CISG Advisory Council Opinion No 16

Exclusion of the CISG under Article 6

5.17 A purported offer to modify must be understood as such by a reasonable person to be effective.[123] The intention to be bound must be tested objectively under Art. 8(2), and not ‘rashly’ assumed.[124] This accords with the approach to attempts to modify during the contractual performance stage, where caution has been urged in interpreting conduct as acceptance of offers to modify.[125] Mere performance of the contract is normally not enough,[126] and clear assent is required. At the stage of legal proceedings, parties are frequently unaware of the ‘right’[127] they supposedly relinquish in forgoing CISG arguments, therefore there will often be an objective absence of agreement to modify where the CISG is not raised in argument.[128] As stated by one court: ‘[where the CISG] is applicable by operation of law … [it cannot be sustained] that the silence of the parties constitutes an implied manifestation of the intent to exclude.[129]

5.18 Some Italian and German courts have adopted this approach, correctly denying that mere failure to argue the CISG amounts to an implicit agreement to exclude it.[130] As stated in one decision, the fact that ‘the parties based their arguments exclusively on ... domestic law ... cannot be considered an implicit manifestation of an intent to exclude application of the [CISG].’[131] Similarly, other decisions have correctly held that a failure to argue due to a misapprehension that domestic law was applicable or because parties were simply unaware of the CISG does not support an imputation of intent to exclude it.[132] The fact that argument was based on domestic law has been upheld as an agreement to apply the domestic law, but not to exclude the CISG.[133]

5.19 Several commentators also agree that the ‘mere fact that the parties argue on the sole basis of a domestic law’[134] is not sufficient to indicate a clear intent to exclude. Notably, this differs from awareness of the CISG’s applicability in the context of a simple ex ante choice of law clause. In relation to exclusion during proceedings it has been forcefully argued that parties cannot intend to exclude the relevant law unless they are aware of its applicability.[135] Only then can parties ‘knowingly’ depart from the CISG by agreement.[136] since “[s]tatements based on ignorance are not agreements, because they lack the necessary ‘intention to be bound’; therefore they cannot alter the contents of a contract”.[137]

5.20 Therefore, contrary to the approach taken in some cases,[138] pursuant to Art. 8 and in light of the need to find a clear agreement to exclude, courts and tribunals should be cautious and careful to consider alternative explanations for the failure to plead or argue the CISG during proceedings in which it is the applicable law.[139] How counsel conducts the case will rarely support a clear inference that satisfies both Arts 6 and 29. Rather than demonstrative of tacit agreement by the parties, counsels’ conduct may be a product of counsels’ own lack of awareness, misapprehension or simply convenience. Ignorance should not be equated with intent. A belief that domestic law applies is not per se evidence of an agreement to exclude the CISG,[140] as stated in better decisions on point.[141] Notably, unlike contractual exclusion clauses, reference to domestic laws alone during proceedings is not per se indicative of agreement to exclude the CISG. Misapprehension of counsel or even refusal to argue the applicable law should not be accepted as manifesting an informed intent by the parties to exclude the CISG by modification.[142] Adjudicators should be slow in accepting inferences that conduct of litigation amounts to an offer to modify and acceptance of that offer. Such inferences should only be accepted when they are the most plausible explanation for counsels’ conduct, but rejected when other more plausible reasons exist.[143]

5.21 Notably, in relation to legal proceedings, there is a pragmatic consideration that, by contrast with the contractual stage, the evidentiary record is not static. At any time during proceedings, greater levels of proof are attainable upon enquiry by the adjudicator, simply by raising the matter with counsel[144] before, during or after the hearings. Thus the balancing of inferences need not be hypothetical at all. If counsel present an express agreement by informed parties to exclude during proceedings, the requirement of clear intent to modify by agreement is satisfied.[145]

