Sale of Goods in Harmonizing International Trade - Essay Example

Complexity of International Transaction for the Sale of Goods in Harmonizing International Trade Introduction International trade forms an important sector of economy in most countries. The major feature of the international transactions for the sale of goods is that the transactions have to cross the borders. Due to the nature of international transactions, the parties involved are expected to deal with legal concerns and other legal issues in their domestic transactions. However, the legal issues suffer from various factors that must consider the actions necessary in case of any legal dispute, the legal rights, remedies and obligations involved (DiMatteo 2009, p.67). The remedies are not determined easily as they may be complicated when the contracting parties originate from countries that have different legal systems. The codes of law from different countries contain legal principles which are upheld and enforced by courts. Legal frameworks exist from scratch borrowed from civil law system and may incorporate the common law principles. This paper attempts to explain the complexity that is involved in harmonizing the international trade through international transaction for the sale of goods. Discussion The international transaction for the sale of goods to harmonize the laws on international sales. This serves as a code for the common law and incorporates the principles outlined in common law, civil and socialist laws. This strikes a compromise between the principles from various legal systems but criticisms have been leveled against it. However, there has been a shortcoming which must be applauded as worthwhile attempt towards harmonizing in place of diversity that otherwise would prevail. The CISG provides common rules that govern the international sales. This does not apply to all transactions involving sale of goods. CISG only governs formation of sale contracts and outlines the rights and duties of both buyer and seller. This has altered the established law o sales. Nevertheless, this does not allow for terms of usage and validity of the contract. The scope of CISG application is contained in articles 4 and 5. Similar to other conventions that aim at harmonizing certain sections of the law, CISG has not been able to provide a comprehensive code regarding the regulation of the matters falling within certain spheres of application. Some matters have been termed as controversial due to the difference between national laws making it hard to harmonize various approaches (Burnett, 2004). In its move to ensure maximum support, drafters decided to neglect some issues outside the scope by CISG and opted for a highly acceptable convention rather than complete and controversial text. Furthermore, in light of broad description of matters addressed by CISG, interpretation of different notions and related concepts are critical in unification as far as CISG context is concerned. Rights and obligations of buyer and seller, and contract formation concepts limit the scope of application of CISG. As a result, this can be governed by non-harmonized provisions of national law applicable by the virtue of conflict of rule of law (Wolf 2011, p. 102). Inadequate in-depth analysis The study reveals several cases referring to article 4. In-depth analysis of provisions, concepts and notions used is lacking. There has been a general acceptance that as outlined in article 7(1) of CISG, there should be autonomous interpretation of the notions. Nevertheless, few cases have been reported where courts have repeatedly tried to give autonomous interpretation of the major notions as outlined in article 4 on contract formation and obligations and rights of buyers and sellers. This means that autonomous interpretation of article 4 notions may not suffice in guaranteeing uniform application of CISG. Whenever the issue about qualification of some legal concepts is left to national law, then the scope for application of CIGS is determined by the national law. Consequently, qualification of the national legal institutes must be governed by the principles of article 7 (Spanogle 2011, p. 13). Inadequate distinction between second alternative of article 7 and article 4 This forms another problem of harmonizing the international trade. This makes the courts to use national law with little or no explanation of the reasons for taking that dimension. The national law can be applied by virtue of article 4 when the matter lies outside CISG scope or by virtue of second alternative outline by article 7(2). Consequently, the application of the national law based on article 7(2) of CISG implies that courts consider such matters under the CISG but cannot find it or even express any implied regulation. For final result, use of national law can be similar under the two provisions though the underlying legal reasoning may be different. For article 7(2), whenever there is no explicit regulation of the question, a court must seek an answer to the question before resorting to application of the national law. This should be based on general CISG principles of the first alternative of the article 7(2). In practice, exclusion of certain matters from scope of convention may be deduced from lack of adequate regulation of certain question. Despite the existence of strong indication of such conclusion, the decision is not compelling. As a result of inadequate regulation, CISG distinguishes between matters falling outside CISG in sense of the article 4, as well