Orders of the Day — Uniform Laws on International Sales Bill

– in the House of Commons at 12:00 am on 12th April 1967.

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Not amended (in the Standing Committee), considered.

10.36 a.m.

Photo of Mr George Darling Mr George Darling , Sheffield, Hillsborough

I beg to move, That the Bill be now read the Third time.

This is a short, technical but, nevertheless, potentially important Bill, which has been introduced to enable the United Kingdom to ratify two international Conventions relating to uniform laws on and the formation of contracts for the international sale of goods. These Conventions aim at creating uniformity in the law covering contracts for international trade, and it is hoped thereby that the legislation will remove one cause of possible misunderstanding or bad feeling between traders resulting from the differences in the legal systems of different countries.

The United Kingdom has taken a leading rôle in the drawing up of these uniform laws, and the introduction of this legislation will be a further indication of the importance which we in this country attach to international co-operation in such matters to facilitate the expansion of world trade.

As I made clear during the earlier stages of the Bill, the uniform laws will, under the Bill, apply only to contracts by United Kingdom traders who have adopted them expressly as the law of their contract. However, we hope that an increasing number of businessmen will adopt the laws by way of experiment so that experience can be gained of their practical operation. If they prove to be satisfactory, it is hoped that in due course they will become the laws which are generally used for the purposes of contracts in international trade.

Since the Bill was introduced and discussed in the House and in Committee, we have had quite a lot of correspondence about it and about the uniform laws. In particular, we have been asked what publicity we shall give to the United Kingdom's ratification and to ratification by other countries. This is quite important to traders over here. In particular, we have been asked what publicity we can give to any reservations which other countries may have. At this stage I can merely assure the House that we shall be keeping the legal and business communities in touch with developments here and in other countries. We shall be having discussions with the appropriate associations on how best we can publicise the matter so that all traders who might be involved in the application of the uniform laws will know precisely what is going on.

I am grateful for the interest that was shown by hon. Members who took part in the earlier discussions on the Measure, for the welcome that has been given to the Bill and for the way in which it has been so considerately and speedily brought to this stage.

10.41 a.m.

Photo of Mr Alistair Macdonald Mr Alistair Macdonald , Chislehurst

Because of the procedures of this House, I have been waiting for a considerable time to speak on this Measure. The Second Reading took place in a Second Reading Committee and I did not have the privilege of being appointed to that Committee. I was, therefore, not able to speak on the Bill on that occasion. The Measure then went into Committee in the normal way—but, again, I was unfortunately not appointed to that Committee and was not able to speak on the Bill then.

It is not until now that I have an opportunity to say something about the Measure, yet the procedures of the House mean that, at this stage, I can comment only on what is in the Bill and cannot complain about what has been left out of it. This is a pity because up to now I have been an enthusiastic supporter of reforming Parliamentary procedures. As I find myself hampered by this reform, I am not quite so enthusiastic a supporter of reform as I was before this Bill began its process through Parliament.

A constituent of mine takes a particular interest in the Bill and has been in touch with me about it. He has naturally been expecting me to speak on his behalf in Parliament, particularly since I regard the points which he has made to me as valid ones. Up to now, I have merely been able to correspond on the subject with my right hon. Friend the Minister of State, who has been extremely helpful—but that is not the same as my being able to stand up in Parliament and oblige my right hon. Friend to answer my comment publicly.

However, within the restrictions imposed on me by the procedures governing Third Reading debates, I believe that I am able to refer to certain aspects of the matter, including a remark made in Committee—the real Committee and not the Second Reading Committee—by my hon. and learned Friend the Member for Crewe (Mr. Scholefield Allen), who said: For 40 years, efforts have been going on to make private international law uniform, and this is the one of the best examples of that work."—[OFFICIAL REPORT, Standing Committee D, 8th March, 1967; c. 5.] With respect to my hon. and learned Friend, I would hate to see one of the worst examples.

