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A Study of the Interplay between the Conventions Governing International Contracts of Sale

Analysis of the 1955 Hague Convention on the Law Applicable to Contracts of International Sales of Movable Goods; the 1980 Rome Convention on the Law Applicable to Contractual Obligations; and the 1980 United Nations Convention on Contracts for the International Sale of Goods

Carolina Saf
Queen Mary and Westfield College
September 1999


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5. Determining the Applicable Law

5.1 The Principle of Party Autonomy As the Choice-of-Laws Rule in Contract

"Indeed, party autonomy in the selection of the applicable law appears to be among the "general principles of law recognised by civilised nations" within the meaning of Article 38 of the Statute of the International Court of Justice."[245]

Today, as the quotation evidences, the recognition of the principle of party autonomy is fully accepted. The Report explains that the rule of party autonomy "is a rule currently embodied in the private international law of all the Member States of the Community and of most other countries."[246] The reason for this is that the principle is considered the best choice of laws rule for the commercial convenience of world trade and for the protection of the parties' interest in legal predictability.

The principle operates in the following way:[247] the choice of law - expressed or implied - by the parties of a contract is a matter of fact, and not one of law. It is to be treated as a connecting factor, the exclusive connecting factor in fact, referring all contractual questions to that particular law - the law chosen by the parties. In this function it plays the same role as any connecting factor, i.e. domicile, nationality, place of performance, currency etc., with the difference, however, that it cannot be deduced from objective elements, but from an examination of the parties' intention at the time of the conclusion of the agreement. This leads us to the following conclusions:

(i) The function of the parties' intention is just a matter of fact, which, by the choice-of-laws rule, is to be considered the connecting factor to the chosen law, and it is not a right defined and conferred upon the parties by a rule of law. That is to say, the parties do not possess an autonomous legislative ability, they are simply permitted to make a choice of law. Hence, it is really incorrect to use the expression party "autonomy" when referring to the intention of the parties as a connecting factor.

(ii) Whether the parties' intention is a connecting factor depends strictly on the conflict of laws rules of the lex fori.

(iii) The function of the parties' intention as a connecting factor and its effects will be the same as of any other connecting factor, and consequently, limitations such as ordre public or a combination with other objective connecting factors are possible and as such defined by the lex fori. An example of the latter limitation is the Polish Conflict of Laws in Contract Act of 1926, where the parties' intention was given effect only if it concurred with at least one objective connecting factor recognised by the Act.

Naturally, this freedom of contract cannot be unlimited. A choice of law clause must at least be legal and not contrary to ordre public of the lex fori in order to be upheld, and in some legal systems it may even be subject to other additional restrictions and limitations.[248] Ordre public has been discussed supra section 4.4 and the question of whether a choice of law is validly concluded will be discussed in Chapter 6. This Chapter is concerned with the legal requisites which constitute a choice of law, or, in the absence of a choice, identify the applicable law objectively.

5.2 Freedom of Choice

5.2.1 The Hague Convention

Article 2 (paragraphs 1 and 2)

La vente est régie par la loi interne du pays désigné par les parties contractantes.

Cette désignation doit faire l'objet d'une clause expresse, ou résulter indubitablement des dispositions du contrat.

The principle of party autonomy is fully recognised under the Convention. Accordingly, the parties' choice of a law considerably divergent from the objective governing law, or a law without any connection whatsoever to the parties or the contract other than their choice of law, will be upheld as long as it is not contrary to ordre public. The choice is not restricted to the law of a Contracting State, since the Convention has universal application.[249] However, since the provision refers to `la loi interne du pays´, a direct choice of an anational law such as the Vienna Convention; international law; general principles of law; or any species of lex mercatoria would not be upheld under the Convention.

A different matter, in the context of conflict of laws, is that these sources of law may still be applied indirectly, either as part of the governing law or by way of incorporation by reference, i.e. as actual terms of the contract. In other words, whether they are applicable in principle and whether they are applicable in a particular case, depend entirely on the internal rules of private international law of the governing law, which, as was explained above[250], do not form part of the international conflict rules of the governing law. For instance, where the Vienna Convention forms part of the governing national substantive law as a set of special rules for international sales, it will be applied indirectly by virtue of Article 1(1)(b), being an internal rule of private international law of the governing law.[251]

That is to say, if, by virtue of the uniform conflict rules, Swedish law is identified as the applicable law, the rules of the Vienna Convention will be applied to the contract as part of that law, provided the contract falls within its scope. An example of a specie of lex mercatoria, which may be applied indirectly through the governing law is usage of trade under Article 9 of the Vienna Convention. Where these anational laws are made to apply by way of incorporation by reference, whether they are applicable will depend entirely on the contents of the substantive law, i.e. whether there are any mandatory rules governing the matter.[252]

