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Halal -
contractual clarity
for a holy commodity
Introduction
Halal,
a religious concept, a rule of Sharia law enters the world of
commerce. Halal identifies food products and is a seal of quality
that fosters trade. Producing, selling, buying and eating halal is a
statement of Islamic faith.
Trade in halal products has grown to an estimated 600 billion USD
representing 12% of the global food market. The scale of production
and the length of the food chain has grown accordingly. Ingredients
and products change many hands and cross many borders before reaching
the consumer. Around the world different interpretations exist as to
what constitutes halal. To a consumer it has become largely unknown
what the origin of ingredients is, in what way the food has been
produced and according to which interpretation of halal. By
specifying in their contracts, in each shackle of the food chain, the
halal requirements of the ingredients, half-products and products,
producers and traders offer clarity to consumers who wish to buy in
the supermarket food in conformity with their interpretation of
halal. This paper examines to what extent international secular law
accommodates this clarity for contracts and dispute resolution in the
halal food chain.
Perspective
I am writing from the perspective of an industry, trade and
transport lawyer. As a private practitioner, I represent enterprises
from all over the world, which do business all over the world, in
goods of any kind. Food products are a special kind of goods as these
tend to be perishable. Time is of the essence in any business, but in
food even more so. Health hazards require food to be produced, stored
and handled with even more care than non-food goods. So matters
concerning food are a special case in a lawyers practice. Halal food
distinguishes itself once more. Not only in the level of care taking,
but the religious quality makes it difficult, and in some respects
even impossible, to compare halal products to other goods.
Can a secular legal system at all offer a
satisfactory framework for contracts and conflicts in the trade of
halal products? If a muslim country has managed to marry the secular
and religious aspects of its national law, how does it deal with
international commercial law? Is it possible to conclude treaties
which cover trade in halal products with non-muslim countries in a
meaningful and satisfactory manner?
Also, how to accommodate
for diverging interpretations of halal? The halal-worthiness of a
product is up to the interpretation of the last shackle in the food
supply chain, the consumer who wishes to eat halal food. In
consequence, the seller should deliver a product that is compliant
with the consumers’ requirements. A seller’s own
interpretation as to what constitutes halal is not to be imposed on
the transaction as far as this conflicts with fulfilling the
contractual obligations.
Clarity
How to (re-) build trust? The first step is clarity. Clarity is
to be achieved in each of the shackles of the chain to such an
extent, that the seller knows exactly what needs to be delivered and
the buyer knows exactly what he is supposed to get. How should
sellers and buyers of ingredients, producers, resellers, retailers,
and consumers contract in a halal food supply chain? How to achieve a
maximum of clarity on the specifics and requirements, in particular
with regard to the religious quality?
Consumers and B2B
With respect to diverging interpretations as to what halal is and
what halal is not, consumers may not always be able to make their
requirements explicit. Consumers buying in a supermarket will rely on
a particular trade mark which offers products in accordance with
their expectations. But in a business to business contractual
relationship, B2B, each party is expected to have professional
in-depth knowledge about the ingredients and products they trade and
consequently should be able to furnish exact specifications. As
a counterbalance to market power of food chains, consumer rights are
often protected. The retail sale to consumers merits a separate
research and discussion. This paper is restricted to B2B halal trade
within the food chain.
In
B2B, in contrast to consumer sales, parties are expected to have
equal negotiating power,
so neither the seller, nor the buyer enjoys stronger protection of
its rights. Furthermore, one should realise, that in a B2B food chain
every buyer is a seller as well.
Conformity
As a modern food chain involves so many parties, each buying and
selling, importing and exporting, ingredients and finished products,
across many different Islamic and non-Islamic countries, cultures and
religious denominations, covered by written and unwritten rules,
national and international legislation - and lack of legislation, all
the more important it is to agree on the specifics of ingredients,
half-finished and finished products and write these into the purchase
contracts. Only to the extent that a contract is clear,
explicit and complete one can establish, whether the delivered
ingredients or the product is in conformity with the purchase
contract. The contents of the contract with the particulars of the
traded goods become all the more relevant if damages occur. For the
buyer the challenge is to prove that goods are not in conformity, for
the seller to prove the goods are in conformity with the contract.
Surprising as it may seem, the outcome of most litigation depends
exactly on this point: on which party is the burden of proof; which
party bears the risk of having to prove that his contention of
conformity or non-conformity is right. If the seller is not
able to prove conformity and consequently has to bear the loss, he
will try to take regress, if he is of the opinion that the
non-conformity originated earlier in the chain. So as a buyer he
will, in turn, hold his seller liable for the damages incurred.
Certification
Does a halal certificate relieve a party from liability for
non-conformity of the product? A halal certificate is
the statement of a third party, a certification body, that a producer
or a product complies with the standards certified by certificate. If
the certificate certifies that the product is halal, one will have to
know against which requirements, of which standard, the halal
conformity has been checked, how this has been checked and whether
the requirements of the certificate standard are the same as, in
conformity with, the contractual requirements. Only halal
certificates which offer this degree of transparency may qualify as
persuasive evidence in litigation, if it can be shown how the
certification body verified that this particular consignment complied
with these particular requirements. However, if it is proven that the
product contains, for instance, pork, no matter how many halal
certificates are issued, the product is demonstrably not halal. In
B2B trade a theological discourse on what constitutes halal is not
desired. Trade is fast and needs quick and ready solutions. In that
respect certification has solutions to offer: to the extent, that a
certification body publishes the exact requirements of its standard
on which basis it issues a certificates, these requirements can be
incorporated into B2B purchase contracts by referral to that
standard. By taking as a default a particular standard, parties can
still agree to add or skip requirements, according to the needs and
convictions of the consumer of the final product.
