When your Client is from Taiwan can you apply CISG Convention to the sales contract and sales relation? Can you refer to CISG in court?
The concept of registered office and place of business.
Publication date: October 30, 2024, BY Dawid Radziszewski
The United Nations Convention on Contracts for the International Sale of Goods, signed in Vienna on 11 April 1980 (consolidated text, Journal of Laws 1997, No. 45, item 286 ; hereinafter referred to as the CISG Convention or the Convention) is a fundamental legal act for international trade law ratified by 97 state parties.
First of all, it is necessary indicate the definition of the international sale of goods by breaking it down into parts. Sale under the CISG convention does not have a clearly expressed definition. However, it can be reconstructed from Articles 30 and 53 of the convention, which define the mutual obligations of the parties – the seller and the buyer, respectively. The seller’s obligations consist in delivering the goods, handing over all documents concerning them and transferring the right of ownership to the goods, while the buyer is obliged to pay the price for the goods and accept delivery[1]. The international nature of the sale is evidenced by the fact that the parties’ places of business are located in different countries and they were aware of it. Importantly, in the case of a multilateral contract, even if several parties have their places of business in the same country, this does not exclude the application of the CISG convention[2].
At this point, it is worth referring to the concept of a place of business. This is a completely separate term from the registered office of the entrepreneur and refers to a permanent, stable and independent place of undertaking business activity (not necessarily its centre), which is very often the administrative office of the economic entity[3].
Under Article 10 letter a) of the CISG Convention, it is possible for a party to have several places of business without specifying the main place of business, while under letter b) of the same provision, in the absence of a fixed place of business, the place of residence of the party is deemed to be the place of business. In turn, the definition of goods was largely established through doctrinal deliberations. First of all, goods can only be movable things – therefore, the CISG Convention does not regulate the issues of selling real estate, selling various types of rights or selling know-how. An exception to this rule is the sale of software, which, despite the lack of the status of a movable thing, is treated as analogous to a machine that is a movable thing. It is also worth knowing that the CISG Convention allows for the so-called documentary sale[4].
The provisions of the CISG Convention pursuant to Article 1 paragraph 1 letter a) are binding between the States Parties, but may also apply in a situation where the parties have concluded an agreement for which the applicable law will be the law of a State Party to the Convention (e.g. Polish law), which results from Article 1 paragraph 1 letter b) of that Convention.
Consumer contracts understood autonomously under Article 2 have been excluded from the scope of the convention. This leads to the conclusion that the subject of the regulation is largely the relations between entrepreneurs, which in a sense results from the nature of international trade. In addition, this provision contains a number of other exclusions from the scope of the convention, which are of a substantive nature – related to the subject of the sale. In addition, under Article 3 of the CISG convention, its application is excluded to contracts the subject of which is the production of a given product, in the event that the buyer supplies a significant part of the materials necessary for the production of the product by the seller or when the seller’s performance consists in the provision of labour and other services instead of the simple production of the product and delivery to the buyer.
As regards the contract of sale, under Article 11 of the CISG Convention there is no form requirement for such a contract, even under pain of evidential difficulties. An exception here is Article 96 of the CISG Convention, which allows a contracting state to make a reservation to the convention regarding the existence of a specific form requirement in national law. However, it should be borne in mind that in the event of a contractual reservation of a form requirement by the parties, the latter should be respected[5].
In concluding the discussion of the individual provisions of the CISG convention, it is worth pointing out that, pursuant to its Article 6, it is possible to exclude the application of its provisions by means of an appropriate provision of the contract on international sale. The absence of such a provision will lead to the application of the convention with all its consequences.
The Convention on the Limitation Period in the International Sale of Goods
The CISG Convention is part of a comprehensive system of international trade law. First of all, this convention is very closely linked to the Convention on the Limitation Period in the International Sale of Goods, drawn up in New York on 14 June 1974 (Journal of Laws of 1997, No. 45, item 282, as amended; hereinafter referred to as the New York Limitation Period Convention). The provisions of the New York Limitation Period Convention cover all forms of international sale of goods from the CISG Convention, which results from the fact that the provisions of Articles 2-6 of the New York Limitation Period Convention have been duplicated by Articles 1-3 of the CISG Convention. At this point, it is also worth mentioning the model contract clauses developed by UNIDROIT[6]and UNCITRAL[7]. The first of these refers to the principles developed by UNIDROIT, while the second is a model arbitration clause submitting disputes arising from or in connection with the contract to international arbitration.