Apart from the special rule in Article 4, only one law can be identified as the applicable law, i.e. depeçage is not allowed. However, the parties may replace the non-mandatory rules of the applicable law by the law of another country, or even countries, by way of incorporation either by reference or as terms of the contract.[253]

According to paragraph 2, a choice of law can be either express or `unambigously result from the provisions of the contract´. This would mean that a fictitious agreement based on the parties' hypothetical intention will not suffice, though it is not necessary to make an express choice of law clause. The reason for introducing a qualified implied choice of law was to prevent more or less unpredictable interpretations by the courts of the parties' intention as to the choice of law.[254]

In order for a choice of law to unambigously result from the provisions of the contract, it must appear from the contents of the contract that the parties have anticipated the problem; reached consensus in regard of a certain law; and made their choice of law appear from the contract, e.g. by their choice of language, legal terms, standard agreements or a choice of court clause.[255] There is no requirement as to form within the Convention, so any agreed provisions not in writing may also be considered. However, this will ultimately depend on the forum, since questions of evidence and other procedural matters are governed by the lex fori.[256]

According to Philip, the crucial time for making a choice of law is before or at the conclusion of the contract of sale of tangibles. Possibly even as late as before any of the parties has started to fulfil her contractual obligations. After this point, however, the applicable law will be determined under Article 3. Should the parties wish to vary the governing law of the contract, they may only do so as an incorporation of the law in question and provided that the rules of procedure of the lex fori will allow it.[257] Naturally, the parties could always achieve the same result by making a new contract with identical terms but for a new choice of law.

5.2.2 The Rome Convention

Article 3 - Freedom of choice

1. A contract shall be governed by the law chosen by the parties. The choice must be express or demonstrated with reasonable certainty by the terms of the contract or the circumstances of the case. By their choice the parties can select the law applicable to the whole or a part only of the contract.

2. The parties may at any time agree to subject the contract to a law other than that which previously governed it, whether as a result of an earlier choice under this Article or of other provisions of this Convention. Any variation by the parties of the law to be applied made after the conclusion of the contract shall not prejudice its formal validity under Article 9 or adversly affect the rights of third parties.

3. The fact that the parties have chosen a foreign law, whether or not accompanied by the choice of a foreign tribunal, shall not, where all the other elements relevant to the situation at the time of the choice are connected with one country only, prejudice the application of rules of the law of that country which cannot be derogated from by contract, hereinafter called "mandatory rules".

4. The existence and validity of the consent of the parties as to the choice of the applicable law shall be determined in accordance with the provisions of Articles 8, 9 and 11.

The Report states that the conflict rule in Article 3, i.e. the principle of party autonomy, is a simple reaffirmation of a principle currently embraced in the private international law of most countries.[258] Under the Convention the parties choice of law cannot be set aside simply as arbitrary or because its objective is to circumvent the law otherwise applicable. The mandatory rules of this law may survive [259] but they will not frustrate the choice of law. It is conclusive. The effect of this is that at times two sets of mandatory rules will govern the contract.[260]

In order for the parties' choice to be upheld it must be either express or `demonstrated by reasonable certainty by the terms of the contract or the circumstances of the case´. The latter requisite may be fulfilled by their choice of a particular standard form of contract; the fact that they in their previous dealings have chosen a certain governing law; a reference to legal terms of a specific country; their correspondence preceding the agreement; and in some cases, together with other factors, a choice of court.[261]

It must be emphasised that the Article does not permit an inferred choice of law in situations where the parties had no clear intention of making a choice, i.e. the principle of the hypothetical intention of the parties. Instead, it must be demonstrated, with reasonable certainty, that the parties have made such a real choice.[262]

The rules of evidence may affect the showing of `reasonable certainty´. For instance, by English law subsequent conduct by the parties is not allowed, but other legal systems may permit it. However, since the issue arguably is one of interpretation of the contract, it should be governed by the applicable law under Article 14.[263]

The parties' choice may relate to the whole of the contract or to a part thereof, i.e. depeçage is allowed. In the latter case, if only one law is chosen, the applicable law to the remainder of the contract will be determined objectively by the rules in Article 4. The partial choice of law may then be one of the circumstances to which regard will be had, but it cannot be the exclusive one, since the parties may only have reached consensus regarding the governing law on this particular point.

