06 - Asynchronous Recording - CISG Summary

Article 7(1): Principles of Interpretation

  • Article 7(1) of the CISG addresses how courts and arbitral tribunals should interpret the Convention.
  • It contains three key components:
    • Regard to its international character.
    • The need to promote uniformity in its application.
    • The observance of good faith in international trade.

International Character and the Homeward Trend

  • Homeward Trend: Courts and arbitrators often interpret the CISG through the lens of their own domestic legal systems (common law, civil law, etc.).
  • This is problematic because:
    • Civil law courts may interpret the Convention differently from common law courts.
    • Courts may make references to their own domestic laws, leading to varying interpretations.
  • Article 7(1) instructs tribunals and courts to move away from this "homeward trend".
  • It emphasizes understanding that the CISG is an international convention, separate from domestic law.
  • The Convention should be interpreted using international law principles, not domestic ones.

Promoting Uniformity in Application

  • Each country's courts are sovereign and may not naturally consider how other countries' courts interpret the CISG.
  • This can lead to different interpretations of the same article across jurisdictions.
  • Problem: The CISG was created to provide a uniform law for international trade, avoiding the barriers caused by differing national laws.
  • Goal of CISG: To provide a single, knowable law for traders worldwide, reducing transaction costs and preventing breakdowns in agreements due to legal uncertainty.

The Need for Uniform Interpretation

  • The CISG lacks a single international court with the power to interpret it, leading to interpretation by various national courts.
  • Article 7(1) urges interpreters to promote uniformity by considering how other courts have interpreted the Convention.

Persuasive vs. Binding Value

  • The Convention cannot force courts in one country to be bound by interpretations of courts in other countries (due to sovereignty).
  • Instead, the interpretations of other courts have persuasive value.
    • Courts should look at how other courts have interpreted an article.
    • If they disagree, they should provide reasons for their disagreement.
    • Agreement allows for adoption of the external interpretation.

Convergence of Interpretation

  • By considering and reasoning about other courts' interpretations, a body of jurisprudence can develop.
  • This process can lead to a convergence of interpretation over time.
  • The goal is for the CISG to be interpreted consistently, regardless of the court hearing the case.
    • Traders need to know their rights and obligations upfront.
    • Inconsistent interpretations increase transaction costs and disputes.

Summary of Key Points

  • Move away from the homeward trend and interpret the CISG through an international lens.
  • Give due regard to the interpretations of other courts; agree or provide reasoned disagreement.

Observance of Good Faith in International Trade

  • The inclusion of "good faith" was a diplomatic compromise.

Common Law vs. Civil Law Perspectives

  • Common law systems (e.g., UK law) traditionally dislike the concept of "good faith."
    • Good faith is seen as subjective and culturally relative (e.g., eating while walking).
    • Common law prefers precise definitions and avoids vague terms.
    • Imposing a "good faith" obligation can lead to uncertainty and litigation.
  • Civil law systems have a long tradition of "good faith" derived from Napoleonic codes.

The Compromise in Article 7(1)

  • Civil law countries wanted an obligation in the CISG for parties to act in good faith.
  • Common law countries opposed this due to the ambiguity of the term.
  • Compromise: Article 7(1) directs interpreters (judges and arbitrators) to observe good faith in international trade when interpreting the Convention.
    • It does not directly obligate the parties (traders) to act in good faith.
    • This satisfied common law concerns about imposing a vague obligation on parties.
    • Civil law countries were satisfied that "good faith" was included in the Convention.

Article 7(2): Addressing Gaps in the Convention

  • The Convention does not cover every possible issue (gaps).
  • Some gaps are intentional, resulting from diplomatic compromises during drafting.
    • Example: Article 78 states that interest must be paid, but does not specify the interest rate.
      • Common law/industrialized West: Market rate.
      • Communist countries: Rate set by statute.
      • Muslim countries: No interest (religiously prohibited).
    • Leaving the rate unspecified allowed broader acceptance of the Convention.
  • Other gaps exist because certain issues were simply not considered during drafting.

Two-Pronged Approach of Article 7(2)

  • If the Convention doesn't explicitly answer a question, Article 7(2) provides guidance:
    1. General Principles: First, the question should be answered by reference to the general principles on which the Convention is based.
    2. Domestic Law: If the question cannot be settled in conformity with general principles, then refer to the domestic law indicated by conflict of law rules.

Problems with the "General Principles" Approach

  • The Convention does not define the general principles it is based on.
  • Courts and academics disagree on what these principles are.
  • Civil law courts often consider "good faith" a general principle, which common law courts reject.
  • This ambiguity undermines the goal of uniform application.
  • Some argue that referring directly to domestic law would be more practical (though it risks returning to the problems the CISG was meant to solve).

Diplomatic Compromise

  • Article 7(2) represents another diplomatic compromise to achieve broader agreement on the Convention.