Contents

1.0 Introduction.................................................................................................................. 2
1.1 The business environment is full of agreements between businesses and
individuals....................................................................................................................... 3
1.2 Limit Obligations....................................................................................................... 3
1.3 Non-Compete Agreements........................................................................................ 4
1.4 Expert Insight............................................................................................................ 4
1.5 Global Contract Practices:......................................................................................... 4
2.0 International contract in Arab world.............................................................................7
2.1 AUTONOMOUS APPLICATION OF THE CISG................................................................8
2.1.1 Internationality of the sale of goods contract.....................................................8
2.1.2 Two Contracting States....................................................................................... 9
2.1.3 Article 1/1-a CISG as applied in practice in the Arab World...............................10
2.2 NDIRECT APPLICATION OF THE CISG.......................................................................12
2.2.1 Conditions for indirect application of the CISG..................................................12
2.3 THE SYSTEMS APPROACH OF LAW WITH MANAGEMENT.........................................13
Conclusion........................................................................................................................ 16
References:...................................................................................................................... 17

1.0 Introduction
Business deals are nowadays often realized within large international networks
which are challenging to manage. Business contracting is agreeing upon the
cooperation, its scope, duties, responsibilities, and working methods. Ideal
contracting is a search for a dynamic balance between binding rules and
flexibility. Mastering this is a central contracting skill. Skills do not consist of the
strict interpreting of norms and rules or the applying of models, methods, and
theories, nor of the persistent reaching for precise goals. All of these may provide
a basis and a framework for skills, but skills themselves are more a balancing act
in a particular context. (Cragg, 2002: 126).
Contracting parties, for example, on the one hand, must be able to identify
situations in which written documentation is needed for clarity or evidence, and
on the other, situations where documenting means mainly extra work and
bureaucracy. For future disagreements a richer documentation is often helpful to
indicate to what extent the parties have intended to either the early development
of English contract law was marked by the significant influence of the market
economy on the ideas of contract. Perhaps the most significant impact of the
market economy perception of contract was the dominant and central place of
the notion of freedom of contract in English law. Indeed the notion was so firmly
embedded in the minds of English lawyers that Sir George Jessel, MR was
prompted to observe.
A business contract states the terms and conditions of any business transaction,
including product sales and delivery of services. This helps the parties involved to
avoid any type of misunderstanding that may arise in the absence of a written
contract. (Preston & Post, 2012; Bagley, 2006).
If you are collaborating with a friend on your new business, then it is all the more
important to create a written contract. This will help you avoid any

misunderstandings - and consequently will save you from the rifts that might end
your friendship.
If you have an oral agreement, you might forget some points that you have
agreed on verbally with the passage of time. But with a written agreement, all
the terms and conditions are crystal clear at any point in time. And you can
always amend the agreement with the consent of both the parties.

1.1 The business environment is full of agreements between businesses

and individuals.
While oral agreements can be used, most businesses use formal written contracts
when engaging in operations. Written contracts provide individuals and
businesses with a legal document stating the expectations of both parties and
how negative situations will be resolved. Contracts are also legally enforceable in
a court of law. Contracts often represent a tool that companies use to safeguard
their resources.
Business contracts typically include a negotiation process in which various terms
to which each party must abide are stipulated. The negotiation process may take
days, weeks or months, depending on the contract and the contractual
responsibility of each party. Contracts also can include a process for making
changes or addendums to the agreement. Businesses frequently use contracts to
ensure that a certain level of service is maintained or that competing companies
do not have access to specific economic resources. (Cragg, 2002: 126).
A common use of business contracts is the creation of an agreement or company
that agrees to sell economic resources to another at a fixed cost. These contracts
ensure manufacturing or production businesses can obtain economic resources at
a specific price for a defined time period. Businesses also use these contracts to
hedge against the potential cost increase of economic resources. Fixed cost
3

contracts may backfire on companies if a decrease in economic resources occurs

in the future.

1.2 Limit Obligations

Service contracts outline the specific duties a company will perform in a
contractual agreement. These contracts typically are used when companies
contract with other businesses to perform services such as maintenance,
technical support or call-center operations. Service contracts usually include
information relating to prices for each service and the frequency at which the
company will perform the services. Businesses use these contracts to ensure that
they do not complete work without being compensated.

1.3 Non-Compete Agreements

Businesses often use contracts to enforce non-compete agreements. Noncompete agreements prohibit individuals or other businesses from offering goods
or services in the economic marketplace. These contracts create strategic
relationships between two companies and allow them to provide unique goods or
services to consumers. Companies also can use non-compete agreements to limit
the type of services offered by former employees who have specific knowledge
about the companys specialized business services. (Preston & Post, 1975;
Bagley, 2005).