However, depeçage has a more limited function compared with the other conflict rules in the Convention. The main rule is that one law governs the contract, so the rule of depeçage should be applied only when justified. The contract in question must in reality consist of several contracts or at least be separable into independent legal and economic parts. The choice of law must also be logically consistent, i.e. it must relate to elements in the contract which can be governed by different laws without giving rise to contradictions.[264]

Under paragraph 2 the parties are free to vary the law governing the contract. This promotes commercial convenience, since the parties always could achieve the same results by a new contract. The law which will govern the validity of the variation is the subsequent applicable law, i.e. the rule in Article 8. The variation of the applicable law will affect the mutual rights and obligations of the parties under the contract, but it will affect neither the formal validity of the contract nor any rights of third parties. Whether a contract which is invalid prior to the variation of the proper law will be validated by it, is not quite clear, though it is likely.[265]

Paragraph 3 concerns the situation in which the contract, but for the parties' choice of law is connected to one country only. That is to say, there are not enough connections to different legal systems for the purpose of Article 1(1). However, the parties' choice will nevertheless be upheld, though restricted, since it will not prejudice the application of the mandatory rules of the otherwise applicable law. Consequently, two sets of mandatory rules will be applied in their strict domestic sense,[266] i.e. the conflict rule is cumulative.[267] Whether the court in this situation always should apply the stricter rules of the two laws or it is allowed a certain amount of discretion is not clear.[268] The purpose of the provision is to prevent circumvention of mandatory rules in a wholly domestic situation.

It is clear from the above stated that it is important to establish whether the parties really meant to make a choice of law or simply to create contractual terms by way of incorporation by reference to the foreign law and its rules. The latter intention will not subject the contract to the cumulative application of the respective mandatory rules, since such a domestic contract will not fall under Article 3(3).

5.2.3 Conclusion

Both the Hague and Rome Conventions recognise the principle of party autonomy, though not to the same extent. The principles of depeçage and variation of the applicable law of the contract will not be upheld under the Hague Convention, apart from Article 4, despite the fact that these principles are the logical extensions of the principle of party autonomy.[269] This makes it clear that the Hague Convention, which will prevail by virtue of Article 21 of the Rome Convention, may not always lead to a satisfactory result. A combined application of Plender's "evasive interpretation"[270] and the principle of lex specialis could be used to solve this problem. However, reaching a decision upon which Convention should prevail may not be easy: on the one hand, rules governing contracts for the sale of tangible goods are more specialised than those concerning contracts in general, which would mean that the Hague Convention should prevail. On the other hand, the rules of depeçage and variation of the applicable law are more specialised features of the principle of party autonomy, which in turn would lead to the application of the Rome Convention.

Provided that a rule-by-rule approach is accepted, the latter suggestion should be the appropriate one, especially when considering that the rule of depeçage under the Rome Convention will only be applied in exceptional cases and that the parties to a contract always could achieve the same results as under the rule of variation of the applicable law by a new contract. Thus the rules of the Rome Convention should prevail regarding these issues.

Neither of the Conventions recognises the principle of the hypothetical party intention. Instead, in order to be upheld, an implied choice must under the Hague Convention be unambiguous and under the Rome Convention reasonably certain. This would mean that there is a difference between the two.[271] That is to say, where the implied choice is reasonably certain but not unambiguous, it will be upheld under the Rome Convention but under the Hague Convention the applicable law will be determined by the default rules. Whether this difference actually will appear in practice remains to be seen.

The Conventions also have different approaches in regard of contracts connected to only one country but for the parties' choice of law. The Rome Convention contains a specific rule for this situation in Article 3(3), unlike the Hague Convention which under Article 1(4) excludes these contracts from its scope of application, since they have not an international character. Consequently, this issue will fall solely under the Rome Convention.

The conflict rules of each Convention will only identify the law of a country as the applicable law. That is to say, a direct choice of an anational law such as the Vienna Convention; international law; general principles of law; or any species of lex mercatoria would not be upheld under the Convention.

A different matter, in the context of conflict of laws, is that these sources of law may still be applied indirectly, either as part of the governing law or by way of incorporation by reference, i.e. as actual terms of the contract. In other words, whether they are applicable in principle and whether they are applicable in a particular case, depend entirely on the internal rules of private international law of the governing law, which, as was explained above[272], do not form part of the international conflict rules of the governing law. For instance, where the Vienna Convention forms part of the governing national substantive law as a set of special rules for international sales, it will be applied indirectly by virtue of Article 1(1)(b), being an internal rule of private international law of the governing law.[273]

That is to say, if, by virtue of the uniform conflict rules, Swedish law is identified as the applicable law, the rules of the Vienna Convention will be applied to the contract as part of that law, provided the contract falls within its scope. An example of a specie of lex mercatoria, which may be applied indirectly through the governing law is usage of trade under Article 9 of the Vienna Convention. Where these anational laws are made to apply by way of incorporation by reference, whether they are applicable will depend entirely on the contents of the substantive law, i.e. whether there are any mandatory rules governing the matter.[274]

5.3 Absence of Choice

5.3.1 The Hague Convention

Article 3

A défaut de loi déclarée applicable par les parties, dans les conditions prévues à l'article précédent, la vente est régie par la loi interne du pays où le vendeur a sa résidence habituelle au moment où il recoit la commande. Si la commande est recue par un établissement du vendeur, la vente est régie par la loi interne du pays où est situé cet établissement.

