4 th Judicial Dialogue Contemporary Issues in International Trade and Investment Law in ASEAN

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1 4 th Judicial Dialogue Contemporary Issues in International Trade and Investment Law in ASEAN The CISG (The UN Convention on Contracts for the International Sale of Goods) by Gary F. Bell National University of Singapore Bangkok, 16 September

2 The different laws of sale There are two main models around the world for the law of sale: the civil law and the common law. The civil law has two models: French and German law of sale (in their Civil Codes mainly) The common law has two models: English (Sale of Goods Act) and US (Uniform Commercial Code) Note that the Islamic law of sale is now increasing used for Islamic financing 2

3 In the past this was not a problem because trade during the colonial era was imperial: all trade within, for example, the British Empire used English law and all trade within the French Empire used French law Thailand of course was different as it was never colonised but as we know, in an effort to stop the extraterritorial applications of foreign laws, Thailand adopted the civil law. 3

4 Now however, after decolonisation and with the globalisation of trade, there are constant clashes of laws: common law jurisdictions trade with civil law ones for example and increasingly, Islamic law is also applied to commerce (Islamic Banking for example) For the international sale of goods, it is not a good situation as buyer and seller would usually have to agree on either the law of the seller or the law of the buyer, which the other side is likely not to know much about 4

5 Map of the world 5

6 Map of East, Southeast and South Asia 6

7 This is why there are now pressures to have either harmonised laws or uniform laws Laws are harmonised when countries keep their own laws formulated in their own language and traditions, but draft them in a way that reaches an agreed common objective 7

8 A uniform law is one where the text of the law is exactly the same internationally and in every jurisdiction An example is the CISG which is in force with the same text (in the six UN languages) in all countries that are parties to the convention Uniform laws are said to bring greater certainty as the text of the law (though sometimes in six different languages) is exactly the same everywhere (though it may be interpreted differently) 8

9 Who can create harmonised or uniform laws? Individual countries cannot solve the problem on their own Private efforts In 1936 the International Chamber of Commerce or ICC published the first version of the Incoterms which are INternational COmmercial TERMS which define terms such as FOB, CIF in a uniform manner. Parties choose the Incoterms by mentioning them in their contract 9

10 UNIDROIT was established by the League of Nations (predecessor of the UN between WW I and WW II) but it is largely an academic enterprise (nongovernmental) It has issued the Unidroit Principles of International Commercial Contracts which can be described as a private initiative: the parties may choose the principles as their law But private initiatives have their limits 10

11 Regional initiatives EU has acted and is acting in many respects (conflicts of law and of jurisdiction etc.) One important initiative: Common European Sales Law, but it has now failed But regional initiatives also have their limits: only apply to one region 11

12 Should Asia or ASEAN adopt its own regional law? I have argued in a paper distributed to you that ASEAN should not adopt regional uniform laws but should rather adopt international uniform law The differences between civil and common law are basically the same in Asia and in Europe We should just adopt available compromises between civil and common law 12

13 Should Asia or ASEAN adopt its own regional law? I do mention in the article that the CISG, for example, does not take into account Islamic law and it should have Nevertheless overall the CISG solves the problems faced by sales between a common law country and a civil law one, be they Ireland and France or Singapore and Vietnam (and hopefully soon: Thailand!) And one can always exclude the CISG in favour of Islamic law parties always have a choice of law 13

14 International Initiatives The United Nations Commission on International Trade Law (UNCITRAL) undertook this most comprehensive effort: The UN Convention on Contracts for the International Sale of Goods (Vienna, 1980) i.e. the CISG This is the most successful treaty regulating commercial law 14

15 There are 84 countries that are parties to the CISG Parties include: China, USA and all of North America, Brazil and most of South America, almost all of Europe Unfortunately in ASEAN only Singapore is a party, and Vietnam will join on 1 January 2017 Hopefully Thailand will join soon Other holdouts in the world: India, most of Africa and the UK 15

16 Parties to the CISG (84) as of December 2015 NEWLY ADDED: Vietnam: CISG will come into force on 1 January

17 COUNTRIES THAT ARE PARTIES TO THE CISG On 1 Jan. 2017: add Vietnam Invisible on this map: Singapore 17

18 Introduction to the CISG proper The CISG is in the 6 official UN languages (Arabic, Chinese, English, French, Russian and Spanish) and all versions are equally authoritative Thailand would be bound by all six versions but would likely put a Thai translation in its internal legislation 18

19 The preamble of the CISG states the following: THE STATES PARTIES TO THIS CONVENTION, [ ] BEING OF THE OPINION that the adoption of uniform rules which govern contracts for the international sale of goods and take into account the different social, economic and legal systems would contribute to the removal of legal barriers in international trade and promote the development of international trade, HAVE DECREED as follows: [ ]. 19

20 First Look at the CISG There are four parts in the CISG: PART I. SPHERE OF APPLICATION AND GENERAL PROVISIONS (art. 1-13) PART II. FORMATION OF THE CONTRACT (art ) PART III. SALE OF GOODS (art ) [obligations of buyer and seller] PART IV. FINAL PROVISIONS (art ) [reservations to the convention, transitory provisions etc.] 20

