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Copyright © International Chamber of Commerce (ICC). All rights reserved. ( Source of the document: ICC Digital Library )
1. The Vienna Sales Convention, formally known as the United Nations Convention on Contracts for the International Sale of Goods (CISG), has become a crucial text in international trade since its adoption in Vienna 20 years ago. It is now in force in 58 states, including most European countries, Australia, the United States, Russia and China,1 and the number of ratifications is still increasing. Its subject matter - transnational sales of goods, i.e. sales where the seller and buyer are established in different countries - is the backbone of international commerce. Consequently, as international sales are not infrequently the subject of disputes, the CISG is often applied by courts and arbitrators. The present article, which is based on an analysis of some 23 recent awards, 2 sets out to show how ICC arbitrators have been dealing with this major instrument of uniform law.
A survey of arbitral practice in relation to the CISG is useful not only for students of arbitration law, but for all lawyers who have to apply the Convention. Indeed, the CISG itself calls upon legal practitioners and judges, when interpreting it, to have regard 'to the need to promote uniformity in its application' (Art. 7(2) CISG). Consequently, an analysis of ICC arbitral awards will, like surveys of national court decisions, be most relevant to achieving such uniform interpretation.
The present study of ICC arbitral practice will focus first on the different routes by which the CISG becomes applicable in arbitration (I) and then look at the manner in which it has been applied by ICC arbitral tribunals (II).
I. The routes to application of the CISG in arbitration
2. As mentioned above, the CISG is in force in 58 states. The courts of these states are therefore bound by Article 1 of the CISG, which provides that the Convention is applicable:
to contracts of sale of goods between parties whose places of business are in different States:
a) when the States are Contracting States; or
b) when the rules of private international law lead to the application of the law of a Contracting State.
Hence, the courts in such states will apply the CISG if it is in force in the countries of both seller and buyer (Art. 1(1)(a)). They will also apply it whenever it is part of the proper law designated by the forum's rules of conflict of laws (Art. 1(1)(b)). 3 These two avenues of application have different implications: when state courts apply the [Page23:] CISG because the seller and buyer are established in two different CISG-states (Art. 1(1)(a)), the CISG is applied as part of the lex fori itself; whereas in the context of Art. 1(1)(b), the CISG is applied as part of the proper law of the contract, 4 which may be the domestic law or a foreign legal system.
3. ICC arbitrators apply the CISG on different grounds. An ICC arbitral tribunal cannot be likened to a state court. As it is not part of the state judiciary, it is not bound by the conventions which bind the state courts in the country where it has its seat. Consequently, application of the CISG by arbitrators via Article 1 does not presuppose that the law in the country where the arbitral tribunal has its seat incorporates the CISG. This is borne out in the awards examined, where applicability of the CISG was not dependent on its having been ratified by the state in which the seat of the arbitration was located.
4. The routes by which ICC arbitrators have applied the CISG fall into three categories. Firstly, the CISG was applied when it was chosen (maybe impliedly) by the parties (A). The arbitrators sometimes chose the CISG themselves whenever this seemed appropriate (B). Very often, their reference to the CISG was combined with a reference to national law (C).
A. Choice of the CISG by the parties
5. In many instances, ICC arbitrators applied the CISG because the parties had so agreed. Both the 19885 and the 19986 versions of the ICC Rules of Arbitration give the parties, in the first place, the possibility of deciding upon the rules of law to be applied to the merits of their dispute.
6. However, party autonomy does not have the same role before arbitrators as it does in state courts. For the latter, the parties' choice is but a secondary criterion underlying application of the CISG, the main criterion being that the CISG applies whenever seller and buyer are established in (different) Contracting States (Art. 1(1)(a)). Only when this is not the case do 'the rules of private international law' become relevant (Art. 1(1)(a)). One of the rules of private international law - as has been confirmed by ICC arbitrators7 - is the 'principle of party autonomy', by which parties can choose the applicable law.
The days when arbitrators were considered to be bound by the conflict rules of the forum are long since past. 8 It is now generally accepted that parties to an arbitration do not depend on the conflict rules of the forum to choose the law applicable. They may themselves directly determine the legal standards governing their obligations without the detour of the conflict rules at the seat of the arbitration. The ICC Rules of Arbitration confirm this possibility, albeit with a slight variation between the 1988 and the 1998 versions. The former gives the parties the freedom to determine the 'law', but the latter the 'rules of law', to be applied by the arbitrators to the merits of the dispute. The parties can thus directly make the CISG applicable by choosing (maybe impliedly) a legal system of which the CISG is part.
