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Ch.2 The Methodology for Interpretation of the CISG

From: Damages Under the Convention on Contracts for the International Sale of Goods (3rd Edition)

Bruno Zeller

From: Oxford Legal Research Library (http://olrl.ouplaw.com). (c) Oxford University Press, 2023. All Rights Reserved. Subscriber: null; date: 06 June 2023

Contract — Damages and choice of law — UN Sales Convention and choice of law — UN Sales Convention and damages

(p. 19) Chapter 2  The Methodology for Interpretation of the CISG


2.01  This chapter sets out the methodology for interpreting the CISG. Certain principles are essential, namely that

  • •  the general rule of interpretation considers the mandate of uniformity and therefore interprets the CISG within its ‘four corners’

  • •  the intent of the parties is considered in a subjective as well as an objective way, overruling all domestic rules

  • •  gaps are filled in such a way that preference is always given, where possible, to the CISG and that recourse to domestic law is a solution of last resort

  • •  the relationship between the CISG and national law is dictated not only by Article 7(2) but by the interaction of all Articles within the four corners of the CISG.

I.  Interpretation

2.02  One of the problems in contract law is deciding which remedial system is available to an aggrieved party. Solutions to this problem vary between legal systems. For example, the fault principle is commonly discussed in civil law under the heading of legal effect of failure in performance, whereas in common law whether fault is a prerequisite for liability is viewed as a substantive rather than a (p. 20) remedial question.1 In the CISG and other international model laws such as the UNIDROIT Principles, fault is not mentioned as a requirement of any remedy.2

2.03  Before any attempt is made to comment on and interpret the method of awarding damages under the CISG, the interpretive model must be understood. The CISG, in Article 7,3 makes it clear that interpretation must be within the ‘four corners’ of the convention, without recourse to domestic law; that is, interpretation cannot rely on methods or processes that are not contained within the CISG.

2.04  Attempts at creating an international sales law can be traced back to the early 1930s, when Ernst Rabel and other academics and legal professionals created the first serious model of an international sales law. By 1935, Rabel had already recognized that an international sales law, or any international law for that matter, would be successful only if it were applied uniformly. Such a mandate is important; otherwise consistency, the essential criterion for any successful law, could be lost. Rabel foresaw the problem and introduced Article 11 into the Model Law: ‘Questions which this [model] law fails to govern expressly—and recourse to domestic law is not explicitly envisaged—courts are to settle this question in conformity with the general principles on which this [model] law is based’.4

2.05  In his explanations to the rules, Rabel commented that Article 11 was important to fill gaps. The greatest danger to international uniformity comes from a deviation of interpretation by the courts insofar as their training leads them to fill gaps according to domestic laws.5 It is of historical interest to note that Rabel did not completely rule out the creation of a supranational court. He believed that national courts were not essential for maintaining uniformity, but absolutely essential were common principles and a common interpretation.6 If Rabel’s views are compared with those expressed in the CISG, important lessons can be learned. Recurring themes, or underlying principles, can be discovered that are drawn by analogy from various domestic laws. These themes were labelled by Rabel as principes généraux (general principles). These principles are ‘ageless’ and in a true sense fundamental, as they are not linked to specific values or systems but are general in (p. 21) nature. It is therefore not surprising to find these general principles embedded in the CISG, and specifically in Article 7.

2.06  To achieve the goal of uniformity, the CISG is structured to be a self-executing treaty:

where legal rules arising from the Convention are open for immediate application by the national judges and living persons in a Contracting State are entitled to assert their rights or demand fulfillment of another person’s duty by referring directly to the legal rules of the treaty.7

We must take into account that national judges apply the CISG. The greatest impediment to uniformity, therefore, is their possible recourse to domestic laws and principles and to functionally similar principles found within domestic law. A good example, which demonstrates a lack of understanding, can be found in Playcorp Pty Ltd v Taiyo Kogyo Ltd.8 The court noted:

It was not suggested that there was any material difference or inconsistency between the provisions of art 35 and s 19(a) and (b) [of the Victorian Sale of Goods Act] and … [c]ounsel proceeded on the basis that there was no material difference or inconsistency.9

The key to achieving uniformity and hence avoiding ethnocentricity is Article 7, which provides the necessary principles for a successful international interpretation of the CISG. Thus, Article 7 is the interpretive Article that embodies many of the principes généraux.

2.07  Without the concepts contained in Article 7, the CISG could not claim to be a uniform international law. To put it differently, Karollus pointed to the CISG as being ‘well on the way to becoming the Magna Carta of international trade’.10

2.08  Certainly, a convention is not the only way to achieve consistency and uniformity. An international court could also achieve such a mandate, as seen in Europe. The EU has opted for the European Court of Justice instead of incorporating an interpretive Article into the treaty. It could be argued that such a solution would not be acceptable to states as part of a treaty or convention. It would mean that judicial domestic independence had to be relinquished to an international body.

2.09  Views have been advanced that in practice this may eventually be the case. However, one cannot ignore political reality, which is intrinsically linked to legal issues. For example, the Swiss decision not to join the EU was based on the fact that legal independence would be lost. Only after bilateral agreements between (p. 22) the Swiss government and the EU were signed was there any progress towards an integration of Switzerland into the EU. The agreements confirm that Switzerland still has legal independence.

2.10  Jurisprudence reveals that uniformity has been achieved in the application of the CISG by various domestic courts, obviating the need for a supranational court. Article 7 is the reason domestic courts are interpreting the CISG uniformly and without recourse to domestic law and its methodology.

2.11  It has long been accepted that ‘mere textual uniformity … is insufficient’,11 as interpretation must have a common philosophical base or objectives, which cannot be expressed in the text itself but are reflected in the preamble.

2.12  Two important objectives contained in the preamble should to be taken into consideration when applying the CISG. The first is the importance of developing ‘international trade on the basis of equality and mutual benefit’,12 which will promote friendly relations between states and also reduce legal uncertainties. The choice of laws question, therefore, is not a ‘parachute drop into darkness’, as the CISG is truly a neutral law favouring neither party. Secondly, the adoption of uniform rules leads ‘to the removal of legal barriers in international trade’.13 This objective is achieved by the very act of ratifying the convention and replacing domestic law with a uniform international entity, which assists in the achievement of predictability and the removal of legal uncertainties.

