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The Interpretation and Application of

the United Nations Convention on
Contracts for the International Sale of
Goods

James P Quinn

Introduction
The United Nations Convention on Contracts for the International Sale of Goods
(hereinafter CISG or Convention) was promulgated in 1980 to provide a uniform
law for the international sale of goods. Since its enactment in 1988, the CISG has
been ratified by over 60 countries, including the United States.1 As Canada, Mexico
and most of the European countries have also adopted the CISG,2 the Convention
now governs a majority of the foreign sales transactions conducted by the United
States.3 Some countries have even adopted the CISG as their domestic sales law,4
and in the United States, the Permanent Editorial Board for the Uniform
Commercial Code (hereinafter UCC) is using the Convention as a model in its
efforts to revise the UCC.5
In general, the CISG governs contracts for the sale of goods between parties from
different countries that have signed the Convention.6 It supersedes the domestic
sales laws of each respective country in the formation of sales contracts and the
rights and obligations of the parties to sales contracts.7 Thus, in the United States,
for example, when the CISG was ratified by Congress in 1986, it became a self-
executing treaty with the pre-emptive force of federal law.8 This means that, under
the Supremacy Clause of the US Constitution, the CISG trumps all contrary
domestic sales laws such as the UCC.9 Although US cases involving the CISG have

1 United Nations Conference on Contracts for the International Sale of Goods, Final Act (10
April 1980), UN DOC A/CONF 97/18, reprinted in S Treaty Doc No 98–9, 98th Cong., 1st
Sess., and 19 ILM 668 (1980) [hereinafter CISG or Convention].
2 See Peter Winship, ‘Changing contract practices in the light of the United Nations sales
convention: a guide for practitioners’, 29 Int’l Law 525 (1995), 527.
3 See US Dept of Com, Statistical Abstract of the United States 1997, 803–06 (117th edn 1997).
4 Norway has adopted the CISG wholesale; Finland and Sweden have altered their sales laws
to conform with the CISG. See Peter Winship, ‘Domesticating international commercial law:
revising UCC Article 2 in light of the United Nations Sales Convention’, 37 Loy L Rev 43
(1991), 46.
5 See generally ibid.
6 The Convention does allow reservations to be made in addition to other qualifications.
7 CISG, Article 4.
8 Richard E Speidel, ‘The revision of UCC Article 2, sales in light of the United Nations
Convention on Contracts for the International Sale of Goods’, 16 NW J Int’l L & Bus 165
(1995), at 166.
9 US Const Article VI, cl 2.
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222 International Trade & Business Law

been quite scarce until recently, a number of US federal courts have struggled
properly to apply and interpret the CISG where the Convention is the applicable
law.10
This paper discusses the interpretive techniques which commentators suggest
will enable courts to accurately interpret the CISG. The section headed Challenges
to achieving an accurate interpretation identifies the current difficulties in
interpreting the CISG which confront signatory courts and lawyers. The section
headed A brief history of the Convention traces the history of the Convention to
lend some perspective on its interpretive policy. The section headed The method of
interpretation prescribed by the Convention examines those particular CISG
provisions that prescribe the method of interpretation intended by the framers. The
section headed The use of alternative sources to interpret the CISG considers those
sources that may be consulted when the CISG itself does not directly resolve a legal
issue presented. These latter two sections also present examples of judicial decisions
which illustrate the methods of interpretation used by courts and tribunals to
interpret the CISG.

Challenges to achieving an accurate interpretation

Before drafting any international sales contract, it is essential that counsel become
aware of the challenges that await them in interpreting an unfamiliar sales code
such as the CISG. An awareness of such difficulties will also enable counsel better to
appreciate those techniques which will enable them to achieve a more accurate
reading of the Convention. First, some of the rules contained in the CISG are
notably different from those contained in domestic sales laws with which counsel
may be more familiar.11 For example, the CISG is more liberal toward the use of
parol evidence in interpreting contracts of sale than is the UCC.12 Similarly, the
CISG provides restitution remedies which are broader than under those under the
UCC.13 On the other hand, the CISG is more restrictive toward a party’s right to
revoke offers than is the UCC.14 Similarly, the CISG conditions a party’s right to
claim avoidance on a fundamental breach by the other party, while the UCC
preserves the perfect tender rule for single delivery contracts.15 Moreover, there are
certain terms contained in the CISG that counsel may find unfamiliar based on their
regular use of domestic sales law.16 For example, the CISG contains articles that
embrace certain European concepts such as the ‘Nachfrist’ notice, which was
imported from German law but contains no equivalent in the UCC.17
10 See Rod Andreason, ‘MCC-Marble Ceramic: the parol evidence rule and other law under the
Convention on Contracts for the International Sale of Goods’, 1999 BYU L Rev 351 (1999), 352
(discussing that of the 464 cases governed by the CISG only 32 have involved US companies;
therefore, federal courts have not had a significant opportunity to interpret the CISG).
11 Mark B Wessman, Practitioner’s Guide to the Convention on Contracts for the International Sale of
Goods (CISG) and the Uniform Commercial Code (UCC), by Henry Gabriel (New York: Oceana
Publications Inc, 1994), 70 Tul L Rev 1783 (1996), 1791.
12 Henry Gabriel, Practitioner’s Guide to the Convention on Contracts for the International Sale
of Goods (CISG) and the Uniform Commercial Code (UCC), (New York: Oceana Publications
Inc, 1994), 29–32.
13 Ibid, 244–52.
14 Ibid, 49–51.
15 Ibid, 139–41, 185–87.
16 Wessman, op cit, fn 11, 1791.
17 Gabriel, op cit, fn 12, 134–36, 182–85.
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The Interpretation and Application of the United Nations Convention on Contracts 223

Secondly, the organisational structure of the CISG varies considerably from that
of domestic sales law such as the UCC.18 For example, the CISG addresses concisely
in a single article the quality standards which are required of all contract goods,
while the UCC devotes three separate sections to express warranty, implied
warranty of merchantability, and implied warranty of fitness for a particular
purpose.19 The CISG addresses systematically in a single section the standards
required to avoid a contract and the consequences of avoiding a contract,20 while
the UCC addresses these same matters through a series of sections scattered
throughout the Code.21
Thirdly, there are certain subjects involving international sales about which the
CISG is ambiguous and inconsistent.22 For example, Article 1 says that the CISG
applies to situations where the parties have places of business in different states
which are signatories to the Convention, or where the rules of private international
law require the application of the law of any such state.23 However, Article 95
allows contracting states to opt out of the latter provision by declaring a
reservation.24 Article 46 appears to grant the buyer ample rights to the remedy of
specific performance. 25 However, Article 28 allows the court to apply any
restrictions to specific performance which apply under its own domestic laws.26
Fourthly, there are certain aspects involving international sales that the CISG
does not even address.27 For example, the CISG nowhere provides any general
definition of ‘place of business’, even though this term is essential in determining
the applicability of the Convention. 28 Article 2 of the CISG excludes from
application those transactions involving consumer goods, as well as those
transactions involving money or investment securities.29 Article 4 of the CISG
excludes from application those issues concerning the validity of the contract, or the
validity of any of its specific provisions.30 The same article also excludes from
coverage issues relating to property ownership in the goods sold.31 Article 5
excludes from application issues concerning liability for death or personal injury
caused by the goods.32

