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Zeller, Bruno --- "The Australian Sale of Goods (Vienna Convention) Acts" [1999] MurdochUeJlLaw 28; (1999) 6(3) Murdoch University Electronic Journal of Law


Is the Sale of Goods (Vienna Convention) Act the perfect tool to manage cross border legal risks faced by Australian Firms?

Author: Bruno Zeller
Victoria University, Melbourne
Issue: Volume 6, Number 3 (September 1999)

Contents

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    Summary

  1. This paper examines in detail the application of the International Convention for the Sale of Goods (CISG) in the Australian context. The problem with an attempt to create a uniform set of rules is the fact that not all nations have developed the same level of sophistication in their international trade usage. Furthermore not all nations operate under the same or similar political system. Many writers[1] in the early development of the CISG predicted that the loose terminology of the CISG will lead to interpretations of the CISG based on their own economic legal and political orientation.[2]

  2. In my view this prediction does not appear to become true. The growing number of interpretations of many courts indicate a move towards a uniform interpretation of the CISG. Scholarly writings of more recent vintage help this process enormously. Courts, specially in Europe, have taken notice of these writings and this paper attempts to indicate that such a uniform interpretation is also possible within the Australian legal system.

    Introduction

  3. The Sale of Goods (Vienna Convention) Act (CISG) has now been in operation for eleven years. [3] It has created enormous interest amongst overseas scholars. There is little scholarly writing and no case law of significance in Australia to help business and guide the legal profession in the application of the CISG[4] However in Europe, (notably Germany) and the United States, the reverse is the case. In a recent paper, the Australian Law Reform Commission (ALRC) stated that the first principle of an international agreement "which aims to improve commercial law at either a procedural or substantive level should have as one of its expected outcomes the reduction or better management of cross border legal risks faced by Australian firms"[5]

  4. Harmonization of laws is a desirable and expected outcome of international agreements. Some factors have been identified which limit the effectiveness of harmonization through conventions such as the CISG. One of the factors identified by the ALRC is that "effective harmonization does not require uniformity but does require a common conceptual basis."[6]

  5. Such a conceptual basis varies between common law countries and civil law countries and there is a danger that harmonization is only superficially effective. It is therefore not surprising to read that "the person looking at the currently effective Uniform Law from a certain distance will be surprised by its selective and fragmentary nature"[7]

  6. The expected benefit of any convention, and the CISG is no exception, depends on the fact that it is implemented in a manner contemplated by those preparing it.[8] The fact is that the CISG cannot be viewed an interpreted in isolation. If it is based on domestic law diverging judicial interpretations would lead to a fragmented approach and uniformity could not be achieved. International development plays an important part in interpreting and understanding the CISG. In such a way cross border legal risks are reduced and the business community will gain the benefits which can be achieved through the CISG. These benefits are by no means certain or guaranteed and ongoing development and interpretation not on a national but international level will contribute towards a workable solution.

  7. This paper attempts to highlight the problems in the application of the CISG. It also attempts to show that this Convention can be incorporated into the Australian legal framework and has the potential to decrease cross border legal risks. The most important factor in the development of a common conceptual basis will be a new approach to interpretation and remedies which are not yet applied in domestic dispute resolutions. Von Doussa J. in a Federal Court Decision[9] (the CISG applied to the contract of the sale of goods) found it important enough to point out that the pleadings "are expressed in the language and concepts of the common law, not in those of the Convention".[10] Counsel made only passing reference to the Convention. He also added that the provisions of the Convention replace the common law concepts and common law remedies.[11]

  8. It appears that the judiciary has recognised the importance of harmonisation of law through the concepts expressed in the CISG. To fully appreciate the CISG it is of importance to make some comparative comments with domestic law namely the Goods Act.[12]

  9. As the CISG is not applicable to all international sale of goods, an understanding of both acts is necessary. However it must be said that the common law of contract cannot be ignored either. It is imperative for practitioners (contract drafters and litigators) to understand the CISG in order to avoid claims in negligence. The application of the CISG can produce potentially different outcomes and an American case is very instructive to illuminate this point.[13]

  10. Counsel delayed raising the point that the transaction was governed by the CISG. The court applied domestic law and the seller did win in controversial circumstances. He may still loose the case on appeal in front of the Oregon Supreme Court as the defendant will rely on the statute of fraud. Under the CISG such a question would have been a non-issue pursuant to article 11. Under American domestic law the statute of fraud, contract formation, parol evidence, the effect of missing contractual terms and remedies are some areas which produce outcome-determinative changes.[14] In Victoria[15] s.9 of the Goods Act, which was based on s.17 of the Statute of Fraud has been repealed with the introduction of the CISG. However other areas, like in the U.S. do produce different results and need watching.

  11. Ultimately the challenge in the application and interpretation of the CISG will be the ability of the Courts to apply scholarly writings and overseas case law to Australian legal concepts. This will produce new case law and some sense of certainty and predictability will be established. At this stage, fifty-three countries have adopted and ratified the CISG. Not all of Australia's major trading partners have adopted the Convention[16] which makes it all the more important that the choice of law question is investigated and understood. Such a choice requires a clear understanding of three factors. Firstly, what is the applicable private law, secondly what is its relationship to the CISG and thirdly, how is the CISG interpreted by the applicable foreign courts and tribunals?[17]

  12. To add weight to such an investigation is the fact that most international contracts include a choice of forum clause to facilitate possible arbitration. In such an event, unless stipulated differently, the domestic law of the forum will apply.