Toutefois, la vente est régie par la loi interne du pays où l'acheteur a sa résidence habituelle, ou dans lequel il possède l'établissement qui a passé la commande, si c'est dans ce pays que la commande a été recue, soit par le vendeur, soit par son représentant, agent ou commis-voyageur.

S'il s'agit d'un marché de bourse ou d'une vente aux enchères, la vente est régie par la loi interne du pays où se trouve la bourse ou dans lequel sont effectuées les enchères.

Where the parties have not agreed on a choice of law the court will have to identify the applicable law objectively. Since there are serious doubts as to the exact "location" of the conclusion of a contract, unless it is concluded inter praesentes, the Convention is aimed at identifying the law, the application of which is the most natural in considering the type of contract, i.e. sales of tangible goods.[275]

The main rule in Article 3 is that the law of the country where the seller has her business establishment or habitual residence at the time of receipt of the buyer's order will govern the contract of sale. `Business establishment´ refers to a permanent and stable business organisation owned by the seller. Thus an agency should be not enough in this respect [276] and certainly not an international fair or a hotel. Should the seller have more than one business establishment in different countries, the business establishment receiving the order is the relevant one. The relevant point in time is the actual receipt of the buyer's order, so a later change of the seller's location will not affect the identity of the applicable law.[277] This would also mean that a change of the seller's location between the buyer's dispatch of the order and its actual receipt is relevant. Both offer and acceptance are within the concept of `order´, but not a salesman's invitation to treat.[278]

Paragraph 2 contains an exception for the situations in which the seller or any representative of hers receives the buyer's order in the latter's country: the contract of sale will then be governed by that law instead. Consequently, the provision will not apply where the seller receives the order in a "third country", i.e. to which neither she nor the buyer belongs. Here too, the relevant time is the actual receipt of the buyer's order. Since the provision refers to the seller's `représentant, agent ou commis-voyageur´, authorisation simply to receive the buyer's order will be enough to make the rule of exception applicable. In the situation of all negotiations and other prepatory work taking place in the buyer's country, but the actual order is sent directly to the seller's country, the main rule in paragraph 1 will apply, i.e. the "seller's law" is applicable.[279]

The combined effect of these two rules has been criticised for at times producing random and inappropriate results:[280]

(i) Suppose that a salesman sent by a Swedish company, authorised to receive orders, visits and starts negotiations with a company in London. A few days later, the English company sends a definite order to the salesman's London hotel. Should the salesman receive the letter at his hotel, English law will be applied. However, should he travel to France while waiting for the order and the letter of order is sent forward to him in France, Swedish law will be applied by virtue of Article 3(1).

(ii) Or suppose that the salesman did receive the letter at his London hotel, but that the order later, by exchange of letters between Sweden and England was extended in regard of the quantity ordered. The original contract is governed by English law, but the extension contract is governed by Swedish law. If a part of the delivery is defective, which law should be applied? Perhaps the extension contract could be regarded as an alteration of the original contract and not an additional one; if so, the re-order would also, in principle, be governed by English law.

(iii) A Swedish company has received an order to build a hotel in England. Some of the material for the construction, e.g. the tiles for the bathrooms, are delivered by a local English sub-contractor. Suppose this contract of supply has been entered into in Sweden. According to Article 3(2), Swedish law will be the governing law, although the contract regards a delivery by an English company within England.

Paragraph 3 contains a special rule for sales at auctions and the stock exchange. These sales will be governed by the law of the country where the auction or stock exchange is situated, i.e. the lex loci contractus, unless the parties have chosen another law.[281] Since the Convention is not concerned with negotiable instruments and documents, the provision only refers to auctions and stock exchanges dealing with tangible goods. International fairs are not within the provision.[282]

Article 4

A moins de clause expresse contraire, la loi interne du pays où doit avoir lieu l'examen des objets mobiliers corporels délivrés en vertu de la vente est applicable, en ce qui concerne la forme et les délais dans lesquels doivent avoir lieu l'examen et les notifications relatives à l'examen, ainsi que les mesures à prendre en cas de refus des objets.

According to Article 4 the lex loci actus will govern the procedure of delivery of the goods, unless otherwise agreed. Not all issues of delivery are included, only those which concern the the manner of delivery, time limits, notifications in regard of the delivery and the procedures to be taken in case of rejection, i.e. those of procedural character. The substantive aspects of delivery, such as whether to perform an inspection of the goods and if so to what extent, whether to reject the goods, the consequences of a failing or late rejection, etc., is governed by the applicable law in general. This separation is justified since local requirements as to form will apply to the procedure of delivery anyway and the participation of local national authorities or other more or less official organs normally is required.[283]

Should the parties wish the lex loci actus not to apply to the procedure of delivery, they must make an express choice of another law. Their choice of law in this respect is not limited to the lex contractus, thus depeçage is allowed within this context.[284]