18 Wessman, op cit, fn 11, 1790.

19 Gabriel, op cit, fn 12, 104–09.
20 Ibid, 139–41, 185–92.
21 See UCC 2-106(3) & (4), 2-601, 2-602, 2-608, 2-612, 2-703 – 2-710, 2-711 – 2-717, 2-602, 2-608
(1990).
22 Wessman, op cit, fn 11, 1788.
23 Gabriel, op cit, fn 12, 3.
24 Ibid, 5.
25 Ibid, 132.
26 Ibid, 83.
27 Wessman, op cit, fn 11, 1787.
28 Gabriel, op cit, fn 12, 6.
29 Ibid, 12–13.
30 Ibid, 19–20.
31 Ibid.
32 Ibid, 21.
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224 International Trade & Business Law

Due in large part to the problems mentioned above, many international attorneys
in the US have appeared reluctant to create or enforce contracts based on the CISG
for over a decade.33 In fact, according to some scholars, many US legal practitioners
are suspicious about and even afraid of the CISG.34 Hence, many US lawyers often
advise their clients simply to opt out of the CISG, as is actually permitted under
Article 6 of the Convention.35 Consequently, until very recently, US courts have
encountered ‘surprisingly few cases’ in which the CISG was even referred to.36
Despite these problems, however, the CISG has significant potential to reduce the
difficulties frequently encountered in international sales transactions by creating a
uniform norm for international trade.37 This is because simplification is the essence
of the Convention.38 Its fundamental characteristics are ‘simplicity, practicality and
clarity … free of legal shorthand, free of complicated legal theory and easy for the
businessman to understand’.39 The uniform code of law established by the CISG
greatly reduces the use of multiple documents and contract laws that would
otherwise be necessary for parties to create international sales contracts.40 Although
the CISG had initially appeared to increase the complexity of international sales
transactions, it is expected that the CISG will ultimately enable parties to achieve
‘simplification and uniformity in the long term’.41 Ultimately, any apprehension
which practitioners may have toward the CISG can be alleviated only through a
better understanding of the Convention and the methods used to interpret it.42

A brief history of the Convention

An examination of the Convention’s drafting history will provide insight into the
interpretive policy intended by the framers. The process of achieving agreement in
international sales law evolved in three stages. The first stage of the project began in
1928 at the Sixth Session of the Hague Conference on Private International Law.43

33 Andreason, op cit, fn 10, 352.

34 See John E Murray Jr, ‘The neglect of CISG: a workable solution’, 17 JL & Com 365 (1998),
available at http://www.cisg.law.pace.edu/cisg/biblio/murray1.html. See also John P
McMahon, When the UN Sales Convention Applies and Some of the Reasons Why it Matters to You
and Your Clients, Pace Database on the CISG and Int’l Com L (1996), at
http://www.cisg.law.pace.edu/cisg/biblio/mcmah.html.
35 McMahon, op cit, fn 34.
36 Andreason, op cit, fn 10, 352.
37 See eg John O Honnold, Uniform Law for International Sales Under the 1980 United Nations
Convention, 47 (1982).
38 Larry A DiMatteo, ‘An international contract law formula: the informality of international
business transactions plus the internationalisation of contract law equals unexpected
contractual liability’, 23 Syracuse J Int’l L & Com 67 (1997), 78 (quoting Kuzuaki Sono, The
Vienna Sales Convention: History and Perspective, in International Sale of Goods: Dubrovnik
Lectures, 7 (Peter Sarcevic & Paul Volken (eds), 1986)).
39 Ibid.
40 Andreason, op cit, fn 10, 355.
41 Ibid.
42 Ibid, 357.
43 See Arthur Rosett, ‘Critical reflections on the United Nations Convention on Contracts for
the International Sale of Goods’, 45 Ohio St LJ 265 (1984), 267.
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The Interpretation and Application of the United Nations Convention on Contracts 225

During this first stage, virtually all the participants came from the industrialised,
capitalist countries of western Europe.44 The draft which they produced was
specific to the civil law tradition, to the neglect of the common law tradition and
other world legal traditions.45 Consequently, the first draft failed to gain worldwide
approval.46
The second stage of the project began in 1951 when the Government of the
Netherlands convened a conference at The Hague which produced two drafts.47
Encouraged by the favourable reactions which the drafts received, a Diplomatic
Conference was convened at The Hague in 1964.48 It led to the adoption of two
Conventions: the Uniform Law of International Sale (ULIS) and the Uniform Law
on the Formation of Contracts for the International Sale of Goods (ULF).49 However,
member states of the United Nations disapproved both the ULIS and the ULF,
describing these sets of laws as too dogmatic, complex, and predominantly of the
European civil law tradition.50
The third and final stage of the project began in 1966, when the United Nations
Commission on International Trade Law (UNCITRAL) set out to create a draft that
would include the perspectives of a wider array of countries.51 This UNCITRAL
body was widely represented, including nine countries from Africa, seven from
Asia, six from Latin America, five from Eastern Europe, and nine from Western
Europe.52 In all, representatives from 62 states and eight international organisations
convened in Vienna in 1980.53 The outcome of the Vienna Conference was the
enactment of the CISG which today is the system of laws regulating international
sales contracts in over 60 countries.54 Indeed, the final draft of the Convention
reflected a wide diversity in legal traditions.55 However, this wider representation
also required compromise among the various states in order to achieve consensus.56
Therefore, it is important for courts to realise when interpreting the CISG that it is
the product of diverse legal systems and laws, as well as the product of negotiations

44 Jeffrey S Sutton, ‘Measuring damages under the United Nations Convention on the
International Sale of Goods, 50 Ohio St LJ 737 (1989), 738.
45 Philip Hackney, ‘Is the United Nations Convention on the International Sale of Goods
achieving uniformity?’, 61 La L Rev 473 (2001), 473.
46 Ibid.
47 Nives Povrzenic, Interpretation and Gap-filling under the United Nations Convention on Contracts
for the International Sale of Goods (1997, Pace).
48 Ibid.
49 Of nine states which ratified ULIS and ULF only two were non-European: Gambia and
Israel, others belonged to EEC: Belgium, the Federal Republic of Germany, Italy,
Luxembourg, the Netherlands, San Marino and the United Kingdom.
50 At the 1964 Hague Conference, Latin America was represented only by Colombia, Asia by
Japan and Africa by Egypt.
51 Povrzenic, op cit, fn 47.
52 John O Honnold, ‘The United Nations Commission on international trade law: mission and
methods’, 27 Am J Comp L 201 (1979), 207.
53 Povrzenic, op cit, fn 47.
54 Dr Bruno Zeller, The Development of Uniform Laws – A Historical Perspective, 14 Pace Int’l
L Rev 163 (2002), 163.
55 Sutton, op cit, fn 44, 739.
56 Ibid.
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226 International Trade & Business Law

where specificity was sometimes compromised in order for an agreement to be

reached.57 The draftsmen were aware that different countries would inevitably
come to put different interpretations on the same enacted words.58 This is why they
inserted provisions into the Convention to help minimise the danger of divergent
interpretations,59 a subject to be explored in the following section.