    13. Choice of law

  13. Any contract for the sale of goods cannot exist without a governing law which is based on the application of domestic private law. Which domestic private law is applicable depends on the conflict of law rule. There are basically two possible situations: (i) the contract is silent on the choice of law, or (ii) the contract stipulates a particular forum or choice of law. In a contract that does not stipulate the governing law, the Australian conflict of law rule states that the private international law of the State which has the closest connection to the contract will be applied.[18] In the above case, it was found that the sellers place of business has the closest connection to the contract. A buyer would find it difficult to show that he has the closer connection to the contract than the seller. The Australian conflict of law rule in essence is also applied in other countries. For example Germany, one of Australia's trading partners, has domestic legislation in place where the choice of law clearly stipulates the "closest connection".[19]

  14. To illustrate this point, a recent Swiss decision can be quoted.[20] In order to determine the applicable law, the choice of law question had to be resolved. The arbitrator tackled the problem by applying the law of the forum namely Swiss law first. According to Swiss domestic law, he had to apply the Hague Convention which led him to apply Russian domestic law. As the CISG is part of Russian domestic law, the arbitrator could apply the CISG as the governing law. If the parties stipulate their choice of law in a contract then Australian courts will usually follow the express wishes of the contractual parties. The notable exemption is contained in Golden Acres Ltd v Queensland Estates Pty Ltd (1969) Qd R 378 where Hoare J states: "Where the parties expressly stipulate that the contract shall be governed by a particular law, it has been held that that law will be the proper law of the contract provided that the selection is bona fide and that there is no infringement of public policy"[21]

  15. In Australia the CISG has become part of the domestic law pursuant to ss.5 and 6 of the Sale of Goods (Vienna Convention) Act.[22] Section 6 in brief states that "the provisions of the Convention prevail over any other law in force in Victoria" and s.5 proclaims that the provisions of the Convention have the force of law in Victoria. The Trade Practices Act (Cth) in s.66A repeats in essence the above. The Goods Act and any other relevant laws will only apply to those contracts or parts of contracts that are not covered by the CISG.

  16. When we consider whether the CISG is to be applied several questions need answering. Firstly is the CISG applicable pursuant to article 1 of the Convention? Secondly has the State of the particular forum applied for reservations which make certain articles of the Convention inapplicable and thirdly is the subject matter of the dispute covered by the CISG . As the CISG is still relatively untested it remains to be seen whether the Australian courts will apply the Convention in all applicable situations pursuant to s.6. Other jurisdictions certainly have not applied the CISG in all relevant cases. One example can be quoted to illustrate this point. In a U.S case, the CISG was clearly the applicable law as both parties to the contract lived in a Contracting State. The seller commenced proceedings based on law of Oregon. Subsequently he tried to correct the error and raised the argument that the CISG is applicable. The court held that the point was raised too late and (wrongly) applied domestic law. [23]

    17. Application of the Convention

    An analysis of excluding the CISG

  17. As mentioned above the Convention as a whole or any section or parts may be excluded or varied according to article 6. Why then study the application of the CISG? There are basically two reasons. Firstly, an attempt to exclude the CISG is not necessarily automatic or certain. As s.6 stipulates that the Convention has the force of law and prevails over any other law, a court would need to look at the reason of invoking article 6. [24] It is possible that the court could apply Golden Acres Ltd. v Queensland Estate Pty Ltd.[25] and rule that the choice of invoking article 6 is against public policy. Secondly, many contracts are standard form contracts and a buyer may find himself in a position where he has no choice but to accept an application of the CISG in one form or another. It has been generally accepted that pursuant to article 6 an agreement will prevail over the application of the CISG.[26]

  18. However party autonomy is not unlimited. Article 7 contains an important principle namely the principle of good faith. Care needs to be taken when, through a contractual term, an article (or articles) of the CISG have been replaced or modified. An Austrian arbitration case can be used to illustrate this point where Bonell was the sole arbitrator.[27] Articles 38 and [29] were modified by reducing the period of lodgment of complaints as to defects of the goods. This case illustrates the "workings" of article 7 in a wider context. The contract essentially was divided into two deliveries and the enforcement of the contractual term was only effective on the second delivery. As far as the first delivery was concerned it was found that the seller made statements to the buyer from which the latter "could reasonably infer that the seller would not set up the defense of late notice".[28] The tribunal cited article 7(1) and (2) and invoked the principle of estoppel, an application of the general principle of good faith on which the convention is based.29 This is an interesting position specially for common law lawyers who are used to the four corner rule.

    Article 7

  19. Article 7 is not only applicable in conjunction with article 6 but is always applicable whenever there is either a question of interpretation,[30] or a gap in the CISG needs to be filled.[31]

  20. The importance of article 7(1) lies in the fact that, as a rule, interpretation must promote "uniformity in its application and the observance of good faith in international trade." Most commentators do not restrict the application of this article to the interpretation of the CISG alone, the rule is widened to include good faith as a standard for the interpretation of the contract, as well as for the entire legal relationship between the parties.[32] Such a position is not surprising at all. We only have to look at German law where in a commentary to article 242 in the BGB "good faith" (treu und glauben) is viewed as a principle or legal right which is mandatory and cannot be varied or excluded by the parties.[33]

  21. In brief, any action by one party which is contrary to a prior conduct or is contrary to international usage in an industry is prohibited. Pursuant to article 7(2), there must be a uniform interpretation of the provisions of the Convention and a uniform approach to "gap filling".[34]

  22. The method of gap filling is stipulated in the two limbs of article 7(2). If the matter is not governed by the Convention, private international law will provide the applicable law. If, on the other hand, the convention deals with the mater but it is not expressly settled, they are to be settled in conformity with the general principles on which the article in question is based. If say article [35] were excluded, private international law would need to be consulted. In our case it would be the Goods Act or possibly the Trade Practices Act. It could be argued that, as gap-filling is applied, all applications and interpretations of private international law would need to be in "observance of good faith in international trade."35 An interpretation or application of domestic law without regard to the international character of the contract would be inappropriate. How far this argument will carry is not known as it still remains to be seen whether judges in Australia will interpret the private international law as stipulated by Article 7.[36]

  23. It is encouraging to note that Von Dousa J. has done so by specifically mentioning the applicability of article 7.[37] The Convention, however, does not give much guidance to a court faced with the interpretation of its rules.[38]

