Interpretation and gap-filling in the CISG and in the CESL

Author:Ulrich Magnus
Position:University of Hamburg, Hamburg, Germany and Max-Planck Institute, Hamburg, Germany

Purpose – The purpose of this article is to compare the methods of interpretation and gap filling in the United Nations Sales Convention (CISG) and in the Draft Common European Sales Law (CESL). In particular, it aims to examine whether the established interpretation and gap filling method of the CISG can and should be used for the CESL. Design/methodology/approach – The article looks at the method by which international case law and doctrine... (see full summary)

1 Introduction

Uniform law aims to harmonise law among multiple jurisdictions. However, true uniformity comes not by simply adopting a uniform law, but from similarity in the interpretation and application of the law. The identical text alone does not secure a high level of mutual understanding. Other factors, like a common method of interpretation, a competent appellate court system, a robust exchange of information – including, foreign case and arbitral decisions, as well as scholarly commentary from among the different jurisdictions – are all essential elements for a uniform interpretation of a multi-jurisdictional law.

This article undertakes a comparative analysis of the methods and problems of interpretation and gap-filling found in the United Nations Convention on Contracts for the International Sale of Goods of 1980 (CISG) and the proposal for a regulation on a Common European Sales Law (CESL) which the EU Commission tabled on 11 October 20111. The Article also pursues an analysis of whether the interpretation of the two instruments is likely to diverge or even if they should diverge.

2 A short characterisation of the two instruments – their aims and their interrelationship

The objectives of a legislative instrument have particular relevance for its interpretation2. The next two sections will briefly review the rationales for the CISG and CESL.

2. 1 CISG

The aims of the CISG are ambitious – the global unification of the substantive law of professional (commercial) international sales of moveable goods. 78 countries are now CISG contracting states. It covers all kinds of professional sales, but principally excludes consumer sales3. The various case collections found in UNCITRAL4, the Pace University CISG Database, the database of CISG-online, and numerous national collections provide support that the CISG is increasingly used by courts and arbitral tribunals. The sheer number of reported cases5 disproves the often raised allegation that the CISG leads a merely shadowy existence of no real practical importance6.

The justification on which the CISG is founded is the observation and the further assumption that the sales laws of national states differ rather widely and that these differences impair international trade. It can be questioned whether these differences are really serious hindrances for international trade; normally merchants do not care too much about law when they conclude transborder contracts7. However, differences between national sales laws do, at least to a certain degree, hinder transactions across borders in a negative way. The CISG's objective is to remove the obstacle presented by differing national sales law with a single harmonizing international sales law. The CISG, thus, intends to avoid the complications which private international law issues normally raise – first in determining which national law is the applicable law in a contract dispute and second, the problem of a contracting party being confronted with the idiosyncratic and unusual provisions of a given national sales law. The CISG aims to facilitate, and indeed simplify, international sales law. With a single, uniform law the parties and their lawyers have a single reference point to determine their contractual rights, obligations, and remedies. The time-consuming and complex review of foreign sales laws is avoided. The avoidance of private international law or conflict of law rules helps facilitate international trade by reducing transaction costs.

2. 2 CESL

The CESL consists of a basic EU regulation (the “Regulation”) which essentially defines the scope of application of the instrument and Annex I (CESL) that contains the substantive sales law. At present, the whole instrument is still in draft form. However, for various reasons8 a rather similar final version is expected.

The explanatory memorandum to CESL provides the rationales and objectives for its enactment:

The purpose of the Regulation “on CESL” is to improve the conditions for the establishment and the functioning of the internal market by making available a uniform set of contract law rules9.

In essence, it is the same rationale that underlies the CISG – national differences of law are obstacles to international trade and therefore should be removed10. Like the CISG on a global level, CESL intends to achieve this aim within the EU. However, in contrast to the CISG, which applies if not excluded, CESL does not automatically replace the differing national laws. CESL intends to facilitate transborder EU sales, but not by means of a mandatory unifying European sales law. Instead, it is framed as an alternative or “second” national11 sales law regime that does not directly pre-empt existing national sales law, but allows contracting parties to opt-in to a uniform EU sales law. CESL gives the parties merely the option to choose this “second” regime in order to avoid the differences between national laws (opt-in solution). The drafters hope that the new instrument will be a popular choice of law due to the inherent advantages for businesses of being governed by a single sales law throughout the EU.

In further contrast to the CISG, CESL does not intend to offer a sales regime for all international sales transactions. Its main purpose is to provide a special, largely protective sales regime for consumers and also for smaller to medium sized enterprises (SMEs). Consumer protection is in the forefront as many mandatory provisions of CESL only apply to consumer sales (B2C). But protection of SMEs is a further essential aim; in certain respects, CESL considers SMEs as pseudo-consumers. The original scope of CESL therefore covers sales only between professional sellers (traders) and consumers and sales between professional traders if at least one of them is a SME12. The definition of SME in the proposed regulation, in fact, encompasses fairly large businesses. CESL regulation Article 7(2) defines a SME as an enterprise with less than 250 employees and less than 50 million annual turnover or less than a 43 million annual balance sheet total. The original coverage of CESL is thus limited and excludes international sales between larger enterprises. Nonetheless, the drafters regard CESL as likewise suitable for non-SME enterprises. The regulation therefore allows the member states to make CESL available also to big enterprises13. One wonders whether without such an entitlement non-SME enterprises would be precluded from voluntarily choosing CESL. Since the whole instrument is an optional instrument, the contrary should be true14.

2. 3 The interrelationship of CISG and CESL

The objectives of the CISG and CESL do not fully match but correspond to a limited extent. CESL's primary aim is the facilitation of transborder trade for consumers and SMEs within the EU, although, if chosen, CESL applies also to sales contracts were one party is from outside the EU15. In contrast, the CISG aims at the facilitation of international sales on a global level, generally excluding consumer sales.

Concerning the addressees of the two instruments there is a rather wide overlap between CISG and CESL. This is most evident with respect to SMEs. Both instruments address these persons or enterprises. But, while the CISG does not distinguish between large enterprises and SMEs, CESL draws such a distinction. It is not intended to cover sales between large businesses however; it allows the member states to make CESL available for all B2B transactions. If the member states follow this path and because big businesses in my view can always freely choose CESL there is an overlap between the CISG and the CESL also with respect to these businesses. And although the CISG does not intend to regulate consumer sales, in rare situations, some consumer transactions do come within its jurisdiction. Therefore, there a number of transaction types where CESL and the CISG potentially overlap.

But despite, the potential overlap, the CESL's drafters had in mind an uncomplicated coexistence for the two instruments16. While the CISG applies automatically (unless clearly excluded) CESL on the contrary must clearly be chosen17. For instance, in the rare cases when consumer sales fall within the scope of the CISG they are covered by the CISG unless there is a clear choice of the CESL. However, if the CESL is validly chosen this is intended to be enough to opt-out of the CISG18. It is evident that CESL's drafters regarded the traditional way of unification of law through the binding force of international instruments, like the CISG, as not a requirement for a harmonizing law aimed at the facilitation of...

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