17-18

Question 1

Introduction to the CISG (United Nations Convention on Contracts for the International Sale of Goods),

Answer 1

🌐 Background & Importance

• CISG was adopted in Vienna, 1980, under UNCITRAL (United Nations Commission on International Trade Law).
• Aims to harmonize international sales law, balancing buyer and seller interests and offering comprehensive remedies for non-performance.
• As of 2024, it has over 97 Contracting States, making it a key treaty in international trade law.
• Also influences regional and domestic legal systems as a model.

📘 Scope & Application (Article 1 & 2)

• Applies to international sale of goods contracts between parties whose places of business are in different States:
  • (a) when both States are Contracting States; or
  • (b) when private international law leads to the application of the law of a Contracting State.
• Disregard the “different States” requirement if:
  • It is not evident from the contract, dealings, or information disclosed before or at contract conclusion.
• Nationality and civil or commercial character of the parties or contract are irrelevant to CISG’s applicability.

❌ Excluded Transactions (Article 2)

CISG does not apply to:

• Sales of goods for personal, family, or household use, unless the seller did not know and should not have known the purpose.
• Sales:
  • By auction
  • By legal execution or authority
  • Of stocks, shares, securities, negotiable instruments, or money
  • Of ships, vessels, hovercraft, or aircraft
  • Of electricity

⚖️ Relation to Private International Law & Domestic Law

• CISG avoids reliance on private international law for contracts within its scope.
• Contracts outside its scope (e.g. purely domestic, or governed by chosen foreign law) remain unaffected.
• Domestic sales contracts are regulated entirely by national law, not CISG.

Question 2

Articles 3 and 4 of the CISG and the concept of breach of contract

Answer 2

📦 Article 3 – Contracts for Goods vs. Services

• Art. 3(1):
  • Contracts for supply of goods to be manufactured/produced are treated as sales contracts,
    unless the buyer provides a substantial part of the materials needed for production.
• Art. 3(2):
  • CISG does not apply to contracts where the main obligation of the seller is to supply
    labour or other services rather than goods.

📝 Article 4 – Scope of Regulation

• CISG governs only:
  • Formation of the contract of sale.
  • Rights and obligations of the buyer and seller under such contract.
• CISG does not govern (unless otherwise expressly stated):
  • (a) Validity of the contract, any of its provisions, or usages.
  • (b) Effect on property/title in the goods sold (i.e., ownership transfer).

❌ Breach of Contract under the CISG

• CISG recognizes contractual liability only in case of breach of contract.
• It does not define breach explicitly, but allows remedies where a party fails to perform any obligation under:
  • The contract, or
  • The Convention (Articles 45 for buyers and 61 for sellers).
• The CISG adopts a unified concept of breach (not categorizing minor vs major breaches).
  • However, specific remedies may be appropriate for particular types of breach.

Question 3

Fundamental Breach and Damages under the CISG, including Articles 25 and 74–77:

Answer 3

⚠️ Fundamental Breach (Article 25)

• A breach is fundamental if it causes such detriment to the other party as to substantially deprive them of what they were entitled to expect under the contract.
• Exception: Not a fundamental breach if:
  • The breaching party did not foresee, and
  • A reasonable person in similar circumstances would not have foreseen such a result.

Consequences of Fundamental Breach:

• Grounds for avoidance of contract by aggrieved party:
  
  • Non-performance
  • Anticipatory breach
  • Instalment contracts
  • Partial delivery or non-conformity of part of the goods
• Enables:
  
  • Buyer to demand substitute goods (Art. 46(2))
  • Preservation of rights after risk has passed (Art. 70)

💰 Damages for Breach

Article 74 – General Rule

• Damages include:
  • Actual loss suffered
  • Loss of profit
• Damages are limited to those that were foreseeable at the time of contract conclusion by:
  • The breaching party, considering facts they knew or ought to have known

Article 75 – Substitute Transaction

• If contract is avoided and:
  • Buyer buys replacement goods, or
  • Seller resells goods,
• Damages = Difference between contract price and replacement/resale price,
  plus any additional loss recoverable under Article 74.

Article 76 – Current Market Price

• If no substitute transaction (Art. 75):
  • Damages = Contract price – Current price at:
    • Time of avoidance, or
    • Time of taking over the goods, if contract avoided afterward.
• Current price = Price at place of delivery, or another reasonable substitute location (adjusted for transport costs) if no price exists at delivery place.

Article 77 – Duty to Mitigate

• Injured party must take reasonable measures to mitigate loss (including lost profits).
• If not, breaching party can seek a reduction in damages equal to the loss that could have been avoided.

Question 4

Hardship Clause and Exemptions of Performance under the CISG, focusing on Articles 79 and 80:

Answer 4

🔄 Hardship Clause

• Applies where the obligor/debtor could not have taken the event into account at the time of contract conclusion.
• Not restricted to events occurring after contract formation.
• Can be invoked if the party:
  • Did not know of the event, and
  • Could not have known of its existence at the time of conclusion.
• Requires that the party could not reasonably have avoided or overcome:
  • The event, or
  • Its consequences.

❌ Exemptions of Performance (CISG Article 79)

• Art. 79(1):
  • A party is not liable for failure to perform if:
    • The failure was due to an impediment beyond their control, and
    • The party could not reasonably have foreseen the impediment at the time of contracting, nor
    • Avoided or overcome it, or its consequences.
• Art. 79(3):
  • The exemption is valid only during the period the impediment exists.
• Art. 79(4):
  • The non-performing party must notify the other party of:
    • The impediment, and
    • Its effect on performance.
  • If not notified within a reasonable time, the non-performing party is liable for damages caused by the lack of notice.

🚫 Article 80 – Conduct-Induced Failure

• A party cannot rely on the failure of the other party to perform if:
  • That failure was caused by the first party’s own act or omission.

