The application of the un convention on contracts for the international sale of goods to sales of commodity-type goods
- Autores: Carlos Eduardo Fujita
- Directores de la Tesis: María del Pilar Perales Viscasillas (dir. tes.)
- Lectura: En la Universidad Carlos III de Madrid ( España ) en 2021
- Idioma: español
- Tribunal Calificador de la Tesis: Ingeborg Schwenzer (presid.), David Ramos Muñoz (secret.), Cristiano de Sousa Zanetti (voc.)
- Programa de doctorado: Programa de Doctorado en Derecho por la Universidad Carlos III de Madrid
- Materias:
- Enlaces
- Tesis en acceso abierto en: e-Archivo
- Resumen
This thesis refers to the application of the UN Convention on the International Sales of Goods (“CISG,” “Convention”) to the sale of commodities.
Section 1 is a brief introduction to the thesis. Apart from defining its scope and addressing preliminary methodology issues, it is also in this Section that the thesis discusses the concept of “commodity,” a term with many possible meanings. In this thesis, the term is used to refer to fungible primary products that can be sold by means of a general description as to quality and quantity.
Even considering this stricter meaning, however, there are many goods that can be considered commodities, meaning that the “commodity market” is, in practice, formed by many submarkets, each with specific traits. In Section 2, the thesis analyzes some of these markets, with the objective of establishing broad categories of goods and sales in accordance with their most general traits. Thus, for instance, it is established that there are legal and commercial particularities involving categories such as cash (spot or forward) contracts, as opposed to futures contracts, as well as short-term (“discrete”) transactions, as opposed to long-term supply contracts for large volumes of commodities (often with “relational” elements). Circumstances such as the level of liquidity of the markets and the different positions of the market players in each industry (producer, consumer, trader, speculator etc.) are also relevant in determining some of the legal aspects involved in the trade of these goods.
In Section 3, the core subject-matter of the thesis is addressed: the contractual practices studies in Section 2 are confronted with the provisions of the CISG and with scholarly and case law doctrine, in order to establish some of the ways in which they may interact.
Section 3 is divided to roughly follow the systematic organization of the CISG.
In its initial Subsections, it is established that, provided that the internationality criteria are met and that the parties have not clearly opted-out of it, the CISG unequivocally applies to sales of commodity-type goods, with the exception of electricity, which is expressly excluded from the scope of application of the Convention.
It is also found, however, that the CISG should not be applied to sales made within commodity exchanges unless the rules of the exchange provide for the application of the Convention to all contracts made therein, because, in commodity exchanges, the fact that the parties have places of business in different countries is not taken into consideration in the process of contract formation and also because, within these exchanges, the expectation is that all contracts are entirely uniform, meaning that there should not exist contracts governed by different sets of rules.
Documentary sales, including those sales where the parties do not deal with physical commodities, are also governed by the Convention. So are long-term contracts for the supply of commodity-type goods and contract farming agreements that are not excluded under Article 3 CISG are also governed by the CISG.
A broader interpretation of the concepts of goods and sales is discussed. If adopted, it would cause the inclusion within the scope of application of the CISG of contracts for the onerous transfer of rights and/or intangible goods, which would greatly expand the range of applicability of the CISG (compared with the current majority stance), to include sales of many items that are tangentially related to the commodity trade, such as quota authorizations, import and export quotas, capacity rights pertaining to the use of pipelines, derivatives, among others.
Giving effect to the CISG provisions regarding interpretation, the thesis concludes that the application of the Convention to sales of commodities may cause some of the provisions of the CISG to be interpreted in ways that differ from the interpretation that would be applicable to sales of goods of a different nature. Particularly, in contracts for the sale of commodities in highly liquid markets, the threshold to determine whether a breach of contract is fundamental (Article 25 CISG) should be lowered, to respond to the fair expectations of the industry.
Less stringent avoidance rights should not apply equally to all commodity sales, though. Where the contract contains specific provisions restricting the right to avoid the contract, or the market is less liquidity than usual, or where other circumstances so justify, the application of the standard must be adjusted accordingly. Particularly, long-term supply contracts and contracts that are entered into in asymmetrical situations such as contracts in the context of vertical integration or contract farming arrangements most likely justify more restrictive avoidance rights.
It is also established that the CISG is well-equipped to deal with some contractual arrangements that are common in long-term supply contracts, such as take-or-pay provisions and ‘agreements to agree,’ i.e., provisions leaving certain aspects of the contract to be negotiated and agreed in the future.
The corollary is that the built-in flexibility of the CISG standards renders the provisions of the Convention adequate to commodity sales in markets with very different traits, provided that parties and adjudicators properly understand and apply its rules of interpretation.
Parties to sales contracts subject to the Convention, nonetheless, still have the burden of negotiating clauses that vary or derogate from the provisions of the Convention when these provisions are inadequate for their needs or preferences, or to their commercial context. This is not a sign that the Convention is an inadequate set of rules for the commodity trade; this would be the case in any legal system.
Due to the particularities of the commodity markets, parties negotiating and concluding sales contracts within those markets are well-advised to:
(a) establish as clearly as possible whether they want the CISG to govern their contract; (b) establish as clearly as possible which obligations are of the essence of the contract (i.e., the obligations which, once breached, will empower the aggrieved party to avoid the contract), including clear time cut-offs when applicable; (c) conversely, particularly in long-term contracts, establish as clearly as possible the situations where a contractual breach will not entitle the party to avoid the contract; (d) establish clear rules on the calculation of damages in case of breach, particularly those regarding the reference to be used in order to calculate the reference price of the goods used to assess such damages; (e) establish whether a court or tribunal will be empowered to adjust the contract in case of supervening circumstances – and define, in as much detail, and as specifically, as possible, the procedure to be followed by, and the rights and duties of, the parties in such a case; (f) establish specific rules pertaining to force majeure and frustration and their consequences, as well as the procedures that the parties must comply with when relying on such a clause.
