Regional vs. universal unification?

The Proposal for a Regulation on the Common European Sales Law and the CISG

On October 11, 2011, the European Commission adopted a Proposal for a Regulation of the European Parliament and of the Council on a Common European Sales Law[1] (“Regulation proposal”). The Regulation proposal suggested by the Commission is primarily intended to provide rules governing the cross-border sale of goods for B2B as well as B2C contracts within the EU, but also extends to dealings with third countries. Out of 27 EU Member States 23 are also contracting states of the 1980 United Nations Convention on Contracts for the International Sale of Goods (“CISG”), governing the transboundary sale of goods for B2B[2] contracts. Therefore, questions of compatibility of the Regulation proposal and the CISG arise, which will be discussed in the following contribution.

In the following article, the structure of the Regulation proposal and its scope of application on the one hand (I.) and the scope of application of the CISG (II.) will be explained. The substantive provisions of both instruments will not be covered in this article. Then, the potential for a coexistence and/or conflict of both instruments will be elucidated (III.). Finally, we will end with a conclusion (IV.).

I. Background, structure and scope of application of the CESL

The CESL can be considered the outcome of a discussion about the harmonization of the European contract law, which has been taking place in the EU for more than ten years[3]. Despite the fact that there are respective academic proposals and though the Commission is open towards the idea of a far-reaching harmonization of substantial European contract law, there seems to be no political support for such attempts. What started as a proposal for a binding and comprehensive harmonization of European contract law, has found its end – at least for the time being – as an optional instrument on sales law.

The Regulation proposal consists of the actual body of the regulation as well as two appendices. The regulation is limited to mere provisions governing the applicability as well as definitions, while the text of the CESL is contained in Annex I.

The Commission not only has conceived the CESL as an optional instrument; the CESL applies only if the parties agree on its applicability (Articles 3 and 8). Thus, the Commission chose an “opt in”-solution instead of an “opt out”-solution like the CISG (see infra II.3). The validity of such an agreement has to be determined in accordance with the CESL itself[4], i.e. Articles 30 seqq. CESL on the formation of a contract. In addition, in case of a consumer contract the agreement has to be contained in a document separate from the contract itself. Also, the trader has to inform the consumer in advance about the intended inclusion of the CESL by using a notice form included as Annex II to the Regulation Proposal.

CESL is intended to apply only to cross-border contracts (Article 4). The contract is considered a cross-border contract whenever the parties have their habitual residence in different countries. In case of consumer contracts it is required that either the address of the consumer, the billing address or the place of delivery is located in an EU Member state different from the trader’s state of habitual residence.

Ratione materiae, CESL applies to sales contracts as well as contracts on the supply of digital content as well as related services (Article 5). Whenever the contract is a mixed-purpose contract, CESL shall not apply (Article 6). CESL’s scope of application ratione personae is determined by Article 7. CESL applies in B2C contracts between a trader and a non-trader. A contract concluded between two traders can only be governed by the CESL if one of the parties is a small or medium enterprise (“SME”). The term SME is further defined by Article 7(2) as a trader employing fewer than 250 persons or having an annual turnover not exceeding EUR 50 million. It has been rightly criticized that this definition will entail great uncertainty as the contracting parties may not know whether these criteria are met when the contract is concluded.

Although the Regulation proposal contains rules on CESL’s scope of application, it does not govern the “international” scope. The explanatory statement expressly mentions that the “Rome I Regulation and Rome II Regulation will continue to apply and will be unaffected by the proposal. It will still be necessary to determine the applicable law for cross-border contracts.”[5] In this regard, there is a great difference compared to other uniform law instruments like for instance the CISG, which prevails over any national conflict of law rules with the exception of those cases where it expressly refers to the private international law rules of the forum (see infra II.2).

II. The CISG’s scope of application

To allow a better comparison with the CESL, we will give a very brief overview about the substantive (1.) and territorial (2.) scope of application of the CISG. Furthermore, we will explain the option of parties to a sales contract to exclude the CISG by virtue of an agreement (3.).