The method of interpretation prescribed by the Convention

Among the primary objectives for the CISG draftsmen was to achieve uniformity in
the application of international sales law. This purpose is evidenced by the
Convention’s preamble which states, ‘Being of the opinion that the adoption of
uniform rules which … take into account the different social, economic and legal
systems (will) contribute to the removal of legal barriers in international trade and
promote the development of international trade’. 60 To achieve their goal of
uniformity in the application in international sales law, the draftsmen inserted a key
provision to guide the practitioner in his interpretation of the CISG: Article 7 of the
Convention.

Reference to specific provisions of the CISG: Article 7(1)

Article 7(1) governs the rules of interpretation of the text of the Convention. This
article provides that when interpreting the CISG, ‘…regard is to be had to its
international character and to the need to promote uniformity in its application
…’.61 According to legal scholars, this means that when interpreting the CISG, one
should always consider the fact that it is the product of international unification
efforts, and that it was not created with any particular legal system in mind.62 When
interpreting the Convention, courts must consider such factors as the difference
between the common law and the civil law, the East and the West, the third-world
countries and the industrialised countries, and the socialist countries and the free-
market countries.63 The tendency to resort to domestic sales law to interpret the
CISG should be avoided.
However, the draftsmen apparently realised that while an ‘autonomous’
interpretation would likely encourage uniformity, it would not necessarily
guarantee it. Therefore, they provided that, in addition to having ‘regard to the
Convention’s international character’, one should also have regard ‘to the need to
promote uniformity in its application’.64 In their analysis of Article 7(1), some legal

57 Ibid.
58 RJC Munday, Comment: The Uniform Interpretation of International Conventions, 27 Int’l &
Comp LQ 450 (1978).
59 It has often been stated that it is only possible to reduce the danger of diverging
interpretations; it is not possible to eliminate them altogether; see, eg, Joseph M Lookofsky,
Consequential Damages in Comparative Context 294 (1989).
60 CISG, op cit, fn 1, preamble.
61 CISG, art 7(1).
62 Werner Melis, art 7, in Kommentar zum UN-Kaufrecht 87 (Heinrich Honsell (ed), Zurich
1997); Roland Loewe, Internationales Kaufrecht 32 (Vienna, 1989).
63 See Sara G Zwart, The New International Law of Sales: A Marriage Between Socialist, Third
World, Common, and Civil Law Principles, 13 NC J Int’l L & Com Reg 109 (1988).
64 Hackney, op cit, fn 45, 477.
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The Interpretation and Application of the United Nations Convention on Contracts 227

writers have deduced that anyone interpreting the CISG has the obligation to adopt
solutions which are tenable on an international level, that is, solutions which can
also be taken into consideration in other contracting states.65 Other legal scholars
have deduced that Article 7(1) requires that in applying the CISG, courts must
consider relevant decisions in other states.66 Despite the differing views among
interpreters of the CISG, there does seem to be a consensus that the common law
approach of judicial interpretation through case law should be used, together with
the civil law ‘positivist’ approach of looking to the text of the Convention to find
solutions.67
Although Article 7(1) provides clear guidance on the criteria to be considered
when reading the Convention in order to promote uniformity of interpretation, it
nonetheless leaves unanswered the precise method by which uniformity of
interpretation is to be achieved.68 Based on a comprehensive reading of sub-sections
(1) and (2) of Article 7, legal scholars have inferred that in cases which involve the
CISG, a judge should first refer to the CISG text itself to see whether there is a
particular provision that applies directly to the legal question at issue.69 For
example, if a case involves a question of whether a party may avoid its contractual
obligations without giving prior notice to another contracting party, the first step a
judge must take is to refer to the CISG itself. Article 26 of the CISG is directly
applicable, providing that ‘a declaration of avoidance is effective only if made by
notice to the other party’.70 Thus, the judge makes his finding of law based on
Article 26 of the CISG.
While the CISG is intended to govern fully the rights and obligations of parties
involving international sales contracts, situations often arise where an issue cannot
be resolved by direct reference to the text of the Convention.71 In this case, the judge
must resort to other means of finding an answer to the problem presented. When
the CISG does not directly address a problem at issue involving the parties’
contractual terms and performance, then one should decide the case in conformity
with general principles derived from the Convention, a subject to be explored in
below.

65 Ulrich Magnus, Wiener UN-Kaufrecht (CISG) 153 (Berlin 1999), 155.

66 Ibid.
67 Franco Ferrari, Interpretation uniforme de la Convention de 1980 sur la vente internationale, Revue
internationale de droit compare 813 (1996), 831–32.
68 Sunil R. Harjani, ‘The Convention on Contracts for the International Sale of Goods in United
States courts’, 23 Hous J Int’l L 49 (2000), 62.
69 Monica Kilian, ‘CISG and the problem with common law jurisdictions’, 10 J Transnat’l L &
Pol’y 217 (2001), 226.
70 Harjani, op cit, fn 68, 62
71 CISG, op cit, fn 1, art 26
72 See Convention arts 1 and 7(2). Specific questions within the realm of formation of the
contract and the obligations of the parties to a sale are prescribed by the Convention.???AQ:
where is this in the text, relates to fn 71. fn renumbering 64 – 72 correct???
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228 International Trade & Business Law

Handelsgericht Zurich (Commercial Court of the Canton of Zurich)

(Parties Unknown)

A Swiss buyer and an Italian seller entered into a contract for the sale of furniture
that was to be manufactured by the seller. The buyer paid only part of the purchase
price, and then some time later alleged that the furniture was defective. The buyer
also refused to accept the seller’s offer to remedy any defects in the furniture
delivered. The Italian seller sued the Swiss buyer for payment of the purchase price.
The court correctly determined that the CISG was the applicable law. It found
that, based on Article 1(1)(a), the contract was governed by the CISG because the
parties had their places of business in different contracting states. As further
grounds for the CISG’s applicability, the court noted that this dispute involved a
contract for the supply of goods to be manufactured or produced pursuant to
Article 3(1). Citing Articles 7(2), 38, and 39, the court stated that it is implicit in the
Convention that the buyer must prove the existence of defects and that it must
notify the seller of any such defects within a reasonable time. The court then held
that the buyer had lost its right to base its argument on a defect in the goods
because it neither provided evidence of any defects nor gave notice of any defects
within a reasonable time. The court ordered the buyer to pay the purchase price
plus interest at the statutory interest rate of the applicable Italian law pursuant to
Article 78.73
This case provides a good illustration of how a national court in the first instance
correctly looked to the CISG as the governing law. It resisted the temptation to
resort to its familiar domestic sales law and instead based its findings by reference
to particular CISG provisions. It observed the directive of Article 7(1) in applying
the plain language of the Convention, and thereby furthered the goal of uniformity
and consistency in the interpretation of contracts under the CISG.

