Rechtswissenschaftliche Fakultät - univie.ac.at · Rechtswissenschaftliche Fakultät Institut für Zivilrecht Wintersemester 2017 KU UN-Kaufrecht –Uniform Sales Law The United

Rechtswissenschaftliche Fakultät

Institut für Zivilrecht

Wintersemester 2017

KU UN-Kaufrecht – Uniform Sales Law

The United Nations Convention on Contracts

for the International Sale of Goods (CISG)

José Angelo Estrella Faria

• Introduction: Characteristics and Structure of International

Sales Transactions

• Part I: Choice of Law and Dispute Settlement in International

Contracts

– Conflicts of law in international contracts

• General principles and traditional rules – EU and UCC default

rules – Choice of Law clauses – Admissibility and Limitations

– International jurisdiction in contract matters

• Choice of court in international contracts – Enforceability of

choice of court agreements – Effects on choice of law

– International Commercial Arbitration

• International framework for commercial arbitration – Practical

use of international arbitration – Extent of party autonomy in

choice of law

The United Nations Convention on Contracts for the

International Sale of Goods (CISG)

• Part II: Overview of Differences in Contract Law

– Negotiation of international contracts

– Conditions for validity and enforcement

• Common Law and Civil Law requirements – Conditions for

substantive validity – Contract form and interpretation

– Contract Formation

• Offer and acceptance – Essential elements – Pre-contractual

Liability

– Performance and breach

• Notion of breach – Termination of contract

– Changed Circumstances

• Supervening events – Excuses for non-performance

– Remedies

• Damages – Contract penalties and liquidated damages –

Specific performance

– Outlook: The CISG as Global Uniform Sales Law

The United Nations Convention on Contracts for the

International Sale of Goods (CISG)

• A bilateral contract supported by various ancillary

transactions

– Sales contract

• Manufactured goods

• Commodities and futures

– Transport and warehousing (for delivery of goods)

• Single mode (sea, air, land) or multimodal

• Liner terms or negotiated contracts

– Credit contract (for payment of price)

• Documentary credit

• Credit transfer

– Insurance (against damage or default)

– Customs clearance

Introduction: Characteristics and Structure of International

Sales Transactions

Contractual architecture of foreign trade

Applicant

Buyer/Importer

Beneficiary

Seller/Exporter

Issuing bankConfirming bank

3. Confirmation

of letter of credit5. Documents

tendered

4. Shipment of goods

1. Credit open to the

seller’s benefit

6. Documents forwarded

9.D

ocu

me

nts

re

lea

se

d

2. Issuance of letter of credit

10. Funds transfer

8.C

red

it pa

ym

en

t

7.P

aym

en

t to s

elle

r

Introduction: Characteristics and Structure of

International Sales Transactions

Blue Sky One Ltd & O’rs v. Mahan Air & Ano’r [2010] EWHC 631 (Comm).

Blue Sky 1,2 &3

Blue Airways

Mahan Air

Aircraft 3

(UK Flag)

PK Airfinance (US)

Aircraft 3

(Armenian Flag)Mortgage

Part I: Choice of Law and Dispute Settlement in International Contracts

• Conflicts of laws in international contracts

– The “proper law” of a contract in common law

• Traditional English law: freedom of choice – “closest

connection”

• US law: choice of “reasonably related” law – “most

significant relationship”

– The “closest connection” test in civil law

• Place of performance (France, Germany)

• Nationality, domicile and place of formation (Italy, Spain)

– Uniform conflicts rules

• EU law: Rome I Regulation

• International conventions: Hague Convention on Law

Applicable to International Sales of Goods, Hague Agency

Convention



– Regulation (EC) No 593/2008 of the European Parliament and of

the Council of 17 June 2008 on the law applicable to contractual

obligations (Rome I)

Article 3 Freedom of choice

1. A contract shall be governed by the law chosen by the parties.

The choice shall be made expressly or clearly demonstrated 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 to part only of the contract.

[…]

3. Where all other elements relevant to the situation at the time of

the choice are located in a country other than the country whose

law has been chosen, the choice of the parties shall not

prejudice the application of provisions of the law of that other

country which cannot be derogated from by agreement.