  24. This seems to be a serious obstacle to uniformity of legal rules dealing with international sales if local courts apply and interpret the CISG with the jurisprudence of their own domestic legal system in mind. The legal profession may well be faced with having to deal with different interpretations of the CISG depending in which country a dispute settlement takes place. It has been further suggested that an implicit exclusion is possible.[39] The court would need to be convinced that the exclusion is real and not theoretical, fictitious or hypothetical.[40]

  25. An ad hoc Arbitral Tribunal in Florence in 1994 held that the specific choice of Italian law amounted to an implicit exclusion of the CISG. [41] However suggesting that a particular national law is applicable does not exclude the CISG pursuant to article 6. One of the arbitrators in the Italian case clearly stated (as a dissenting view) that the choice of Italian law amounted to an application of the CISG pursuant to article 1(1)(b). This position has been confirmed in several German decisions.[42]

  26. In Australia such an outcome is highly improbable as the Sale of Goods (Vienna Convention) Act in ss. 5 and 6 indicate that the Convention will prevail over any other law in force in Victoria. Ferrari does suggest that the choice of law of a non contracting state and the use of standard form contracts can lead to an implicit exclusion of the CISG.[43] However case law seems to contradict such a view. A German court explicitly stated that the application of the CISG pursuant to article 6 can only "be excluded if that was the actual and not the hypothetical intention of the parties."[44]

  27. In Belgium, the court held that a clause in a standard commercial letter of confirmation was an express exclusion clause. [45]

  28. It will take time before the issues emanating from article 6 are settled. Case law at this stage is only of some help but certainly insufficient to make an authoritative statement as to the interpretation and application of article 6. How far article 7 will lend itself to counter an exclusion or deviation pursuant to article 6 needs to be seen.

    29. Application of CISG pursuant to article 1

  29. To make an informed choice of law, it is important for any contractual party to understand the applicability of the CISG. Article 1, which has two important limbs, explains the sphere of application. Article 1(1)(a) is the less controversial one and states in effect that the Convention will apply to contracts where the parties have their place of business in Contracting States. In a United States case [46] the Circuit Court of Appeals confirmed that the Convention is applicable pursuant to article 1 when the contract was silent on the choice of law and both States were parties to the Convention. Article 1(1)(b) extends the application of the CISG to situations "when the rules of private international law lead to the application of the law of a Contracting State". [47]

  30. The implication of the above is that if a buyer contracts with a seller of a state which is a signatory to the convention, the CISG will apply despite the fact that the State of the buyer is not a Contracting State. The same applies if the choice of a forum is a Contracting state. To avoid article 1, and hence the application of the CISG, the contract must stipulate a non-Contracting State as the choice of law. Recent interpretations by courts have shown that the articles of the CISG cannot be read in a vacuum.[48] Specifically article 7 must always be kept in mind as it will assist in the interpretation and filling of gaps. The question of acceding to the convention may have a bearing on the application of article 1 which requires the assistance of article 100(2).

  31. In a French decision,[49] the Court of Grenoble applied article 1(1)(b) and not article 1(1)(a). When the matter was brought before the court, both Spain and France were Contracting States, however only France but not Spain had acceded to the CISG at the time of concluding the contract, as stipulated by article 100(2). This made it imperative to use article 1(1)(b) and not (a).[50] In an interesting arbitration decision[51] between a German seller and a Spanish buyer, the arbitrator applied article 1(1)(a)[52] to contracts made after August 1, 1991 and article 1(1)(b) to those made after January 1, 1991. [53] Contracts made before January 1, 1991 had to be dealt with under German Civil Law (choice of Law) as none of the two countries had ratified the CISG. It is clear by the two quoted examples, that article 1 must be applied carefully to avoid a wrongful application of the CISG.[54]

  32. There is however a complication, which must be considered. Article 92(1) allows a Contracting State to exclude Part II and/or III.[55] In effect the State is not considered a Contracting State in respect to those parts it deleted. [56] Furthermore article 95 allows a State to make reservations in relation to the application of article 1(1)(b). Such a declaration was made by the United States of America[57] but not Australia.[58]

  33. Reservations under article 96 lead to the exclusion of articles 11 and 29 which means that contracts must be concluded in writing.[59]

    Definition of Sales Contract covered by CISG

    Introduction

  34. Not all international sales contracts are covered by the CISG. The sphere of application of the CISG is governed by part I, chapter 1 and 2. Domestic law, as expressed in the Sale of Goods Act (Goods Act) is similarly restrictive. It must be noted that the Goods Act is not a complete statement of the law dealing with the sale of goods. Section 4 clearly states that (unless there are inconsistencies) the common law and equity continue to apply. The CISG as well as the Goods Act apply only to one type of transaction namely a "sale of goods". Domestic legislation defines these two terms in the Goods Act under ss.6 and 4 and the CISG in article 3 and 2.

  35. Article 3 differs markedly from the Goods Act as it goes beyond the concept of applying to the supply of goods only. Another point worth noting is the fact that the CISG unlike the Goods Act does not specifically define "contract of sale" To determine which sales are governed by the Goods Act, we need to look at the Common Law. In Hewett v Court[60] the High Court distinguished between a contract for the sale of goods and a contract for work done and materials supplied which is not governed by the Goods Act. The court specifically said that: "there is a line of authority which establishes that where a contract is not only to supply an article but to erect or install it ... the contract is for work done and materials supplied."[61]

  36. As will be shown below, many if not all situations covered by article 3(2) would fall outside the scope of the Goods Act. Furthermore situations where the buyer supplies material (less than a substantial part) are covered by article 3(1) but under the Goods Act such contracts are more likely to be classed as contracts for the supply of skill and not of sale of goods.