Reference to general principles of the CISG: Article 7(2)

While the draftsmen provided rules in Article 7(1) to govern the interpretation of
the text of the CISG, they also provided rules to govern in situations where a legal
issue does not fall squarely within any of the articles of the Convention. Article 7(2)
provides that issues not expressly settled by the CISG ‘… 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 rules of private international law’.74
Therefore, when the CISG does not answer a question directly, then one should first
apply general principles derived from the Convention to fill the gap.75 When
searching the CISG text for general principles, one must do so while observing the
requirements of ‘international character ’, ‘uniformity of application’, and
‘observance of good faith in international trade’.76 Certain general principles may be

73 Handellsgericht Zurich, Switzerland, No HG930138.U/HG93, 9 September 1993, CLOUT No

97.
74 CISG, op cit, fn 1, Article 7(2).
75 Hackney, op cit, fn 45, 478.
76 Ibid.
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The Interpretation and Application of the United Nations Convention on Contracts 229

derived from the CISG to help the interpreter to fill gaps, such as: keeping the deal
together; enforcing the parties’ intentions; ensuring that each party receives the
fruits of the exchange; and awarding damages to compensate aggrieved parties and
not to punish breaching parties.77 Other general principles which can be gleaned
from the CISG include: the freedom of contract; the duty to act reasonably; and the
duty to perform in good faith.78

Internationales Schiedsgericht der Bundeskammer der gewerblichen Wirtschaft

(Arbitral Tribunal, Vienna) (Parties Unknown)

A German buyer and an Austrian seller entered into a series of contracts for the sale
of rolled metal sheets. The initial contracts provided that the goods were to be
delivered ‘FOB Hamburg’. When the buyer later encountered financial difficulties,
the seller allowed the buyer to take delivery in instalments. The buyer took delivery
of some of the goods without paying, and refused to take delivery of other goods.
Pursuant to an arbitration clause contained in the sales contract, the seller
commenced arbitral proceedings, demanding payment of the price. In addition, the
seller demanded damages, including those arising from his substitute sale of certain
goods which the buyer had earlier refused to accept.
The arbitrator noted that the parties had chosen Austrian law, a state which was a
contracting party to the Convention. This meant that their contracts were governed
by the CISG as the international sales law of Austria pursuant to Article 1(1)(b) of
the Convention. The arbitrator held that, according to Articles 53 and 61, the seller
was entitled to payment for the goods which he delivered to the buyer. He further
held that, according to Article 77, the seller was entitled to damages for the cover
sale that he made for the rejected goods. In calculating these damages, the arbitrator
held that the seller was also entitled to interest as provided under Article 78, but
noted that the CISG did not define a precise method for calculating the interest rate.
Since the calculation of interest was a matter that was governed but not expressly
settled by the CISG, the arbitrator ruled that it was to be settled in conformity with
the general principles on which the CISG is based as provided in Article 7(2).
Referring to Articles 74 and 78, the arbitrator found that full compensation is one of
the general principles underlying the CISG. In relations between merchants, it is
common for the seller to resort to bank credit at the interest rate prevailing in his
own country when the buyer is late on payment. Consequently, the interest rate
awarded was the average prime rate in the seller’s own country, being Austria.79
This case provides a good example of how a national tribunal correctly looked to
the general principles underlying the Convention to resolve an issue not expressly
governed by any particular CISG provision. It resisted the temptation immediately
to consult alternative sources, and instead confined its search to the four corners of

77 Robert A Hillman, Applying the United Nations Convention on Contracts for the International Sale
of Goods: The Elusive Goal of Uniformity, Cornell Review of the Convention on Contracts for
the International Sale of Goods 21 (1995), 26–27.
78 Hackney, op cit, fn 45, 478.
79 Internationales Schiedsgericht der Bundeskammer der gewerblichen Wirtschaft Wien
(Austria), SCH-4318, 15 June 1994, CLOUT No 94.
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230 International Trade & Business Law

the Convention itself to glean general principles that applied to the issue. It
observed the directive of Article 7(2) by consulting the Convention’s general
principles when its text supplied no answers, thereby promoting the goal of
uniformity and consistency in the interpretation of contracts under the CISG.

The use of alternative sources to interpret the CISG

Reference to Private International Law: Article 7(2)

It is reasonable to assume that the Convention draftsmen anticipated situations

where the CISG would not clearly indicate the responsibilities that parties had to
each other, and where even its general principles would be inadequate to resolve
the matter.80 Without providing an alternative source of reference when general
principles are lacking, practitioners would find themselves without any basis on
which to perform under a contract, or to make a claim for its breach.81 In those rare
situations where the interpreter is unable to derive general principles from the CISG
in order to fill gaps, the Convention allows a further recourse by reference to private
international law. Article 7(2) requires that the judge resolve any gaps by using
general principles first, but if there is an ‘absence of such principles, (then) in
conformity with the law applicable by virtue of the rules of private international
law’.82

Reference to UNIDROIT Principles

One form of private international law that may be used to interpret the CISG is the
general principles of private international law set forth in the UNIDROIT Principles
of International Commercial Contracts. The UNIDROIT Principles were formulated
by a Working Group made up of judges, academics and civil servants.83 The
purpose of the UNIDROIT Principles is to provide general rules for international
commercial contracts. 84 The Principles were intended to codify communal
principles of existing legal systems and to recommend those solutions that are best
suited to the special requirements of international commercial contracts.85 The
UNIDROIT Principles resemble the CISG provisions and may occasionally provide
a more detailed guide to the court.86

80 Andreason, op cit, fn 10, 377.

81 Paul Amato, Recent Developments: CISG, UN Convention on Contracts for the International
Sale of Goods – The Open Price Term and Uniform Application: An Early Interpretation by
the Hungarian Courts, 13 JL & Com 1 (1993), at 22 (quoting International Contract Manual:
Guide to Practical Applications of the United Nations Convention on Contracts for the
International Sale of Goods at Detailed Analysis 139 (Albert H Kritzer (ed), 1992) (stating
that ‘the contract drafter should designate a “receptive domestic sales law” as the gap-filling
law’)).
82 CISG, op cit, fn 1, art 7(2).
83 The UNIDROIT Principles of International Commercial Contracts, reprinted in Burton &
Eisenberg, Contract Law: Selected Source Materials (1999).
84 The UNIDROIT Principles of International Commercial Contracts, reprinted in Burton &
Eisenberg, Contract Law: Selected Source Materials (1999).
85 Ibid.
86 See Alejandro M Garro, ‘The gap-filling role of the UNIDROIT principles in international
sales law: some comments on the interplay between the principles and the CISG’, 69 Tul L
Rev 1149 (1995), 1152.
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The Interpretation and Application of the United Nations Convention on Contracts 231

