In April, 1964, twenty-eight states approved two conventions which were the Uniform Law on the International Sale of Goods (ULIS) and the Uniform Law on the Formation of Contracts for the International Sale of Goods (ULF) referred to collectively as the 1964 Hague Conventions, which were not very successful. 5 The United Nations Commission on International Trade Law (UNCITRAL), which is the core legal body within the UN system in the field of international trade law and was tasked by the UN General Assembly to further the progressive harmonization and unification of the law of international trade, set out to study the 1964 Hague Conventions to improve and reform them hopefully ending up with a product more successful than the first. Finally, after several drafts after the realization that an entirely new text was needed, the General Assembly convened a conference on a product that is today the CISG.
As suggested by the legislative history, consideration of each individual article of the CISG proceeded on the basis of compromise. For this reason, there was a conscious desire to restrict the content of the CISG to those areas on which it was possible to agree. 6 As a result, certain kinds of sales were excluded according to Art. 2 and matters such as the validity of the contract and the passing of property (Art. 4), the liability of the seller for death or personal injury caused by the goods to any person (Art. 5) were not included. In addition, there was a deliberate attempt not to rely on existing legal definitions which could then be subject to contradicting interpretations in different member states. The aim was not to take the best from every jurisdiction, but to develop an empirical code which, where possible, used independent terms to convey its meaning. Indeed, no international commercial legal regime can expect to be perfect, especially when it is developed on the basis of compromise between legal systems.
While the drafters of the CISG represented various legal systems that possessed their own unique methods of solving certain problems, a commonality existed among the majority of the drafters. So while the remedies provided for by the CISG might not represent part of the "consistent and universal form of international mercantile law" desired by a modern lex mercatoria, they do represent a step forward in that process. From the point of view of legislation as well as from the point of view of practical application, the Convention seems to be a success. Moreover, this success may fuel further uniformity as it is already influencing other fields of international trade law. Indeed, after it came into force on January 1, 1988, the CISG has gained tremendous political and economic significance as the uniform sales law for sixty-two countries that account for two-thirds of all world trade. 7
As for the application issue, the CISG is the domestic law of each Contracting State. Important conclusions and recommendations follow from this: For parties with their relevant places of business in different Contracting States, where their contract falls within the scope of the CISG, the contract is automatically governed by the CISG, unless the parties indicate otherwise. In other words, where without reference to the CISG, the parties state that the contract is governed by the law of a Contracting State or the applicable law so holds, the contract is likely to be governed by the CISG. For parties to such international sales transactions who do not wish to have them governed by the CISG, the recommended procedure is to so state in their contracts. The above conclusion and recommendation can also apply when only one of the parties has his relevant place of business in a Contracting State of the applicable domestic law regards the law of that Contracting State as the governing law. In these two situations -- contracting parties from different Contracting States, and a contract between a party from a Contracting State and a party from a non-Contracting State -- the relevant CISG provisions are Arts. 1(1) and 95. On the other hand, there are also cases in which principles of the CISG can apply to transactions between parties neither of whom has his relevant place of business in a Contracting State. The CISG can apply to such a contract solely by the election of the parties.
One should note that, however, subject to the fact that when the CISG applies by law it can supersede otherwise applicable domestic law to the contrary; when the CISG applies solely by contract, it acts somewhat like a set of terms and conditions incorporated in the contract -- in other words, in this situation it does not supersede mandatory provisions of the applicable domestic law where that law does not so permit. 8
The regime covering the greatest geographical scope among the studied instruments is the UNIDROIT Principles resulted from the work of the International Institute for the Unification of Private Law (UNIDROIT), which was set up in 1929 as an auxiliary organ of the League of Nations and whose primary task was to draft a uniform sales law which aimed to combat the problems of trading goods across different jurisdictions. 9 The UNIDROIT Principles do not apply to domestic contracts and are intended to operate globally, which are broader in scope and more detailed in provisions than the CISG.