7. The ICC Rules of Arbitration do not limit the parties' choice to that of the legal system of a given country. They may, for instance, indicate in their sales contract that it will be governed by a set of rules other than national law, such as the CISG. 9[Page24:] Alternatively, they may agree on the CISG in the terms of reference at the start of the arbitration proceedings. 10 They may even choose the CISG during the proceedings, as in case 8740, where the parties, who had chosen Swiss law in their contract, specified at the hearing that they actually meant the CISG. Whenever the parties have expressly chosen the CISG, the arbitrators must apply it.
Party autonomy may go a long way. In one case, 11 both seller and buyer were established in Norway. Under Art. 1 of the CISG, their sale was not covered by the CISG as both parties were established in the same state. However, as the parties had chosen the CISG, the arbitral tribunal nonetheless accepted application of the CISG.
8. Arbitrators are required to apply the CISG not only when the parties have expressly chosen it, but also when they have agreed that a legal system containing it is applicable to their contract.
A choice of Swiss law in the contract was thus considered to include the CISG, 12 as did a choice of Italian law in the terms of reference. 13 In a further case, the choice of Austrian law amounted to a choice of the CISG. The CISG needs to be explicitly excluded pursuant to its Art. 6 - so arbitrators have stated - if the parties do not wish it to apply. 14 In case 8204, the CISG was applied as part of the proper (French) law since the parties had neither expressly nor implicitly excluded it.
9. The question arises, when parties have chosen a specific legal system, whether it really was their intention to have the CISG applied as part of that law. In one instance, 15 Czechoslovak and Korean parties had chosen Austrian law. At that time Czechoslovakia was party to the CISG, but Korea was not. The arbitral tribunal applied the CISG as part of the chosen Austrian law, without at that stage questioning whether the parties had in fact intended it to be applicable.
Indeed, application of the CISG may sometimes be thought to be rather automatic, without due consideration of the parties' intentions. This is well illustrated in a case where a German buyer and a Bulgarian seller had chosen French law. At that time the CISG was applicable in France, but neither in Germany nor in Bulgaria. The arbitral tribunal admitted that the parties might not have realized that the CISG had been incorporated into French law. However, it did not consider this a serious problem as it was not even sure to what extent the parties had been aware of the contents of French sales law at large. 16
Choice of a national law cannot be thought automatically to imply the applicability of the CISG because it is part of that legal system. The intention of the parties needs to be deduced from the circumstances of the case. In one arbitration, the choice of Swiss law as a 'neutral' law by a Polish seller and a Greek buyer, combined with the choice of Zurich as the seat of the arbitration, was considered as an indication that the parties intended the Swiss Code des Obligations - and not the CISG - to be applicable. 17 In another case18 the parties had agreed in their contract that any dispute between them should be settled 'in accordance with French law'. In the terms of reference they had specified that the 'substantive law of France, excluding its conflict of laws rules, shall be applied by the Arbitral Tribunal'. The tribunal considered this to mean that domestic French law was primarily applicable. In another case, 19 where the parties had chosen French law, they based their arguments on the French Civil Code. As they did not refer to the CISG, the arbitrator did not consider the latter to be applicable. [Page25:]
B. Choice of the CISG by the arbitral tribunal
10. In the absence of choice by the parties of the rules of law to govern their contract, ICC arbitrators have to select the applicable legal rules themselves. 20 They have used various devices to declare the CISG applicable to an international sales contract.
11. In many instances, they first determined which national legal system was applicable to the contract and then applied the CISG as part of this legal system. In none of the awards examined did ICC arbitrators appear to have used the conflict of laws rules at the seat of the arbitration to find the proper law of the contract. They did not do this under the 1998 Rules, 21 neither did they do so under the 1988 Rules. 22 Indeed, arbitrators have developed their own rules of conflict which they 'deem appropriate', to use the terms of the 1988 Rules, under which most of the awards examined were made.
In one arbitration the arbitral tribunal chose the law of the place where the goods had to be delivered; 23 in another the legal system with which the contract had the 'closest connection', i.e. the seller's law. 24 In a third case, it similarly sought the law with which the contract had the 'most real connection', opting for the seller's law because 'the most typical obligation of a sales contract is the one of the seller'. 25 In the latter two instances, the arbitrators in fact applied the criteria of the 1980 Rome Convention on the Law Applicable to Contractual Obligations (Art. 4) and the 1986 Hague Convention on the Law Applicable to Contracts for the International Sale of Goods (Art. 8), although they did not refer to these conventions in their awards. In a fourth case, 26 referring explicitly to Art. 4 of the Rome Convention, the arbitral tribunal chose 'the law of the country in which the person effecting the characteristic performance is based', i.e. the seller's law.