The relevant place of delivery in regard of the conflict rule is the place where the delivery according to the contract was to take place, not where it actually took place. This is to prevent a party from unilaterally changing the applicable law by relocating the place of delivery. It has been suggested that occasionally it would be appropriate, by means of interpretation of the contract, to consider a relocation of the place of delivery to be within the contractual terms when the relocation is due to an accident or similar circumstances.[285]

5.3.2 The Rome Convention

Article 4 (1) - (2) and (5) - Applicable law in the absence of choice

1. To the extent that the law applicable to the contract has not been chosen in accordance with Article 3, the contract shall be governed by the law of the country with which it is most closely connected. Nevertheless, a severable part of the contract which has a closer connection with another country may by way of exception be governed by the law of that other country.

2. Subject to the provisions of paragraph 5 of this Article, it shall be presumed that the contract is most closely connected with the country where the party who is to effect the performance which is characteristic of the contract has, at the time of conclusion of the contract, his habitual residence, or, in the case of a body corporate or unincorporate, its central administration. However, if the contract is entered into in the course of that party's trade or profession, that country shall be the country in which the principal place of business is situated or, where under the terms of the contract the performance is to be effected through a place of business other than the principal place of business, the country in which that other place of business is situated.

5. Paragraph 2 shall not apply if the characteristic performance cannot be determined, and the presumptions in paragraph 2, 3 and 4 shall be disregarded if it appears from the circumstances as a whole that the contract is more closely connected with another country.

In default of a choice of law by the parties, the contract will be governed by the law of the country with which it has the closest connection. This closest connection refers to a country rather than a legal system. When determining which country the contract is most closely connected with, a court may also take account of subsequent events to the making of the contract.[286] However, since there is no such rule governing the admission or exclusion of post-contractual conduct under this Article the issue would in the end depend on the lex fori as a matter of procedural law.[287]

The principle of depeçage is applicable also in situations of default of choice. The rule will apply where an independent and separable part of the contract, in terms of the contract and not of the dispute, has a closer connection with another country. It may be applied not only in the situation mentioned above where the parties have reached agreement on the applicable law to a part only of their contract and left to the court to determine the law governing its remainder, but also where there is no valid choice of law at all. Naturally, the court should have recourse to severance as seldom as possible.[288] Whether the contract is divisible is a matter of fact and not of law.[289]

Article 4(2) renders greater precision and predictability to the rather vague test of the `closest connection´ in paragraph 1. This is achieved by introducing the concept of the `characteristic performance´ of the contract and the presumption that the governing law of the contract is the law of the country in which the party liable for the characteristic performance has her place of business or habitual residence. Where a party has more than one place of business, the relevant one is the principal place of business, or the place of business through which performance is to be effected under the terms of the contract. In bilateral contracts whereby the parties undertake mutual reciprocal performance, the characteristic performance is usually the one which does not take the form of money. Accordingly, a typology of contracts will be developed based on the characteristic obligation of the different contractual categories. For instance, the characteristic performance of a contract for the sale of goods is that of the vendor. The connecting factor is the place of business etc. of the performing party and the relevant time for its identification is the time of the conclusion of the contract.[290]

The concept of the characteristic performance is already further qualified in paragraphs 3 and 4, which provide additional presumptions for two types of contract, i.e. carriage of goods and immovable property.[291]

The Report emphasises that, by virtue of paragraph 5, the presumptions in all three paragraphs only are rebuttable. Accordingly, where the characteristic performance cannot be deter-mined at all, or where, despite an identified characteristic performance, the contract is more closely connected with another country, the contract will be governed by the law of the country with which it is most closely connected.[292]

5.3.3 Conclusion

The main difference between the default rules of the Hague and Rome Conventions is that those of the former are firm rules and those of the latter are rebuttable presumptions. Another difference between the two Conventions is where the seller has more than one place of business. Under Article 3(1) of the Hague Convention, the place of business receiving the order is the relevant one, whereas under Article 4(2) it is the principle place of business, unless according to the contract performance is to be effected through another place of business, in which case that place of business is the relevant one.

Unquestionably, the characteristic performance of a contract of sale of tangible goods is that of the vendor, so in most cases, the presumption in Article 4(2) of the Rome Convention would coincide with the main rule in Article 3(1) of the Hague Convention, i.e. the same law would be identified as the applicable law under both Conventions.[293]

However, in accordance with Article 21 of the Rome Convention, the governing law is to be determined solely under Article 3(1) of the Hague Convention. The same is true of the relation between the exemption rules in Article 3(2) - (3) of the Hague Convention and that in Article 4(5) of the Rome Convention, i.e. the former will prevail.