Because the UNIDROIT Principles are not in the form of a convention or a model law, they do not have a binding effect. They will be applied in practice only because of their persuasive character. According to the Preamble, application of the UNIDROIT Principles to international commercial contracts in four different contexts is possible: (a) Where the parties agree that their contract shall be governed by the UNIDROIT Principles, the Principles are undoubtedly applicable because they are incorporated into the contract like any other contractual clause. Here, the principles will bind the parties only to the extent that they do not contradict mandatory rules of the applicable law. (b) The Principles may also apply when the parties have agreed that their contract be governed by "general principles of law" or the lex mercatoria. (c) The Principles may also be of relevance if the contract is governed by a particular domestic law, even though the application of the Principles is not provided for in the contract. This is the case, whenever dealing with a specific issue, it proves impossible to establish the relevant rule of that particular domestic law and a solution can be found in the Principles. Recourse to the Principles, however, as a substitute for otherwise applicable domestic law is a last resort. (d) The Principles may further serve as instruments for the interpretation and filling the gap of international uniform law. The main idea is to preclude an easy resort to the domestic law indicated by the conflict of laws rule by the forum. In conclusion, it can be said that the UNIDROIT Principles apply only if incorporated into the contract, or if they find enough favour with an arbitrator or judge looking for a rule to fill a gap encountered in the regulation of a given international commercial contract. 10
A stated purpose as suggested in the Preamble is to be stressed: "They may be used to interpret or supplement international uniform law instruments". In practice the question is particularly relevant in the context of the CISG, Art. 7 of which expressly states that "[i]n 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 that "[q]uestions concerning matters governed by this Convention which are not expressly settled it are to be settled in conformity with the general principles on which it is based". In this respect, Bonell, one of the principal architects of the Principles has stated: "The answers given are sharply divided. On the one hand there are those who categorically deny that the UNIDROIT Principles can be used to interpret or supplement the CISG, invoking the rather formalistic and not necessarily convincing argument that the UNIDROIT Principles were adopted later in time than the CISG and therefore cannot be of any relevance to the latter. On the other hand there are those who, perhaps too enthusiastically, justify the use of the UNIDROIT Principles for this purpose on the mere ground that they are 'general principles of international commercial contracts'. The correct solution would appear to lie between these two extreme positions. In other words, there can be little doubt that in general the UNIDROIT Principles may well be used to interpret or supplement even pre-existing international instruments such as the CISG; on the other hand in order for individual provisions to be used to fill gaps in the CISG, they must be the expression of general principles also underlying the CISG." 11
It is said that to the extent that the two instruments address the same issues, the rules laid down in the UNIDROIT Principles are normally taken either literally or at least in substance from the corresponding provisions of CISG; cases where the former depart from the latter are exceptional. 12 On the other hand, to the extent that they formulate general principles which cannot be derived directly from the CISG, these Principles can be utilized for filling gaps in the Convention. 13 However, an important caveat to recourse to the UNIDROIT Principles to interpret the general principles of the CISG has been pointed out by Bonell: there is a need to show that the relevant provisions of the UNIDROIT Principles are the expression of a general principle underlying the CISG. This need is, of course, not satisfied where the Principles and the CISG adopt different solutions -- for example, in their approach to the battle of the forms. 14
Indeed, the approach in developing the Principles appears appropriate with respect to the current state of attempts to unify law. 15 The UNIDROIT Principles was published in 1994 as a result of comparative research and deliberations by a group composed of representatives of all the major legal systems of the world. The UNIDROIT Principles have, in practice, only a persuasive value. The Principles can, however, have significant role in international and domestic legislator's adoption policy, court and arbitration proceedings, contract drafting or choice of law clauses. The reason for such significance can generally be seen in the modern and functional solutions adopted in the principles. The potential users of the UNIDROIT Principles to which they are addressed to are especially international law firms, corporate lawyers, arbitration courts and the like. The Principles have so far proved to be successful and widely accepted. 16 The UNIDROIT Principles are regarded to be especially useful in arbitration proceedings. Although there have been only a handful of cases actually decided solely by reference to the UNIDROIT Principles, research has shown that the Principles are being referred to in a growing number of cases as representative of the general principles and established trade practices on which international trade is based. 17
According to the Preamble, the UNIDROIT Principles set forth "general rules for international commercial contracts". It is also said that the aim of UNIDROIT was to specifically elaborate a general regulatory system which could apply universally and restate the general principles of contract law, thus reflecting all the major legal systems of the world. 18
Unlike the CISG which is a uniform sales law adopted by countries that account for over two-thirds of all world trade in goods, the PECL, like the UNIDROIT Principles except for their sphere of application, are a set of principles whose objective is to provide general rules of contract law in the EU, and will apply when the parties have agreed to incorporate them into their contract or that their contract is to be governed by them.