  37. S.6 of the Goods Act defines a contract of sale as "a contract whereby the seller transfers or agrees to transfer the property in goods to the buyer for a money consideration." The Act in s.6(2) distinguishes between two different types of contract namely a contract of sale (an executed contract) and an agreement to sell (an executory contract). The CISG by implication does make a comment in relation to the two types of contracts mentioned in the Goods Act.[62]

  38. Article 1 states that the convention "applies to a contract of sale of goods". In article 3(1) on the other hand contracts for the supply of goods to be manufactured are considered sales, an indication that agreements to sell are also considered a sale of goods. It appears that the CISG does not place much importance on such a distinction. It can be argued that the CISG merely made it clear that contracts whether executed or executory are contracts for the sale of goods. The Goods Act on the other hand places an importance on the distinction as it effects the sellers rights should the buyer default on his obligations.

    39. Article 3

  39. The CISG pursuant to article 3 goes beyond the classical principle of exchanging goods for money but does not go as far as to cover sales of services only. The extent of coverage of labor and service is explained in the two limbs of article 3. Article 3(1) covers the traditional sales of goods as well as goods "to be manufactured or produced".[63] There is one exception which states that if the buyer supplies a "substantial" part of the material himself then the CISG will not apply. The problem is how do we define "substantial"? It is quite obvious that if all the material is supplied by the buyer the CISG does not apply. It is also equally obvious that if only some minor parts or accessories are supplied the CISG will apply. There is still a debate whether "substantial" needs to be looked at from a qualitative or quantitative point of view.[64] An Austrian court dealing with this matter did not explain the meaning of article 3(1). The court merely used the word "substantial (wesentlich)" without explanation.[65]

  40. However "substantial" and "wesentlich" do not translate identically. A different meaning is obtained as wesentlich is better translated to mean "essential" which incidentally corresponds with the French translation of article 3(1) where "un part essentielle" is used. Claude Witz argues that the component parts must be essential.[66]

  41. If a court would approach the definition of "substantial" from a qualitative point of view, the component parts could also be "essential". However quantitatively speaking essential and substantial could diverge significantly. Perhaps the solution can be found in the qualitative approach rather than the quantitative one. As noted above, the application of domestic law and the CISG can lead to different outcomes. German courts have interpreted article 3(1) in several instances. The problem which confronted the courts was the fact that in each of the cases the goods were custom-made.[67]

  42. According to German domestic law BGB articles 633-50 apply (Werkvertrag) and as such are not classed as sales contracts.[68] The Goods Act on the other hand classes custom-made goods as "goods" as long as the work element is not dominant. If the supply of work and material becomes the dominant part the Goods Act does not apply. The CISG on the other hand classed these types of contracts as sales contracts. Article 3(2) on the other hand covers sales where as part of the contract an obligation to supply labor or services is included. That supply of labor or service cannot be the "preponderant" part of the sellers obligation. Such contracts are commonly called turn-key contracts[69] where installation is part of the contractual obligation to supply goods. Article 3(2) would not apply if the two contracts namely the supply of goods and the supply of labor or service is distinguishable by two different contracts. In such an event the supply of goods would be covered by the CISG whereas the installation would be subject to domestic law. If the two components are indistinguishable, that is, there is only one contract covering the whole transaction, the key criterion is the interpretation of "preponderant". It has been suggested that if the economic value of labor or service is more than 50 per cent of the total sales price, the CISG is inapplicable. [70]

  43. Such a view leads to an interesting argument, namely, the question of "severability" of contracts. Can or should a contract be divided into delivery of goods and installation whereby the sale of goods is subject to the CISG whereas the installation is subject to domestic law? Schlechtriem and the Official Records of the United Nations Conference indicate that this question needs to be solved in accordance with the applicable national law.[71]

  44. The only stipulation, as mentioned above, relates to the origin of the raw material. The question is: how far can article 3 be used to define sales? In Helen Kaminski Pty. Ltd. v Marketing Australian Products the United States District Court was asked to rule whether a distributor agreement was subject to article 3 of the CISG. [72]

  45. The court did not dismiss distributor agreements as such from the application of the CISG. The question the court asked was, "could the goods be specifically identified in the agreement or is the agreement merely a framework agreement requiring the respondent to purchase a particular quantity or value of goods?" The court held that the agreement did not specify goods and therefore fell outside the CISG. If the goods were identifiable the CISG would apply.[73] Another point which needs examining is the question of installment sales.[74] J.S. Ziegel in his comments on Roder Zelt[75] argued that it is an unsafe assumption to include installment sales under the governance of the CISG just like any other contract of sale.[76] Under US law it may be doubtful whether the CISG is applicable. Ziegel suggests that the CISG should only apply to the sales component and not the security aspect of the agreement[77]

  46. This view is legally correct and cannot be faulted but put into the context of the CISG it is in conflict with article 7(2). In my view installment sales are a good example of where gaps pursuant to article 7(2) need to be filled without ignoring the requirements of good faith. Ziegel suggests that installment sales are a special form of executory contracts[78] which are governed in Australian domestic law by s.6 of the Goods Act. Domestic law has established that the Convention has the force of law in Australia and will prevail in the event of inconsistencies [79] As a result the CISG is the applicable law. The CISG in article 3 does not specifically include installment sales nor are these sales specifically excluded. Article 7(2) urges that matters "not expressly settled in it are to be settled in conformity with the general principles on which it is based". There is certainly enough room in article 3 to allow installment sales to be settled under the CISG. It would have been instructive if Van Doussa J. would have discussed the reason why he applied the CISG to installment sales. However my view is that it is unsatisfactory to have part of the contract governed by the CISG whereas the buyer's and seller's rights and obligations are to be determined by domestic law. This is especially so if it is questionable whether the Goods Act overrides the CISG in this situation. It can certainly be argued that, unless specifically excluded, the CISG should apply in preference to domestic law to all situations where the applicability of the CISG is not clearly settled. In this way courts will contribute to what the CISG intends to be, a truly international law.

  47. What then are sales contracts? The simple answer is, international contracts which the CISG considers to be sales contracts.