The CISG Convention, together with the accompanying international law norms that make up the system of international trade law, is therefore a very comprehensive regulation. However, there are cases in practice that give rise to considerable controversy.
Taiwan controversy
One of them is the issue of Taiwan – a subject of international law whose statehood has been recognized by only 11 states and the Holy See, which is a subject of international law with a special status. It has not ratified the CISG convention, which is why the recognition of its statehood leads to the conclusion that in relations with entities based in Taiwan, this convention will not apply. However, the statehood of Taiwan is a controversial issue in international law – if it were to be recognized that it is not a state, it would lead to the conclusion that it is a de facto regime operating in the territory claimed by the People’s Republic of China, bound by the CISG convention[8]. In the background of the entire dispute, there are political issues related to the Chinese Civil War and the relocation of the government of the Republic of China to the island of Taiwan caused by its defeat in the fight against the forces of Mao Zedong, and the attitude of the international community to the situation that has arisen in this way, which has evolved over the eight decades of the existence of the Taiwan issue. How to resolve this issue? We will try to answer this question.
2. The Taiwan Problem
Taiwan is an island located in East Asia. It is geographically separated from mainland China by the 180 km Taiwan Strait. Politically, mainland China and Taiwan are separated by practically everything that has been discussed earlier. It is a place of great importance for the global market. It is in Taiwan that high-quality semiconductors, chips and high-tech industry products are produced, which have a significant share in the volume of world trade. According to data for 2023, the European Union is Taiwan’s fourth largest trading partner, right after the People’s Republic of China, the USA and Japan. In turn, for the European Union, Taiwan is 13th in the ranking of trading partners. The value of imports from Taiwan to the European Union amounted to EUR 47.3 billion last year, while the value of exports from EU countries to Taiwan was EUR 30.5 billion[9].
In addition, Taiwan has enormous geopolitical significance due to its proximity to the territory of the People’s Republic of China. Relations between Beijing and Taipei are extremely tense, and in recent years the dispute has intensified. Despite opposition from Western countries, the People’s Republic of China is conducting intensive military exercises in the waters surrounding Taiwan. Some believe that we are on the brink of war. Its outbreak would have catastrophic consequences for global supply chains and the world economy.
What is Taiwan’s status in international law? This is very difficult to determine. However, it is crucial to determining whether the CISG convention will apply to transactions involving Taiwanese entrepreneurs.
2.1. Taiwan’s subjectivity in international law
First of all, it should be noted that it is not certain whether Taiwan should be considered a state. This problem is related to another fundamental problem of public international law related to two theories of state formation – the declarative theory of statehood theory of statehood and the constitutive theory of statehood theory of statehood). Both theories assume, in accordance with the provisions of the Montevideo Convention of 1933, that the necessary conditions for the creation of a state in the sense of international law are for a given entity to have a territory, a permanent population, effective authority and the ability to establish contacts with other entities of international law. Taiwan has all these attributes. While the declarative theory of statehood assumes that the mere fulfilment of these conditions makes a given entity of international law a state, the constitutive theory of statehood assumes that there is one more necessary condition – universal recognition in the international community[10].
The issue of recognition in international law is of key importance here. Recognition is considered to be an act of a state that establishes. The most common event in international law subject to recognition is the creation of a state. In this context, recognition is considered to be: “a unilateral act by which a state or states declare or tacitly accept that they regard an existing territorial organization as a state with all the consequences that ensue”[11].
Taiwan does not have universal recognition of its statehood – such recognition has been provided only by 11 countries and the Holy See. The Republic of Poland is not one of these countries. Existing Polish-Taiwanese relations do not prove implied recognition – Polish and Taiwanese posts serving these relations operate under enigmatic names of trade offices.