The UNIDROIT Principles provide several advantages as compared to other

alternative sources used to interpret the CISG. First, the Principles were created by a
group of legal scholars representing various countries.87 Secondly, because the
Principles were not drafted as an international treaty, the draftsmen avoided the
need for compromise and generality that characterise international conventions
such as the CISG. 88 Thirdly, the Principles share many of the same general
principles that are also be found in the CISG, such as the principle of good faith, the
recognition of party autonomy, and the freedom of form, among others.89 Due to the
complementary nature of the Principles, they are especially useful to help explain
the meaning behind the CISG text while maintaining the international character of
the interpretation. 90 One legal scholar argues that seeking reference to the
UNIDROIT Principles is an effective way to interpret the CISG in order to resolve
gaps.91 Moreover, he insists that using the UNIDROIT Principles to supplement the
CISG is the best way of achieving consistency, uniformity and fairness in the
application of the Convention.92

Filanto SpA v Chilewich Int’l Corp

A Russian enterprise and a US enterprise entered into a master agreement for the
sale of footwear. The master agreement contained a clause which required disputes
to be arbitrated in Moscow. To fulfil the terms of the agreement, the US buyer
entered into multiple contracts with an Italian supplier of footwear. Under one of
the contracts, the Italian seller delivered shoes but the US buyer made only partial
payment. The Italian seller sued the US buyer in a US Federal District Court to
recover the price. Arguing that their contract incorporated the master agreement
containing the arbitration clause, the US buyer sought a stay of proceedings to
permit arbitration in Moscow. In order to grant the stay for arbitration, the court
had to determine whether a written agreement to arbitrate existed between the
parties.
Initially, the judge determined that the CISG was the applicable law pursuant to
Article 1(1)(a), since both parties had their place of business in different states which
were signatories to the Convention. The court concluded that an agreement to
arbitrate existed based on the Italian seller’s failure to object to the arbitration clause
in a timely fashion. The court held that because of their extensive course of prior
dealings, the Italian seller was obligated to alert the US buyer to its objections in a
timely manner. In reaching its determination, the court relied primarily on CISG
Article 18(1), which allowed it to consider conduct as an acceptance, and Article
8(3), which allowed it to consider the course of prior dealings. Thus, the court

87 Ibid, 1160.
88 Ibid.
89 Ibid, 1164–65.
90 Harjani, op cit, fn 68, 69.
91 See Garro, op cit, fn 86, 1152 (discussing the fact that a practical use of the UNIDROIT
principles is to interpret or supplement uniform law instruments such as the CISG).
92 Ibid, 1153 (proposing that enhancement of an international instrument like the CISG with the
UNIDROIT principles has the advantage of improving consistency and fairness in the
adjudication of international commercial disputes).
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232 International Trade & Business Law

allowed prior dealings accompanied by silence to the transaction to indicate an

acceptance. To support this rule of law, the court relied on the Restatement (Second)
of Foreign Relations, as well as two US federal court cases. It noted that the
Southern District of New York has held that the CISG allows silence to indicate an
acceptance if this is the parties’ prior course of dealings. However, this finding is
contrary to Article 18(1), which explicitly excludes silence as a form of acceptance.93
However, if the court had consulted the UNIDROIT Principles, it would have
found that Article 2.6(1) requires conduct of the offeree to indicate acceptance.94
Furthermore, Article 2.6(3) provides that as a result of the parties’ course of conduct,
the offeree may indicate acceptance by performing an act without notice to the
offeror. 95 Therefore, according to the UNIDROIT Principles, mere silence is
inadequate as a form of acceptance. Instead, a specific act is necessary to indicate
assent.96

Reference to domestic sales law

Domestic law is arguably another form of private international law that may be
used to render a more accurate interpretation of the Convention. Throughout
history, domestic sales laws have often been used in private international
agreements. 97 However, one of the greatest concerns for the Convention’s
draftsmen was that ‘national courts (would) place a “domestic gloss” on CISG
cases’, thereby preventing uniform application of the CISG.98 Judges are apt to view
issues through the legal lenses that they have created within their own legal
systems.99 This tendency can result in a mechanical application of domestic laws in
preference to the CISG, which was a major concern for the Convention’s
draftsmen.100 However, such a tendency is understandable when one considers that
the CISG is entirely new to most court systems around the world.101 This means
that those less familiar with the CISG may find themselves performing more work
in their efforts to render an autonomous interpretation of the Convention.102 Not
only must they scrutinise those provisions relevant to the contract at issue, but they
also must carefully examine the entire Convention to find analogous provisions or
overarching principles. 103 In the process, they must comprehend and utilise
different systems of legal thinking under the Convention.104

93 Filanto SpA v Chilewich Int’l Corp, 789 F Supp 1229 (SDNY 1992).
94 Burton & Eisenberg, op cit, fn 83, 336.
95 Ibid.
96 See ibid. (relying on UNIDROIT art 2.6(1), 2.6(3)).
97 Andreason, op cit, fn 10, 377.
98 DiMatteo, op cit, fn 38, 96 (quoting Amato, op cit, fn 81, 26). Timothy N. Tuggey, ‘The 1980
United Nations Convention on Contracts for the International Sale of Goods: will a
homeward trend emerge?’, 21 Tex Int’l LJ 540 (1986), 542.
99 Andreason, op cit, fn 10, 374.
100 Ibid.
101 Ibid.
102 Ibid.
103 Ibid.
104 Ibid.
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Nevertheless, there are some situations that may warrant recourse to domestic
law. According to one prominent legal scholar, the interpreter should begin with
any applicable CISG provisions, after which he should take ‘a measured response to
the Convention’s invitation to consider its “general principles”, before turning to
domestic law’.105 Moreover, he asserts that there are some situations in which ‘the
tribunal must seek (via the rules of private international law) some rule of domestic
law dealing with’ the legal question at issue.106 Therefore, there are some instances
where domestic law can serve a vital function in interpreting the Convention. This
means that when there are no relevant general principles to be found in the
Convention, the court may look to the country’s conflict-of-laws rules and apply the
proper domestic legislation.107
Thus, it is evident that domestic law may serve a role in interpreting the CISG in
certain instances. When a gap appears, Article 7(2) requires that it be resolved ‘in
conformity with’ the Convention’s underlying principles.108 This means that if a
domestic law satisfies the uniformity requirement of Article 7(1), and also conforms
to the general principles underlying the CISG, then that law may be applied to
resolve issues left unsettled by the Convention.109 Therefore, any interpretation
should begin with an analysis of the CISG text itself. If its provisions do not directly
apply to the issue in dispute, then the Convention’s general principles should
govern any other applications.110 However, in those rare instances where these two
sources prove inadequate, practical necessity and the text of the CISG itself permit
the interpreter to resort to domestic sales law.111

ICC International Court of Arbitration (Paris) (Parties Unknown)

A US buyer and a Dutch seller entered into a contract for the sale of four cargoes of
Coke Breeze. The parties agreed that the contract was to be governed by the ‘laws of
Switzerland’, and that any dispute arising out of their contract would be resolved
by arbitration. When the buyer took delivery of the cola he claimed that it did not
conform to the terms of their agreement and sued the seller for damages, including
lost sales, costs, and interest.
The tribunal initially found that the parties had expressly made their contract
subject to the ‘laws of Switzerland’. According to the tribunal, the CISG was
incorporated into Swiss law in accordance with that country’s ratification of the
Convention. Therefore, the contract was found to be governed by the CISG
pursuant to Article 1(1)(b). The tribunal then examined the seller’s obligations
under Article 35, as well as the buyer’s remedies under Articles 45 and 74. It
concluded that the buyer had proved that the seller had delivered to it a product
which could not be considered to be Coke Breeze. The court therefore ordered the
seller to indemnify the buyer to cover all losses sustained by the buyer, including
loss of profit.