21 What we will cover today No time to look at the whole CISG Will only look at a few articles to give you a taste of the convention 21

22 PART I. SPHERE OF APPLICATION AND GENERAL PROVISIONS (art. 1-13) Chapter I. SPHERE OF APPLICATION (art 1-6) When does it apply, to which contracts, what is not covered by the CISG, can parties exclude its application etc. Chapter II. GENERAL PROVISIONS (art. 7-13) Interpretation of convention, general principles, what law applies if not the CISG, interpretation of contract, evidence, definitions. 22

23 Chap. 1. Sphere of application (art. 1-6) Article 1 determines when the CISG applies. It can apply directly (1(1)(a)) or indirectly (1(1)(b)): (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. 23

24 The first condition is that you must have a contract of sale of goods. There is no definition in the CISG of the contract of sale, but it defines the obligation that comes from such a contract: obligation to give goods and to give money in exchange. So you must have such a contract: the CISG does not apply to leases, distribution agreements etc. 24

25 The second condition is that the contract must be between parties whose places of business are in different States So if buyer and seller are both from Singapore, the CISG does not apply, domestic law applies What is a place of business? Article 10 For the purposes of this Convention: (a) if a party has more than one place of business, the place of business is that which has the closest relationship to the contract and its performance, having regard to the circumstances known to or contemplated by the parties at any time before or at the conclusion of the contract; (b) if a party does not have a place of business, reference is to be made to his habitual residence. 25

26 So going back to art. 1(1)(a): (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 So under 1(1)(a) both States must be contracting States. Not said but implied is that the States must have been contracting states at the time the contract was formed 26

27 So if both states are contracting states then the CISG applies (we will see later: unless the parties exclude its application in their contract) So a contract of sale between parties having their places in business in Singapore and the China: the CISG applies because both countries are parties Between Singapore and Thailand: it does not apply through 1(1)(a) because Thailand is not a party 27

28 Even if 1(1)(a) does not apply, the CISG may nonetheless also apply through 1(1)(b): (1) This Convention applies (b) when the rules of private international law lead to the application of the law of a Contracting State. So if the parties are from France and Thailand, 1(1)(a) does not apply because Thailand is not a party But if the parties choose French law to govern their contract, then the CISG applies through 1(1)(b) because France is a party to the CISG 28

29 Reservation under art. 95 of the CISG Article 95 Any State may declare at the time of the deposit of its instrument of ratification, acceptance, approval or accession that it will not be bound by subparagraph (1)(b) of article 1 of this Convention. Singapore has made such a reservation The other countries that made such a reservation are: Armenia, China, Czechoslovakia (now the Czech Republic and Slovakia), St. Vincent and the Grenadines, and the USA 29

30 I wrote an article on why it is not a good idea to make such a reservation In fact I argued that Singapore s reservation should be withdrawn Let me quickly show some of the problems caused by this reservation and why Thailand should not make that reservation 30

31 The main reason why a country should not make a reservation under art. 95 is that it restricts the choice of law of the parties If Thai and Singapore parties want the CISG to apply why should they not be free to choose the CISG but choosing Singapore law? Commercial parties should be free to choose their law. The reservation prevents the choice of the CISG 31

32 The second reason: I creates a lot of confusion. Art. 95 says the country that makes the reservation would not be bound by article 1(1)(b) (CISG as a choice of law) But what if Thai and Singapore parties choose Singapore law but give jurisdiction to an Australian court? The Australian Court, unlike the Singapore Court, would be bound by art. 1(1)(b) as Australia did not make the reservation So depending on the court, the law would be different, which could lead to forum shopping 32

33 Other policy reasons against the reservation We should adopt a more liberal approach to choices of law (freer trade) Traders should not have to exclude the CISG in their standard form contract in order for the same law to apply irrespective of whether the other country is a party to the CISG We should promote the CISG in ASEAN by always allowing parties to choose it 33

34 Art. 2 We now look at the kinds of sale to which the CISG does not apply Article 2 This Convention does not apply to sales: (a) of goods bought for personal, family or household use, unless the seller, at any time before or at the conclusion of the contract, neither knew nor ought to have known that the goods were bought for any such use; (b) by auction; (c) on execution or otherwise by authority of law; (d) of stocks, shares, investment securities, negotiable instruments or money; (e) of ships, vessels, hovercraft or aircraft; (f) of electricity. 34

35 Mistranslation of art. 2(d) There are lots of mistakes in the translations of the original draft of CISG (done mainly in English and also in part in French) particularly when translated into the Chinese and Arabic languages I want to show you only one such example, so that you know that you must check all six versions Article 2(d) in English states that the CISG does not apply to sales of stocks, shares, investment securities, negotiable instruments or money. But the French version only mentions sales: de valeurs mobilières, effets de commerce et monnaies. 35