Essential elements of
international civil law
This
paper examines what structures are offered by international legal
instruments to negotiate clear, precise and comprehensive contracts
and to facilitate dispute resolution between parties trading within
an international halal food chain.
First of all some essential elements of international civil law are
described.
Jurisdiction
and applicable law Whenever
a conflict with international aspects arises (parties residing in
different countries, or same country, but the traded goods cross
borders) the first two legal questions to be asked and answered
are:
1. What court has jurisdiction over the matter?
2.
Which countries' law applies?
These questions belong to so
called "private international law". Despite the word
"international", every state has its own, national "private
international law".
Ad 1.
Jurisdiction
The Latin term
"jurisdiction" is composed of ius
(law), and dicere
(to speak). So it is, principally, the
territory over which the state, or a court, speaks law. For a court
to have jurisdiction in a matter, its state must have jurisdiction in
the matter and the state must have bestowed jurisdiction for this
matter to this national court in particular. Mostly this so called
relative jurisdiction of a court is based on geography: the claimant
or defendant resides in the district of the court. In some cases,
however, jurisdiction of a court is based on the subject matter. For
intellectual property cases, for instance, the court in the Hague has
exclusive jurisdiction over all other Dutch courts, irrespective of
territorial provisions on local jurisdiction.
National
procedural law decides on the question, whether a national court has
jurisdiction. So a Dutch court can decide it has jurisdiction or it
can decide it has no jurisdiction. But it cannot decide, that a
German court has jurisdiction instead. Only a German court can decide
whether it has jurisdiction or not.
National procedural law
usually provides for jurisdiction of their courts by virtue of one or
more of the parties residing on its territory, or by virtue of an
event having taken place within its jurisdiction (e.g. delivery of
the goods) or because of assets being on its territory.
However,
parties may in their contract also appoint a court to have
jurisdiction. Such a "jurisdiction clause" may or may not
be exclusive. If the clause is exclusive, a court from another
country, although it would in principle have jurisdiction according
to its national procedural laws, should decline jurisdiction to the
favour of the foreign court chosen by the parties to the
contract.
Within the EU the member states have agreed on
reciprocate rules on jurisdiction and cross border enforcement of
judgements, the so called Brussels Regime. The Regime is a set of
rules, which has been developed and tested in practice over a time
span of fifty years. The foundation was laid by the 1968 Brussels
Convention.
It provides a common framework to decide on jurisdiction and limits
exequatur proceedings for recognition and enforcement of a foreign
judgment to a formal test, such as fair hearing. Also, it contains
some basic rules on lis alibi pendens: a court is called upon while
proceedings have also been initiated before the court of another
member state. EU Regulation 44/2001
modernised and “internalised” these rules and instruments
into directly applicable EU law. Still exequatur proceedings were
needed to have a judgement recognised and made enforceable in another
member state.
The next step in removing cross border
enforcement barriers was taken by a parallel regulation, the European
Enforcement Order for uncontested claims.
For the first time national courts were empowered to certify their
judgements as a “European title”, a judgement recognised
and enforceable in all member states without exequatur proceedings.
So, in whatever member state the judgement is rendered, it obtains
the binding power of any national judgement of any and all member
states. The European Payment Order,
based on the German Mahnverfahren, and the Small Claims Procedure,
based on common law, in force since 2008 and 2009, renders a European
title as well. Finally, Regulation 1215/2012,
the present Brussels I Regulation (also referred to as “recast
Brussels I”), has adopted the principle of a European title,
giving civil courts in any member state the power to render a
judgement which can immediately be enforced in the jurisdiction of
any other member state, without intervention of the courts of that
member state.
The judgements project of the Hague Conference
(www.hcch.net/en/projects/legislative-projects/judgments) envisages a
global scheme for jurisdiction clauses and recognition and
enforcement of judgements, based on the Brussels Regime. The treaty
on exclusive jurisdiction clauses is already in force.
The treaty on recognition and enforcement of judgements is being
negotiated.
Ad 2. Applicable
law
However many international
conventions and treaties exist and apply, as long as states are
sovereign, international commercial law only exists by virtue of of
national laws. The provisions of national law apply and only to the
extent that a treaty, to which the particular state has signed on to,
applies, rules of national law are mutated by the provisions of the
treaty. So national law is and remains the basis and a treaty merely
influences the content of national law. Germany and the Netherlands
have their own provisions on sale contracts. If a conflict between a
Dutch seller and a German buyer arises, the CISG as a treaty will
apply (if not excluded in the sales contract), but first and foremost
it should be decided, which national law, the Dutch or German law
applies.
Although private international law varies from
country to country, by tradition and within the EU by virtue of the
so called Rome I Regulation,
in principle the law of the country in which the seller resides
applies. However, parties may choose another law, for instance making
applicable the law of the country where the buyer resides. Taking the
above example, instead of Dutch law, German law would apply.