1.4 Expert Insight

Legal advice should be sought before entering into any binding contract. Small
businesses may be susceptible to larger businesses taking advantage of the
entrepreneurs willingness to complete business functions. Contracts often
include difficult legal terms that many business owners fail to understand.
Attorneys can provide clear information on the benefits of business contracts and
whether small businesses should agree to specific contractual terms. (Cragg,
2002: 126)

1.5 Global Contract Practices:

Agreements must be kept. People around the world agree on this legal principle,
which goes back all the way to the Roman Empire.

Unfortunately, while

everybody may agree in principle, interpretations of the meaning of agreement

vary greatly across countries and cultures. At the individual level, this easily leads
to misunderstandings and mutual disappointment. In the business world, different
expectations and interpretations may also have severe consequences.
Role and Importance of Contracts in Different Countries Lets look at a few
examples that illustrate such differences. The following compares relative
perspectives and expectations (categorized as Low, Medium, or High) of local
business people in four countries: the United States, Japan, China and Russia.

USA, Japan, China, Russia

Importance of business contracts
M

L-M

Level of detail in business contracts

MH

L-M

The likelihood of legal action if a business contract is breached

L

L-

LM
Dependability of legal system for business contract enforcement

L-M

More so than anywhere else, contracts in the United States serve multiple
purposes. They confirm the exact nature and scope of the agreement, document
resulting rights and obligations, often including provisions for many eventualities,
and serve as the primary enforcement tool. Accordingly, Americans consider
business contracts important and prefer them to be highly detailed.

The countrys legal system recognizes contracts as the valid representation of the
agreement between the parties involved. Breaches of contract can quickly trigger
threats of legal action, which is deemed acceptable once other attempts to
resolve the issues have failed. The fact that one company is suing a- other does
not necessarily mean that they will cease to do business with each other.
The importance that Americans attribute to them is in stark contrast with how
Japanese businesspeople view contracts. In Japan, contracts primarily document
the underlying agreement and resulting actions. Given the Japanese inclination to
avoid uncertainty, contracts tend to be very detailed. They dont need to be
signed, though. While the countrys legal system dependably supports the
enforcement of contracts, Japanese companies almost never see each other.
Instead, they rely on the strength of mutual business relationships to resolve
disagreements. If they cannot resolve the issues, the Japanese look for mutually
respected arbitrators to achieve out-of-court resolution.
Chinese practices are similar to those in Japan. Contracts serve for clarification
purposes. They do not exist to enforce the underlying agreements. While all
relevant info- motion should be included, Chinese contracts are usually not as
detailed as those in Japan or in the U.S. The Chinese legal system has made
significant progress in the last 10-15 years and the legal enforcement of
contracts now seems possible, at least technically. Nevertheless, Chinese
expectations remain unchanged: since contractual terms & conditions arent
etched in stone, business partners should work together to re- solve differences
and remain flexible as required to accommodate changes affecting the execution
of the agreement. The realities of the business climate and legal system in Russia
let the enforcement of contracts through legal action seem a lofty proposition.
Most Russian businesspeople pay limited attention to contracts, keeping them
high-level and documenting only the essentials of the underlying agreement.
Should disagreements arise, pointing to a contract rarely changes behaviors.
Instead, the parties may initially try to resolve their issues in a collaborative
fashion.
6

If that fails, they might resort to building political or economic pressure on the
other side as a way to enforce the agreement. Implications for Global Companies
Different attitudes towards the role and importance of contracts raise the
question of how global companies should deal with others expectations: how
best to get a foreign base- ness partner to keep an agreement? How to make a
foreign business partner feel that agreements are being kept? No single strategy
is universally successful.
Those insisting that foreign partners must abide by the same standards as
domestic ones are rarely effective. Several American companies had to find that
taking a Chinese partner to court burned many bridges, not only with that partner
and by local or national government representatives, but also with other industry
players, making it much harder to do business in the country. In Russia, some
foreign companies paid dearly for trying to enforce contractual rights in court
when local judges sided with Russian contract partners and issued highly
unfavorable rulings. Successful global companies recognize local realities and
adjust their strategies accordingly. They strive to understand their partners
expectations, emphasize business relationships, and remain flexible when
disagreements arise. After all, when it comes to closing and executing contracts
in foreign countries, it is helpful to remember the old adage: When in Rome, do
as the Romans do.
Luther Katz is an International Business Advisor and the author of Negotiating
International Business the Negotiators Reference Guide to 50 Countries around
the World. He has a wealth of experience in achieving productive cooperation
across cultures and driving business success on a global scale. A seasoned
former executive of Texas Instruments, a Fortune 500 company, Luther regularly
interacted with employees, customers, outsourcing partners, and third parties in
more than 25 countries around the world. He teaches International Project and
Risk Management at the University of Texas at Dallas School of Man- agreement
and is a Business Leadership Center Instructor at the Southern Methodist
Universitys Cox School of Business. Importance of contract management
7

