The role of unidroit picc and cisg in international sale ofgoods contract, can unidroit be applied to supplement the cisg(article 7)

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MINISTRY OF EDUCATION & TRAINING HO CHI MINH CITY UNIVERSITY OF LAW

The role of UNIDROIT PICC and CISG in international sale ofgoods contract, can UNIDROIT be applied to supplement the CISG

(Article 7)?

Subject: Contract of International Sale of GoodsLecturer: LLM Ngo Nguyen Thao Vy.

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TABLE OF CONTENTS

ABBREVIATION... 2

I.The role of CISG in international sale of goods contract...3

II. The role of UNIDROIT PICC in international sale of goods contract...4

III.Can UNIDROIT be applied to supplement the CISG (Article 7)?...6

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UNIDROIT Unification of Private Law’s

CISG Contracts for the International Sale of Goods

PICC Principles of International Commercial Contracts

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I.The role of CISG in international sale of goods contract

Contracts for the International Sale of Goods (CISG), also referred to as the Vienna Convention, is a treaty that was formed by the United Nation in order to create a uniform international convention or model law. The resultant model law is commonly used to govern international sales agreements. The treaty allows the international traders especially the exporters to use the uniform law regarding their trade since CISG provides substantive and uniform rules in which the arbitrators, contracting parties and courts may rely on when solving issues related to international trade.

The purpose of the CISG is to provide a modern, uniform and fair regime for contracts for the international sale of goods. Thus, the CISG contributes significantly to introducing certainty in commercial exchanges and decreasing transaction costs.

Article 1(1) of the CISG provides that the fundamental criterion for the application of this Convention to contracts for the sale of goods and their formation is that the establishments of the parties are located in different countries. This Convention does not deal with sales contracts or the law governing their conclusion where the parties have their establishments in the same country. These issues are generally governed by the domestic laws of the state. By focusing on the sale of goods between parties whose establishments are located in different states, this treaty serves three main purposes:

(1) to reduce the search for a forum with the most favorable law; (2) to reduce the need to rely on rules of private international law.

(3) Establish modern sales laws suitable for transactions of an internationalnature.

The United Nations Convention on Contracts for the International Sale of Goods shall be deemed to supersede and incorporate applicable national rules and regulations governing the movement of goods between parties to international trade, unless excluded by express contractual agreement. Masu. Even if the parties have offices in different countries, this Convention only applies if:

(1) The country in which the party has its place of business is a contracting state.

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(2) The rules of private international law lead to the application of the laws of thecontracting states.

The CISG facilitates international trade by removing legal barriers among state parties (known as "Contracting States") and providing uniform rules that govern most aspects of a commercial transaction, such as contract formation, the means of delivery, parties' obligations, and remedies for breach of contract. Contracting countries may also reserve the application of CISG if they so wish according to Article 95. A reservation under Article 95 CISG can, however, only be declared at the time of the deposit of the instrument of ratification, acceptance, approval or accession by a new Contracting State, but not later .1

II.The role of UNIDROIT PICC in international sale of goods contract

Given the fast-paced international commercial development, organizing international relations has become a necessity. Whereas, the variance in laws, culture and languages pose several obstacles in the interpretation of the liabilities arising from international commercial contracts by those involved in law, which usually results in instability of international trade relations due to lack of clarity. Hence, the need for standardizing the rules for interpretation of contracts has become a high priority in order that rights and liabilities of each of the contractual parties would become crystal clear. In this regard, the Unidroit Principles has arisen as a set of unified rules and principles in order to regulate international commercial contracts.

The International Institute for the Unification of Private Law’s (UNIDROIT) Principles of International Commercial Contracts (PICC) were first adopted in 1994 as “general rules for international commercial contracts” and revised in 2004 and 2010. The purpose of the initiative was to respond to increasing calls for a non-legislative instrument that would act as an international restatement of general principles of contract law. As a result, the PICC is a collection of general principles of international commercial contract law in the form of a “codification”. The UNIDROIT Principles of International Commercial Contracts (PICC) are the most successful attempt, so far, to codify transnational rules on the law of international commercial contracts.

1 CISG Advisory Council Opinion No 15.

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The main objective of the UNIDROIT Principles is to lay down a unified framework for international trade contracts and to ensure that they are practical, interpreted and applied within as many different countries to encourage adherence to good faith and fair dealing in international contractual relations. Therefore, the Unidroit Principles adopt legal solutions which are suitable for international trade. As a consequence, the Unidroit Principles have contributed to the unification of the rules of international commercial contracts in a non-legislative and non-binding manner.

One of the preambles of the Unidroit Principles states that, “These Principles set

forth general rules for international commercial contracts”. For that, the PICC plays a

vital role in international sale of goods contract that provide an alternative choice of law in instances where parties cannot agree on a specific choice of law. As far as it was possible to find corresponding national solutions for specific contractual problems, this

allowed the reformulation of general principles reflecting a ‘common core’ of

international contract law. In that respect the PICC are not a primary source of law, but a secondary source that makes internationally accepted principles of contract law accessible in a systematic manner.

