State C, a non-Contracting State. The contract provided that Seller would deliver the goods to Buyer in State C. The contract had no provision designating the applicable law.

What laws should fora in States A and B and other Contracting States apply to the above transaction? A firm starting point is this: Since the places of business of both parties are in Contracting States, Article 1(1)(a) ("Sub (1)(a)") provides that the Convention applies unless the parties have agreed (Art. 6) to exclude the Convention.

The law designated by the private international law ("PIL" or "conflicts") rules of the various possible fora may be unclear or in conflict. However, let us assume that the PIL rules may point to State C, a non-Contracting State.[5]

Would the above rules of private international law exclude the Convention? Article 1 of the Convention tells us that the answer is No. Subs (1)(a) and (1)(b) of Article 1 provide alternative grounds for applicability. A conclusion that private international law pointing to the law of a non-Contracting State bars applicability of the Convention, even though [page 79] the places of business of both parties are in Contracting States, would nullify Sub (1)(a) of the Convention—the primary and universally accepted basis for the Convention’s applicability. (As we have seen at §47 supra, Article 95 authorizes a reservation excluding applicability under Sub (1)(b); some States have exercised this option.)

If rules of private international law alone will not undermine applicability based on Sub (1)(a), it appears that the only basis for excluding the Convention in the above example is an agreement by the parties under Article 6. The legislative history of Article 6 outlined above (§76 at n.3) shows that although an agreement to exclude the Convention need not be "express" the agreement may only be implied from facts pointing to real —as opposed to theoretical or fictitious—agreement.[6]

This view is supported by the 1986 Hague Convention on the Law Applicable to Contracts for the International Sale of Goods. This Convention gives unqualified effect to an express agreement choosing applicable law, but is more cautious about implied agreements. Article 7 provides:

"(1) A contract of sale is governed by the law chosen by the parties. The parties’ agreement on this choice must be express or be clearly demonstrated by the terms of the contract and the conduct of the parties, viewed in their entirety...."[7]

Similar requirements are set forth in the EEC Convention on the Law Applicable to Contractual Obligations (Rome, 19 June 1980). Article 3 provides:

"(1) The contract shall be governed by the law chosen by the parties. The choice must be expressed or demonstrated with reasonable certainty by the terms of the contract or the circumstances of the case."

It is not feasible to comment on the significance of the various facts that adequately evidence an implied agreement to exclude the Convention, except to suggest doubt about the significance of an agreement on the venue for arbitration. In an international transaction a single arbitrator or the chairman of a panel of three is likely to be selected from a "neutral" State having no connection with the transaction. The choice of the place where the arbitrators meet is likely to reflect practical considerations with respect to transport, meeting and translation facilities rather [page 80] than a choice of applicable law. See the UNCITRAL Arbitration Rules (1976), Art. 16 (place of arbitration) and Art. 33 (applicable law).[8]

In sum: When the places of business of the seller and buyer are in different Contracting States, the applicability of the Convention mandated by Article 1(1)(a) is not undercut when rules of private international law point to a non-Contracting State. The Convention may be excluded by the parties, but only by an express agreement or an agreement that is clearly implied in fact.

§ 77.1 (4) Ambiguous Contracts

Courts in several countries have faced this situation: The contract includes language to the following effect: "This contract is to be governed by the law of (e.g.) State X.". If State X has adhered to the Convention, this question arises: Did the parties intend to invoke CISG, or the internal, domestic law of State X?

A majority of tribunals have concluded that the parties intended to invoke CISG: E.g., ARB, ICC Paris, 6653/1993 (German B and Syrian S; the contract referred to French law); CISG was applied. UNILEX, D. 1993-1; NETH. Arr.-Rechtbank Gravenhage, 94/0670, 7 June 1995 (contract called for Dutch law; CISG was applied). See: Schlechtriem, Com. (1998) 55–56.

A few decisions have held that the parties chose non-CISG internal sales law. In some of these cases the contract included language that, without being explicit, suggested an intent to derogate from CISG. E.g. IT. Arb. Florence, 19 April 1994. "Contract to be governed exclusively by Italian law"; domestic Italian law applied; one dissent. CLOUT 96, UNILEX, D. 1994-9.

