Tony Nguyen – Sr Partner of EPLegal
(PART 2: CISG’S application in Vietnam in the past 4 years)
This Article focuses on the application of CISG in Vietnam in relation to Article 1, Article 6, Article 7 and Article 8 of the convention. It will also look into the matters not regulated by CISG, or the matters that are mentioned but yet to be resolved.
Applying CISG correctly
Except for a few existing doubts on the concept of “places of business”, Article 1.1(a) is generally noncontroversial. Article 1.1(b), on the other hand, demands discussions between experts all over the world. For example, if the contract stipulates that the applicable law is the law of a contracting state of CISG and that state did not excersice Article 95 to exclude Article 1.1(b), it is unclear whether the law of such state or CISG would apply.
Previously, it is believed that choosing national law as the applicable law simultaneously means the exclusion of CISG.[1] This view faced severe criticism and has became outdated. On the contrary, Majority of case law of the contracting states such as France, the US, China upheld the practice that if parties intend to exclude the application of CISG, they must do so expressly. Otherwise, applying national law of a contracting state of CISG would automatically lead to the application of CISG. The latter is also the official opinion of UNCITRAL.[2] According to the CISG Advisory Council, even when one or more parties initiate a lawsuit or arbitration with reference to national law, the court or arbitration centers would not consider such action as a valid reason to rule out the application of CISG.[3]
In term of Article 7.1 of CISG, it is important to apply CISG uniformly and to promote and maintain the principle of “good faith” in international trade. In fact, the principle of “good faith” has been a topic of discussion for a long time. Experts and scholars of Common law countries disapprove the application of “good faith”, which exists in the national law of Civil law countries. They argue that the requirement for “good faith” in Article 7.1 of CISG is simply the spirit one should carry when interpreting CISG.[4] However, this understanding of the common law countries should not be endorsed. The principle of “good faith” must be understood in its meaning in accordance with the international standard and not following or influenced by any national law.[5]
Next, the Gap-filling principle provided by Article 7.2 of CISG. There is a two-level mechanism to resolve the matters not stipulated in CISG or the matters merely mentioned but not accompanied by a solution.
For the first level, the general principles of the convention are used to address the legal issues. Such principles are:
– Freedom to make an agreement (laid down in Article 6 of CISG)
– The principle of using “good faith” in interpreting CISG (Article 7.1 of CISG)
– The rule on the place of payment, which is the place of business of the seller (Article 57 of CISG)
– The burden of proof is on the party who relies on CISG’s provisions to claim a benefit or an exemption from liability.
– To compensate fully against a breach of contract
– The rule to disregard the formality of the contract (Article 11 of CISG)
– The dispatch rule (Article 27 of CISG)
– To take reasonable measure to mitigate loss (Article 77 of CISG)
– To apply parties’ customs or international customs to contract (Article 9.2 of CISG)
– Buyer has the right to suspend payment against the Seller’s breach of contract
– The right to claim interest on sum that is in arrears (Article 78 of CISG)
– The principle of “Favor contractus” provided by Article 19.2, 25, 26, 34, 48, 49, 51.1 and Aricle 64 of CISG
– The principle of “Reliance” expressed in Article 8 of CISG. The principle means that a party shall be liable for the statements or conducts that it made with the intention to be bound to such making.
– The principle for “reasonable foreseeability” in accordance with Article 74 and Article 79 of CISG
For the second level, the applicable law is the national law. The issue is how to differentiate between applying the CISG’s general principles of the first level and applying the national law. In fact, there are two common gaps of CISG. First, the external gap, meaning the matters not regulated by CISG (for example, the list in Article 4 of CISG). Correspondingly, national law would be applied to fill this gap. Second, the internal gap, which are the matters mentioned in CISG but lack proper solutions. The best way to fill the internal gap is to exhaust all the CISG’s general principles and avoid national law as much as possible.[6]
CISG’s application in Vietnam from 01/01/2017 to 30/11/2020
There have been no records on the number of disputes of international sale of goods resolved in courts. Moreover, according to unofficial information collected from the people’s courts in Hanoi, Ho Chi Minh city and Da Nang city, CISG has never been applied by them.
