QUESTION OF THE HOUR: SHOULD INDIA OPT FOR CISG?

-Shahbaz Malbari

ABSTRACT:

The creation as well as the process by which United Nations Convention on Contracts for the
International Sale of Goods or (CISG) have been widely perceived as a benchmark for a
successful unification of commercial law during post war era. As of 29 December 2015,
UNCITRAL reports that 84 States have adopted the CISG, accounting for more than two-thirds
of all world trade . This large number of ratification by diverse range of countries shows that
there is a good chance of this convention to become a customary norm in future , thus
emphasizing the need for India to ratify this convention.

INTRODUCTION

The creation as well as the process by which United Nations Convention on Contracts for the
International Sale of Goods or (CISG) have been widely perceived as a benchmark for a
successful unification of commercial law during post war era.1 The preamble of the CISG clearly
mentions the object and purpose of the Convention.2 It is a set of legal rules regarding the
formation and execution of contracts, obligation of buyers and sellers and remedies for the
breach of such contracts.

This movement for unifying laws regulating the international sale of goods was started in the
year 1920 resulting in the birth of CISG on 1 January 1988 according to UNICTRAL3. Unlike
other countries like China, Australia , Singapore and many other diverse countries, quite few like
India and United Kingdom has not ratified the ('CISG').

1
Harold S Burman "Building on the CISG: International Commercial Law Developments and Trends for the 2000's"
(1998) 17 J L and Commerce 355; other commentators have called the CISG a "quantum leap", a "new legal lingua
franca", a "milestone" and "arguably the greatest legislative achievement aimed at harmonizing private commercial
law": see Kevin Bell "The Sphere of Application of the Vienna Convention on Contracts for the International Sale
of Goods" (1996) Pace Int'l L Rev 237, 238.
2
Preamble, Convention United Nations Convention on Contracts for the International Sale of Goods. I states as
Being of the opinion that the adoption of uniform rules which govern contracts for the international sale of goods
and take into account the different social, economic and legal systems would contribute to the -removal of legal
barriers in international trade and promote the development of international trade
3
United Nations Commission on International Trade Law has been recognized as the core legal body of the
United Nations system in the field of international trade law.
This convention has received numerous appraisal from various commentators while some had
made their reservation on it. For example, while the Singapore Law reform Committee's
Report4 on the CISG, recommend for its adoption, commentators like Arthur Rossett5 and
Professor GH Trietel6 made reservations about its adoption.

The ratification of the CISG by India would mean that the rights of Indian buyers and seller will
be govern by it while trading internationally and not by well understood rules of Indian Sale of
Goods Act 1930. This act is based on the English Sale of goods Act 1893. Our Indian trading
community can predict the probable outcome of buying and selling of goods with some precision
based on the act of 1930 with some assistance of well-developed case laws which we shall be
dealing in upcoming section of this article. But taking into consideration that this convention has
been ratified by more than 70 countries it bring us to a difficult question, Should India also ratify
this convention? The answer of this question would depend upon advantages and disadvantages
of the CISG. It would be advisable to adopt this convention only if the advantage outweigh
disadvantages. Thus, In this artice we shall understand the role of CISG and scrutinize its Article
in relation to legal scenario of Indian market.

HISTORY OF CISG

To scrutinize the said convention and its specific issues, some basic knowledge about the origins
of the convention is required.

Since early 1920s countries of Western Europe started formulating methods for a uniform regime
for international sale which would then facilitate the international trade markets thus in 1929
scholars from France, Germany, U.K and Scandinavia started drafting a uniform law to regulate
the international sale of goods in the newly created International Institute for the Unification of

4
Report of the Sub-Committee on Commercial Law of the Law Reform Committee dated 12 September 1994.
5
Arthur Rossett, 'Critical Reflections on the United Nations Convention on Contracts for the International Sale of
Goods' (1984) 45 Ohio State Law Journal 265-305
6
Professor GH Trietel (Ed), Benjamin on Sale of Goods (4th ed), Chapter 18. The position has not altered in the 5th
edition.
Private Law(UNIDRIOT).7 The then prevailing tenet of legal positivism brought about a mutual
understanding that a uniform rules has to drafted in a form of a binding instrument.8

