INDIA AS A PARTY TO CISG: A CRITICAL ANALYSIS

This Article has been authored by Divya Sharma, a second-year law student at National Law University, Jodhpur.

Introduction

Since a long time, quest for making of uniformly applicable laws for sale of goods is going on. It’s nothing new, to deliberate on whether India should be a part to CISG. It was this demand for making laws that are applicable uniformly on the issue of sale of goods, worldwide, that led to the formation of Convention on Contracts for the Sale of International Goods Act (hereinafter referred to as "CISG"), in 1980. CISG can be defined as “a set of legal rules concerning formation of contracts, obligation of sellers and buyers and remedies for the breach of contracts.” It’s preamble clearly mentions the object and purpose of the Convention. There have been deliberations by many countries as to they should be a party to this convention or not and thus CISG is facing agreement and disagreement towards its acceptance and inclusion by countries in their national laws and trade practices. Many reports have addressed this dilemma. The recommendation of Singapore Law Reform Committee’s Report on the CISG is in favour of the Convention on the other hand commentators like Prof Arthur Rossett and Professor G. H. Trietel have expressed reservations about its adoption.

About CISG

Several attempts were made to unify the law of international sale of goods. It was the arduous efforts of the United Nations Commission on International Trade Law (UNCITRAL) which resulted in the adoption of the Convention. The adoption of this convention can be called the culmination of the process of unification in the realm of international sales of goods. Apart from the demand for uniform laws, the inadequacy of previous conventions like Uniform Law on the International Sale of Goods and the Uniform Law on the Formation of Contracts for the International Sale of Goods in this realm also paved the way for CISG.

The CISG has several enabling clauses with the main objective being promoting the freedom of contracting parties. As per Article 1 of this Convention, it applies to contracts of sale of goods between parties whose places of business are in different States: (a) when the States are Contracting States; or (b) when the rules of private international law lead to the application of the law of a Contracting State. One of the significant aspects of this convention is that it disregards the nationality of the parties and also the civil or commercial character of the parties or of the contract while determining its application.

Should India Join CISG?

The Pros

CISG is said to be one of the most successful treaties in private international law owing to its wide adoption over the globe and the recent growth of international business transactions. Growing from an original group of 11 countries in 1988, the Convention is now accepted and signed by 84 nations. The statistics are more appealing. Countries who are signatories to the CISG are accounted for a staggering two-thirds of all goods moving in international trade and it more or less cover a majority of the world’s population. With the idea to promote uniform law, despite several reservation all signatories have agreed to implement CISG in a uniform fashion. This extent of ratification and acceptance of uniformity by a large number of states reflect on the possibility of CISG becoming a norm for international trade, which emphasises on India’s participation in the convention. If we look at the trade partners of India, we will see that most of them are signatories to CISG.

Firstly, the Indian sales law i.e. The Sale of Goods Act, 1930 was written by Britishers during colonialism, dating it way old to suit to the present needs of the commercial transactions. Since the drafting of this act, there have been changes in the very idea of lex mecatoria. The way parties view and what constitutes as Party autonomy for them has evolved over time. Moreover, introduction of modern techniques like means of transport, technology has drastically changed. Also, significant changes have taken place in modes of entering into contract. Due to these changes, it is not suited for the modern and contemporary commercial contracts. Therefore, CISG is important for us as it is universal in nature and drafted in several languages that makes it more accessible and comprehendible to international commercial parties across the globe. Moreover, it is no outdated as the sale of goods act in India and thus takes into consideration the present-day requirements. CISG contains provisions pertaining to the interpretation of contracts which are considered as wider than the rules focussed on by common law.

Secondly, the Convention works as a gap-filling technique where trans-border contract is made by phone or even by fax or telex but in only a few words. There are times when contracts are incomplete and sometimes, they don’t take into consideration every type of contingencies which leads to certain gaps in the contract. In theory, a uniform sales law confers significant benefits on parties, at least to the extent that it embodies in its default rules which are the solution to these gaps. For instance, CISG resolves the issue of choice of law clause. The primary aim of this convention is to fill the gaps left upon by the drafters of the international sales contracts. It proposes to do so by replacing conflicting domestic contract laws with one uniform set of laws.

Thirdly, CISG acknowledges contractual freedom to the parties of international sales contracts which is mostly desired. Article 6 of CISG lets them derogate from or vary the effect of any of its provisions and even to exclude the application of the Convention.

CISG contains significant provisions to practical problems which are very important in day to day trade practice, especially in present scenario for instance asking the parties to preserve goods in their possession which otherwise belong to other party. In addition to that CISG provides a boost to the Indian economy. It is important to bring legal changes because the relation between Law and economy is indispensable. Legal system of country is one of the important factors to work on in order to ensure robust growth of its economy. It is difficult to find a robust economy without a strong legal system in place. As said by Prof. Barker: "If economic factors and economic interests have partly determined the legal framework, it is even more true that law has furnished the whole general framework of rules within which and under which the factors and interests of economists have had to work."