The PECL (also known as the "Lando-Principles") is the product of work carried out by the Commission on European Contract Law (the "Lando Commission"). The Lando Commission was founded in 1982, which is a body of lawyers drawn from all of the Member States of the European Union (EU), under the chairmanship of Professor Ole Lando. The Commission ran with funding from the European Community (EC) and its work was specifically endorsed by the European Parliament in a Resolution in 1994. In 1989, the European Parliament passed a resolution in favour of pursuing a European Code of Private Law. In 1994, this intent manifested itself with a resolution in favour of the Lando Commission's efforts at the harmonisation of contract law. The ambit of the Commission was to draft a European Restatement of Contract law which was to serve as: a basis for the future codification of European contract law; a legal guide for the EU Organs; a text to be used by member states in future codification or updates of their own law; and a text which parties could chose as the applicable law of their contracts. In 1995, the Lando Commission published the first part of its Principles of European Contract Law (the PECL). After three years, a second version were finalized in 1998, and reflects aspects of contract law from many of the EU's member states.
Unlike the UNIDROIT Principles (as well as the CISG) which applies exclusively to international contracts, the European Principles are to be applicable (a) to domestic European contracts as well as to trans-European Union international contracts and (2) to virtually all European contracts, including merchant consumer contracts as well as contracts between commercial parties. Moreover, in addition to the express purpose, similar to the UNIDROIT Principles, of being applied "as general rules of contract law in the European Union" (Art. 1:101), the PECL is intended to represent a modern European lex mercatoria and most importantly for future legal developments, "as a model on which [European] harmonisation work may be based". If the PECL will in fact be used by EU entities in interpreting European contract law or as the basis for further harmonisation efforts, it is a particularly important document to consider as indicating future legal developments. 19 Furthermore, work is already underway to compile a third version of the Principles, and it is envisaged that the Principles will eventually form part of a future European Civil Code. At present, though, the principles are more of academic value as opposed to being applied in practice. 20
So far as the general nature of the studied instruments is concerned, there already exists one important binding instrument in the field of international commercial law - the CISG, which contains the core of a true international commercial code. 21 The Convention has already codified a substantial part of the lex mercatoria and is currently adopted as the law in sixty-two countries. The Convention elaborates the common law and practices of international sales and the common core of domestic commercial rules. 22
In contrast to the governmental negotiation and compromise leading to the CISG, the UNIDROIT Principles and the PECL were fundamentally born of the same need for a uniform body of law applicable to contracts and do not have the status of an international convention; therefore, their applications mainly rely on express or implied incorporation into a contract by the parties. On the other hand, the two Principles, unlike the CISG, where, due to the divergent legal regimes and views, consensus could only be reached on compromise solutions with some ambiguous wording and gaps in coverage, were not bound to take the viewpoints of every single country, legal regime or rule into account. The final choice among possibly conflicting rules was made on the persuasiveness or suitability of the rule within the overall regime. These efforts can thus be seen as more unified and coherent regimes than the CISG. These regimes definitely are a step forward in legal thinking and the number of similarities between the two regimes suggests that they represent the main directions being taken by international contract law. 23
As for the relationship between the two sets of Principles, it is also found that the PECL covers similar areas of law to the UNIDROIT Principles, but its geographical sphere of application is confined to the EU. The material scope of the application of the PECL is, however, wider than that of the UNIDROIT Principles, as it is intended to apply to all contracts including domestic transactions and those involving consumers and merchants. 24 So while the PECL is of a narrower geographic focus than the UNIDROIT Principles, it covers a wider area of law. Despite of this, the substantial scope of application of the two Principles is identical in that they both aspire to be general principles of contract law. To use an expression well known in the world of international commerce, both are held out as a sort of codification of the modern lex mercatoria. Both of the two undertakings aspire to be models for national and international legislators, they each describe themselves as formulations of the lex mercatoria, and to some extent promote the harmonization of the law of contracts. It may be said that in the not too far future principles for international commercial contracts as elaborated in the UPICC and the PECL, in the light of the CISG which is the only one among the three instruments with mandatory application to the signatory States, will be developed and worthy of the name lex mercatoria which expresses rules accepted and observed by the international economic community. 25
The need for uniformity and harmony in international trade can be expected to lead to growth of international transactions subject to the CISG, UNIDROIT Principles, and PECL. In a summary fashion as to the relationship between the three instruments, to some extent it can be described briefly that they enable themselves to supplement each other and fit well with each other as part of the multi-layered approach that is becoming dominant, rather than compete or claim to displace the other harmonizing projects. In so far as the three instruments seem to have their own raison d'être they not only do not compete with each other but may actually fulfil very important functions side by side. Particularly, so as to preclude an easy resort to the domestic law indicated by the conflict of law rule of the forum, the two sets of Principles serve a gap-filling role for the interpretation of CISG contracts; they endorse and promote many of the principles outlined in the CISG. Although, in this instance, the articles are not drafted in an identical or substantially similar manner, it is nonetheless possible to identify some supports and the two Principles can be used to: (1) interpret the CISG; (2) answer unresolved questions that fall within the scope of the CISG; or (3) resolve issues that are not addressed in the CISG.