– Rome I Regulation (continued): Article 4 Applicable law in the

absence of choice is the law of the country:

(a) where the party making the “characteristic performance” has its

habitual residence:

(i) contracts for the sale of goods;

(ii) contracts for the provision of services;

(iii) franchise contracts (franchisee);

(iv) distribution contract (distributor)

(b) where the property is situated (lex rei sitae):

(i) contracts relating to a right in rem in immovable property or

(ii) tenancy of immovable (more than six months, otherwise (a));

(c) where the auction takes place (for the sale of goods by

auction);

(d) that governs a multilateral system for multiple third-party

buying and selling interests in financial instruments, for

contracts concluded within such a system



– Rome I Regulation (continued): Article 5 Contracts of carriage

To the extent that the law applicable to a contract for the carriage

of goods has not been chosen in accordance with Art. 3, the law

applicable shall be the law of the country of habitual residence of

the carrier, provided that the place of receipt or the place of

delivery or the habitual residence of the consignor is also

situated in that country. If those requirements are not met, the

law of the country where the place of delivery as agreed by the

parties is situated shall apply.



– Rome I Regulation (continued): Article 9 Overriding mandatory

provisions

1. Overriding mandatory provisions are provisions the respect for

which is regarded as crucial by a country for safeguarding its public

interests, such as its political, social or economic organisation, to

such an extent that they are applicable to any situation falling within

their scope, irrespective of the law otherwise applicable to the

contract under this Regulation.

2. Nothing in this Regulation shall restrict the application of the

overriding mandatory provisions of the law of the forum.

3. Effect may be given to the overriding mandatory provisions of

the law of the country where the obligations arising out of the

contract have to be or have been performed, in so far as those

overriding mandatory provisions render the performance of the

contract unlawful. In considering whether to give effect to those

provisions, regard shall be had to their nature and purpose and to

the consequences of their application or non-application.



– US Restatement (Second) of Conflict of Laws § 187(2).

(1) The law of the state chosen by the parties to govern their

contractual rights and duties will be applied if the particular issue

is one which the parties could have resolved by an explicit

provision in their agreement directed to that issue.

(2) The law of the state chosen by the parties to govern their

contractual rights and duties will be applied, even if the particular

issue is one which the parties could not have resolved by an

explicit provision in their agreement directed to that issue, unless

either

(a) the chosen state has no substantial relationship to the

parties or the transaction and there is no other reasonable basis

for the parties' choice, or

(b) application of the law of the chosen state would be contrary

to a fundamental policy of a state which has a materially greater

interest than the chosen state in the determination of the particular

issue and which […], would be the state of the applicable law in the

absence of an effective choice of law by the parties.



– US Restatement (Second) of Conflict of Laws § 187(2) (comments)

“When the state of the chosen law has some substantial

relationship to the parties or the contract, the parties will be held to

have had a reasonable basis for their choice. This will be the case,

for example, when this state is that where performance by one of

the parties is to take place or where one of the parties is domiciled

or has his principal place of business. The same will also be the

case when this state is the place of contracting except, perhaps, in

the unusual situation where this place is wholly fortuitous and

bears no real relation either to the contract or to the parties. These

situations are mentioned only for purposes of example. There are

undoubtedly still other situations where the state of the chosen law

will have a sufficiently close relationship to the parties and the

contract to make the parties' choice reasonable.”



– US Restatement (Second) of Conflict of Laws § 188 - Law

Governing in Absence of Effective Choice by the Parties

(1) The rights and duties of the parties with respect to an issue in

contract are determined by the local law of the state which, with

respect to that issue, has the most significant relationship to the

transaction and the parties […]

(2) In the absence of an effective choice of law by the parties (see

s 187), the contacts to be taken into account [..] to determine the

law applicable to an issue include:

(a) the place of contracting,

(b) the place of negotiation of the contract,

(c) the place of performance,

(d) the location of the subject matter of the contract, and

(e) the domicile, residence, nationality, place of incorporation

and place of business of the parties.