2.13  What, then, is the importance of Article 7 as an interpretive tool? It regulates the method by which the CISG is applied internationally. The practical solution to a uniform international application of the CISG is the ‘interpretation ladder’. As noted above, functionally similar principles and methods in domestic law must not be used, because there is a real danger of losing international uniformity. There are many examples, mainly in common law countries, where the courts did not fully understand this mandate. A good illustrative example is Calzaturificio Claudia Snc v Olivieri Footwear Ltd, where the judge commented that ‘case law interpreting Article 2 of the Uniform Commercial Code (UCC) may also be used to interpret the CISG where the provisions in each statute contain similar language’.14 As a matter of fact, Calzaturificio Claudia15 does not stand alone. In Delchi Carrier SpA v Rotorex Corp,16 the court commented in a similar fashion that ‘the UCC may inform the court where the language of the relevant CISG (p. 23) provisions tracks that of the UCC’.17 Furthermore, in Schmitz-Werke GmbH v Rockland Industries, Inc.,18 the court carelessly stated: ‘Case law interpreting provisions of Article 2 of the Uniform Commercial Code that are similar to provisions in the CISG can also be helpful in interpreting the Convention’.19 Case law interpreting Article 2 of the UCC captures the development in the United States but not that in any other country. It follows logically that using such case law may not contribute usefully to a uniform international jurisprudence. In contrast a New Zealand decision can be noted as a blueprint of a proper application of Article 7. French J correctly noted:

The requirement imposed by Article 7(1) namely to have regard ‘to the international character of the convention and to the need to promote uniformity in application’ is generally accepted as establishing what has been called a principle of autonomous interpretation. That means the Convention must be applied and interpreted exclusively on its own terms, having regard to the principles of the Convention and Convention-related decisions in overseas jurisdictions. Recourse to domestic case law is to be avoided:

In reading and understanding the provisions, concepts and words of the Convention, recourse to the understanding of these words and the like in domestic systems, in particular, the domestic legal system of the reader, must be avoided. This seems to be self-evident, but experience shows that practitioners and scholars tend to understand words and concepts of the Convention according to their familiar domestic law.20

2.14  In relation to Article 7(2), French J stated that this Article ‘only authorizes reference to domestic law in order to fill gaps in interpretation’.21

2.15  Another problem in international law is overcoming not only the differences in meaning attributed to words in different social and legal systems but also the effect of translation. Distinct cultural, linguistic, and social limitations mean that a legal community will translate any text within its particular social reality. This can be a threat to the uniform application of the CISG. Kastely states that

words used in one language … carry implications different from those in another … The terms ‘offer’ and ‘acceptance’ provide powerful examples of this. In English these words carry a rich heritage of legal doctrine, and their equivalents in the Western European languages have similar depth … Yet the translations of these words used in the other official versions, such as Chinese and Arabic, do not carry similar implications …22

(p. 24) It can be argued that there is simply no answer to the problem of words and the effect of translation on their meaning. But such a view does not offer solutions where they are needed, and it is overly pessimistic.

2.16  Any court confronted with transnational issues must take into consideration that the drafters of the CISG attempted to solve this particular problem by consciously rooting out words with domestic legal connotations in favour of non-legal, ‘earthy’ words that refer to physical acts. Certain languages have been stipulated as official languages, namely Arabic, Chinese, English, French, Russian, and Spanish.

2.17  The impact of these decisions by any interpretation is that words cannot be assigned a literal meaning. Nor can a meaning for these words be based on domestic law. As far as different languages are concerned, it has to be remembered that the official languages are given priority, and ‘other languages’ carry only secondary significance. The Swiss Supreme Court followed this mandate when it examined the requirement of Article 39(1).23 The Court had to examine the degree of specificity of a notice of lack of performance. Compared with the French and English texts, the German text was too strict. The wording in the German text (‘genau zu bezeichen’) translates as ‘specifying with precision the nature of’, whereas in the English text the clause reads ‘specifying the nature of the lack of conformity’. The French text confirms the English version by stating ‘préciser de ce défaut’.24 The Court therefore took the less rigid view as being the correct one.

2.18  Thus, a court faced with a problem of translation needs to look at the official languages and through a comparative analysis come to a conclusion as to the ‘correct’ text. If the problem is still not resolved, they have recourse to Article 33 of the Vienna Convention, which holds that the intention of the final diplomatic conference as expressed in the travaux préparatoires is to be applied. As that conference presented its final text in French and English, these two languages must be given priority.

2.19  An example can be used to illustrate this point: the word ‘substantial’ as used in Article 3 of the CISG. If we look at the word’s French and German translations, French, as an official language, has more than persuasive authority, whereas German, not an official language, is, at best, persuasive. However, it is important to compare unclear words in different languages to understand the true meaning of crucial expressions within the CISG.

2.20  Terms such as ‘title of goods’ are not used in the CISG, as many systems and cultures are not aware of such terminology or their meaning. Another example is the term ‘warranty’, which is not used in either the CISG or the UNIDROIT (p. 25) Principles. Warranty carries a remedial connotation that is not contained in Article 35. Quality and not warranty is regulated in Article 35. As such the CISG ‘determines quality by what the contract requires and provides in Article 35(2)’.25

2.21  Thus, the CISG uses words devoid of legalistic meaning. Interpretation of the CISG can and should be undertaken by assigning the word its ordinary meaning in the common English language and not meanings derived from legal concepts. The approach taken by the CISG avoids many of the complexities evidenced in domestic law. Comparing Article 2 UCC and Article 35 CISG, Speidel noted that: ‘the power to reach these agreements [as set out in Article 2 UCC but not expressly noted in the CISG] exists, it is just not particularized’.26

2.22  Domestic courts in general recognize that international conventions cannot be interpreted using domestic principles or meanings. In common law, precedent has been created by Fothergill v Monarch Airlines, where the most important ratio was expressed by Lord Diplock:

It should be interpreted … unconstrained by technical rules of English law, or by English legal precedent, but on broad principles of general acceptation … [as] it is neither couched in the Conventional English legislative idiom nor designed to be construed exclusively by English judges.27

This precedent clearly indicates that English law and legislative idioms should not be used, and that Article 7 supplies the method required to implement and interpret the CISG.

