The author recently handled a civil lawsuit in which the plaintiff was a foreign company and the defendant was a Chinese company, and the contract stipulated that the dispute arising thereof should be resolved through judicial procedures in the country where one of the parties to the contract was located, but there was no agreement on the applicable law, so it was necessary to clarify the applicable law in the course of the trial of the case. This article discusses and summarizes the application of the United Nations Convention on Contracts for the International Sale of Goods based on the cases of Chinese courts for readers' reference.
- The Supreme People's Court issued a notice and a guiding case on how to apply the United Nations Convention on Contracts for the International Sale of Goods.
The member countries of the United Nations Convention on Contracts for the International Sale of Goods cover major economies in the world, and the Convention came into effect in China on January 1, 1988. The Notice of the Supreme People's Court on Forwarding the Several Issues to be Noted in the Implementation of the United Nations Convention on Contracts for the International Sale of Goods by Ministry of Foreign Economic Relations and Trade (Fa [Jing] Fa [1987] No. 34) clearly states that "In accordance with the provisions of Article 1 (1) of the Convention, since January 1, 1988, if the contract for the sale of goods concluded between companies in our country and companies in the above-mentioned countries (except Hungary) does not make a choice of law, the relevant provisions of the Convention shall automatically apply to the matters specified in the contract, and disputes or lawsuits shall also be dealt with in accordance with the Convention. Therefore, companies should consider applying the Convention to general contracts for the sale of goods, but companies may also enter into contract terms that are inconsistent with the provisions of the Convention with foreign companies based on specific factors such as the nature of the transaction, the characteristics of the products, and nationality of the counterpart, or expressly exclude the application of the Convention in the contract and choose the domestic law of a country as the applicable law of the contract. ”
The Key Points of the Judgment of the Guiding Case No. 107, Sinochem International (Singapore) Co., Ltd. v. Thyssenkrupp Metallurgical Products Co., Ltd., a dispute over a contract for the international sale of goods, released by the Supreme People's Court on February 25, 2019, clearly states that "When the countries where the parties to a contract for the international sale of goods are located are parties to the United Nations Convention on Contracts for the International Sale of Goods, the provisions of the Convention shall prevail. Where the Convention does not provide for the contents, the applicable law as agreed in the contract shall apply. The Convention shall not apply if the parties to a contract for the international sale of goods expressly exclude the application of the United Nations Convention on Contracts for the International Sale of Goods. ”
- “The Convention shall prevail” includes the following three circumstances:
1. If the parties to the contract have not agreed on the applicable law or excluded the application of the Convention in the contract, the Convention shall prevail.
In practice, there are a large number of cases involving contracts on international sale of goods, where the parties to the contract have not make agreement on the applicable law, the Chinese courts have directly applied the Convention to hear cases, including (2015) Yu Court Civil Three Final No. 169, (2017) Yue 0391 Civil First No. 2264, (2019) Yue 03 Civil Final No. 3155, (2019) Jin Civil Final No. 90, (2020) Shaanxi 01 Civil First No. 662, (2021) Zhe 02 Civil First No. 1653, (2021) Yue 0191 Civil First No. 1350, (2022) Zhe Civil Final No. 1205, (2022) Jing 04 Civil First No. 294, (2023) Yue 0607 Civil First No. 974, etc. Among them, in the judgment (2017) Yue 0391 Civil First No. 2264, the court clearly pointed out: "This case falls within the scope of regulation by the United Nations Convention on Contracts for the International Sale of Goods, and the Convention should be directly applied. The defendant’s arguments that the two parties did not choose to apply the United Nations Convention on Contracts for the International Sale of Goods in the Purchase Order, and the Contract Law of the People's Republic of China should be applied in this case violated the principle of priority application of international treaties, and this court does not support it.”
2. Where the parties have agreed in the contract to apply the law of a Contracting State, but the application of the Convention is not expressly excluded, the Convention shall prevail.
Where application of the law of a country is agreed in the contract, the mainstream judicial view in China is that that such an agreement does not exclude the application of the Convention. Even if the parties to the contract have agreed on the applicable law in the contract, the Convention shall still prevail, i.e., an agreement to apply the law of a Contracting State does not effectively exclude the application of the Convention. In the case (2019) Jin Civil Final No. 284, both the Chinese and Australian companies are located in countries that are parties to the Convention, and although the parties agreed in the contract to apply Chinese law, the court of second instance held that the agreement did not exclude the application of the Convention and that the Convention should still be applied.
3. Where the parties to the contract have not agreed on the applicable law in the contract, and have unanimously chosen the law of a contracting state during the trial of the case, but have not expressly excluded the application of the Convention, the Convention shall still prevail.
In practice, there is another situation where the parties to the contract have not agreed on the applicable law in the contract, but in the course of the trial of the case, they unanimously choose the law of a contracting state, but without expressly excluding the application of the Convention. In the author's opinion, this circumstance is equivalent to the parties orally agreeing on the applicable law of the contract in the course of the trial of the case, but the application of the Convention is not expressly excluded, and the Convention should still prevail. A number of practical cases have upheld this opinion in judgment. In the case with first instance case number (2016) Yue 51 Civil First No. 1, and second instance case number (2018) Yue Civil Final No. 1424, both parties agreed to apply Chinese law during the trial of the case, but the court of first instance held that this choice did not exclude the application of the Convention and the court heard the case by applying the Convention, and the court of second instance upheld the determination of the court of first instance. In addition, in the case (2021) Lu Civil Final No. 337, the parties did not make agreement on the applicable law in the contract, but agreed to apply Chinese law during the trial of the case, but the court held that the Convention should still be applied in priority.
- If the parties to the contract do not wish to apply the Convention, exclusion needs to be expressly made in the contract.
Where the parties expressly exclude the application of the Convention, the court would not apply Convention in priority. In the case (2018) Jing 04 Civil First No. 652, the parties did not make agreement on the applicable law in the contract, but during the trial, both parties unanimously agreed to apply Chinese law as the applicable law to deal with the dispute in this case, and both expressly excluded automatic application of the Convention to the case. The court held that this circumstance excluded the application of the Convention and heard the case in accordance with Chinese law.
As mentioned above, if the parties to the contract have not agreed on the applicable law, and have unanimously chosen the law of a contracting state during the trial of the case, but without expressly excluding the application of the Convention, the Convention shall still prevail. If the parties to the contract wish to exclude the application of the Convention, they need to expressly agree in the contract to exclude the application of the Convention.