1. Scope of application ratione materiae (Articles 2-3 CISG)

The CISG only applies to contracts on the sale of goods. There is some uncertainty whether the concept of goods also includes intangibles, such as Software. Some courts decided in the positive,[6] some in the negative. [7] The majority of judicative and also academic discussion seem to meet in a compromise: intangible good are included as long as they are fixed on a tangible medium, such as burned on a DVD. [8] The CISG does not apply if those goods are purchased for the personal, household or family use unless the seller neither knew nor ought to have known of the buyer’s intention (Article 2 lit a CISG). To meet those requirements, Article 2 lit. a CISG only focuses on the buyer’s intention by the time the contract is concluded and the seller’s ability to discern this intention, notwithstanding the actual use of the good afterwards. In contrary to the CESL, the CISG neither is limited to enterprises of a certain size nor does it require such a size.

Some circumstances of the contract conclusion and certain objects of the transactions are excluded in Article 2 CISG, as they touch special public interests (auctions, by authority of law, stock, vessels, electricity…). Finally, contracts on the sale and manufacturing/production of goods are treated as sale contracts as long as the manufacturing/production is not the preponderant part of the contract (Article 3).

2. Territorial scope of application

The CISG only applies to contracts, if the contracting parties have their place of business in different states and those places of business are either both located in Contracting States (Article 1 (1) lit. a CISG) or the lex fori’s private international law rules leads to the application of the law of a Contracting State (lit. b).

The Contracting States have some possibilities to further limit the scope of application of the CISG: The Convention offers the possibility to declare not to be bound by part II or III of the CISG (Art icle 92) or that Art. 1(1)(b) CISG is not applicable. Furthermore, Contracting States can limit the application in relation to certain other States (Art icle 94) or within their borders for certain territorial units (Art icle 93). Also, Contracting States can depart from the Convention’s general rule that a contract for the sale of goods does not require a special form (Art icle 96). Several States used these possibilities to limit the scope of application of the CISG.[9]

Finally, according to its Article 90, the Convention does not prevail over any actual or future international agreement that contains provisions concerning matters governed by the CISG. It has been argued that EU law should be treated as an international agreement in the sense of Article 90 CISG as it has the same function as such an agreement (harmonizing the international trade).[10] Article. 90 CISG has the function to regulate a possible conflict on the international law level, stepping back behind other rules of the same legal quality. Regarding the EU law, Primary Law, such as the TFEU would have the same legal quality as the CISG. TFEU and CISG do not collide as their substantial scopes are different. Secondary Law, on the other hand, derives its legitimacy and existence from the international agreement TFEU, but is not an international agreement on its own. Beneath this level of international law, the Convention has no conflict to resolve as it prevails. Therefore, Article 90 CISG does not deal with questions concerning the relation between the Convention and EU Secondary Law. Furthermore, there is no need to apply Article 90 CISG as the Member States always have the possibility to limit the CISG’s scope of application by a declaration in the sense of Article 94 CISG.[11]

3. Exclusion by Party Autonomy

Article 6 CISG allows the exclusion of the application of the Convention as a whole or the derogation of almost all provisions[12] by explicit or implicit party agreement.[13] In addition, the parties do not only have the possibility of a choice of law but they also can change the substantial CISG provisions by their private autonomy.

The requirements for an implicit exclusion of the CISG are not everywhere easy to meet. Some courts require a clear expression of intend to exclude the CISG.[14] Thus, the mere choice of the law of a Contracting State is not regarded as an implicit exclusion of the CISG as the CISG forms part of each domestic law of a Contracting State.[15] Likewise, the choice of two laws of two territorial units bound by the CISG (by declaration of Article 93 CISG), neither excludes the CISG.[16] Furthermore, the use of legal terminology of one domestic law system in the language of this law system neither is sufficient to state such a clear expression of intent.[17] Finally, according to one court, the parties must show awareness of the existence of the CISG in their agreement to be able to exclude it.[18]

Summarizing those decisions, the party agreement must expressly refer to the CISG to exclude its application. Only referring to the application of other law systems is not sufficient.

III. CISG and CESL: Coexistence or conflict?

Based on the findings from above, CISG and CESL have an overlapping scope of application. Therefore, the question of a potential or the feasibility of coexistence arises. The relationship between CISG and CESL is mentioned in Recital 25 of the Regulation proposal:

“Where the United Nations Convention on Contracts for the International Sale of Goods would otherwise apply to the contract in question, the choice of the Common European Sales Law should imply an agreement of the contractual parties to exclude that Convention.”

