Larry_A_DiMatteo_-_International_Sales_Law_A_Global_Challenge-Cambridge_University_Press_2014

Part VI A World View of the CISG

implementation of Article 78 of the CISG in Egypt and reviews the CISG cases disputes brought before the Egyptian Court of Cassation and arbitral tribunals. This part also explores the position that Egyptian commentators have taken on issues relating to the construction of the CISG. Finally, an analysis is provided of the influence that the CISG has had on the drafting of Egypt’s New Commercial Code.

II. Overview of Islamic Law

Islam is the last divine religion brought fourteen centuries ago by Messenger and Prophet Mohammed (peace be upon him) to mankind. The Arab word Islam means “submission.” It derives from a word meaning “peace.” In a religious context, it means complete submission to the will of God. Islamic law does not only deal with the relationship between man and God, but also deals with the treatment of man toward others. All behavior and transactions are covered by Shari’a as the Holy Qur’an and the Holy Sunnah of the Prophet Mohamed have laid down broad principles, in the light of which the scholars of every time have deduced specific answers to the new situations arising in their age.4

A. Sources of Islamic Law

The compilation of a number of sources that make up Islamic law is called the Shari’a. Besides the core scared document – the Qur’an – there are a number of secondary sources, including Ijma or consensus and Qiyas or analogy.

1. Primary Sources

The sources of Islamic law (Shari’a) are divided into primary sources and secondary sources. Primary sources are composed of two components in the following order of importance. (1) The Qur’an is the principal source of all forms of Islamic thoughts and behavior. The text of the Qur’an consists of over 6,000 verses, divided into 114 sourah (chapters). Muslims believe that the Qur’an is the last holy book that God has revealed through the last Messenger and Prophet Mohammed (peace be upon him) over a period of 22 years until his death in 632 C.E. Because the Qur’an is the principal source of Shari’a law, any rule that is derived from Qur’an prevails over rules derived from other sources of Shari’a law. (2) The second source of importance in Islamic law is the Sunnah. It is the compilation of Prophet Mohammed’s practices as expressed in his sayings “Hadith,” actions “fe’al,” and/or approval “taqrir.” The Sunnah derives its authenticity directly from the Qur’an. It clarifies and complements the Qur’an in respect to many matters that the Qur’an is silent about. Sunnah plays an important role in interpreting the Qur’an but it cannot conflict or amend the rules provided in the Qur’an.

2. Secondary Sources

After the death of the Prophet Mohammed, supplementary sources of Islamic law were developed to apply whenever the two primary sources of Shari’a were silent or appeared to be ambiguous or inconsistent. There are two categories of secondary sources. The first

4Mahmoud A. El-Gammal, “ ‘Interest’ and the Paradox of Contemporary Islamic Law and Finance,” available at www.ruf.rice.edu/ elgamal/files/interest.pdf.

category includes materials that have been agreed on unanimously by Islamic scholars; the first is Ijma (consensus), which is based on Prophet Mohammed’s saying: “My nation will never agree on something wrong”; accordingly, whenever the Islamic scholars agree on a certain issue unanimously that issue becomes settled law. Another source of law is Qiyas (analogy). When there is no rule found in the primary sources or in the Ijma, such as in the case of a novel situation, Qiyas is applied. The second category includes debatable sources that have not been agreed on by all of the Islamic scholars; it includes among others Maslaha Mursala, Al Estehsan, Sadd al Zara’e, and Al Urf (custom).

B. Contracts under Islamic Law

The general principle that governs contracts in Islamic law is the principle of freedom to contract. It is based on the Qur’anic order to Muslims: “O you who believe! Fulfill (your) obligations,”5 and the Prophet Mohamed’s Hadith: “Muslims are bound by their obligations or stipulations, except a stipulation which makes lawful what is unlawful or which makes unlawful what is lawful.” Therefore, Muslims are free to contract and are bound by their stipulations but there are some activities that are prohibited by the Qur’an or other sources, including, among others, usury or interest – “whereas Allah has permitted trading and forbidden Riba.”6

The contract is considered valid under Islamic law whenever certain requirements are fulfilled. The requirements for a sale or purchase contract include mutual consent between the parties and agreement on the type of goods, as well a contract price. The offer is known in the Islamic Law as Ijab and the acceptance is known as Qoboul. The mutual consent is referred to as sourat: “O you who believe! Eat not up your property among yourselves unjustly except it be a trade amongst you, by mutual consent.”7 Under Islamic Law, no formal requirements are needed for the contract to be concluded.

