05 - Asynchronous Recording - CISG Remedies

Article 7(1) of the CISG: Interpretation

  • Article 7(1) addresses how courts and arbitral tribunals should interpret the CISG (UN Convention on Contracts for the International Sale of Goods).
  • It provides the interpretative philosophy.
  • Article 7(1) has three components:
    • Regard to its international character.
    • The need to promote uniformity in its application.
    • The observance of good faith in international trade.

International Character & The Homeward Trend

  • The convention speaks to arbitral tribunals and courts, instructing them to consider the international character of the CISG when interpreting it.
  • Homeward Trend:
    • Judges and arbitrators are often trained in a specific legal system (e.g., common law or civil law).
    • They may tend to interpret the CISG by referencing familiar domestic law principles.
    • A UK court might interpret the CISG using common law principles, while a German court might use civil law principles. This leads to different interpretations and outcomes.
  • The CISG instructs interpreters to move away from this "homeward trend" and avoid relying on domestic law principles.
  • The convention exists on an international plane, separate from domestic laws.
  • Interpreters should use international law principles instead of domestic ones.

Need to Promote Uniformity

  • Each country is a sovereign state, and their courts often don't consider how courts in other countries interpret the CISG.
  • A UK court might not look at how a German court interpreted Article 74, for example.
  • Different interpretations by different courts create problems.
  • The CISG was created to establish one uniform law for international trade, overcoming the barriers caused by differing domestic laws.
  • The goal was to have a single set of rules known to traders worldwide.
  • If courts interpret the CISG differently, the benefit of having a uniform law is undermined.
  • Article 7(1) stresses the need to promote uniformity in the application of the CISG by referring to other courts' interpretations.
  • The convention suggests to give due regard to jurisprudence from other jurisdictions to ensure a uniform interpretation is arrived at which promotes trade.
  • Persuasive Value, Not Binding Precedent:
    • Courts aren't bound by other countries' court decisions (no binding precedent).
    • However, other courts' interpretations have persuasive value.
    • A court should at least consider how other courts have interpreted an article and provide reasons for agreeing or disagreeing with those interpretations.
  • Convergence of Interpretation:
    • By considering and reasoning about other courts' interpretations, courts can gradually converge on a consistent interpretation of the CISG.
    • This leads to the CISG being interpreted the same way regardless of the forum.
    • Uniformity is important so traders know their rights and obligations upfront.
    • Disparate interpretations increase transaction costs and disputes.
  • The goal is to encourage adjudicators to move away from domestic law perspectives and interpret the CISG through an international lens.
  • They should consider previous interpretations by other courts, either agreeing with them or providing reasons for disagreement to promote a convergence of understanding.

Observance of Good Faith

  • The inclusion of "good faith" was a diplomatic compromise.
  • Common Law vs. Civil Law:
    • Common law systems (e.g., UK law) traditionally dislike the concept of "good faith" because it is seen as vague and culturally relative.
    • Civil law systems have a long tradition of using the concept of "good faith."
  • During the drafting of the CISG, civil law countries wanted an article obligating parties to act in good faith, while common law countries were hesitant.
  • The Compromise:
    • The word "good faith" was included in Article 7(1).
    • However, the article doesn't obligate the parties (traders) to act in good faith.
    • Instead, it instructs judges and arbitrators to observe good faith when interpreting the convention.
    • This satisfied civil law countries by including the concept of good faith.
    • It also satisfied common law countries by not imposing a direct obligation on traders, which could lead to disputes and increased transaction costs.

Gaps in the Convention & Article 7(2)

  • There are gaps in the CISG, some intentional and some unintentional.
  • Intentional Gaps:
    • Created to avoid issues that would prevent countries from signing the convention.
    • Example: Article 78 states that interest must be paid on overdue payments, but it doesn't specify the interest rate.
      • Different legal systems (common law, communist, Islamic) have conflicting views on interest rates.
      • Leaving the rate unspecified allowed all countries to sign the convention.
  • When there's a gap in the convention, the question arises on how to proceed.
  • Article 7(2)'s Two-Pronged Approach:
    • If a question isn't explicitly answered in the CISG, it should be answered by reference to the general principles on which the convention is based.
    • If these general principles cannot be found, then refer to the domestic law identified by the conflict of law rules of the forum.
  • Problems with "General Principles":
    • The CISG doesn't define these general principles.
    • Courts and academics disagree on what they are.
    • This can lead to a lack of uniformity.
    • Example: Civil law courts might see "good faith" as a general principle, while common law courts disagree.
  • Some argue that it would be better to directly refer to domestic law instead of relying on vague "general principles."
  • The "good faith" idea in Article 7(1) and the "general principles" in Article 7(2) are both examples of diplomatic compromises made to ensure broader acceptance of the CISG.