Therefore, the drafters of CESL are of the opinion that in a potential case of overlap the CESL would prevail over CISG. The agreement to apply CESL would be considered as an exclusion of CISG by Art. 6 CISG. A clear-cut distinction seems regarded as possible.

In the following, we want to discuss a hypothetical case that will show that there are borderline cases where both instruments can claim to be applicable (1.). Unlike suggested by the Recital 25, it is the prevailing view that a conflict between CISG and CESL would have to be solved under EU law to the benefit of the CISG (2.). However, we are going to argue that CISG can be interpreted to step back behind CESL (3.).

1. The hypothetical case and the two perspectives

A German company sells a machine to a US based company. The sales contract provides in its section on the applicable law that the contract is “construed in accordance with German sales law including the EU law”.

Based on the approaches discussed above, it is possible to consider the case from different perspectives: Based on a pure CISG approach, a court in a CISG Member State would have uphold that this is a case fulfilling the applicability requirements of Article 1(1)(a) CISG, as the parties have their places of business in different contracting states. The corollary question is thus, whether the wording “in accordance with German sales law including the EU law” can be considered an implicit exclusion of the CISG under Article 6 CISG. As has been discussed above, most courts accept an implicit exclusion of the CISG and only few require an expressed one. In a case like the one at hand, it may nevertheless be doubtful whether the wording is sufficiently clear to interpret the clause as an exclusion of the CISG. According to the strictest view (Tribunale di Padova), an exclusion of the CISG is impossible as the party agreement does not show any awareness of the CISG. But even some of the less strict approaches would very likely come to the conclusion that the contract indeed contains a choice of law in favor of the German law including EU law as part of the German substantial law as the CISG forms part of the German law. Furthermore, the CISG is part of the German law and so not clearly excluded. Therefore, it is conceivable that a court will come to the conclusion that CISG will apply to the case and the rest of the German and the EU law will apply in those matters where the CISG does not apply.

From an EU law perspective, the starting point would have to be to determine the applicable domestic law. Within the EU (with the exception of Denmark), the instrument primarily dealing with the law applicable to contracts is the Regulation (EC) No 593/2008 of the European Parliament and of the Council of 17 June 2008 on the law applicable to contractual obligations (“Rome I”)[19]. As the contract contains a choice of law clause, Article 3 Rome I would be relevant. Bearing in mind that the parties also have decided to “include” EU sales law, it is tenable that this was meant to be a reference to CESL and that this clause can be understood to be an implicit agreement to apply CESL pursuant to Articles 3 and 8 Regulation proposal.

In those cases, both CESL and CISG can claim to be applicable and a potential conflict is likely.

2. Solving the problem under EU law

However, the solution just explained as pure EU law perspective would only apply where the Rome I-Regulation applies.

As to those EU Member States, which have acceded to the EU after they became a party to the CISG, CISG will remain valid even if there was a conflict by virtue of Article 351 TFEU. Although this provision does not apply as to the “old member States”, it is at least arguable that the EU has to respect the international obligations of its Member States (like under the CISG) by virtue of Article 4(3) TEU.

Most likely the EU did not intend to displace the CSIG by adopting Rome I. According to Article 25(1) Rome I, the regulation “shall not prejudice the application of international conventions to which one or more Member States are parties at the time when this Regulation is adopted and which lay down conflict-of-law rules relating to contractual obligations”. Therefore, it is arguable that the CISG remains untouched pursuant to Article 25(1) Rome I. However, the EU Member States had to notify the Commission of those Conventions that they deem to be not prejudiced by virtue of Article 25(1) Rome I. The CISG was not mentioned in these notifications[20]. But this should not be understood in the sense that Rome I prevails over the CISG. According to Article 1(1) Rome I, the regulation only deals with “a situation involving a conflict of laws”. It is possible to interpret the concept “conflict of laws” in a narrow and technical sense, as those rules which in an international context determine the applicable substantial law. In cases where the CISG is applicable, there is no “conflict of laws” as the applicable substantial law is already determined[21].

Therefore, no conflict will arise as EU Law and in particular Rome I does not apply to the extent that CISG applies. Therefore, it seems to be a mistake to presume – as Recital 25 of the Regulation proposal does – that CISG will step back behind CESL because of a mere choice of the CESL. Such a choice is only possible where the parties have clearly excluded CISG and not only chosen the CESL.

