Larry_A_DiMatteo_-_International_Sales_Law_A_Global_Challenge-Cambridge_University_Press_2014

Arabic, Chinese, English, French, Russian, and Spanish, and also many other officially translated language versions. In addition, the various CISG databases, such as the PACE Law School CISG Database, provide constantly updated information, which can be easily accessed by parties all over the world.

3. The CISG as a “Neutral Law”

Another reason for the application of the CISG by arbitrators is that arbitration professionals view it as a practical and highly regarded source of international private law. The status of the CISG is enhanced due to the fact that it is viewed a “neutral law.”51 Parties going to arbitration quite often choose a neutral place for the arbitration to take place; an arbitration institution’s prestige is largely based on the perception of its neutrality.52 In a similar manner, parties and arbitrators tend to prefer neutral laws such as the CISG in arbitration. From a practical and objective perspective, the CISG’s status seems not only to be neutral and impartial, its substantive content is viewed as taking a balanced approach to buyers’ and sellers’ rights and obligations. The CISG represents a compromise legal instrument that balances the interests of legal traditions – in particular the common and civil law systems, as well as the interests of the industrial and developing countries.53 For these reasons, the CISG is seen as neutral, balanced international law or set of rules, making it a popular source of law in international arbitration.

E. Indirect Method of Application: Absence of a Choice of Law

This chapter has concentrated until now on indicating and describing the fundamental common features, that is, a harmony between the CISG and international arbitration, and has given reasons for such. The next part examines the interaction between the CISG and international arbitration in greater detail to seek out possible complications.

1. Initial Situation Provided by Arbitration Rules

In contrast to the aspects described here, the relationship between the CISG and international arbitration is not unproblematic in cases in which the parties have made no effective choice of law and the applicable arbitration rules only provide for an indirect method of application. In cases where the tribunal is bound to apply conflict of laws rules due to the applicable arbitration rules and thereby comes to the application of a contracting state’s law (indirect method of application), it will – like a domestic court – apply eo ipso the CISG on the basis of Article 1(1)(b) CISG.54 For example, Article 28(2) of the UNCITRAL Model Law on International Commercial Arbitration provides that, in absence of a choice of national law by the parties, an arbitral tribunal “shall apply the law determined by the conflict of laws rules which it considers applicable.”55 Traditionally,

51Schlechtriem and Butler, UN Law on International Sales, 16; Schmidt-Ahrendts, “CISG and Arbitration.”

52Lew et al., Comparative International Commercial Arbitration, 7.

53Ulrich Magnus, “The Vienna Sales Convention (CISG) between Civil and Common Law: Best of All Worlds?,” 3 J. of Civil L. Studies 67 et seq. (2010); DiMatteo et al., International Sales Law, 15.

54All additional requirements (sales contract, transnationality) must of course be satisfied, too.

55See also England, Arbitration Act, Section 46; Article 16 Vienna Rules.

arbitral tribunals have used the conflict of laws rules of the seat of arbitration, but nowadays, a cumulative approach is preferred.56

2. Significance of Article 95 CISG

Arbitral tribunals could encounter problems if these conflict of laws rules lead to the application of the law of CISG member states, such as China and the United States, which have declared a reservation to Article 1(1)(b) CISG (only one party is a member to the CISG). In this case, a national tribunal can only apply the CISG if the requirements of Article 1(1)(a) CISG (both parties are from CISG member states) are satisfied.57 The question here does not concern where the tribunal is based but whether a tribunal, recognizing that the application of the conflict of laws rules will lead to the application of a member state’s law, has to respect a country’s reservation from Article 1(1)(b) CISG.

There are few published decisions regarding this problem. In an award decided by the China International Economic and Trade Arbitration Commission (CIETAC) in 2004,58 the parties (a Japanese seller and a Chinese buyer) agreed on a sales contract, which did not contain a choice-of-law clause. The contract was concluded in China and the place of performance was in China. At the time, Japan was not a member to the CISG. The tribunal viewed the parties’ references to Chinese law as evidence that the parties had chosen Chinese law to govern the contract. However, as China had made a reservation under Article 95 CISG, Article 1(1)(b) CISG jurisdiction was not available. The tribunal selected Chinese domestic contract law, and not the CISG, as the applicable law.