As its name suggests, the Bill purports to make uniform international law, yet the whole concept of the Measure seems to be that the thing is optional and to that extent it does not create a very great degree of uniformity. As returned from its Committee stage, the Bill states in Clause 1(1): In this Act 'the Uniform Law on Sales' means the Uniform Law on the International Sale of Goods forming the Annex to the first Convention and set out, with the modification provided for by Article III of that Convention, in Schedule 1 to this Act. … Article III of the Convention states: By way of derogation from Article 1 of the Uniform Law, any State may, at the time of the deposit of its instrument of ratification of or accession to the present Convention declare … that it will apply the Uniform Law only if each of the parties to the contract of sale has his place of business or, if he has no place of business, has habitual residence in the territory of a different Contracting State, and in consequence may insert the word 'Contracting' before the word 'States' where the latter word first occurs in paragraph 1 of Article 1 of the Uniform Law". We have done exactly that because Schedule 1 states: The present law shall apply to contracts of sale of goods entered into by parties whose places of business are in the territories of different Contracting States.… Thus, at the very outset of the Bill we have restricted its operation by inserting the word "contracting"—which certainly we are entitled to do under the terms of the Convention—although this is not necessarily what other states which have ratified or will be ratifying the Convention will do. We are therefore restricting the operation of these so-called uniform laws.

We have imposed a second measure of restriction on the extent of these laws, because the Bill states in Clause 1(3): While an Order of Her Majesty in Council is in force declaring that a declaration by the United Kingdom under Article V of the First Convention (application only by choice of parties) has been made and not withdrawn the Uniform Law on Sales shall apply to a contract of sale only if it has been chosen by the parties to the contract as the law of the contract". That refers to Article V of the Convention, which states: Any state may, at the time of the deposit of its instrument of ratification, … declare … that it will apply the Uniform Law only to contracts in which the parties thereto have … chosen the Law as the law of the contract". Once again we have indeed done what is lawful and permissible to us under the terms of the Convention, but by so doing we have restricted the operation of these laws.

A third restriction appears in the Bill in Clause 1(5), which states: If Her Majesty by Order in Council declares what States and Contracting States or what Declarations under Article II of the First Convention are for the time being in force, the Order shall, while in force, be conclusive for the purposes of paragraph 1 or, as the case may be, paragraph 5 of Article 1 … but any Order in Council under this subsection may be varied or revoked by a subsequent Order in Council". Once again this is a restriction because Article II of the Convention states: Any contracting state may declare that it does not consider one or more non-contracting states as different States from itself for the purpose of the requirements of the Uniform Law which are referred to in paragraph 1 of this Article, because such States apply to sales which in the absence of such a declaration would be governed by the Uniform Law legal rules which are the same as or closely related to its own". Indeed, we are going to impose this further restriction because Clause 1(5) refers to this possibility in that it refers to a declaration made under Article II of the Convention, which I have quoted.

In these three ways these uniform laws—which I first took to be and read as being extensive uniform laws which would apply universally and which would be really uniform—have, by our voluntary action, been restricted and the extent of these uniform laws now appears very small indeed, which is a pity. I should have thought that if these were good laws —and my right hon. Friend has indicated that delegates from this country took a leading part in drawing them up—they should apply universally.

The concept that the laws should be optional is peculiar. I have never heard of an optional law, although I have a dim memory from my historical reading that in the time of Charles II there was a Measure called the Occasional Conformity Act. I do not know whether that was an optional law, but, if not, this is the first law known to me which is optional in its extent. Because it is optional, I criticise it on the ground that it makes things harder, not easier, for exporters.

I understand that at present businessmen contemplating entering into a contract with a national of a foreign country have two laws to take into account—the law of this country, and the law of the other country concerned—and that it will be for the two parties to determine which of the two shall apply according to the provisions of the two laws. Now they may or may not have to take into account the possibility of a third law applying. This increases confusion instead of bringing about uniformity.

The combination of contracting in or contracting out as permitted under the Convention and the possibility that traders may choose whether the law shall apply creates great uncertainty, because, as we have decided to operate these uniform laws on a contracting-in basis, a trader in this country might reasonably assume that a contract entered into which does not expressly say that these laws shall apply will be a contract to which these laws shall not apply because we have not contracted in. But it may well be that the foreign national with whom he is entering into a contract is a national of a country which has adopted these laws on a contracting-out basis—that is, in that country these laws shall apply unless the contract expressly says that they shall not. Therefore, that foreign national will assume, if the contract is silent, that the law does apply. There is the possibility of uncertainty and confusion arising, and I am not clear how the trader is supposed to know.

