The Role of CISG and UNIDROIT Principles

Transcription

1 HARMONIZING INTERNATIONAL CONTRACT LAW: The Role of CISG and UNIDROIT Principles Mike Dennis Department of State UNCITRAL Expert Group Meeting on Contract Law Reform Incheon, February 25-26, 2013

2 Harmonizing International Contract Law: The Role of CISG and UNIDROIT Principles 1. Is a new global initiative needed? 2. Is a new global initiative feasible? 3. Are there practical alternatives?

3 Background to Proposed Initiative 2012 session of UNCITRAL: proposal for global initiative to harmonize international contract law. Possible future work in the area of international contract law: Proposal by Switzerland on possible future work by UNCITRAL in the area of international contract law, U.N. Doc. A/CN.9/758, available at [hereinafter Swiss proposal]. Secretariat requested to organize symposiums and other meetings... to assist the Commission in the assessment of the desirability and feasibility of future work in the field of general contract law. Many delegations, however, urged that priority should be given to other work of UNCITRAL, in particular in the field of microfinance. A number of delegations expressed clear opposition and strong reservations with regard to future work in the field of general contract law. A summary of the debate is contained in the Report of the United Nations Commission on International Trade Law, forty-fifth session (25 June 6 July 2012), U.N. Doc. A/67/17, paras , available at [hereinafter Report of 45th Session].

4 1. Is a new global initiative needed? Global harmonization and unification of international commercial law relies primarily on two key instruments: CISG and Unidroit Principles the UNCITRAL Convention on Contracts for the International Sale of Goods (CISG) (1980) UNIDROIT Principles of International Commercial Contracts (UNIDROIT Contract Principles) (most recently revised in 2010).

5 1. Is a new global initiative needed? The Role of CISG UNCITRAL approves CISG in1980, after 50 years of work. UNCITRAL colloquium in 2005 recognizes CISG as single most successful transnational commercial law treaty. Hebert Kronke, The UN Sales Convention, the UNIDROIT Contract Principles and the Way Beyond, 25 J. L. & Comm. 451, 459 (2005). Since colloquium, 15 more States have become party to the CISG, bringing the total number to 78. For the parties to the CISG see Status United Nations Convention on Contracts for the International Sale of Goods, available at

6 1. Is a new global initiative needed? The Role of CISG UNCITRAL decides (1998 and 2009) that the Secretariat should develop and maintain the CISG Digest and Case Law on UNCITRAL Texts (CLOUT) in the six official languages of the United Nations. For the 2010 Commission decision, see Report of 45th Session, supra, para For the 2007 Commission decision, see Report of the United Nations Commission on International Trade Law, fortieth session (25 June 12 July 2007), UN Doc. A/67/17 (Part I), para. 213, available at V07/857/09/PDF/V pdf?OpenElement.

7 1. Is a new global initiative needed? The Role of UNIDROIT Principles UNCITRAL endorses UNIDROIT Contract Principles (2007 and 2012) as a complement to the CISG and commends their use as follows: They shall be applied when the parties have agreed that their contract be governed by them, They may be applied when parties have agreed that their contract be governed by general principles of law, the lex mercatoria or the like,... [and] when the parties have not chosen any law to govern their contract, They may be used to interpret or supplement international uniform law instruments,... [and] to interpret or supplement domestic law, They may serve as a model for national and international legislators. For the 2010 Commission decision, see Report of 45 th Session, supra, para For the 2007 Commission decision, see Report of the United Nations Commission on International Trade Law, fortieth session (25 June 12 July 2007), UN Doc. A/67/17 (Part I), para. 213, available at

8 1. Is a new global initiative needed? The Role of UNIDROIT Principles Proponents of a new global initiative cite the soft law nature of the UNIDROIT Principles as a shortcoming. Swiss Proposal, supra, at 5. The UNCITRAL 1985 Model Law on International Commercial Arbitration and the 2010 UNCITRAL Arbitration Rules specify that the arbitral tribunal shall apply the rules of law designated by the parties as applicable to the dispute, including the UNIDROIT Principles.