Although the reasoning of the award was insufficiently documented, it is easy to see how the tribunal reached its decision. Where an arbitral tribunal determines the law applicable to an international sales contract on the basis of the rules relating to conflict of laws and these rules lead to the application of a CISG member state’s law, it must apply this law correctly and thus in its entirety.59 For example, suppose that a dispute arises between two parties to an international sales contract and one of the parties is based in the United States, a contracting state to the CISG, which has made a reservation under Article 95 CISG. In this case, even if the conflict of laws rules refer to U.S. law, the CISG could not be applied because it does not form part of the national legal system. The Article 95 CISG reservation removes the jurisdiction of the CISG over these types of cases. To hold otherwise would, on the one hand, contradict arbitration laws and rules that oblige tribunals to correctly apply conflict of laws rules. On the other hand, if an arbitrator were to ignore the United States’ rejection of Article 1(1)(b) CISG jurisdiction, then it would effectively incorporate the CISG contrary to what U.S. law actually dictates. Finally, in arbitration practice, the exclusion of the CISG pursuant to Article 1(1)(b)

56See Lew et al., Comparative International Commercial Arbitration, paras. 17–51; Schwenzer and Hachem in Commentary on the UN Convention, Introduction to Articles 1–6 CISG, para. 13.

57See the U.S. example: November 22, 2002, U.S. District Court, Southern District of Florida, Unilex No. 01-7541, available at http://www.unilex.info/dynasite.cfm?dssid=2376&dsmid= 13356.

58China, December 24, 2004, CIETAC Arbitration proceeding (Medical equipment case), available at http://www.cisg.law.pace.edu/cisg/wais/db/cases2/041224c1.html.

59See also Georgios C. Petrochilos, “Arbitration Conflict of Laws Rules and the 1980 International Sales Convention,” 52 Revue Hellenique de Droit Int’l 191 et seq. (1999), available at http://www.cisg.law.pace

.edu/cisg/biblio/ petrochilos.html, 5.

CISG is recognized because panels expressly take into consideration whether or not the respective CISG member state has made a reservation under Article 95 CISG.60

3. Article 1(1)(a) CISG as a Conflict-of-Laws Rule

Article 28(2) UNCITRAL Model Law on International Commercial Arbitration and several other associations’ rules oblige arbitral tribunals to apply conflict of laws rules. Therefore, it is likely that they will make use of Article 1(1)(a) CISG as the appropriate conflict of laws rule.61 The first point to note is that this situation differs from that in which a tribunal is granted complete freedom under its arbitration rules to choose directly the applicable law and is not obliged to refer to conflict of laws rules. The following example illustrates this point.

In an ICC case62 decided in 1992, a legal dispute arose between an Austrian seller and a Yugoslavian buyer (whose states were both contracting parties to the CISG). At that time, the applicable Article 13.3 of the ICC Rules of Conciliation and Arbitration63 provided that, in the absence of an indication of the law applicable to the main issue, the arbitral panel could apply the law designated by the conflict of laws rule it deemed appropriate. Accordingly, the arbitral tribunal applied the CISG with recourse to Article 1(1)(a) CISG. Admittedly, although the wording of Article 13.3 of the ICC Rules of Conciliation and Arbitration implied that an ICC tribunal was bound to apply a conflict of laws rules first, some commentators argued that Article 13.3 allowed a tribunal to choose the applicable law directly.64 In a comparable case from 1997 involving a contract between a Romanian seller and an Italian buyer that did not contain a choice-of-law clause, the ICC tribunal reached a similar decision because both parties were from CISG member countries.65 However, just as in the first case, it is not entirely clear whether the arbitrator applied the CISG directly and merely referred to Article 1(1)(a) CISG to support its reasoning or whether he applied this provision as a rule of private international law.

In order to be considered as a rule of private international law, a legal provision must offer abstract solutions to a conflict of laws. Article 1(1)(a) CISG, however, is specific and not applicable in the abstract to numerous fact scenarios. Therefore, technically speaking, it is not a rule of private international law. Nevertheless, Article 1(1)(a) CISG should be regarded as expressing as a conflict of laws rule in terms of arbitration rules and

60See ICC Arbitration Case No. 7645 of March 1995 (Crude metal case), available at http://www.cisg

.law.pace.edu/cisg/wais/db/cases2/957645i1.html#cx; Serbia, January 28, 2009, Foreign Trade Arbitral Tribunal attached to the Serbian Chamber of Commerce (Medicaments case), available at http://cisgw3

.law.pace.edu/cases/090128sb.html (CISG can only be applied via Article 1(1)(b) CISG).

61Concerning this problem, see also Gruber, “The Convention on the International Sale of Goods,” 15, 27.

62ICC Arbitration Case No. 7153 of 1992 (Hotel materials case), available at http://cisgw3.law.pace.edu/ cases/927153i1.html.