These contacts are to be evaluated according to their relative

importance with respect to the particular issue.


• Choice of law in international contracts

HCCH Principles on Choice of Law in International

Commercial Contracts (Introduction)

“Choice of law agreements should also be distinguished from

“jurisdiction clauses” (or agreements), “forum selection clauses”

(or agreements) or “choice of court clauses” (or agreements), all of

which are synonyms for the parties’ agreement on the forum

(usually a court) that will decide their dispute. Choice of law

agreements should also be distinguished from “arbitration clauses”

(or agreements), that denote the parties’ agreement to submit their

dispute to an arbitral tribunal. While these clauses or agreements

(collectively referred to as “dispute resolution agreements”) are

often combined in practice with choice of law agreements, they

serve different purposes.”


• International jurisdiction in contract maters

– Right to choose the competent court

• Traditional principle: court jurisdiction treated as a matter of

public policy

• Modern trend: choice of court as an admissible exercise of

party autonomy in commercial contracts

• Common exceptions: consumer , insurance, employment

contracts

– International jurisdiction without choice of court

• Territorial jurisdiction: place of contract performance,

contract formation or location of property

• Ad personam jurisdiction: nationality, domicile, place of

business, place of incorporation, mere presence


• Choice of court in international contracts

Regulation (EU) No 1215/2012 of the European Parliament and of the Council

of 12 December 2012 on jurisdiction and the recognition and enforcement of

judgments in civil and commercial matters (“Brussels I”)

Article 25

1. If the parties, regardless of their domicile, have agreed that a court

or the courts of a Member State are to have jurisdiction to settle any

disputes which have arisen or which may arise in connection with a

particular legal relationship, that court or those courts shall have

jurisdiction, unless the agreement is null and void as to its

substantive validity under the law of that Member State. Such

jurisdiction shall be exclusive unless the parties have agreed

otherwise.


• Choice of court in international contracts

Regulation (EU) No 1215/2012 of the European Parliament and of the Council

of 12 December 2012 on jurisdiction and the recognition and enforcement of

judgments in civil and commercial matters (“Brussels I”)

Article 25 (continued)

The agreement conferring jurisdiction shall be either:

(a) in writing or evidenced in writing;

(b) in a form which accords with practices which the parties have

established between themselves; or

(c) in international trade or commerce, in a form which accords with

a usage of which the parties are or ought to have been aware and

which in such trade or commerce is widely known to, and regularly

observed by, parties to contracts of the type involved in the

particular trade or commerce concerned.


• Enforceability of choice of court agreements

“When parties have contracted in advance to litigate disputes

in a particular forum, courts should not unnecessarily disrupt

the parties’ settled expectations. A forum election clause,

after all, may have figured centrally in the parties’

negotiations and may have affected how they set monetary

and other contractual terms; it may, in fact, have been a

critical factor in their agreement to do business together in

the first place. In all but the most unusual cases, therefore,

“the interest of justice” is served by holding parties to their

bargain.”

(Atlantic Marine Construction Co. v. United States District Court for the Western District of Texas, US

Supreme Court ,134 S.Ct. 568 (2013))



Hague Convention on Choice of Court Agreements (2005)

Article 5

Jurisdiction of the chosen court

(1) The court or courts of a Contracting State designated in an

exclusive choice of court agreement shall have jurisdiction to decide

a dispute to which the agreement applies, unless the agreement is

null and void under the law of that State.

(2) A court that has jurisdiction under paragraph 1 shall not decline

to exercise jurisdiction on the ground that the dispute should be

decided in a court of another State.

(3) The preceding paragraphs shall not affect rules -

a) on jurisdiction related to subject matter or to the value of the

claim;

b) on the internal allocation of jurisdiction among the courts of a

Contracting State. However, where the chosen court has discretion

as to whether to transfer a case, due consideration should be given

to the choice of the parties.