C. Prohibition of Riba or Usury in Islamic Law

The word “Riba” in the Arabic language means an increase or addition. The Qur’an prohibits Riba, although permitting trade: “O you who believe! Be afraid of Allah and give up what remains (due to you) from Riba (usury) (from now onward), if you are (real believers). And if you do not do it, then take a notice of war from Allah and His Messenger but if you repent, you shall have your capital sums. Deal not unjustly (by asking more than your capital sums), and you shall not be dealt with unjustly (by receiving less than your capital sums).”8

The Sunnah clarifies the meaning of Riba. According to the Prophet Mohammed’s Holy Hadith, every loan that leads to an extra interest (when repaid) is considered Riba. However, the trader may make profit in other cases as in case of business profit, dividends, and partnership income; such profit is not prohibited: “whereas Allah has permitted trade and forbidden usury.”9 Although the Shari’a has prohibited the Riba, it has developed

5Quran, 5:1, King Fahd Glorious Quran Printing Complex, The Noble Quran: English Translation of the Meanings and Commentary, 1431 A.H.

6Quran, 2:275

7Quran, 3:29.

8Quran, 2:278 and 279.

9Quran, 2:275.

other forms of transactions, including the Mudarabah. In the Mudarabah, one party provides the necessary financial capital and the other provides the human capital needed for a specific economic activity. In addition, where the creditor suffers loss due to the delay of payment by the wealthy debtor who fails intentionally to pay on time, the creditor is entitled to compensation for such loss.

D. Influence of Islamic Law (Shari’a) in the Egyptian Legal System

The origin of the current Egyptian legal system can be traced back to the Ottoman legal reforms of the nineteenth century. The Ottoman government had a strong interest in the administration of justice, and judges, appointed by the empire or its local representatives, decided cases based on a combination of Shari’a and state law that was also heavily based on the Shari’a. A series of centralizing reforms resulted in several attempts to codify the law. The Majallah code was issued between 1869 and 1877 and was the culmination of the Ottoman codification effort.10 Simply stated, it consisted of Islamic law in content but was based in form on the Napoleon Code.11

Today, the Egyptian legal system consists of a codified set of rules representing a blend of the Islamic and civil law traditions. Egypt’s most recent constitution was approved in 1971 and has been amended in 1980, 2005, and 2007. Prior to the 1980 Amendment, Islamic law (Shari’a) was only one source among other sources of legislative rules. After the 1980 Amendment, Article 2 of the constitution recognized the Shari’a as the principal source of legislative rules. This means that any law may not contradict Shari’a law.12 In strengthening Article 2 of the Constitution, the Egyptian Constitutional Court ruled that:

It is therefore not permitted that a legislative text contradicts those rules of Shari’a whose origin and interpretation are definitive, since these rules are the only ones regarding which new interpretive effort (ijtihad) is impossible, as they represent, in Islamic Shari’a, the supreme principles and fixed foundations that admit neither allegorical interpretation, nor modification. In addition, we should not contemplate that their meaning would change with changes in time and place, from which it follows that they are impermeable to any amendment, and that it is not permitted to go beyond them or change their meaning. The authority of the High Constitutional Court in this regard is limited to safeguarding their implementation and overruling any other legal rule that contradicts them.13

On February 11, 2011, Former Egyptian President Hosni Mubarak was removed from office and temporarily replaced by the Supreme Council of the Armed Forces

10In the area of finance, the Islamic sources of transactions law continue to rely heavily on Majallat alAhkam al-Adliyyah, the latest available codification of Islamic jurisprudence, commissioned and imposed by the Ottoman Empire in its final days 1869–1926 C.E., and based on Hanafi jurisprudence. El-Gammal, “ ‘Interest’ and the Paradox.”

11Nathan J. Brown, The Rule of Law in the Arab World (Cambridge Middle East Studies), 2.