However, it is obvious that it would not be possible to find the necessary congruence between the national solutions in many instances. Accordingly, the PICC

intends primarily “to provide a satisfactory set of rules for those relationships that come

about, by definition, across national frontiers, whereas the traditional national laws areessentially based on the requirements of normal internal relationships; ... [consequently]the code should not attempt chiefly to reconcile the latter, but rather to lay down theprinciples and solutions which seem to be best adapted to the special requirements ofinternational trade (UNIDROIT 1979 Study L-Doc 15)”. With this logic, many provisions of the PICC do not reformulate general principles that are already broadly accepted, but instead have to be understood as propositions for what should be considered the best solutions for specific problems of contract law which, by proving convincing and becoming accepted in practice, could grow into new general principles.

As to the legal status of the PICC, the principles are a non-binding legal instrument whose importance depends upon lawyers, jurists, and arbitrators viewing it as a persuasive authority. In other words, the PICC is an example of soft law. The PICC is

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applied on the international sale of goods contracts when the parties have agreed that their contract should be governed by the PICC, or general principles of law, such as the

lex mercatoria (mercantile law). Arbitrators and judges may apply the principles when

the parties have not chosen any law to govern their contract. The PICC also can be used as a source in the drafting of national and international legal instruments – legislators are encouraged to turn to the PICC as potential model rules for future domestic law reform. Finally, according to its preamble, the PICC can be used to interpret or supplement domestic or national laws, as well as international uniform law instruments.

III.Can UNIDROIT be applied to supplement the CISG (Article 7)?

Supportive Viewpoint

1.The PICC was created with one of its purposes as supplementation: The

preamble of the PICC itself states that “they may be used to interpret or supplement

international uniform law instruments”. Scholars and also some tribunals rely on the

PICC in different ways. They are used to interpret the CISG under Article 7(1), they are regarded to express general principles in the sense of Article 7(2) of the CISG and finally, they are resorted to as a genuine gap-filler replacing any recourse to domestic law if no general principles under the CISG can be found2

2.By the rules of private international law: If the PICC is mentioned in the

contract by the parties as gap-filler for the CISG then it will be applied as such under the rules of private international law .3

3.On “general principles”: Firstly, the PICC can be used to fill gaps in the CISG

because the PICC are viewed as setting forth general principles of international contract law upon which the Convention is based. Under Article 7(2) CISG, though this regulation does not mention the PICC but it does mention “general principles” under which the

CISG was formulated. It should be noted that the PICC was also built on such “general

principles”. This is because the rules founds in the UNIDROIT Principles are based upon

2 Schwenzer & Hachem, in Schwenzer 2010, Art. 7, paras. 26, 36.

3 Anna Venneziano, UNIDROIT Principles and CISG: Change of Circumstances and Duty to Renegotiate according

to the Belgian Supreme Court, III. – CAN THE UNIDROIT PRINCIPLES BE USED TO SUPPLEMENT CISG?

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or track language from articles of the CISG; it also follows a basic approach found in the

CISG, but adapt the rule “to reflect the particular nature and scope of the Principles”;

and the PICC also contains provisions analogous to CISG . One of the counter-argument4

to this is the timeline of formation of these two (the CISG was created earlier then the PICC), however, although, it is not unimportant but since those principles preceded the CISG, therefore, this counter arguments hold little merit .5

Second, the PICC, even if some principles in it are not exactly similar to the ones in the CISG, it can still be used to fill gaps only when the relevant article of the PICC and the relevant provision of the CISG are similar in text and context so that the PICC are essentially providing “meat on the bare bones” of the principles of the CISG.

Third, the UNIDROIT Principles can be applied to fill gaps even if the general principles upon which they are based cannot be derived directly from the Convention. Proponents of this approach assert that the phrase “general principles” in CISG Article 7 should be

interpreted as “evolving with and following changes and transitions in international

commerce”. Thus, they argue that the UNIDROIT Principles are particularly well suited

to fill gaps in the CISG, because they set forth general principles of international commercial contracts and their application would further CISG Article 7(1) by helping unify international contract law .6

4. An example from the past: The CISG, signed in Vienna in 1980, was an interim

development in a protracted process dating back to the late 1920s. The progress towards the Common European Sales Law (CESL) suggests a need to update the CISG, as it primarily serves consumer contracts and commercial contracts with small-to-medium enterprises (SMEs). Differences between the CISG and CESL reflect a change in philosophy rather than updating provisions. The CESL ventures into an area vacated by the CISG, notably contractual validity. The CISG's absence of provisions dealing with duress, mistake, and excessive penalty clauses is a serious issue, as the doctrine of erreur in French domestic law can distort

4 John Y. Gotanda, Using the Unidroit Principles to Fill Gaps in the CISG, Working Paper Series, Villanova University School of Law, Michael Bridge, The CISG and the UNIDROIT principles of international commercial contracts, LSE Research

Online, 7. PICC as an Updating Instrument for CISG?