63ICC Rules of Conciliation and Arbitration (1975), replaced by ICC Rules of Arbitration, as of January 1, 1998.

64See Dominique Hascher, “Commentary on ICC Case 7153 of 1992,” 14 J.L. & Commerce 220, 221 (1995). This assumption is at least questionable. An ICC tribunal held that the mere entry into force of the ICC Arbitration Rules in 1998 meant that the court was no longer bound to make use of conflict of law rules. ICC Arbitration Case No. 9887 of August 1999 (Chemicals case), available at: http://cisgw3.law

.pace.edu/ cases/999887i1.html.

65ICC Arbitration Case No. 8962 of September 1997 (Glass commodities case), available at http://cisgw3

.law.pace.edu/cases/978962i1.html.

laws in cases involving an indirect method of application.66 First, this provision offers a solution to a conflict of laws. When there is a sales contract between parties from CISG member states, Article 1(1)(a) CISG rules that the contract is to be governed by the CISG rather than a national sales law. In this respect, the CISG settles a conflict of laws matter. Second, a different view could, under certain circumstances, prevent an arbitral tribunal from applying the CISG in a “typical” CISG case. This is because, hypothetically, the rules of arbitration require the tribunal to apply conflict of laws rules in determining the applicable law. When both parties have their places of business in different CISG member states, many conflict of laws rules, such as the Rome I Regulation, would lead to the application of a domestic law. In such a case it would be easy to apply the CISG on the basis of Article 1(1)(b) CISG as part of one of the member states’ laws. However, the situation would be different if one of the states in which a party has its place of business has made a reservation under Article 1(1)(b) CISG. If the conflict of laws rules were to result in the application of the domestic law of a reservation state, there would be a dogmatic hindrance for the tribunal to apply the CISG. The tribunal, in that case, cannot apply the CISG directly because the arbitration rules provide in this case that the conflict of laws rules must be applied first and we had assumed that Article 1(1)(a) CISG is not a conflict of laws rule. If conflict of laws rules point to the laws of the states that have declared a reservation under Article 95 CISG, the arbitral tribunal has to respect such a reservation and cannot apply Article 1(1)(b) CISG still. The tribunal might apply Article 1(1)(a) CISG, but that would contradict conflict of laws rules.

This result of not applying the CISG due to an Article 95 CISG reservation is unsatisfactory for several reasons. First, every national court of these two states would even be under an obligation to apply the CISG by means of Article 1(1)(a) CISG, as both are CISG member states. Second, the CISG would be the appropriate law in terms of its substance and status but it would not be applicable. Finally, this result would negate the benefits of arbitral tribunals over national courts (i.e., in the sense that they offer more remedies, more options, and greater flexibility). In order to ensure that the CISG is applied in those cases where tribunals are bound to use conflict of laws rules in determining the applicable law and the CISG appears the most appropriate, Article 1(1)(a) CISG would have to be deemed a conflict of laws rule.

IV. Formalities: The CISG versus International Arbitration

This part reviews the differences in the role of formalities in the enforcement of arbitration agreements under the CISG and arbitration rules. It will provide three potential solutions to the issue of whether the CISG or the pertinent arbitration rules control the enforceability of arbitration agreements relating to international sales contracts.

A. Conflict

Another obstacle to the use of the CISG in international arbitration is differences in formal requirements. Before an arbitral tribunal can deal with an international commercial dispute and determine the applicable law, it must first determine that it has jurisdiction.

66See Hascher, “Commentary on ICC Case 7153 of 1992”; Gruber, “The Convention on the International Sale of Goods,” 15, 27.

The arbitration agreement constitutes the essential basis for jurisdiction. In terms of its legal status, the private agreement to use arbitration is the law that controls the method dispute resolution.67 The UNCITRAL Model Law on International Commercial Arbitration,68 along with many other bodies of arbitration rules, such as Section 5 of the United Kingdom Arbitration Act 1996 and Section 1031(1) of the German Code of Civil Procedure, as well as the New York Convention,69 require an arbitration agreement in a written form. This formal requirement applies regardless of whether the arbitration agreement or contract has been concluded orally, by conduct of the parties, or by other means.70 The arbitration agreement has to at least be evidenced in writing.71 In principle, the parties’ signature is not required and it is not necessary that the arbitration agreement be contained in the same document as the sales contract itself.

