On Formation of Contracts for the International Sale of Goods under Ukrainian legislation

Дмитрий Анатольевич Шемелин

юрист группы компаний "Караван" / "Karavan" enterprise group legal advisor

Ukraine

The United Nations Convention on Contracts for the International Sale of Goods of 11th april 1980 (hereinafter – the Convention) does not raise strict demands to the form of the contract and does not oblige the parties to conclude a sale contract in written. According to the art. 11 of the Convention, "a contract of sale need not be concluded in or evidenced by writing and is not subject to any other requirement as to form. It may be proved by any means, including witnesses."

In most countries, Convention prevails over national legislation in regulating of concluding of contracts for the international sale of goods because of one of the following causes: as lex specialis (in countries where international law primacy has not been established) or according to the rules of international law primacy.

At the same time, Ukraine, being the successor in title of the former Ukrainian Soviet Socialist Republic, along with other states (Argentine, Belarus, Hungary, Latvia, Lithuania, Chile and others) according to the art. 96 of the Convention joined the Convention with declaration that "Any provision of article 11, article 29 or Part II of this Convention that allows a contract of sale or its modification or termination by agreement or any offer, acceptance or other indication of intention to be made in any form other than in writing does not apply where any party has his place of business in Ukrainian Soviet Socialistic Republic" (see the Supreme Council of the Ukrainian SSR Presidium Resolution "On Ukrainian SSR joining the United Nations Convention on the International Sale of Goods" of 23.08.89 Nr. 7978.

This statement must not be treated as binding all Ukrainian enterprises and their partners to conclude their contracts in writing. Prof. Dr. Schlechtriem (1), for example, supports this opinion in his commentary: "When the reservation is made and one party's place of business is in a reservation state, the court must determine the law applicable to form according to its private international law. If the law of a Contracting State which did not invoke the reservation provision is applicable, freedom of form according to Articles 1(l)(b) and 11 prevails. On the other hand, if the conflict rules point to a reservation state, then the domestic regulations of that state control"

It follows a substantial conclusion: the Convention does not lay down any rules concerning the form of the contract if it was ratified with a statement under art. 96 of the Convention. Such rules must be established through analysis of applicable law.

What form of the contract rules should apply if Ukrainian law is the applicable one (as soon as Ukraine has made a statement under art. 96)?

According to the art. 9 of the Constitution of Ukraine the Convention is a part of national legislation of Ukraine. Part 2 of art. 10 of the Civil Code of Ukraine states that if there is a collision between the rules of national civil law and international treaty, to which Ukraine is a part, the rules of the treaty apply. Thus the Convention has the application priority over Ukrainian civil and commercial legislation as lex specialis and also under international law primacy (according to p. 2 art. 10 Civil Code of Ukraine).

At the same time, as we had already noted, the Convention does not lay down any rules concerning the form of the contract if it was ratified with a statement under art. 96. the rules, applying to the form of the contract should be laid down in the applicable national legislation.

The above-mentioned national legislation in this particular case consists of two main laws: the Commercial code of Ukraine and the Law of Ukraine "On external economic activity". The mentioned Civil Code of Ukraine does not regulate international sale of goods in particular and thus must be considered lex generalis in comparison to the Commercial Code and the Law. The Civil Code passed the procedure of parliamentary adoption lacking one of the substantial parts: the "International private law" chapter.

The Commercial code of Ukraine (art. 382) and the Law of Ukraine "On external economic activity" (art. 6) lay down the rule of lex loci contractus for the form of the contract, declaring that the form of the contract must be determined by the law of the place where that contract has been concluded. The Civil Code (art. 647) establishes, that place of contract conclusion is the offeror’s place of business, unless otherwise provided by the contract.

In the case when the offeror is has his place of business in Ukraine, the contract must be concluded in writing. It is determined by Commercial code of Ukraine (art. 382) and the Law of Ukraine "On external economic activity" (art. 6), stating that an international contact must be concluded in writing unless otherwise provided by a law of Ukraine or an international treaty of Ukraine. This wording is not monosemantic. The Civil Code allows oral contracts to which a physical person is a party and such person (according to the Commercial Code) may also be a party of an international sale of goods contract. Should this rule be considered as exemption?

The Constitutional Court of Ukraine in its decision of 26th november 1998 in case ¹16-rp/98 on the constitutional appeal of Lubnifarm enterprise about the official interpretation of article 154 of the Civil code of Ukrainian SSR and article 6 of Law of Ukrainian SSR "On external economic activity" ("signing order case") ruled that a law or an international treaty must clearly set exemptions from the rule of article 6 of Law of Ukrainian SSR "On external economic activity" about international contract conclusion in writing.

The present Ukrainian legislation and international treaties of Ukraine do not determine such exemptions (2), thus all international contracts where applicable law is Ukrainian, must be concluded in writing.

Some practical problems of international contracts formation under Ukrainian legislation should also be noted.

First. A soon as the offeror’s place of business determines the applicable law and thus, the form of the contract, it is doubtfully important to ascertain that place. On the other hand, the contract conclusion practice in Ukraine tends to concluding a written contract through signing a single document, where it is often impossible to determine the offeror. In this case whether it is impossible to determine loci contracti from the contract itself it may be recommended to use indirect means such as witness testimonies and documents to ascertain which party of the contract is the offeror.

Second problem lies in the defects of legislative techniques of the Commercial Code and the Law of Ukraine "On external economic activity". These documents lay down a possibility for Ukrainian Government, the Cabinet of Ministers of Ukraine, to introduce obligatory registration of contracts: art. 383 of the Commercial Code determines, that the Cabinet of Ministers of Ukraine to ensure the contracts compliance with the Ukrainian law may introduce their state registration. The same right of the Government is set out in the art. 29 of the Law of Ukraine "On external economic activity".

Such provisions contradict art. 210 of the Civil Code of Ukraine, determining that state registration of contracts may be introduced by laws only. At the same time the above-mentioned articles have different regulation sphere and do not collide, depriving us of right to resolve the dispute using lex generalis-lex specialis principle.

The main negative aspect of this contradiction is that according to the art. 210 of the Civil Code a contract, that needs state registration, is considered to be concluded only from the moment of its state registration. Thus it is not easy to define whether a contract, not registered according to the Cabinet of Ministers of Ukraine decision, is considered to be concluded.

President of Ukraine Decree of 7 november 1994 Nr 659/94 "On registration of some types of external commercial treaties (contracts) in Ukraine" introduces a separate registration of some types of external commercial treaties, but without any notice about the change of the moment of contract concluding.

Thus in our opinion we should not consider a statistical registration of international contracts according to Decrees and Cabinet of Ministers’ decisions a registration of contracts under the Civil Code. Such statistical registration or its absence does not influence the concluding and the enforcement of a contract.

Summing up we should mention, that a contract for the international sale of goods, concluded between a resident of Ukraine and a resident of the country that did not use its right of art. 96 of the Convention, should be concluded in written form only if the offeror has its place of business in Ukraine. Such contract should be concluded in writing and in accordance with the rules the Convention provides.

Footnotes

(1) Uniform Sales Law - The UN-Convention on Contracts for the International Sale of Goods. Univ. Prof. Dr. Peter Schlechtriem – http://www.cisg.law.pace.edu/cisg/biblio/schlechtriem-96.html

(2) E.g. The Commercial Code of Ukraine: Commentary. – Kharkiv: Odyssey, 2004. – p. 762.