Organizations in both the public and private sectors are facing increasing
pressure to reduce costs and improve financial and operational performance. New
regulatory requirements, globalization, increases in contract volumes and
complexity have resulted in an increasing recognition of the importance and
benefits of effective contract management. The growing recognition of the need
to

automate

and

improve

contractual

processes

and

satisfy

increasing

compliance and analytical needs has also led to an increase in the adoption of
more formal and structured contract management procedures and an increase in
the availability of software applications designed to address these needs. It is
worthwhile noting that contract management is successful if:
The arrangements for service delivery continue to be satisfactory to both
parties, and the expected business benefits and value for money are being
realized
The expected business benefits and value for money are being achieved
The supplier is co-operative and responsive
The organization understands its obligations under the contract
There are no disputes
There are no surprises
A Professional and objective debate over changes and issues arising can be had
Efficiencies are being realized.

2.0 International contract in Arab world

The United Nations Convention on Contracts for the International Sale of Goods
(hereinafter: the Convention, on CISG) was signed in Vienna in 1980 and became
effective on 1 January 1988. The CISG applies to contracts for the international
sale of goods
1

and aims at providing a neutral, uniform, harmonized sales law

Available at <http://www.uncitral.org/pdf/english/clout/08-51939_Ebook.pdf>.

around the world (L. SPAGNOLO, 2009) to promote international commerce by

removing legal barriers in sale of goods transactions between international
traders.2To date, 77 States have acceded, accepted, approved, ratified, or
succeeded to the CISG,3 among them five Arab countries (Egypt on 1 January
1988, Syria on 1 January 1988, Iraq on 1 April 1991, Mauritania on 1 September
2000, and Lebanon on 1 December 2009).
With regard to disputes arising from international commercial contracts, national
courts usually apply their conflict-of-laws rules in order to define the applicable
law. In disputes arising from contracts for the international sale of goods,
however, According to (K. BELL,1996) the court not only in Contracting States
but also in non-Contracting4 States

must first of all determine whether the

conditions for application of the CISG (stipulated in Article 1 CISG) have been met
or not, independently from the conflict-of-laws rules of the forum ( F.
FERRAR,1995) .If the CISG is applicable, it supersedes the otherwise applicable
national law (A. ROSETT,1984). The CISG is a lex specialis that exclusively and
comprehensively governs contracts for the international sale of goods; 5 to say
otherwise would undermine the main goal of the CISG, i.e., the unification of the
law of the sale of goods. But if the conditions stipulated by the CISG for its

According to the Conventions Preamble, the States Parties to the CISG.

See United Nations Commission on International Trade Law (UNCITRAL), at

<http://www.uncitral.org/uncitral/en/uncitral_texts/sale_goods/1980CISG_status.html>.

UNCITRAL Digest, supra note 1, 6: Although the Convention does not bind non Contracting States, it has been applied
in courts of non-Contracting States where the forums rules of private international law led to the law of a Contracting
State.

5 Decision of 29.12.1999 of the Tribunale di Pavia (Italy) (Clout case No. 380), available at
http://daccess-dds-ny.un.org/doc/UNDOC/GEN/V01/847/23/PDF/V0184723.pdf?OpenElement.

application are not met, then the court has no choice but to apply the law
referred to by its conflict-of-laws rules (R. LOEWE, 1998).
This would also be the case if the contracting parties opted out of the CISG
application.6
The aim of this article is to define the conditions that have to be met in order to
apply the CISG in Arab (Contracting and non-Contracting) countries, whether in
the case of autonomous (direct) application by virtue of Article 1(1) (a) CISG or in
the case of indirect application, i.e., according to the conflict-of-laws rules of the
forum, pursuant to Article 1(1) (b) CISG. Besides, this article will discuss the
possibility of applying the CISG in Arab countries as being a source of the lex
mercatoria, i.e., the law of merchants.