The common view of international law doctrine is that membership in the United Nations leads to the universal recognition of a given subject of international law as a state[12]. With this in mind, it should be noted that Taiwan is not a member. According to UN General Assembly Resolution 2758 adopted on 25 October 1971 at the 36th session of the General Assembly, the Taiwanese authorities no longer have their representation in the United Nations. This has far-reaching consequences for them, which is also echoed in the public debate[13].
Therefore, if we stick to the constitutive theory of statehood, it is not possible to recognize Taiwan as a separate state. Therefore, if we recognize that Taiwan is not a state, it leads to the conclusion that it is a de facto regime. International law allows for entering into relations with entities with such a status[14].
It is worth bearing in mind, however, that the Taiwanese authorities see themselves as the successor of the Republic of China, using this name. However, such a view is not recognized by the international community, as evidenced by the aforementioned UN General Assembly Resolution 2758 adopted on October 25, 1971 at the 36th session of the General Assembly, under which the People’s Republic of China is considered the successor of the Republic of China.
For this reason, the Republic of Poland does not recognize the name Republic of China in Polish-Taiwanese relations. This can be concluded not only a contrario based on the lack of an act of recognition of Taiwan’s right to use such a name, expressed directly or implied by Poland, but also in the context of Poland’s support for this resolution. It is also worth citing in this context the official position of the Republic of Poland on the name Taiwan, cited by the Commission for the Standardization of Geographical Names Outside the Borders of the Republic of Poland at the Surveyor General of the Country[15]. In light of this position, the official name “Republic of China” is not recognized by Poland, which is an expression of the lack of recognition of Taiwan’s succession after the Republic of China.
The position of the Republic of Poland is in line with the approach generally accepted in the international community to the problem of the Taiwanese authorities and their claims to succession after the Republic of China, which is characterized as One-China Policy or One-China Principle, depending on the political context of the statement. While the authorities of the People’s Republic of China call this position One-China Principle, and therefore in literal translation “the principle of one China”, often presented as one of the principles of international law[16], in the Euro-Atlantic legal and international discourse, and especially in the United States, we speak of One-China Policy, and therefore a kind of foreign policy directive that does not have the nature of a hard norm of international law[17]. Both of the aforementioned concepts have their geopolitical dimension – on the one hand, the People’s Republic of China, as one of the powers of the contemporary polycentric world, strives to recognize the unity of China as a principle of international law that does not tolerate concessions, while on the other hand, the Euro-Atlantic bloc led by the United States, standing in opposition, strives to maintain the status quo, which allows for threatening China with the possibility of departing from the One-China Policy and tightening relations with the Taiwanese authorities. An example of such tightening of relations with Taiwan are the actions of the Lithuanian authorities conducted in recent years[18]. However, it must be realized that in the current balance of power it is unrealistic for NATO countries to officially accept the parallel existence of two Chinese states on principles analogous to two German states in the second half of the 20th century. Regardless of the approach adopted to the concept of one China, one must be fully aware that there is no real alternative to it that could change the universally accepted position of the international community.
Therefore, according to the principles of international law, Taiwan is not the successor of the Republic of China’s statehood. However, if we consider whether it is a separate state, the answer depends on the position taken towards the international legal assessment of state-building processes, and therefore on the acceptance of the declarative theory of statehood or the constitutive theory of statehood.
All of this has a significant impact on the problem of binding Taiwan and Taiwanese economic entities with the provisions of the CISG convention. The doctrine sees many ambiguities related to this and the need to remove them[19].
2.2. Binding Taiwan to the CISG Convention – arguments in favour
If, therefore, it is recognized that Taiwan is not a separate state under international law, this leads to the conclusion that it is a de facto regime operating on the territory belonging to the People’s Republic of China. Therefore, it should be recognized that the territorial scope of international agreements ratified by mainland China also includes Taiwan. This would lead to the conclusion that the international sale of goods, in which one of the parties is an entity based in Taiwan, is subject to the regulations of the CISG convention.