3. Solving the problem under the CISG?

Based on the findings just made, the scope of application of Rome I and CESL will be determined by the CISG’s scope of application. But the question arises whether it is possible to interpret the CISG in the light of the CESL so that an implicit choice of CESL will nevertheless be read as an exclusion of the CISG as suggested by Recital 25 of the Regulation proposal.

Actually, such construction is possible: CISG is an international treaty and has to be interpreted in accordance with the principles applicable to those treaties, which are also codified by the Vienna Convention of the Law of Treaties (“VCLT”)[22]. According to Article 31(3)(b) VCLT, a treaty also has to be interpreted in the light of “any subsequent practice in the application of the treaty which establishes the agreement of the parties regarding its interpretation”.

In case 23 Contracting States of the CISG (i.e. those EU Member States that are parties to the CISG) adopt a piece of legislation that implicitly contains an interpretation of Article 6 CISG, this is subsequent practice under Article 31(3)(b) VCLT. Unless the other CISG Contracting States protest against this interpretation, this will have to be considered an “agreement of the parties”. This interpretation would not only have to be considered by the EU Member States and their courts, but by all courts applying the CISG.

IV. Conclusion

The scope of CISG and CESL partly overlap. Although this entails the potential for a conflict of these instruments, both instruments can be harmonized so that they, in the end, have a complementary scope of application. CESL and Rome I only apply where CISG does not apply. However, CISG’s Article 6 and the parties’ implicit agreement to exclude CISG can to be interpreted in the light of CESL (and the subsequent case law on its implicit inclusion). The implicit statement contained in Recital 25 Regulation Proposal, that any choice of the CESL would exclude CISG, thus not only would bind the courts of the EU Member States, but would have to be considered uniform practice regarding the interpretation of the CISG that binds even other CISG Contracting States.

Susanne Lilian Gössl               Jan Asmus Bischoff

Susanne Lilian Gössl studied law at the University of Cologne and in Naples from 2003-2008. After her graduation she worked as a research assistant at the Institute for International and Foreign Private Law, University of Cologne. She completed a Master of Laws at Tulane University Law School, New Orleans in 2009/2010 and afterwards was research assistant at the Institute for Media Law, University of Cologne. In this period she worked on her doctoral thesis on “Internet specific conflict of laws – possibility and necessity” under the supervision of Professor Dr. Heinz-Peter Mansel. She is expecting to defend her thesis in December 2012. Currently, she is working as a legal stagiaire (Rechtsreferendar) in Hamburg.

Dr. Jan Asmus Bischoff studied law at Hamburg University from 2000 to 2005. After his graduation, he worked as a researcher at the Max Planck Institute for Comparative and International Private Law until 2010. In 2008, he completed his Master Degree in International Legal Studies at NYU, School of Law as a Hauser Global Scholar. In 2009, he completed his doctoral thesis on “The European Community and the Uniform Private Law Conventions” under the supervision of Prof. Dr. Dr. hc. Jürgen Basedow. In 2010, he passed the Second State Examination at the Hanseatic Regional Appelate Court, Hamburg. He is currently working as an attorney (Rechtsanwalt) at Dabelstein & Passehl, Hamburg in the field of maritime law and international dispute settlement.


[1] Proposal for a Regulation of the European Parliament and of the Council on a Common European Sales Law, October 11, 2011, COM(2011) 635 final, available at: http://eur-lex.europa.eu/LexUriServ/LexUriServ.do?uri=CELEX:52011PC0635:EN:NOT.

[2] See infra II.1.

[3] The Communication from the Commission to the Council and the European Parliament on European contract law, of July 11, 2001, COM(2001) 398 final, can be considered the starting point of this discussion; the document is available at: <http://eur-lex.europa.eu/LexUriServ/LexUriServ.do?uri=CELEX:52001DC0398:EN:NOT>.

[4] Article 8(1).

[5] Regulation proposal, p. 6.

[6] Handelsgericht Zürich, 17.02.2000, http://www.cisg-online.ch/cisg/urteile/650.html (26.06.2012); Bridge, International Sale of Goods, No. 11.18; Diedrich, Maintaining Uniformity in International Uniform Law via Autonomous Interpretation: Software Contracts and CISG, 8 Pace Int’l L.Rev.303 (1996), 338; Fakes, The Application of the United Nations Convention on Contracts for the International Sale of Goods to Computer, Software and Database Transactions, 3 Software Law Journal 559 (1990), 587 seq.; Karollus, UN-Kaufrecht, Vienna Springer 1991, p. 21; Lookofsky, Understanding the CISG, 3rd ed.Kluwer Law International Alphen aan den Rijn 2008, p. 20 seq.

