Is the CISG benefiting anybody?

• Author: Cuniberti, Gilles
• Position: Convention on Contracts for International Sale of Goods

ABSTRACT

The Convention on Contracts for International Sale of Goods (CISG) was supposed to increase legal certainty and reduce the transaction costs of international buyers and sellers. This Article argues that none of these goals has been met. A survey of 181 court decisions and arbitral awards applying the CISG shows that the vast majority of international buyers and sellers do not address the issue of the law governing their contracts, irrespective of the value at stake. Although the data is not easy to interpret, it follows that international buyers and sellers are simply not concerned with the legal regime governing their contracts and may be more generally legally unsophisticated. As a consequence, increasing legal certainty does not benefit them ex ante, and they do not incur the transaction costs that a harmonization of the law of sales could save. It is true that a few of these parties do provide for the applicable law and seem to be more sophisticated. But this Article further argues that even these parties do not clearly benefit from the international harmonization of the applicable law because of its limited scope.

TABLE OF CONTENTS I. INTRODUCTION II. THE ARGUMENTS IN FAVOR OF THE HARMONIZATION OF INTERNATIONAL SALE LAW A. Legal Certainty B. Law Reform C. Reduction of Transaction Costs 1. Unsophisticated Parties 2. Sophisticated Parties III. THE STUDY OF 181 CASES WHERE THE CISG WAS APPLIED IV. WHO CAN BENEFIT FROM THE CISG? A. Scope of the Harmonization B. Quality of the Harmonization V. CONCLUSION I. INTRODUCTION

Governments have conducted a process of harmonization of international sale law for more than forty years. (1) Legal scholars had advocated the idea since the 1920s. (2) Today, international sales law is harmonized to a very significant extent through the United Nations (U.N.) Convention on Contracts for International Sale of Goods (CISG). (3) This uniform law is applicable in sixty-six states, which include most of the major trading nations. (4) It governs many areas of sale law, particularly the performance of the contract. (5)

Because the process of harmonization has been supported for almost a century, and because so many countries have adopted the CISG, it has become increasingly hard to challenge the usefulness of the whole enterprise. Indeed, most modern treatises on international sale law either state that the benefits of harmonization are obvious (6) or do not even find the issue worth addressing. (7)

Yet, some scholars have recently challenged the usefulness of the CISG. (8) They have argued that the poor quality of harmonization that it has achieved makes it doubtful that it has been beneficial to commercial parties. However, none of these scholars have challenged the usefulness of the process itself. (9) This Article will address that issue. For a century, the supporters of international sale law have argued that an instrument such as the CISG would have significant benefits for international sellers and buyers. (10) The CISG has governed international sales for more than fifteen years. (11) It is now possible to review cases in which the CISG was applied and to use these cases to test the century-old hypothesis of the usefulness of harmonizing sales law.

This Article examines whether harmonizing international sale law has been a useful enterprise from two perspectives. Part II lists the arguments put forward by the supporters of international sale law, explores whether they are convincing, and concludes that most of them are not. Part III examines 181 cases where the CISG was applied by U.S., German, and French courts and by arbitral tribunals to determine whether international buyers and sellers have actually benefited from the CISG. This analysis finds that the vast majority of those buyers and sellers have not benefited, due to a lack of sophistication. Part IV considers whether the CISG could be beneficial to a few sophisticated parties but finds the benefits difficult to assess and possibly nonexistent. Part V concludes the Article.