9 1. Is a new global initiative needed? Would it undermine CISG? 2007 UNCITRAL Colloquium on Modern Law on Global Commerce recognizes that parties are increasingly selecting the CISG to govern their international contracts. See, the following papers presented by at the UNCITRAL Congress on Modern Law for Global Commerce at the 40th Annual Session of UNCITRAL (Vienna, 9-12 July 2007): Harry M. Flechtner, Changing the Opt-out Tradition in the United States; and Eckart Brodermann, The Practice of Excluding the CISG: Time for Change? Comment on the Limited Use of the CISG in Private Practice (and on Why This Will Increasingly Change), both available at Initiating a new global initiative designed to change the CISG could undercut that promising trend. Would an attempt to draft such an instrument detract from ongoing efforts to secure broader adoption of the CISG?

10 Harmonizing International Contract Law: Role of CISG and UNIDROIT Principles 1. Is a new global initiative needed? 2. Is a new global initiative feasible? 3. Are there practical alternatives?

11 2. Is a new global initiative feasible? Nature of new instrument not identified in proposal. Model law or convention difficult to achieve. Soft law instrument duplicative of UNIDROIT Principles.

12 2. Is a new global initiative feasible? Historical Example of CISG CISG negotiations building on 40 years of work in international arena in other organizations, still took 10 years at UNCITRAL. Did not tackle toughest issues such as validity, mistake, or agency because of a lack of consensus. No evidence that consensus exists on those topics today.

13 2. Is a new global initiative feasible? Is a New Convention Feasible? No codification is ever perfect, and every legal text therefore needs instruments and concepts that allow adjustments, development and gapfilling to cope with issues not foreseen by its drafters. This is even more so in the case of codifications based on international conventions, for, while a domestic legislator might be willing and competent to enact necessary improvements and reforms, the chances that another United Nations conference can be convened on the CISG, that it will reach results, and that all states that have enacted the Convention will also enact reforms, is almost zero. Peter Schlechtriem, Requirements of Application and Sphere of Applicability of the CISG, Victoria U. Wellington L. Rev. 781, 790 (2005/4).

14 2. Is a new global initiative feasible? Is a New Soft Law Instrument Feasible? UNIDROIT Principles address range of issues but drafted by independent experts, followed by government comments. Independent experts enjoyed flexibility that governments representatives in UNCITRAL do not have. First version of the Principles still took 14 years.

15 2. Is a new global initiative feasible? Example of Unidroit Principles [D]o we not tremble at the thought of drafting principles for the entire world?... We do not tremble for at least four reasons. One, we are drafting mere principles and not a uniform law, so that whatever rules we write are only likely to be applied if they find favor with someone concerned with a particular transaction or dispute. Two, most of our principles are unlikely to miscarry because they are framed with evident generality (e.g., good faith and fair dealing ) or they have built-in safety valves (e.g., unless the circumstances indicate otherwise ), giving them enough flexibility to permit a judge or arbitrator to use common sense in applying them so as to avoid an arbitrary or unfair result.

16 2. Is a new global initiative feasible? Example of Unidroit Principles (2) Three, in some instances we have declined to deal with tough questions, as in the area... of invalidity on a variety of grounds under the applicable domestic law. And four,... UNIDROIT is free to amend the Principles... from time to time to take care of problems that later surface. E.A. Farnsworth, Closing Remarks, Symposium, Contract Law in a Changing World, 40 Am. J. Comp. L. 699, (1992).

17 2. Is a new global initiative feasible? U.S. Uniform Commercial Code Experience of United States with Uniform Commercial Code (UCC) also demonstrates that certain aspects of contract law are not good candidates for codification. Article 2 of UCC codifies rules in systematic way but relies heavily on general principles of law to fill many gaps. Effort to include service contracts abandoned as not feasible.

18 2. Is a new global initiative feasible? Role of CISG and Unidroit Principles What we see looking at the two instruments the CISG as the mother of all modern conventions on the law of specific contracts and the [Unidroit Principles] as the (inevitably) soft-law source of modern general contract law are neither competitors nor apples and pears. What we see is actually, and even more, potentially, a fruitful coexistence... [The UNIDROIT Principles] are, obviously, complementary in that they address a wide range of topics of general contract law which neither the CISG nor any other existing or future convention devoted to a specific type of transaction would ever venture to touch upon. Hebert Kronke, The UN Sales Convention, the UNIDROIT Contract Principles and the Way Beyond, 25 J. L. & Comm. 451, (2005).