as the question that is not regulated by CISG and underlying principles as outlined in article 7 (Kröll 2010, p. 12). Content of Article 4 and Limitations of Wording The first sentence of article 4 of CISG gives a definition of two broad areas of the law governed by CISG on contract formation and obligations and rights of buyer and seller. Wording of first sentence of the article 4 has been criticized of being too narrow as it fails to mention matters covered by convention like interpretation of the statements that are regulated by article 8 or any modifications for contracts as mentioned in article 29. Similarly, matters considered in most jurisdictions to relate with formation of contract is not outlined in the convention (Schwenzer et al. 2012, p. 89). Contracts formation Commentators and courts agree on notion for the formation of contracts, stating that this refers to technical process used in concluding a contract. Relevant CISG provisions deal only with acceptances and offers, as well as the consent required by the parties involved. By contrast questions on validity of contract may be explicitly excluded as outlined in second sentence of article 4. Furthermore, exclusion of issues on contract formation must be examined carefully. This forms the contract conclusion, arbitration clause agreement and inclusion of standard terms. An agency belongs to matters that are considered to have been excluded from the scope of CISG for inadequate provisions. The agency acts as a legal concept that is defined outside scope of CISG application. This is evidenced by decision from Austrian Supreme Court when the case concerning the purchase of the Spanish fruits by subsidiary of the Austrian company insisted on taking orders letterhead of parent company after the seller could not access default insurance coverage for directly concluded contracts with subsidiary CISG (Garro 2008, p.33). Some cases show that statements on exclusion of some questions regarding the scope of CISG remain questionable as it has the tendency of concealing certain issues questioning the essence of one of the parties acting as an agent of other party covered by CISG (Garro 2008, p.34). On the other hand, it is widely accepted that CISG never influences court’s jurisdiction. The clauses on forum selection and arbitration form an important section of general contract. Consequently, the controversial question arises on whether the parties involved must agree on a procedural clause regarding the conclusion of the contract. In light of such a connection, it appears logical that when the contract is governed by CISG, relevant CISG provisions determine whether the forum selection or arbitration clause was selected validly. Nevertheless, the arbitration clauses act as separate contracts even when incorporated in main contract. Such a separability doctrine is provided in article 17 and this may lead to submission of arbitration agreement to different law other than that of the main contract. In addition, even when main contract allows for the arbitration clause, courts have never extended the choice of law effects of the main contract to arbitration clause. As a result, the arbitration clause may not be concluded despite the fact that the main contract allow for an explicit choice of the law clause with the parties not allowed to determine different laws for application in arbitration clause. Absence of choice of the law clause in main contract reflects the use of arbitration in determining the law that is applicable for the arbitration agreement. However, this will often lead to different laws being applied for the main contract and arbitration clause. Consequently, despite the main contract being governed by CISG, the conclusion of the arbitration clause is not automatic as the clause must be submitted to CISG. This raises the question on whether CISG is able to regulate conclusion of the arbitration agreements. The articles 1 through to 3 outlines that the sphere of application of CISG remains limited to sale contract. Afterwards, no person is allowed to apply for the CISG to the concluded arbitration agreement after the onset of a dispute or after the conclusion of the main contract. The incorporation of the arbitration agreement into the contract in form of arbitration clause does not affect the nature of it acting as a separate contract due to doctrine of separability. Consequently, the problem of whether parties have agreed on arbitration clause while remaining within the scope of application of CISG is off the application sphere. Initially, this may appear odd when different clauses by the same contract are governed using different laws. Nevertheless, this marks a necessary consequence for separability doctrine. At least for the requirement of the form, different clauses for the same contract can only be governed by separate regimes (Schaffer et al. 2002, p. 22). Inclusion of the standard terms within the contract] The move to include standard terms in a contract depends on specific provisions as well as regulations by the national laws. CISG does not allow for specific provisions and has been held by courts on basis of inclusion in CISG scope. The determination of whether the standard terms are included in the contract is critical as far as interpretation of the parties’ declaration is concerned. The decision by some international courts requires that one of the parties take a cognizance of the content. As a result, a party is compelled to use the standard terms in the contract and avail them to the other