[7] (26 August 1994) Oberlandesgericht Köln, 19 U 282/93, http://cisgw3.law.pace.edu/cases/940826g1.html; (20 December 1993) Budapest Arbitration proceeding, Vb 92205 (Shares of stock case), http://cisgw3.law.pace.edu/cases/931220h1.html, Ferrari in: Schlechtriem/Schwenzer (ed.), Kommentar zum Einheitlichen UN Kaufrecht, 5nd ed 2008 Beck Munich, Art. 1 para 34; Achilles, Kommentar zum UN-Kaufrechtsübereinkommen, 2000 Luchterhand (Hermann) Neuwied, Art. 1 para. 4.

[8] (21. June 2005) Supreme Court, 5 Ob 45/05m (Software case), http://cisgw3.law.pace.edu/cases/050621a3.html; Ferrari in: Schlechtriem/Schwenzer (eds.), zum Einheitlichen UN Kaufrecht, 5nd ed 2008 Beck Munich, Art. 1 para. 36, 38.

[9] An entire list can be found at http://www.uncitral.org/uncitral/en/uncitral_texts/sale_goods/1980CISG_status.html (June 28, 2012).

[10] Mankowski in: Ferrari/Kieninger/Mankowski et al. (eds), Internationales Vertragsrecht, 2nd ed. 2011 Beck Munich, Art. 90 para. 9-11.

[11] Ferrari in: Schlechtriem/Schwenzer, Kommentar zum Einheitlichen UN Kaufrecht, 5nd ed. 2008 Beck Munich, Art. 90 para 3.

[12] Not Artice 12, if applicable, and neither some public international law rules laid down in Articles 89-101.

[13] E.g.   (2 July 1993) Oberlandesgericht Düsseldorf, no. 17 U 73/93 (Veneer cutting machine case), http://cisgw3.law.pace.edu/cases/930702g1.html.

[14] (6 January 2006) U. S. District Court, M.D. Pennsylvania, No. Civ.A. 1:05-CV-650, American Mint LLC, Goede Beteiligungsgesellschaft, and Michael Goede v. GOSoftware, Inc., http://cisgw3.law.pace.edu/cases/050816u1.html.

[15] (3 December 2002) Handelsgericht St. Gallen, HG. 1999.82-HGK (Sizing machine case), http://www.cisg-online.ch/cisg/urteile/727.htm, English Translation http://cisgw3.law.pace.edu/cases/021203s1.html.

[16] (27 July 2001) U.S. District Court, Northern District of California, San Jose Division, C 01-20230 JW, Asante Technologies, Inc. v. PMC-Sierra, Inc., (CLOUT) abstract no. 433.

[17] (15 January 2002) Tribunal de commerce [District Court] Namur, R.G. no. 985/01, SA P. v. AWS http://cisgw3.law.pace.edu/cases/020115b1.html

[18] (25 February 2004) Tribunale di Padova, No. 40552, http://cisgw3.law.pace.edu/cases/040225i3.html

[19] OJ L 177 of 4.7.2008.

[20] See: Notifications under Article 26(1) of Regulation (EC) No 593/2008 of the European Parliament and of the Council on the law applicable to contractual obligations (Rome I), OJ C 343, 17.12.2010, p. 3; but see: Jan von Hein in:  T Rauscher (ed.), Europäisches Zivilprozess- und Kollisionsrecht, Rom I-VO/ Rom II-VO, 2011 Sellier Munich, Art. 25, para. 7.

[21] Schilling, EuZW 2011, 776, 779 seq.; Wagner, TranspR 2009, 107; Hartenstein, TranspR 2008, 146; Brödermann/Wegen in: Prütting, Wegen, Weinreich (ed.), Bürgerliches Recht, 7th ed. Luchterhand Köln 2012, Art. 25 para. 4.

[22] See J Bischoff, Interpretation of Uniform Law, Max Planck Encyclopedia of European Private Law, 982 seqq. (Basedow et al., eds.,OUP, 2012).

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