International Commercial Law - Contracts for the International Sale of Goods - Article Example

International Commercial Law Introduction In the early years of industrialisation, business and ethics were considered to be two unrelated and isolated concepts. During this era, many held the view that the sole role of businesses was to use their resources in order to make profits for their shareholders. Businesses were barely put to question regarding the impact that their practices had on the society or whether their approaches were fair. Ethics were seen as belonging to the realm of government and not businesses. For many businesses, the “end justified the means”. This implied that use of wrong means (unethical practices) to realise profits was prevalent. For instance, in the course of this era many children were employed in the work force because they provided cheap labour. However, with time it became widely recognised that ethical practices in business had a positive impact on business outcomes whereas unethical practices produced adverse business outcomes1. Consequently, many businesses begun to strive towards ensuring that their business practices were ethical. Legislations were also enacted in order to enforce ethical business practices2. As the world increasingly became globalised, many businesses began to continuously shift their focus to the international market in order to sell their products and services3. In the international business realm the importance of ethical business in the realisation of positive business outcomes was also recognised4. As a result, a number of international laws have been enacted over the years in order to govern international transactions. A good example of such laws include the United Nations’, Conventions on Contracts for the International Sale of Goods (CISG) also known as the Vienna Convention5. The CISG is an international convention that provides guidelines on contracts for the international sale of goods6. It particularly provides guidelines or regulations on the formation of contracts of sale, and the duties of buyers and sellers under such contracts7. Although laws such as the CISG provide detailed guidelines on how to facilitate international transactions8, it is worth questioning, how effective are laws such as the CISG in regulating ethical behaviour in international business and whether they can be used a tool to promote ethical business practice? This paper seeks to critically examine the effectiveness of the CISG in regulating ethical business behaviour. It further examines whether the CISG can be used as a tool for promoting ethical business practices. Foremost, this paper provides a brief overview of the CISG. Secondly, it critically assesses the effectiveness of the statute in promoting ethical business practices. Subsequently, this paper establishes whether the CISG can be used as a tool for promoting ethical business practices. Overview of the CISG The CISG is an international convention that provides guidelines on contracts for the international sale of goods. It primarily touches on the formation of contracts of sale and the duties of buyers and sellers under such contracts9. The Convention was formulated by the United Nations Commission on International Trade Law (UNCITRAL). It was initially enacted and signed in 1980 following a series of deliberation proceedings in Vienna involving a total of 62 countries. Nevertheless, the convention came into full effect in 1988. Currently, there are atleast 51 countries that are signatories to the convention10. The CISG was mainly formulated to act as an international statutory code for the sales of good for parties or businesses transacting in the international market. As far as international transactions are concerned, it was intended that the Convention would replace domestic laws of sale in member states11. The Convention aims as unifying international sales law so as to improve certainty in international transaction and facilitate the growth of international trade especially in developing countries. Moreover, the CISG aims at facilitating the adjustment of different bargaining power among international business actors12. This convention solely applies to contracts of sale of good or products between parties or entities conducting businesses in different states. It also applies only to member states that are signatories to the Convention13. One of the key features of the Convention is that it provides to international business actors entering into sales contracts the option of opting out of the Convention by agreement14. This implies that international business actors have the freedom to choose whether they want to be subject to the regulations embedded in the Convention or those embedded in their domestic laws15. Besides this, the CISG incorporates a wide range of provisions that provide guidelines on the formation of sale contracts, obligations of the contracting parties, grounds for contract breach and remedies thereof and passing of risk among many other provisions16. Effectiveness of CISG in Regulating Ethical behaviour in International Business In order to effectively assess whether the CISG has been effective in regulating ethical behaviour in international business, it is perhaps crucial to explore what ethical behavior in international business entails. According to Trevino and Nelson business ethics encompasses a set of principles, norms and standards that govern conduct in the business context17. Ethics determine what it morally right or wrong. In this regard Kline notes that due to the complexity of international business, there are a wide range of ethical issues that are likely to emerge18. As a result, there are a wide range of ethical principles that international businesses must adhere to. The OECD Guidelines for Multinational Enterprises, provides a set of ethical principles that are relevant to international businesses. These ethical guidelines touch on issues such as; labour standards, human rights, bribery, environmental standards, consumer protection, anti-corruption and supply chain issues19. Generally, there are a wide range of ethical behaviour that international businesses are expected to adhere to. This paper assesses the effectiveness of the CISG in regulating ethical behaviour revolving around three key issues namely; labour standards, consumer protection and corruption. The first issue i.e labour standards or employment practices form an important part of ethical behaviour in international business. From an ethics perspectives, international