    48. Article 2

  48. We must now turn our attention to the definition and analysis of "goods". Article 2 excludes certain sales of goods from the sphere of application of the CISG. In other words if not specifically excluded an item would be classed as goods. The Goods Act on the other hand defines goods in s.3 in an inclusive way as "all chattels personal other than things in action." Emblements and things attached to land are also considered to be goods if they are "agreed to be severed before sale or under the contract of sale"[80]

  49. Basically the CISG excludes in general Consumer goods[81] as well as specified classes of goods including negotiable instrument and money.[82]

  50. All sales by auction are also excluded.[83] Practitioners need to be aware that goods are not defined in the same manner in domestic legislation and the CISG and will lead to potentially different outcomes Domestic legislation via the Goods Act and the Trade Practices Act has enacted and distinguished between commercial contracts and consumer contracts . The CISG specifically ensures that the domestic consumer protection laws are not affected.[84]

  51. Article 2(a) by design uses the words "personal, family or household use". It is not sufficient to automatically exclude the CISG if the goods are bought for non-commercial use. The wording of the article suggests that the CISG is applicable if the goods were bought by a "business consumer" but in domestic legislation these types of contracts are considered consumer contracts. A point well worth noting when an applicability of the Trade Practices Act is considered. A business consumer does not purchase goods for personal, family or household use rather for the purpose of conducting his commercial enterprise. Ferrari suggests that the relevant question which needs answering relates to the purpose of the goods at the time of purchase.[85]

  52. Goods must be bought exclusively for personal use (and not only primarily so) otherwise the CISG is applicable. The exclusion embodied in article 2(a) needs a careful analysis. The problem is that the purpose of the purchase must be known or could have been known before or at the conclusion of the contract by the seller.[86]

  53. In other words the seller must have known or ought to have known the non-commercial purpose of the contract. This would include a situation where the seller clearly states that the goods are only suitable or to be used only for non-commercial purposes. This leads us to the question of the burden of proof. The first observation which must be made is the fact that the burden of proof is a procedural matter and hence within the jurisdiction of domestic law. This suggestion can be challenged by the wording of the article which uses the word "unless". It can thus be argued that, as the convention is not applicable for "non-commercial" purposes, the burden of proof rests on the person who relies on "unless" which in most cases would be the seller.

  54. The obiter in an Austrian decision appears to confirm this position.[87] An Austrian seller sold a motor car to a Swiss buyer for personal use. The court correctly found that the CISG was not applicable pursuant to article 2(a). The court added that if the seller could prove that he "neither knew or ought to have known that the goods were bought for any such use"[88] the CISG would have been applicable. Another view which can be advanced hinges on the language of article 2(a). Firstly the exception is worded negatively which suggests that the party who relies on the article needs to discharge the burden of proof. Assistance in this matter can be sought through article 7. The observance of good faith would dictate that the buyer needs to prove that he used the goods for non commercial purposes and the seller would need to prove that he did not know that the goods were bought for non commercial purposes.[89]

  55. As far as domestic law is concerned article 2(a) must not only be read in conjunction with the Goods Act but also with the Trade Practices Act (TPA). The TPA is only applicable if the seller is a corporation and there is an interstate connection. S.66A states that the CISG will prevail over the provisions of "this Division". Using the literal approach to interpretation the suggestion is that the CISG will only be applicable to division 2 which deals only with conditions and warranties in consumer transactions.

  56. Secondly the seller (or buyer in exceptional circumstances) must prove the exception set out in article 2(a). If successful the CISG will only apply to goods not excluded by article 2(b) to (f). Just to mention one difference, s.4(1) of the TPA includes ships and aircraft into the definition of goods whereas the CISG excludes these items specifically in article 2(e). The conclusion which can be drawn is that the application of the CISG into areas governed by the TPA is limited to application of article 2 to conditions and warranties in consumer transaction pursuant to division 2. To return to the CISG, article 2(d) to (f) lists an exclusion of sales which is based on the nature of the goods. The purpose of article 2(d) is to avoid a conflict with domestic laws.[90]

  57. The Goods Act in s.3 also excludes a similar group of goods namely "things in action and money" and it appears that it tracks the provisions of the CISG. Article 2(e) and (f) pose some problems namely one of definition. What is a ship or vessel? The CISG does not give much help and some commentators suggest that not all ships or vessels are excluded. Ferrari[91] suggests that a row boat is not excluded. He links the definition of ships or vessels to the purpose of its use. The transport of goods or persons by such vessels seems to be of importance to determine whether a watercraft is a ship or vessel.[92]

  58. It could be suggested that courts would tend to look at domestic legislation to determine the definition of a ship in accordance with article 7. In Australia it is settled law that a ship is defined by the Navigation Act 1912 (Cth) in s.6(1), s.12(1) and by case law. It would be unusual for a court to disregard such an authoritative definition. To note is the fact that a ship, which is not registered, has been declared to fall under the definition of goods pursuant to the Goods Act.[93]

  59. It can be argued that, as Ferrari suggested, the purpose of the ship is important. An unregistered ship cannot be used to transport people and goods pursuant to the Navigation Act therefore such a ship even under the CISG would be classed as goods pursuant to article 2. What seems to be settled is the fact that the sales of parts of ships and aircraft are not excluded from the application of the CISG. The Hungarian Supreme Court in a ruling confirmed the above view. [94]

  60. The conclusion which can be drawn from the above is that the CISG does not define "goods" in a clear an unambiguous way. There is also not enough case law at hand to draw a clear conclusion either. But it is also equally clear that "goods" cannot be defined by resorting to domestic law as uniformity in the application of the CISG could not be achieved.

