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Why India should opt for CISG
Yashasvi Nain and Shashank Manish comment on why India should become a signatory to the United Nations Convention on Contracts for the Sale of International Goods Act, 1988.
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Introduction
The movement to make laws that are applicable uniformly on the issue of sale of goods, worldwide, is not new. It started in 1920 and because of it United Nations Convention on Contracts for the Sale of International Goods Act (hereinafter referred to as "CISG") came into existence in 1980. CISG came into force on January 1, 1988 and it currently has been adopted by seventy seven (77) States including China, Japan, Canada, Mexico, Germany, France, Switzerland, and virtually every other major trading country (but not the United Kingdom, Brazil, India, or South Africa). CISG is a set of legal rules concerning formation of contracts, obligation of sellers and buyers and remedies for the breach of contracts. The preamble of the CISG clearly mentions the object and purpose of the Convention.
Like any other Convention CISG is also facing agreement and disagreement towards its acceptance and inclusion by countries in their national laws and trade practices. This dilemma within the countries could be observed from the reports submitted by experts in this regard. The recommendation of Singapore Law Reform Committee’s Report on the CISG is in favour of the Convention on the other hand commentators like Arthur Rossett and Professor G. H. Trietel express reservations about its adoption. The two primary reasons for the success of CISG are its applicability and the way it is interpreted.
CISG is applicable only on international sale of goods contracts. This is the primary reason why this Convention has received such an acceptance from the majority of the countries involved in world trade. Although, CISG is applicable on international sale of goods contracts, its application may have effects on domestic law. Furthermore, mere ratification or adoption is not adequate to create true uniformity, but it creates harmony in the application of an instrument. Uniformity comes next with the member country legislating a new law or amending the existing laws on the issue.
About the Convention
Various attempts were made to unify the law of international sale of goods and this practice is not new in the international arena. Indeed, the work of the United Nations Commission on International Trade Law (UNCITRAL) is appreciated as it resulted in the adoption of the Convention and this was the culmination of a long process of unification in this area. UNCITRAL's effort in bringing this uniformity is not new as it goes back to a decision of the International Institute for the Unification of Private Law (UNIDROIT) in 1930 to proceed with the preparation of a uniform law on the international sale of goods under the patronage of the League of Nations . The unification effort, with an interruption between 1939 and 1951 due to the Second World War, carried on into the early 1960s, and consequently the diplomatic conference at The Hague in 1964 was convened. After much deliberation, a final version of the Uniform Law on the International Sale of Goods was proposed in 1964 by the special committee at The Hague (Hague Conference). At the same time, UNIDROIT submitted a draft Uniform Law on the formation of contracts for the International Sale of Goods. This conference adopted both the Uniform Law on the International Sale of Goods and the Uniform Law on the Formation of Contracts for the International Sale of Goods (1964 Uniform Laws) and the conventions to which they were attached. Both Conventions entered into force in 1972. These laws have not been widely ratified primarily owing to the European dominance in their production and the European orientation in their content, thus making them highly unacceptable for the non-European countries. In 1978, the UNCITRAL integrated both these conventions into a simple text and adopted the UNCITRAL Draft Convention on Contracts for the International Sale of Goods. This draft was submitted to a Diplomatic Conference in Vienna. Following extensive discussion and numerous amendments, the Convention was approved so as to suit the needs of both common and civil law countries.
This drafting history of the CISG itself shows that the earlier conventions relating to international sales were inadequate and had a European orientation which made them unacceptable to the rest of the nations. Thus, CISG, a new convention was brought, which tried to achieve a comprehensive view of international sales keeping in view the interests of all the countries involved in world trade.
Need for uniform sales laws
We are in the era of globalization and with the advent of internet and faster modes of communication, world has been reduced into a global village where almost each and every country are in trade relations with one another. Lifting of legal barriers and with attempt to move on the lines of developed countries, businessmen of developing countries are now involved in trade with traders from a wide array of jurisdiction whose laws are not familiar or uniform. Thus, this has resulted into many encountering legal problems associated with an unfamiliar system of laws. In such circumstances, in case of any dispute, it leads to several problems for all its stakeholders such as traders, businessmen, policy-makers, lawyers and legal systems. The problem which a lawyer has to face is that he has to familiarize himself with the niceties and complexities of that particular legal system to determine the existing legal position for issues raised by any given international transaction, at the same time the latter has to also evolve solutions for problems of an international nature. This increases the work burden and unnecessary complexities in the trade relations.