12However, the Constitutional Court has ruled that the 1980 amendment of Article 2 limits the discretion of the legislative authority only for the legislations subsequent to this amendment. See Constitutional Court, Case No. 20, for the judicial year 1, May 4, 1985.

It is to be noted that penal law rules, as codified in the Penal Code, are entirely western, nonreligiousoriented rules whether they were ratified before or after the 1980 amendment. Egypt has also enacted a number of new statutes to respond to contemporary standards of global economic and business reform, including investment law, anti-money laundering law, intellectual property rights law, competition law, consumer protection law, electronic signatures law, banking law, taxation law, and others.

13As quoted in El-Gammal, “ ‘Interest’ and the Paradox.”

(SCAF). The 1971 Constitution was suspended and the people’s assembly and the Shura Council were dissolved following a referendum on some amended articles of the 1971 constitution. This has not influenced the stipulation that Islamic law is the main source of legislation, as per the wording of Article 2 of the suspended constitution, as confirmed by a subsequent declaration.

III. Achieving Uniformity: Autonomous Interpretation of the CISG

CISG interpretive rules (Article 7) encourage autonomous interpretations of its rules free of influence from domestic laws. A brief review is undertaken here in order to better analyze the relationship between the CISG and Egyptian domestic law.

According to Article 7(1), in interpreting the CISG, regard is to be had to its international character, the aim of promoting uniformity in its application, and the observance of good faith in international trade. The international character of the CISG means that national courts should not resort to interpreting CISG rules from the perspective of national legal systems and laws. This is implied by the fact that the CISG’s primary purpose is the harmonization of international sales law.14

To better ensure uniformity of application of the CISG, the interpreter should take into consideration rulings on the same or similar interpretive issues made by foreign courts or arbitral tribunals. Although such decisions are not binding, they can play a significant role in promoting uniformity in the application of the CISG. Existing online databases and other compilations allow judges all over the world to review decisions made in other legal systems.15 These readily accessible sources include UNCITRAL’s CLOUT reporting system,16 the CISG Database at the University of Pace Law School’s Institute of International Commercial Law,17 and UNILEX.18 In the Arab world, the Middle East Center for International Commercial Law19 was established in 1998 in cooperation with the Institute of International Commercial Law at Pace University for the purpose of disseminating information on the CISG to Arabic language countries.

The role that the principle of good faith plays in the CISG is a debated issue.20 The inclusion of good faith in the CISG came as a result of disagreement among negotiating states. As a compromise, good faith was included as a matter of interpretation, not as a provision imposing a duty on parties to act in good faith.

It is worth mentioning that the rules of interpretation of public international law found in the Vienna Convention on the Law of Treaties, 1969 (VCLT), are not suitable to interpreting the CISG. The VCLT is more concerned with treaties that impose obligations

14One method of interpreting a vague provision of the CISG without resort to national legal concepts is the use of its legislative history. See Mohsen Shafik, Ittifaqiyat al-Umam al-Muttahidah bi-sha’n alBay’ al-Dawli lil-Bada’i’: Dirasah fi qanun al-tijarah al-dawli (The UN Convention on Contracts for the International Sale of Goods: A Study in International Commercial Law) (Cairo, 1988), 79.

15Hossam El-Saghir, Tafsır¯ Ittifaqiyat al-Umam al-Muttahidah bi-sha’n or qud¯ al-Bay’ al-Dawli lil-Bada’i’ (The Interpretation of the United Nations Convention on Contracts for the International Sale of Goods)

(Cairo, 2001), 79.

16UNCITRAL publishes CISG case abstracts under its Case Law on UNCITRAL Texts or CLOUT. The system is explained in the UN document A/CN.9/SER.C/GUIDE/1/Rev.1.

17The leading CISG database is the Institute of International Commercial Law, School of Law, Pace University, available at http://www.cisg.law.pace.edu/.

18UNILEX: International Case Law and Bibliography on the UN Convention on Contracts for the International Sale of Goods (ed. Michael Joachim Bonell et al.).

19See http://www.cisg.law.pace.edu/cisgarabic/middleast/index.html.