As stated above, the 1998 ICC Rules of Arbitration no longer require the arbitrator to find 'the proper law by the rule of conflict which he deems appropriate'. He is now free to determine the appropriate rules of law without the help of conflict of laws rules. Nevertheless, in an award rendered under the 1998 Rules, the arbitrator still applied 'the general principles of international private law as stated in international conventions, notably those in the field of the sale of movable goods, such as the 1985 [sic] Hague Convention […] Although this convention has not yet entered into force it best reflects the latest developments in that sphere.' 27 The arbitrator nonetheless applied discretion in applying the conflict of laws rules. In the absence of a choice of law by the parties, he saw two alternatives under the Hague Convention: either the law of the seller would be applicable, in accordance with the general rule of Art. 8 (1), or the law of the buyer if the contract had been concluded and the goods were to be delivered in the buyer's state (Art. 8(2)). Ultimately, the arbitrator did not need to choose between these alternatives, as the CISG was part of both buyer's and seller's laws.
12. Whenever the national legal system chosen by the arbitrators contains the CISG, the CISG becomes applicable. 28 In most of the cases in which arbitral tribunals applied the CISG as part of national law, they at the same time inquired whether the CISG considered itself applicable under its Art. 1(1). They found the CISG applicable sometimes because seller and buyer were established in two different contracting states (Art. 1(1)(a)), 29 sometimes because the CISG was part of the proper law (Art. 1(1)(b)), 30 and sometimes for both reasons together. 31[Page26:]
13. Arbitrators have also applied the CISG without a preliminary selection of a national legal system. They have done so not only when the tribunal was free to apply 'the rules of law which it determines to be appropriate' under the 1998 Rules, but also under the 1988 Rules, even though the latter required the arbitrator to designate 'the proper law by the rule of conflict which he deems appropriate'. 32 In one award, 33 rendered under the 1998 Rules, the arbitrators stated that the new Rules allowed them to apply the CISG directly as the 'rules of law' to which these rules refer, while the 1988 Rules, which instructed the arbitrators to apply the 'law' designated by the appropriate 'rule of conflict', rather referred merely to a national legal system. However, arbitral practice shows that even under the 1988 Rules arbitrators directly selected standards, such as the CISG, without the detour of national law. Perhaps direct selection of the CISG by arbitrators may be considered a specific rule of conflict of laws in arbitration.
In one instance, 34 the arbitrator directly applied the CISG not only because it was part of the law of the seller and that of the buyer, but also as the proper law of the contract, for which he used a self-styled conflict of laws rule.
In case 9887, decided under the more flexible 1998 Rules, the arbitrator's selection of the CISG was also based on the fact that it 'enjoys a strong recognition in the arbitration practice as a set of rules reflecting the evolution of international law in the field of international sale of goods'.
C. The CISG and national law
14. In one third of the cases studied, after determining the applicability of the CISG, the arbitrators stated that - after all - it was irrelevant whether the CISG or national sales law was applicable, since both contained similar provisions for the issues at stake. 35 As the arbitrators put it in one case, in which they ultimately opted for the CISG: '[…] as to the legal issues today at stake, the Vienna Convention as compared with prior French law on international sale of goods in general entails practically equivalent, if not totally similar, solutions on points of substance, so that application of the Vienna Convention would not run against the parties' legitimate expectations'. 36
15. National law has also a complementary role. Even when arbitrators decided that the CISG was applicable, issues not covered by it or by its underlying principles were governed by national law. As Art. 7(2) of the CISG states: 'Questions concerning matters governed by this Convention which are not expressly settled in it are to be settled in conformity with the general principles on which it is based or, in the absence of such principles, in conformity with the law applicable by virtue of the rules of private international law.'