The discourse on the applicable national law does not exlude the
possibility that the Sharia applies. However, it would apply by
virtue of a national law. Dutch law does not decide on the question
whether a particular product is halal or not. Dutch law leaves that
question to be decided by the rules explicitly or implicitly chosen
by the parties. If halal is ordered, one implicitly refers to the
Sharia as a set of rules which decide on the question whether a
product can be regarded to be halal or not. For the desired
interpretation of halal under Sharia law, parties need to be explicit
in their contract.
Ordre
Public
Jurisdiction and
applicable law being two questions to be answered separately,
according to their own rules, it is not uncommon, that a court has to
apply not its own national law, but a foreign law. So a German court
applying Dutch law, for instance. What if a rule of Dutch law goes
entirely against the sense of justice in Germany? Suppose Dutch law
allows for claiming interest and suppose that in Germany an absolute
ban on interest exists. In such a case the German court may sustain
the main claim according to Dutch law, but disregard the claim for
interest. The German court will do so on basis of the ordre
public (public policy) of Germany,
which (in this hypothetical example) forbids interest. So the ordre
public sets aside a provision of
foreign law. The ordre public
can usually also be invoked against a foreign judgement, to prevent
the enforcement of those elements of a judgement which contradict
public policy of the state where the judgement is to be
enforced.
Arbitration
So
far we have presumed that unresolved conflicts can be brought before
courts only. Parties may, however, agree on arbitration. Arbitration
could be described as private court proceedings, providing an
alternative dispute resolution. If parties have agreed on
arbitration, a court will have no jurisdiction to hear the merits of
the case.
An arbitral tribunal usually consists of one or
three arbitrators. If three arbitrators, each party will appoint one
arbitrator. An arbitration institute, on which parties in most cases
have agreed to warrant impartiality, will then appoint the third
arbitrator as chairman. An arbitration institute also provides the
rules according to which the proceeding will be conducted. The
advantage of arbitration is confidentiality: in contrast to court
hearings, arbitration hearings are not public. The disadvantage:
usually arbitration is more expensive, as the arbitrator fees tend to
be far higher than court costs.
Nowadays alternative dispute
resolutions are en vogue. Arbitration having the longest tradition,
mediation has received a lot of attention the past decades. Mediation
is possible where the parties agree to disagree and are both
interested and determined to resolve the conflict. Lawyers should
always strive for an out of court settlement for their clients. If
parties on both sides are represented by professional council, such a
settlement can often be reached. A mediator can be of assistance in
such a process, but in my practice mediation is extremely
rare.
Mediation is not geared towards a decision, but towards
a settlement. If a settlement is not reached, parties will have to
start court proceedings or arbitration proceedings, if contractually
agreed.
To enforce an arbitral award, it needs to be submitted
to a court, which will verify, whether basic principles of fair
proceedings, such as fair hearing (audi
et alteram partem) have been adhered
to. After this limited judicial review, the award will be stamped as
enforceable, as if it were a judgement of a court. As such it can be
enforced by a bailiff on the assets of the defendant: bank account,
machines, real estate, outstanding invoices of customers.
Just
as a judgement is restricted to the sovereign borders, to the
jurisdiction of the country, the validity and enforceability of an
award is restricted to the borders of the jurisdiction of the court
having stamped the award. What if the defendant resides in another
country or if assets in another country need to be attached? Should a
court of that other country verify again whether the arbitration
proceedings have been conducted in an orderly and fair manner? To
ensure that an arbitral award once having been stamped to be
enforceable in one country, is recognised and enforceable in another
country, in 1958 the Convention on the Recognition and Enforcement of
Foreign Arbitral Awards, or New York Arbitration Convention,
was agreed. More than 65 countries are signatory to this
convention.
EU
legal instruments
This paper wishes to examine legal instruments on a global basis. Not
being familiar with all legal systems around the world, I wish to
discuss some EU legal instruments as regional solutions to challenges
which exist worldwide.
The European Union enacts many directives and regulations in name
of protection of the consumer. This legislation has an impact on all
trade to and from the EU, also for those parties, which are not in
the retail business. Similar consumer protection laws will exist on
other continents. A discussion of EU legislation reveals the impact
of consumer protection on cross border halal trade.
Food
safety
In Regulation
178/2002 the EU has laid down the general principles and requirements
of food law, procedures in matters of food safety and has established
the European Food Safety Authority.
Citing the official
explanation:
The safety of food is of critical importance. Consumers must have
confidence and assurance that the food they buy will do them no harm
or have an adverse effect. The General Food Law
Regulation establishes that only safe food and feed can be
placed on the Union market or fed to food-producing animals. It also
establishes basic criteria for establishing whether a food or feed is
safe.
Tracing food and feed throughout the food chain is very important
for the protection of consumers, particularly when food and feed are
found to be faulty. The General Food Law Regulation defines
traceability as the ability to trace and follow food, feed, and
ingredients through all stages of production, processing and
distribution.
Traceability:
facilitates withdrawal of faulty food/feed from the market
provides consumers with targeted and accurate information on
specific products
covers all food and feed, all food and feed business operators,
without prejudice to existing legislation on specific sectors
affects importers who are required to be able to identify from
whom the product was exported in the country of origin
obliges businesses to be able to identify at least the immediate
supplier of the product in question and the immediate subsequent
recipient, with the exemption of retailers to final consumers - one
step back-one step forward (unless specific provisions for for
further traceability exist).
