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CISG and passing of property in goods

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The road towards a unified law of commercial transactions is an ancient one; the beginning movements towards codifications were found in the lex mercatoria of medieval Europe.It was at this time that due to the increase in trade amongst merchants across various countries necessitated a uniform and fair method of resolving disputes. Mather states that at this time, “in order to maintain the growth of international trade, merchants needed a new commercial law that had to be simple. It had to be a uniform commercial law, an international body of law that could protect merchants from the vicissitudes of local law.” Hence, as a result, the law of the merchant was developed to facilitate trade and commerce transactions smoothly along with providing certainty and predictability.
The merchants would have their disputes resolved based on unified customs and the notion of good faith. Though the medieval lex mercatoria worked well as a uniformed system, it was “disintegrated in the modern era as commercial law became nationalized”. Therefore, due to economic and commercial complexities and needs, more uniform frameworks started developing that would regulate cross-border transactions, and one such landmark Convention was the CISG in the 20th Century.
CISG is the centrepiece of the United Nations Commission on International Trade Law’s (UNCITRAL) movement to create a uniform set of laws for international transactions. The Convention is the result of legislative work initiated by the International Institute for the Unification of Private Law (UNIDROIT), which has been taken over by the UNCITRAL following the Second World War. These efforts culminated with the adoption of the CISG by a diplomatic conference in Vienna on 11 April 1980. The Convention entered into force on 1 January 1988 for its 11 original and diverse state parties, which included every geographical region, every stage of economic development, and every major legal, social, and economic system.
94 States from all legal traditions have adopted CISG and levels of economic development, and that together represents over two-thirds of the global economy.Creation of this single document with a set of rules that governs international sales contracts has various benefits, including but not limited to providing parties ease to conduct business without having to familiarise themselves with laws applicable in several jurisdictions.
As the primary task of CISG is to provide uniform rules for international sales goods, it does not apply to all kinds of sales. Article 2 provides that CISG does not apply to sales of stocks, shares, sale of ships, electricity, sale of auction, execution, or sale of personal goods. International is defined in Article 1 of the Convention as ‘this Convention applies to contracts of sale of goods between parties whose places of business are in different States’.
The apparent success of CISG is well known as its three major achievements seem to be that the original contracting states were able to adopt a standard text that can be seen as a codification of commercial contract practice, that the treaty is popular among states aiming to become a party and, finally that the CISG is an important model for revisions of national law and other international texts.
Pakistan is not a contracting state to CISG; however, this does not mean that CISG cannot govern the international sales contract. It is because of Article 1(b) that CISG will apply “to the contract of sale of goods between parties whose place of business are in different states when the rules of private international leads to the application of the law of a Contracting State”.Thus, in circumstances where one party is from the Pakistan and the other from the contracting state to CISG, it can govern the contract with reference to private international law.
CISG governs matters that relate to the parties’ contractual relationship, such as the formation of the contract and the rights and obligations of the seller and buyer along with its effects. It does not regulate the proprietary effects of the passing of property that refer to the validity of the transfer and its effect on the proprietary rights of the seller-buyer and third parties.
The reason why CISG excludes regulating proprietary rights is due to the disagreement of legal systems on this matter. In various legal systems such as Germany, Greece, the Netherlands, the principle of delivery applies where the property passes at the time of delivery of goods to the buyer, whereas, in other legal systems such as France, Belgium, Denmark, Libya, Portugal the property passes at the mere consent at the conclusion of the contract.
It is to be noted that although all the legal systems have a set of principles regarding when the transfer of ownership in the goods to the buyer will take place, they all adhere to the principle of autonomy that is enjoyed by the parties to determine when the transfer will take place. Thus, party autonomy is a choice of law doctrine that permits contracting parties to be able to choose the law of a particular country or sovereignty to govern their contract with two or more jurisdictions.However, CISG excludes the transfer of ownership without defining the terms “property”, which can cause problems as the terms may be defined or interpreted differently under different legal systems.
Article 4 of CISG states that: “This Convention governs only the formation of the contract of sale and the rights and obligations of the seller and the buyer arising from such a contract. In particular, except as otherwise expressly provided in this Convention, it is not concerned with: (a) the validity of the contract or of any of its provisions or of any usage; (b) the effect which the contract may have on the property in the goods sold”.Hartnell notes that “Article 4(a) itself presents a paradox. The drafting history demonstrates that this provision fulfills a peculiar role, which is fundamentally at odds with the unification goals of the Convention. The purpose of Article 4 (a) precisely to admit of national divergence regarding sensitive issues.”
Article 4(b) explicitly provides that CISG is not concerned with the effect, which the contract may have on the property in the goods sold. Thus, it is clear that CISG does not govern the proprietary effects of the transfer of property to the buyer and the proprietary rights of the parties. The questions of whether the seller can pass the ownership or has the power to do so are regulated by the contract stipulation in situations where the parties have opted for CISG as the governing law. Therefore, it is to be noted that Article 4 makes it clear that, absent a contrary provision, the Convention does not affect any rule of domestic law dealing with the “validity” of a contract provision.
Though this signifies the concept of party autonomy in international sales contract allowing contracting parties to stipulate the time or event that will determine when the buyer will have the ownership of the goods under the contract, matters become complicated when the parties do not stipulate in the contract the time when the property in the goods will transfer to the buyer as no default rules exists under CISG.
A different interpretation has been done by Ferrari, who points out the phrases ‘in particular’ and ‘except as otherwise expressly provided in the Convention’ in Article 4 provides that the confinement between matters included and those excluded from the scope of the Convention are not very clear. Thus, if a dispute arises on whether the matter is excluded from the scope of the Convention, such as transfer of ownership, ‘the Convention’s applicability should be excluded a priori -rather, one has to examine whether the CISG expressly provides for a solution’.
It can be argued with reference to Article 30 of CISG that states “the seller must deliver the goods, hand over any documents relating to them and transfer the property in the goods, as required by the contract and this Convention” that though CISG does not regulate the transfer of ownership, it mentions articles related to property rights. The Article makes it is mandatory that the seller to deliver the goods to the buyer and transfer the property in the goods to the buyer. Without these obligations upon the seller, there would not be a sale under CISG.
Article 31- 35 further summarizes the primary duties of the seller under the contract governed by CISG, but central understanding is that it’s the seller’s principal obligation to transfer of property even though CISG does not tell how to do so; thus, CISG doesn’t entirely exclude the regulation of transfer of ownership.
Similar is the case in Switzerland, where it is the duty of the seller to transfer the ownership and deliver the goods to the buyer. Article 184 of the Swiss Code of Obligations states that: “A contract of sale is a contract whereby the seller obligates himself to deliver to the buyer the object of purchase and to transfer title thereto the buyer, and the buyer obligates himself to pay the purchase price to the seller”. However, under Swiss Law, that transfer of ownership takes place on delivery, which is not the same as under CISG.