India’s ratification will strengthen the legal caricature to assist the Government’s move to boost economic expansion overseas by facilitating Indian businessmen and Indian corporations with a consistent sales law with the countries with whom they are trading with.

The Impediments in adoption of CISG: The cons

Although, it is time and again argued that CISG is one of the most innovative and successful treaties in private international law, it has certain aspects that pose as an impediment to a clear yes to India’s participation. The Preamble to the CISG delineates its purpose to be the development of international trade based on a foundation of equality and mutual benefit. Even though it deems itself to be a unified code which encompasses different social, economic and legal systems, it does not gel well with Indian jurisprudence because of certain fundamental differences-

Firstly, the introduction of “fundamental breach” in Article 25 poses its own difficulties. The Article states that “a breach of contract committed by one of the parties is fundamental if it results in such detriment to the other party as substantially to deprive him of what he is entitled to expect under the contract, unless the party in breach did not foresee and a reasonable person of the same kind in the same circumstances would not have foreseen such a result.” As has been observed by many scholars, this provision leads to a lot of uncertainty owing to its open-ended definition which makes it very difficult to predict when a breach can be held as fundamental. It puts a great degree of arbitrariness in the contract. Moreover, by ascribing a subjective standard of foreseeability of individual parties, the contract is made more complicated.

Secondly, Article 7 brings in picture the concept of “good faith”. But this Article is a stand-alone section as the entire treaty does not clarify what exactly constitutes good faith thus leaving it to varied judicial interpretations. It is not clear whether good faith applies to conduct of the parties or it is an indication of fair dealings. Since, Indian Law does not categorically recognise good faith at the stage of performance and enforceability of commercial contracts, this broad definition brings in fair degree of uncertainty.

Thirdly, a combined reading of Articles 46, 47, 49 which pertain to remedies for breach of contract by the seller, reflect that the buyer has the right to claim damages only when it comes to late performance or non-delivery and the subjective fundamental breach test. Thus, it takes from the buyer of one of his most important statutory right under Indian domestic law and that is the right to reject the goods if they do not comply with the quantity or quality.

Fourthly, damages contemplated under the SGA relate back to sections 73 and 74 of the Indian Contract Act, 1872 (ICA). The counterpart of section 73 under ICA is Article 74 of the CISG which states that “damages should be foreseen as a possible consequence” while on the other hand, the ICA requires the law of damages to be a “probable result” of the breach committed. Thus, this wider provision significantly endangers the chances of the aggrieved party to claim damages, as s/he has a higher possibility of recovering stipulate damages under the Indian law. Similarly, the CISG does not ponder on compensation for damage done in way for injured feelings. Therefore, the possibility of recovering additional costs is not mentioned, or in fact, barred. Since, Indian law focuses more towards the aggrieved party, this lacuna will act as a strong opposition to adoption of CISG.

Fifthly, Article 10(a) mentions a “closest relationship” test for deciding the place of the contract. This Article is dubious and can make India lose a significant amount of control in deciding the area of dispute arousal and decision of which law will follow. In addition to this, this CISG does not stipulate a time or place for measuring damages. On the contrary, Indian law very strictly specifies the time for measuring damages. This becomes a matter of supreme importance in international transactions, because price of goods tends to fluctuate rapidly thus, the time for measuring damages has a significant impact on the quantification of damages and transaction costs. Also when it comes to the cases of anticipatory breach, the duty to mitigate under CISG arises the moment the aggrieved party comes to know of the intent of breach whereas in India the question of mitigation arises only when the breach takes place or rescission effectuated.

Sixthly, the element of intent as given under Article 8 is very confusing and contradictory in the face of lack of official clarification. In an effort to “harmonize” common and civil law, it has obscured established trade practices in various countries with no concrete guideline. Article 7(2) or the gap-filling provisions lends no support to clear this dilemma instead augments the confusion for state actors, intensifying the prejudice.

There are several other flaws that make adoption of CISG cumbersome. The CISG does not address issues relating to the validity of the contract. Thus, issues like illegality, fraud, misrepresentation, tortuous liability et al of the contracts itself is missing. Hence, it fails to achieve one its main objective of uniform laws. Also, the language is extremely vague and wide leading to a lot of confusion. Presence of undefined terms which form key components of the law, leads to judicial arbitrariness as courts and tribunals interpret them according to their will because there not really a hierarchy or principle of precedence in the international realm.

Conclusion

It cannot be denied that CISG, by far, has been a blessing for uniform international trade law and its adoption by India, can result in a lot of benefits. However, what also cannot be denied is its inconsistency, is certain areas, with present India laws or desires and goals of Indian business. Thus, while considering adoption of CISG, we must ponder upon both merits and demerits. It has also been argued, several times that this adoption will lead to increased and more effective trade, which can be agreed with. But it also has to be understood that this assimilation in International law will not be as smooth as merits make it seem. Adoption of CISG will compel India to reconsider Indian commercial law jurisprudence.