19 2. Is a new global initiative feasible? UNCITRAL s resources are limited UNCITRAL, like other elements of the UN, is under increasing budget pressures, as are States. It is important that UNCITRAL marshal its resources and be selective in its choice of products. A contentious multi-year negotiation would divert resources from other important projects in UNCITRAL, with dubious prospects for success.

20 2. Is a new global initiative feasible? UNCITRAL s resources are limited The Secretariat s lack of resources is a particularly disappointing feature here... [since] the preparation of a uniform text is an extremely expensive affair (the Sales Convention cost the United Nations alone an estimated 6 million U.S. dollars) which would mean a considerable waste if, for lack of a comparatively minute amount, the text will not be made known to the relevant people. Gerold Herrmann, The Role of UNCITRAL, in Foundations & Perspectives of Int l Trade Law, 28, 33 (Ian Fletcher, Loukas Mistelis & Marise Cremona eds., 2001).

21 2. Is a new global initiative feasible? U.S. has consulted extensively with key domestic stakeholders and found no support for a new global initiative. The Executive Committee of the Uniform Law Commission (ULC) the organization that co-developed, with the American Law Institute, the Uniform Commercial Code in the United States recently adopted a resolution opposing the proposal made in UNCITRAL, because the project is very unlikely to be successful and because an attempt to develop the type of instrument proposed would not be a prudent use of resources. Based on these consultations and other analysis, we conclude that such a global initiative should not be pursued at this time.

22 Harmonizing International Contract Law: Role of CISG and UNIDROIT Principles 1. Is a new global initiative needed? 2. Is a new global initiative feasible? 3. Are there practical alternatives?

23 3. Are there practical alternatives? Primary mandate of UNCITRAL to promote coordination and cooperation in development of international trade law. UNCITRAL plays critical role in promoting worldwide ratification of CISG and uniform interpretation of provisions. Consistent with mandate, UNCITRAL has endorsed instruments of other international organizations that contribute to the harmonization of international contract law including, in 2012 UNIDROIT Principles (2010 edition) ICC s Incoterms (2010 edition). For a comprehensive list of texts of other organizations endorsed by UNCITRAL, see

24 3. Are there practical alternatives? UNIDROIT Model Contract Clauses UNIDROIT is developing model clauses to be used by parties to ensure that their contracts will be governed by the UNIDROIT Contract Principles. See Model Clauses for Use by Parties of the UNIDROIT PRINCIPLES OF INT L COMMERCIAL CONTRACTS, available at A Unidroit Working Group, composed of experts in the field of private international law and arbitration, met in Rome on February 11-12, 2013.

25 3. Are there practical alternatives? Hague Conference Principles Hague Conference developing Principles on Choice of Law in International Contracts Principles recognize and promote Rules of Law such as UNIDROIT Principles. Conference decides that soft law approach involving Principles preferable for international commercial contracts. The draft Hague Principles on the Choice of Law in International Commercial Contracts are available at

26 3. Are there practical alternatives? UNCITRAL ODR UNCITRAL developing legal instruments for ODR of both B2B and B2C cross-border e-commerce disputes. Official Records of the General Assembly, 65th Session, Supplement No. 17 (A/65/17), para Future work will include an annex to the generic rules on substantive legal principles for resolving disputes. UN Docs. A/CN.9/752, paras. 14, 29; A/CN.9/739, paras. 140 and 151. Many delegations supported the approach of using equitable principles,... or sets of substantive provisions bearing in mind the need for a high consumer protection content as the basis for deciding cases, thus avoiding complex problems that may arise in the interpretation of rules as to applicable law. UN Doc. A/CN.9/716, para. 101 (WG Rept., December 2010 session).

27 Conclusion A new global initiative of the type proposed would be a multiyear undertaking, both contentious and expensive, and with dubious prospects for success. Reopening international negotiations could detract from efforts to promote ratification of the CISG internationally; countries may be hesitant to sign on if negotiations are underway that might change the text. UNCITRAL and other international organizations are already engaged on many fronts, in more practical ways, in the promotion of the harmonization of international contract law. Such efforts should be pursued, rather than an overly ambitious new global initiative.