The objection raised against the prevailance of the rules of the Hague Conventions in connection with the principle of party autonomy are even more of a concern in regard of the default rules and in particular their exemption rules. Strict rules may improve foreseeability but they will also at times produce inappropriate and even arbitrary results. The examples given above in section 5.3.1 are good illustrations to this problem. That is also why Article 4(2) of the Rome Convention was made a rebuttable presumption, which in turn actually is considered by some Contracting States as too strict a rule.

The question is whether the combined application of Plender's "evasive interpretation" [294] and the principle of lex specialis is capable of providing a more appropriate solution, since unquestionably, Article 3 of the Hague regulates the matter more specifically than Article 4 of the Rome Convention. The fact that the latter approach is both more balanced and in line with common sense and, usually, the expectations of the international commercial trade, does not alter this fact.

Consequently, the only option left under this suggestion, provided a rule-by-rule approach is accepted, is to consider the exemption rule in Article 4(5) of the Rome Convention as more specific than Article 3 of the Hague Convention, exemptions included, as well as Article 4(2) of the Rome Convention. That is to say, the question is whether a rule referring back to the general rule of the most closely connected law, is more specific than other specific rules regulating the matter substantively.

Be that as it may, it is clear that at least in some cases applying Article 4(5) of the Rome Convention in order to "rebut" the application of Article 3 of the Hague Convention would be equally appropriate to its rebutting the presumption in Article 4(2) of the Rome Convention.

However, it is important to remember that the default rule in Article 1(1)(a) of the Vienna Convention will always prevail over the default rules of both the Hague and Rome Conventions, since unilateral conflict rules prevail over universal conflict rules.[295] That is to say, where the parties' relevant places of business are in different Contracting States to the Vienna Convention, the uniform sales law will be identified as the governing law.[296] In such a case, the default rules in the Hague and Rome Conventions will only be applied in the situation referred to in Article 7(2) of the Vienna Convention.[297]

5.4 Application of the Vienna Convention

Article 1

(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.

Due to its specific character as an anational uniform sales law [298], determining whether a particular contract of sale of goods falls within the scope of the Convention and whether its substantive rules apply to the contract, will coincide. Accordingly, the fact that the parties have their relevant places of business in different Contracting States establishes that the Convention rules will govern the contract, subject to the parties' intention under Article 6, and provided that the contract does not fall within its scope, e.g. by virtue of Articles 2, 3, 4 or 5.[299] Where the parties do not have their relevant places of business in different Contracting States, the Convention rules will nevertheless apply where the parties' relevant places of business are in different States and the conflict rules of the lex fori identify the law of a Contracting State as the applicable law (Article 1(1)(b) in conjunction with Article 95). The Convention will not apply in the situation under Article 1(2).

Article 6

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.

Article 6 recognises two basic principles of law: the principle of party autonomy and the principle of freedom of contract, thus the parties may exclude the application of the Convention and derogate from or vary the effect of any of its provisions, respectively. However, Article 6 only contains the negative aspects of the principle of party autonomy, i.e. that `the parties may only exclude the application of this Convention.´ It is not concerned with its positive aspects, i.e. whether the parties' choice of law will be upheld. This is a matter strictly for the [universal] conflict rules of the lex fori,[300] which is further emphasised by the fact that the Convention is not concerned with the conflict of laws. In other words, Article 6 expresses the "replaceability" of the uniform sales law in the context of conflict of laws. The purpose of the Article has already been explained.[301]

In order to make an exclusion, derogation or variation of the Convention, it is possible to either make a special agreement before the actual negotiations or to include it in the contract as one of its provisions. The latter would mean that an exclusion, derogation or variation could be made implicitly as well as explicitly. However, according to Article 7, the criteria for interpreting the contract in such a way is to be found within the Convention and not in any national domestic law. Essentially this would mean that the parties' statements and other conduct as regards the issue of exclusion, etc. are to be interpreted within the scope of Article 8.[302] That is to say, in accordance with the party's intention where the other party knew or could not have been unaware what that intent was, or, alternatively, in accordance with the understanding that a reasonable person of the same kind as the other party would have had in the same circumstances.

The indication of an exclusion, etc. has to be clear, such as the choice of a law of a non-Contracting State or that the contract terms are inconsistent with the provisions of the Convention either entirely or partially. Where the law of a Contracting State which has not made a declaration under Article 95 is indicated the situation is slightly different. Since the Convention forms part of the national substantive law of the Contracting States as a set of special rules for international sales, a simple reference to the law of a Contracting State will not suffice to exclude the Convention, not even impliedly. Instead, there must either be an explicit reference to its domestic rules or it must appear from the circumstances, such as the use of a standard contract or a set of general conditions clearly influenced by principles and rules of the domestic law of a particular State, that the parties' intention clearly was to exclude the Convention.[303] For instance, the parties' procedural conduct indicating the choice of the domestic law of a Contracting State is not enough to rebut the presumption of Convention application.[304]