105 Honnold, op cit, fn 37, 133.

106 Ibid, 129.
107 Hackney, op cit, fn 45, 478.
108 CISG, op cit, fn 1, art 7(2).
109 Ibid.
110 Andreason, op cit, fn 10, 378.
111 Ibid.
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234 International Trade & Business Law

As to the question of interest rate and the method of calculating interest, the
tribunal noted that the Convention is silent, since neither Article 74 nor Article 78
expressly settled the issue. The tribunal then considered the general principles
underlying the Convention as required under Article 7(2). After finding that the
CISG contained no general principles that directly resolved the issue, the tribunal
considered the rules of private international law as required under the same article.
Observing that the parties had made their contract subject to the laws of
Switzerland, the tribunal concluded that the interest rate had to be determined
under Swiss law. The tribunal explained its holding by stating that ‘as general
principles do not settle the matter (...) and the parties have referred to the laws of
Switzerland, it seems justified to refer to Article 73 of the Swiss Code of obligations
whereby, in the absence of a determination of the rate of interest by agreement or
law or usages, that rate shall be 5% per annum’.112
This case demonstrates that domestic law certainly does have a place in
interpreting the CISG. Indeed, the CISG text itself should always be the first point of
analysis. Its general principles should take priority over any alternative sources, and
resort to domestic laws cannot diminish the actual provisions of the CISG or
disregard its principles. However, when neither the CISG text itself nor any of its
general principles are adequate to resolve a matter at issue, the court may seek
recourse to domestic law.

Reference to other sources when private international law is inapplicable

Reference to foreign case law interpreting the CISG

Case law from foreign jurisdictions is another source of law that may be used to
interpret the CISG when private international law sources are inapplicable.113
Although it may be argued that the method of consulting foreign case law utilises
more of a common law approach than a civil law approach,114 the goal of promoting
uniformity of interpretation may lead a court to consult foreign decisions in some
instances. Article 7 directs the interpreter to have ‘regard’ to uniformity when
interpreting the CISG. There is some debate among legal scholars as to whether this
term requires courts to treat such law as binding or simply persuasive.115 The
argument for making it binding is that it would help courts to promote the
‘uniformity of interpretation’ sought by the Convention.116 However, the term

112 ICC International Court of Arbitration, No 7565 (1994), Bull ICC, Vol 6/No 2, November
1995, p 64–67.
113 Franco Ferrari, ‘CISG case law: a new challenge for interpreters?’, 17 JL & Com 245 (1998),
247.
114 See Honnold, op cit, fn 37, 143.
115 Hackney, op cit, fn 45, 479.
116 Ibid.
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The Interpretation and Application of the United Nations Convention on Contracts 235

‘regard’ does not seem to require that judges consider such foreign decisions as
binding.117 Instead, a more accurate interpretation of this term would probably be
that it is simply urging courts to use such precedent as a persuasive source of law.118
This would mean that a court should consider foreign decisions for their persuasive
value in their own efforts to render uniform decisions.119

Medical Marketing International Inc v Internazionale Medico Scientifica Srl

A US buyer and an Italian seller entered into an agreement granting the US buyer
the exclusive right to market certain radiology devices in the United States. After
the buyer had purchased some units, the US Food and Drug Administration
determined that the devices failed to comply with federal safety standards. The
buyer declared that the seller was in breach of their agreement due to the defective
units and cancelled the contract. The parties disagreed as to which was responsible
for complying with the federal regulations. When they were unable to work out
their differences, the buyer submitted their dispute to an arbitration panel pursuant
to their contract.
The tribunal initially determined that the CISG was the applicable law. However,
the tribunal found that the CISG did not explicitly address the issue of
responsibility for meeting the federal regulations. At the request of the seller’s
counsel, the arbitrators referred to a German Federal Supreme Court interpretation
of Article 35. In this German case, a German buyer purchased mussels from a Swiss
seller. More than a month after delivery of the mussels the buyer notified the seller
that the mussels were of poor quality. When the buyer refused to pay for the
mussels, the seller brought an action to recover the payment he should have
received. The German court found that, under Article 39(1), the buyer had failed to
notify the seller of the defective mussels within a reasonable time. The court also
found that, under Article 35, the seller is normally not responsible for meeting the
regulations in a buyer’s country. Upon a closer examination of Article 35, however,
the tribunal found that this case also fitted into an exception contained in subsection
(3) of that same article, where the seller may be liable in instances where he knew or
should have known of the non-conformity.
The tribunal concluded that the seller was aware of the federal regulations from
its prior sales of the devices in the United States. The arbitrators noted that the seller
had made prior statements to the buyer that its equipment complied with all federal
safety regulations, leading the buyer reasonably to rely on these statements. The
arbitrators held, therefore, that the seller was responsible for meeting the federal
safety regulations. On appeal to US District Court, the seller argued that the tribunal
improperly applied the CISG by not following the German court’s holding. The
district court held that the tribunal properly followed the German holding, but that
this case met the exception contained in Article 35(3).

117 Ibid.
118 Ibid.
119 Ibid.
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236 International Trade & Business Law

This case is significant because it represents one of the few cases internationally
that actually cites case law from another country. The fact that the tribunal
consulted a foreign tribunal’s decision in its efforts to interpret a CISG article
appears justified. Following this method of analysis comports with Article 7’s
directive to have regard for the Convention’s international character and its need to
be applied in a consistent manner.

Reference to domestic case law interpreting the CISG

Reference to cases within the same jurisdiction that have interpreted the CISG could
also serve as an effective method in achieving uniformity in the application of the
Convention.120 For example, a court could examine the reasoning of another court
within the same jurisdiction and comment on its persuasive value when rendering
its own decision.121 In this way, the use of domestic case law interpreting the CISG
could serve as a check within that jurisdiction, ensuring a uniform and accurate
application of the CISG among its various courts.122 It may be argued that such a
method would allow bad decisions to be followed by other courts that are unwilling
to perform the research required to find analogous CISG decisions.123 However, this
problem would probably occur only in a minority of cases.124 Instead, it is more
likely that opposing counsel would refer to the flawed reasoning of bad decisions
that weakened their positions, and judges would comment on the flawed reasoning
used by these bad decisions when issuing their opinions. 125 This source of
interpretation is perhaps most useful to courts within the common law system.126