5.22 The requirement of a clear intent to exclude during legal proceedings does not rule out the possibility of implicit intent, but means the relevant provisions of the CISG will rarely be satisfied when applied correctly.[146] Importantly, this does not interfere with party autonomy. On the contrary, it mirrors the requirement for free choice to be ‘clearly demonstrated’ in other private international law contexts.[147] Adjudicators must be confident an agreement to exclude can clearly be inferred from conduct, and that such an inference is far more plausible than any other. This standard fosters clarification during proceedings.[148]  It accords with the general principle of party autonomy, particularly given parties can reach agreement during proceedings.[149]

6. Domestic principles of waiver should not be used to determine the parties’ intent to exclude the CISG.

6.1 A court’s failure to apply the CISG as the applicable governing law may amount to a breach of international obligations. An absence of argument from counsel on the CISG cannot alter the court’s fundamental obligation to apply the CISG.[150]

6.2 The application of domestic principles of waiver during proceedings has played a key role in some decisions not to apply the CISG. For example, in the U.S. case of GPL Treatment, counsel’s failure to argue the CISG was held to amount to a waiver, which permitted the court to apply the pleaded but inapplicable domestic law.[151] The Court of Appeal did not decide whether there had been an exclusion pursuant to the CISG, but a dissenting judgement footnote concluded that because the ‘attempt to raise the CISG was untimely … that they had waived reliance on that theory.’[152] In another US case, the fact that the CISG was not pleaded and only first raised in argument just after the preliminary stage of proceedings when the trial was about to commence, was considered to amount to ‘consent’ to apply local law rather than the applicable CISG.[153] Similarly, in a number of Australian cases, it was concluded application of the CISG was ‘unnecessary’ due to the manner in which cases were conducted by counsel, including absence of any suggestion by counsel that the CISG was ‘inconsistent’ with domestic sales law, thereby justifying the latter’s application.[154]

6.3 Domestic procedural rules of waiver are not displaced by the CISG.[155] However, the CISG itself determines the question of its exclusion, and autonomously controls its own sphere of applicability.[156] Accordingly, for contracts to which it already applies ipso jure, the CISG can only be excluded by means of an agreement which satisfies Arts 6, 11, 14-24 and 29 CISG. The exercise of party autonomy to exclude during proceedings involving a contract to which the CISG already applies requires modification by agreement. Parties cannot oust the CISG from a contract to which it already applies, without actual agreement in accordance with the standard of intent outlined above [§5].

6.4 It might be argued that counsel are agents of the parties, thus their conduct of proceedings should be sufficient for tacit exclusion, or that if counsel agree to exclude, as agents they thereby form a post-contractual exclusion agreement under Art. 6. The CISG does not deal with matters of agency. However, the comments above apply equally irrespective of the existence of an agency relationship; i.e., conduct of proceedings alone is not sufficient to support a strong inference of intent to exclude. If parties have authorized counsel acting as their agents, not only to litigate the dispute, but also to modify their original business dealings with the counterparty by amendment of the contract without further instructions, then express agreement by counsel to modify the choice of law may be sufficient. Such consent would be rare in practice. As the Polish Supreme Court recently noted, the behaviour of counsel was irrelevant to the issue of agreement to exclude – a matter that is governed by the CISG - since the parties’ legal representatives ‘had no authority to choose the applicable law on behalf of the parties’.[157] Further, even if specifically authorized to modify contractual dealings, in order to exclude at the post-contractual stage counsel would need to be aware of the CISG’s application before entering such an agreement. [158

[OPINION 16 PART 1]
Commentary on Rules 1-3

 [OPINION 16 PART 2]
Commentary on Rule 4

[OPINION 16 PART 3]
Commentary on Rule 5 para 5.1-5.16

FOOTNOTES

122. Schroeter, supra note 10, Art. 29, at 486 para. 37.

123. Art. 8(2) CISG. Thus courts have rejected supposed offers to modify consisting of standard terms on the reverse of invoices sent after conclusion of the contract: Solae v. Hershey, supra note 115; Chateau des Charmes Wines Ltd v. Sabaté USA Inc., 328 F.3d 528, U.S. Court of Appeals (9th Cir.), 5 May 2003 <http://www.unilex.info/case.cfm?pid=1&do=case&id=899&step=FullText>. See also, Schroeter, supra note 10, Art. 29, at 475 & 476 paras 10 & 11; Schmidt-Kessel, supra note 3, Art. 8, at 173-174 para. 58.