Or, in the words of one arbitral tribunal: 'the issues in these proceedings have to be answered first based upon the express provisions of the Convention, second based on the general principles which may be deduced from the Convention, third by the provisions of Austrian law […]'. 37 Arbitrators have thus stated that German, 38 Italian, 39 and Swiss40 domestic law complemented the CISG rules on international sales. [Page27:]
Issues beyond the sales contract were of course also subject to national law. Defects in a bill of lading, i.e. a wrong shipping date mentioned, were thus outside the scope of the CISG. 41 Likewise, a distribution relationship did not come under the CISG, although the sales performed within its framework did. 42
In a further case, 43 the CISG was applied to the sales aspects of a dispute, but 'general French law' to other aspects such as those relating to construction law or mandate issues. Here, moreover, the arbitrators came to the surprising conclusion that '[t]o the extent, however, that French law is silent, the Vienna Convention would fill the gaps'. They thus did not see domestic law as complementary to the CISG but, conversely, the CISG as complementary to domestic law. In another instance, 44 where the issue of counter-offers to a contract to settle a sales dispute was at stake, the arbitrators referred to Art. 19 of the CISG relating to counter-offers, considering the CISG, along with the Unidroit Principles of International Commercial Contract, to be 'normative texts that can be considered helpful in the interpretation of all contracts of an international nature'. In other words, the CISG is not only complemented by domestic contract law, but is in turn itself used to complement national law.
II. Substantive application of the CISG in ICC arbitration
A. Notion of 'sale'
16. Contracts in which the preponderant part consists in the supply of labour or other services are not covered by the CISG (Art. 3(2)). It is sometimes a fine distinction to make. One arbitral tribunal found, for instance, that a contract under which a printer had to supply a certain number of books to a publisher was a sale, covered by the CISG. 45
B. Duty to act in good faith
17. A requirement to interpret the Convention with 'observance of good faith in international trade' is laid down in Article 7(1) of the CISG. There are no provisions imposing upon the parties a general obligation to act in good faith, however. Courts and arbitrators nonetheless often affirm that the parties have a general duty of good faith. In one instance, 46 the seller argued that the buyer, who had accepted delayed deliveries on earlier occasions, had acted in bad faith when terminating an agreement because of late delivery. The seller further argued that the buyer had abused its rights under the general concept of non concedit venire contra factum proprium. Whilst not denying the duty to act in good faith, the arbitrator found that the buyer's past flexibility did not prevent it from insisting on timely delivery in the future.
C. Interpretation
18. The common intention of the parties is paramount and may prevail over the text of the contract (Art. 8 CISG). Arbitrators thus decided that a contract clause which [Page28:] contained a price reduction formula in the event coke of a lower quality than agreed was delivered should not be applied if it meant a reduction to zero, resulting in the coke being delivered for no remuneration at all. This, they held, was not the intention of the parties: if the quality was unacceptable, the buyer should simply reject the delivery. 47
As a general rule, the common intention of the parties is determined in the light of the negotiations, established practices between the parties, their subsequent conduct and usages (Art. 8(3) CISG). In one case, 48 the buyer argued that the seller had verbally granted him exclusivity when the contract was negotiated. The contract itself, however, did not grant such exclusivity. Moreover, it contained a so-called 'merger clause', stating that the contractual obligations were only as reflected in the signed agreement, and a 'written modification clause', requiring any modification to be in writing (cf. Art. 29(2) CISG). For the arbitral tribunal, these clauses set aside the general CISG principle that the buyer could rely on any kind of verbal promises or even on any kind of written references, not incorporated in the contract or in a formal amendment thereto.
In another case, 49 the arbitral tribunal decided that 'CNF' in the expression 'CNF . . . (Incoterms 1990)', as used in the contract but not to be found amongst the Incoterms, was intended to mean 'CFR' (Cost and Freight).
19. Known trade usages are applicable to the contract under Art. 9(2) CISG. They may be used to fill out its terms, as illustrated in one of the cases examined, 50 where it is stated that, according to the usage of the trade, '"loading" stands for the activity of placing the goods in the harbour on the pier in a way suitable and ready for being carried on the ship by appropriate means, while the term "shipping" or "shipment" stands for the actual stowing of the goods in the appropriate manner on and in the vessel'.