2.23  The travaux préparatoires of Article 7 make it clear that this Article was controversial, as it represents a ‘least disliked’ option rather than a ‘liked one’. However, a more contemporary use of Article 7 shows that the decisions of the original drafters of the CISG have been vindicated. Article 7 appears to have become the blueprint for interpretive Articles in many conventions and treaties.

2.24  Some conventions and drafts of conventions have introduced parts of Article 7 into their regime of interpretation, including the UNIDROIT Convention on International Factoring and the UNIDROIT Convention on International Financial Leasing just to mention two. The proposed Hague Convention on Jurisdiction and Enforcement of Judgments also copied Article 7(1) in part but added in Article 38, which dictates that the courts of each state shall ‘take due account of the case law of other Contracting States’.28

(p. 26) 2.25  The standing of foreign court decisions is debated by many scholars in relation to the CISG. This debate is quite wrongly seen as a criticism of Article 7(1). In Ferrari’s view, ‘a problem … often arises in connection with Article 7(1) of the CISG; that of the value to attribute to foreign court decisions and arbitral awards’.29 It is fitting to remember what Schlechtriem had to say in his speech on the occasion of the fiftieth-anniversary celebration of the German Federal Supreme Court. He noted:

The rule in Art. 7(1) CISG compels the discipline, so to speak, that members of an orchestra without a conductor must exercise: no easy task when one essentially gives the cadence himself, which the others must follow. Moreover, this task is especially difficult because one must constantly observe how other highest courts decide and one is more dependent on the receipt of information via the legal academic community than is the case with domestic law.30

Arguably, courts and tribunals have successfully overcome every perceived problem that ‘legal writers could even think of asking for the creation of a supranational stare decisis31 by attributing persuasive standing to foreign case law. The Tribunale di Vigevano, which referred to no fewer than forty-two foreign cases in support of its decision, demonstrated successfully that a de facto supranational stare decisis is in existence.32

2.26  Other conventions, such as the UNCITRAL draft Convention on Assignment in Receivables Financing, have incorporated Article 7(1) in its entirety. This is regarded as a positive development, as it will create ‘one international uniform commercial law through a uniform methodology and, where possible, a body of uniform concepts’.33

2.27  Interestingly, Ferrari criticized this approach. He felt that the interpretive Articles ought to affirm that the preamble should be taken into consideration when interpreting the convention as a whole.34 It is difficult to argue against this proposition, but the fact remains that the CISG did not include the preamble in the interpretive Article. It is therefore left to courts and tribunals to keep the objectives of the CISG uppermost in mind when engaging in an interpretation of the CISG. The objectives of the preamble are not lost as a tool for interpretation merely because they are not affirmatively included in the interpretive Article.

2.28  However, in the interpretation of Articles such as Article 7, an exclusively textual reference is not appropriate. If it were appropriate, literal interpretation of the convention (p. 27) would be acceptable. This would lead to a ‘literal deconstruction’, a phrase coined by Honnold and used in his many writings. In addition to the text of Article 7, jurisprudence and doctrine must always be considered when an interpretation and application of the CISG is attempted. In addition to the text of Article 7, jurisprudence, and doctrine, four other tools can be taken into consideration in successfully applying and interpreting the CISG.

2.29  First, the preamble has an impact on interpretation, as it reinforces the internationality and uniformity of an application of the CISG to promote friendly relations among states through equality and mutual benefit.

2.30  Travaux préparatoires should also to be taken into consideration if there is doubt about the intention of the promoters of the CISG. Such aids to interpretation have found their way into domestic law via the Vienna Convention and through Fothergill v Monarch Airlines. It is now well established that domestic courts have authority to use travaux préparatoires in interpreting conventions.35 However, it is not always appropriate to use these documents just because there is doubt as to the exact meaning of certain principles. They reflect the views taken by the participants in drafting the CISG, but circumstances change. This requires a different view of established principles of law. In controversial Articles, the views expressed in the travaux préparatoires reflect not the consensus view but the views of individuals. The consensus of all the individual views is the Article itself. It is therefore argued that travaux préparatoires must be given at best persuasive status. Otherwise, the convention as a whole would be a document frozen in time and would very quickly lose its relevance in today’s economic environment. This argument is supported by the preamble, which clearly states that legal barriers to international trade must be removed and that the development of international trade must be promoted. Such a task is achievable only with a relevant and up-to-date convention.

2.31  The next tool for consideration is the impact of domestic law on the application of the CISG. This is perhaps a rather controversial view, as it is indisputable that there can be no recourse to domestic laws and functionally similar domestic principles. However, the argument can be made that the socialization process of understanding legal principles in any system of law may by analogy be applied, because a functional approach to any legal principle is the same anywhere. This is especially important when the concept is controversial, such as the meaning and application of ‘good faith’. Support for this argument is found in the fact that the CISG, as noted in the preamble, took ‘into account the different social, economic and legal systems’.36 In other words, the CISG is not an entirely new system of law. Its uniqueness lies in the fact that the CISG successfully married principles found in all systems of law into one coherent unit.

(p. 28) 2.32  Model laws are a fourth interpretive tool. The most important restatements of contract law are the UNIDROIT Principles and the Principles of European Contract Law. Despite their closeness to the CISG—or because of it—the temptation to use principles founded on these two model laws cannot be supported. The model laws had scope to use the CISG as their own foundation and to build on its shortcomings. Significantly, the model laws are not for the sale of goods but for contracts, which widens their application considerably. A further reason for the improvement is that the promoters of the model laws were eminent legal academics, who could build on the CISG free from political constraints. The model laws are useful tools to show where boundaries are to be set in relation to interpretation of concepts on which the CISG is silent or where the issues are not clearly defined.