124. Schwenzer & Hachem, supra note 3, Art. 6, at 113 & 115 paras. 21 & 26.

125. Schroeter, supra note 10, Art. 29, at 476 para. 11 (urging ‘particularly careful assessment’ as to whether acceptance of an offer to modify has occurred); Schroeter, id., at 480 para. 19, (arguing in the context of agreements to terminate that ‘courts and arbitrators are well advised to exercise appropriate restraint in finding an agreement between the parties’).

126. Acts of performance are not acts of assent: CIETAC Arbitration Award, China, 23 May 2000 <http://cisgw3.law.pace.edu/cases/000523c1.html> (‘Partial performance of the Contract should not be deemed as a modification of the quantity of the goods under the Contract’)); Chateau des Charmes Wines v. Sabaté, supra note 123 (payment of invoice containing new choice of forum clause); Solae v. Hershey, supra note 115.

127. Schroeter, supra note 10, Art. 29, at 485, note 119 para. 33; Schmidt-Kessel, supra note 3, Art. 8, at 164 para. 38.

128. Spagnolo, supra note 9, at 212-13.

129. Tribunale di Padova, 25 February 2004, supra note 100.

130. Supra note 102.

131. Tribunale di Vigevano, Italy, 12 July 2000, supra note 100, para. 5 (‘The fact that [parties] based their arguments exclusively on Italian domestic law without any references to the [CISG] cannot be considered an implicit manifestation of an intent to exclude’).

132. Tribunale di Vigevano, Italy, 12 July 2000, supra note 100 (stating it was to be assumed ‘the parties wanted to exclude the application of the [CISG] only if it appears in an unequivocal way that they recognized its applicability and they nevertheless insisted on referring only to national, non-uniform law’); Appellate Court (OLG) Hamm, 9 June 1995, supra note 43; District Court (LG) Landshut, 5 April 1995, supra note 32, §II.1.a; District Court (LG) Bamberg, Germany, 23 October 2006 <http://cisgw3.law.pace.edu/cases/061023g1.html>. See also Appellate Court (OLG) Linz, 23 January 2006, supra note 24, at [2.2] (overturned on appeal by Supreme Court, Austria, 4 July 2007, supra note 24); UNCITRAL Digest, supra note 27, Art. 6 at para. [14].

133. Appellate Court (OLG) Hamm, 9 June 1995, supra note 43. The OLG Hamm decision stated that litigation exclusively based on BGB provisions implied a choice of German law, and hence the CISG applied; id., I. See also, District Court Saarbrücken (LG), Germany, 1 June 2004, supra note 79; Ho Myung Moolsan, Co. Ltd. v. Manitou Mineral Water, Inc., supra note 35 (concluding that by referring to domestic law parties consented to application of New York UCC rather than the CISG); Rienzi & Sons, Inc., v. Puglisi, supra note 35.

134. Ferrari, International Legal Forum, supra note 16, at 220 (arguing that this cannot ‘per se lead to the exclusion of the CISG’); Schlechtriem, in Schlechtriem & Schwenzer 2nd edn, supra note 2, Art. 6, at 91 para 14.

135. Ferrari, International Legal Forum, supra note 16, at 220; Appellate Court (OLG) Rostock, 10 October 2001, supra note 103; Tribunale di Vigevano, Italy, 12 July 2000, supra note 100.

136. Schwenzer & Hachem, supra note 3, Art. 6, at 113 para. 21 (stating that ‘conduct of the parties still needs to sufficiently indicate ... whether the parties knowingly departed from the otherwise applicable CISG’); Schmidt-Kessel, supra note 3, Art. 8, at 164 para. 38.