See Bonell/Liguori, ULR (1995-1) 155–157 n. 46–57, (1997-2) 392–393 n. 49–54 (citing many cases); Ferrari, 15 JLC 90, n.628 (German cases); Karollus, Cornell (Kluwer 1995) 59 (nuanced approach to parties’ intent); Witz, Premières App’ns (1995) 44, n.87–90 (French).[page 81]

The present writer, although an advocate for CISG, ventures a surmise that the outlook of some decisions reflects patterns developed during the years when ULIS (1964) was in force in some countries of Europe; in other regions caution about the intent of the parties may be advisable. Special caution seems advisable when the parties invoke the law of one region of a contracting State: e.g. an agreement to apply the law of New York. True, the U.S. Constitution provides that a treaty is the "law of the land" in all 50 states. However, a reference to only one of the fifty states may suggest that the parties were not thinking of the Convention.

§78 B. Agreements to Apply the Convention; Effectiveness

Article 6 refers only to exclusion or modification of the Convention; there is no provision that addresses the question whether the parties may make the Convention applicable to transactions that fall outside the scope of Articles 1–5. This question may arise in at least three types of situations:

(a) The contract relates to a type of transaction or a type of commodity that is excluded by Article 2, 3 or 5.

(b) The place of business of the seller and buyer are not "in different States" as required by Article 1(1).

(c) The transaction does not bear a relationship to a Contracting State that is consistent with Article 1(1)(a) or (b).

§79 (1) Legislative History

ULIS gave sweeping approval to agreements extending the applicability of the 1964 Sales Convention. Article 4 of ULIS provided:

"The present law shall also apply where it has been chosen as the law of the contract by the parties, whether or not their places of business or their habitual residences are in different States and whether or not such States are Parties to the Convention dated the 1st day of July 1964 relating to a Uniform Law on the International Sale of Goods, to the extent that it does not affect the application of any mandatory provisions of law which would have been applicable if the parties had not chosen the Uniform Law."

The 1980 Convention has no comparable provision. Does this mean that UNCITRAL decided that the sales contract could not invoke the Convention? The answer can be found in a brief review of the legislative history.[page 82]

In 1970, UNCITRAL’s Working Group on Sales deleted Article 4 of ULIS and added the following provision to Article 1: "2. The present Law shall also apply where it has been chosen as the law of the contract by the parties." The Working Group noted that ULIS, in authorizing the parties to apply the Convention (Art. 4, just quoted), added that this agreement would not affect the application of any "mandatory" provision. The Working Group recognized that some such exception was necessary but noted that the term "mandatory" was subject to varying interpretations, some of which embraced a large portion of domestic law. A final decision was deferred until further consideration could be given to this question.[9]

The Commission, in reviewing the Working Group draft, deleted the above provision that gave unqualified effect to the agreement because of concern lest contracts might apply the Convention to consumer transactions and thereby nullify domestic regulations designed to protect such purchasers. It was then proposed to return to Article 4 of ULIS, but limited to contracts between parties in different States when one of those States is a Contracting State. This proposal was rejected on the ground that it would unduly restrict parties who wished to apply the Convention. Article 4, as it stood in ULIS, was also rejected because (as the Working Group had concluded) the term "mandatory" was too vague. The upshot was a decision to omit any provision on the effect of agreements extending the applicability of the Convention. This decision by UNCITRAL’s Committee of the Whole was summarized as follows:

"The Committee concludes that Article 4 raises many difficult questions of interpretation which even protracted discussions have failed to solve. Because of this, and in view of the fact that a provision on the lines of Article 4 is not strictly necessary to achieve the purpose for which it was drafted, the Committee recommends to the Commission that the article should be deleted."[10]

§80 (a) Significance of the Legislative History

The above legislative history shows that UNCITRAL’S deletion of Article 4 of ULIS was not designed to nullify agreements extending the applicability of the Convention. The actions and discussion in UNCITRAL were based on the premise that, in most situations, agreements to [page 83] apply the Convention would be effective. A provision regulating the effect of agreements to apply the Convention was not included because of the drafting problem posed by divergent domestic approaches to what rules were "mandatory". In short, courts facing this issue will not be subject to a binding rule of the Convention. Instead, the point of reference will be domestic rules on the contractual freedom of the parties, derived from domestic law and applicable international conventions.[11]

International consensus favoring party autonomy is evidenced by the 1986 Hague Convention on the Law Applicable to Contracts for the International Sale of Goods. This Convention, finalized by over fifty States, many of them members of UNCITRAL, provides in Article 7(1): "A contract of sale is governed by the law chosen by the parties." The Explanatory Report authorized by the Conference states (para. 4): "No delegation objected to this general proposition." See also, id., para. 102.[12]

Since domestic rules vary on the basic issue of the freedom of the parties to choose applicable law, it would be presumptuous to suggest final solutions to problems in this area. The most that is feasible here is to suggest aspects of the Convention that may be relevant in applying these rules of domestic law. The problem can arise in different settings; the following observations will be related to the three types of situations mentioned at §78, supra.

