German appellate court clarifies that CISG issues do not render arbitral award unenforceable

In practice, a party to a CISG contract who has lost an arbitration sometimes tries to resist the arbitral award's enforcement under the 1958 New York Convention by arguing that the arbitral tribunal has misapplied the CISG. In courts around the world, such attempts have almost universally failed, and most courts refuse to even address CISG-related arguments of this kind because doing so would violate the prohibition of a revision au fond.

In a recent decision, the Bayerisches Oberstes Landesgericht (a German appellate court) declared a CIETAC arbitral award that had been rendered in favour of two Chinese CISG buyers (Claimants) enforceable against a German CISG seller (Respondent). In doing so, the Court did address a number of innovative (some observers may say: desperate) CISG-related arguments that the German Respondent had – unsuccessfully – raised against the award's enforceability:

•  First, the Respondent argued that the parties could not validly agree on the application of 'Chinese law' in their sales contract, because the CISG required to be mandatorily applied. The Court rejected this 'incomprehensible' argument by pointing to Art. 6 CISG, which clearly allows the parties to exclude the CISG's application. In addition, the Court stressed that the arbitral tribunal had held that the parties' choice of Chinese law did not exclude the CISG, but resulted in the CISG's applicability, combined with an application of Chinese domestic law to matters not governed by the CISG (see paras. 31–33 of the decision).
• Second, the Respondent alleged that the CISG contains mandatory form requirements for arbitration agreements which the arbitral tribunal had failed to observe. The Court rejected this line of argument by emphasizing that the formal validity of arbitration agreements is not governed by the CISG, but by the New York Convention or the lex arbitri. This in turn means that the freedom of form principle in Art. 11 CISG does not extend to arbitration clauses in CISG contracts, quite apart from the fact that the arbitration clause in the sales contract at hand had been concluded in writing (para. 34 of the decision).
• The Respondent's third and final CISG-related argument was that the allegedly mandatory rules of the CISG do not contain any provisions on penalty (fixed sums) clauses, and that the arbitral tribunal's conclusion that the Respondent had to pay a contractual penalty of 10% of the order amount was therefore illegal and violated the ordre public. The Court pointed out that the CISG simply does not govern the admissibility of contractual penalty clauses or fixed sums clauses, but leaves this matter to the applicable domestic law (here: Chinese law) (paras. 63, 64 of the decision). It added that a contractual penalty of 10% furthermore does not violate the German international ordre public (paras. 65–67 of the decision).