I wrote to the Board of Trade on this subject, and I am very grateful to my right hon. Friend for his reply. He has taken pains over this matter. But I am bound to say that I am not entirely happy with his reply. I asked how traders were supposed to know whether foreign States had adopted the law and, if they had, whether it was on a contracting-in or contracting-out basis. My right hon. Friend's reply reads: You asked what steps we will take to publicise the list of States adhering to the Convention. Orders in Council will list the contracting States and show what declarations have been made. The Orders in Council will not, however, show which States have adopted the uniform law on a contracting in basis and which have adopted it on a contracting out basis. Clearly some publicity will have to be given to this and we are considering how it might best be done. That is just great. But had not the Government better get a ripple on—because we have now reached the Third Reading of the Bill and presumably, therefore, it will not be long before it becomes an Act and has the force of law. Yet the Government are still merely considering what kind of publicity they will give to ensure that traders and businessmen know the exact effect of the operation of this law.

The constituent whom I mentioned earlier has been in correspondence with the Board of Trade asking for what he called a "plain man's guide" to this subject. In my opinion, it is a very reasonable request, and I should like to endorse it and to press as strongly as I can the desirability, indeed the necessity, of making absolutely plain to traders and businessmen in this country the basis on which other countries have adopted this law, because without such information the list which the Board of Trade has undertaken to publish will be of no value.

My right hon. Friend, in moving the Third Reading, referred to the need to do this sort of thing but, if I may respectfully say so, in rather mild and mousy terms, when he said that the business community would be kept in touch with developments. The phrase "kept in touch" suggests a degree of publicity rather more modest than I should have liked to see.

If these laws are desirable and important, I should have thought that it was advisable that they should apply universally. I took up this point in earlier correspondence with the Board of Trade and received a rather curious reply. It was said that a lot of people might not know about these laws and, therefore, it might be rather hard that they should be affected by them. I can understand that argument. But I have always been under the impression that it was a principle of this country that ignorance of the law is no excuse. If that be the principle, I am not clear as to why it should not apply in this case.

However, if it be the Government's decision that these uniform laws shall be permissive and not mandatory—I would regret that decision, but I assume that it is their decision—may I underline as strongly as I can the necessity of making absolutely clear to the business community the exact terms and conditions on which other States have adopted the Convention. I realise that a contract may be entered into in all good faith which will have different meanings and effects according to the terms on which the other States have adopted the Convention.

It would be a great pity if what purports to be a Measure bringing uniformity into international law should create disunity and chaos. I see the real possibility of this happening unless adequate publicity is given to the point which I have mentioned.

10.58 a.m.

Photo of Mr Raymond Mawby Mr Raymond Mawby , Totnes

I apologise for not being here earlier, but I was consulting the Bill and the point which was raised on Second Reading and to which the hon. Member for Chislehurst (Mr. Macdonald) has referred. This is the only point which worries me. Everyone in the House will applaud this move forward to a more uniform law on international sales. But there is the problem which I have in mind which could lead to all sorts of difficulties and to the main parts of the Bill creating more confusion.

On Second Reading, the reservations of British businessmen when the Convention was originally discussed were raised. The right hon. Gentleman the Minister of State referred to the fact that there was an addition to the Convention which provided: Any State may apply the uniform law only to contracts in which the parties thereto have chosen that law as the law of the contract. Apparently that gave a certain amount of satisfaction to businessmen in this country.

The difficulty which I see is that which exercises the mind of the hon. Member for Chislehurst, namely, that misunderstandings could arise when various countries took a different view. We in this country would obviously take the view that unless it was expressly put into the contract our present laws relating to contracts for the sale of goods would apply, but a contracting party from another country, because of the way in which that country had brought in the Convention, might assume that unless it was expressly provided against the uniform law on international sales would apply.

It is important that as much publicity as possible is given, first, to the convenience which everyone will enjoy by accepting the conditions of the Bill, and, secondly, to making it quite clear that every contracting party ought not to assume anything and indeed ought to accept the express conditions of the contract into which they enter. It is only in this way that we shall get the benefits which can accrue from a uniform law such as this. I hope, therefore, that the right hon. Gentleman will do everything he can to make it as clear as possible to everyone concerned that we would like to see all our people following the terms of this Bill to make certain that there is not this misunderstanding which could arise between contracting parties in different countries even though they are all signatories to the Convention.

11.2 a.m.

Photo of Mr Frederick Corfield Mr Frederick Corfield , Gloucestershire South

We all welcome the basic principle of incorporating into our domestic law internationally agreed provisions for the interpretation and enforcement of international contracts in relation to the sale of goods. I would have thought that this probably had more advantage to a country such as our own, depending as it does so much on international trade, than to some other countries.