2.1 AUTONOMOUS APPLICATION OF THE CISG

In order to apply the Convention autonomously, Article 1(1) (a) CISG lays down
two main conditions. First, the contract for the sale of goods must be
international in nature, i.e., the places of business of the contracting parties must
be located in different States. Second, these two States must be Contracting
States 4. In addition to these conditions, we will explain the Conventions
autonomous application in practice in the Arab world pursuant to Article 1(1) (a)
CISG.
2.1.1 Internationality of the sale of goods contract
The CISG intends to apply only to international contracts for the sale of goods.
Though the word international does not appear in the provisions that define the
geographical sphere of application of the CISG, the title of the document itself
says that it is a Convention on Contracts for the International Sale of

6 According to Art. 6 CISG, [t]he parties may exclude the application of this Convention.

10

Goods( ROSETT, supra note 8, 274). 7 Pursuant to Article 1 CISG, this obviously
means that the places of business 8 of seller and buyer themselves must, at the
time of conclusion of the contract9 ,( SIEHR, supra,1987), be in different States;10
it does not therefore suffice that the places of business of their agents are in
different States

11

. Thus, [Article 1 CISG] contains the basic jurisdictional

statement of the Convention, laying down a single criterion of internationality: the

seller and buyer must have their places of business in different States. 12 (P.
SCHLECHTRIEM, 2005). Once this subjective criterion 13 has been established, it
does not matter whether or not either party has a connection to the State where
the other party has its place of business 14, or whether the essential factors of the
sale of goods contract are connected to a Contracting or a non-Contracting
State15 .By contrast, the international character is not established when the
7 ROSETT, supra note 8, 274.
8 Ibid.
9 SIEHR, supra note 1, 48.
10 Reference is to be made to its habitual residence pursuant to Art. 10/b CISG.
11 SIEHR, supra note 1, 48. E. JAYME, in: C.M. Bianca / M.J. Bonell (Eds.), Commentary on
the International Sales Law, Giuffr, Milan (1987).
12 BELL, supra note 5, 244. See also: P. SCHLECHTRIEM, Requirements of Application and Sphere
of Applicability of the CISG, Victoria University of Wellington Law Review (2005/4), 781- 794, at
782, also available at http://www.cisg.law.pace.edu/cisg/biblio/schlechtriem9.html.

13 BORISOVA, supra note 13.

14 Decision of the Cour de Cassation (France) of 4.1.1995, available

athttp://www.unilex.info/case.cfm?id=106.
15 HONNOLD, supra note 1, 35.
11

parties have their places of business in one and the same State 16 .In such a case,
it does not matter whether the parties have different nationalities 17, or whether
either party has another place of business in another State with which the
contract has no strong connection18 .Moreover, it does not suffice in this regard
that the contract was concluded in one State to be performed in another
State19 .At all events, the fact that the places of business of both parties are in
different States must be known or at least may not be unknown to the parties at
any time before or at the conclusion of the contract. This means that, in order to
exclude the CISG, it suffices that only one party to the contract proves its having
been unaware at the time of conclusion of the contract that the other partys
place of business was located abroad 20 .On the other hand, it also follows that,
though the contracting parties might not be aware of the applicability or even of
the existence of the CISG, the internationality of their sale of goods contract must
be apparent to both of them21 .( FERRARI, supra note 7, 31-32.) .Knowledge by
the parties that their places of business are located in different States can be
deduced from the contract itself or from any dealing between, or from
information disclosed by, the parties. In any event, there must be an objective
element that reflects the international character of the contract of sale of goods,
16 Decision No. 2 U 23/91 of 27.11.1991 of the Oberlandesgericht Kln (Germany), available at
<http://www.unilex.info/case.cfm?id=128>.

17 Art. 1(3) CISG

18 Decision No. 034305BLS of 28.2.2005 of the Superior Court of Massachusetts (Court of First
Instance) (USA), available at http://www.unilex.info/case.cfm?id=1019.

19 HERBER, supra note 1, 52; FERRARI, supra note 7, 24-25. Decision No. 2 U 23/91 of 27.11.1991
of the Oberlandesgericht Kln (Germany), available at http://www.unilex. info/case.cfm?id=128.

20 SIEHR, supra note 1, 54; HERBER, supra note 1, 57.

21 FERRARI, supra note 7, 31-32.
12

such as the foreign language used by the other party, the temporary sojourn of
one party in the State where the other has its place of business, or the
agreement by both parties to deliver the goods sold in a State other than the
sellers State22 (FERRARI, supra note 7, 31-32.). It is quite irrelevant here whether
the parties know that the different States in which their places of business are
located are Contracting or non-Contracting States 23, (SIEHR, supra
HERBER, supra

1, 53-54;

1, 57, 87) or whether they know that the CISG governs their

contract or that it even exists 24 (BORISOVA, supra note 13). Thus, the CISG
safeguards the reliance by both parties on the fact that their contract for the sale
of goods is national in nature25; the party claiming otherwise has to prove the
international character of the contract26 .The CISG will therefore only apply to
contracts for the sale of goods which prove to be evidently international.
2.1.2 Two Contracting States
The internationality of a sale of goods contract does not per se suffice to make
the CISG applicable27. In order to apply the CISG autonomously, the different
States in which the places of business of both parties are located must also be
Contracting States within the meaning stipulated by Articles 99 (entry into force