137. Schlechtriem, in Schlechtriem & Schwenzer 2nd edn, supra note 2, Art. 6, at 91 para. 14 (emphasis added).

138. ICC Award No. 8453/1995, supra note 74; Shanghai First Intermediate People’s Court, 22 March 2011, supra note 74; Industrias Magromer Cueros y Pieles SA v. Sociedad Agrícola Sacor Limitada, supra note 75; BSC Footwear Supplies Ltd v. Brumby St., Audiencia Provincial de Alicante, 16 November 2000, supra note 106; Société Muller Ecole et Bureau v. Société Federal Trait, Cour de Cassation, 26 June 2001, supra note 109; Cour de Cassation, 25 October 2005, supra note 109; Gammatex International Srl v. Shanghai Eastern Crocodile Apparels Co. Ltd., supra note 73; Xiao & Long, Application of the CISG in China, supra note 73, at 71 (the court ignored the CISG’s applicability despite fulfilment of the requirements of Art. 1(1)(a) and no apparent intent to exclude)(translation W. Long). In addition, decisions relying on domestic waiver principles discussed below, see eg., GPL Treatment v. Louisiana-Pacific Corp., supra note 76; Playcorp Pty Ltd v. Taiyo Kogyo Ltd, Victorian Supreme Court, Australia, 24 April 2003, at [235] & [245] <http://cisgw3.law.pace.edu/cases/030424a2.html>; Attorney-General of Botswana v. Aussie Diamond Products Pty Ltd [2010] WASC 141, Supreme Court of Western Australia, 23 June 2010 <http://cisgw3.law.pace.edu/cases/100623a2.html>.

139. Spagnolo, supra note 9, at 214.

140. Ferrari, International Legal Forum, supra note 16, at 220; Schwenzer & Hachem, supra note 3, Art. 6, at 113 para. 21 (arguing that ‘basing arguments on provisions of domestic sales law is simply a mistake on the part of the attorneys’ rather than evidence of an intent to exclude); Schlechtriem, in Schlechtriem & Schwenzer 2nd edn, supra note 2, Art. 6, at 90-91 para. 14.

141. Appellate Court (OLG) Stuttgart, 31 March 2008, supra note 37 (failure by parties to base allegations on the CISG does not imply post-contractual exclusion, since ‘[t]here is no mutual agreement of intent … as this requires an express declaration of intent …The application of the wrong provisions due to a legal misapprehension does not meet this requirement’); Tribunale di Padova, 25 February 2004, supra note 100 (pleadings referring only to non-uniform domestic law cannot of themselves amount to an exclusion of the CISG, as an intent to exclude the CISG, ‘it must clearly show that [the parties] were aware of its applicability, and that they nonetheless insisted on referring only to the domestic rule’); Appellate Court (OLG) Rostock, 10 October 2001, supra note 103 (‘Merely referring to [the domestic provisions] is insufficient, because such reference might also be made because the parties think that that law was applicable anyway’); Appellate Court (OLG) Linz, 23 January 2006, supra note 24; Appellate Court (OLG) Hamm, 9 June 1995, supra note 43; Tribunale di Forli, 16 February 2009, supra note 103, at §4.3.3; District Court (LG) Landshut, 5 April 1995, supra note 32, §II.1.a (argument solely on the BGB ‘does not change anything’); District Court (LG) Bamberg, Germany, 23 October 2006 <http://cisgw3.law.pace.edu/cases/061023g1.html>. See also, ICC Award No. 7565/1994, supra note 27; Tribunale di Vigevano, Italy, 12 July 2000, supra note 100, paras 5 & 6; Tribunale di Cuneo, 31 January 1996, supra note 100 (although the latter two were based on the domestic procedural rule).

142. Spagnolo, supra note 9, at 214-15 (arguing moreover that counsels’ ‘ignorance, misapprehension or simply convenience’ is insufficient).