II.  Rules as to Interpretation

2.33  The promoters of the CISG were aware of two problems with its interpretation: first, the effect different languages can have on the meanings of principles and, secondly, the choice of words to be included in the CISG. The solution is that any words that are ambiguous or unclear can be looked at in another language provided the translation is an official one. The interpreter must be aware that the words chosen by the promoters are not to be taken as having a meaning rooted in domestic law. With this in mind, our attention can now be directed to an interpretation of the convention as expressed in Article 7.

2.34  Broadly speaking, interpretation of the CISG is regulated on two levels: the convention as a whole and the relationship, or the contractual obligations, between the two parties. Article 7 contains elements governing both levels, whereas Article 8 governs only the relationship between the two parties.37 The relationship between parties is also affected by Article 9,38 which imports customs either externally derived or internally established into the sphere of the convention.

(p. 29) 2.35  Two points needs to be kept in mind. Article 7 not only regulates interpretation on two levels, as described above, but also contains essentially three different rules:39 first, a general rule as to interpretation; secondly, a rule regarding the filling of gaps; and third, a rule regarding the relationship between the CISG and national law. However, should it be necessary to interpret Article 7, Articles 31 to 33 of the Vienna Convention will be of assistance. The reason is twofold: first, Article 7 cannot interpret itself and, secondly, as the CISG is a treaty the Vienna Convention will assist if required.

II.1.  General Rule as to Interpretation

2.36  The CISG has achieved its mandate that the convention must be applied autonomously without reference to domestic laws and similar principles. However, this mandate describes the policy for interpretation, not simply the goals or principles on which the interpretation is based. The key to formulating the principles can be summarized under two headings: ‘The International Character of the Convention’ and ‘The Observance of Good Faith in International Trade’.

2.37  The principle of the international character of the convention no longer poses any problems. In the early days of the CISG, many domestic courts were certainly not aware of the international mandate. Two major problems emerged that now seem to have been overcome. The first problem is resorting to domestic law to solve functionally similar problems. The second problem is one of choice of law.

2.38  The first problem is illustrated in Calzaturificio, where the judge commented that ‘case law interpreting Article 2 of the Uniform Commercial Code may also be used to interpret the CISG where the provisions in each statute contain similar language’.40

2.39  As far as the choice of law is concerned, some courts still view the choice of a domestic court as an implied exclusion of the CISG. Such a view is incorrect, as the CISG, as part of domestic law, overrides all domestic laws that are in conflict with the provisions of the CISG. It is interesting to note that not all courts, and certainly not all of the legal profession, have grasped the significance of Article 7. For example, the court stated in Playcorp Pty Ltd v Taiyo Kogyo Ltd:41 ‘It was not suggested that there was any material difference or inconsistency (p. 30) between the provisions of Article 35 and s 19(a) and (b) [of the Goods Act 1958 Victoria] … ’.42 At first reading, one could, however, come to the conclusion that there are material differences in the application of the two instruments, specifically in terms of the remedial significance let alone the interpretive regime of the CISG compared with the common law. It should be obvious by now that several instruments are at the judge’s disposal when interpreting statutes which are international in character that is they are not devised by domestic draftsman. Generally speaking, there is the Vienna Convention on the Law of Treaties specifically Articles 31, 32, and 33, the statute specific interpretative Article and of course the domestic law such as the Acts Interpretation Act and the parol evidence rule. They all have a place within the interpretative landscape but must be used in a correct and appropriate manner.

2.40  As noted above, Article 7 has been transplanted into other conventions or model laws and similar problems as encountered by the CISG can be observed. A good example to illustrate this point is the Cross-Border Insolvency Act. The court in Ackers and Others v Saad Investments Company Ltd and Another43 clearly demonstrated that there was a lack of understanding around the interpretative mandate. Rares J had to interpret an Article within the model law and he correctly noted the importance of Article 8, the interpretative Article. The court did question if extrinsic material could be used to assist in the interpretation of ambiguities.44 Article 8 states:

In the interpretation of the present Law, regard is to be had to its international origin and to the need to promote uniformity in its application and the observance of good faith.45

However, he proceeded to rely on the Vienna Convention by noting that: ‘[it] is an authoritative statement of customary international law for the purposes of construing a convention’.46 This is correct. However, the Model Law is not a convention and, in addition, it has its own interpretative article and hence recourse to the Vienna Convention is not allowed. It must be noted that Rares J did arrive at the correct result as he did consult the travaux préparatoires. Logan J in Tannenbaum v Tannenbaum47 incorrectly noted that:

even where an international convention or model law is adopted by Parliament in an Australian enactment, that enactment and the adopted convention or model law must be interpreted in accordance with Australian principles of statutory construction.48

(p. 31) The point is that the model law must be interpreted using Article 8; however, the domestically drafted part of the Cross-Border Insolvency Act must also be interpreted in accordance with Australian principles of statutory interpretation. Simply put, the Vienna Convention is not to be used as it only deals with the interpretation of conventions.49

II.2.  A Rule Regarding the Purpose of Good Faith

2.41  Observance of good faith is recognized in many domestic systems and in many international instruments, including the CISG in Article 7. One could be forgiven for thinking that the term ‘good faith’ is uniformly understood, as it has a long history, especially in Germany, France, and the United States. However, the contrary is the case, and even between the French bonne foi50 and the German Treu und Glauben,51 which have the same origin, variations of interpretation and application are evident. However, ‘Good faith has long been one of “those” issues in an international context: one of the issues which represent a perplexing legal bee-hive of near unanswerable questions’.52 Andersen argued in a recent paper that good faith ‘is simply too tainted by regional diversity to be of any constructive use on a global transnational playing field’.53 But many would baulk at abandoning a concept which has served in one guise or another for more than 2,000 years. Many authors have attempted to define good faith and Sepe argued that parties only derive the desired ex ante value of their relationship when the correct interpretative regime incorporating good faith is applied. That might be true but what good faith means or how it is applied has been left undefined.54

2.42  The CISG does not define ‘good faith’ either. This in itself does not pose too great a problem, as good faith is regarded as a general principle. As such, meaning can be given to the term by placing it within the context of the four corners of the CISG. Furthermore, it is permissible to look to principles in domestic law and by analogy apply the socialization process through which these principles were derived. This is not a transplantation of substantive law or principles into the CISG; it is a process through which a certain decision can be reached. Once the socialization process has been isolated, it can be applied either directly or by analogy to (p. 32) any new set of principles, as it is a methodology of application not an application of principles or substantive issues of law.