Mitchell Aircraft Spares Inc v European Aircraft Service AB

A US buyer and a Swedish seller entered into a contract for the sale of certain
aircraft parts. After the parts were delivered, there arose a dispute between the
parties as to whether the seller had falsely represented the goods which were
delivered. The parties disagreed as to the substance of earlier communications
between them. The buyer brought suit to recover damages for breach of the alleged
misrepresentation, claiming that the goods did not conform to contract
specifications.
Initially, the judge determined that the CISG was the applicable law pursuant to
Article 1(1)(a), since both parties had their place of business in different states which
were signatories to the Convention. The court found that the contract was
ambiguous as to the specific type of aircraft parts that were to be delivered. The
court then addressed the issue as to whether the parol evidence rule was applicable
to cases governed by the CISG. If the parol evidence rule were found to apply, it

120 Medical Marketing International Inc v Internazionale Medico Scientifica SRL, No 99-0380, 1999 US
Dist LEXIS 7380 (ED La, 17 May 1999).
121 Hillman, op cit, fn 77, 22.
122 Ibid.
123 Richard B Cappalli, ‘At the point of decision: the common law’s advantage over the civil
law’, 12 Temp Int’l & Comp LJ 87 (1998), 92.
124 Harjani, op cit, fn 68, 69.
125 Ibid.
126 Ibid.
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The Interpretation and Application of the United Nations Convention on Contracts 237

would effectively bar the evidence of any prior oral communications between the
parties that contradicted the terms of their contract. After finding that there ‘was
virtually no case law under the Convention’, the court referred to US case law.
Citing the decision in MCC Marble, the court stated that Article 8(1) requires the
court to consider evidence of the subjective intent of the parties, and that to
determine this subjective intent, Article 8(3) requires the court to examine all the
relevant circumstances surrounding the case.
Consequently, the court found that the CISG requires that it examine the contract,
together with any evidence concerning negotiations, agreements, or statements
made prior to the issuance of the purchase order. Thus, the court denied summary
judgment to both parties because it found, based on the parol evidence of prior
communications, that there was an issue of material fact as to whether the seller had
agreed to supply the buyer with certain aircraft parts.127
The Mitchell case is significant because the court based its decision on another US
case applying the CISG. While referring to domestic case law interpreting the UCC
is generally not advisable, this method of interpreting the CISG can provide some
uniformity in the application of its provisions. Therefore, federal courts should
follow the example of Mitchell and look outside their circuits to achieve a uniform
application of the Convention within the United States.

Reference to scholarly writings

General international law recognises treaties and commentary by noted legal

scholars as a source of law. Article 38 of the Statute of the International Court of
Justice (ICJ) provides that ‘the Court, whose function is to decide in accordance with
international law such disputes as are submitted to it, shall apply … the teachings of
the most highly qualified publicists of the various nations, as subsidiary means for
the determination of rules of law’.128
Courts in both common law and civil law nations do give consideration to
scholarly writings, albeit in different degrees. Specifically, differences exist between
the national courts involving the issue of what constitutes primary and secondary
sources of legal authority.129 For example, while a US judge would likely refer to
prior CISG case law in his efforts to render a uniform interpretation of the
Convention, a French judge would likely refer to scholarly commentary in place of
the judicial decisions themselves.130 This is because civil law courts generally regard
scholarly commentary as a highly valued source of law, while common law courts

127 Hillman, op cit, fn 77, 22.

128 Mitchell Aircraft Spares Inc v European Aircraft Service AB, 23 F Supp 2d 915 (ND Ill, 1998).
Statute of the International Court of Justice, 59 Stat TS No 993, art 38 (1945).
129 Honnold, op cit, fn 37, 144.
130 Vivian Grosswald Curran, ‘Romantic common law, enlightened civil law: legal uniformity
and the homogenisation of the European Union’, 7 Colum J Eur L 63 (2001), 67.
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238 International Trade & Business Law

generally regard such commentary as less reliable because it is perceived as tainted

by the scholar’s interpretive subjectivity.131 Considering the major differences which
exist between legal systems in the sources of law they prefer to consult, achieving a
uniform application of the CISG may be compromised by reference to scholarly
writings.132

MCC Marble v Ceramica Nuova d’Agostino

A US buyer and an Italian seller made an oral agreement on the terms for the
purchase of ceramic tiles. After the parties recorded the terms of their agreement on
the seller’s standard, preprinted order form, the buyer’s president signed the form
on behalf of his company. The order form was printed in the Italian language and
contained terms stating that the buyer had agreed to the terms printed on the back
of the form. Four months later the parties entered into a requirements contract
providing that the seller was to supply the buyer with tiles at discounted prices so
long as the buyer purchased sufficient quantities of tiles. The buyer brought suit
against the seller claiming that it had breached the requirements contract for failing
to deliver the tiles ordered. In its defence, the seller pointed to the preprinted terms
contained in the order form, which authorised it to suspend deliveries if the buyer
failed to make payment. The seller argued that it was under no obligation to fulfil
the buyer’s orders because the buyer had defaulted on payments for previous
contracts. In turn, the buyer argued that it had never intended to be bound by the
terms printed on the reverse side of the order form.
The court correctly referred to the CISG as the applicable law, and based its entire
findings on the language contained in Article 8(1) and Article 8(3). The court stated
that Article 8(1) required it to consider the subjective intent of the parties. In making
its determination, the court stated that Article 8(3) required it to consider all relevant
circumstances involving the case. Thus, the court was required to consider the
affidavits submitted by the buyer indicating that the buyer did not intend to be
bound by the terms printed on the reverse side of the order form. The court
recognised that its holding was in contrast with the parol evidence rule adopted by
US domestic law. The court stated, however, that its rejection of the parole evidence
rule was ‘in accordance with the great weight of academic commentary on the
issue’. The court relied on commentary from nearly a dozen commentators,
including John O Honnold, David Moore, Louis F Del Duca, Henry D Gabriel,
Herbert Berstein, Joseph Lookofsky, Harry M Fletchner, John E Murray, Jr, Peter
Winship, Ronald A Brand, and Albert Kritzer.
To support its assertion that Article 8(3) was a rejection of the parol evidence rule,
the court made direct reference in its opinion to the works of John O Honnold and
David Moore. Honnold argued that: ‘[T]he language of Article 8(3) that “due
consideration is to be given to all relevant circumstances of the case” seems
adequate to override any domestic rule that would bar a tribunal from considering
the relevance of other agreements … Article 8(3) relieves tribunals from domestic
rules that might bar them from “considering” any evidence between the parties that

131 Ibid.
132 Christian Kirchner, ‘A “European Code”: potential, conceptual, and methodological
implications’, 31 U C Davis L Rev 671 (1998), 676.
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The Interpretation and Application of the United Nations Convention on Contracts 239

is relevant.’ Moore argued that the parol evidence rule often permits the admission
of evidence discussed in Article 8(3). He also argued that: ‘the parol evidence rule,
by limiting the incentive for perjury and pleading prior understandings in bad faith,
promotes good faith and uniformity in the interpretation of contracts and therefore
is in harmony with the principles of the CISG, as expressed in article 7.’133
MCC-Marble is a significant decision, due in large part to the court’s reference to
scholarly studies on this issue, a typical civil law practice.134 The decision is also
remarkable because it took into account scholarly authority, rather than domestic
sales law, in formulating its decision. The scholarly authorities referenced by the
court support the proposition that the CISG eliminates the parol evidence rule.135
The MCC-Marble decision is now precedent for US case law on the CISG and its
method of analysis will encourage other courts to refer to the studies of noted
scholars to guide their interpretation of the CISG.