D. Delivery of goods
20. Art. 41 CISG requires the seller to deliver the goods unencumbered by any third party rights or claims thereto. An arbitral tribunal decided that a seller could not refuse delivery because its wholly-owned subsidiary had obtained a court order putting under arrest the vessel where the cargo had been loaded. The seller 'enjoyed sufficient authority over [its subsidiary] to give it appropriate instructions for avoiding and/or rapidly lifting the effects of the arrest'. 51 In another case, 52 a buyer who failed to take delivery had to pay storage and transportation costs. In a third case, 53 where the contract stipulated that the goods were to be 'effected in 1993-1994' on 'CIF terms', the arbitrators had to decide on the time of delivery under Art. 34 CISG and under Incoterms. They found that - as indicated in Art. 33(b) CISG - it was for the seller to choose the time of shipment, provided this occurred before December 31, 1994. Neither the two-year time window for delivery, nor the circumstance that the buyer's import licence expired before the end of 1994 gave the buyer the right to consider the goods 'on call'. [Page29:]
21. The goods need to be fit for the particular purpose expressly or impliedly made known to the seller. For instance, where the contract stated that steel billets should be fit for 'hot-rolled plain bar in coil', such billets did not have to be fit for processing at a specific mill, since the seller did not know or had no reason to know that the steel was intended to be sold to that mill. Only implied warranties on which the parties have reached agreement need to be respected. Thus, the buyer could not rely on the high level of 'inclusions' as compared to industry standards either, as the parties had not agreed on any such implied standard. 54
Sometimes a sample of the product to be delivered is given to the other party (cf. Art. 35(2)(c) CISG). Goods not in conformity with the sample are not necessarily defective. An arbitral tribunal thus decided that a buyer could not argue that infected buckwheat delivered from China did not conform to the sample, as in the cereal business samples had a limited aim, being intended to define such type-specific characteristics as the kind of buckwheat and the colour and size of the kernel; they were irrelevant to phytosanitary purposes. 55
If the seller is unaware of the use which will be made of the goods sold, they need to be fit for the purpose for which such goods would normally be used (Art. 35(2)(a) CISG). In one of the cases already mentioned, 56 the quality of the coke delivered was so low that it was worthless for the buyer. Consequently, there was a breach of contract.
22. The buyer has to examine the goods within as short a period as is practicable in the circumstances (Art. 38(1) CISG) and should notify the seller of any lack of conformity within a reasonable time after discovering it (Art. 39 (1) CISG).
In one arbitration, 57 where glassware was delivered, the buyer informed the seller of deficiencies more than five weeks after delivery. The arbitrator decided that this was too late in a case where the deficiencies could have been discovered at the time of delivery: 'In such a case, a period of time which is longer than one month cannot be considered to be reasonable - such a period must be considerably shorter.'
A protest about insufficient quantity made two months after delivery was found to be much too late, especially when this insufficiency could easily have been discovered through the invoice or by weighing the goods supplied. 58 In another case, 59 12 tons of crystals were examined three weeks after delivery, while 48 tons had already been forwarded to customers; moreover the notice of the defects was faxed one week after the examination. Here too, the arbitral tribunal decided that too many weeks had elapsed between the date the alleged defects should have been discovered and the date of notice.
23. An incorrect inspection carried out by a third party with the agreement of both seller and buyer cannot be held against the buyer. 60 In a dispute over the quality of hulled buckwheat, sold CIF from China to Poland, the parties had agreed in the contract that the Chinese phytosanitary authorities should inspect the conformity of buckwheat on shipment. Although the quality was bad on arrival in Poland, the [Page30:] product complied with contractual specifications according to the Chinese inspection certificate. As the buyer had agreed to the determination of conformity through the Chinese inspection, it was not entitled to compensation. 61
The seller cannot invoke belated examination and notification, if he knew or should have known the defects and did not disclose them to the buyer (Art. 40 CISG). However, as pointed out in one case: 62 'Different from the manufacturer, an intermediary seller cannot easily be attested bad faith in regard to deficiencies which are not obvious.'
E. Remedy
24. Failure to respect the delivery date does not necessarily justify contract avoidance. Much depends on whether the buyer has made it clear that 'time is of the essence'. The context of the transaction will often make it clear how important compliance with the delivery deadline is. Moreover, if time is not of the essence, the CISG allows for an extension of the delivery period by the buyer.
In one case, 63 the arbitral tribunal was required to decide whether failure to abide by the last day of shipment was a fundamental breach within the meaning of Art. 49 CISG. It found, however, that the buyer had first to grant an additional period of time for performance under Art. 47, especially as the contract itself indicated that the buyer was prepared to tolerate a delay of up to 15 days. As the shipment in fact occurred four days after the end of this 15-day period, such belated shipment was not a fundamental breach. However, in the same case, the letter of credit provided that specific documents had to be submitted. The seller had been informed by the buyer's bank that these documents were not in order, but did not react. The arbitral tribunal considered it 'overly formalistic' to require the buyer formally to set an additional period to submit compliant documents. Consequently, the buyer was entitled to declare the contract avoided under Art. 49(1).
