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Application of the CISG to the HKSAR: Past, Present and Prospect

Wed, 25 May 2022
Categories: Insights
Contributors: Zilin Hao 郝梓林
Editor: C. J. Observer

Introduction

On 5 May 2022, China deposited a declaration of extension of the territorial application of the United Nations Convention on Contracts for the International Sale of Goods (1980 VIENNA, hereinafter “CISG” or “Convention”) to Hong Kong, Special Administrative Region of China (“the HKSAR”). The territorial application will take effect on 1 December 2022 according to article 97(3) of the CISG.[1] Further, the declaration that China is not bound by article 1(1)(b) CISG shall not apply to the HKSAR.[2] Therefore, the CISG will enter into force for Hong Kong on December 1, 2022.

I. Past: Applicability of CISG in Hong Kong was Negative or Controversial

1.1 The applicability of CISG between Hong Kong and Mainland China was negative

The CISG is a treaty on international trade with worldwide acceptance and influence. It provides uniform rules to govern contracts for the international sale of goods. As of now, there are 95 contracting states of the Convention and 19 signatories. As one of the contracting states, China deposited the document of approval of the Convention with the Secretary-General of the United Nation on 11 December 1986 and it officially entered into force on 1 January 1988. On the content of the Convention, China had made reservations pursuant to Article 95 of CISG that it was not bound by the following articles: Article 1 (1) (b) (on the application of the law of a state due to the rules of private international law), Article 11 and its related contents (forms other than written forms). However, as back then Hong Kong has not been returned to China, the CISG did not apply to Hong Kong simultaneously.

As a matter of history, Hong Kong was long administered under British governance until 1 July 1997 when it returned to China. Before the return of Hong Kong, CISG could not be applied in Hong Kong because the United Kingdom was not a party to CISG. After the reunification, although the Chinese central government had signed the CISG, there was no statement, declaration, or provision on whether the CISG could be applied in Hong Kong. On 20 June 1997, China submitted a statement to the Secretary General of the United Nations, which listed the conventions to which China has acceded that will apply to Hong Kong after its return. The CISG was not on the list.[3]

For a considerable period of time, scholars and practitioners have basically reached a consensus on the application of CISG between Mainland China and Hong Kong, that is, unless the parties clearly agree that CISG is the applicable law, CISG is not applicable to the disputes between the parties in the mainland and Hong Kong.

1.2 Whether CISG is applicable between Hong Kong and foreign countries was controversial

Unlike the consensus over the application of CISG between Hong Kong and Mainland China, however, whether CISG is applicable between Hong Kong and foreign countries was controversial in the past. Some foreign courts believe that CISG can be applied to Hong Kong based on the reason that Hong Kong is part of the territory of China, and the diplomatic notes deposited by China did not satisfy the requirements for a reservation as the note did not "state expressly the territorial units to which the Convention extends." (CNA Int'l Inc. v Guangdong Kelon Electronical Holdings[4]; Electrocraft Arkansas, Inc. v Super Electric Motors Ltd. [5]) Meanwhile, some other courts deny such applicability (Telecommunications Products case[6], Innotex Precision Ltd v Horei Image Products[7]).

Therefore, whether the CISG can be applied between Hong Kong and foreign countries has been controversial until this declaration of 5 May 2020.

 

II. Present: Proposal, Enactment and Effect of the New Ordinance in HKSAR

Confronted with the negative or controversial application of CISG in Hong Kong, the HKSAR government and the Legislative Council made changes. On 7 October 2021, the Sale of Goods (United Nations Convention) Ordinance (Cap. 641) (“New Ordinance”) was enacted to implement the CISG in the HKSAR.[8] According to article 1 “short title and commencement” of Section 1 of the New Ordinance, this ordinance comes into operation on a day to be appointed by the Secretary for Justice by notice published in the Gazette. The CISG will have the force of law in HKSAR once the New Ordinance comes into effect, but the reservation made by the People’s Republic of China according to Article 95 of the Convention is not effective in Hong Kong. According to the New Ordinance, the New Ordinance or CISG rules would prevail to the extent there was any inconsistency between the New Ordinance or CISG and any other Hong Kong laws.

It took more than two years for Hong Kong to consider the proposal of application of the CISG in HKSAR before the New Ordinance was eventually enacted. On 27 May 2019, the Department of Justice (“DoJ”) of the HSAR government made a proposal and intended to launch a three-month consultation exercise in July 2019 on the proposed application of the CISG to the HKSAR.[9]  Although there was a doubtful statement that the CISG would detract from the common law tradition, the major still strongly support the proposed extension of the CISG to Hong Kong and see this as a well-justified cause.[10] Since transactions between a business in Hong Kong and a business in Mainland China were within the same country, CISG (as an international treaty) did not automatically apply. There was such uncertainty that whether the CISG could be extended to all ‘territorial units’ of the People's Republic of China (PRC) pursuant to Article 93(4) if the PRC did not make a declaration. In order to remove this ambiguity, the DoJ advocated the express extension of the CISG to Hong Kong. [11]

