CHAPTER 5 CONTRACTS FOR THE INTERNATIONAL SALE OF MINERALS
| Jurisdiction | United States |
(Mar 1985)
CONTRACTS FOR THE INTERNATIONAL SALE OF MINERALS
David W. Rivkin
Debevoise & Plimpton
New York, New York
This paper will address several issues that arise with respect to the international sale of minerals and mineral products. First, we shall discuss the law that may apply to such contracts, including certain international conventions relating to such sales. We shall then discuss arbitration, an increasingly prevalent method of dispute resolution in such contracts, including considerations whether to choose arbitration, the nature of arbitral proceedings, and the enforcement of arbitral awards.
I. GOVERNING LAW
A. Choice of Law Clause
Negotiations of an international contract for the sale of minerals, as with most contracts, generally focus on the business aspects of the deal: price, delivery, payment terms, and the like. The emphasis is on achieving a business deal satisfactory both to the buyer and the seller. Contractual provisions regarding arbitration, choice of law, force majeure, and other "legal" concerns are generally given less attention, and parties are more willing to concede points on such issues if necessary to consummate the deal.
This tendency is understandable but may lead to future difficulties, for such provisions may be critical to the eventual resolution of disputes arising in the course of the business dealings. The choice-of-law clause, for example, affects every other contractual provision, including the business terms so carefully negotiated. The rights and obligations of the parties to the contract will be determined according to the law specified in that clause. Business terms which are fundamental to the performance of the contract — for example, the terms of delivery specified in the contract — may be viewed differently depending upon the applicable
[Page 5-2]
law. Thus, failure to deliver may constitute a breach of the contract under New York law but not under German law.
Such clauses may therefore be of decisive importance if disputes arise between the parties. The contract should be analyzed in terms of its objectives and the interests of the parties, and differences in possible governing laws should be considered in the context of such concerns.
B. United States Law
Except for Louisiana every state has adopted the Uniform Commercial Code ("UCC"), which governs the sales of commodities such as minerals. There are some variations in the UCC as adopted by the states, so the state law that is chosen may be important. The paper previously presented by Mr. Blum and Mr. Fink on the UCC has discussed these provisions in some detail, and we shall not repeat that discussion here.
C. Foreign Law
While usually an American party to an international sales contract would prefer that the law of an American state govern the contract, in large part because of familiarity with that law, the foreign party may not wish to be subject to the American state's law. It is possible also that, under some circumstances, the American party may determine that certain provisions of a foreign jurisdiction's law might be in its best interests. The proper law of the contract may therefore often be, by the terms of the contract itself, that of the foreign party's country. This is, of course, a matter of negotiation, and one must weigh the differences between that nation's law and the UCC, and how such differences might affect the performance of the contract and one's obligations under the contract.1
[Page 5-3]
It is also possible, however, that the parties to a contract may choose the law of a third country as the applicable law. Such a choice of law may be acceptable to both parties as a compromise, so that neither is subject to the other's law. It may also be that the third country's law relating to the sales of commodities may contain certain doctrines (for example, relating to commercial impractibility) that either or both parties may regard as being conducive to effective performance of the contract or as in its own best interests. Under the general contractual doctrine of "freedom to contract," such a choice of law should usually be sustained.
D. Applicable Law If There Is No Choice-Of-Law Clause
If the contract does not specify the law to be applied, a court or arbitrator resolving any dispute arising from the contract will determine the governing law. In most cases, the court or arbitrator will apply the law of one of the jurisdictions of the parties to the contract. Under generally accepted principles of private international law, the governing law will usually be that of the jurisdiction with the "most substantial contacts" with the sales transaction. The factors in determining which jurisdiction has the most substantial contacts include where negotiations took place, where delivery occurs, at what point title passes, and where any future performance of the contract may take place. These conflicts-of-law principles are similar to those applied by U.S. courts in determining the applicable law in transactions involving more than one state.
In a few cases, an arbitrator may apply general principles and customs of international trade, sometimes referred to as lex mercatoria. In such circumstances, the arbitrator will consider standard commercial practices in international transactions for the sale of minerals, or he may apply as precedents decisions made by arbitral tribunals in similar cases. An arbitrator may also apply international sales standards, such as the
[Page 5-4]
INCOTERMS adopted by the International Chamber of Commerce or the U.N. Convention on Contracts for the International Sale of Goods, which we shall discuss momentarily, as indicative of general principles of international trade.
In either event, the failure to specify governing law creates an uncertainty about the contract, for without knowing the applicable law neither party can be sure of the precise nature of its rights and obligations under the contract. Indeed, such a determination can not be made until performance of the contract has broken down to the point where the parties are involved in arbitration or litigation. It would thus seem advisable in most cases to include in the contract a choice-of-law clause providing that the law of a particular jurisdiction governs the contract.
One exception to this rule may be in instances where, for political reasons, a foreign party, often a state-owned enterprise, will not agree to any governing law except that of its own country. This situation often arises in dealings with, for example, China, or with other socialist countries where the other party is a state-owned enterprise. In such circumstances, rather than risk not making the deal because of a failure to agree on a choice-of-law provision, it may make sense not to specify any governing law and hope that, in the event a determination of the applicable law were ever necessary, a court or arbitrator could be convinced that an American state had more substantial contacts with the sales transaction than the foreign party's country.
II. INTERNATIONAL SALES CONVENTIONS
A. United Nations Convention on Contracts for the International Sale of Goods ("Vienna Convention")
The United Nations Convention on Contracts for the International Sale of Goods (known as the "Vienna Convention") was adopted in 1980 at a conference in Vienna of the United Nations Commission on International Trade Law ("UNCITRAL"), which was attended by representatives
[Page 5-5]
of 62 nations.2 The Convention was the culmination of nearly a decade of annual meetings under the auspices of UNCITRAL, which resulted from dissatisfaction with two earlier conventions on international sales adopted at the Hague in 1964 (which will be discussed briefly in section II.B. below). The meetings sought to codify international sales law and to achieve conformity of practice in international sales transactions. They included representatives of both civil law and common law nations, and the final text reflects concepts from each system of law.
The Vienna Convention will become effective when ten nations have ratified it. Thus far, six countries have done so: France, Argentina, Hungary, Syria, Egypt and Lesotho. Other countries are likely to ratify the Convention soon. The President transmitted the Convention to the United States Senate in September 1983. Hearings were held in April 1984, but the Senate has not yet taken any action. Numerous groups have urged approval of the Convention, including, for example, the American Bar Association and the National Association of Manufacturers. The ABA urged in its report that four specific benefits to U.S. business interests would result from U.S. ratification of the Convention: (1) avoidance of difficulties in reaching agreement with foreign buyers and sellers on choice of forum or law; (2) ability of parties under the Convention to continue to determine their rights and obligations along the same lines as under the UCC without fear of mandatory rules imposed by a foreign jurisdiction; (3) decrease in costs for legal research on foreign laws because they would be replaced by a single Convention available in an official English text; and (4) reduction of problems of proof of foreign law in domestic or foreign courts. See American Bar Association, Report to the House of Delegates, Resolution recommended by the Section on International Law (1981).
1. Scope
The Vienna Convention applies to commercial sales of goods. By its terms, it does not apply to sales
[Page 5-6]
"(a) of goods bought for personal, family or household use, unless the seller, at any time before or after the conclusion of the contract, neither knew or 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...
To continue reading
Request your trial