A UNIDROT conference held at Hague in the year 1964 adopted two conventions namely the
Convention relating to a Uniform Law of International Sales (ULIS) and the Convention
relating to a Uniform Law on the Formation of Contracts for the International Sale of Goods
(ULF), ("the Hague Conventions").9 The Hague Convention , from the beginning did not receive
a widespread acceptance because they were understood as a creation of Western European civil
law which neglected common law and various other legal tradition and norms. 10It is pertinent to
note that United Kingdom was the only country with a common law jurisdiction to ever ratify the
Hague Convention. But, this ratification has its own limited importance since a special
reservation was made by U.K according to which the convention would only apply to the country
where the convention was adopted as a Law of their contracts.11

The failure of this convention in its early stage led to the establishment of United Nations
Commission on International Trade Law (UNCITRAL) in year 1966 whose main objective was
to draft set of legally binding instrument to regulate and govern the sale of goods in international
market which would be universally accepted by countries of different legal, social and
economic systems".12 Thus for this reason and to avoid complaints from the countries about
misrepresentation, UNCITRAL and the working committee which was responsible for the
drafting were composed by the countries of most diverse range.13 This led to the adoption of the
Single Draft Convention on Contracts for the International Sale of Goods by UNCITRAL in
1978.14 Two years later in 1980, countries participating in a conference in Vienna held by UN,

7
UNIDROIT is an acronym of the French name of the Institute, the "Institut International pour l'Unification du Droit
Priv".
8
Michael Joachim Bonell "The UNIDROIT Principles of International Commercial Contracts and CISG - Alternatives
or Complementary Instruments?" (1996) 26 Uniform L Rev 26, 27.
9
See UNIDROIT last accessed April 14, 2017 from( http://www.unidroit.org)
10
Only 28 states had attended the Hague Conference in 1964, 19 of them from Western Europe.
11
ULIS, Art V and ULF, Annex II Art1; Gambia made the same reservations.
12
Report of the United Nations Commission on International Trade Law on the Work of its Second Session (1969) I
UNCITRAL Yearbook 99-100, para 38, 3(a).
13
General Assembly Resolution 2205 (XXI), above, para II 1, 65.
14
Report of the Secretary-General "Incorporation of the Provisions of the Draft Convention on the Formation of
Contracts for the International Sale of Goods into the Draft Convention on the International Sale of Goods"
(A/CN.9/145) IX UNCITRAL Yearbook (1978) 121.
approved the present text of CISG. Finally in the year after the ratification by China, Italy and
USA , CISG was brought in to force on January 1, 1988 after the required threshold of ten
member states was exceeded.15 In fact, As of 29 December 2015, UNCITRAL reports that 84
States have adopted the CISG, accounting for more than two-thirds of all world trade.16

Since so many countries have adopted this regime should India being a common law country,
also follow the trend and ratify this convention. The answer would depend upon a carefully
scrutiny and understanding the pros and cons of the convention which would be dealt in the next
section.

CRITICAL APPRAISAL OF CISG

The CISG offers an established system of rules and regulation applied in consistent manner
across different contracts governed by different system of law. Thus for those who are familiar
with these provision are comfortable letting themselves governed by CISG , bringing consistency
of approach which would likely be lacking where likely otherwise be lacking where companies
are obliged to enter into different sales contracts with different customers, governed by the laws
of different countries.17 Growing international trade requires that the CISG be used to bolster
the trading community's confidence.

The Singapore Academy of Law's Law Reform Committee18 has summarized the advantages
of ratifying the CISG some of which are given below :