This thesis is supported by the case law of courts all over the world. For example, the Supreme Court of the Czech Republic (Czech: Nejvyšší sound Czech republics ) judgment of 17 December 2013, file reference number 23 Cdo 1308/2011 in the case Ideal Bike Corp. v. IMPEXO spol . sro. supported the position according to which Taiwanese economic entities have their commercial seat in the territory of a state party to the CISG convention. However, this position was not substantiated in more detail, which may raise many doubts. This does not necessarily mean that it is incorrect – however, it is difficult to state that the legal reasoning of the Supreme Court of the Czech Republic leading to the recognition of Taiwan as a state party to the CISG convention was correct, because it is not described.
The broader reasoning was presented in the judgment of the US District Court for the Southern District of California of March 31, 2021, file reference 3:18-cv-00373-BEN-MSB in the case of Pulse Electronics, Inc. v. UD Electronic Corp. The judgment states: “In this case, it must be stated that both the United States and the People’s Republic of China have been states parties to the CISG since its ratification in December 1986. (…) However, Taiwan is not.” However, this does not prejudge the non-application of the CISG to Taiwan – later on, the court questions Taiwan’s statehood as such and recognizes that the island of Taiwan is a territory over which the law of the People’s Republic of China extends, which is confirmed by the aforementioned One China Policy. The People’s Republic of China, in turn, is a party to the CISG. Further, the People’s Republic of China did not exclude the application of the CISG Convention to Taiwan, although it could have done so by means of a reservation. This reasoning is summed up in the statement: “The Court agrees with the defendant’s statement that: ‘Taiwan is subject to the CISG Convention because it is part of China [i.e. the People’s Republic of China – editor’s note], a State Party [to that convention – editor’s note]'”.
The cited judgments indicate that there are some arguments for recognizing Taiwanese entities as bound by the CISG convention. This has significant implications for international trade.
2. 3. Binding Taiwan to the CISG Convention – arguments against
However, if we accept the declarative theory of statehood as binding, it should be stated that Taiwan is a sovereign state , and not the territory of the People’s Republic of China, over which this state has no actual authority. There are also views of the doctrine, according to which the People’s Republic of China, even if it became the successor of the Republic of China, did not thereby obtain the rights to the island of Taiwan transferred to the Republic of China by the Empire of Japan, and the island became a no-man’s territory (Latin terra nullus), which was then taken over by the authorities of Taiwan, creating its own sovereign state[20].
Taiwan has never been bound by the CISG Convention, which leads to the conclusion that, pursuant to Article 1(1)(a) of the Convention, it cannot be applied in relations with Taiwanese entities, unless, pursuant to Article 1(1)(b), the Taiwanese entity would conclude an agreement with an entity from another country, the applicable law of which would be the law of a state party to the Convention (e.g. Polish law).
This position was also supported by the US District Court for the Central District of California in its judgment of October 4, 2010, file reference CV 09-05962 MMM (CWx) in the case Golden -Legion Automotive Corp. et al. v. LUSA Industries, Inc. thesis is as follows: “Taiwan is not a signatory [to the CISG Convention – editor’s note], and, moreover, there is no legal basis for the discretionary application of that treaty when only one of the parties is a national of a state party”[21]. A similar view was expressed by the 6th Civil Chamber of the Higher Regional Court in Hamburg in its judgment of October 14, 2021, file reference 6 U 116/20 in the Taiwanese toys case . Thesis 25 of the judgment states: “The CISG Convention under Article 1 para. 1 is applicable when both countries in which the parties have their places of business are States Parties or when the rules of private international law lead to the application of the law of a State Party. Such circumstances did not occur in this case, because the seller Y […] has his place of business in Taiwan, and Taiwan, unlike Switzerland, is not a State Party to the CISG convention”[22].
There are therefore court decisions that have indicated that the CISG convention cannot be applied to relations with entities based in Taiwan. It is interesting that the courts in the cited decisions did not undertake more complex considerations on the statehood and international legal status of Taiwan, accepting it as certain. This is a much more complicated issue and it cannot be simplified to this extent.