Hague Convention on Choice of Court Agreements (2005)

Article 6

Obligations of a court not chosen

A court of a Contracting State other than that of the chosen court

shall suspend or dismiss proceedings to which an exclusive choice

of court agreement applies unless -

a) the agreement is null and void under the law of the State of the

chosen court;

b) a party lacked the capacity to conclude the agreement under the

law of the State of the court seised;

c) giving effect to the agreement would lead to a manifest injustice or

would be manifestly contrary to the public policy of the State of the

court seised;

d) for exceptional reasons beyond the control of the parties, the

agreement cannot reasonably be performed; or

e) the chosen court has decided not to hear the case.


• Effects on choice of law

Commission Proposal for Rome I Regulation

“The parties may also choose as the applicable law the principles

and rules of the substantive law of contract recognised

internationally or in the Community. However, questions relating to

matters governed by such principles or rules which are not

expressly settled by them shall be governed by the general

principles underlying them or, failing such principles, in accordance

with the law applicable in the absence of a choice under this

Regulation.”

Rome I Regulation (final text, Preamble)

“This Regulation does not preclude parties from incorporating by

reference into their contract a non-State body of law or an

international convention.”


• International framework for commercial arbitration

UN Convention on Recognition and Enforcement of Foreign Arbitral

Awards (New York, 1958)

Article II

1. Each Contracting State shall recognize an agreement in writing

under which the parties undertake to submit to arbitration all or any

differences which have arisen or which may arise between them in

respect of a defined legal relationship, whether contractual or not,

concerning a subject matter capable of settlement by arbitration.

[…]

3. The court of a Contracting State, when seized of an action in a

matter in respect of which the parties have made an agreement

within the meaning of this article, shall, at the request of one of the

parties, refer the parties to arbitration, unless it finds that the said

agreement is null and void, inoperative or incapable of being

performed


• International framework for commercial arbitration

UN Convention on Recognition and Enforcement of Foreign Arbitral

Awards (New York, 1958)

Article III

Each Contracting State shall recognize arbitral awards as binding

and enforce them in accordance with the rules of procedure of the

territory where the award is relied upon, under the conditions laid

down in the following articles. There shall not be imposed

substantially more onerous conditions or higher fees or charges on

the recognition or enforcement of arbitral awards to which this

Convention applies than are imposed on the recognition or

enforcement of domestic arbitral awards.


• Practical use of international arbitration

– 90% of respondents indicate that international arbitration is their

preferred dispute resolution mechanism, either as a stand-alone

method (56%) or together with other forms of ADR (34%).

– “Enforceability of awards” is seen as arbitration’s most valuable

characteristic, followed by “avoiding specific legal systems,”

“flexibility” and “selection of arbitrators”.(Source: Queen May University of London, 2015 International Arbitration Survey: Improvements and Innovations in International

Arbitration http://www.arbitration.qmul.ac.uk/docs/164761.pdf)








• Extent of party autonomy in choice of law

ICC Arbitration Rules, Article 21 (Applicable Rules of

Law)

“1. The parties shall be free to agree upon the rules of

law to be applied by the arbitral tribunal to the merits of

the dispute. In the absence of any such agreement, the

arbitral tribunal shall apply the rules of law which it

determines to be appropriate.

“2. The arbitral tribunal shall take account of the

provisions of the contract, if any, between the parties

and of any relevant trade usages.”



HCCH Principles on Choice of Law in International

Commercial Contracts (commentary)

“3.1 Arbitration statutes and arbitration rules commonly allow

for the parties' choice of "rules of law" (see Art. 28(1)

UNCITRAL Model Law; Art. 21(1) ICC Rules). In those

instruments, the term "rules of law" is used to describe rules

that do not emanate from State sources. The opportunity to

choose "rules of law" has not typically been afforded to

parties litigating before national courts. Article 3 broadens the

scope of party autonomy in Article 2(1) by providing that the

parties may designate not only State law but also "rules of

law" to govern their contract, regardless of the mode of

dispute resolution chosen.”



“As the principle of party autonomy in the law of contract is

recognized by most countries of the east and West, none of

the legal systems raises a theoretical objection to an attempt

of the parties to a contract to go to the extreme and to adopt

a legal regulation which makes redundant a reference to a

national system of law. […]. Experience shows that a

practically workable degree of autonomy can only be

achieved if the autonomous regulation is complemented by

an arbitration agreement.”