2.43  Domestic law has pointed to the existence of good faith operating on two levels: first, as a subjective view that is expressed as a state of mind and, secondly, as an objective construction that acquires substance from the particular events that take place and to which it is applied.55 However, as Finn J noted in South Sydney District Rugby League Football Club Ltd v News Ltd: ‘Australian law has not yet committed itself unqualifiedly to the proposition that every contract imposes on each party a duty of good faith and fair dealing in contract performance and enforcement’.56

2.44  This can be contrasted with the CISG, where good faith has been established as a principle not only to regulate the interpretation of the convention but to be enforced in dealings between parties. The approach or methodology adopted by domestic courts appears to be an internationally accepted one. It could be argued that good faith is becoming an international custom. Not only can the socialization process be transplanted by analogy, but through Article 9, good faith must be applied to the CISG. As Article 9 is linked to Article 8, parties must negotiate in good faith. The intent of the parties’ links Articles 7, 8, and 9, and good faith thus regulates the behaviour and conduct of parties towards each other.

2.45  The jurisprudence confirms that as far as the contract performance of parties is concerned, courts are clearly aware of the need to invoke good faith. The enforcement of good faith is a different problem. Punitive actions under the principle of good faith are not within the mandate of the CISG, as seen in BRI Production ‘Bonaventure’ v Pan African Export.57 But this should not be confused with a clear mandate to condone a refusal to fulfil contractual obligations with good faith in mind. Despite technically correct legal grounds, good faith will take precedence. Lando and Beale used examples to explain good faith as applied in the Principles of European Contract Law that are equally applicable to the CISG.58 The following example illustrates the point.

2.46  A contract provides that legal action must be commenced within two years from final performance. A wants to sue B, and B on several occasions assures A that there is no concern at all and that the matter will be investigated. After the two-year limit, A finally loses patience and decides to sue B; B can no longer rely on the time limit, as he acted in bad faith.59

(p. 33) 2.47  Good faith is a powerful tool in the international sale of goods to create confidence that the intentions of the parties will be respected and enforced. For that particular purpose, the CISG also included Article 8, which introduces the concepts of objective intent and subjective intent.

II.3.  A Rule Regarding the Intent of Parties

2.48  Article 8 introduced significant changes to domestic principles and law. These changes affect common law countries more than civil law ones. The common law countries must begin to understand the concept of subjective intent, which is claimed to be contrary to domestic legal practices. In the United States, it is now well established that the parol evidence rule is trumped by Article 8. Article 8 certainly makes the rule as to what evidence is applicable clearer and more concise by inquiring into the intent of the parties and not merely relying on a contract as evidenced in writing. In international trade a clear and simple rule is of the essence. As demonstrated above, the formalistic approach of the CISG allows a conclusion to be reached in a clear and more predictable manner. Such a methodology is justified in international trade, where finality in a simple form is important. Cost considerations of the ‘tyranny of distance’ require simple solutions. In domestic sales, on the other hand, rules must ‘capture the complex developments [of domestic law] over [many] years’.60

2.49  If we look at the jurisprudence in common law on the principle of mistake and the parol evidence rule, it is no wonder that the international business community has great difficulty understanding the ‘complex developments’ in this area. International trade in a global environment cannot function effectively without predictable and clear rules. MCC Marble Ceramic Ctr. Inc. v Ceramico Nuovo D’Agostino SFA illustrates this point well. Despite a signed contract, the clauses contained within that written document were not considered to be necessarily binding, as the parties could demonstrate that a contrary subjective intent was established. While establishing the intent of the parties, Article 8 also suggests that trade custom is important. Article 9 therefore is interlocked into the regime of interpretation.

2.50  Customs can be classified into two categories. The first category comprises those customs that are internationally accepted or at least widely known within one industry. INCOTERMS (international commercial terms) are an example. It can be argued that custom as expressed in Article 9 has also been used to explain or interpret other Articles within the CISG, such as Article 35(2)(a), where the question of the definition of the ‘ordinary purpose’ of goods is important. The courts interpret public law provisions and administrative practices in the same light as they would international customs.61

(p. 34) 2.51  The second category defines customs as activities in which practices between contractual parties have become habitual or the parties are relying on an agreed practice that may become habitual if continued. It is obvious that these customary practices are not bound by the internationally uniform character of the interpretation of the CISG. Uniformity is defined as applying and using customary practices as they may appear in all applicable circumstances to elicit the true intent of the parties pursuant to Article 8.

2.52  Party autonomy, a general principle under the CISG, dictates that parties are free to negotiate terms to govern their contractual relationship. The true intent of the parties is expressed in the contract itself. However, such intent needs to have an interpretive rule in case of divergent views. Article 8 and, to a lesser degree, Article 9 govern the elucidation of intent.

2.53  Article 8 is therefore an interpretive Article that rules on the behavior of parties. It regulates the contractual relationship between parties, yet Article 8 must always be subordinate to the mandate of Article 7.

2.54  The important point in Article 8 is that statements made, and the conduct of a party need to be interpreted with both a subjective view and an objective view in mind. There is little controversy as far as the investigation of objective intent is concerned, as such investigations are common in most legal systems. However, subjective intent is not a criterion used in the common law when assessing contractual intent. However, it ought to be pointed out that subjective intent is not totally unknown, as it is widely used in criminal law to ascertain the intent of the accused.

II.4.  A Rule Regarding Filling of Gaps

2.55  For obvious reasons, the CISG—as a political document that tries to offend no one and at the same time please everyone—was never able to become a complete statement of law regarding the sale of goods. Some concepts, such as consumer protection, were never intended to be included in the CISG, whereas others are merely ‘not expressly settled’.62 Such gaps are to be filled in ‘conformity with the general principles on which [the CISG] is based’.63

2.56  The first problem, therefore, is how general principles are discovered. Secondly, which mechanism should be used to apply these general principles to the process of filling gaps?