In another arbitration, 64 a fashion house had not supplied the samples of its new spring collection in time. The tribunal found that this late submission of the samples made it impossible for the buyer to place its order in time for the spring collection to be delivered by the agreed time, i.e. one week before the Easter weekend. When the seller informed the buyer that the clothes would not be delivered in time, it committed an anticipatory breach of contract. Referring to German court decisions, 65 the arbitrator held that late delivery of seasonable products such as fashion items constituted a fundamental breach under Art. 25 CISG. Moreover, the buyer's general conditions of delivery had explicitly defined delayed delivery as a 'fundamental breach of contract', indicating that the parties themselves considered timely delivery to be essential. The arbitral tribunal decided that, pursuant to Art. 72 CISG, the buyer was entitled to declare the contract avoided in light of the seller's anticipatory breach. The buyer was not obliged to give the seller notice to allow it still to perform.
25. Arbitrators have confirmed that the buyer is not bound to pay the purchase price if the seller has not performed (exceptio non adimpleti contractus) (Art. 58 CISG). 66[Page31:]
Valid avoidance of a contract deprives the seller of the right to claim payment of the purchase price. In accordance with Art. 81 CISG, arbitrators have confirmed that avoidance releases both parties from their obligations under the contract, subject to any compensation which may be due.
26. Arbitrators refused contract avoidance in a case where the buyer could correct the defect at little cost. Although such 'patching up' did not fully satisfy quality standards, the goods were not totally unfit for their intended use as a result of the defects. Hence the tribunal granted the buyer a price reduction of only 25%.67
Under Art. 50 CISG, the buyer may reduce the price of non-compliant goods. However, this did not allow it to reduce the price of products delivered in 1996 for defects in deliveries from a year earlier, in 1995, for which a separate claim would have been necessary. 68
27. Arbitrators have often confirmed that the buyer can claim compensation when the seller fails to perform his obligation under the contract (Art. 45 CISG). The compensation consists, in theory, of a sum equal to the loss, including the loss of profit, suffered by the buyer. 69 An arbitral tribunal70 thus confirmed that the damaged party was entitled to the damnum emergens and lucrum cessans when a sales contract was cancelled because of breach (Art. 74 CISG). It accepted that the seller, who was unable to prove its profit margin on a counterclaim, was entitled to profits comparable to those proven by the buyer.
The damages need to be foreseeable. However, failure to claim damages for late delivery in the past is no reason for thinking that a seller could not have foreseen damages for late deliveries in the future. 71 Foreseeability does not run to the exact size of the damages; it is merely the possibility of damages in the sector concerned that must be foreseeable. 72 However, a buyer who failed duly to notify the seller of a non-conformity cannot claim loss of profit (Art. 44 CISG). 73
28. Under Art. 78 CISG, interest is due for payment in arrears. Arbitrators have granted interest not only on the late payment of the price, but also on compensation and reimbursement of a payment not due. 74
The parties may fix the interest rate in their contract. Failing this, Art. 78 does not indicate the applicable interest rate. On the basis of the guidelines laid down in Art. 7(2), reference could thus be made to the general principles upon which the CISG is based or alternatively to a national law. In the latter case, the question remains however: which national law? In one instance, the arbitral tribunal was led to 'give primary consideration' to the law of the contract, especially in light of the fact that the Singaporean seller and Polish buyer had chosen a 'neutral' law (French law) to govern their contract. For the arbitrators, the legal rate of interest was an element of such French law. 75 The legal interest rate of the proper law of the contract was likewise applied in a number of other cases. 76[Page32:]
This is not always the case, however. In one instance77 the arbitrators deliberately chose not to apply the interest rate of the proper law of the contract, considering it appropriate to refer to the interest rate of the currency to be used for payment. In another case, 78 an interest rate that was 'reasonable for the currency in question over the relevant period' was applied. This is echoed in a later award, 79 where the arbitrator 'considers it appropriate to apply a commercially reasonable interest rate', one that is 'commercially reasonable for the award currency'. In the latter award, the arbitrator cited Article 7.4.9(2) of the UNIDROIT Principles of International Commercial Contracts, which refers to the 'average bank short-term lending rate to prime borrowers prevailing for the currency of payment at the place for payment'. In yet another arbitration, 80 the 'commercially reasonable interest on German Marks' at the time of delivery was awarded.