I am delighted that the hon. Member for Chislehurst (Mr. Macdonald) is growing wiser with regard to Parliamentary reform. I accept some of his reservations, though I think that some of them have been a little over-stated. It seems to me that at this stage it is almost inevitable that the use of these provisions will be optional. I do not know, and perhaps the right hon. Gentleman will be able to tell us, what proportion of the States which took part in this Convention have ratified it and incorporated its provisions into their domestic law. This clearly is a factor which very much affects the degree to which the provisions can be of universal application.

I disagree with the hon. Gentleman in his criticism of the provision by which these provisions will not apply where there is a declaration that the law of two countries is so close that they can be considered for this purpose as virtually governed by the same rules of law. In our own case, for example, the law on the sale of goods is derived from the Sale of Goods Act which has always been held up to students of the law as almost a model piece of drafting. Perhaps some of us would do well, and some of the Parliamentary draftsmen would do well, to study it in greater detail when drafting some of our modern legislation. No doubt it needs a certain amount of bringing up to date, and I understand that the Law Commission is considering this, but it is not one of our less successful pieces of legislation, and an enormous amount of trade is carried on on the basis of its terms.

I think I am right in saying that almost all our recently independent former Colonies have laws based on the Sale of Goods Act and that this is also true of the older Dominions with whom we do a great deal of trade. I would have thought that it was being somewhat dogmatic to introduce different rules for trade between countries of that sort, when on both sides they were accustomed to applying existing provisions.

Nor am I entirely convinced of the fears of the hon. Gentleman, or of my hon. Friend the Member for Totnes (Mr. Mawby), that by introducing a third set of provisions, in other words, the domestic laws of the two countries of the trading partners, plus this new Convention, we will necessarily make things harder rather than easier, or introduce confusion, because it seems to me that this is in a sense part of the Convention rather than part of the Bill.

Article 3 of the Annex to the Convention says: The parties to a contract of sale shall be free to exclude the application thereto of the present Law either entirely or partially. Such exclusion may be expressed or implied. It seems to me that with that provision in the law the first thing the contracting parties must do is to advert to the provisions of the Articles before deciding to what extent their contract is to be governed by them. Whether or not the country is a contracting in country, or a contracting out one, this is the first thing that will have to be done. I do not profess to know enough about it to say whether this is a disadvantage in the provisions of the Convention, but I do not see what Her Majesty's Government can do about it, because they must be concerned with relating domestic law to the international Convention, and not to something which we think would be a better international Convention. I think it unlikely that anybody will adopt these provisions as the basis of any contract without both sides being clear what provisions are being adopted and what are not.

I think that the hon. Gentleman is on sounder ground in wishing that the Convention had included some arrangement by which all countries would either be contracting-in or contracting-out. But there again, without having read the evidence, I cannot, even in my most extreme party mood, blame the Government for that. I think that, as in every other form of international Convention, this is a matter of give and take. We must accept what has been agreed, and I have no doubt that as progress is made in seeing how these provisions work the various parties to the Convention will have ideas by which it can be improved, and if the difficulties which arise are common difficulties and cut right across international frontiers, no doubt there will not be a great deal of difficulty in reaching agreement on the points which have given rise to those difficulties.

I think that the hon. Gentleman has a strong point in saying that business people will want to be kept up to date on what countries have incorporated these provisions into their domestic law with or without variations. But, subject to that, I hope that this will be a useful addition to the basis of international contracts for the sale of goods which, as I said, seems to be of great importance to this country. No doubt as time goes on the right hon. Gentleman will be able to come back and tell us whether his hon. Friend's fears are justified or not.

11.9 a.m.

Photo of Mr George Darling Mr George Darling , Sheffield, Hillsborough

I do not know whether I have to seek permission to answer the points which have been raised. I am rather stale on Third Reading procedure, but I know that the hon. Member for Gloucestershire, South (Mr. Corfield) will shortly help us to have a Third Reading debate on another important Bill.

I do not know whether it is in order to do so, but I would like to put on record that I disagree profoundly with the views expressed by my hon. Friend the Member for Chislehurst (Mr. Macdonald) about the Second Reading procedure. I think that it is an excellent idea, and I am only sorry that other activities prevented my hon. Friend from taking part in the debates from which he appears to have been excluded.