    61. Article 4

  61. As stated above the CISG only applies to contracts of sales of goods. What remains to be discussed is how the CISG treats "contracts". Article 4 makes it clear that the CISG only govern two aspects of "contracts", namely the formation of a contract and the rights and obligations of the seller and buyer arising from such contracts.[95]

  62. Article 4(a) and (b) proceed to particularly exclude the validity of the contract[96] and "the effect which the contract may have on the property in the goods sold".[97]

  63. It has been said that a contract in general probably cannot exist without a governing law.[98] There is however a possibility of a conflict with article 11 which provides that contracts of sale do not need to be evidenced in writing. In Victoria this is a non issue as the Goods Act has abolished the relevant section and Australia has not made a declaration to exclude article 11. Overseas court decisions have not yet explained article 4 in detail however some observations can be made at this stage. In Argentina, the court argued that the CISG is not applicable to the determination of jurisdictional question pursuant to article 4. [99]

  64. The question arose because the choice of forum clause was contained in a form which was sent to the buyer without warning and was never signed by the buyer. In essence the court concluded that the question was one of validity of contract and hence excluded from the CISG. In a Swiss decision the court concluded that mistake affects the validity of the contract which makes the CISG inapplicable. [100]

  65. The question of mistake in conjunction with article 4(a) needs careful analysis and mistake as to the quality of goods pursuant to s.19(a) of the Goods Act is used to illustrate this point. A breach of the implied condition of fitness for purpose could lead in most cases to the avoidance of the contract. Swiss, German, French and Austrian Law lead in essence to the same conclusion. [101]

  66. This problem needs to be looked at logically from the beginning. S.19(a) or in general, the Goods Act is overridden by the CISG pursuant to s.6 of the Sale of Goods (Vienna Convention) Act. The CISG pursuant to article 4 declares that it is not concerned with the validity of contracts. In such an event private international law must be applied which is in this case s.19(a). If we follow this simple line of reasoning we will find that s.19(a) is in conflict with article 35. The question of remedies of the buyer poses another problem. It has been suggested that remedies would be governed by the CISG [102] which would add to the complication. As this seems to be an interpretive problem, article 7 needs to be consulted in conjunction with article 4.

  67. Article 7(1) at first glance does not appear to be of strictly legal nature. As seen above it is regarded as a principle, hence a standard for the interpretation of an agreement. It more than urges those who interpret the CISG to keep in mind that regard must be had to promote uniformity and observe good faith in international trade. The above article tends to create a state of mind, which is conducive to interpret the CISG, not with the language of domestic law, but with the wider view of uniformity in international trade. Article 7(2) has two limbs concerning questions of "matters governed by this convention, which are not expressly settled". Firstly, it must be settled on the general principles on which the CISG and specific rules are based. Secondly if there are no general principles then the matter must be settled in accordance with private international law. It has been established above that article 4(a) particularly excludes the validity of the contract . Looking at article 7(2) it must be said that the matter is governed by the convention namely validity is excluded. In other words the matter is explicitly settled in article 4(a). If we now pursuant to article 7(2) exclude mistake as to quality from the CISG we are in essence in conflict with article 7(1) and as stated above such an interpretation brings domestic law in conflict with articles 35 to 52.[103] We are still trapped in our circular argument.

  68. Another result may be achieved if we re-examine article 4. It can be argued that the important part of article 4 is that the convention "only" governs the formation and "particularly excludes" the validity. My view is that "only" is not to be confused with "exclusively" as some writers have suggested.[104]

  69. Article 4 does not exclusively govern the formation as it also governs rights and obligations of buyer and seller. "Only" needs to be interpreted as a restrictive function, limited to the formation of the contract and the rights and obligations of the buyer and seller. The restrictive function is not only placed upon the CISG it equally applies to domestic legislation. In simple terms the CISG governs the formation of the contract. If there is a question of validity then domestic legislation will supply the necessary solution. As far as the determination of the rights and obligations of the seller and buyer is concerned the CISG will supply the necessary legislation.

  70. This argument is strengthened if we read article 7(1) where uniformity in the application of the CISG is promoted. The above argument is supported by a Hungarian decision.[105] The buyer contested the sellers claims on three grounds: error, lack of conformity of the goods to the contract terms and disproportionate value of the obligation between the opposing parties. The question of error and disproportionate value was decided on the basis of the Hungarian Civil Code as the CISG does not cover such subject matter. However the question of lack of conformity was settled pursuant to article 36 The conclusion reached by Niggeman that the CISG excludes questions of validity is correct. However in my view the principle that one may include under article 4(a) "nullity for error about a substantial quality of the goods"[106] is open to challenge.

    71. United States Courts approach to CISG

  71. Just to remind us where other countries stand in the development and interpretation of the CISG the United States of America may be used as an example. After 10 years only two cases have been reported where in the United States the CISG has been applied[107] but this number has increased to 14 in the last two years.[108]

  72. It appears that a clear trend is emerging in the judicial approach to the interpretation of the CISG. Originally, the U.S. Circuit Court[109] discussed two lines of reasoning in interpreting and applying the CISG. In its first line of reasoning, the court argued that if the language of the CISG tracks the UCC then domestic case law can be used to help fill the gap. The CISG uses the term "possible consequence" in article 74, which is not a UCC term. The UCC uses the terms "incidental damage" or "probable consequence". In interpreting article 74 domestic interpretation of the UCC will be looked at and used as guidance.[110]

  73. As a second line of reasoning, the Circuit Court relied on scholarly writings on the subject. The court concluded that even if the CISG rule is directly inspired by domestic law, the "court should not fall back on its domestic law, but interpret the rule by reference to the Convention."[111] It appears that the court set the stage to interpret the CISG according to article 7 but ignored its introduction and proceeded to analyze the case as it would interpret the Uniform Commercial Code and only consulted exclusively U.S. Commentators and case law.[112]

  74. The Circuit Court, though mindful of the international character in the interpretation of the Convention and the need to promote uniformity in its application, was unable to overcome its own ethnocentric bias.[113] Harry Fletchner [114] pointed to the fact that the courts have not yet secured an international outlook. According to Fletchner: "The judiciary of other countries, particularly in Europe, may have a leg up on achieving the proper viewpoint because they have long been forced to deal with cross-border transactions and foreign law" [115]