A comprehensive overview of the EU tracebility system gives
https://ec.europa.eu/food/sites/food/files/safety/docs/gfl_req_factsheet_traceability_2007_en.pdf
The system of traceability has shown its importance for instance in
the E.coli crisis in 2011, which killed 48 people in Germany and 11
in France. The source was traced back to contaminated fenucreek
seeds, used to grow soya sprouts in Germany.
It should be noted that any EU member state retains the right to
restrain import of food products, if it considers the product to be a
hazard to the health of its citizens. Such act of sovereignty
occasionally gives rise to small trade wars within the EU, as has
happened with the mad cow disease and fipronella eggs.
Product
liability
Directive
85/374/EEC
provides for liability for defective products. Directive 1999/34/EC
extended the scope of liability to agricultural and fishery
products.
If a defective product causes any damage to
consumers or their property, the producer has to provide compensation
irrespectively of whether there is negligence or fault on the part of
the producer.
Organic food
Council
Regulation 834/2007 regulates production of organic food and
labelling of organic products.
The preamble shows certain
parallels with considerations about halal food:
(1)
Organic production is an overall system of farm management and food
production that combines best environmental practices, a high level
of biodiversity, the preservation of natural resources, the
application of high animal welfare standards and a production method
in line with the preference of certain consumers for products
produced using natural substances and processes. The organic
production method thus plays a dual societal role, where it on the
one hand provides for a specific market responding to a consumer
demand for organic products, and on the other hand delivers public
goods contributing to the protection of the environment and animal
welfare, as well as to rural development.
(2) The share of the
organic agricultural sector is on the increase in most Member States.
Growth in consumer demand in recent years is particularly remarkable.
Recent reforms of the common agricultural policy, with its emphasis
on market-orientation and the supply of quality products to meet
consumer demands, are likely to further stimulate the market in
organic produce. Against this background the legislation on organic
production plays an increasingly important role in the agricultural
policy framework and is closely related to developments in the
agricultural markets.
These
secular ideas and ideals resemble the religious respect for the
Creation. This respect cannot be expressed in money and has a
personal as well as a community aspect. The fact that organic
principles have been laid down in EU law, shows that it is not
impossible to embed, or at least support, the imponderable in a
secular legal system.
Global
legal instruments
Transport
and Incoterms
What happens when products are damaged during transit from the seller
to the buyer? Who is liable, who bears the damages, who bears the
risk?
Risk for goods in a legal context implies liability for a certain
period of time in which the good are in one's sphere of
responsibility, without necessarily having the custody of the goods
at the time and, if damage occurs, without being personally at
fault. Risk is an important concept, where it is often more difficult
to establish exactly what has happened tot the goods, than to
establish when it happened.
EXW, FOB and CIF are so called Incoterms. These three acronyms (many
more exist) stand for “ex works”, “free on board”
and “cost insurance freight”. Incoterms are used in
contracts to establish a concise and clear allocation of costs and
risk during the carriage of the goods from the seller to the buyer.
Citing from
https://en.m.wikipedia.org/wiki/Incoterms:
The
Incoterms or International Commercial Terms are a series of
pre-defined commercial terms published by the International Chamber
of Commerce (ICC) relating to international commercial law. They are
widely used in international commercial transactions or procurement
processes and their use is encouraged by trade councils, courts and
international lawyers. A series of three-letter trade terms related
to common contractual sales practices, the Incoterms rules are
intended primarily to clearly communicate the tasks, costs, and risks
associated with the global or international transportation and
delivery of goods. Incoterms inform sales contracts defining
respective obligations, costs, and risks involved in the delivery of
goods from the seller to the buyer, but they do not themselves
conclude a contract, determine the price payable, currency or credit
terms, govern contract law or define where title to goods
transfers.
The Incoterms rules are accepted by governments,
legal authorities, and practitioners worldwide for the interpretation
of most commonly used terms in international trade. They are intended
to reduce or remove altogether uncertainties arising from different
interpretation of the rules in different countries. As such they are
regularly incorporated into sales contracts worldwide.
The
incoterms in particular provide pre-defined rules to agree when the
risk for the goods during transport passes from one party to the
other. If damages occur, for instance contamination with non-halal
food, the contractually chosen Incoterm will in most cases help to
establish which party bears the risk of such contamination. Although
the allocation of risk does establish which of the two contracting
parties has to bear a loss in first instance, it does not preclude
the risk-bearing-party from seeking indemnity from a third party
which has actually caused the damage.
Why
is it important to know when the risk of the goods passes from the
seller to the buyer? Goods may get lost or may get damaged during
transport. Halal goods may, for instance, in transit loose their
halal quality through contamination by non-halal food. If goods are
lost while the buyer still bears the risk, he may be found not yet
having fulfilled his obligation to deliver the purchased goods to the
buyer. If, however, the risk has already passed to the buyer, the
buyer may be held to pay the purchase price, without getting the
goods. If goods under a halal sale contract are delivered, but have
lost their halal quality on the way, who is to bear the loss of
value? The fact that damages could perhaps be recovered from a
carrier, does not make the risk allocation and liability issue
superfluous. Should the seller bear the damages and try and recover
from the carrier, or should the buyer do so? Contracts of carriage
are subject to limitation of liability. So a claim for damages of €
100.000 may be limited to a recoverable sum of € 5.000, leaving
unrecoverable damages of € 95.000, to be borne by the seller or
the buyer, whoever has to bear the risk.
How about insurance?
Most trade is insured. But the questions of liability and risk do not
disappear with insurance. These issues are simlply transferred to the
insurer of the seller and the insurer of the buyer, who will have to
settle on which insurance company has to pick up the
tab.