Such a situation can be done away or dealt with if the trading countries have a uniform or similar legal system based on a model international instrument. For a uniform sales law in general and in particularly, CISG is an attempt to lessen such risks in the area of sales of goods.
Why India should adopt the CISG
CISG is said to be one of the most successful treaties in private international law. The reason is its wide adoption and the corresponding recent growth of international business transactions . Growing from an original group of 11 countries in 1988, the Convention is now accepted and signed by 77 nations . Countries who are signatories to the CISG are accounted for a staggering two-thirds of all goods moving in international trade and it more or less cover a majority of the world’s population . Fortunately, in the interest of promoting uniform law , and the uniformity of its application; and regardless of reservations made by some signatories to the CISG, all signatories have agreed to implement the CISG in a uniform fashion. The extent of ratification by a large number of states shows that there is a sharp chance of the Convention becoming a norm for international trade in future, thus emphasising the need for India as well to become a party to the Convention. Further, with the wave of liberalization, which started in the year 1991, India has seen a robust growth in its external trade statistics.
If we review our trade relations, we will find that almost all our major trade partners are signatories to this Convention . For that reason having a familiar sales law with the host nation will certainly help in facilitation of trade between India and its trading partners.
Firstly, Indian sales law i.e. The Sale of Goods Act, 1930 was written by English and was heavily inspired from English Sales of Goods Act, 1893, which is very old and is outdated now. Since the introduction of modern techniques and means of transport has drastically changed, the modes of entering into contract, it is not suited for the modern and contemporary commercial contracts. Here lies the importance of CISG as it is universal in nature and drafted in several languages that makes it more accessible and comprehendible to international commercial parties across the globe.
Secondly, the Convention works as a gap-filling technique in case where trans-border contract is made by phone or even by fax or telex but in only a few words. Sometimes contracts are incomplete or they are not in condition to cover every type of contingencies. Resultantly it creates certain gaps in the contract. In theory, a uniform sales law confers significant benefits on parties, at least to the extent that it embodies in its default rules which are the solution to these gaps . For instance CISG resolves the issue of choice of law clause.
It should not be forgotten that this Convention’s primary aim is not to obstruct the parties’ ability and freedom to enter into contract but only to fill the gaps left upon by the drafters of the international sales contracts . It proposes to do so by replacing conflicting domestic contract laws with one uniform set of international rules.
Thirdly, CISG recognises broad contractual freedom to the parties of international sales contracts which is mostly desired. Article 6 of CISG enables them to derogate from or vary the effect of any of its provisions and even to exclude the application of the Convention.
Fourthly, modern trade practices and realities are taken into account in this Convention. CISG contains provisions regarding the interpretation of contracts which are considered as wider than the Common Law rules.
Fifthly, CISG contains useful provisions to practical problems which are very important in day to day trade practices now a days for instance asking the parties to preserve goods in their possession which otherwise belong to other party.
Sixth, CISG provides a boost to the Indian economy. Law and economy are indispensible. Legal system of country is one of the important factors in facilitating its economy. Though it is not very true to claim that a strong legal system guarantees a robust economy, but it is difficult to find a robust economy without a strong legal system. As said by Prof. Baker:
"If economic factors and economic interests have partly determined the legal framework, it is even more true that law has furnished the whole general framework of rules within which and under which the factors and interests of economists have had to work."
The Convention will strengthen the legal caricature to assist the Government’s move to boost economic expansion overseas by facilitating Indian businessmen and Indian corporations with a consistent sales law with the countries with whom they are trading with
Why India is hesitating in signing the CISG
One of the major reasons why India is not signing this Convention is that it thinks that CISG is not a comprehensive treaty. It does not relate itself with the validity of the contract that is to say with issues like illegality, fraud, misrepresentation pertaining to the contract. Therefore, it was correctly remarked by Barry Nicholas that the CISG would not therefore achieve one of the main objective of the uniform laws.