2.57  The problem can be divided logically into two categories: external gaps and internal gaps. Internal gaps are those where a discoverable general principle will (p. 35) supply the answer. External gaps are those where the CISG either expressly or by implication does not govern the matter, and hence domestic law needs to be applied. A further point must be added. Just because the CISG is silent on a particular matter does not automatically indicate that we are dealing with an external gap. Diedrich suggested that we distinguish between obvious and hidden gaps (‘offensichtliche und versteckte Regelungslücke’).64 Obvious gaps, generally speaking, indicate that an external gap is evidenced and therefore the application of Article 7 is not warranted. There is nothing to interpret. That gap will be regulated through domestic law and hence domestic interpretive methods. Where a hidden gap exists, Article 7 must be applied in conjunction with the relevant discoverable general principle. To suggest that all hidden gaps can be filled with principles contained in the CISG is too optimistic and can lead to error. If the process of discovering a general principle does not yield any results, such a gap must be filled with domestic law irrespective of whether we are looking at an obvious or a hidden gap.

2.58  The central problem in filling gaps is the need to discover or find the presence of general principles. Another point not to be overlooked is the difference between interpretation and gap filling. The fact that the CISG is silent on a particular point does not indicate that the only solution to filling gaps lies in discovering general principles. It is also conceivable that interpretation will deliver the solution. The distinction between gap filling and interpretation basically lies in the fact that interpretation merely gives meaning to words, whereas gap filling goes beyond a search for words.

2.59  How are general principles applied? This question must be answered with another question: What are general principles?

2.60  There have been many attempts to define exactly what is meant by general principles. One attempted definition is that they have to be pillars of the convention without which the convention as a whole might crumble.65 But the best working definition of general principles is the one devised by Drobnig, who points out that ‘it is almost of the essence of general principles of law that they are not laid down by any legislative action. They are nowhere readily formulated—rather they have to be elaborated’.66

2.61  The elaboration of general principles should begin with the interpretive Article 7, where the mandate of uniformity in international trade is of paramount (p. 36) importance. This mandate is confirmed in the preamble to the CISG. The logical extension of such a mandate is that the purposive approach to a discovery of general principles can be adopted only within the four corners of the CISG. If we extended such a search beyond the four corners, into domestic laws, uniformity could not be guaranteed. However, it must be pointed out again that looking for solutions within domestic law is not discouraged, as valuable lessons can be learned from the discovery of the socialization process.

2.62  General principles are not restricted to the CISG and can be found in all systems in the world. Texaco v Libyan Arab Republic67 is especially illustrative, as it is, contrary to the CISG, a public international law dispute. The arbitrator commented: ‘The recourse to general principles is [not only] to be explained by the lack of adequate legislation in the State considered. [It] plays … an important role in the contractual equilibrium intended by the parties’.68

2.63  The general principles imported into the CISG are not ‘new’ or ‘manufactured’ principles. They are transplants or hybrids from other systems. The only difference is that the purpose of their application has changed. By analogy, the seed has been transplanted into a different climate with different growing conditions. It follows, then, that the process of discovery can be duplicated but not the purpose of the general principles.

2.64  This discussion shows that Article 7 prevents the application of domestic methods and sources because principles within domestic law are based on years of development within a system, with a particular purpose. Within the CISG such developments have no bearing at all. In fact, they are a hindrance to the development of international trade and are therefore outside the mandate as expressed in Article 7.

2.65  Unfortunately, it has not been absolutely established how general principles are to be discovered. The labels given to principles may be different, but as several authors, including Magnus and Hillman, have established, principles that are identical, either in ‘content’ or within a given context, indicate that it is possible to discover general principles.

2.66  The only conclusion that can be drawn from this is that it is impossible to draw up a list of uniform and uniformly acceptable general principles. This point is not surprising, nor does it diminish the usefulness of the CISG. What can be said is that the discovery of general principles is an evolutionary process. Some general principles, such as party autonomy and good faith, have been discovered and applied, whereas others still need to be ‘teased out’ by examining the jurisprudence of Articles that are controversial or unclear.

(p. 37) 2.67  This illustrates the importance of establishing an international jurisprudence that will contribute to the existing stock of general principles. This expectation is important, as such a stock of knowledge and practice will allow the CISG to develop and not become frozen in time. Otherwise, the CISG would lose its significance in international trade. It is, perhaps, fortunate that the promoters of the CISG were not able to write the CISG ‘tightly’ (that is, more like a code). The presence of general principles allows some ‘fluidity’ within the CISG, leaving room for adjustment to changing circumstances as long as the mandate of Article 7 is closely followed.

2.68  Some disputes, such as the question of attorneys’ fees or interest rates, will need to be discussed for some time before a clear solution emerges. The solution is not whether the interest rate is to be drawn from domestic law but whether a general principle within the CISG exists and therefore excludes the application of domestic law. Both arguments have merit, and the practical solution must be found pragmatically by studying jurisprudence. Simply put, how will the majority of courts and tribunals address the problem of gap filling in relation to the rate of interest? It will not be a ‘pretty’ legal argument that decides the outcome one way or another but the sheer weight of decisions. At this time, it appears that the solution will be in favour of applying domestic law to determine the rate of interest.

2.69  Another problem is how principles discovered within the CISG are applied to solve interpretive problems of individual Articles. The universally accepted tool here is analogy. It is recognized that Article 7 does not mention or direct the use of analogy. But there is also no indication that Article 7 prohibits such use. The question, of course, is whether an analogical extension is directed either to general principles or merely to certain provisions. Analogical extension should not be confused with interpretation. From a practical point of view, this distinction is of little value, as it arguably merely cogitates on a particular academic point. Enderlein and Maskow have alluded to this and offered, from a practical point of view, an acceptable solution:

But it seems as though the Convention goes one step further permitting decisions which themselves go beyond analogy and reach into the area of a creative continuation of the development of the law. It also appears to be admissible under the Convention that decisions can be the result of principles which the Convention itself formulates and which do not necessarily have to be reflected in individual rules.69

The point is that the most important characteristic of any methodology applied to gap filling is uniformity. Whether the aim is achieved by an extension of provisions or by general principles is of no practical consequence.