6 Gotanda, John Y. Using the Unidroit Principles to fill gaps in the CISG. 2007.

pg…

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provisions dealing with performance by seller and buyer. The CESL's omission of provisions dealing with such issues highlights the need for further development and updating. Similarly, the PICC rules on misrepresentation in common law systems can undermine the doctrine of fundamental breach, as they grant rescission rights. The validity rules in the applicable law can be destructive to the uniformity gained by the CISG. Conjoining PICC rules on validity with the CISG could improve the position, but reconciliation of validity and performance rules remains a problem. This could undermine the fundamental breach test in Article 25.

4. Easier and more modern: The PICC is easier to comprehend with hypothetical

illustrations and comments attached to each Article and easier to modify as has been as opposed to CISG .7

4. Already in use with extensive records8: Scholars and also some tribunals rely on the PICC in different ways. They are used to interpret the CISG under Article 7(1), they are regarded to express general principles in the sense of Article 7(2) of the CISG and finally, they are resorted to as a genuine gap-filler replacing any recourse to domestic law if no general principles under the CISG can be found . 9

Opposing Views

1. Art 7(1) inapplicable: Under Article 7(1) CISG, (i) “international character” means independent from being imposed domestic views; (ii) “good faith” refers to the interpretation of the CISG in good faith not compelling parties to act in good faith as in PICC .10

2. Art 7(2) regarding “domestic law”: Under such regulations, if principles within

the CISG could not be found, the law to be applied is to be domestic law instead of the PICC.

7 Michael Bridge, The CISG and the UNIDROIT principles of international commercial contracts, LSE Research

Online, 3. The PICC and Article 7 of the CISG.

8 Michael Bridge, The CISG and the UNIDROIT principles of international commercial contracts, LSE Research

Online, 3. The PICC and Article 7 of the CISG.

9 Ingeborg Schwenzer, INTERPRETATION AND GAP-FILLING UNDER THE CISG, 7.4 THE CISG AND THE PICC.

10 Michael Bridge, The CISG and the UNIDROIT principles of international commercial contracts, LSE Research

Online, 3. The PICC and Article 7 of the CISG.

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3. Different from the nature: Because the CISG has to be interpreted

autonomously; the mere expression that the PICC themselves were written to be applied in this context certainly is not convincing. Moreover and even more importantly, although in many areas the PICC reflect the modern approaches of international contract law, they do not do so in all areas. Some provisions have been heavily influenced by civil law legal thinking, some even by an exclusive French legal tradition, which makes them hardly acceptable for international trade . While the UNIDROIT Principles reflect concepts11

found in many legal systems, they also “embody what are perceived to be the best

solutions, even if still not yet generally adopted” Thus, they do not simply restate existing

rules found in most legal systems; they are aspirational.

4.Soft law cannot supplement hard law: The fact that the PICC are so-called soft

law drafted by UNIDROIT and in no way related to the CISG. The first version of the PICC was only launched in 1994, 46 that is, 14 years after the Vienna Conference .12

Formally, the UNIDROIT Principles, being a later product of doctrinal source, could not be used to interpret an earlier in time, hard law text such as CISG .13

Group’s Perspective

UNIDROIT Principles can be used to supplement the CISG. Article 7 of the CISG

states that “in the interpretation of this Convention, regard is to be had to its

international character and to the need to promote uniformity in its application and theobservance of good faith in international trade”. The UNIDROIT Principles are a set of

rules that have been developed by the International Institute for the Unification of Private Law (UNIDROIT) to provide guidance on issues that are not covered by international conventions such as the CISG. Therefore, if there is a gap in the CISG, the UNIDROIT Principles can be used to fill that gap. Without the assistance of the PICC, courts and tribunals would be called upon to perform unaided difficult juristic tasks in discerning underlying general principles.

11 Ingeborg Schwenzer, INTERPRETATION AND GAP-FILLING UNDER THE CISG, 7.4 THE CISG AND THE PICC.

12 Ingeborg Schwenzer, INTERPRETATION AND GAP-FILLING UNDER THE CISG, 7.4 THE CISG AND THE PICC.

13 Anna Venneziano, UNIDROIT Principles and CISG : Change of Circumstances and Duty to Renegotiate

according to the Belgian Supreme Court, II. – CAN THE UNIDROIT PRINCIPLES BE USED TO SUPPLEMENT

CISG?

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The role of unidroit picc and cisg in international sale ofgoods contract, can unidroit be applied to supplement the cisg(article 7)

MINISTRY OF EDUCATION & TRAINING HO CHI MINH CITY UNIVERSITY OF LAW

<b>The role of UNIDROIT PICC and CISG in international sale ofgoods contract, can UNIDROIT be applied to supplement the CISG</b>

<b>(Article 7)?</b>

<b>TABLE OF CONTENTS</b>

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