Implicit Exclusion of CISG

One of the enduring issues about which courts in different states that have adopted the CISG continue to disagree are the requirements under which that body of law will not apply, even though the requirements necessary to its application under Article 1 have been satisfied.  Of course, Article 6 permits the parties to a contract otherwise subject to the CISG to exclude its application. The case law on the mechanism for exclusion, however, suggests that the parties must be quite deliberate and explicit in their efforts to derogate from the terms of the Convention. Merely invoking domestic law as the governing law of the contract will not do the trick, as domestic law typically incorporates treaties and conventions. Either some express limitation to domestic sales law or an explicit exclusion of the CISG is necessary. In the United States, for instance, it is by now well recognized that a clause making “New York law” the governing law of the contract does not exclude the CISG, although a clause that recites that the contract is subject to “the New York Uniform Commercial Code, and not the United Nations Convention on Contracts for the International Sale of Goods” will be sufficient.

The requirement of an explicit invocation of specific domestic sales law or exclusion of the CISG suggests that parties cannot avoid the applicability of the CISG through inadvertence. Thus, one might think that courts would be hesitant to infer the inapplicability of the CISG simply because the parties failed to recognize its existence or relevance to their dispute. Indeed, case law from other jurisdictions states exactly that. For instance, an opinion of the Tribunale di Padova in 2004 (February 25, 2004, available at http://cisgw3.law.pace.edu/cases/040225i3.html) concluded that exclusion of the CISG is possible only where the parties were aware of its applicability. Given that the pleadings in that case revealed ignorance of the CISG, the parties “could not have excluded – even implicitly – the application of the CISG, by choosing to make an exclusive reference to the Italian law.” Cases from other jurisdictions are to the same effect (see, e.g., Oberlandesgericht Linz [Germany], January 23 January, 2006, available at http://cisgw3.law.pace.edu/cases/060123a3.html).

A recent case from the United States District Court for the Southern District of New York, however, has taken a broader view of the effects of party pleadings that fail to recognize the applicability (or the existence) of the CISG. The court thus grafts onto the requirement that any exclusion be explicit an exception where the parties have assumed at some point in the litigation proceedings that domestic (or State) law governs their contract, even though one of the parties subsequently recognizes the applicability of the CISG. In Ho Myung Moolsan, Co. Ltd. v. Manitou Mineral Water, Inc., (S.D.N.Y. December 2, 2010), available at http://cisgw3.law.pace.edu/cases/101202u1.html, a South Korean buyer of mineral water filed a breach of contract action against an American seller. In its initial complaint and in all pleadings through the discovery stage – including a motion for a preliminary injunction and an appeal from denial of that motion – the buyer had relied on New York law and asserted that its claims were brought “under state law.” After the close of discovery and thereafter, however, the buyer maintained (correctly it appears) that the CISG governed the transaction.

The court concluded that the buyer “by its actions” had consented to the application of the New York Uniform Commercial Code and it was “far too late” to withdraw that consent without undue prejudice to the seller. The court relied on New York law that allowed parties in litigation to consent by their conduct to the law to be applied – even though that decision was erroneous under prevailing legal principles. The court further concluded that the “course of the case would not have changed” even if the CISG applied. The decision is consistent with other cases that have precluded parties from asserting CISG claims after the commencement of litigation, although those cases often concern efforts to raise the claims for the first time during the appellate process.

These divergent opinions reveal one more example of the limitations of implementing uniform international commercial law. The procedural law of the forum state will determine the willingness of courts to circumscribe the pleadings or to bind parties to their understanding of applicable law. It is not clear that either procedure is clearly superior to the other. Courts that override parties’ understanding of the relevant law are more likely to decide cases in accordance with the legal principles that legislators and courts have adopted to govern situations of the type that the case presents. Indeed, there seems something odd about the notion that parties, by their ignorance, can exclude the application of a body of law that the legislature has determined should govern a particular transaction. And there is something anomalous about a system that makes explicit opting out of the CISG so burdensome, while simultaneously permitting implicit opting out through inadvertence.

Nevertheless, a rationale for essentially finding that parties have waived any rights under a statutory framework that they have ignored may be found outside the realm of commercial law. While the maxim iura novit curia suggests that the court can determine the law on its own (for a reference to this maxim in CISG case law, see, e.g., Tribunale di Vigevano [Italy], July 12, 2000, available at http://cisgw3.law.pace.edu/cases/000712i3.html) the plethora of statutory rights combined with courts of general jurisdiction often make that assumption, where it exists at all as part of the applicable procedural law, into a fiction. Thus, a desire to economize on judicial time may appropriately lead a court to bind attorneys to the law that they have invoked. Perhaps more importantly, a broad concept of waiver induces attorneys to be diligent in comprehending the law that governs their transactions. While the court in Ho Myung Moolsan believed that the UCC and the CISG were identical in all pertinent respects, there will clearly be cases where that is not true, and an implicit exclusion of the CISG can lead one party to pull defeat from the jaws of victory.

Clayton P. Gillette

Proferssor Gillette is Max E. Greenberg Professor of Contract Law, New York University School of Law

The Center for Transnational Litigation and Commercial Law aims at the advancement of the study and practice of international business transactions and the way to solve related disputes either through litigation or arbitration. As commercial transactions become increasingly international, it is vital to the legal and business communities to understand and analyze the practices and legal principles that govern relationships between firms and between firms and consumers in the international arena