International
conventions
Before
examining in more depth the international convention CISG,
it is is important to describe some traits of an international
convention.
What
is an international convention or treaty? It is an agreement between
states, which binds the states and through direct application (an
exception) or through enactment into national legislation citizens
and legal persons of that state.The mother of all treaties is
the Vienna Convention on the Law of Treaties (VCLT).
The VCLT describes the rules for
agreeing and implementing a treaty. One of the rules is that a state
may accede a treaty, while opting-out of certain provisions:
Article
19 Formulation of reservations
A State may, when signing,
ratifying, accepting, approving or acceding to a treaty, formulate a
reservation unless:
(a) the reservation is prohibited by the
treaty;
(b) the treaty provides that only specified reservations,
which do not include the reservation in question, may be made; or
(c) in cases not failing under subparagraphs (a) and (b), the
reservation is incompatible with the object and purpose of the
treaty.
The VCLT itself is a
lively example of these opt-outs. For example:
The
Kingdom of the Netherlands does not regard the provisions of Article
66 (b) of the Convention as providing "some other method of
peaceful settlement" within the meaning of the declaration of
the Kingdom of the Netherlands accepting as compulsory the
jurisdiction of the International Court of Justice which was
deposited with the Secretary-General of the United Nations on 1
August 1956.
CISG
UN
Convention on Contracts for the International Sale of Goods
Having
discussed some essential concepts in international law and various
international legal instruments, the CISG, the UN
Convention on Contracts for the International Sale of Goods will now
be examined in more detail. The CISG as a legal instrument not only
in its its subject matter, its practical, uniform solutions, but also
in its globally diverse roots can offer a sound and firm legal basis
to international halal trade. Together with countries from Asia,
Europe, Middle-East, Africa, North and South America, Islamic
countries have initiated the CISG. Arabic is one of the six official
languages of the CISG, which are equally authentic.
History of the convention
To
cite www.cisg.law.pace.edu/cisg/text/gap-fill.html:
In
the medieval age there was the lex mercatoria, a set of rules
which knew no boundaries in its application. Parallel with the
development of the modern notion of sovereignty, national legislators
commenced the localization of the law of trade. Differences between
laws of countries have created barriers to international trade and
added to the expense of such trade. Lack of mutual understanding of
the national laws of trading partners presented added complications.
Standardizing the law of international trade became an important
objective.
The beginning of the unification process dates back
to the late twenties. In 1929 the noted German jurist, Professor
Ernst Rabel suggested to Vittorio Scialoja, the then president of the
International Institute for the Unification of Private Law (UNIDROIT)
to initiate work on the formation of a uniform law of international
sales. UNIDROIT accepted this challenge.
A Committee to which
the elaboration of future uniform law on the sale of goods was
entrusted, submitted a preliminary draft in 1934. The revised version
of that draft was approved by the Governing Council of UNIDROIT in
1939 but a plan to submit it to a Diplomatic Conference was
disconcerted by the outbreak of the Second World War.
In 1951
the Government of the Netherlands convened a Conference at The Hague.
Its achievement was formation of a Special Commission which produced
two drafts: one in 1956 and, following comments made by Governments
and interested international organizations, another draft in 1963.
Encouraged by the favorable reactions the draft uniform laws
received, a Diplomatic Conference was convened at The Hague in 1964.
It led to the adoption of two Conventions: the Uniform Law of
International Sale (ULIS) and the Uniform Law on the Formation of
Contracts for the International Sale of Goods (ULF).[1]
From
1966, the leading role in the creation of a uniform law of
international sales that would be acceptable to a larger segment of
the world trade community was taken over by United Nations Commission
on International Trade Law (UNCITRAL). The general climate to promote
the Hague Conventions was unfavorable. Member States of the United
Nations described them as too dogmatic, complex, predominantly of the
European civil law tradition and unclear, but perhaps the biggest
objection was lack of global representation in the
rule-making.[2] The need for a more acceptable set of trade
rules encouraged UNCITRAL to undertake and advance the codification
process.
The United Nations Conference on Contracts for the
International Sale of Goods was held in Vienna from March 10 to April
11, 1980. It was attended by representatives of 62 states and 8
international organizations. The final outcome of the Vienna
Conference was the adoption of the United Nations Convention on
Contracts for the International Sale of Goods. After 50 years of
work, the main document of the New Law Merchant was created.
A
global convention
The CISG is a truly global convention. The eleven States which
originally signed the convention were: Argentina, China, Egypt,
France, Hungary, Italy, Lesotho, Syria, United States, Yugoslavia and
Zambia:
DONE at Vienna, this day of eleventh day of April, one thousand
nine hundred and eighty, in a single original, of which the Arabic,
Chinese, English, French, Russian and Spanish texts are equally
authentic.