As a rule, the CISG does not require a sales contract to be concluded or evidenced in writing nor does it stipulate any other formal requirements. This lack of formality requirements is subject to a reservation under Articles 12 and 96 CISG.72 So, on the one hand, sales contracts governed by the CISG are exempt any formality requirements. On the other hand, arbitration rules require arbitration agreements to be made in writing. For that reason, arbitral tribunals have to cope with divergent rules. Arbitration clauses are often contained in sales contracts and if the latter are governed by the CISG then it can be assumed that the CISG encompasses the arbitration agreements. A necessary consequence of this is that the CISG suspends the formal requirements for arbitration agreements. For example, two parties from different CISG countries enter into a contract by telephone. During this conversation, they agree that disputes will be settled by arbitration. Assuming that the applicable arbitration rules require a written arbitration agreement (see, e.g., Section 1031(1) German Code of Civil Procedure) and the CISG is applicable, is this agreement to arbitrate valid and enforceable even if it does not comply with applicable arbitration rules requiring a written form? An explanatory note by the UNCITRAL Secretariat on the Model Law on International Commercial Arbitration refers to the newly introduced Option 2 of Article 7,73 according to which informal arbitration agreements are effective. The rationale behind Option 2 is that “in a number of situations, the drafting of a written document was impossible or impractical.”74

67See Option 1 Article 7(1) or Option 2 Article 7 UNCITRAL Model Law on International Commercial Arbitration; UK Arbitration Act 1996 s. 6(1).

68See Option 1 Article 7(2)-(6) UNCITRAL Model Law on International Commercial Arbitration. Option 2 of Article 7, which was introduced in 2006, now implies the possibility of an informal arbitration agreement.

69See Article II (2) New York Convention on the Recognition and Enforcement of Foreign Arbitral Awards.

70See Option 1 Article 7(3) UNCITRAL Model Law on International Commercial Arbitration.

71See, e.g., Section 5(2) UK Arbitration Act 1996; Section 1031(1) and (2) of the German Zivilprozessordnung (Code of Civil Procedure).

72Article 96 CISG allows states to opt out of Article 11 CISG “no writing required” provision. The states that have made an Article 96 CISG reservation are Argentina, Belarus, Chile, China, Hungary, Latvia, Lithuania, Paraguay, Russian Federation, and Ukraine. See DiMatteo et al., International Sales Law, 38. Numerous national sales laws rejected the writing requirement before the CISG was created. See UK Sale of Goods Act 1979, Section 4; Germany Burgerliches¨ Gesetzbuch (German Civil Code), Section 433 et seq. In contrast, the American UCC §2.201(2) requires a written form for sales of goods exceeding $500.

73Option 2 of Article 7 of UNCITRAL Model Law is worded as follows: An “arbitration agreement is an agreement by the parties to submit to arbitration all or certain disputes which have arisen or which may arise between them in respect of a defined legal relationship, whether contractual or not.”

74Explanatory Note by the UNCITRAL secretariat on the 1985 Model Law on International Commercial Arbitration as amended in 2006, 28.

B. Solution

There are three different views regarding the problem of the applicability of Article 11 CISG to arbitration agreements. The first view asserts that Article 11 CISG and the CISG in general govern related arbitration agreements.75 The express reference to the “settlements of disputes” in Articles 19(3) and 81(1) CISG supports the argument that agreements to arbitrate fall within the scope of the CISG. Consequently, Article 11 CISG applies to dispute resolution clauses as arbitration agreements with the consequence that a valid agreement to arbitrate need not be in a written form.

A different view advocates that the CISG is not applicable to arbitration agreements.76 If one follows this view, the contract would be subject to the CISG, yet the CISG would not preempt the formal requirements relating to the agreement to arbitrate found in arbitration rules. This argument is premised on the principle of separability of the arbitration agreement from the main contract. This perception is derived from Article 16(1) of the UNCITRAL Model Law on International Commercial Arbitration77 and is reflected in the arbitration laws of many jurisdictions.78 According to the principle of separability, an arbitration provision is a separate agreement79 that is distinct from the main contract. Further, it is argued that the CISG governs only the substance of a contract and not the procedural aspects of applying the CISG. Thus, according to this view, the CISG is not intended to govern arbitration agreements.80

A third view is a hybrid of these two views. It also asserts that the formation of the arbitration agreement is subject to the CISG, however, Article 11 CISG is not applicable to arbitration agreements.81 The rationale of the first view – Articles 19(3) and 81(1) CISG’s use of “settlements of disputes” language – makes the CISG applicable. However,

75See, e.g., Pilar Perales Viscasillas in UN-Convention on the International Sales of Goods (CISG) (ed. S.M. Kroll,¨ L.A. Mistelis, and P.P. Viscasillas) (Munich: C.H. Beck, Hart & Nomos, 2011), Article 11 CISG, para. 13 et seq. (UN-Convention); Pilar Perales Viscasillas and David Ramos Munoz,˜ “CISG & Arbitration,” 10 Spain Arbitration Rev. 63, 70 et seq. (2011); Burghard Piltz, Internationales Kaufrecht, 2nd ed. (Munich: C.H. Beck, 2008), 69 et seq.; Janet Walker, “Agreeing to Disagree: Can We Just Have Words? CISG Article 11 and the Model Law Writing Requirement,” 25 J. L. & Commerce 153, 163 (2005/6).