22 HERBER, supra note 1, 57.

23 SIEHR, supra note 1, 53-54; HERBER, supra note 1, 57, 87.
24 BORISOVA, supra note 13.
25 ibid.
26 BELL, supra note 5, 246.
27 FERRARI, supra note 7, 24.
13

of the Convention) and 100 (the Conventions temporal application) 28of the
CISG.29Thus, Article 1(1)(a) CISG creates an area of certainty 30: if the two different
States in which the contracting parties have their relevant places of business are
Contracting States, whether Arab (i.e., Egypt, Syria, Iraq, Mauritania, or Lebanon)
or non-Arab States (e.g., Italy, Germany, USA , etc.), and the litigation is
brought before a forum in a Contracting State, be it the State in which either
contracting party has its place of business or another Contracting State, the
Convention applies.
Reservations made by the States under Articles 92 and 93 CISG should also be
taken into consideration. Under Article 92(1) CISG, [a] Contracting State may
declare at the time of signature, ratification, acceptance, approval or accession
that it will not be bound by Part II of this Convention or that it will not be bound
by Part III of this Convention. In such a case, the Declaring State is not to be
considered a Contracting State within paragraph (1) of Article 1 of this
Convention in respect of matters governed by the Part to which the declaration
applies, Article 92(2) CISG. Accordingly, if a contract for the sale of goods is
concluded between an Egyptian buyer and a Danish seller, according to Article
1(1)(a) CISG the CISG will not apply in full .The reserved part of the Convention
(i.e., Part II on contract formation) may, however, be applied by virtue of Article
1(1)(b) CISG .
Under Article 93(1) CISG, [i]f a Contracting State has two or more territorial units
in which, according to its constitution, different systems of law are applicable in
relation to the matters dealt with in this Convention, it may, at the time of
28 ICC Court of Arbitration, Award No. 6281 of 1989 of 26.8.1981, available at
http://cisgw3.law.pace.edu/cases/896281i1.html.

29 Decision of the Cour dAppel de Rennes (France) of 27.5.2008, available at

http://www.unilex.info/case.cfm?id=1354 .

30 BELL, supra note 5, 246. SPAGNOLO, supra note 2, 143.

14

signature, ratification, acceptance, approval or accession, declare that this

Convention is to extend to all its territorial units or only to one or more of them,
and may amend its declaration by submitting another declaration at any time. If,
by virtue of a declaration under this Article, this Convention extends to one or
more but not all of the territorial units of a Contracting State, and if the place of
business of a party is located in that State, this place of business, for the
purposes of this Convention, is considered not to be in a Contracting State, unless
it is in a territorial unit to which the Convention extends, (Article 93(3) CISG).
2.1.3 Article 1/1-a CISG as applied in practice in the Arab World
In its Decision No. 979 for judicial year 73 of 11.04.2006, the Egyptian Court of
Cassation found that the Convention was applicable pursuant to Article 1(1)(a)
CISG.The contract had been concluded between an Italian seller (plaintiff) and
Egyptian buyer (defendant) for the sale of marble. Since the buyer refused to pay
part of the price, the seller brought a case before the first instance court seeking
payment of the outstanding amount. Despite the CISG being applicable as Italy
and Egypt are Contracting States, the first instance court applied Egyptian
national law to the dispute without paying any attention to the CISG. As the court
ruled in favour of the plaintiff, the defendant turned to the Court of Appeals,
arguing that the plaintiff had failed to prove that the defendant had taken
delivery of the goods. The Appeals Court upheld the lower courts decision,
likewise disregarding the CISG. The defendant challenged the decision before the
Court of Cassation. The Court quoted, among others, Article 1 CISG and decided
that when a sale of goods made between a seller in a State ratifying the CISG
and a buyer in another State ratifying the CISG, the rules of the Convention shall
govern the formation of the sale contract and the rights and duties arising
therefrom. The Court of Cassation found that the Appeals Court erred in applying
the Egyptian national law to the dispute and remanded the case for the Appeals
Court to apply the CISG. In the view of these authors, the Court of Cassation
came to the right conclusion. As both Italy and Egypt are Contracting States, the
Convention applies pursuant to Article 1(1)(a) CISG. The Court should, however,