The
following countries have acceded the convention
now:
Albania
Argentina
Armenia
Australia
Austria
Bahrain
Belarus
Belgium
Benin
Bosnia-Herzegovina
Brazil
Bulgaria
Burundi
Canada
Chile
China
(PRC)
Colombia
Croatia
Cuba
Cyprus
Czech
Republic
Denmark
Dominican Republic
Ecuador
Egypt
El
Salvador
Estonia
Finland
France
Gabon
Georgia
Germany
Greece
Guinea
Guyana
Honduras
Hungary
Iceland
Iraq
Israel
Italy
Japan
Kyrgystan
Latvia
Lebanon
Lesotho
Liberia
Lithuania
Luxembourg
Macedonia
Mauritania
Madagascar
Mexico
Moldova
Mongolia
Montenegro
Netherlands
New
Zealand
Norway
Paraguay
Peru
Poland
Republic of
Congo
Republic of Korea
Romania
Russian Federation
Saint
Vincent & Grenadines
San
Marino
Serbia
Singapore
Slovakia
Slovenia
Spain
Sweden
Switzerland
Syria
Turkey
Uganda
Ukraine
United
States
Uruguay
Uzbekistan
Yugoslavia
Zambia
Indonesia
and other ASEAN countries, like Brunei, Lao PDR, Phillippines, Sri
Lanka, Malaysia and Thailand, are reportedly preparing to accede to
the CISG.
When does the CISG apply
The CISG convention applies when at least one of the parties to a
sales contract resides in a state which is signatory to the CISG, or
if the law of a signatory state applies. But the parties can decide
to be bound by the CISG simply by stating in the contract: CISG is
not applicable/excluded. It is a kind of private opt-out. In this
respect the CISG is an exception to the rule that once acceded,
natural and legal persons of the acceded state are bound by the
provisions of that convention.
If the CISG is applicable and not excluded by the parties, it
supersedes concurrent provisions of national law. Only to the extent
the CISG does not cover a certain aspect (for instance the interest
rate) national law is to decide on that aspect of the contract.
Another
special trait of the CISG is that its provisions are ius
dispositivum:
while retaining the general applicability of the CISG, parties may
divert from any provision of the CISG by excluding a provision or
explicitly agree that instead of the CISG provision some other,
contractual, provision applies.
Compatibility
of CISG and Islamic Law
Some
discussion has been dedicated to the question whether the CISG and
Islamic law are compatible.
Is
it possible to apply Islamic Law and
the CISG? Don't the two exclude each other? The main stumbling block
obviously is the possibility to claim interest pursuant to the
CISG.
The above mentioned discussion and the fact that several
Islamic countries have adopted the CISG, seems to point to a
direction, where CISG and Islamic law do not exclude each other and
rather complement each other. In my opinion the legal framework of
CISG is capable to respect, accommodate and sanction a prohibition of
interest. Furthermore enforcement of a CISG judgement or award in an
Islamic country can, on the basis of ordre
public, be restricted to those elements
of the judgement or award which are in line with Islamic Law.
Structure of the convention
The
convention
consists of four parts.
Scope of application
Formation of the contract
Rights, obligations, passing of risk and damages
Final clauses
ad
1. Scope of application
has been addressed shortly above at applicable law. Without going
into further detail, trade in in halal products usually does fall
under the scope of the CISG if the buyer or seller resides in a CISG
country, or if the law of a CISG country has been chosen by the
parties.
ad
2. Formation of the contract
is a wide field and knows many legal intricacies. For day to day
business important, however, is the fact that a written contract is
not needed for applicability of the CISG. So an order accepted by
telephone is enough to invoke the provisons of the CISG
ad
3. Rights, obligations, passing of risk
and damages is obviously the main part
we are concerned with in this paper. With help of the main concepts
the practical working of the CISG will be explained below.
ad
4. Final clauses,
which contain inter alia
provisions on reservations, the opt-outs discussed above under the
heading of international conventions. It should be noted that no
signatory state has opted out of the CISG provisions on interest as a
component of a claim for damages..
Main
concepts in the CISG
Conformity
Article 35 CISG reads:
(1)
The seller must deliver
goods which are of the quantity, quality
and description required by the contract and which are contained or
packaged in the manner required by the contract.
(2)
Except where the parties have agreed otherwise, the goods do not
conform
with the contract unless they:
(a) are
fit for the purposes for which goods of the same description would
ordinarily be used;
(b)
are fit for any particular
purpose expressly or impliedly made known to the seller
at the time of the conclusion of the contract, except where the
circumstances show that the buyer did not rely, or that it was
unreasonable for him to rely, on the seller's skill and judgement;
(c)
possess the qualities of goods which the seller has held out to the
buyer as a sample or model;
(d) are
contained or packaged in the manner usual for such goods or, where
there is no such manner, in a manner adequate to preserve and protect
the goods.
(3) The
seller is not liable under subparagraphs (a) to (d) of the preceding
paragraph for any lack of conformity of the goods if at the time of
the conclusion of the contract the buyer knew or could not have been
unaware of such lack of conformity.
(font-weight added mm)
What is halal quality and when does a seller not deliver goods in
conformity with the halal quality?
I propose as a definition of goods of halal quality: food which
complies with the Sharia as being halal. In that definition the CISG
leaves it tot the Sharia to establish what halal means in a contract
between a seller and a buyer.
The
next question is: is it enough to state in a purchase order: 1000 kg
halal
veal?
Different
interpretations as to what constitutes halal exist, depending on
denomination, country, culture. The diversity in interpretation on
what constitutes halal is reflected in differences in requirements
for certifications.