76 See, e.g., Stefan M. Kroll,¨ “Selected Problems Concerning the CISG’s Scope of Application,” 25 J.L. & Commerce 39, 43 et seq. (2005–6); Peter Schlechtriem and Martin Schmidt-Kessel in

Commentary on the UN Convention, Article 11 CISG, para. 8; Germany, District Court Duisburg, April 17, 1996 (textiles), CISG-Online 186, available at http://www.globalsaleslaw.org/index.cfm? pageID=29&action=search; Switzerland, Supreme Court, July 11, 2000 (construction materials), CISGOnline 627, available at http://www.globalsaleslaw.org/index.cfm?pageID=29&action=search.

77 Article 16(1) UNCITRAL Model Law on International Commercial Arbitration states: “The arbitral tribunal may rule on its own jurisdiction, including any objections with respect to the existence or validity of the arbitration agreement. For that purpose, an arbitration clause, which forms part of a contract, shall be treated as an agreement independent of the other terms of the contract. A decision by the arbitral tribunal that the contract is null and void shall not entail ipso jure the invalidity of the arbitration clause.”

78See Germany Zivilprozessordnung (Code of Civil Procedure), Section 1040(1).

79Kroll,¨ “Selected Problems,” 44; Lew et al., Comparative International Commercial Arbitration, 102.

80Kroll,¨ “Selected Problems,” 44; Schlechtriem and Butler, UN Law on International Sales, 42 et seq.

81See, e.g., Robert Koch, “The CISG as the Law Applicable to Arbitration Agreements?,” in Sharing International Commercial Law across National Boundaries: Festschrift for Albert H. Kritzer on the Occasion of His Eightieth Birthday (ed. C.B. Andersen and U.G. Schroeder) (London: Wildy, Simmonds & Hill, 2008), 267, 282 et seq.; Mistelis, “CISG and Arbitration,” 375, 393 et seq.; Schlechtriem and SchmidtKessel in Commentary on the UN Convention, Article 11 CISG, para. 7. Opposing opinion Burghard Piltz, Internationales Kaufrecht, 2nd ed. (Munich: C.H. Beck, 2008), 70 et seq.

due to the drafting history, the wording of Article 11 CISG, and its systematic structure, Article 11 CISG is not applicable to the arbitration agreement.82

Although the two latter views – despite varying reasoning – exclude the application of Article 11 CISG to arbitration agreements, the former allows for the informal conclusion of arbitration agreements to the extent they are concluded under a CISG contract. The view that Article 11 CISG is applicable to arbitration agreements is the least convincing. In particular, it does not sufficiently acknowledge the separability of the international sales contract from the arbitration agreement. Furthermore, according to Article 90 CISG, this view would actually have to give precedence to the formal requirement of Article II of the New York Convention. In practice, this view does not involve a simplification of the formal requirement. In cases involving CISG sales contracts with oral arbitration agreements, awards resulting from such agreements would not be enforceable under Article II of the New York Convention.83 Thus, to ensure the enforceability of a future arbitration award, the parties need to fulfill the formalities required in arbitration rules.

V. Divergent Interpretations: National Courts and Arbitral Tribunals

A danger to the relationship between international arbitration and the CISG is the problem of divergent interpretations of the CISG by national courts and arbitration tribunals. Inconsistency in the application of law makes it a less reliable source of law for arbitration. In order to cast light on diverging approaches in CISG interpretive methodology, examples will be taken from the use by the national courts and arbitral tribunals of the Principles of European Contract Law (PECL) and the UNIDROIT Principles of International Commercial Contracts (PICC) in the application of the CISG. An issue in which this has been the case relates to the determination of interest rates under Article 78 CISG.84

The application of both of these sets of rules in the framework of the CISG is at the center of debate in the legal literature.85 The opinions on their role in the interpretation of the CISG are diverse – they vary from a perception of insignificance, to one of persuasive authority, to their application as international trade usages pursuant to Article 9(2) CISG, and to PECL and PICC serving central instruments of soft law applicable as “general principles upon which the CISG is based.”86 National courts have been less receptive in using PICC and PECL in the interpretation of the CISG. Indeed, there are

82See, esp., Koch, “The CISG as the Law Applicable to Arbitration Agreements?,” 267, 270 et seq.