36 The first three categories of the English version (1. stocks, 2. shares, 3. investment securities) are translated in French by the sole civil law concept of valeurs mobilières ( moveable values ). The same is true in the Spanish version ( valores mobiliarios ). Stock is American English for shares (British English), so in reality the English version only has two categories 1. shares/stocks and 2. investment securities, whereas the French has only one category: moveable values. The Chinese version does not use the civil law concept moveable values but tries to translate all three common law categories of the English version a literal and mistaken translation 36

37 Stock is translated as "Gōngzhài" ( 公债 ) in the Chinese version, which I am told simply means government bonds or public bonds, and is therefore an inaccurate translation of stock. The translator wanted to translate all three categories of the English text even though they were probably not needed in Chinese. This translation mistake is of no great consequences, but others are! 37

38 Art. 4 This Convention governs only the formation of the contract of sale and the rights and obligations of the seller and the buyer arising from such a contract. In particular, except as otherwise expressly provided in this Convention, it is not concerned with: (a) the validity of the contract or of any of its provisions or of any usage; (b) the effect which the contract may have on the property in the goods sold. 38

39 Art. 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. Parties are never forced to use the CISG If you want to completely exclude, be very clear Choosing Singapore law is not an exclusion of the CISG since Singapore is a party and in fact you do need a domestic law to complement the CISG so it is normal to choose a law like Singapore s to complement the CISG If you want to exclude completely, say so: Singapore law excluding the CISG 39

40 You can also exclude the CISG in part. This is done all the time For example when the parties choose an Incoterm such as CIF or FOB, in fact they exclude the application of the rules of the CISG on delivery, transport, insurance and passage of risks which are governed by the Incoterm Basically the contract always prevails over the CISG 40

41 Article 7: (1) 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 the observance of good faith in international trade. This is a mandate for the judges to look at cases from outside their own jurisdiction when deciding a case on the CISG 41

42 Article 7:(2) Questions concerning matters governed by this Convention which are not expressly settled in it are to be settled in conformity with the general principles on which it is based or, in the absence of such principles, in conformity with the law applicable by virtue of the rules of private international law. Look at CISG, if not there but governed by CISG, look at principles of the CISG, if not there, then look at PrIL i.e. domestic law The CISG is incomplete it needs to be complemented by a domestic law 42

43 PART II. FORMATION OF THE CONTRACT (art ) We do not have much time but let me give you two examples of compromises between civil and common law in the formation of the contract. 43

44 Reception or dispatch theory? In civil law generally, a contract is formed when the acceptance is received by the offeror the reception theory In common law, the contract is often formed when the acceptance is sent (for example by post) to the offeror even before he receives it and in fact even if he never receives it the dispatch theory, also called the post box rule. So what compromise will the CISG reach? 44

45 Reception or dispatch theory? Article 23. A contract is concluded at the moment when an acceptance of an offer becomes effective in accordance with the provisions of this Convention. Art. 18(2). An acceptance of an offer becomes effective at the moment the indication of assent reaches the offeror. [ ] Therefore it looks like the CISG adopts the civil law: the contract is formed when the acceptance is received. However 45

46 Reception or dispatch theory? Art. 16 gives some effect to the common law dispatch theory: Article 16. (1) Until a contract is concluded an offer may be revoked if the revocation reaches the offeree before he has dispatched an acceptance. The contract is not formed when the acceptance is sent, however it is as if the contract was formed (common law solution) since the offer can no longer be revoked! 46

47 Subjective or objective interpretation of the contract? The civil law generally adopts a more subjective approach to the interpretation of contracts: the contract is what the parties subjectively intended The common law adopts a more objective approach: the contract is not what the parties intended but what a reasonable third party listening to, or reading, the words of the contract would objectively think the parties meant. So what approach will the CISG take? 47

48 Subjective or objective interpretation of the contract? The CISG adopts a compromise It adopts the subjective civil law approach when the a party must have known the intention of the other party: Art. 8 (1) For the purposes of this Convention statements made by and other conduct of a party are to be interpreted according to his intent where the other party knew or could not have been unaware what that intent was. 48

49 Subjective or objective interpretation of the contract? However, it adopts the objective common law approach when a party could not have known the intention of the other party: Art. 8 (2) If the preceding paragraph is not applicable, statements made by and other conduct of a party are to be interpreted according to the understanding that a reasonable person of the same kind as the other party would have had in the same circumstances. 49

50 The CISG often offers good compromises between the civil and common law One of the best place to find more information on the CISG is the Pace University site: 50

51 The experience of Singapore with the CISG I wish I could say that the CISG is commonly used in Singapore Unfortunately, the CISG is used more extensively in civil law countries than it is in common law countries In Singapore there is not a single court case on the CISG There are a few arbitration cases but that is it Singapore lawyers most often exclude the CISG 51

52 The experience of Singapore with the CISG It is strange how common law lawyers are reluctant to use the CISG when civil law lawyers use it all the time for example in continental Europe The country with the most case on the CISG is China hundreds of case. 52

53 Conclusion The CISG is a good compromise between the civil and common law It has been adopted by widely across the world Some large trading partners of Thailand have adopted it China, USA, Europe. I hope Thailand will seriously consider adopting the convention. 53

54 Thank you 54

The United Nations Convention on Contracts for the International Sale of Goods (CISG)

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