15

have made it clear that the places of business of both parties, not the seller and
buyer themselves, were in different Contracting States (i.e., Italy and Egypt). In
its Award No. 50/1994 of 3 October 1995, the Cairo Regional Centre for
International Commercial Arbitration (CRCICA) applied the CISG.41 A seller from
an African country and a U.S. buyer concluded a contract for the sale of a certain
number of apparatuses. Article 23(3) of the contract provided for all issues to be
interpreted according to (1) the conditions of the contract; (2) the CISG; and (3)
the law of the African State (Egypt). A dispute arose between the parties,
concerning the lack of conformity of the goods and the extension of the bank
guarantee of each unit released by the seller. Although the Convention was
applicable to this contractual dispute by virtue of Article 1(1)(a) CISG, the sole
arbitrator rejected the allegations made by the buyer regarding the lack of
conformity of the goods without referring to the CISG.
On the other hand, making express reference to Article 45 CISG, the arbitrator
held that the seller had breached its contractual duties by refusing to extend the
bank guarantee in favour of the buyer. The arbitrator also found that the CISG
rules on remedies did not differ from the conditions of the contract and from the
law of the African State (i.e., Egyptian law). To support his opinion, he even cited
a decision rendered by the Egyptian Court of Cassation applying the Egyptian
national law with regard to the contractual liability. The arbitrator accordingly
awarded damages to the buyer, in accordance both with the applicable domestic
law (Egyptian law) and the CISG (Article 74). To these authors, the sole arbitrator
erred in applying the Egyptian national law to the dispute besides the CISG; the
arbitrator should only have applied the CISG since it was clearly applicable to the
contract in dispute pursuant to Article 1(1) (a) CISG.
In its award of 18 September 2006, an ad hoc arbitration panel at the Egyptian
National Committee for International Chambers of Commerce in Cairo did not
apply the CISG even though it was apparently applicable to the contract in
dispute .A seller from Austria (respondent) and an Egyptian buyer (claimant)
concluded a contract for the sale of electronic scales and spare parts in January
16

2004. After taking delivery of the goods, the buyer found that they did not meet
the technical specifications stipulated under the contract. Since the contract
contained a dispute settlement clause that provided for arbitration in Cairo, the
buyer initiated arbitration proceedings there. The panel applied the Egyptian civil
law to the dispute. Since the places of business of both parties were located in
Contracting States, i.e., Austria and Egypt, the Panel should have applied the
CISG to the dispute ,( H.A. EL-SAGHIR,2008).

2.2 NDIRECT APPLICATION OF THE CISG

In addition to autonomous (direct) application, the Convention may pursuant to
Article 1(1)(b) CISG apply indirectly when the conflict-of-laws rules of the forum
refer to the law of a Contracting State. Under Article 95 CISG, however, each
State may declare that it will not be bound by Article 1(1)(b) CISG. Besides these
two matters, we will explain the indirect application of the Convention as it is
practised in the Arab world pursuant to Article 1(1)(b) CISG.

2.2.1 Conditions for indirect application of the CISG

Once the international character of the sale of goods contract has been
established, the CISG may also apply if the conflict-of-laws rules, applied by
national courts or by arbitral tribunals(R. LOEWE), indicate the application of a
Contracting States national law. In such a case, the CISG will be applied for the
reason that the Convention is part of the domestic law of each country that has
ratified it and also it is the lex specialis in connection with international sale of
goods. (R. LOEWE,1998) It should, however, be noted that the CISG has to be
applied in such situations as a uniform law of sale of goods, not as a foreign law.
It follows, therefore, that the court itself must identify and apply the CISG

17

provisions concerned31, while its decision can be challenged before the Court of
Cassation.
It makes no difference in this regard whether the State in which the court or
arbitral tribunal is located is a Contracting or non-Contracting State (K.S.
QTAISHAT, 2010). Thus, courts in all Arab countries may be faced with a situation
where the contracting parties have selected the law of a Contracting State as the
lex contractus32, since this concept of party autonomy is universally recognized in
domestic private international law codifications 33. Where the parties do not select
the law applicable or where their choice is not valid, recourse must be had to the
criteria set forth by the conflict-of-laws rules of the forum to determine whether
the Convention is applicable by virtue of Article 1(1)(b) CISG. 34According to Article
19(1) of the Egyptian Civil Code35, in such a case recourse must be had to the law
of the (Contracting) State in which both parties are domiciled, if any, and in the
absence of such a law, to the law of the (Contracting) State in which the contract
of sale of goods was concluded, i.e., the lex loci contractus.Under Article 62 of the
Tunisian private international law code, in such a case recourse shall be had to
the law of the (Contracting) State to which the contract is most closely
31 - HERBER, supra note 1, 54-55. Decision No. 979 of 11.4.2006 of the Court of
Cassation (Egypt) for judicial year 73, available (in Arabic) at
http://cisgw3.law.pace.edu/cisg/text/060411e1arabic.pdf.
32 UNCITRAL Digest, supra note 1, 6: The Convention may be selected by the parties as
the law applicable to the contract. Award of the Netherlands Arbitration Institute, No.
2319 of 15.10.2002.
33FERRARI, supra note 7, 40. See also Arts. 19(1), 20(1), 20(1), and 19(1) of the Civil
Codes of Egypt, Jordan, Syria and the United Arab Emirates, respectively.
34 UNCITRAL Digest, supra note 1, 6.