To name a few, which are stated in some standards, but absent or
different in other standards:
Workers
Muslim
workers must slaughter all birds and animals
Staff
must be briefed on their roles and responsibilities
Staff
must practice good personal hygiene
Staff
must wear proper attire or decent clothing at all times
Smoking,
eating, drinking, or storing of food, drink cigarettes, medicine
and other things are not allowed in production areas
staff
must be in good health
Raw
Material
High-risk
ingredients such as intoxications and colourings must be avoided
Raw
materials should be tested randomly by an approved laboratory
Questionable
ingredients such as Genetically Modified Organisms must be avoided
Packaging
and Labelling
Labels
must state the name and brand of the product
A
halal logo must be printed on the label
Halal
products must be hygienically packed before being
transported/distributed from the manufacturing plant
The
label must be clearly printed for easy reading and be long-lasting
A
minimum content of each ingredient must be clearly stated
The
label must contain the name and address of the manufacturer as well
as its trademark
The
code number—date and/or production batch number/expiry date
must be stated
Stunning
is not allowed
There
must be a process for the investigation of complaints so that
corrective action can be taken
Characterisation
and documentation of the genetic origins of the material must be
made to ensure that undesirable impurities are controlled or
totally absent
Given
the diversity in halal requirements in standards used by
certification bodies So instead of just stating halal,
a
buyer should be more specific as to what he understands to be halal.
Only to the extent that the buyer is specific, the seller knows what
his buyer expects to be delivered and only to that extent it can be
ascertained, once the goods have been delivered, whether the good are
in conformity with the sales contract.
Notification
The
buyer has to inspect the goods upon receipt and to inform the seller
about deficiencies, lack of conformity, within reasonable
time.
Certain deficiencies can be detected by buyer, for
instance whether a product contains pork can be ascertained by lab
analysis. But how should a buyer ascertain whether an animal has been
slaughtered in the name of Allah? It is customary to distinguish
between apparent and hidden defects. As long as hidden defects will
remain undetected, they will not unfold any legal consequences. To
provide a certain degree of comfort, that the Sharia has been
followed in producing a halal product also in respects, which are not
measurable and detectable by worldly means, certification can play a
preventive role by assessing and examining production plants to the
extent, that the requirements which the examined production line has
to meet are made public.
Passing
of Risk
Above
the Incoterms were introduced as a system of agreeing on allocation
of risk for the goods during transit. The CISG also has in the
articles 66-70 provisions on risk. As a general rule article 67 CISG
prescribes:
...the
risk passes to the buyer when the goods are handed over to the first
carrier for transmission to the buyer in accordance with the contract
of sale.
This
CISG risk and the Incoterms risk should be distinguished as the
Incoterms deal with transport risks and explicitly not with other
risks within the purchase contract.
"Delivery" and
"delivery" should also be distinguished as it has points to
two moments which may fall together, but more often than not do not
fall together:
1. the legal Delivery of the goods by the seller
to the buyer, transferring the title of ownership of the goods and
2.
The physical delivery of the goods by the carrier to the receiver,
which may or be the buyer, or a third party, for instance a storage
house.
So Delivery (1) is an issue in the sale contract
between the seller and the buyer and delivery (2) is an issue in the
contract between the carrier and one of the parties of the sale
contract (usually the seller, who organises the goods to be
transported to the buyer).
According to the CISG, as in many
legal systems, Delivery (1) takes place in the moment that the risk
for the goods pass from the seller to the buyer. And often Delivery
(1) also means transfer of title of Ownership. Whereas the CISG is
concerned with the moment of passing of risk, tying the obligation
for payment to the issue of risk, it leaves the question of transfer
of title of ownership to the applicable national law.
To make
it even more complicated, although Incoterms should not have an
impact on risk allocation in the sales contract, other than
transportrisks, choosing EXW, FOB or CIF may have an impact on the
moment of Delivery(1) and the passing of risk.
A German court
got so confused on this topic, that it concluded that a Russian buyer
failing to check on conformity at the sellers premises in Germany for
an EXW sale, had forfeited on the right to claim damages for
non-conformity. The goods never reached the buyer as they were
destroyed by the Russian customs, finding out that the goods deviated
from the description in the contract. Article 38, 2 CISG would have
made the court clear, that EXW as a carriage condition does not
prescribe an obligation for the buyer under the sales contract to
examine the goods an at the sellers premises:
Article 38
(1)
The buyer must examine the goods, or cause them to be examined,
within as short a period as is practicable in the circumstances.
(2)
If the contract involves carriage of the goods, examination may be
deferred until after the goods have arrived at their
destination.
The
complexity of the intertwinement of sale and transport, Delivery(1)
and delivery(2), different allocation of different risks, different
national rules on transfer of title make it hard to give any hard and
fast rules. All the more important it is, that on basis of the sale
contract it is clear what rules decide on allocation of risk and
liability.
Fundamental
breach
What
if goods lack conformity in the halal quality? Here we touch on an
essential difference between religious and worldly quality. If 100%
beef protein is ordered and the seller deliveres 99,8 % beef protein
and 0,2% pork protein, an industry allowance of less than 1% will
make the product still "within specs", still in conformity
with the ordered specifications. A buyer which would like to increase
the purity to be received, may order 100,00 % beef protein. That will
raise the threshold for the producer of the protein in cleaning his
production tanks, but he will get away with 99,998 % beef protein and
0,002% pork as an allowance.
If, however, halal is ordered
(even without the buyer having to specify he does not want any pork)
there cannot be an allowance. 99,8% halal, is not halal. 99,99999999%
halal, is not halal. Despite the different interpretations as to what
constitutes halal, food is halal or it is not halal. A food product
cannot consist of 99,8% halal and 0,2% of not halal.