Question 5

Force Majeure and Hardship Clause in international trade:

Answer 5

⚖️ Force Majeure vs Hardship Clause

• Both force majeure and hardship are invoked in international trade when unforeseen events affect contract performance.

🔥 Force Majeure

• Applies when unforeseen events make performance impossible or impracticable.
• If invoked successfully, the affected party is relieved from performance obligations.
• Typically used for events that completely prevent performance (e.g., natural disasters, war, export bans).

📉 Hardship Clause

• Applies when unforeseen events substantially disrupt the economic balance of the contract.
• The affected party is not excused from performance, but is entitled to:
  • Renegotiate the terms, and
  • In some cases, obtain adaptation of the contract to new circumstances.
• Used for events that make performance excessively onerous, but not impossible.

🌐 Contractual Practice

• To avoid inconsistencies across different legal systems:
  • Parties often include specific contractual clauses for force majeure and hardship.
  • These clauses replace domestic legal rules with uniform, pre-agreed provisions tailored to international contracts.

Question 6

Introduction to International Investment Law and the Definition of Investment and Investors,

Answer 6

🌍 Introduction to International Investment Law

• Governs foreign direct investment (FDI) and dispute resolution between foreign investors and sovereign states.
• Legal protection for FDI is provided under Public International Law through:
  • International Investment Agreements (IIAs),
  • Thousands of Bilateral Investment Treaties (BITs),
  • Multilateral Investment Treaties (e.g., the Energy Charter Treaty),
  • Free Trade Agreements (FTAs) that include investment protection provisions.
• BITs may:
  • Contain a single definition of “national” applicable to both contracting parties, or
  • Offer two separate definitions specific to each Contracting Party.
• These instruments generally ensure:
  • Substantive legal protections for foreign investors,
  • Access to Investor-State Dispute Settlement (ISDS) mechanisms against host states for treaty breaches.

👤 Definition of Investment and Investors

Investor:

• The definition of “investor” and “investment” is crucial in determining:
  • The scope of application of an investment treaty,
  • The rights and obligations of the contracting parties.
• Two types of investors are recognized:
  • Natural persons (individuals),
  • Legal persons (corporate entities).
• For natural persons, nationality is typically determined exclusively by the law of the state whose nationality is claimed.

Question 7

Nationality of Legal Persons and Definition of Investment under international investment treaties:

Answer 7

🏢 Nationality of Legal Persons (Companies)

• Bilateral Investment Treaties (BITs) use several tests to determine the nationality of a legal person:
  1. Place of Constitution – whether the company is established under the law of a given country.
  2. Place of Incorporation / Registered Office – the jurisdiction in which the company is legally incorporated or maintains its formal registered office.
  3. Seat of the Company – the location of its central administration or main place of business.
  4. Country of Control – where the owners or controlling interest is located (less commonly used).
• Most BITs combine two or more of these criteria, requiring companies to meet multiple tests to qualify for treaty protection.

💼 Definition of Investment

• There is no universally accepted legal definition of “investment.”
  • As noted by Juillard and Carreau, the term’s meaning depends on the object and purpose of the treaty in which it appears.
• Most BITs, multilateral treaties, and FTAs use a broad and inclusive approach, typically referring to:
  • “Every kind of asset” owned or controlled, directly or indirectly, by an investor.
• These definitions are:
  • Illustrative (provide examples),
  • Non-exhaustive (not limited to the listed items),
  • Open-ended to accommodate evolving forms of investment.
• Covered investments often include:
  • Direct investments (e.g., ownership of a business),
  • Portfolio investments (e.g., stocks, bonds).

Question 9

International Centre for Settlement of Investment Disputes (ICSID):

Answer 9

⚖️ International Centre for Settlement of Investment Disputes (ICSID)

• ICSID is a World Bank institution that facilitates conciliation and arbitration of investment disputes between Contracting States and foreign investors under the ICSID Convention.
• It operates under a structured legal framework, including:
  • ICSID Convention
  • Administrative and Financial Regulations
  • Institution Rules
  • Conciliation and Arbitration Rules

👥 Panels of Arbitrators and Conciliators

• Each Member State can nominate:
  • 4 Arbitrators and 4 Conciliators to their respective Panels.
• The Chairman of ICSID’s Administrative Council can also appoint up to 10 persons to each Panel.
• Appointees may be of any nationality and can serve on both Panels.
• Term: 6 years, renewable.

✅ Note: India is not a signatory to the ICSID Convention.

Question 10

Jurisdiction of ICSID (Articles 25–27):

Answer 10

🏛️ Jurisdiction of ICSID – Articles 25 to 27

🔹 Article 25: Scope of Jurisdiction

• ICSID’s jurisdiction covers legal disputes directly arising from an investment between:
  • A Contracting State (or its agency/subdivision), and
  • A national of another Contracting State.
• Written consent of both parties is required; once given, it cannot be unilaterally withdrawn.
• A “national of another Contracting State” includes:
  • Natural persons: Must hold only the nationality of the other State on the relevant dates.
  • Legal persons: Includes foreign-controlled firms with host State nationality if parties agree.
• Approval by the State is needed for its subdivisions/agencies to give consent unless waived.
• States may pre-notify ICSID of types of disputes they accept or reject—but this is not consent.

🔹 Article 26: Exclusivity of ICSID Arbitration

• Consent to ICSID arbitration excludes other remedies, unless otherwise stated.
• A State may require exhaustion of local remedies before consenting to ICSID arbitration.

🔹 Article 27: Restriction on Diplomatic Protection

• A State cannot exercise diplomatic protection or bring an international claim once ICSID arbitration is consented to—unless the host State fails to comply with the award.
• Informal diplomacy aimed at resolving the dispute is not restricted.