§81 (2) Agreement to Apply the Convention in Various Settings

(a) Transactions or Issues Specifically Excluded by the Convention

The exclusions specified in Article 2(a) (consumer purchases) and Article 5 (death or personal injury) resulted from concern over the relationship between some of the provisions of the Convention and protective rules (often of a mandatory character) of domestic law. As we have seen, the Convention does not govern the effect of contracts extending its scope. Consequently, the applicability of the Convention depends entirely on the contract; the Convention’s rules would have no greater effect on protective rules of domestic law than would a contract aimed directly at those rules. If the protective rules of domestic law constitute a thorough and unified regulation the Convention might well distort [page 84] the legislative pattern; on this assumption the tribunal should not apply the Convention. On the other hand, where the protective rule can readily be separated from the provisions of the Convention it may be feasible to give effect to the agreement calling for the application of the Convention.

The sales mentioned in Article 2(d), (e) and (f) (investment securities; ships; electricity) and in Article 3 (materials supplied by buyer; service contracts) were excluded because of doubts as to the appropriateness of the Convention for these specialized transactions. The parties, however, would be competent to decide this question; there seems little reason to deny them freedom to choose.

§82 (b) Parties Located in Same State

The discussions in UNCITRAL recognized that a sales transaction could have significant international dimensions and still not meet the Convention’s strict test of internationality. For example, a contract between a seller and a buyer whose places of business are in the same State may require the seller to procure the goods by an international transaction or the buyer may contemplate reselling the goods in an international transaction; unity with respect to obligations in such "chain" transactions may be important for all parties. Early ULIS drafts that embraced such "chain" transactions were abandoned because it was impossible clearly to define this extended area. No problem of clarity arises when the parties have agreed to apply the Convention to their contract.[13]

§83 (c) International Transactions That Lack the Prescribed Contact With a Contracting State

The Convention’s rules on the relationship between the transaction and a Contracting State (Art. 1(1)(a) and (b)) are strict—particularly for States that make a declaration under Article 95 rejecting sub-paragraph (1)(b). (See the Commentary to Art. 1.) As we have seen, the Hague Sales Conventions of 1964 applied to international transactions even though the parties and the transaction had no contact with a Contracting State—an approach that was subject to objection on the ground that the Contracting States were forcing their law on parties in other States. This objection does not apply when the parties to an international sale elect to be bound by the Convention. The relevant issues may be illustrated by the following case: [page 85]

Example 6B. A sales contract between Seller (whose place of business is in State A) and Buyer (whose place of business is in State B) provided that the Convention would apply to the contract. Neither State A nor State B is a Contracting State. The Convention has gone into force.

This agreement would present no difficulty in legal systems that give full effect to the parties’ choice of law. What should be the fate of the agreement in States that require a "reasonable relationship" between the transaction and the legal system chosen by the parties?

The above example is, to say the least, quite different from classroom examples of agreements that seek to invoke the law of a single, remote State. In Example 6B, the parties have referred to a set of rules approved, without dissent, by an international legislative body representing each region of the world; moreover, these rules were approved, again without dissent, by a diplomatic conference attended by all significant trading nations and are now in force in each continent and region of the world. The rules are readily available in the six official languages of the United Nations and are the subject of substantial international commentary. The burden on the tribunal that would result from applicability of the Convention would be much less than that involved in most cases where rules of private international law call for the application of foreign domestic law. In addition, international sales have special needs for uniform law that emphasize the need for effective party autonomy when they agree on the applicability of a uniform international rule.[14]

Suppose that a contract in an international sale provides: "This contract shall be governed by the 1980 Convention on Contracts for the International Sale of Goods." One writer suggests that this contract provision may not be effective since it does not invoke the law of the Convention as adopted by a specified State: the rule favoring party autonomy assumes that the law chosen is "that of a particular State".[15]

The reasons for this conclusion are not entirely clear. Invoking the Convention law of a designated State could avoid ambiguity over whether the parties intended to have the benefit of a reservation that a few of the Contracting States have made. In the unlikely event that the applicability of a reservation becomes relevant the problem can be solved by deciding whether conflicts (PIL) rules applicable to the transaction invoke the law of a State that has made the reservation. (Tribunals are [page 86] accustomed to resolving contract ambiguities more serious than this.) In other cases, when the parties make a general reference to the provisions of the Convention it seems reasonable to conclude that they desire the full application of the Convention. In short, there seems no adequate reason to frustrate the parties’ wish to have their contract governed by a uniform law for international sales approved and implemented by countries in each region of the world.