20For more details about the position of Arab commentators on good faith, see infra Section C. III (1).

on contracting states. Its rules also emphasize the intentions of contracting states that are bound by such treaties. Unlike such treaties, the first three parts of the CISG address matters relating to contract law (obligations of buyers and sellers).21 However, the applicability of individual principles of interpretation under public international law to the CISG is not completely excluded. For example, public international law’s interpretive rules may be useful in interpreting the fourth part of the CISG entitled “Final Provisions” relating to the obligations of contracting states. In addition, some principles of interpretation under public international law such as those concerning the interpretation of conventions drafted in several languages can also be applied to the CISG.22

The second rule of interpretation is the gap-filling provision incorporated in Article 7(2) of the CISG. It deals with questions concerning matters not expressly settled by the CISG, although falling within its scope. These questions are to be settled in conformity with the general principles on which the CISG is based. This means that where the CISG does not provide a solution to the issue at stake, resort has to be made to the general principles. Only when the general principles, express or implied, fail to provide an answer should an interpreter reference the national law applicable by virtue of conflict of laws rules. This gap-filling provision aims at furthering the ability of the CISG to resolve issues that fall within its scope and to avoid recourse to national laws.

The enactment of the New Egyptian Commercial Code somehow altered the way in which Article 7(2) operates in practice. The Code regulates commercial sales transactions for the first time. As far as international sales contracts are concerned, Article 88(2) states that the Code is subject to international conventions in force in Egypt, as well as to international commercial usage. It prioritizes international trade usage over national law. It also subjects such contracts to international commercial terms compiled and adopted by international commercial organizations, such as the ICC’s Incoterms.

As noted above, Egyptian legislation incorporates international trade usage by reference. It recognizes lex mercatoria at the legislative level. In cases where the Egyptian law governs an issue by virtue of Article 7(2) of the CISG, lex mercatoria prevails over national law. The substantive rules of the Code only apply where the lex mercatoria fails to resolve the issue at hand. This also creates an important guideline concerning the CISG’s interpretation. The wording of Article 88 implies that lex mercatoria may be treated on equal footing with the international conventions governing the international sales of goods.

IV. Obstacles to the Uniform Application of the CISG in the Arab World

The legal community in the Arab world is largely unaware of the existence of the CISG. Paradoxically, Egypt and Syria were among the first ten countries that adhered to the CISG.23 Law professors, jurists, and judges in the Arab world know little, if anything, about the CISG. Only five Arab countries – Egypt, Iraq, Mauritania, Syria, and

21 The CISG is divided into four parts: Part I: Sphere of Application and General Provisions; Part II: Formation of Contract; Part III: Sale of Goods; Part IV: Final Provisions.

22 Commentary on the UN Convention on the International Sale of Goods (CISG), 2nd ed. (ed. P. Schlechtriem and I. Schwenzer) (Oxford University Press, 2005), 97.

23By December 11, 1986, the instruments of adherence, ratification, or accession had been deposited with the UN Secretary General by eleven states: Argentina, China, Egypt, France, Hungary, Italy, Lesotho, Syrian Arab Republic, United States, Yugoslavia, and Zambia.

Lebanon – have adopted the CISG. No Egyptian university offers a course in the CISG at the undergraduate level. Moreover, the number of universities that offer courses covering the CISG at the graduate level is limited.24 None of the universities in any of the four countries mentioned offer CISG-related courses. Moreover, the scholarly writings and court decisions on the CISG are extremely scarce. The scarcity of published decisions can be partially attributed to the fact that Egypt only publishes opinions rendered by the Court of Cassation and the Constitutional Court. Therefore, even assuming that lower courts apply the CISG, their opinions are inaccessible.

In 2006, the Egyptian Court of Cassation issued its only decision applying the CISG.25 The case remains unpublished and a 2000 CISG international case law digest26 failed to list a single court or arbitral decision in the Arab world.27 It is worth mentioning that the delay in publishing the CISG in the Official Gazette in Egypt created a constitutional obstacle to its application by the judiciary. The CISG was not published in the Official Gazette until January 30, 1997, almost a decade after its entry into force.28 Article 151 of the Egyptian Constitution requires publishing international conventions in the Official Gazette in order for them to come into force under national law.