  75. However in MCC-Marble Ceramic Center, Inc. v. Ceramica Nuova D'Agostino, S.p.A.[116] Professor Kritzer[117] commented that the reasoning of the court in its approach to the CISG differs significantly from previous decisions. Firstly the court quoted and applied scholarly writings. Secondly the court observed and applied CISG case law (CISG jurisprudence). U.S. cases are discussed and the court also called for an attention to decisions of other States as a source of "persuasive authority." [118]

    Conclusion

  76. Foreign decisions have shown that it is critical for importers/exporters and the commercial lawyer to be familiar with the CISG in order to minimize legal risks. There are certainly areas where the CISG tracks domestic legislation in the sale of goods whereas other areas will produce potentially different outcomes. As an example in MCC-Marble Ceramic Center, Inc. v. Ceramico Nuovo D'Agostino, S.p.A.[119] the court indicated that the CISG precludes the application of the parole evidence rule. Interpretations and applications of the CISG can produce a new body of international law. Evidence of such a development is reflected in the fact that significant trade blocks such as the EC have adopted the CISG as the de facto sales law.[120]

  77. There are signs that the CISG can be implemented in Australia in line with international development. If the first significant case in Australia is an indication, the judiciary is aware of the conceptual differences and has shown that legal thinking in Australia can accommodate the CISG. The Convention is certainly not the perfect tool to manage cross border legal risks. However by ignoring or wrongly developing the CISG the legal uncertainties will be increased. In my view, overseas developments have gathered momentum and sufficient case law is at hand to irreversibly establish the CISG as a de facto international sales law. The last word should perhaps belong to Professor Karollus who stated that the CISG "is well on the way to becoming the Magna Carta of international trade." [121]

Notes

[1] Rossett, A., in 1984 and Cook, S., in 1988 just to mention a few

[2] Ryan, L., "The Convention on the Contracts for the International Sale of Goods: Divergent Interpretations" 4 Tul. J. Int'l & Comp. Law (winter 1995), 99

[3] This paper is based on the Victorian Act.

[4] Only one case cited in fn 9

[5] Australian Law reform Commission 80, (internet version) at 12

[6] id at 13

[7] Magnus, U., General Principles of UN-Sales Law. [http://www.cisg.law.pace.edu/cisg/biblio.html]

[8] ALRC 80, op cit at 15

[9] Roder Zelt und Hallenkonstruktionen GMBH v Rosedown Park Pty Ltd. (unreported) [1995] FCA 1221; 13 ACLC 776 (extracts) [1995] FCA 1221; [1995] 17 ACSR 153

[10] id at 12

[11] id at 55

[12] The Victorian Goods Act is used which has similar or corresponding enactments in all States and Territories.

[13] GPL Treatment Ltd. v Louisiana-Pacific Corp.894 P.2d 470 [Or. Ct. App. 1995]

[14] Fletchner, H.M., "Another CISG case in the U.S. Courts: Pitfalls for the practitioner and the potential for Regionalized Interpretations" (1995) 15 Journal of Law and Commerce, at 129

[15] Note: not all States and Territories have repealed the Statute of Fraud.

[16] England and Japan have not yet adopted the convention

[17] There are presently well in excess of 500 leading cases available world wide.

[18] Mendelson-Zeller Co Inc. v. T & C Providores Pry. Ltd. (1981) 1 NSWLR 366

[19] Art. 28, Abs. 1 S. 1 EGBGB

[20] Zurich Chamber of Commerce, Arbitraton award ZHK 273/95 of 31 May 1996

[21] at 380

[22] The Act has been passed in all States in essentially the same format. The Victorian Act is used for the purpose of this paper.

[23] GPL Treatment Ltd. v Louisiana-Pacific Corp.894 P.2d 470 [Or. Ct. App. 1995] see fn 13

[24] Sales of Goods (Vienna Convention) Act 1987 (Vic)

[25] [1969] Qd R 378

[26] Magnus, U., see fn 7

[27] Vienna Arbitration proceedings SCH-4318 [http://cisg3.law.pace.edu/cases/940615a4.html] last updated Jan. 19, 1999

[28] ibid

[29] ibid

[30] Article 7(1)

[31] Article 7(2)

[32] Magnus, U., see fn 7

[33] "BGB, Burgerliches Gesetzbuch", Prof. Dr. O. Jauernig (ed), C.H. Beck'sche Verlagsbuchhandlung, Munchen 1990

[34] Rosenberg, M.N., "The Vienna Convention: Uniformity in interpretation for gap-filling - an analysis and application" (1992) ABLR 442 at 443

[35] Article 7(1)

[36] It needs to be noted that procedural rules will displace the provisions of uniformity as stipulated by article 7.

[37] Roder Zelt und Hallenkonstruktionen GMBH, see fn. 9, at 20

[38] Brand, R.A and Flechtner, H.M., "Arbitration and Contract formation in International Trade: First interpretations of the U.N. Sales Convention" (1993) 12 Journal of Law and Commerce at 239

[39] Ferrari F., "Specific Topics of the CISG in the light of Judicial Application and Scholarly Writing", 15 Journal of Law and Commerce (1995) (excerpts from)

[40] ibid

[41] http://cisgw3.law.pace.edu/cases/940419i.html

[42] OLG Koblenz 17 September, 1993

[43] Ferrari, fn 39

[44] KG Berlin, 24 Jan. 1994, [http://cisgw3.law.pace.edu/cases/940124g1.html, last updated May 22, 1998]

[45] Wilvorst Herenmode v. Erarts, Jan 24, 1995. [http://cisgw3.law.pace.edu/cases/950124b2.html, last updated April 21, 1998]

[46] Delchi Carrier, S.p.A. v Rotorex Corp. , [1995] USCA2 1270; 71 F.3d 1024 [2nd Cir.1995] [http://cisgw3.law.pace.edu/cases/951206u1.html]

[47] Article 1(1)(b)

[48] Callaghan, J.J., "U.N. Convention on Contracts for the International Sale oaf Gods: Examining the Gap-filling role of two French decisions" (1995) 14 Journal of Law and Commerce, at 188

[49] Ytong v Lasaosa [1993], Cour d'Appel de Grenoble, Chambre des Urgences, No 92/4223 (Fr)

[50] Callaghan fn 48 at 188

[51] ICC Arbitration Award 8611/HV/JK of 1997

[52] Both Spain and Germany are contracting Parties to the Convention.