There already exist model contracts and clauses that can assist the parties in this task, thus saving time and resources when drafting contracts that will be governed by the Convention. However, the development of additional model contracts and clauses specifically designed to sales of commodity-type goods would be useful to further the acceptance of the CISG in the professional circles dedicated to the trade of commodities.
On the other hand, the thesis also concludes that the CISG has become a reference in the field of uniform international private law. Important entities such as the Unidroit, the ICC and the Hague Conference on Private International Law have been undertaking efforts to develop instruments of international law that are compatible with the rules, the style, and the terminology of the CISG. Adopting the CISG, or not excluding it, as the case may be, may thus save time and efforts when drafting contracts that must interact with these other legal instruments, as little or no effort will have to be spent in rendering these different instruments compatible among themselves. This also compensates, at least in part, for the fact that the CISG, being an international convention, cannot realistically be revised to respond to the evolution of international trade.
Throughout Section 3, other instruments of uniform international contract law are cited, mainly as a basis for comparison with similar provisions of the CISG. The most important among those are the Unidroit Principles (“PICC”).
Section 4 is dedicated to two closely related subjects: whether criticism directed at the CISG, particularly from English scholars, in the sense that the Convention is inadequate to govern contracts for the sale of commodity-type goods is warranted; and what could be done to increase the acceptance of the CISG within the commodity industry.
Considering the findings of Section 3, the thesis concludes that most of the arguments supporting the alleged inadequacy of the CISG to commodity sales are unwarranted. The most evident reasons underlying the skepticism about the potential of the CISG as a governing body of rules to commodity sales are a general lack of awareness about the CISG and how it works, and path dependency, i.e., a tendency to continue to do business as it has always been made, combined with a lack of practical incentives to change.
One of the instances in which path dependency expresses itself is that in many areas of the commodity trade it is common practice to systematically opt-out of the Convention and to subject contracts to the domestic law of places such as England or the State of New York (US). This has caused case law regarding the application of the CISG to commodity sales to remain relatively scarce. There is, nonetheless, a growing number of cases involving sales of commodities under the CISG.
The slow advance of CISG case law in this area creates a feedback cycle where English and US non-CISG case law continue to develop specific rules related to the commodity trade, while the relatively scarcity of case law under the CISG in this area amplifies a feeling of uncertainty for those who could consider adopting it to govern their contracts. The path dependency problem, therefore, still exists and is not easy to solve.
Another obstacle for a wider acceptance of the CISG within the commodity trade is the fact that some specific markets have developed their own private legal systems. Some trade associations issue their own substantive and procedural rules, and solve the conflicts among their own members in entirely (or almost entirely) closed systems, creating a body of case law that evolves independently from other legal systems, domestic or international. Some of these communities have developed their own enforcement mechanisms in the form of self-help remedies and reputation-based penalties. Where these mechanisms work to the satisfaction of the market players, there will be no incentives for them to abandon those hermetic systems in favor of a transnational set of rules.
There are economic arguments explaining the lack of interest by the local legal community in the adoption of the CISG by the United Kingdom, such as a general concern that this could contribute for the loss of status of local courts and practitioners as monopolistic operators in a legal system that has earned worldwide prestige and trustworthiness. However, the adoption of the CISG by the United Kingdom could very well extend this reputation by transforming the English courts in one of the most important centers of influence in the development of the CISG case law, not only in the field of commodities. It is therefore regretful that the United Kingdom has not, so far, adopted the CISG.
The PICC, too, are not inadequate to govern sales of commodity-type goods. Their vocation as a truly global soft law instrument, the institutional tools that are available favoring their uniform international application, and the fact that they result from a balanced attempt to conciliate disparate legal systems, are all aspects that render them particularly useful in the task of achieving a neutral transnational legal system. Their inherent flexibility, and the fact that they have been developed in harmony with the CISG and with other international legal instruments also mean that they may likely constitute an important focal point when developing an international legal framework suitable to the commodity trade.
Like the CISG, the PICC also need to be carefully interpreted in concrete cases to respond to the particularities of the commodity trade – the provisions regarding termination rights and economic hardship deserve particular attention in this regard –, but this does not mean that they ought to be outright discarded when the subject matter is the sale of a commodity-type good.
In order to amplify the acceptance of the CISG within the commodity trade, this thesis suggests the intensification or, at least, the maintenance, of the efforts in order to improve general knowledge about the Convention, so that businesspeople and the legal community understand that it is a suitable body of rules to govern commodity sales; and the development of more model clauses and model contracts that could work as facilitators for the adoption of the CISG to the sale of commodities by reducing the costs and efforts involved in the transition of market players to CISG-governed contracts.
It is equally relevant to keep and possibly to expand the ongoing efforts to maintain as much as possible the uniform application of the CISG and the PICC, so that they continue to develop into a truly transnational legal system.
In this context, and for this particular purpose, considering the many difficulties involved in the task, efforts and resources would probably be better allocated in promoting global initiatives such as the CISG and the PICC instead of regional ones such as the PLACL or the PECL.