businesses are expected to provide a conducive work environment for their employees, contribute to the abolition of child labour, avoid discriminating against their employee and respect employee decision to join trade unions20. Schwenzer notes that, in a number of laws such as the Electronic Industry Code of Conduct, there are minimum ethical standards set that prohibit child labour, prescribe conditions of human treatment and maximum number of working hours that employee should work21. Nevertheless, as a provision that primarily deals with contracts for the international sale of goods, the CISG lacks clear guidelines on regulating ethical behaviour in international business as far as labour standards or employment practices are concerned. Nevertheless, 22Schwenzer suggests that under Article 9, ethical standards pertaining labour standards or employment practices can be incorporated in the contract such that these standards become part of the contract. Article 9 stipulates that “parties are bound by any usage to which they have agreed and by any practices which they have established between themselves.” Based on this provision, it is plausible to argue that although the CISG lacks clear guidelines on regulating ethical behaviour in international business as far as labour standards or employment practices are concerned, under Article 9 it is possible for the contracting parties to come up with their own standards to regulate business practices pertaining to labour or employment practices23. In regard to the second issue i.e corruption, international businesses are expected to sieze from engaging in any business transaction that is as a result of fraudulent and dishonest conduct especially by those in power. For instance, businesses are required not to give any payment, gift or bribe to government employees in order to obtain or retain business. Moreover, businesses are not supposed to offer payment in order to expedite their performance of routine duties or responsibilities24. In relations to this aspect of ethical behaviour in international business, it can be argued that the CISG is not effective when it comes to regulating behaviour against corruption. Ozeke notes that essentially, CISG incorporates a set of substantive rules that aim at minimising obstacles, particularly those related to choice of law issues. The Convention does not cover every issues that are likely to emerge from an international sale contract, like the validity of the contract, the effect of the contract on title , the goods sold, error, fraud, mistakes or duress. It leaves these issues to be resolved by relevant law determined by procedures of private international law. Thus business entities transacting within the international context must take into account the choice of law to include in their contract, since the provisions set under the CISG since ethical issues pertaining in corruption such as fraud are not effectively covered within the convention. Furthermore, since there are no special tribunal created for the CISG it may be difficult to address issues pertaining to corruption when dispute arises25. Kokoruda further suggests that some provisions under the CISG make international business transactions susceptible to corruption26. For instance, Article 11 of the CISG completely dispenses the statute of frauds. This article provides that; “A contract of sale need not be concluded in or evidenced by writing and is not subject to any other requirement as to form. It may be proved by any means, including witnesses.27” The conditions set under this provision are likely to impose certain risks on international businesses. As observed by Weston oral contracts are very risky since conversations can be interpreted in different ways28. This can in turn lead to a lot of uncertainties leaving room for corrupt individuals to advantage and impose fraudulent deal on unsuspecting international businesses. Therefore, when it comes to ethical issues pertaining to corruption, it is plausible to argue that the CISG may not be a suitable tool for regulating ethical behaviour. Lastly, international businesses are expected to safeguard consumer interest by ensuring that the consumers receive accurate information about the product or good that they purchase and they are not manipulated through unfair business practices29. With regards to the protection of consumer interests, it is also doubtful whether the Convention is effective regulating ethical behaviour in international business. Under Article 2(a), the CISG does not cover “the sales of goods bought for personal, family or household use, unless the seller, at any time before or at the conclusion of the contract, neither knew nor ought to have known that the goods were bought for any such use30.” In reference to this provision, it is evident that the Convention does not offer any grounds for consumer protection in sales of goods transactions. Instead, it focues on the interests of commercial actors. Similarly, Article 5 clearly shows that the Convention does not offer any grounds for consumer protection. This article provides that “This Convention does not apply to the liability of the seller for Death or personal injury caused by the goods to any person31.” A critical look at the various provisions set under the CISG, it is evident that this Convention is silent on the admissibility and validity of direct contractual claims by non-privity parties. This is also evident in how the Convention is applied. For instance, while applying the CISG, the French Supreme Court repudiated buyer’s direct action. The court held that the provisions set under the CISG exclusively apply to the relationship between the buyer and seller in an international transaction and not the consumers affected thereof from purchasing the products sold under such transactions. In this case, it can be argued that the Convention does not have any provision that touch on the protection of consumer interests32. Therefore when it comes to regulating ethical behaviour touching on consumer interests, the CISG can be considered to be ineffective. Should the CISG be used as tool for Promoting Ethical International Business Practice? Drawing on the arguments presented in the previous section of this paper, it is evident that the CISG may not be such an effective tool for promoting ethical international business practice. Provisions set under the CISG solely touch on issues on contracts for the international sale of goods. This Convention primarily touches on the formation of contracts of sale and the duties of