The main issue which my hon. Friend and the hon. Member for Totnes (Mr. Mawby) have raised is, I should imagine, a problem which arises in all international discussions. To what extent we can get agreement is a matter of give and take, and in the case of contracting-in or contracting-out it would have been better if the Conventions had come down in favour of one or the other. I would have thought that contracting-out would have been the better arrangement, but the discussions which led up to the Conventions and then to the Bill have been going on for about 40 years, during which time opinions have changed about the need for international laws and contracts, and even for international co-operation.

The British business community a short time ago reached a point at which it was in favour of doing something, although it still has some general reservations. It was largely on our business community's initiative that the contracting-in arrangement was put forward—or, at least, strongly supported. We shall have to see how this arrangement works out. These are called uniform laws. The word "law" in this context seems to have a rather less severe meaning than is generally attached to it in this country. Law or not, the whole operation is optional.

This is the only way we can proceed towards uniformity in international law. It is a developing process. My hon. Friend said that he hoped that the uniform laws would be universal. We have no authority to lay down laws for other countries. We can only proceed on a measure of agreement, and I hope that in the not too distant future uniform laws will become generally accepted.

I have said that we cannot impose the law on our business community, let alone the business communities of other countries. We must therefore retain the optional character of these laws. But in developing towards international agreement on contracts nobody can be absolutely certain that these Conventions and the rules that arise from them will prove to be entirely satisfactory. Much experience will be needed before we can be sure that the rules are satisfactory.

My hon. Friend has overlooked one important point. The Conventions, and therefore the rules, may prove to be unsatisfactory in certain respects; we do not know. Provision has therefore been made in the Conventions themselves to allow for changes, and these changes can be made only at further international conferences. Unless we ratify the Conventions we can take no further part in the proceedings. If, therefore, we really want international agreement in contractual law it is essential for us to ratify the Conventions and put the laws into operation in this country in the optional way that we are doing, thereby being able to play our part in moulding future contractual arrangements and law.

I have answered the point about contracting-in and contracting-out—briefly, I agree. We must make it clear to our traders that on occasions when they make arrangements for their contracts to be governed by the uniform laws that arise out of the Bill they must make certain that the country of the party with whom they are dealing has similar arrangements—in other words, contracting-in arrangements. If it does not, this fact must be made clear in the contract drawn up between the two parties. The fact that one party is in a contracting-in country and the other in a contracting-out country must be made clear to both parties.

My hon. Friend the Member for Chislehurst referred to what he called a further weakness, in that the law will not apply between States having similar legal systems to ours. This situation arises because, generally speaking, our trading arrangements have been governed by the Sale of Goods Act, which is now 80 years old. It is a very good piece of legislation, drawn up not by Parliament but by a county court judge to codify the law. So good has it been as a codification of common law that it has been taken as the basis of contractual law in, I believe, all the countries that we used to call Dominions and which are now members of the Commonwealth, and also in the United States of America.

There is no point in having a different system of international contractual law where Great Britain is trading with countries who have the same system of law as we have. This reservation is made so that if the contracting parties agree they will not need to adopt the uniform laws laid down in the Conventions. In practice it is very unlikely, at any rate for the time being, that they will adopt the uniform laws system, because, in effect, they already have uniform law as a result of basing their contractual arrangements on our Sale of Goods Act.

The hon. Member for Gloucestershire, South asked how many countries had ratified the Conventions. When this Measure gets on to the Statute Book we shall be the first country to ratify the Conventions and make them part of our law. There are good reasons why we should proceed quickly. First, it gives us an opportunity to influence further developments of international law in this respect.

Secondly, whether or not we enter the Common Market our traders will have closer contacts with European countries. We hope that there will be much more trade between the United Kingdom and European countries—and the European countries that we have in mind on occasions like this are mainly countries in the Common Market which base their trading arrangements on an entirely different system of law. It is therefore desirable to come to some kind of agreement quickly.

We are taking the lead in this matter, and this gives us a little time carefully to work out the kind of publicity that must be given to the new arrangements, so that our traders are in no doubt about where they stand under the law of contract. We can proceed to work out with the business community and the lawyers the best way to give publicity to this matter. I agree about the absolute need for good and careful publicity, and we shall keep this matter under active consideration. We will be in contact with the business communities concerned, and I do not think that we shall fail on that score.

Question put and agreed to.

Bill accordingly read the Third time and passed.