(p. 38) II.5.  A Rule Regarding the Relationship between the CISG and National Law

2.70  This chapter has pointed out that there are two distinct relationships between the CISG and domestic law, both discoverable in Article 7(2). The first deals with the filling of gaps where there are no discoverable general principles. In this case gaps must be filled through domestic laws. The second important relationship is best put as a question: How far can the CISG extend its influence when the boundary between domestic law and the convention is not firmly established? Article 4 and, to a lesser extent, Article 3 are both relevant here.

2.71  Article 4 governs the validity of contracts. It excludes questions of validity from the sphere of the CISG. The importance of academic discussion of this topic is highlighted by the discovery that courts and tribunals have taken much too narrow a view. Article 4 has two significant expressions: ‘in particular’ and ‘except as otherwise expressly provided in this Convention’. These expressions do not mean that Article 4 is confined to dealing with matters excluded from the CISG. Such matters are dealt with under Article 7(2). The term ‘in particular’ leads to the view that apart from matters listed in Article 4(a), there are other items that are not governed by the CISG.

2.72  The expression ‘except as otherwise expressly provided in this Convention’ suggests that not all matters of validity are excluded. Article 11, which describes the principle of informality of contract, is one example, as is Article 35. A breach of what is termed in domestic law ‘implied conditions’ cannot be validated under Article 4.

2.73  By analogy with the UNIDROIT Principles and the Principles of European Contract Law, it is argued that validity, which is excluded from the CISG, is restricted to mistake,70 immorality, illegality, and lack of capacity. Unfortunately, this is an area where courts and tribunals have not generally understood the interplay between Article 7 and the CISG as a whole. The holistic approach advocated by many commentators should have alerted courts and tribunals to the fact that setoff, distribution agreements, and agency (to mention only a few disputes) should not be interpreted using Article 4. The solution is in Article 7(2), which, in effect, rules that a gap exists that needs to be filled through the application of domestic law.

(p. 39) III.  Concluding Argument

2.74  In a search for a description of Article 7 that would attract the least disagreement, one cannot ignore such statements as ‘This rule is one of the most discussed rules of the CISG’71 and ‘[T]his article is arguably the single most important provision in ensuring the future success of the Convention’.72 Despite these accolades, it is evident from international jurisprudence that the CISG had ‘teething problems’ in most countries. Courts and tribunals were not ideologically trained or used to the need to adopt and adapt to an international methodology of interpretation. Such a methodology is founded on Article 7 and is contained in the preamble.

2.75  However, as the volume of available jurisprudence and academic writing has increased, so has the confidence of courts and tribunals. In Europe, in particular, and more recently also in the United States, the CISG has been applied with confidence in the manner intended by its promoters. This is especially true in terms of the interpretation of Article 7 with respect to the applicability of domestic laws to the interpretation of the CISG.

2.76  It has by no means been my purpose to show that the CISG is a superior international convention. But it is clear that Article 7 has proven its value and usefulness as a model for other conventions and restatements. It has been included either fully or partially in several international conventions and model laws. The UNCITRAL draft Convention on Assignment in Receivables Financing, for example, includes Article 7 in full.

2.77  The UNIDROIT Convention on International Factoring used Article 7 but provided that ‘regard is to be had to its object and purpose as set forth in the preamble’.73 The inclusion builds on Article 7 by emphasizing that the method of interpretation needs to be focused on the four corners of the convention. The UNIDROIT draft Convention on International Interest in Mobile Equipment74 follows the combined approach taken by Article 7.75

2.78  The UNIDROIT Principles and the Principles of European Contract Law both include sections on interpretation that rely heavily on Article 7 of the CISG. The significance is twofold. First, the CISG has influenced the drafting of interpretational Articles in conventions and restatements with different subject matter. (p. 40) Therefore, the inclusion of Article 7 must be regarded as its elevation to a general principle of international law. Secondly, it is argued that there is a common intention to create a methodology for interpretation and supplementation contained in Article 7 that has created a core consensus for drafting future conventions or model laws.

2.79  Article 7 of the CISG has been recognized as the leading example of autonomous interpretation on which all subsequent attempts will be modelled. The importance of Article 7 has reached beyond the CISG. For example, German domestic law states that failing to take Article 7 into consideration will give rise to an appeal on ‘material’ grounds.76 Article 550 of the Zivilprozessordnung (ZPO) stipulates that a breach of the CISG must be resolved through the application of Article 7.77

2.80  It is imperative that Article 7 and its jurisprudence is understood. This chapter demonstrates that Article 7 is the basis for a common interpretive practice, which in turn will take on the function of a common legal theory on which the CISG is based.

2.81  The ideal international contract would apply the CISG with an added clause for gaps to be filled by either the UNIDROIT Principles or the Principles of European Contract Law. Domestic law, therefore, should be used as a last resort. Such a statement has its foundation in the interpretive Articles, which is the single most important contribution to achieving uniformity and consistency in international trade without losing sight of good faith.


1  G H Treitel, Remedies for Breach of Contract: A Comparative Approach, (10th edn, Clarendon Press 1991) 7.

2  ibid 23.

3  CISG art 7 reads:

  1. (1)  In the interpretation of this Convention, regard is to be had to its international character and to the need to promote uniformity in its application and the observance of good faith in international trade.

  2. (2)  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.

4  E Rabel, Der Entwurf eines einheitlichen Kaufgesetzes (1935) 9 Rabels Zeitschrift 1, 12.

5  ibid 54.

6  ibid.

7  P Volken cited in F Ferrari, ‘Draft Convention on Assignment in Receivables Financing’ (2000) 1 Melbourne Journal of International Law 15.

8  [2003] VSC 108 (24 April).

9  ibid para 235.

10  M Karollus, ‘Judicial Interpretation and Application of the CISG in Germany 1988–1994’ (1995) Cornell Review of the Convention on Contracts for the International Sale of Goods 68.

11  L M Ryan, ‘The Convention on Contracts for the International Sale of Goods: Divergent Interpretations’ (1995) 4 Tulane Journal of International & Comparative Law 101.