[53] Only Germany is a contracting Party to the Conention.

[54] Zeller, B. "The Vienna Convention 11 years on", (1999) 73(3) LIJ, at 73

[55] The Scandinavian countries have excluded the application of Part II

[56] Bianca, C.M. and Bonell, M.J., "Commentary on the International Sales Law: The 1980 Vienna Sales Convention" (1987) Milan at 643

[57] Callaghan , fn 48 at 188

[58] As well as the United States, China and Singapore have made reservation of article 95.

[59] Reservations were mainly made by Eastern European Countries such as Hungary, Ukraine and the Russian Federation.

[60] [1983] HCA 7; (1983) 57 ALJR 211

[61] ibid at 217

[62] see OLG Koln, August 26, 1994, 19U 282/93 [http://www.cisg3.law.pace.edu/cisg/cases/940826g1.html] last updated March 17, 1998

[63] OLG, Frankfurt, Sept. 17, 1991 SU 164/90 [http://www.cisg3.law.pace.edu/cisg/cases/910917g.html ] last updated May 22, 1998

[64] ibid

[65] OGH, 27.10.1994, 8 Ob 509/93

[66] id, in case commentaries

[67] OLG Frankfurt am Main, 1991 RIW 950, OLG Dusseldorf, 1993 RIW 845, OLG Koblenz, 1993 RIW 934.

[68] Karollus, M., "Judicial Interpretation and Application of the CISG in Germany 1988-1994," Cornell Review of the Convention on Contracts for the International Sale of Goods (1995) 51-94

[69] Ferrari F., fn 39

[70] ibid

[71] id, see footnotes 417 and 418

[72] 1997 U.S. Dist. LEXIS 10630, 1997 WL 414137 (M-47 DLC)

[73] ibid

[74] In the US these sales are referred to as conditional sales agreements and are treated as a short form of mortgage.

[75] See fn 9

[76] J.S. Ziegel, "Comment on Roder Zelt- und Hallenkonstructionen GmbH" http://www.cisg.law.pace.edu/cisg/biblio/bib2.html last updated Dec. 4, 1998

[77] ibid

[78] ibid

[79] s.6, Sale of Goods (Vienna Convention) Act 1987

[80] s.3 Goods Act

[81] article 2(a)

[82] article 2(c) to (f)

[83] article 2(b)

[84] In this context article 5 must be mentioned which states that "The Convention does not apply to the liability of the seller for death or personal injury caused by the goods to any person."

[85] Ferrari, fn 39

[86] article 2(a)

[87] OGH, 11 Febr. 1997, 10 Ob 1506/94,[ http://cisgw3.law.pace.edu/cases/970211a3.html] last updated March 17, 1998

[88] ibid

[89] Honnold and Schlechtriem suggest this approach. See Ferrari fn 39 at footnote 500 and 502

[90] Ferrari, fn 39

[91] ibid

[92] ibid

[93] Bank of New South Wales v Palmer (1970) 91 WN (NSW) 580 at 583

[94] United Technologies (Pratt & Wittney) v Malev Hungarian Airlines, Legfalsobb Birosag 25 Sept. 1992

[95] article 4

[96] article 4(a)

[97] article 4(b)

[98] Pryles, M., Waincymer, J., and Davies, M., "International Trade Law", 1996, Sydney, at 103

[99] 14 Oct 1993, Camera Nacional de Apelaciones en lo Comercial (Inta S.A. v MCS Officina Meccanica S.p.A [http://cisgw3.law.pace.edu/cases/931014a1.html] last update Jan 25, 19

[99]

[100] Handelgericht St. Gallen, August 24, 1995, HG 48/1994 [http://cisgw3.law.pace.edu/cases/950824s1.html] last update Feb 24, 1998

[101] Niggemann, F., "Erreur sur une qualite substantielle de la chose et application de la C.V.I.M" (1994) RDAI/IBLJ No 4, at 411

[102] ibid at 398

[103] ibid at 409

[104] ibid

[105] FB Budapest, July 1, 1997, [http://cisgw3.law.pace.edu/cases/970701h2.html] last update April 21, 1998

[106] Niggeman fn 101, at 412

[107] Cook, S., "The UN Convention on Contracts for the International Sale of Goods: a Mandate to abandon legal ethnocentricity", (1997) 16 Journal of Law and Commerce, 157

[108] Schedule of U.S. cases on the CISG search form on the Internet

[109] Delchi Carriers, S.p.A. v Rotorex Corp. , fn 46

[110] id , at 1028

[111] Carbonneau ed., "Lex Mercantoria and Arbitration" (1990) Transnational, 154

[112] Cook, fn 107, at 259"

[113] id at 260

[114] Fletchner H.M., "More U.S. Decisions on the U.N. Sales Convention: Scope, Parole Evidence, "Validity" and reduction of price under Article 50" (1995) 14 Journal of Law and Commerce

[115] id at 172

[116] [1998] USCA11 1817; 144 F.3d 1384 (11th Cir.(Fla.) 1998) No 97-4250

[117] Editorial remarks on Internet http://www.cisg.law.pace.edu

[118] ibid

[119] see fn 116

[120] Fletchner, H.M., "Another CISG case in the U.S. Courts: Pitfalls for the practitioner and the potential for Regionalized Interpretations" (1995) 15 Journal of Law and Commerce, at 129

[121] Karollus, M., fn, at 68

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