2. THE ARGUMENTS IN FAVOR OF THE HARMONIZATION OF INTERNATIONAL SALE LAW

   The negotiators of the CISG thought that engaging in a process of unification of international sale law would increase international trade. The preamble of the CISG provides that the Convention set out to "contribute to the removal of legal barriers in international trade and promote the development of international trade." (12) In his address on the Convention to the U.S. Senate Committee on Foreign Relations in April 1984, Peter Pfund, who was acting as Assistant Legal Adviser for Private International Law for the Department of State, also supported the adoption of the CISG by the United States on the grounds that it would allow U.S. corporations to engage in trade with foreign nations and conclude sales that they would not have concluded otherwise. (13) He argued that without the CISG, U.S. corporations would be discouraged by the uncertainties and costs of the determination of the legal regime governing the contract and by litigating contractual disputes abroad. (14)

   The negotiators of the CISG seem to have considered that the CISG enterprise would increase international trade by facilitating the conclusion of international sales. Indeed, legal scholars have essentially justified the unification of international sale law since then by claiming that the CISG improves the legal environment in which international sales are concluded by increasing legal certainty and reducing transaction costs. (15) Some scholars have also suggested that the CISG has been an occasion for law reform. (16) This Article will examine and discuss these arguments in turn.

   1. Legal Certainty

      Legal scholars ordinarily justify the unification and harmonization of international sale law on purely legal grounds. Most commonly, they argue that an instrument such as the CISG increases legal certainty, as they believe that the applicability of different national laws has the "obvious consequence" of impairing it, (17) and thus that the CISG must be an improvement.

      Yet it is not so easy to see why the adoption of the CISG has increased legal certainty. To begin with, it is unclear to which legal certainty supporters of the CISG refer. Arguably, legal certainty could be harmed in an international context for two reasons. First, it could be difficult to determine which law governs the contract. Second, the applicable law could be unclear or imprecise and thus make the substantive legal regime less certain.

      One can doubt that the adoption of the CISG has increased legal certainty on the first account. It is true that the CISG applies automatically when the contracting parties have their places of business in two different contracting states. (18) According to the Convention, the applicable legal regime can therefore be determined without resorting to international private law. However, it is doubtful that the CISG has significantly increased legal certainty. The choice of law rule which applied in contractual matters before the CISG allowed the parties who were concerned with legal certainty (19) to determine with the greatest precision the legal regime governing their contract. All they needed to do was to include a choice of law clause in their contract to that effect. Conflict of laws is often presented as a complex area of the law, but here the rule is very simple. It is true that the parties could fail to choose the applicable law, and that the default conflict rule would usually be and still is both very unpredictable and complex. Yet, if the parties were not sufficiently concerned by the issue of the applicable law to make that choice, it may well be that they were actually not very concerned with legal certainty, at least at the time of conclusion of the contract, and that the harmonization of sales law would not be useful to them if it only aimed at increasing legal certainty. Furthermore, although rare in today's world, it is perfectly conceivable to design simple and predictable default conflict rules. The 1955 Hague Convention on the Law Applicable to International Sales of Goods, which still applies in France and in Italy for instance, is a good example: it provides for the application of the law of the seller without giving any discretion to the court applying it. (20) If such a rule had been adopted worldwide, legal certainty would have been achieved as effectively as through a process such as the CISG. Moreover, the CISG has only partially harmonized sales law. For instance, the Convention does not apply to the validity of the contract or of any of its clauses. (21) Therefore, it remains necessary to determine the law governing the contract if the issue of validity arises. (22) In a system relying on international private law, the applicable law would govern almost all contractual issues. (23) The increase of the legal regimes governing the contract is hardly good for legal certainty, (24) and one could wonder whether such exclusions of the scope of the harmonization do not impair the utility of the whole process. (25)

      Some have challenged whether the rules of the CISG provide the degree of legal certainty that many commercial parties seek. It has been noted that its process of negotiation favored the adoption of vague rules, relying too much on legal standards, which are hardly good for legal certainty. (26) The Convention was drafted by representatives of more than fifty states representing all legal traditions. (27) Although the diversity of the individual drafters must have complicated the enterprise of negotiating a complete law of sales, it has been shown that the incentives of the drafters likely led them to settle on unsatisfactory results in order to reach a final resolution. (28) The chances are therefore high that the negotiation resulted in compromises, and in particular, that rules were drafted to make them acceptable to all. It has been noted that in such...