2.4. Is Taiwan’s binding on the CISG Convention even relevant?
It is also worth noting that in the case law of courts and arbitration tribunals there is a concept that bypasses the problem of Taiwan being bound by the provisions of the CISG convention. In light of this concept, in a case where the CISG convention has been ratified only by the state where one of the parties has its registered office, this convention should be considered an element of the legal order of that state (which is, after all, rooted in the systemic conditions of public international law[23]). In such a case, if the law of a state party to the CISG convention (e.g. Polish law) is recognized as the law applicable to an agreement between economic entities with registered offices in other states, the door opens to the application of the CISG convention. This line of interpretation is present, among others, in the judgment of the Court of Arbitration at the Hamburg Chamber of Commerce of 21 March 1996 in the case of Chinese Goods case. In this case, the recognition of German law as the applicable law in the field of private international law led to the application of the CISG convention, which is part of the German legal system.
There is also an analogous line of case law of the Federal Supreme Court of Switzerland. The same in its judgment of 17 July 2007, file reference 4C.94/2006 in the case Kickboards case andin the judgment of 16 December 2008, file reference number 4A_326/2008, 4A_406/2008 in the case of Ecole Polytechnic Fédérale de Lausanne v. Y. SA applied the CISG convention based on the recognition of Swiss law as the applicable law. Practically the same reasoning is behind the decision contained in the judgment of the Seoul Court of Appeal of 19 July 2013, file reference 2012Na59871 in the case Taiwanese manufactured Goods case in which the adjudicating panel, finding South Korean law applicable to the contractual relationship, applied the provisions of the CISG Convention to it.
Economic and Trade Arbitration Commission. Commission , also known by its English abbreviation: CIETAC) in its judgment of 20 April 1999, file reference CISG/1999/23 in the Chemical case cleaning product equipment case and the Jiangsu Provincial Higher People’s Court in its judgment of December 2, 2004, file reference (2004) Su Min San Zhong Zi No. 056 on Changzhou Case Kairui Weaving and Printing Comp. v.Junlong Machinery Comp. Importantly, both of these decisions concerned a dispute involving a business entity based in Taiwan, applying the law of the People’s Republic of China as the applicable law.
As it has been shown, it is possible to apply the CISG convention even in a case where one of the parties to the contract has its seat in a country that is not a party to that convention. This possibility occurs when the law governing the contract is the law of the signatory to the CISG convention. In addition, the doctrine indicates the possibility of including a clause in the contract leading to the application of the CISG convention, which is often the case in international arbitration[24].
3. Summary
The issue of the application of the CISG convention to Taiwan is of great importance. The volume of foreign trade of Taiwanese entities is significant, and the global market is largely based on the supply of semiconductors, chips and high-tech industry products created in Taiwan. Hence, the controversy over the application of the CISG convention to the international sale of goods in which Taiwanese entities participate has a significant practical dimension. There is no doubt that a situation in which it was clearly known that this act is binding on Taiwan would be much more beneficial for the security of global trade. After all, the CISG convention was created with the aim of ensuring greater stability in the international sale of goods, the lack of which in relations with Taiwanese entrepreneurs is highly unfavourable for the parties to trade. In the interest of all those involved in trade with entrepreneurs with their registered office in Taiwan, they should take this issue into account. Regardless of Taiwan’s legal and international status, it should be pointed out that entrepreneurs operating in the territory of the states-parties to the CISG convention are in a good position due to the clause contained in Article 1, paragraph 1, letter a. b) that convention and those who have submitted disputes arising from the contract to arbitration by an entity that takes into account the CISG convention in its decisions.
Bibliography:
United Nations Convention on Contracts for the International Sale of Goods, concluded at Vienna on 11 April 1980 (consolidated text Journal of Laws 1997 No. 45 item 286).
United Nations General Assembly Resolution 2758, adopted on 25 October 1971 at the thirty-sixth session of the General Assembly.
Award of the Arbitration Court of the Hamburg Chamber of Commerce of 21 March 1996 (Chinese case) Goods case).
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Judgment of the Seoul Court of Appeal of July 19, 2013, file reference number 2012Na59871 (Taiwanese case) manufactured Goods case).
Judgment of the Federal Supreme Court of Switzerland of 17 July 2007, file reference 4C.94/2006 (Kickboards case).
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[1] Schwenzer I., Iwiński K. (eds.), United Nations Convention on Contracts for the International Sale of Goods (CISG). Commentary , Warsaw 2021, art. 1 nb 8.