For now, there is still a certainty that the New Ordinance or CISG doesn’t apply between the Mainland and HKSAR. In terms of textual interpretation, as the article 1(1) of the CISG stipulates “this Convention applies to contracts of sale of goods between parties whose places of business are in different States”, which can explain that the CISG or the New Ordinance is not applicable between Hong Kong and the Mainland China as they are territorial units of one State. However, given the Mainland and HKSAR are two different jurisdictions, the DoJ might explore and discuss with the Mainland the possibility to establish a reciprocal arrangement so that the CISG rules could be implemented comprehensively and systematically in respect of Hong Kong/Mainland transactions.[12]

 

III. Prospect: Benefits for Hong Kong and Opportunities for Macau

The extension of the application of CISG to HKSAR could potentially enhance Hong Kong's status as an international trade and dispute resolution hub. As the Consultation Paper noted, there are significant advantages to implementing the CISG in Hong Kong, which are mainly shown in the following aspects: (1) driving Hong Kong’s GDP and trade growth; (2) avoiding Hong Kong businesses unfamiliar with foreign laws when entering into cross-boundary transactions; (3) improving Hong Kong's competence in resolving CISG disputes. Additionally, the ability to derogate from the CISG increases party autonomy and flexibility. [13] Last but not least, it clears the uncertainty of whether the CISG could be applied to Hong Kong for foreign courts and practitioners.

Macau SAR has been faced with the same situation with HKSAR in regard to the applicability of CISG. [14]The author believes that this event of implementation of CISG in Hong Kong is an opportunity and could be a test for Macau. In other words, the Macau SAR government or legislative department may make the decision of “shall Macau follow suit” depending on the effect of operation of CISG in Hong Kong.

 

 

Photo by Yufeng Fei on Unsplash

 

[1]  See the United Nations Commission On International Trade Law,  ‘China deposits declaration of territorial application of the United Nations Convention on Contracts for the International Sale of Goods to Hong Kong SAR’,  available at https://uncitral.un.org/en/news/china-deposits-declaration-territorial-application-united-nations-convention-contracts, last visited 21 May 2022.

[2]  See the PRESS RELEASES, ‘China deposits declaration of territorial application of the United Nations Convention on Contracts for the International Sale of Goods to Hong Kong SAR’, available at https://unis.unvienna.org/unis/en/pressrels/2022/unisl327.html, last visited 21 May 2022.

[3] Yao Jianjun, A brief analysis of the application of the United Nations Convention on Contracts for the international sale of goods, available at http://rmfyb.chinacourt.org/paper/html/2013-03/20/content_60313.htm?div=-1, last visited 21 May 2022.

[4] Illinois District Court, CNA Int'l Inc. v Guangdong Kelon Electronical Holdings et al., Case No. 05 C 5734 (2008).

[5] District Court of Arkansas in Electrocraft Arkansas, Inc. v Super Electric Motors Ltd et al., Case No.4:09 CV 00318 SWW (2009).

[6] Cour de Cassation, Case No. 04-117726, 2 April 2008, tr. Nathalie Hoffman, available at http://cisgw3.law.pace.edu/cases/080402f1.html, last visited 21 May 2022.

[7] Innotex Precision Ltd v Horei Image Products 679 F. Supp. 2d 1356 (2009).

[8] See the official database of Hong Kong legislation “Hong Kong e-Legislation”, Ordinance No.30 of 2021, available at https://www.elegislation.gov.hk/hk/cap641, last visited 14 May 2022.

[9] Consultation on the Proposed Application of the United Nations Convention on Contracts for the International Sale of Goods to the Hong Kong Special Administrative Region, Legislative Council Panel on Administration of Justice and Legal Services on 27 May 2019, LC Paper no CB (4)908/18-19(03).

[10] Qiao Liu and Jiangyu Wang, Applying the CISG to Hong Kong: Legal Analysis and Policy Recommendations, The Chinese Journal of Comparative Law, (2022) pp. 1-10.

[11] Ibid.

[12] Background brief on the proposed application of the United Nations Convention on Contracts for the International Sale of Goods to the Hong Kong Special Administrative Region, Panel on Administration of Justice and Legal Services Meeting on 25 May 2020, LC Paper No. CB (4)583/19-20(06).

[13] Department of Justice of the Hong Kong Special Administrative Region, ‘Consultation Paper on the Proposed Application of the United Nations Convention on Contracts for the International Sale of Goods to the Hong Kong Special Administrative Region’, available at  https://www.doj.gov.hk/en/featured/consultation_paper.html, last visited 21 May 2022.

[14] Zeyu Huang and Wenhui Chi, The CISG Applies to Hong Kong and Mainland China Now: Shall Macau Follow Suit? 7 May 2022, available at https://conflictoflaws.net/, last visited 21 May 2022.

Contributors: Zilin Hao 郝梓林

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