Where the application of the Convention is excluded in its entirety, the contract will be governed by the governing law of the contract as identified by either the parties' choice of law or, in the absence of their [valid] choice, the conflict default rules of the lex fori. That is to say, the parties' choice of law brings the contract outside the Convention, i.e. it is no longer directly applicable under Article 1(1)(a), but only indirectly under Article 1(1)(b). Where the parties have only contracted out of particular provisions of the Convention, the superseding contractual terms will be applied instead. If there are no such terms, the situation, where needed, would be solved as if there were a gap in the Convention from the outset, i.e. under Article 7.[305] In this latter case, where there is no choice of law by the parties, the Convention can be directly applicable under Article 1(1)(a), provided the parties' relevant places of business are in different Contracting States.

5.5 Composite Application of the Three Conventions

The composite application of the three Conventions will lead to the application of the Vienna Convention where:

(i) the parties have their relevant places of business in different Contracting States to the Vienna Convention and they have not excluded their contract from its application either clearly or by a choice of law, the rules of the Vienna Convention are "directly" applicable;[306]

(ii) the parties have chosen the law of a Contracting State to the Vienna Convention as the governing law without disqualifying its application by a clear reference to the domestic rules of that law;[307] and

(iii) in the absence of choice, the law of a Contracting State to the Vienna Convention is identified as the governing law by the conflict rules of the lex fori.[308]

It should be noted that all the situations referred to above presuppose that the internal rules of private international law of the governing law refer the matter to the rules of the Vienna Convention. That is to say, that the Contracting State in question has not taken any reservation against its application in the particular cases. In situation (i) a reservation under Article 94 will render the Vienna Convention inapplicable and in situations (ii) and (iii) so will a reservation under Article 95.[309]

In order to avoid the application of the Vienna Convention, the parties can make a choice of law, expressly or impliedly, of a non-Contracting State; of a Contracting State taken a reservation under Article 95; or make a clear choice of the domestic rules of a Contracting State. Due to the presumption of application of the Vienna Convention contained in its Article 1(1)(b) [310], the parties must make sure to rebut properly. Whether this presumption is as easily rebuttable as the presumption of characteristic performance under the Rome Convention is not quite clear.

Where the parties wish to contract into the regime of the Vienna Convention, there are two separate situations to be considered. First, where the contract falls within the scope of the Vienna Convention, the parties need only to make a choice of the law of a Contracting State. The parties cannot refer the matter directly to the Vienna Convention since the Hague and Rome Conventions will identify only the law of a country as the applicable law.[311] Second, where the contract falls outside its scope, the matter will be solved just like any agreement of incorporation. That is to say, it will depend on the governing law and particularly its mandatory rules, whether the incorporation of the rules of the Vienna Convention as terms of the contract is recognised and upheld.[312]

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FOOTNOTES

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245. Plender, p. 87. See also Nygh, pp. 297 et seq.

246. The Report, p. 15.

247. Gihl, pp. 194 et seq.

248. See for example the U.S. Restatement, Second, Conflict of Laws §§ 187 - 188, (1971).

249. Prop. 1964:149, pp. 19 et seq.; Bogdan, pp. 233 et seq.; and Philip DIPP, pp.330 et seq.

250. Supra, sections 2.1; and 2.3.2. See also Plender, p. 54; and Nygh, pp. 307 et seq.

251. This is yet another aspect of the dual character of the Vienna Convention, see supra, section 2.1. The Vienna Convention is both anational and national in character, since it at the same time is an autonomous body of law and forms part of the national substantive law of its Contracting States.

252. See also supra, sections 2.3.2; 4.2.2; and 4.2.4; and infra, section 5.2.3.

253. Ibid.

254. Prop. 1964:149, p. 17.

255. Philip DIPP, p. 332.

256. Prop. 1964:149, pp. 17 and 20.

257. Philip DIPP, p. 333.

258. The Report, p. 15.

259. Articles 3(3), 5, 6 and 7 of the Rome Convention, infra Appendix IV.

260. Plender, pp. 90 - 91; and Philip EU-IP, pp. 136 - 137.

261. The Report, p. 17; Plender, pp. 92 - 93; and Philip EU-IP, p. 138.

262. The Report, p. 17; and Philip EU-IP, p. 137.

263. Plender, p. 95; and discussed infra, section 7.2.2.

264. The Report, p. 17; Plender, p. 96; and Philip EU-IP, p.138.

265. The Report, p. 18; Plender, pp. 98 - 99; and Philip EU-IP, p. 140. For further discussions see Plender, pp. 97 et seq. and North, Varying the Proper Law in Essays in Private International Law.

266. The different types of mandatory rules will be discussed infra, section 7.2.2.

267. Prop. 1997/98:14, p. 40; and Philip EU-IP, p. 142.

268. Compare Plender, pp. 101 - 102 and Philip EU-IP, pp. 142 - 143.

269. Plender, p. 97.

270. However, this should not be undertaken in relation to States parties to the Hague Convention but not the Rome Convention, supra, section 2.4.4.