[2] Ibidem, nb 26.
[3] Ibidem, nb 23.
[4] Ibidem 16-22.
[5] Schwenzer I., Iwiński K. (eds.), United Nations Convention on Contracts for the International Sale of Goods (CISG). Commentary, Warsaw 2021, art. 11 nb 20-21.
[6] https://www.unidroit.org/instruments/commercial-contracts/upicc-model-clauses/ (accessed: 25/10/2024)
[7] https://uncitral.un.org/en/texts/arbitration/contractualtexts/arbitration (accessed: 25/10/2024)
[8] https://iicl.law.pace.edu/cisg/page/cisg-table-contracting-states (accessed: 25/10/2024).
[9] https://policy.trade.ec.europa.eu/eu-trade-relationships-country-and-region/countries-and-regions/taiwan_en (accessed: 28/10/2024).
[10]Czapliński W., Wyrozumska A., Public international law. Systemic issues, Warsaw, 2014, pp. 380-381.
[11]W. Góralczyk, K. Karski, S. Sawicki, 6. International recognition [in:] W. Góralczyk, K. Karski, S. Sawicki, Public international law in outlin , Warsaw 2024.
[12]Czapliński W., Wyrozumska A., Public international law. Systemic issues, Warsaw, 2014, p. 387.
[13] Lin Chia-lung : Taiwan should be included in the UN structures to ensure peace in the Indo -Pacific region , press material from the “Rzeczpospolita” newspaper, published: 10/09/2024, https://www.rp.pl/opinie-polityczno-spoleczne/art41096921-lin-chia-lung-nalezy-wlaczyc-tajwan-w-struktury-onz-aby-zaspokojic-pokoj-w-regionie-indo-pacyfiku (accessed: 25/10/2024).
[14]Czapliński W., Wyrozumska A., Public international law. Systemic issues, Warsaw, 2014, p. 172.
[15]ed. Zych M., Official List of Polish Geographical Names of the World. 2nd Edition updated , Warsaw 2019, p. 474.
[16]cf. Su Wei, Some Reflections on the One-China Principle , “Fordham International Law Journal”, vol. 23, issue 4, 1991, Fordham, pp. 1169-1178.
[17]cf. Richard C. Bush, A One-China Policy Primer , Washington 2017.
[18]Wilczewski D., The dragon slayer does not give up, TVN24 press release, published on: 15/01/2022, https://tvn24.pl/premium/litwa-chiny-tajwan-skad-sie-wziely-napiete-relacje-miedzy-krajami-st5557568 (accessed: 25/10/2024).
[19]Fan Yang, A uniform sales law for the Mainland China, Hong Kong SAR, Macao SAR and Taiwan: the CISG, Vindobona journal of international commercial law and arbitration, issue 15 (2), Wien, 2011, pp. 361-362.
[20]see Spinella A., The one China principle and its legal consequences, domestically and abroad: the disputed control over Taiwan and the anti-secession law. Much Ado about Nothing?, “Trento Student Law Review”, vol. 4 no. 2 (2022), Trento 2022, pp. 19-40.
[21] Original text English: “Taiwan is not a signatory, and there is no provision providing for discretionary application of the treaty where only one party is a national of a signatory state.”
[22] Original text German-language: “Das CISG kommt nach Art. 1 Abs. 1 nur zur Anwendung, wenn die beiden Staaten, in denen die Parteien ihre Niederlassung haben, Vertragsstaaten sind oder wenn die Regeln des internationalen Privatrechts zur Anwendung des Rechts eines Vertragsstaats führen. Dies ist zu verneinen, weil der Verkäufer Y[…] seine Niederlassung in Taiwan hat und Taiwan anders als die Schweiz kein Vertragsstaat des Übereinkommens ist“.
[23]cf. Czapliński W., Wyrozumska A., Public international law. Issues system, Warsaw, 2014, pp. 660-704.
[24]Fan Yang, The application of The CISG in the current PRC law and CIETAC arbitration practice, “Nordic Journal of Commercial Law”, issue 2 (2006), Aalborg, 2006, p. 25.