party. However, it has been noted that despite the autonomous conception of incorporation of standard terms required by CISG, the party that relies on standard terms should send the terms to the other party. Such a decision on inclusion must be justified using standard terms that deal with questions that are covered by CISG. As a result, they appear different from arbitration clauses. Obligations and rights of buyer and seller Article 4 on rights and obligations of buyers and sellers indicate that the rights of the third party have not been covered. The emphasis on buyer and seller indicates that rights and obligations have been established in the case law (Gross 2008, p. 52). Burden of Proof There has not been explicit mentioning of the burden of proof by CISG. Normally, the burden of proof forms the major area of conflicts for the case laws. There have been cases of lack of explicit regulation resulting in application of the domestic laws on burden of proof. This reveals the issue of burden of proof was outside the scope of CISG application. This makes it hard to determine the scope of application regardless of whether the decision is based on same reasoning or whether it considers the matter outside the scope of application. Therefore, the correct and prevailing view depends on the fact that the burden of proof lies within the scope of application by CISG. According to the provision by article 79(1), a party is not considered liable for any failure in performance of the obligations when there is proof that resulting failure was as a result of the impediment beyond control which can be reasonably expected to take the impediment into account during the time of concluding the contract or to avoid the resulting consequences. As a result, issues relating to burden of proof may not be deemed beyond convention ambit. Legislative history of the CISG reveals the provisions that govern the burden of proof and which are considered superfluous as they appear to repeat general principles derived from other provisions. Studies show that the burden of proof on matters that fall within the scope of CISG is the only one that is regulated. Allocation on burden of proof is among the best examples experienced by courts in determination of the matters that fall within the scope of CISG. Most courts have inferred from CISG provisions. In case the party desires to rely on the provision, there must be proof of existence of actual prerequisites provided. Some of the general principles underlying CISG must also be relevant in determination of exceptions of the provision (Gotanda 2009, p. 43). Set-off There have been issues regarding the inclusion of set-off in CISG scope. There have been claims arising from different contracts as well as the constellation from contractual relationships. The set-off issues lies outside the scope of CISG application. Most of the decisions have the admissibility determined by the set-off requirements. Most of the decisions are never accompanied by specific reasons for the inclusion. The CISG gaps may not be handled by including interpretation of convention and the belief that the national law is relevant. The question about set-off was not considered in CISG. This indicated that the drafters of CISG desired to avoid unnecessary back and forth payments. Rather, they preferred reciprocal payment obligations. This means that the CISG scope does not provide for guidance on important questions regarding inclusion of set-off in CISG scope of applicability (Burnett 2004, p. 45). Conclusion The scope of application of CISG has been defined by articles 4 and 5. Similar to other conventions that aim at harmonizing particular sections of the law, CISG have not been effective in regulating the matters that must be included in its sphere of application. Some matters have been considered as controversial due to the national laws differing to a greater extent in their harmonization approaches. The drafters left such issues in the move towards ensuring maximum support. As such, there have been narrow interpretations of different crucial concepts, hence the complexity in harmonizing the international trade. References List Burnett, R. (2004). Law of International Business Transactions. London, Federation. p.45. DiMatteo, L. (2009). Law of International Contracting.Cambridge, Kluwer Law International. P.67. Garro, A. (2008). CISG Advisory Council Opinion No.7, Exemption of Liability for Damages Under Article 79 of the CISG. Internationales Handelsrecht 8(3), pp.33-34.. Gotanda, J. (2009). CISG Advisory Council: Opinion No. 8, Calculation of Damages under CISG Articles 75 and 76 . Internationales Handelsrecht 9(3), p.43 Gross, O. (2008). The International Sale of Goods Transaction through the Prism of the United Nations Convention on Contracts for the International Sale of Good (CISG). London, University of Minnesota Law School. p.52 Kröll, S. (2010). CISG: The UN-Convention on the International Sale of Goods: Article-by-article Commentary. London, C.H. Beck. p.12 Schaffer, R., Beverley, E., & Filiberto, A. (2002). International Business Law and Its Environment. London, West/Thomson Learning. p.22 Schwenzer, I., Pascal, H., & Christopher, K. (2012). Global Sales and Contract Law. Oxford, Oxford University Press. p.89 Spanogle, J. (2011). International Sales Law, a Problem-oriented Coursebook. St. Paul: West Group (law). p.13 Wolf, R. C. (2011). Complete Guide to International Joint Ventures with Sample Clauses and Contracts. London, Wolters Kluwer law & Bus. p.102. Read More