Many business contracts are potentially thorny, but cross-border transactions inherently involve more possible complications and legal uncertainty. In a business disagreement between a United States citizen living in the U.S. and a French citizen residing in France, for example, which country’s laws should resolve the matter, and which court should hear the dispute?
Private international law rules provide guidance in such cases. To reduce the degree of legal risk inherent in international sales contracts, the United Nations Convention on Contracts for the International Sale of Goods (CISG)—ratified by the U.S. and in effect since 1988—aims to standardize contract law.
“The treaty acts as a harmonizing text that supplants national contract law and makes, in theory, the international law of sales the same in all nations that have ratified the treaty,” UNC School of Law assistant professor John F. Coyle says. “If the United States and Brazil have entered into a treaty in which they agree that all international sales contracts are to be governed by the treaty—rather than North Carolina law or Brazilian law—then the choice-of-law question goes away. Instead of choosing among national legal rules, a court in North Carolina will simply apply the rules set forth in the treaty.”
Coyle’s paper, “The (Questionable) Role of the CISG in Promoting Economic Development,” was one of several submissions selected by the Washington, D.C.-based Federalist Society for Law and Public Policy Studies for discussion at its Private International Law, Economics and Development Faculty Division colloquium Oct. 9-10 in Los Angeles. Winners receive a $2,500 prize and an expenses-paid trip to the event.
Other papers presented at the conference will address sovereign debt bonds, the international governance of food safety regulations and the recognition of foreign judgments in the U.S.
In his paper, Coyle examines whether or not the CISG is accomplishing the goal of reducing legal risk in the U.S. today. The treaty allows parties in an international sales agreement to opt out of the CISG and have national law govern the contract.
Coyle and research assistants reviewed more than 5,000 contracts on file with the Securities and Exchange Commission. Their findings: lots of opt-outs. Less than 1 percent of the contracts chose the CISG to be the governing law.
“When it comes to patterns of contracting practice, it would seem that many, many large U.S. corporations have little use for the CISG and opt out of it whenever they can,” Coyle says.
That holds for many practicing attorneys, too. In addition to the contract survey, Coyle interviewed more than a dozen lawyers about how they use CISG. They all exclude it from international sales contracts.
“This pattern of practice suggests that the CISG really isn’t doing much in the United States to reduce legal risk in international transactions because so many companies opt out of it as a matter of course,” says Coyle, who received the Frederick B. McCall Award for Teaching Excellence from the 2015 graduating class at Carolina Law.
With global business entrenched around the world, disputes and other issues related to cross-border transactions will only increase in significance. Coyle’s scholarship presents key findings that could influence the field of private international law.
First, not all countries react similarly to treaties whose goal is to harmonize the law in a particular area. Unlike U.S. businesses, Chinese companies tend to embrace the CISG.
“Second, the paper provides some support for the argument that the nations of the world would be better off negotiating treaties that made it easier for parties to have their international contracts governed by the national law of a particular jurisdiction—England, Hong Kong, New York, Singapore, etc.—because private actors will in many cases, and especially in the United States, prefer to have their contracts governed by national law, even if it’s the national law of a foreign jurisdiction, rather than by special international contract rules created by the treaty,” Coyle says.
He is drawn to private international law as a research area partly because it combines his interests in international affairs, private contracts and private ordering.
The field differs from public international law, about which there is disagreement regarding its legitimacy as an area of law.
“For better or worse, there is no real dispute as to whether private international law is ‘law’ because national courts routinely apply it to resolve private disputes that come before them,” Coyle says. “This makes it possible to make a serious study of private international law doctrine and, perhaps, to nudge the doctrine in positive directions via thoughtful scholarship.”
He plans to submit his paper to law reviews in February 2016.
-October 2, 2015