buyers and sellers under such contracts. In essence, this Convention lacks specific provisions that provide ethical guidelines for international business practice. As seen in the section above there no specific provisions on key ethical issues in international business such as; corruption, protection of consumer interests or employment practices. Based on the fact that this Convention primarily touches on the formation of contracts of sale and the duties of buyers and sellers under such contracts, it can be argued that, its lack of provisions on ethical issues make it an inappropriate tool for promoting ethical international business practice33. Conversely, Schwenzer and Leisinger argue that within the contracts of sale context, ethical behaviour can be regulated, enforced and promoted in a number of ways. Given the fact that the CISG is flexible and provides the contracting parties the power to define the terms of their sale contracts, it is possible to incorporate ethical standards that promote ethical business practices touching on a wide range of issues34. Article 9 (1) of the CISG stipulates that contracting parties are bound by the provisions that they have agreed to set in their contract of sale35. Schwenzer and Leisinger note that one of the ways of incorporating ethical standards into sale contracts is by clearly stipulating to the seller for instance, has to abide with certain standards concerning labour standards, consumer protection and corruption. For example, in their sale contract a company can indicate that they only carryout business with entities which practices safe labour practices and environmental responsibility. By doing so such ethical standards become part of the contract and can be enforced and any violations can be sanctioned36. Nevertheless, Schwenzer and Leisinger acknowledge that the problem of using CISG to promote ethical business practices lies in the fact that very often small and medium-sized businesses operating in the international market, lack the bargaining power to incorporate express ethical values in the terms of their contract37. Moreover, many businesses may prefer contracting with parties which have few conditions or terms mediating the performance of the contract. Furthermore, with the ever increasing competition in the market, many businesses may also find themselves rushing into the limited deals without take into consideration the ethicality of business practices employed by the other party. In addition to this, the CISG places the sole responsibility of regulating ethical behaviour in international business on contract terms developed by transacting parties. As a result, the Convention can be completely futile when it comes in promoting ethical behaviour in situations where the contracting parties may not be willing to incorporate terms on ethical business practices. By giving contracting parties the freedom of developing their own terms and not having any provisions that make it mandatory for contracting parties to have provision on ethical business practices, it is plausible to argue that the CISG may not be such an effective tool for promoting ethical international business practice. Conclusion This paper sought to examine the effectiveness of the CISG in regulating ethical business behaviour. It further examines whether the CISG can be used as a tool for promoting ethical business practices. It is established in this paper that the CISG may not be effective for regulating ethical business or a useful tool for promoting ethical business practices. This is mainly because the Convention lacks specific provisions that provide ethical guidelines for international business practice. Provisions set under the CISG solely touch on issues on contracts for the international sale of goods. Using three key ethical issues in international business namely; labour standards, consumer protection and corruption as the benchmark for evaluating the effectiveness of the Convention in addressing these issues, this paper established that the CISG lacks clear guidelines on regulating ethical behaviour in international business as far as labour standards, consumer protection and corruption are concerned. However, under Article 9 (1) of the CISG which provides contracting parties the freedom of developing their contract terms, ethical behaviour can be regulated, enforced and promoted. It is possible to incorporate ethical standards that promote ethical business practices touching on a wide range of issues. However, the effectiveness of this provision is dependent on the bargaining power of the contracting parties and their willingness to incorporate terms on ethical business practices. In a nutshell, the CISG may not a suitable or effective Convention of promoting ethical international business practices. However, under Article 9 (1) it is possible that it can be used to enhance ethical business practices only if the contracting parties are committed towards enforcing ethical practices in international business38. References Cullen, John and Parboteeah, Praveen, International Business: Strategy and the Multinational Company (Taylor & Francis, New York) Ferrari, Franco, Contracts for the International Sale of Goods: Applicability and Applications of the 1980 United Nations Conventions, (Martinus Nijhoff Publishers, 2011) Kline, John, Ethics for International Business: Decision-Making in a Global Political Economy (Routledge Publishers, 2010) Kokoruda, Christopher, ‘The UN Convention on Contracts for the International Sale of Goods- It’s not your Father’s Uniform Commercial Code’, (2011) , 85(6), The Florida Bar Journal 103 Honhold, John, Uniform Law for International Sales Under the 1980 United Nations Convention (Kluwer Law , 1991, 2nd ed) Hull 753 Corp. v. Elbe Flugzeugwerke GmbH (1999) 58 F. Supp. 2d Schwenzer, Ingeborg and Leisinger, Benjamin, ‘Ethical Values and International Sales Contracts’ in Ross Cranston, Jan Ramberg and Jacob Ziegel (eds), Commercial Law Challenges in the 21st Century; Jan Hellner in Memorium (Stockholm Centre for Commercial Law, 2007) Organisation for Economic Cooperation and Development (OECD), OECD Guidelines for Multinational Enterprises, (2008) Ozeke, Herguner, Turkey: United Nations Convention on Contracts for the International Sale of Goods(2012) Schwenzer, Ingeborg, ‘Conformity of the Goods: Physical Features Wane?’ In: State of Play (Eleven International Publishing, 2012) Trevino, Linda and Nelson, Katherine, Managing Business Ethics, (John Wiley & Sons, 2010). 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