§ 84 (d) "Mandatory" Rules

Rules of domestic law that are "mandatory" are not disturbed when the Convention becomes applicable by virtue of an agreement by the parties. When the Convention is applicable by the action of Contracting States, the terms of the Convention control the extent to which the Convention displaces domestic law; questions may arise as to whether the Convention addresses and displaces a rule of domestic law that in some States would be classified as "mandatory" (See supra at §79.) These questions cannot arise when the applicability of the Convention is based solely on the parties’ contract unsupported buy the action of Contracting States; in such cases the legal situation might be analogized to an agreement incorporating a standard contract whose terms duplicate the provisions of the Convention.[page 87]


FOOTNOTES: Chapter on Article 6

1. This article is the same as Art. 5 of the 1978 Draft Convention. Cf. ULIS 3 (reference only to exclusion of the Convention), ULF 2.

2. The UNIDROIT Draft submitted to the 1964 Hague Conference provided (§6): "The parties may entirely exclude the application of the present law provided that they indicate the municipal law to be applied to their contract." II Records, Hague Sales Conference 213. Rep. S-G.  "Analysis of Governmental Comments on ULIS" paras. 68–69, I Yearbook 168.

3. W/G 2 paras. 43–46, II Yearbook 55; UNCITRAL X Annex I, paras. 56–58, VIII Yearbook 29. At the diplomatic conference: Com. I Art. 5 para. 3(1), (v)-(vii); SR. 3, paras. 35–65; SR. 4, paras. 1–95 p. 106 n. 3; Docy Hist., 61, 657–658, 469–475 (O. R. 248–252). Accord: Schlechtriem, Com. (1998) 54–57.

4. Cf. Hellner, Prospects for the Unification of Sales Law at the Regional or International level: A Scandinavian View, 15 McGill L. J. 83, 92–93 (1969) p. 4; Honnold, Uniform Law and Uniform Trade Terms—Two Approaches to a Common Goal, Trans-National Law: Bielefeld Colloq. 161, 171.

5. Apart from the general unclarity and diversity of conflicts rules in various States, doubt about the above assumption that such rules point to State C is accentuated by the specialized Hague Conventions of 1955 and 1986 on the law applicable to international sales. Both Conventions in most situations designate the law of the place of business of the seller or buyer. See, e.g., the 1986 Hague PIL Convention Art. 8–1 and 8–2. But cf Arts. 8–3, 5 and 21–1(b). In Example 6A either designation would invoke the Convention rather than the domestic law of State C.

6. Goldstajn, Dubrovnik Lectures 95 at n. 97.

7. The conflicting views reconciled in Article 7 are reviewed in the Explanatory Report by Professor Arthur von Mehren, Hague Conference on Private International Law (May 1987), pp. 25–27 paras., 45–49.

8. See also Lebedev, The 1977 Optional Clause for Soviet-American Contracts, 27 Am. J. Comp. L. 469 (1979): Arbitrations are to be held in Sweden, with administrative and other services provided by the Stockholm Chamber of Commerce. Where the arbitration clause and the UNCITRAL Rules do not settle matters as to the conduct of the arbitration, Swedish rules may fill gaps with respect to the conduct of the arbitration —as distinguished from the governing substantive law.

9. W/G2 paras. 36–42, 47–49, II Yearbook 54–55, Docy. Hist. 60–61. The above-quoted provision was carried forward in subsequent drafts. W/G 6 para. 16 and Annex I, VI Yearbook 50, Docy. Hist. 241.

10. UNCITRAL X (1977) Annex I, paras. 44–52, VIII Yearbook 28; Docy Hist. 321.

11. Restatement Second, Conflict of Laws §187. Cf. Convention on the Law Applicable to the International Sale of Goods (The Hague, 1955) Arts. 2(1), 6; I Register 5. See also, Schlechtriem, 1986 Commentary 36.

12. von Mehren, Explanatory Report, supra n. 7. See also: Pilichet, 1986 PIL Convention, 105–128. Cf. Cheshire & North, Private International Law 450–457 (11th ed. 1987).

13. The ambiguity of these early drafts is discussed in Honnold, A Uniform Law for International Sales, 107 U. Pa. L. Rev. 299, 309–310 (1959).

14. McLachlan. The New Hague Sales Convention and the Limits on the Choice of Law Process, 102 L Q. Rev. 591 (1986). See id. at 592–593 for examples of conflict rules that have responded to special international circumstances. See also Brand, Pittsburgh Symposium (1988) 167–170 and 146–166 (choice of forum; importance).

15. See Schlechtriem, Com. (1998) 58.


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