In term of Arbitration, there were 7 cases where CISG was applied to resolve disputes in international sale of goods (6 in VIAC[7] and 1 in ICC[8]). This is minimal compared to the total 86 disputes resolved in these arbitration centers.
The three reasons for such limited application of CISG in Vietnam are examined as follow:
1) The contracts of international sale of goods in dispute were formed before CISG took effect in Vietnam
Many of the 86 cases mentioned above were brought to arbitration in 2017 but the contracts were signed before the 01/01/2017. At that time, CISG has not came into effect and cannot be applied, regardless of whether the contract states the applicable law to be Vietnam law or the contract has no applicable law clause. The fact that CISG was not referred to in these circumstances is totally reasonable in international standard.
2) The contract does not contain an applicable law clause
According to the data gathered from VIAC, up until the end of 2020, there were 31 disputes in international trade where the contracts had no applicable law clause. For these cases, the tribunal decided to apply Vietnam laws. However, this solution does not correspond to Article 1.1(b) of CISG, international practice and UNCITRAL’s instruction. When deciding to apply Vietnam laws, the tribunal should have referred to Article 1.1(b) to also apply CISG to settle the said disputes.
3) The contract stipulates that Vietnam law is the applicable law
54 out of the 86 cases resolved in VIAC and ICC fall into this category where the contracts expressly chose Vietnam law. Nearly all the tribunals of these cases ignored the existence of CISG in the Vietnamese legal system. This behavior can be described as “hometrend”, meaning the tribunals, intentionally or otherwise, excluded CISG in the situations where CISG should have been applied in accordance with Article 1.1(b).
To reveal and explain the reasons for “hometrend”, 14 Vietnamese arbitrators were interviewed on the topic of CISG’s application. The results are as follow:
– 3 artbitrators had experience in a case related to CISG.
– 7 arbitrators had conservative approach and believed that choosing Vietnam law as the applicable law simultaneously means the exclusion CISG or CISG should only be used as a secondary source of law.
– Majority of the arbitrators liken the provisions of CISG and Vietnam laws. As such, they concluded that the application of either law would lead to the same result.
– Majority of the arbitrators considered the actions of “submitting Statement of claim or Statement of defence on the basis of Vietnam law” to have the effect of preventing CISG from being applied. This understanding contravenes the international practice and CISG Advisory Council’s opinion stated in the third paragraph of this Article.
– 1 arbitrator explained on why Vietnam law takes precedence over CISG. Accordingly, CISG has been mentioned in Viet Nam but has never been applied. Vietnamese enterprises prefer Vietnam Law because it is familiar to the enterprises and they understand it better.
It can be concluded that the parties in dispute tend to ignore CISG and rely only on Vietnam law. Arbitral tribunals also carry the same mindset where they accept that parties prioritize Vietnam law to setlle disputes. Because of such “reluctant to change”, parties end up “going home” to apply Vietnam law instead of CISG.
Adding to the interview of 14 Arbitrators, 10 judges, who handled commercial dispute cases, were invited to give their opinion on this topic. 8 out of the 10 judges believed Vietnam law must be applied when the disputing parties so agreed in their contract. Such practice contributes to the fact that CISG has not been applied in any court case.
[1] Italy 14 January 1993 District Court Monza (Nuova Fucinati v. Fondmetall International) http://cisgw3.law.pace.edu/cases/930114i3.html and France 26 September 1995 Appellate Court Colmar (Ceramique Culinaire v. Musgrave). http://cisgw3.law.pace.edu/cases/950926f1.html
[2] UNCITRAL Digest of Case Law on the CISG (2016 Edition), page 34, para 11
[3] CISG Advisory Council (2014), Opinion no. 16: Exclusion of the CISG under Article 6, para 5.
[4] Bruno Zeller, ‘Good Faith – The Scarlet Pimpernel of the CISG (May 2000).
[5] Magnus, ‘Remarks on Good faith’ Int. Trade and Bus L Ann III (1997) 46
[6] UNCITRAL Digest (2016), page 43, para 10.
[7] Vietnam International Arbitration Center
[8] ICC International Court of Arbitration