143. Id., at 215.

144. Id., at 214. See also Xiao & Long, Application of the CISG in China, supra note 73, at 77 & 81-82.


145. See Schroeter, supra note 18, at 16 (discussing Bundesgerichtshof (BGH), 11 May 2010, Internationales Handelsrecht 216 (2010) in which counsel had expressly agreed to apply ‘German law’ during proceedings, and the case was presented and decided on the basis of the German Civil Code (BGB) and German Commercial Code (HGB) by lower courts, but ‘remarkably’ the BGH nonetheless remanded the case and ‘directed [the court below] to investigate whether the parties (acting through counsel) had really intended to choose the BGB and HGB’). Advocating such an approach: Spagnolo, supra note 9, at 217.

146. Id., at 215. See Schroeter, supra note 18, at 9-10 (stating most courts are already ‘skeptical’ due to concern that failure to argue the CISG results from counsel being unaware of its applicability).

147. Art. 7(1) Hague Convention on the Law Applicable to Contracts for the International Sale of Goods, 39 October 1986, 24 I.L.M. 1573, 1575 (1985)(‘[t]he parties’ agreement on this choice must be express or be clearly demonstrated’) & Art. 3(1) Rome Convention on the Law Applicable to Contractual Obligations, 1980 O.J. (L 266), 19 June 1980, 19 I.L.M. 1492 (1980)(‘[t]he choice must be expressed or demonstrated with reasonable certainty’); Art. 3(1) Rome I Regulation (EC) No 593/2008 on the Law Applicable to Contractual Obligations, 2008 O.J. (L. 177/6), 4 July 2008 (‘[t]he choice shall be made expressly or clearly demonstrated by the terms of the contract or the circumstances of the case’). But see Schroeter, supra note 18, at 10 (concluding Art. 6 imposes a stricter requirement than most private international law for expression of intent regarding choice of law).

148. Spagnolo, supra note 9, at 215.

149. Id., at 215. See, eg., the approach taken by the Supreme Court (BGH), Germany, 11 May 2010, supra note 145; Foreign Trade Court attached to the Serbian Chamber of Commerce, 27 December 2010 <http://cisgw3.law.pace.edu/cases/101227sb.html> (during the oral hearing parties reached agreement to explicitly exclude the application of the CISG).

150. Stating the applicability of the CISG is not dependant on a claim by the parties, but is to be examined ex officio by the court: I. Schwenzer & P. Hachem, in Schwenzer 3rd edn, supra note 3, Introduction to Arts 1-6, at 19-20 para. 3.

151. The CISG was raised in argument only very late in the trial: GPL Treatment v. Louisiana-Pacific Corp., supra note 76, See also Italian Imported Foods Pty Ltd v. Pucci Srl, supra note 73.

152. GPL Treatment v. Louisiana-Pacific Corp., supra note 76, Leeson J (dissenting, at note 8).

153. Ho Myung Moolsan, Co. Ltd. v. Manitou Mineral Water, Inc., supra note 35 (the court did not consider whether Art. 6 CISG was satisfied).

154. The implementing legislation stated the CISG was to prevail to the extent of any inconsistency: ss. 5 & 6 Sale of Goods (Vienna Convention) Act 1987 (Victoria); Playcorp Pty Ltd v. Taiyo Kogyo Ltd, 24 April 2003, supra note 138, at [235] & [245]; Spagnolo, supra note 3, (criticising this decision as ignoring the fact that application of the CISG involves an entirely different methodology). Relying upon the conclusion in the Playcorp case to interpret similar enacting provisions, see Attorney-General of Botswana v. Aussie Diamond Products Pty Ltd, 23 June 2010, supra note 138, para. 210 (in which court was aware of the applicability of the CISG, but declined to apply it because it was ‘unnecessary’ given the ‘way the case was run’ and the lack of suggestion from either party that the CISG was inconsistent with domestic sales law).

155. Contra Spagnolo, supra note 9, at 196.

156. Schwenzer & Hachem, Art. 1, supra note 3, at 104 para. [4].

157. Supreme Court, Poland, 17 October 2008, M. Zachariasiewicz, Abstract, supra note 27.

158. Schroeter, supra note 18, at 24 & 29 (pointing out the latter is unlikely once a dispute is on foot, since by then, it will often be to one party’s advantage to apply the CISG rather than an alternative law).