Reference to legislative history of the Convention

The historical background of a treaty can also be considered when seeking to

interpret an ambiguous provision. The legislative history surrounding a treaty can
provide insight into the draftsman’s intent with regard to the proper scope and
application of its provisions.136 In fact, the use of legislative history is generally
regarded as an accepted source of law in many civil law countries.137 However,
courts should proceed with caution when consulting legislative history as a source
of law. This is because the commentary of delegates from various countries is often
conflicting. Moreover, statements by one representative should not necessarily be
considered as reflecting worldwide consensus.138 Furthermore, delegates to a
convention may propose legislation which is never ultimately enacted.139 The
primary benefit of using legislative history is that it provides insight into the
meaning of the final text of a document.140

Delchi Carrier SpA v Rotorex Corp

A US seller and an Italian buyer entered into a contract for the purchase of 10,800
compressors to be delivered in three instalments. The seller delivered the first
instalment and the buyer made the required payment. Before the second instalment
arrived, however, the buyer discovered that the compressors from the first shipment

133 MCC Marble Ceramic Ctr Inc v Ceramica Nuova d’Agostino, 144 F 3d 1384 (11th Cir, 1998).
134 Kilian, op cit, fn 69, 233.
135 See MCC Marble, op cit, fn 134, 1390–91 (citing numerous prominent legal scholars, including
John Honnold, Harry M Flechtner, John E Murray, Peter Winship). See also Henry D Gabriel,
‘A primer on the United Nations Convention on the International Sale of Goods: from the
perspective of the Uniform Commercial Code’, 7 Ind Int’l & Comp L Rev 279 (1997), 281.
(‘Subjective intent is given primary consideration [Article 8] allows open-ended reliance on
parol evidence.’)
136 Harjani, op cit, fn 68, 64.
137 In European civil law systems, legislative history is known as travaux préparatoires. See
Honnold, op cit, fn 37, 138.
138 Michael P van Alstine, ‘Dynamic treaty interpretation’, 146 U Pa L Rev 687 (1998), 717–18.
149 Ibid, 714–15.
140 Honnold, op cit, fn 37, 142.
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240 International Trade & Business Law

were defective. The buyer thereupon rejected the shipment and cancelled the
contract. The buyer then brought suit in the US District Court to recover damages
suffered due to the seller’s breach. After awarding summary judgment to the buyer,
the seller appealed to the Second Circuit to contest the amount of damages
awarded.
On appeal, the Second Circuit affirmed the award of damages, holding that the
district court was correct in concluding that the case was governed by the CISG. The
Second Circuit stated that since there was virtually no case law under the
Convention, it was necessary to look to ‘the language of the Convention and to “the
general principles” upon which it is based’. One of the general principles
underlying the CISG is that of ‘full compensation’ for any losses caused by a party’s
breach. After recognising the importance of considering general principles of the
Convention, however, the Second Circuit resorted to domestic sales law. The court
stated that the CISG did not precisely define the method by which lost profits
should be calculated. It further explained that ‘in the absence of a specific provision
in the CISG for calculating lost profits, the District Court was correct to use the
standard formula employed by most American courts and to deduct only variable
costs from sales revenue to arrive at a figure for lost profits’.141
A large portion of the award in Delchi consisted of damages for lost profits
arising from the seller’s lost sales of air conditioners. Indeed, Article 74 explicitly
allows for recovery of lost profits.142 However, the CISG does not specifically
address whether a party is entitled to recover interest on lost profits, or how that
rate of interest should be calculated. To resolve the issue, the court quickly resorted
to the domestic tradition of granting discretionary awards of prejudgment interest
without looking to the legislative history of the Convention.143 During the drafting
of the CISG, there was much debate over Article 78, making it one of the most
controversial articles.144 The final language of Article 78 entitling a party to interest
on ‘any … sum … in arrears’, reflects a compromise among the States.145 Thus, due
to the general language of this provision, it is not clear that the draftsmen of the
CISG intended that interest on lost profits be awarded and calculated at the rate of
the debtor’s country.146

141 Delchi Carrier SpA v Rotorex Corp, 71 F 3d 1024 (2nd Cir, 1995).
142 CISG, op cit, fn 1, art 74.
143 Joanne M Darkey, ‘A US court’s interpretation of damage provision under the UN
Convention on Contracts for the International Sale of Goods: a preliminary step towards an
international jurisprudence of CSIG of a missed opportunity?’, 15 JL & Com 139 (1995),
148–49.
144 Honnold, op cit, fn 37, 422.
145 Darkey, op cit, fn 144, 148.
146 It is unclear under US law whether interest on consequential damages should be awarded.
Honnold remarks that an interpretation of the Restatement (Second) of Contracts provision
for allowance of interest in cases ‘as justice provides’ could support such an award:
Honnold, op cit, fn 37, at 422 (citing restatement (Second) of Contracts section 354, 12, cmt d).
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The Interpretation and Application of the United Nations Convention on Contracts 241

However, if the court had looked to the legislative history of the Convention, it
could have gleaned insight into the framers’ intent regarding the proper interest
rate to be applied to lost profits. Earlier drafts of the CISG omitted any rules
involving interest.147 However, a 1976 draft included a provision granting the seller
the right to recover interest at the rate of the country where the seller maintains his
principal place of business.148 Under Article 78, both the buyer and the seller are
entitled to recover interest on any unpaid amounts.149 Thus, it may be analogised
from earlier drafts that the appropriate rate of interest would be the interest rate of
the country where the injured party has its place of business, since this is the cost of
credit.150

Conclusion
The CISG has tremendous potential to minimise confusion and litigation involving
international sales transactions. In establishing a system of laws to govern
international sales contracts, its draftsmen intended that national bias would be
displaced by promoting uniformity in international sales transactions. In order to
achieve a useful level of uniformity, however, there must develop a consistent
application of case law that promotes the Convention in harmony with its text and
principles. National courts have made significant progress in achieving uniformity
of the CISG. In general, courts have shown a preference for consulting secondary
sources to interpret the CISG, particularly domestic case law and scholarly writings.
In order correctly to apply the CISG, however, courts must begin to look at primary
sources of interpretation, such as general principles underlying the CISG, general
principles of private international law, foreign cases interpreting the CISG, and the
Convention’s legislative history. Careful application of the interpretive methods
discussed in this paper will further the international character and uniformity of the
CISG while providing decisions in accordance with the rules of the Convention.

147 See Sutton, op cit, fn 44, 749 (citing Comments by Governments and International
Organisations on the Draft Convention on the International Sale of Goods [1977] VIII YB
INT’L L COMM’N 109, UN Doc A/CN 9/125).
148 Ibid.
149 CISG, op cit, fn 1, art 78.
150 See Sutton, op cit, fn 44, 750.
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