35 In its Decision No. 67/1987 of 28.2.1988, see this decision (in Arabic) in Adaleh, at
www.adaleh.com.
18

connected. In such situations, Arab courts must apply theCISG if the law
applicable according to the forums conflict-of-laws rule is the law of a
Contracting State; otherwise, they would defeat the objective of achieving
uniform application of this international sales law.
When applying the Convention pursuant to Article 1(1)(b) CISG, i.e., by virtue of
the so-called classical solution,( FERRARI, supra note 7, 38), it does not matter
whether or not either partys or both parties place of business is located in a
Contracting State.Likewise, it is of no importance whether the law applicable is
the national law of an (Arab) Contracting State whose courts have to settle the
dispute or the law of another (Arab or non-Arab) Contracting State(A, supra note
45, 366-367). Moreover, the courts in an Arab State must apply the CISG once its
conflict-of-laws rules point to the law of a Contracting State, regardless of
whether or not the CISG is also applicable according to the private international
law rules of that Contracting State (SIEHR, supra note 1, 51).

2.3 THE SYSTEMS APPROACH OF LAW WITH MANAGEMENT

The deep metaphors revealed by our research, coupled with the adverse effects
of focusing on just self-interest (Preston & Post, & Bagley, 2005), confirm the
need to better integrate the treatment of law, ethics, and business in business
school curricula. Instead of relegating law to what Gorden & Howell (1959) and
Baron (1995) call the nonmarket environment and of focusing on just its
constraining aspects, the systems approach to law and management proposed by
Bagley (2005) may provide a more complete and balanced picture of the role of
law and ethics in business success.
Law and business are part of the broader system of society (Preston & Post, 1975;
Bagley, 2005). Failure to meet societys expectations of appropriate behavior or
to treat stakeholders fairly (Jensen, 2001) can jeopardize a firms ability to
compete effectively.

19

Corporations are legal artifacts (Cragg, 2002: 126) that rely on legislative
action for their very existence. Historically, corporations were granted charters
and limited liability only when private funds were needed to finance quasi- public
functions, such as bridges and banks (Bagley & Page, 1999). Notwithstanding the
frequent incantation in the ethics literature that managers have a fiduciary duty
to exercise their responsibility with the exclusive financial interests of the
companys shareholders in mind (Cragg, 2002: 114), that is simply not how the
courts have interpreted the law (see cases cited in Bagley). Directors owe a
fiduciary duty to the corporation, and in deciding what is in the best interests of
the corporation, directors may take into account the effect an action may have on
the shareholders but also the interests of other constituencies, such as
employees, customers, suppliers, and the community at large (Unocal, 1985).
The role of the board shifts from protector of the corporate bastion to
auctioneer seeking the highest immediately realizable value for shareholders
only when a break-up of the corporation or a change of control has become
inevitable (Revlon, 1986). For this purpose, change of control is very narrowly
defined and excludes situations in which one disaggregated set of public
shareholders transfers its shares to another disaggregated group. As a result,
even though Time had agreed to a friendly merger with Warner Brothers,
whereby 65% of the stock in the newly merged entity Time Warner would be
owned by the former Warner shareholders, the Delaware Supreme Court ruled
that there was no change of control (Paramount v. Time, 1990). Accordingly, the
Time board did not violate its fiduciary duties when, in order to protect Times
journalistic integrity, it rejected a higher Paramount cash offer for Time that a
majority of the Time shareholders preferred to a merger with Warner. This
decision reflected the fact that a corporation is not a private contract between
the managers and shareholders. It is part of a community until its demise (by
break- up or change of control) becomes imminent.
The systems approach is a dynamic model. Law affects business firms, but firms
also affect the law and society as a whole (Edelman & Suchman, 1997). Law is
20