271. Philip, EU-IP, p. 137.

272. Supra, sections 2.1; and 2.3.2. See also Plender, p. 54; and Nygh, pp. 307 et seq.

273. This is yet another aspect of the dual character of the Vienna Convention, see supra, section 2.1. The Vienna Convention is both anational and national in character, since it at the same time is an autonomous body of law and forms part of the national substantive law of its Contracting States.

274. See also supra, sections 2.3.2; 4.2.2; 4.2.4; and 5.2.1.

275. Bogdan, p. 234; and Philip DIPP, p. 333.

276. Bogdan, p. 234; and Prop. 1964:149, p. 23.

277. Prop. 1964:149, p. 22; and Philip DIPP, p. 335.

278. Prop. 1964:149, p. 23.

279. Prop. 1964:149, p.23; Bogdan, p.234; and Philip DIPP, p. 335.

280. The following examples are taken from Bogdan, p. 235, f.n. 7. They have been slightly altered ,since the countries originally used in the examples now have become Contracting States to the Vienna Convention.

281. However, in order to make a valid choice of law, i.e. at the latest before any of the parties have begun fulfilling their obligations under the contract, it is quite possible that the auctioneer or the stockbroker must announce the choice of law clause before the actual sale. Consequently, as a matter of commercial convenience, the lex loci contractus will normally govern these sales.

282. Prop. 1964:149, p. 23; and Philip DIPP, p. 335.

283. Prop. 1964:149, p. 25; and Philip DIPP, pp. 336 - 337.

284. Ibid.

285. Prop. 1964:149, p. 25.

286. The Report, p. 20.

287. Plender, pp. 105 - 106.

288. The Report, p. 23 Plender, pp. 106 - 107; and Philip, pp. 148 - 149.

289. Philip, p. 149. For a different point of view, see Plender, p. 107.

290. The Report, pp 20 - 21; Plender, pp. 108 et seq.; and Philip EU-IP, pp. 144 et seq.

291. Appendix III. Since these types of contract are only within the scope of the Rome Convention, they will not be dealt with any further in this paper.

292. The Report, p. 22.

293. Philip EU-IP, p. 148.

294. However, this should not be undertaken in relation to States parties to the Hague Convention but not to the Rome Convention, supra, section 2.4.4.

295. Supra, section 2.1.

296. The effect of the parties' choice of law in relation to the Vienna Convention is discussed supra, section 2.2; and infra, section 5.4.

297. Supra, section 3.1.3.

298. The Vienna Convention is both anational and national in character, since it at the same time is an autonomous body of law and forms part of the national substantive law of its Contracting States, supra, section 2.1.

299. Supra, Chapter 4.

300. Nygh, pp. 302 et seq., in particular pp. 303 - 304.

301. Supra, section 4.3.3.

302. Bonell, in Bianca & Bonell, pp. 54 - 55; and Herber, in Schlechtriem, Art. 6, paras. 12 - 13.

303. Oberlandsgericht Düsseldorf, January 8, 1993, n. 17 U 82/92: Oberlandsgericht Koblenz, September 17, 1993, n. 2 U 1230/91; Oberlandsgericht Köln, February 22, 1994, n. 22 U 202/93; Bonell, in Bianca & Bonell, pp. 56 et seq.; Ferrari, para. VI.2; Winship, p. 538; Herber, in Schlechtriem, Art. 6, paras. 12 et seq.

304. Bernstein, pp. 18 - 19.

305. Bonell, in Bianca & Bonell, pp. 58 et seq.; Ferrari, para. VI.3 - 4; Herber, in Schlechtriem, Art. 6, paras. 9 - 10, 14 and 26. For a different view on whether contracting out is achieved in this situation, see Herber, ibid. para. 14.

306. Articles 1(1)(a) and 6 of the Vienna Convention; and supra, section 5.4.

307. Articles 2(1) - (2); 3(1) - (2); and 1(1)(b) and 6 of the Hague, Rome and Vienna Conventions, respectively.

308. Articles 3 and 4; 4(1) - (2) and (5); and 1(1)(b) of the Hague, Rome and Vienna Conventions, respectively.

309. Supra, section 4.4.3.

310. Unless the law chosen is that of a Contracting State taken a reservation under Article 95 of the Vienna Convention; supra, section 2.2. For a different opinion, see Ferrari, para. VI.2.

311. Discussed supra, sections 4.2.2; 4.2.4; 5.2.1; and 5.2.3.

312. Ferrari, para. VI.5; Winship, p. 539; and Herber, in Schlechtriem, Art.6, para.31.

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Pace Law School Institute of International Commercial Law - Last updated January 18, 2000
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