15
A good outline of the substantial rules of the Convention is provided by the New Zealand Law Commission
Report No 23 The United Nations Convention on Contracts for the International Sale of Goods: New Zealand's
Proposed Acceptance (Wellington, New Zealand, 1992).
16
CISG: Table of Contracting States, last accessed April 14, 2017 from
(https://www.cisg.law.pace.edu/cisg/countries/cntries.html)
17
Herbert Smith, Japan dispute avoidance newsletter number 84 August 2009 ,Convention on Contracts for the
International Sale of Goods ("CISG"): Part III to last accessed April 14, 2017 from
(http://documents.lexology.com/fa792105-e865-433e-8f51-4685f5c688be.pdf)
note that the CISG provides a basic structure for the sale of goods but does not provide a complete system of
law. Those issues not provided for in the contract or in the CISG (for example, the ability of the parties to set-off
claims, the applicable rates of interest on damages claims etc) will
continue to be determined by the applicable national law of the contract.
18
Supra Note 04.
 1. Our current Sales Law19 based on English Sale of Goods Act, which is 100 years old
is not better suited than the Convention for modern commercial contracts.
2. The Convention serves a 'gap-filling' function when a cross-border contract is made
by phone or even by fax or telex but in only a few words
3. Having the Convention apply is better than having to choose an unknown foreign law
e.g. Russian Law or German Law as the applicable law of the contract
4. It serves as a neutral law acceptable to both parties
5. The Convention recognises that the parties to international sales contracts may wish
to exercise broad contractual freedom. Article 6 enables them to exclude the
application of the Convention and to derogate from or vary the effect of any of its
provisions.
6. A prodigious amount of time and work and scholarship has gone into the making of
the Convention.
7. The Convention helps to avoid difficult conflict of laws issues.

The Convention takes into account modern trade practices and realities. It contains provisions
on the interpretation of contracts which are wider than the Common Law rules.The Convention
is drafted in simple and plain language for businessmen to understand. The Convention contains
useful provisions to practical problems such as requiring parties to preserve goods in their
possession belonging to the other party. If Singapore does not ratify the Convention, we may be
left behind from the rest of the major trading nations in the world.The Convention will facilitate
cross-border trade and save time, expense and avoid uncertainty.20

Because of the inherent difficulties present in devising an instrument which is widely applicable
and accepted CISG has to narrow its field of application.this narrowness has led various
countries governed by common law such as US, Singapore, Australia etc to ratify this
convention. Signatory Countries are now accounted for more than two-thirds of international
trade. Even after certain reservation made by some signatory countries, the interest of having a
uniform law to govern international trade has motivated to implement the CISG in a uniform
fashion. This large number of ratification by diverse range of countries shows that there is a good

19
The SGA 1893 is in parity with English Sale of Goods Act and Indian Sales of Goods Act 1930
20
Ibid
chance of this convention to become a customary norm in future , thus emphasising the need for
India to ratify this convention.

That said, though many countries have ratified this convention and applied it in a uniform
manne, renowed scholar Sieg Eiselen21 aptly summarises the disadvantages of ratifying the
CISG22.According to him

This new setoff rules has legal uncertainity which is caused by broadly formulated rules
containing many undefined and new terms which have to be developed in the
international arena by courts and arbitral tribunals without any hierarchy and no
principles of stare decisis. The introduction of foreign solutions to well-known problems.
The general irrelevance of the Convention due to the fact that in most instances it is
excluded by the parties in practice. The compromise character of the Convention, which
blunts the solutions and evades many of the real issues. The absence of certain
underlying principles. Legislative measures are not the most suitable means to create
legal unification or solve the problems created by diverse laws and conflicts issues. The
law is robbed of its flexibility and is fossilized in a code which is almost impossible to
change The integrity of the Convention is threatened by diverse interpretational
approaches and tradition.

The CISG does not concern with the basic concept like the validity of the contract, i.e. with the
issues of illegality, misrepresentation or fraud relating to the contract. Thus according to Barry
Nicholas CISG would not therefore achieve one of the main objectives of the uniform laws.23

One of the major problem of CISG was its interpretation. Particularly it is blamed for its
impresicion and vague term such as reasonableand general clause on fundamental breach
envisaged in Article 25 of the convention.24 This has be a big problem for the lawyers with a

21
Sieg Eiselen is General Secretary to the CISG AC, Professor of Law, University of South Africa
22
Adoption of the UN Convention on International Sale of Goods in South Africa (1999) 116 SAL.J, Pt II, 323-370.
23
Barry Nicholas, The United Kingdom and the Vienna Sales Convention: Another Case of Splendid Isolation?
Volume 42, Issue 5
24
A Mullis, Avoidance for Breach under the Vienna Convention; A Critical Analysis of Some of the Early Cases, in:
M Andreas and N Jarborg (eds), Anglo-Swedish Studies in Law, Stockholm, Iustus Forlag (1998), pp. 338, 339; K
Takahashi, Right to Terminate (Avoid) International Sales of Commodities, Journal of Business Law 2003, 102, 124:
Common Law background.25 The imprecise language used in the convention giving a sense of
unease for a common law layer.26Arthus Rossett has described it as 'language which, first of
all, is foreign in regard to the law of contract and therefore has no clearly defined meaning and,
secondly, is too wide and inexact and therefore leads to uncertainty.27