The CISG applies inexact language for a common law lawyer. It gives a sense of unease for a common law lawyer, as described by Professor Farnsworth . According to Arthur Rossett it is using ‘language which, first of all, is foreign with regards to the law of contract and therefore has no clearly defined meaning and, secondly, is too wide and inexact and therefore leads to uncertainty’.
Therefore, the CISG divests the buyer of his legislative right imbibed under the domestic law to refuse the goods when they do not match to the quantity or quality. The Indian trading bodies and their legal counselors have found errors in CISG rules worrying because of the vague language of the CISG and foreword of the 'fundamental breach' notion . Similarly, in Article 8 of CISG, the act is vulnerable to incongruity. The intent clause fetches in the judgments the function of representation flouting the genuine value. Furthermore, CISG builds a more confounding situation in facet of 'good faith' . CISG is completely silent about the elucidation of good faith, whether it is good faith with respect to the demeanor of the parties or does it signify towards fair dealings. In CISG, Article 7(2), which is usually referred to as gap-filling provision, acts as the mayhem as it again it takes us to the tour of a random terrain and is therefore very prejudiced as per the state of affairs. The wordings of using the general principles makes CISG provision a lot vague. Additional international laws like UNIDROIT Principles and the Restatement, Principles of European Contract Law (PECL) also relate good faith as an interpretative principle but it furthermore mentions that it is forced as an obligation upon the parties demeanor .
Taking into consideration a further state of affairs why India has not ratified CISG. For eg. "X" a contracting state makes a contract with a trader in India where India is the buyer. It's a situation where no particular decision is taken with respect to delivery of goods. The compulsion of the seller terminates with the delivery of goods to the first carrier. Under a position where the delivery between the buyer and the seller is through any middle supply, India loses the right to move towards its courts for interim relief. A variety of unknown situations are created by 'The closest point' test applied by the CISG. In case of a dispute in the above acknowledged instance the watchfulness lies on the court of the place of the first carrier.
Conclusion
The fact that the CISG has been "the most successful international document so far" cannot be denied. The need of the hour requires that Indian traders have to familiarise themselves with the laws of many other foreign countries. Is it not levelheaded to offer them with the prospect of subscribing to a single homogeneous law, tailored as they see fit. CISG does precisely that.
It is desirable to follow complete legal and management reassessment of procurement and sales procedures to be followed under the new system by international persons and their legal advisors. An increasing number of countries ratifying and increasing draw on is made of the CISG. Such traders require identification of clients and conditions in which use of the CISG is preferable over use of domestic law. Additionally, the opportunities, inadvertently and unknowingly, to develop into subject to the CISG remains very real. Failure to think clearly about choice of governing law issues at the time of contracting is quite expected to lead to disagreeable surprises in the occurrence of a dispute."
CISG is not a complete code like most other Conventions that aspires to complement particular areas of law, regulating all matters falling within its area of application. Some matters were considered to be too contentious for inclusion in the CISG since the national laws differed too much to complement the various approaches . To ensure maximum support for the Convention, the drafters decided to leave these issues outside the CISG’s scope of application. They opted for a widely acceptable Convention as an alternative of a complete but controversial text.
For any legal system it is an exigent task to demarcate between cases where the contract continues regardless of its breach by one party and cases where the aggrieved party has to be permitted to terminate the contract and to recover its freedom to contract once more. The CISG reacts with a whole set of rules to that problem . The Convention grants the remedy of avoidance rather unenthusiastically and this policy is accepted by the courts.
After working for almost thirty years, the age when adults are fully aware of their strength and have already gathered adequate knowledge to put it to work, CISG has a huge prospects to be converted into the truly global sales law . It is upto us to ensure that this goal turns up at the velocity we estimate most advantageous.
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SHASHANK MANISH is a Law Clerk cum Research Assistant at the Supreme Court of India & YASHASVI NAIN is a fourth year student pursing law at Rajiv Gandhi National University of Law, Patiala.
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