F. Mitigation of damages
29. A party claiming damages has an obligation to mitigate the loss (Art. 77 CISG). Whenever it is clear that the buyer cannot obtain the goods from the seller, it may purchase replacement goods and recover the difference between the contract price and the price paid in the substitute transaction (Art. 75 CISG). 81 In one case, while granting such compensation, the arbitral tribunal confined it to an amount corresponding to the minimum quantity the initial seller was obliged to supply. 82 A buyer who used goods from his stock became entitled to the difference between the contract price and estimated market price. For some products, however - as the arbitral tribunal discovered in one case83 - there is no proper commodity exchange and accordingly no commodity exchange price. Thus the buyer cannot rely on Art 76(1) CISG but has to prove the price of the substitute transaction in accordance with Art. 75.
In the aforementioned case the contract expressly provided for the supply of coal with 32% volatile matter, but that actually delivered had an extremely low volatile level of only 20%. The arbitral tribunal decided that the buyer, who had to repair this defect in the best way, should be compensated for the cost of making the coal usable for its purpose.
Arbitrators considered ex officio whether the claiming party had complied with its duty to mitigate, but put the burden of proof for the fact damages had not been mitigated upon the party owing compensation. A mere general statement that losses were not sufficiently mitigated was considered insufficient. 84
The obligation to mitigate is not unlimited, however, but has to be seen in the context of the transaction. When a fashion collection had not been delivered in time, the buyer was found to be under no obligation to order the clothes elsewhere as delivery, taking three to four months, would be too late in any event. 85
G. Burden of proof
30. The burden of proof is not covered by the CISG. Is it governed by the proper law of the contract, the law of the seat of the arbitration, or by general principles? Many arbitrators opted for the last solution, formulating a number of general principles. For [Page33:] instance, an arbitral tribunal sitting in Paris decided that 'under general principles of law, applicable also under Austrian law [proper law of the contract], it is the procedural burden of the party claiming damages to specify and to prove, first, the existence of such a damage, second, that the damage has been caused by the breach of contract of the other party, i.e. that there existed an adequate causal nexus between the breach of contract and the damage, and, third, the actual amount of damage suffered' (underlining added). 86
Another tribunal, 87 recognizing that the CISG did not contain rules on the burden of proof, followed 'the general provisions of law placing the burden of proof on the claiming party'. In proceedings where one of the parties relied on the 'normal' meaning of the wording of the contract, while the other claimed a different meaning, it was held that the latter bore the burden of proving that the different meaning had been agreed. 88 The claiming party wished to hold itself out as a mere trading agent, whereas the contract referred to it as 'seller'.
Conclusion
The CISG contains modern, balanced standards for international sales. It is satisfying to see ICC arbitrators playing their part in the fulfilment of its purpose, not merely through their receptiveness to the Convention but also, and perhaps more importantly, through their judicious application of its provisions.
1 A complete list of the countries where the CISG is in force can be found, e.g., at http://www.cisg.law.pace.edu or at http:// www.uncitral.org.
2 Extracts from most of which may be found later in this issue of the ICC International Court of Arbitration Bulletin.
3 A few states, e.g. China, Singapore, Slovakia, the Czech Republic and the United States, have excluded this possibility on the basis of Art. 95 CISG.
4 Reservations to the CISG made in that foreign legal system thus apply as well. The CISG is therefore not applicable when a court of a Contracting State finds that the proper law is the law of a State that made a reservation over Art. 1(b). See, e.g., J. Honnold, Uniform Law for International Sales under the 1980 United Nations Convention (Boston: Kluwer, 1991) at 90; K. H. Neumayer and C. Ming, Convention de Vienne sur les contrats de vente internationale de marchandises (Lausanne: CEDIDAC, 1993) at 46-47.
5 Art. 13(3): 'The parties shall be free to determine the law to be applied by the arbitrator to the merits of the dispute.'
6 Art. 17(1): 'The parties shall be free to agree upon the rules of law to be applied by the Arbitral Tribunal to the merits of the dispute.'
7 See, e.g., award in case 7754. However, in case 8482, the arbitral tribunal, referring to K. H. Neumayer & C. Ming, op. cit. supra note 4 at 87, took the view that 'Art. 1(1)(a) of the Vienna Sales Convention does not apply in cases of a contractual election of the law of a contracting state', which must be construed rather in the context of Art. 6. It should be pointed out, however, that Art. 6 provides only for the possibility of opting out, not opting in.