Due to such imprecise language courts if different countries have interprete the language of the
convention imprecisely Courts of different countries,thus defeating the major purpose for which
this convention was made at the first place ,i.e. uniformity and simplification. A learned author
comments:

A major problem with CISG is that it is, in a sense, international law applied locally.
This inevitably puts a local tint on CISG interpretation. The fact that there is no
international court that administers CISG is identified by Ronald A Brand and Harry M
Flechtner as one of the most 'serious obstacles to achieving the uniform international
sales regime at which CISG aims'. The parochialism of domestic courts coupled with
their suspicion of foreign judgments that may be differently decided at home is
undoubtedly a major impediment to uniform application of CISG.28

INDIA AND CISG

A sense of nervousness arises from a situation when we think about ratifying the CISG for India.
That is, how well equipped our Indian laws are to accept the UN Convention of CISG and its
applicability in Indian domsetic laws? For this, aspects such as good faith, fundamental breach ,
intention and validity of evidence are being considered.

The CISG rules do not provide a high degree of legal certainty and predictability, inasmuch as they rely upon
ambiguous concepts such as fundamental breach and reasonable length.
25
CP Gillette and RE Scott, The Political Economy of International Sales Law , 25 International Law and Economics
(2005), 446, 473: Uncertainty results not only from the many vague standards, but also from the use of
ambiguous language that may have different meanings in different cultures. JE Bailey, Facing the Truth: Seeing
the Convention on Contracts for the International Sale of Goods as an Obstacle to a Uniform Law of International
Sales, 32 Cornell International Law Journal (1999), 273, 275: the CISGs rules on interpretation are so obscure
that the treatys own guidelines for producing consistent interpretations fail to promote uniformity.
26
Quoted by Sieg Eiselen in 'Adoption of the Vienna Convention for the International Sale of Goods (the CISG) in
South Africa' (1996) 116 SALR, Pt II, 323-370.
27
Arthur Rossett, 'Critical Reflections on the United Nations Convention on Contracts for the International Sale of
Goods' (1984) 45 Ohio State Law Journal 265-305.
28
Monica Killian, 'CISG and the Problem with Common Law Jurisdictions.'
Directive principles as mentioned in Constitution of India talks about recognizing international
laws in Art 51(c),29 but its efficacy is lessen when it comes to incorporation in Indian laws by
way of Art 3730 which suggest that none of the directive principles are enforceable in any court
of law.
In Karan Dileep Nevatia, Proprietor v. The Union Of India it was observed by Honble High
court of Bombay that an international treaty might have been signed by the Government of
India but it cannot be binding on the states unless any direction under Article 253 is made by the
parliament. In the same judgement, refernence was made to maganbhai patels case31, where
relevant para of Oppenheim's International Law was quoted by the Constituition Bench which
observed as Such treaties as affect private rights and, generally, as required for their
enforcement by English courts a modification of common law or of a status must receive
parliamentary assent through an enabling Act of Parliament. To that extent binding treaties
which are part of International Law do not form part of the law of the land unless expressly made
so by the legislature". Therefore it is safe to observe that the ratio decidendi of Karan Dileep
Nevatia case was International Treaties ratified by Central Government do not by virtue of
treaties alone have the force of law and for provisions of such treaties to have a binding force on
Indian Nationals, Parliament has to enact a law under Article 253 of Constitution for
implementation of provisions of said treaties.

Thus after ratification until and unless the parliament does not enact a separate law or make any
suitable amendment to the effect superseding Art 37, the binding value of the treaty hold
ineffective. So the question arises here is, even if India ratify the convention how dependable is it
in Indian scenario?