Finally, one must become aware of the existence and basic content of different concepts contained in these instruments, because they will be shaping the rules for contractual dealings in the future. Particularly, one must be on the lookout for superficial harmony which merely mutes a deeper discord and for verbal conflict which hides a fundamental identity of aim. In both cases the key lies in the conceptual presuppositions of each system or family of systems. The deeper discord escapes notice because the same formula means different things according to the frame-work in which it is read; the fundamental agreement on the end to be achieved is not seen because the conceptual routes which lead that to end are different. 26
5. Few countries signed the treaties and there were many criticisms that the treaties "primarily reflected the legal traditions and economic realities of continental Western Europe".
6. Supra. note 2.
7. As of 10 October 2002, the UN Treaty Section reports that 62 States have adopted the CISG: Argentina, Australia, Austria, Belarus, Belgium, Bosnia-Herzegovina, Bulgaria, Burundi, Canada, Chile, China (PRC), Columbia, Croatia, Cuba, Czech Republic, Denmark, Ecuador, Egypt, Estonia, Finland, France, Georgia, Germany, Greece, Guinea, Honduras, Hungary, Iceland, Iraq, Israel, Italy, Kyrgystan, Latvia, Lesotho, Lithuania, Luxembourg, Mauritania, Mexico, Moldova, Mongolia, Netherlands, New Zealand, Norway, Peru, Poland, Romania, Russian Federation, Saint Vincent & Grenadines, Singapore, Slovakia, Slovenia, Spain, Sweden, Switzerland, Syria, Uganda, Ukraine, United States, Uruguay, Uzbekistan, Yugoslavia, and Zambia. ( ‹http://www.cisg.law.pace.edu/cisg/countries/cntries.html› )
8. See General Information on the Application of the CISG; available online at ‹http://cisgw3.law.pace.edu/cisg/cisgintro.html› In addition, there are situations in which principles of the CISG can be deemed applicable even when neither party has his relevant place of business in a Contracting State and the parties have made no reference to the CISG in their contract. There are cases in which tribunals have so held (see, for example, ICC Arbitration Case No. 5713 of 1989).
9. The fruits of its efforts were the 1964 Hague Conventions. These Conventions, as mentioned previously, since entering into force in 1972, have, however, failed to achieve widespread acceptance. Other works of UNIDROIT have met with greater success; most notably in the area of international trade are the 1994 UNIDROIT Principles.
10. See Joern Rimke in "Force majeure and hardship: Application in international trade practice with specific regard to the CISG and the UNIDROIT Principles of International Commercial Contracts": Pace Review of the Convention on Contracts for the International Sale of Goods, Kluwer (1999-2000); pp. 237-238. Available online at ‹http://www.cisg.law.pace.edu/cisg/biblio/rimke.html›
11. See Michael Joachim Bonell in "General Report: A New Approach to International Commercial Contracts: The UNIDROIT Principles of International Commercial Contracts": XVth International Congress of Comparative Law, Bristol, 26 July-1 August 1998, Kluwer Law International (1999); p. 13.