12  CISG preamble.

13  ibid.

14  96 Civ 8052 (HB)(THK). United States, (April 6 1998) Federal District Court (New York), http://www.cisg.law.pace.edu/cases/980406u1.html.

15  ibid.

16  71 F3d 1024 (2nd Cir 1995), No 88-CV-1078 WL 495787 (NDNY September 9, 1994).

17  ibid 1028.

18  United States (21 June 2002) Federal Appellate Court (4th Cir), http://www.cisg.law.pace.edu/cases/020621u1.html.

19  ibid.

20  New Zealand (30 July 2010) High Court of New Zealand (RJ & AM Smallmon v Transport Sales Limited and Grant Alan Miller) http://cisgw3.law.pace.edu/cases/100730n6.html.

21  ibid.

22  A H Kastely, ‘Unification and Community Rhetorical Analysis of the United Nations Sales Convention’ (1988) 8 Northwestern Journal of International Law and Business 574.

23  Switzerland (13 November 2003) Supreme Court http://cisgw3.law.pace.edu/cases/031113s1.html.

24  ibid, abstract prepared by B Stucki.

25  R E Speidel, ‘Warranties of Quality in Revised Article 2, Sales and the Convention on Contracts for the International Sale of Goods’ (1999) 14 Journal of Contract Law 16.

26  ibid 26.

27  [1977] 3 All ER 616.

28  Draft Hague Convention art 38, issue paper 3, Attorney-General’s Department http://law.gov.au/publications/hagueissue3.html.

29  Ferrari (n 7) 15.

30  P Schlechtriem, ‘Uniform Sales Law in the Decisions of the Bundesgerichtshofhttp://cisgw3.law.pace.edu/cisg/biblio/schlechtriem3.html.

31  ibid.

32  Italy (12 July 2000) Rheinland Versicherungen v Atlarex Srl, http://cisgw3.law.pace.edu/cases/000712i3.html.

33  Ferrari (n 7) 14.

34  ibid.

35  See n 27.

36  CISG preamble.

37  CISG art 8 reads:

(1) For the purposes of this Convention statements made by and other conduct of a party are to be interpreted according to his intent where the other party knew or could not have been unaware what that intent was. (2) If the preceding paragraph is not applicable, statements made by and other conduct of a party are to be interpreted according to the understanding that a reasonable person of the same kind as the other party would have had in the same circumstances. (3) In determining the intent of a party or the understanding a reasonable person would have had, due consideration is to be given to all relevant circumstances of the case including the negotiations, any practices which the parties have established between themselves, usages and any subsequent conduct of the parties.

38  CISG art 9 reads:

  1. (1)  The parties are bound by any usage to which they have agreed and by any practices which they have established between themselves. (2) The parties are considered, unless otherwise agreed, to have impliedly made applicable to their contract or its formation a usage of which the parties knew or ought to have known and which in international trade is widely known to, and regularly observed by, parties to contracts of the type involved in the particular trade concerned.

39  J Hellner, ‘Gap-Filling by Analogy’ http://www.cisg.law.pace.edu/cisg/text/hellner.html.

40  96 Civ 8052 (HB)(THK).

41  [2003] VSC 108 (24 April).

42  ibid 235.

43  [2010] FCA 1221.

44  ibid.

46  ibid para 295.

47  [2012] FCA 904.

48  ibid para 37.

49  For further elaboration on this point see B Zeller, ‘Statutory Interpretation: The Two-step Approach’ (2013) 36 Curtin Law and Taxation Review 1002.

50  Code Civile art 1134, sub 3.

51  BGB, § 242.

52  Bruno Zeller and Camilla Andersen, ‘Good Faith—The Gordian Knot of International Commerce’ (2016) 28(1) Pace International Law Review 1.

53  Camilla Andersen, ‘Good Faith? Good Grief? Festschrift for Bruno Zeller’ (2014) 17 International Trade and Business Law Review 310, 311.

54  Simone M Sepe, ‘Good Faith and Contract Interpretation: A Law and Economics Perspective’ (Arizona Legal Studies Discussion Paper No 10-28, 2010) 1, 6.

55  Aiton v Transfield [1999] NSWSC 996 http://austlii.edu.au/cgi-bin/disp.

56  [2000] FC.A 1541 (3 November).

58  O Lando and H Beale, Principles of European Contract Law (Kluwer 2000) 602.

59  ibid 114.

60  Speidel (n 25) 27.

61  ibid.

62  CISG art 7(2).

63  ibid.

64  F Diedrich, ‘Maintaining Uniformity in International Uniform Law via Autonomous Interpretation: Software Contracts and the CISG’ (1996) 8 Pace International Law Review 303.

65  G Brandner, ‘Admissibility of Analogy in Gap-Filling under the CISG’ http://www.cisg.law.pace.edu/cisg/biblio/brandner.html.

66  U Drobnig, ‘General Principles of European Contract Law’ in P Sarcevic and P Volken (eds), International Sale of Goods: Dubrovnik Lectures (Oceana 1985) 53.

67  E Lauterpacht (ed), International Law Reports Vol 53 (1979).

68  ibid 458.

69  F Enderlein and D Maskow, International Sales Law: United Nations Convention on Contracts for the International Sale of Goods (Oceana 1992) 17.

70  Mistake may not always be a validity issue. John Honnold, for one, prefers to ask, What kind of mistake? This suggests that not all mistakes as to matters contained in a general principle such as good faith are to be excluded.

71  Enderlein and Maskow (n 69) 54.

72  P Koneru, ‘The International Interpretation of the UN Convention on Contracts for the International Sale of Goods: An Approach Based on General Principles’ (1997) 6 Minnesota Journal of Global Trade 105.

73  UNIDROIT Convention on International Factoring art 6.

74  Rome (12 February 1999) art 6(2).

75  M Gebauer, ‘Uniform Law, General Principles and Autonomous Interpretation’ (2000) 4 Uniform Law Review 696.

76  W Witz, H Salger, and M Lorenz, International Einheitliches Kaufrecht (Verlag Recht und Wirtschaft 2000) 80.

77  ibid.