So 100%
beef and halal have to be dealt with differently when deciding if a
product is in conformity with the contractual specifications. The
provisions of the CISG do accommodate for halal conformity: if halal
is agreed halal is to be delivered. Under the CISG the lack of halal
quality would in most cases qualify as a fundamental breach of the
contract.
If parties have not specified what elements
constitute halal, a conflict may arise according to which
interpretation it should be decided whether the goods delivered are
in conformity. That, however, is a gap which the parties, and the
parties only can fill by entering into a complete and accurate
contract. The CISG, and for that matter any convention, treaty or
national legislation, cannot relieve parties from this
task.
Remedies
If
it has been established that the delivered goods are not in
conformity with the contract, what are the options for the buyer? The
CISG gives the buyer three possible remedies:
1. Demand for
performance (meaning the seller should take back the deficient
consignment and deliver a conform consignment)
2. Claim damages
(can be exercised together with remedy 1. and 2.)
3. Avoidance of
the contract (the annulment, as if the contract never existed,
meaning return of the goods and of the purchase price, if already
paid)
Annulment of the contract is only possible if the breach
has been fundamental. The halal quality failing will in most cases be
regarded as a fundamental breach.
Interest
Article
78 CISG
If
a party fails to pay the price or any other sum that is in arrears,
the other party is entitled to interest on it, without prejudice to
any claim for damages recoverable under article 74.
This
article has attracted most interest in the discussion whether the
CISG is compatible with Islamic law. The conclusion of the discussion
seems to be that the CISG is not incompatible with Islamic law. Not
being an expert on Islamic law I do not wish to express an opinion on
the compatibility, but as to providing the possibility to claim
interest, I believe it to be unlikely that it can be construed as an
absolute hindrance to making use of the CISG for halal sales
contracts:
1. The CISG is ius
dispositivum:
parties may always exclude the right to claim interest
2. The
interest rate is left to national law. If the law of an Islamic state
applies, the interest rate could, as a practical solution, be fixed
at 0%
3. States may opt out of article 74 CISG when acceding
4.
If parties have not excluded a claim for interest and judgement has
awarded interest, the enforcement in an Islamic state of the interest
claim may be refused on basis of ordre
public.
In
an international setting laws and opinions on justice will always
divert. That in itself does not prevent a convention being agreed
between states, as long as the convention allows for an application
which is in accordance with the ordre
public
of each signatory state. The CISG leaves room for parties to write
their contracts and solve their conflicts in conformity with Islamic
law, in all its different forms and interpretations.
Conclusion and model
contract
Also on an international level Islamic law and secular law can
reinforce one another. Tried and tested international legal
instruments can ensure that the rules of the Sharia are respected and
followed. International conventions offer resolution for disputes
whether a products is halal or not. The only prerequisite for the
effective use of the international legal instruments are contracts
which provide clarity on the halal requirements.
To
help fulfil this prerequisite a model
for an international B2B halal sales contract is offered. Its
shortness is made possible by using the framework of tried and tested
international legal instruments and standards, which sustain
contractual clarity for a holy commodity.
SALE AND PURCHASE CONTRACT
FOR
HALAL
FOOD PRODUCTS
Halal
Meat BV
Gezondheidsstraat
3311 AD
Rotterdam
Netherlands
hereinafter Seller
and
Halal
Eat Ltd
Healthy Street 1
PLZ1234 Singapore
hereinafter
Buyer
HAVE
AGREED AS FOLLOWS:
Purchase
Parties
have agreed upon the sale and delivery of 1500 kg of halal veal
(hereinafter Halal Food Products), halal requirements as specified in
Annex 1,
CIF premises of the Buyer no earlier than 29th of June and no later
than 1st of July 2018 against payment of € 50.000 by documentary
credit.
Carriage
The
Seller shall ensure that the Halal Food Products will be stored and
carried separately from any non-halal food products until delivery at
the premises of the Buyer.
Duty
of Inspection
The
Buyer will inspect the Halal Food Products within 10 days from the
delivery at its premises. The Buyer will inform the Seller in writing
of any defect and/or non-conformity of the Halal Food Products within
3 days after discovering such deficiency
Applicable
Law
This
contract shall be governed by the law of the state where the Seller
resides.
The UN Convention on Contracts for the International
Sale of Goods (1980) is applicable to this
contract.
Jurisdiction
The
courts of the state where the Seller has residence will have
jurisdiction over claims against the Seller (and over subsequent
counterclaims against the Buyer); the courts of the state where the
Buyer has residence will have jurisdiction over claims against the
Buyer (and over subsequent counterclaims against the
Seller).
Amsterdam,
____________2018 Singapore,
____________2018
_____________________________
___________________________
Seller, represented by ___________
Buyer, represented by ____________
RA Mr. Murk Muller, attorney at law in Berlin and Rotterdam
www.mmrecht.com
Biography
Murk Muller is an international trade lawyer with over thirty years
practice in industry, trade and transport. Admitted to the bar in
Rotterdam (Advocaat) and Berlin (Rechtsanwalt), he has worked in
London, Lima, New
York, Houston, San Francisco, Rotterdam, Amsterdam, Utrecht and
Berlin. The increase in international trade of food products and
growth of the halal market influenced his practice. Having studied
Arabic and Islamic Law he has turned his focus on halal related
trade. The aim of the focus is to contribute to contractual dispute
resolution which acknowledges the religious and health quality of
halal products.
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