12. See Michael Joachim Bonell in "THE UNIDROIT PRINCIPLES OF INTERNATIONAL COMMERCIAL CONTRACTS AND CISG -- ALTERNATIVES OR COMPLEMENTARY INSTRUMENTS?": 26 Uniform Law Review (1996); pp. 26-39. Available online at ‹http://www.cisg.law.pace.edu/cisg/biblio/ulr96.html›
13. See Ulrich Magnus in "Die allgemeinen Grundsätze im UN-Kaufrecht": 59 Rabels Zeitschrift (1995); pp. 492-493. English version: General Principles of UN-Sales Law, Lisa Haberfellner, trans. Available online at ‹http://www.cisg.law.pace.edu/cisg/text/magnus.html›
14. See Albert H. Kritzer in "General observations on use of the UNIDROIT Principles to help interpret the CISG". Available online at ‹http://www.cisg.law.pace.edu/cisg/text/matchup/general-observations.html›
15. Supra. note 13.
16. Supra. note 4.
17. See Austrian Arbitral Proceeding SCH-4318 and Arbitral Proceeding SCH-4366 (both dated 15 June 1994); see also ICC Arbitral Award No. 8128 of 1995 and the ruling of the French Court of Appeal of Grenoble 23 October 1996, examples of cases in which tribunals have referred to the UNIDROIT Principles as it helped them reason through the CISG. One can anticipate many such references to the UNIDROIT Principles in CISG proceedings. (Supra. note 14.)
18. See Michael Joachim Bonell in "Unification of Law by Non-Legislative Means: The UNIDROIT Principles for International Commercial Contracts", 40 Am. J. Intl L. (1992); p. 618.
19. See Peter A. Piliounis in "The Remedies of Specific Performance, Price Reduction and Additional Time (Nachfrist) under the CISG: Are these worthwhile changes or additions to English Sales Law?"(1999). Available online at ‹http://www.cisg.law.pace.edu/cisg/biblio/piliounis.html›
20. Supra. note 2.
21. Nonetheless, the parties have the general right to derogate from or modify any of the provisions in the CISG (subject to Art. 12) and they may even make the decision to exclude the CISG in its entirety. This need not be done explicitly. One example of implicit exclusion of the CISG is the choice of the law of a non-contracting state. The crucial factor is to be able to determine the will of the parties and in determining this will, Art. 8 is applicable.
22. See Bernard Audit in "The Vienna Sales Convention and the Lex Mercatoria": Thomas E. Carbonneau ed., Lex Mercatoria and Arbitration, rev. ed. [reprint of a chapter of the 1990 edition of this text], Juris Publishing (1998); p. 194. Available online at ‹http://www.cisg.law.pace.edu/cisg/biblio/audit.html› While compromises were made on all fronts, and all Contracting States will notice distinctions between their domestic law and that of the CISG, the common lawyer as opposed to the civil lawyer will face greater obstacles in understanding and applying the CISG. As compared to those schooled in the common law, the majority of the drafters had been trained in civil law. Thus, it is not surprising to find that the CISG is highly reflective of civil law principles. (See Erika Sondahl in "Understanding the Remedy of Price Reduction - A Means to Fostering a More Uniform Application of the United Nations Convention on Contracts for the International Sale of Goods" (2003); available online at ‹http://www.cisg.law.pace.edu/cisg/biblio/sondahl.html)›
23. Supra. note 19.
24. While the UNIDROIT Principles are designed only for international commercial contracts, they are in no way intended to take over the distinction traditionally made in some legal systems between "civil" and "commercial" parties and/or transactions, i.e. to make the application of the Principles dependent on whether the parties have the formal status of "merchants" (commerçants, Kaufleute) and/or the transaction is commercial in nature. The idea is rather that of excluding from the scope of the Principles so-called "consumer transactions" which are within the various legal systems being increasingly subjected to special rules, mostly of a mandatory character, aimed at protecting the consumer, i.e. a party who enters into the contract otherwise than in the course of its trade or profession. The criteria adopted at both national and international level also vary with respect to the distinction between consumer and non-consumer contracts. The Principles do not provide any express definition, but the assumption is that the concept of "commercial" contracts should be understood in the broadest possible sense, so as to include not only trade transactions for the supply or exchange of goods or services, but also other types of economic transactions, such as investment and/or concession agreements, contracts for professional services, etc. (See Comment 2 on the Preambles of the UPICC.)
25. Notably, it is also said that the Convention itself purports to formulate the most common practice and therefore qualifies as an expression of lex mercatoria". (See Bernard Audit, supra. note 22.)
26. See Barry Nicholas in "Force Majeure and Frustration": 27 American Journal of Comparative Law (1979); pp. 231-245. Available online at ‹http://www.cisg.law.pace.edu/cisg/biblio/nicholas.html›
Eric von Hippel
Erik S. Raymond