The general principle of international law is that the judgment given by an international forum is
not binding and with such uncertainties created by the language and undefined new terms of the
Convention only international forums, court and tribunals are well equipped enough to interpret

29
Art 51(c), The Constitution of India , It states as foster respect for international law and treaty obligations in the
dealings of organised peoples with one another; and encourage settlement of international disputes by
arbitration.
30
Art 37, The Constitution of India , , It states as The provisions contained in this Part shall not be enforceable by
any court, but the principles therein laid down are nevertheless fundamental in the governance of the country and
it shall be the duty of the State to apply these principles in making laws.
31
Maganbhai Ishwarbhai Patel v. Union of India, AIR 1969 SC 783.
it and not the domestic courts. But since every state has their own soverignity it is hard to ensure
that judgement and interpretation given by international court will be followed by these local
courts. In fact, due to such diverse interpretational approaches and tradition the objective to bring
a legal unification through CISG cannot be achieved.32

That said there are certain other conflicting issues in particular with India such as CISG deprives
the buyer of his right to provided under domestic law to reject the goods when they are not in
confirmation to the quantity and quality. The term fundamental breach is defined in Article 25
of the CISG33 as one which: results in such detriment to the other party as substantially to
deprive him of what he is entitled to expect under the contract, unless the party in breach did not
foresee and a reasonable person of the same kind in the same circumstances would not have
foreseen such a result. As Professor Treitel commented, it is open to criticism on the ground
that it is likely to lead to uncertainty since the open-textured nature of the definition in Article 25
makes it hard to predict just when a breach will be regarded as fundamental.34

Even in Art. 835, the convention is very susceptible to discrepancies. Art. 736 brings out even
more difficult situation in the aspect of good faith. CISG is totally silent about the term Good
Faith, whether its is with respect to the conduct of the parties or its referring towards fair
deaing. Great deal of risk is brought by CISG trough its Art. 11, which talks about contract of
sale is not necessarily to be in writing. In such case a inclusion of witness as a proof is enough.
This leads to such an uncertainty because not only the parties have no written document but also
the parties are govern by a new law of which they might not have proper knowledge at the first
place.

CONCLUSION

The above highlighted points suggest only some problem that India might face after ratifying the
Convention. As Macaulay37 said in his essay, the buyers and sellers need to plan and deal with

32
Supra Note 28.
33
Art 25, CISG 1988
34
Benjamin on Sale of Goods (4th ed), para 18-116, footnote 31.
35
Art 8, CISG 1988
36
Art 7, CISG 1988
37
Complexities of Contract' (1977) 11 Law & Society Review 507
risk. They do so with carefully drafted contracts. To increase the chance that the contract will be
performed, the legal system ought to meet the following standards: (a) it must define when the
contract would be regarded as validly made; (b) it must provide for application of norms that
reflect the customs of the commercial community; and (c) it must offer remedies that either
induce performance or compensate for non-performance.

The following represents a sound approach to the issue:

Comprehensive legal and management review of procurement and sales procedures to

be followed under the new regime by international persons and their legal advisors is
desirable as increasing numbers of countries ratify and increasing use is made of the
CISG. Such traders need to identify clients and circumstances in which use of the CISG
is preferable over use of domestic law. Moreover, the opportunities, accidentally and
unknowingly, to become subject to the CISG remain very real. Failure to think clearly
about choice of governing law issues at the time of contracting is quite likely to lead to
unpleasant surprises in the event of a dispute. Many similarities between the CISG and
the (United States Uniform Commercial Code) UCC are readily observable, and the
litigation involving the CISG thus far reported suggests that the CISG is functioning well.
Nonetheless, serious pitfalls await those who assume that the differences between the
CISG and otherwise applicable law, such as the United States' UCC, are of no
moment.38

Thus in such situation Indian traders and their advisors will have to assess if the CISG meets the
need of some questionable element. A purpose of a good contract law is to enable the seller and
buyers to and their legal advisors to predict as to what would happen if the dispute has to arise. It
is prudent that the lawyers spend more time formulating the clauses of the contract agreement
between international clients rather than depending on internationally laid rules which is still
vague and ambiguous in nature. India is a soverign nation, just because there are other countries
following a norm doesnt create an obligation on India to follow it. This Convention will further
complicate business, leading to unnessesary disputes due to its ambigious language and separate

38
Louis F Del Duca, 'Practice Under the Convention on International Sale of Goods (CISG) A Primer for Attorneys
and International Traders' (1995) 27 UCC Law Journal 331-370.
interpretation by each state.Thus it is safe to state that in current scenario India should still wait
for CISG to develop through case laws, having a base for interpretation and then ratify it.