(Clive Schmitthoff, International Business Law: A New Law Merchant, in Cheng (ed.) Clive Schmitthoff’s

Selected Essays on Internaitonal Trade Law, Dordrecht/Boston/London: Martinus Nijhoff, 1988, 31-32)


• The negotiation context of international contracts

– Connections to laws, policies and political authorities of

more than one country

– Currency, monetary considerations and logistics

– Greater exposure to government interference and changes

of circumstances

• Frequent concerns in international contracts

– Different standards and usages to assess performance

– Government interference (embargoes, export/import

controls)

– Unforeseen events (strikes, war, terrorism)

– Different types and standards for awarding damages

– Ineffective or unexpected remedies for breach of contracts

– Slow and costly enforcement procedures

Part II: Overview of Differences in Contract Law

• Drafting international contracts

– Cultural and legal differences

– Different drafting styles and traditions

– Tendency towards “self-contained” contracts

– Evaluation of risks and risk mitigation mechanisms

– Usefulness of checklists, standard forms and guides

– Importance of choice of law and dispute settlement

• Common objectives of the parties

– Clearly defined rights and obligations

– Foreseeability and mitigation of risk

– Encouragement of performance

– Limitation of damages

– Enforceability of contract

– Efficient dispute resolution mechanism

– Predictability of outcome


• Conditions for validity and enforcement

– Common-Law and Civil Law requirements

• The common law doctrine of consideration

• The French theory of “cause”

• The German system

– Conditions for substantive validity

• The civil law principle of “good faith” and its implications

• The common law doctrine of unconscionability

– Contract form and interpretation

• Freedom of form and interpretation in civil law

• The common law statute of frauds and “parol evidence rule”


• Contract Formation

– Offer and acceptance

• Completeness and revocability of offers

• Time of effectiveness of offer: receipt v. “mailbox rule”

– Essential elements

• Price determination and open-price contracts

• Implied terms and default obligations

– Pre-contractual liability

• “Good faith” and “culpa in contrahendo” in civil law

• Pre-contractual reliance: exceptional remedy in English law


• Performance and breach

– Notion of breach

• Unitary notion vs. specific categories of breach

• Anticipatory breach as remedy

– Termination of contract

• Right to terminate

– Generally available

– Limited to fundamental breach

• Procedure for termination

– Termination by notice

– Automatic termination

– Termination by judicial order


• Changed Circumstances

– Supervening events

• Changes of circumstances and pacta sunt servanda in

the common law

• Rebus sic stantibus and contract adaptation in civil law

– Excuses for non-performance

• The doctrine of frustration

• Force majeure


• Remedies

– Damages

• Foreseeability of damages

• Duty to mitigate

– Contract penalties and liquidated damages

• Liquidated damages in common law

• Penalty clauses in civil law

– Specific performance

• The general common law rules

• Conditions for specific performance in civil law


• Harmonisation of international sales law – early work – Hague

conventions – CISG – Status and importance

• Historical background: the progress towards unification of

international sales law

– The work of UNIDROIT and the 1964 Hague Uniform Laws

– Reasons for developing a new regime

– Work of UNCITRAL

– 1980 Vienna Diplomatic Conference

• Practical importance of the CISG– Uniform instrument largely accepted in various legal systems

– Contracting States account for approximately 2/3 of international trade

in goods

– Supplements international trade customs and usages (such as

Incoterms)

Outlook: The CISG as Global Uniform Sales Law

– Status of ratification of the CISG


• Further information on the CISG

• United Nations Convention on Contracts for the International

Sale of Goods (CISG), in force since 01/01/1988 (http://www.uncitral.org/pdf/english/texts/sales/cisg/V1056997-CISG-e-book.pdf)

• Current stage of ratification of the CISG (87 States)

(http://www.uncitral.org/uncitral/en/uncitral_texts/sale_goods/1980CISG_status.html)

• International case law on the CISG (http://www.uncitral.org/uncitral/en/case_law/abstracts.html)