A. Official Texts of the CISG: Errors in the Arabic Version

The CISG was issued as a single original instrument with publication in six official languages. In theory, the texts of the six versions of the CISG have the same meaning. However, this is not the case. For instance, Shafik, an eminent Egyptian scholar who represented Egypt at UNCITRAL, noted a difference between Article 1 of the English and Arabic versions of the CISG on the one hand and the corresponding Article of the French version. In the English and Arabic versions, it is crucial for the “place of business” of the seller and the buyer to be located in different states in order for the CISG to apply. The discrepancy lies in the French version’s use of the term establishment´ instead of “place of business,” which thus adopts a physical approach to determining whether the CISG applies. Shafik argues that the terminology establishment´ used in the French version is more accurate than the corresponding term of the English and Arabic versions. He contends that the CISG is not concerned with the place where the parties conduct their business, but is concerned with the physical location of their establishments.

The comparison between the Arabic version of the CISG and its English counterpart shows numerous divergences. This has led judges from different countries to attach different meanings to CISG provisions depending on the version on which they rely. Unfortunately, Egypt has adopted the Arabic version of the CISG and published it in the Official Gazette without any review. It became part of the national law without a proper review of the translation and contains numerous inaccuracies. The Middle East Center for International Commercial Law lobbied the UNCITRAL General Secretary about

24However, as of 1997, the author of this chapter has taught the CISG in three Egyptian universities at the post-graduate level; Menoufia, Cairo, and Helwan universities.

25Court of Cassation, Civil and Commercial Circuit, April 11, 2006, Case No. 979 Judicial Year 73.

26Twenty Years of International Sales Law under the CISG: International Bibliography and Case Law Digest

(ed. Michael R. Will) (1980–2000).

27Id.

285 Official Gazette (January 30, 1997).

correcting the errors in the Arabic translation.29 In 2001, an amended Arabic version was issued to correct the errors. However, the errors were not completely cured. The 2001 Arabic version still contains errors in Articles 25 and 36.

Article 25 in the English version stipulates 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 beach did not foresee and the reasonable person of the same kind in the same circumstances would not have foreseen such a result” (emphasis added). However, the Arabic version omits the negation in the second phrase. According to the Arabic version, a breach is not fundamental if the breaching party foresees such breach, and if a reasonable person in the same circumstances would have foreseen its occurrence.

The Arabic and English versions of Article 36 make different presumptions. The English version deals with lack of conformity that does not exist at the time when the passing of the risk of loss is shifted to the buyer. It provides that the seller is liable for any lack of conformity that occurs after the passing of risk and that is due to a breach of any of the seller’s obligations. However, the Arabic version of the same article uses the term appears instead of occurs. This discrepancy is likely to have some implications. The term appears used in the Arabic version implies that the seller is liable whether the nonconformity comes into existence before or after the time of passing of risk. The result of this translation error is that one of the incidents (Arabic version) of Article 36(2) covers an incident already governed by paragraph (1) of the same Article (seller’s liability for the lack of conformity that exists at the time of passing of risk).

Ironically, the 2001 Arabic version contains an error that did not exist in the original version. Article 35(2)(b) of the amended Arabic version contradicts the English version. Article 35(2)(b) in the current Arabic version omits the negation concerning the buyer’s reliance on the seller’s skill and judgment. In other words, according to the Arabic version, the goods conform with the contract if they are fit for the particular purpose known to the seller except where the circumstances show that the buyer relies on the seller’s skill and judgment. The Article should have stipulated that the goods conform if they are fit for their particular purpose known to the seller except in the cases where the circumstances show that the buyer did not rely on the seller’s skill and judgment. In January 2011, UNICTRAL issued a new Arabic version correcting the errors in Articles 35(2)(b) and 36(2). However, it did not correct the error in Article 25.

V. Implementation of CISG Article 78 in Egypt

Article 78 of the CISG establishes the obligation of a party to pay interest if and insofar as he or she fails to pay the price on time or any other sum that is in arrears. However, it does not fix the interest rate. There are incompatible approaches to the question of interest based not only on different economic and political approaches but also on philosophical and even religious views, as Muslim states forbid interest.30

During the preparation of the draft of the CISG, some Arab countries’ delegations raised objections against any provision that deals with interest. It was suggested that

29Depository Notification CN. 862 1998 Treaties – 5 of February 19, 1999, Process-Verbal of Rectification the Authentic Arabic Text.

30Schlechtriem and Schwenzer, Commentary, 794.