83Several scholars view Article 11 CISG as a “more favourable provision,” with the consequence that New York Convention Article II is not applicable. See Pilar Perales Viscasillas in UN-Convention, Article 11 CISG, para. 13 et seq.; Perales Viscasillas and Ramos Munoz,˜ “CISG & Arbitration,” 63, 70 et seq.; Walker, “Agreeing to Disagree,” 153, 163 et seq.

84With regard to the application of the PICC in the context of arbitration tribunals, see Klaus P. Berger, “International Arbitration Practice and the UNIDROIT Principles of International Commercial Contracts,” 46 American J. of Comparative L. 129 et seq. (1998); Fabio Bortolotti, “The UNIDROIT Principles and the Arbitral Tribunals,” 5 Uniform L. Rev. 141 et seq. (2000).

85See, e.g., Fabian Burkart, Interpretatives Zusammenwirken von CISG und UNIDROIT-Principles (BadenBaden: Nomos, 2000), 1 et seq.; Pilar Perales Viscasillas, “The Role of the UNIDROIT Principles and the PECL in the Interpretation and Gap-Filling of CISG,” in CISG Methodology, 287 et seq.

86See Perales Viscasillas, “The Role of the UNIDROIT Principles,” 287, 296 et seq.

only a handful decisions in which national courts have used soft law instruments in the context of the CISG.87 In comparison, the number of decisions from arbitral tribunals in which the PICC or PECL have been referred to is considerably larger.88 The UNILEX database, which only contains decisions that refer to the PICC (and not to the PECL), does contain, in spite of the lower number of published awards, a total of 28 arbitral awards (as of August 2013) in which the PICC is referred to and applied in the context of the CISG.

Article 78 CISG, the assessing of interest as damages, is one of the most controversial provisions of the entire CISG.89 National courts and the prevailing views in literature view the determination of interest rates as an “external gap” with the consequence that to the extent that no trade usage exists, Article 7(2) CISG refers to the national law applicable by virtue of private international law.90

However, a number of arbitral tribunals91 have seen the determination of interest rates as an “internal gap” under Article 7(2) CISG (first alternative).92 In these cases the tribunals have equated the aforementioned soft law instruments with the CISG’s underlying “general principles” and applied the solution provided in the Principles’

87Only five decisions in the UNILEX database can be found using PECL or PICC in relationship to the CISG. See www.unilex.info.

88See Perales Viscasillas, “The Role of the UNIDROIT Principles,” 287, 288: “The use of the UNIDROIT Principles of International Commercial Contracts and the Principles of European Contract Law (PECL) in the interpretation and gap-filling of the CISG is beginning to be seen in practice particularly in international commercial arbitration.” Again, the number of arbitral cases is larger given the unreported arbitration awards.

89Article 78 CISG states: “If a party fails to pay the price or any other sum that is in arrears, the other party is entitled to interest on it, without prejudice to any claim for damages recoverable under Article 74.”

90See, e.g., Belgium, April 24, 2006, Appellate Court Antwerp (GmbH Lothringer Gunther Grosshandelsgesellschaft fur¨ Bauelemente und Holzwerkstoffe v. NV Fepco International), available at http://cisgw3.law

.pace.edu/cases/060424b1.html; Germany, 3 April 2006, Appellate Court Koln¨ (Strawberry plants case), available at http://cisgw3.law.pace.edu/cases/060403g1.html; Germany, July 22, 2004, Appellate Court Dusseldorf¨ (Shoes case), available at http://cisgw3.law.pace.edu/cases/040722g1.html. There are also arbitral decisions following this approach. See, e.g., ICC Ct. Bull. 2000, 107 et seq.; ICC Ct. Bull. 1995, 64, 66). See also Ulrich Magnus, in Kommentar zum UN-Kaufrecht, 2nd ed. (ed. H. Honsell) (Heidelberg: Springer, 2010), Article 78 CISG, para. 13; Huber and Mullis, The CISG, 358 et seq.; Franco Ferrari, in Internationales Vertragsrecht, 2nd ed. (ed. F. Ferrari, E.M. Kieninger, and P. Mankowski) (Munich: C.H. Beck, 2012), Article 78 CISG, para. 18. The problem is that there is no uniform approach for selecting a national law to be applied to an interest claim, as well as a lack of unanimity concerning whether procedural or substantive law governs the issue of the appropriate rate. Thus courts have resolved interest issues in different ways – by applying the law of the creditor’s place of business, the law of the debtor’s place of business, the law of the country of the currency of payment, and the law of the country in which payment is to be made. See John Y. Gotanda in UN-Convention, Article 78 CISG, para. 21 et seq.

