Simon Bächtold, M.A. HSG in Law, B.Sc. ZFH

Sandra De Vito Bieri
Simon Bächtold
lic. iur., LL.M., Attorney-at-Law
Partner
Co-Head of the Arbitration Practice Group
Phone +41 58 258 10 00
[email protected]
M.A. HSG in Law, B.Sc. ZFH
Junior Associate
Phone +41 58 258 17 00
[email protected]
International Arbitration and Vienna Convention
A love story?
We all know that Swiss Law is one of the most used and appreciated applicable laws in
international arbitration. But, is there any true international alternative? The present article
sheds a light on the “United Nations Convention on Contracts for the International Sale of
Goods” (CISG) or “Vienna Convention” and why the CISG and Arbitration are a perfect
match.
1.
The Convention on Contracts for the International Sale of Goods (CISG)
The CISG was concluded in 1980 and lists, as of today, 80 Member States among which are
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most of the commercially important nations worldwide. Based on the international conflict of laws
rules the CISG might apply also if only one party’s state of domicile is a signatory. Thus, by default, approximately 80% of all international sales contracts are governed by the CISG.
2
Although, as the name indicates, the scope of the CISG is the international sale of goods, it also
applies to so-called mixed sales-service-contracts, as long as the value of the goods is the preponderant element (Art. 3(2) CISG).
2.
Practical Application
The CISG and Arbitration are strongly entangled. Legal scholars estimated in 2011 that arbitral
tribunals decide approximately 25% of all CISG-cases. Given that a large number of awards rendered never become public, the real share is likely to be significantly higher. On the other hand,
the ICC Court of Arbitration has disclosed that more than 5% of its cases are governed by the
1
The CISG has been adopted by most European Countries as well as the United States, China, Japan and many emerging economies
such as Brazil, Russia, India, Mexico, to just name a few. Prominent absentees are for example Great Britain, Portugal and the Principality of Liechtenstein.
2
SCHMIDT-AHRENDTS, CISG and Arbitration, in: Belgrade Law Review, Year LIX (2011) no. 3, pp. 211-223, p. 219.
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Arbitration Newsletter August 2014
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CISG. A surprisingly high share considering that the CISG as a general rule only applies to contracts for the sale of goods.
3.
Why having the CISG as material law?
The CISG is a truly international, well-balanced law, which does not provide for any unpleasant
surprises. We ought to say that a commercial law lawyer independent of his or her geographical
domicile knows the principles of the Vienna Convention. The very wide and up to date literature
on the CISG, as well as the rich and easy to access case law provide guidance even for the most
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complex questions.
It is usually towards the end of lengthy negotiations that the questions of forum selection or arbitration and the law applicable to the contract arise. Those questions need to be regulated in order
to prevent long disputes afterwards. However, if none of the parties can establish its own national
law to be applicable (e.g. because it lacks the necessary bargaining power) the parties will have
to agree on a neutral law.
Swiss material law has proven to be an excellent choice for international contracts, as it is known
to be neutral and in favor of party autonomy. Nonetheless, if for any reasons parties are reluctant
to settle for Swiss law, the CISG is a very valuable option.
As an international treaty, the CISG is truly neutral and does not favor a particular party from a
particular state. In addition to its neutrality, the CISG comes with two advantages that set it apart
from all national contract laws:
a)
it bridges the gap between civil- and common- law traditions and
b)
it provides a full set of provisions specifically drafted with long term sales contracts in mind.
a)
Building a bridge between Common Law and Civil Law
Parties based in common law countries might be particularly reluctant to accept the applicability
of a civil law statute and vice versa. Here, the CISG provides for a solution.
As an example, the CISG adopted the civil law principle to uphold the contract even if things go
awry and to provide additional performance as remedy for breach (Art. 46 CISG). The CISG allows the seller who fails to perform on time, or who delivers non-conforming goods, to correct the
performance as long as it does not cause the buyer an unreasonable delay or inconvenience
(Art. 48(1) CISG). It further includes the civil law concept of price reduction as a remedy for
3
SCHMIDT-AHRENDTS, p. 212.
4
See: www.cisg.law.pace.edu.
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breach (Art. 50 CISG) and excludes the parol-evidence-rule, which means that a contract “can be
proven by any means, including witnesses” (Art. 11 CISG).
From the common law tradition, the CISG namely inherited its non-fault principle for damages.
This means that damages can be awarded for any breach of contract regardless of negligence or
fault (Art. 45(1)(b) CISG and Art. 61(1)(b) CISG). Damages, however, are limited by the principles of objective foreseeability (Art. 74 CISG), duty to mitigate (Art. 77 CISG), inadmissibility of
self-inflicted damages (Art. 80 CISG) and exemption in case of force majeure (Art. 79 CISG).
b)
A ready set of rules for long term contracts
The CISG provides a set of non-mandatory rules specifically designed to ease conclusion and
execution of long term contracts.
For instance, Art. 19(2) CISG provides that “a reply to an offer which purports to be an acceptance but contains additional or different terms which do not materially alter the terms of the
offer constitutes an acceptance, unless the offeror, without undue delay, objects orally to the
discrepancy or dispatches a notice to that effect”.
By excluding the so-called mirror-image-rule, the CISG fosters a binding contract and prevents
that a party can later (abusively) challenge the contract based on a minor difference between
offer and acceptance.
According to Art. 35(2) CISG the seller is, unless specified otherwise, bound to deliver goods that
are “fit for the purpose for which goods of the same description would ordinarily be used”. Statutory regulations differing between the seller’s and the buyer’s jurisdiction can lead to the situation
that a good is fit for the purpose according to the seller’s jurisdiction but not according to the buyer’s. The CISG, therefore, provides that it is the standard of the seller’s jurisdiction that is to be
applied to assess the fitness of a good delivered, unless the seller has known or should have
known of the differing requirements in the jurisdiction of the buyer (Art. 35(3) CISG).
4.
Contracting into the CISG
For many contracts on the international sale of goods the CISG is applicable by default: Examples – from a Swiss perspective – are:

A Swiss seller concludes a contract with a Turkish buyer. Both countries being
member states of the CISG, the CISG is directly applicable by virtue of Art.
1(1)(a) CISG.

In a second scenario, a Swiss seller concludes a contract with a buyer in Portugal (not a member state). The CISG applies as well. It is applicable by virtue of
Art. 1(1)(b) CISG in connection with Art. 118(1) PIL, which refers to the Hague
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Convention on the Law applicable to the Contracts for the International Sale of
Goods (1986 Hague Convention). According to this convention the law of the
seller is applicable, which leads to Swiss law. Swiss law meaning in this case the
CISG.
It becomes evident just from those two examples that the CISG is usually applicable if the seller
is based in a jurisdiction, which is a CISG-member state.
Even if the CISG is not applicable by default, the parties can always opt into the convention and
choose it as applicable material law – just as they opt into Arbitration by inserting the arbitration
agreement.
To this end, they can include a clause into their contract such as: „The material law applicable to
all disputes arising out of or in connection with this contract shall be the United Nations Convention on Contracts for the International Sale of Goods (CISG)”. If your bargaining power allows
such addition, we suggest inserting also the following: “To all matters not governed by the CISG,
Swiss material law shall be applicable”.
5.
Summary
The CISG is by default applicable to around 80% of the world’s contracts for the international sale
of goods. It is a modern, well-balanced law that takes into account the interests of both parties
and which is well established in the international legal community. The CISG is a truly international and thus neutral law which values party autonomy and the principle of good faith. Hence, if
during the negotiation process there is no chance to agree on a neutral state law, such as e.g.
Swiss law, the CISG is a perfect option and a solution which will satisfy both parties if it comes to
a dispute over the sales contract, which needs to be resolved by the means of international arbitration. So yes, it is a true love story!
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