8 See, e.g., the Resolution adopted by the Institute of International Law in 1957 (Annuaire de l'Institut du droit internationbal, vol. II (1957) at 484).
9 See, e.g., cases 8213 and 8769.
10 E.g. final award in case 9773 [unpublished]: 'In Section VIII of the Terms of Reference . . ., the parties agreed upon the applicable law. The United Nations Convention for the International Sale of Goods (CISG) shall be the primary legal basis of the decisions to be made by the sole Arbitrator.'
12 See, e.g., cases 9187 and 9448.
13 Final award in case 8908 (1998), extracts of which published in (1999) 10:2 ICC ICArb. Bull. 83.
14 See case 9083.
15 Case 7645.
16 Case 8204 [unpublished].
17 Case 8482, with reference to K. H. Neumayer & C. Ming, op. cit. supra note 4 at 93.
20 Art. 13(3) 1988 Rules of Arbitration: 'In the absence of any indication by the parties as to the applicable law, the arbitrator shall apply the law designated as the proper law by the rule of conflict which he deems appropriate.' Art. 17(1) 1998 Rules of Arbitration: 'In the absence of any such agreement, the Arbitral Tribunal shall apply the rules of law which it determines to be appropriate.'
21 See supra § 6.
22 See, e.g., case 8716. In case 8908 (supra note 13), however, the arbitrators, applying the conflict of laws rules of the 1980 Rome Convention on the Law Applicable to Contractual Obligations, added as obiter dictum that the latter was part of Italian law, the law of the seat. However, they did not state clearly that it was the conflict of laws rules at the seat of the arbitration that led them to apply the Convention.
23 Case 8716.
24 Case 8247.
25 Final award in case 9505 [unpublished].
26 Final award in case 8908 (supra note 13).
27 Interim award in case 9887. It is significant that the arbitral tribunal, with its seat in France, did not refer to the 1980 Rome Convention. The parties to the sales contract were of German and Romanian origin: Romania is not party to the Rome Convention.
28 See, e.g., cases 8716 and 9887.
29 E.g. final award in case 9505 [unpublished].
30 E.g. final award in case 8908 (supra note 13).
31 See, e.g., cases 8247 and 9887.
32 Case 8962.
33 Case 9887.
34 Case 8962.
35 See, e.g., cases 7754 and 8204 [unpublished] (French law/CISG), 8213 (law of State of New Jersey/CISG), 8482 (Swiss law/CISG) and 9083 (Austrian law/CISG).
36 Case 8204 [unpublished].
37 Case 7645.
38 Case 9978.
39 Case 8908 (supra note 13).
40 Final award in case 9773 [unpublished].
41 Case 7645.
42 Case 8908 (supra note 13).
43 Case 8769.
44 Case 8908 (supra note 13).
45 Case 9083.
46 Case 8786.
47 Case 9187.
51 Final award in case 8204 [unpublished].
54 Case 8213.
55 Case 9773 [unpublished].
57 Case 8962.
58 Case 9083.
60 See case 9187.
61 Final award in case 9773 [unpublished].
64 Case 8786.
65 As quoted, e.g., in F. Enderlein, 'Die Verpflichtung des Käufers zur Einhaltung des Lieferzeitraums und die Rechte des Kaüfers bei dessen Nichteinhaltung nach dem UN-Übereinkommen über Verträge über den internationalen Warenkauf' [1991] IPRax (Praxis des Internationalen Privat- und Verfahrensrechts) at 313-315.
66 See, e.g., case 7645.
67 See case 7754.
68 See case 9448.
69 See, e.g., cases 7645, 7754 and 8786.
70 Case 8769.
71 See case 8786.
72 See case 9187.
73 See case 9187.
74 See case 9187.
75 See case 7754. Reference is made in the award to previous ICC awards in cases 5428 and 5440.
76 E.g. 8716, 9187, 9448 and 9574.
77 Case 8204 [unpublished]. Here, the tribunal applied the LIBOR interst rate for US dollars, but granted interest only from the date of the award up to the date of actual payment, which left uncompensated the arrears in payment prior to the award.
79 Case 8769.
80 Case 8962.
81 See case 8574.
82 Case 8204 [unpublished].
84 See case 9187.
85 Case 8786.
86 Case 7645.
87 Case 8213. See also case 9887.
88 Case 9187.