91See, e.g., ICC Arbitral Award, Case No. 8128/1995 (Chemical fertilizer case), available at http://cisgw3

.law.pace.edu/cases/958128i1.html; Arbitral Award, Austria June 15, 1994, Vienna Arbitration proceeding SCH-4366 (Rolled metal sheets case), available at http://cisgw3.law.pace.edu/cases/940615a3.html; ICC Arbitration Award, Case No. 8769 of December 1996 (Electrical appliances case), available at http:// cisgw3.law.pace.edu/cases/968769i1.html.

92For different approaches to determining the rate of interest, see, e.g., Klaus Bacher in Commentary on the UN Convention, Article 78 CISG, para. 26; Franco Ferrari, Harry Flechtner, and Ronald A. Brand, The Draft UNCITRAL Digest and Beyond: Cases, Analysis and Unresolved Issues in the U.N. Sales Convention

(Munich: Sellier European Law Publishers, 2003), Article 78 CISG, para. 7 et seq.

Article 7.4.9 PICC93 and PECL’s Article 9:508 PECL94 of using the average short-term credit rate for the currency of the place where payment is due.95

The reason that soft law instruments are more widely used by arbitral tribunals for the interpretation and gap-filling of the CISG may be due to the freedom granted to arbitrators to use different sources of law. Furthermore, the increased awareness and understanding of the PICC and PECL among arbitrators, who frequently decide international cases, is much higher than for national judges. National judges are trained and generally apply national (hard) law. Furthermore, national judges tend toward the application of codified legal rules rather than principles drafted primarily by academics. On the basis of present data it appears that arbitral tribunals more frequently than national courts, for the reasons noted in this chapter, use the PICC and PECL to interpret and fill gaps in the CISG.

VI. Specific Performance in International Arbitration

Another difficulty in the relationship between the CISG and arbitration is the use of the remedy of specific performance. In principle, the CISG assumes that the buyer and the seller can claim specific performance in the event of a breach of contract.96 However, Article 28 CISG limits this remedy in stating: “If, in accordance with the provisions of this Convention, one party is entitled to require performance of any obligation by the other party, a court is not bound to enter a judgment for specific performance unless the court would do so under its own law in respect of similar contracts of sale not governed

93 Article 7.4.9 PICC states:

If a party does not pay a sum of money when it falls due the aggrieved party is entitled to interest upon that sum from the time when payment is due to the time of payment whether or not the non-payment is excused.

The rate of interest shall be the average bank short-term lending rate to prime borrowers prevailing for the currency of payment at the place for payment, or where no such rate exists at that place, then the same rate in the State of the currency of payment. In the absence of such a rate at either place the rate of interest shall be the appropriate rate fixed by the law of the State of the currency of payment.

The aggrieved party is entitled to additional damages if the non-payment caused it a greater harm. 94 Article 9:508 PECL states:

If payment of a sum of money is delayed, the aggrieved party is entitled to interest on that sum from the time when payment is due to the time of payment at the average commercial bank short-term lending rate to prime borrowers prevailing for the contractual currency of payment at the place where payment is due.

The aggrieved party may in addition recover damages for any further loss so far as these are recoverable under this Section.

95See, e.g., ICC Arbitral Award, Case No. 8128/1995 (Chemical fertilizer case), available at http://cisgw3

.law.pace.edu/cases/958128i1.html; Arbitral Award, Austria June 15, 1994 Vienna Arbitration proceeding SCH-4366 (Rolled metal sheets case), available at http://cisgw3.law.pace.edu/cases/940615a3.html; ICC Arbitral Award, Case No. 8769 of December 1996 (Electrical appliances case), available at http:// cisgw3.law.pace.edu/cases/968769i1.html. Some national courts have also adopted this approach. See, e.g., Supreme Economic Court of the Republic of Belarus, May 20, 2003 (Holimplex Inc. v. State FarmCombine Sozh, available at http://cisgw3.law.pace.edu/cases/030520b6.html). See generally, Klaus P. Berger, “International Arbitral Practice and the UNIDROIT Principles of International Commercial Contracts,” 46 American J. of Comparative L. 129, 137 (1998); Lu Song, “Award of Interest in Arbitration under Article 78 CISG,” 12 Uniform L. Rev. 79 et seq. (2007).