not just external force acting upon managers and their firms. It offers tools legally
astute managers can use as part of their market strategy to manage the firm
more effectively.
Law helps shape the competitive environment and affects each of the five forces
that Porter (1996) identified as determining the attractiveness of an industry:
buyer power, supplier power, the competitive threat posed by current rivals, the
availability of substitutes, and the threat of new entrants (Shell, 2004). Law also
affects the internal context of the firm, that is, its resources (Barney, 1991) and
capabilities (Teece, Pisano & Shuen, 1999), including the way the firm is
organized. In particular, law affects.
(1) The allocation of firm resources among stakeholders (e.g., by allocating power
between the directors and shareholders in antitakeover and constituency
statutes);
(2) The environment in which resources are converted into products (e.g., by
imposing strict product liability on each firm in the chain of distribution);
(3) The marshaling of human resources (e.g., by permitting employment at-will
while requiring the payment of damages for wrongful termination and banning
employment discrimination);
(4) the marshaling of physical capital (e.g., by offering limited liability to
investors, giving entrepreneurs fresh starts under the bankruptcy laws, and
promoting transparency in the capital markets under the federal and state
securities laws);
(5) The uniqueness of resources (e.g., by providing copyright, patent, trade secret
protection and enforcing certain no compete agreements).
Failure to comply with law can result in the loss of resources, such as cash paid
out as fines and damages or lost business, and place the firm at a competitive
disadvantage (Baucus & Baucus, 1997). Compliance is path dependent firms
21

that violate the law once are more likely to violate it again (Baucus & Near,
1991).

On the upside, effective use of the law can help firms protect and

leverage the firms valuable resources (Bagley, 2005).

Given the public law, the competitive environment of the industry, and the firms
resources and capabilities, the legally astute manager can use a variety of legal
tools to assess opportunities, to define the firms value proposition, and to select
and perform the activities in the value chain. These range from patents to
contracts to classes of preferred stock with detailed rights, preferences, and
privileges. For example, venture capitalists often use stock options as equity
incentives to align the incentives of the management team with those of the
investors. Such arrangements can decrease the agency costs (Jensen & Meckling,
1976) arising out of the separation of ownership and control.
Law is not static, however. Public laws will change in response to corporate
lobbying, firm action (especially misconduct), and societal demands. The passage
of the Sarbanes-Oxley Act of 2002, in response to widespread financial fraud, and
the Foreign Corrupt Practices Act of 1978, in response to government bribes by
multiple firms, are just two examples of this. As a result, anticipating,
understanding, evaluating, and responding to public policy developments within
the host environment is a critical managerial task (Preston & Post, 2012: 4).
Moreover, law is rarely applied in a vacuum and legal inference is often
ambiguous (Langevoort & Rasmussen, 1997). Especially in common law
jurisdictions, such as the United States and England, the application of legal rules
to a given set of facts is often not clear-cut. As U.S. Supreme Court Justice Oliver
Wendell Holmes (1897) explained, legal advice is often just a prediction of what a
judge or jury will do in as future case. Furthermore, the distinctions that certain
scholars make between legalistic and normative approaches to preventing ethical
abuses (Sama & Shoaf, 2005: 179) are not as crisp as they may appear on first
glance. In fact, moral and ethical considerations impinge upon most legal
questions and may decisively influence how the law will be applied.
22

Conclusion
Our society depends upon free exchange in the marketplace at every stage. The
interactions in the market all the times depend upon voluntary agreements
between individuals or other legal persons. Such voluntary agreements can
never become binding without a legal contract.
The origin of the contract law can be traced from the development of common
law and it is also alleged to be an offspring of tort law, as both contracts and torts
give rise to obligations. The difference between them lies in the fact that the tort
obligations are imposed by law; on the other hand contracts are a medium
through which people willingly create commitment between themselves.
The CISG is a lex specialis of the international sale of goods. In order for the
Convention to be applied by the courts of Arab Contracting States (i.e., Egypt,
Syria, Iraq, Mauritania and Lebanon), either the conditions set forth in Article 1(1)
(a) (direct application) or those laid down in Article 1(1)(b) (indirect application)
must be satisfied. In order for it to be applied by the courts of non-Contracting
Arab States, the conflict-of-laws rules of the forum must point to the law of a
Contracting State, whether a reserving State or not. In practice, the CISG has
been applied by Egyptian tribunals to contracts for the sale of goods between
parties having their places of business in different Contracting States (by virtue of
Article 1(1)(a) CISG) and when the Egyptian private international law rules lead to
the law of a Contracting State (pursuant to Article 1(1)(b) CISG).
In other situations, Egyptian tribunals did not apply the CISG even though the
conditions necessary for its application were satisfied. According to the reported
cases, none of the Arab tribunals availed itself of the possibility of applying the
CISG as part of the lex mercatoria, although the available legal texts allow them
to do so. Clearly, then, raising the Arab legal communitys awareness of the CISG
should be a priority. For a start, the universities in the Arab countries should offer
courses on the CISG, at least at the higher level(s).
23

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