96See Articles 46 and 62 CISG.

by this Convention.” This provision reflects a compromise between civil law countries, which tend to grant specific performance routinely, and common law countries, which consider specific performance as an extraordinary remedy.97

At first glance, the answer to the question of whether Article 28 CISG is applicable to arbitral tribunals seems to be a straightforward one. In contrast to other provisions, for instance Articles 45(3) and 61(3) CISG, Article 28 CISG expressly refers to “court,” but not to “arbitral tribunal.” The path toward application of Article 28 CISG by arbitral tribunals therefore already appears to be blocked by its wording. However, reasons for the different treatment of specific performance by national courts and arbitral tribunals cannot be ascertained. The primary aim of Article 28 CISG (the avoidance of a conflict with national court systems) also affects arbitral tribunals, which serve as substitutes for domestic courts.98 The CISG’s Secretariat’s commentary states that: “Although the buyer has a right to assistance of a court or arbitral tribunal to enforce the seller’s obligation to perform the contract, [Article 28 CISG] limits that right to a certain degree.”99 Accordingly, Article 28 CISG is applied analogously to arbitral tribunals.100

The wording of Article 28 CISG refers to “its own law” in referencing Article 28 CISG application by national courts. “Its own law” refers to the domestic substantive law of the forum state, excluding the conflict of laws, thus the lex fori and not the lex causae.101 The problem with international arbitration is the arbitration tribunal does not possess “its own law” nor a real lex fori. The question is now: What happens in the event a party brings an action for specific performance before an arbitral tribunal? In following as close as possible the legal status before a national court, the arbitral tribunal’s “own law” is to be understood as the substantive law of the state to whose lex arbitri102 the arbitral tribunal is subject to, which generally means the law of the place of arbitration.103 Thus, whether

97See Andrea Bjorklund,¨ in UN-Convention, Article 28 CISG, para. 1; Beate Gsell in Kommentar zum UNKaufrecht, 2nd ed. (ed. H. Honsell) (Heidelberg: Springer, 2010), Article 28 CISG, para. 9; Huber and Mullis, The CISG, 186; Markus Muller¨-Chen in Commentary on the UN Convention, Article 28 CISG, para. 1; Perales Viscasillas and Ramos Munoz,˜ “CISG & Arbitration,” 63, 64.

98For more detail on this aspect, see Gsell in UN-Kaufrecht, Article 28 CISG, para. 9. Secretariat Commentary on 1978 Draft, Article 42 (now Article 46 CISG), para. 9.

99Id.

100See also Bjorklund,¨ in UN-Convention, Article 28 CISG, para. 18; Markus Muller¨-Chen, in Commentary on the UN Convention, Article 28 CISG, para. 8; Perales Viscasillas and Ramos Munoz,˜ “CISG & Arbitration,” 63, 64.

101Bjorklund,¨ in UN-Convention, Article 28 CISG, para. 16; John M. Catalano, “More Fiction Than Fact: The Perceived Differences in the Application of Specific Performance under the United Nations Convention on Contracts for the International Sale of Goods,” 71 Tulane. L. Rev. 1807, 1819 (1997); Huber and Mullis, The CISG, 187; Gsell in UN-Kaufrecht, Article 28 CISG, para. 1; Amy H. Kastely, “The Right to Require Performance in International Sales: Towards an International Interpretation of the Vienna Convention,” 63 Washington. L. Rev. 607, 637 et seq. (1988); Muller¨-Chen, in Commentary on the UN Convention, Article 28 CISG, para. 9; Steve Walt, “For Specific Performance under the United Nations Sales Convention,” 26 Texas Int’l L.J. 211, 219 (1991).

102Muller¨-Chen in Commentary on the UN Convention, Article 28 CISG, para. 9, n. 26 (describes the lex arbitri as follows: “the law according to which the validity of the arbitration convention, the arbitrability, the composition of the arbitration tribunal, the principal rules of the proceedings, the support by State courts, and the appealability are determined”).

103See Bjorklund¨ in UN-Convention, Article 28 CISG, para. 18; Huber and Mullis, The CISG, 187; Gsell in UN-Kaufrecht, Article 28 CISG, para. 12; Muller¨-Chen in Commentary on the UN Convention, Article 28 CISG, para. 8; Perales Viscasillas and Ramos Munoz,˜ “CISG & Arbitration,” 63, 64.