1. Effects on property in the goods excluded under Article 4, sentence 2(b) of the CISG

514

As far as is apparent, courts and scholars agree that whether the transfer of property under national law is postponed or not and whether this protects the seller in the bankruptcy of the buyer, concerns the effect the contract might have on the property under national law and is, consequently, excluded from the Convention under Article 4, sentence 2(b).1064 Applying the proposed definition of property1065 would result in the same non-applicability of the CISG to these questions. It is notable that the first draft of 1935 had contained rules on retention of property clauses and their effect in bankruptcy in Annex 1.1066 The proposal to incorporate this question into the uniform sales law was, however, met with strong national resistance,1067 and was dropped in the development of uniform sales law soon after. It, thus, left national law to determine whether a retention of property clause has any effect on the allocation of the goods. Similarly, it is for national law to decide whether property under national law is considered not to pass or whether property under national law passes but a new security right in the goods is created instead, as for example, under section 2-401(1), sentence 2 of the UCC. Moreover, additional requirements by national laws for the effect of retention of property clauses are subject to national law: For example, under Swiss law a retention of property clause has to be registered to be effective pursuant to Article 715(1) of the Swiss Civil Code: “Der Vorbehalt des Eigentums an einer dem Erwerber übertragenen beweglichen Sache ist nur dann wirksam, 229 wenn er an dessen jeweiligem Wohnort in einem vom Betreibungsbeamten zu führenden öffentlichen Register eingetragen ist.”1068

2. Effects on contractual rights and obligations not excluded under Article 4, sentence 2(b) of the CISG

515

Postponing the transfer of property should not be confused with the obligation to transfer the property under Article 30 of the CISG: As far as the retention of property clause sets out to modify or exclude rights and obligations under the contract and the CISG, the Convention remains directly applicable.1069

516

To avoid breaching the contract by not transferring property under Article 30 of the CISG, an extended retention of property clause will generally have to be interpreted to modify the relevant point in time for the obligation to transfer property under Article 30: While the seller is generally only in breach of the obligation to transfer the property when the buyer has paid in full,1070 which is why no modification under Article 30 is necessary, making the transfer of property dependent on additional or alternative obligations (for example, under All Monies clauses) will necessitate modifying the obligations under the CISG. This modification, specifically the required consent, is subject to the CISG and not national law.1071 Similarly, a retention of property clause can be meant to modify or facilitate the contract avoidance by the seller in case of non-payment. For example, the parties could provide that the seller is allowed to avoid the contract immediately if the buyer does not pay on time.1072 Whether the respective clause can be interpreted in this way will have to be evaluated under the CISG’s rules.1073 Again, there seems to be no disagreement in jurisprudence and academic literature in this regard.

230 3. Consent regarding the retention of property clause under Articles 14–24 of the CISG or under national law?

517

A more difficult question is whether or not the parties’ consent regarding a retention of property clause is subject to the CISG (Articles 14–24, 8). At first sight, there are different approaches to answering this question.

518

On the one hand, the Court of Appeal Koblenz found that the CISG does not regulate whether and how parties can agree on a retention of property clause in an international transaction.1074 Ferrari and Schroeter approve of this decision and align themselves with this view that could be interpreted to result in the non-applicability of the CISG also to the question of consent regarding the retention of property clause.1075 On the other hand, the Court of Appeal Arnhem-Leeuwarden applied the CISG to determine whether the parties had agreed on a retention of property clause: “the CISG does apply to the question of whether a retention of title clause has been agreed.”1076 The court thereby followed the approach of Dutch courts in applying the CISG regarding consent to a retention of property clause.1077 In the same vein, Von Doussa J found the CISG applicable to determine the parties’ consent to a retention of property clause in Roder Zelt- und Hallenkonstruktionen GmbH v Rosedown Park Pty Ltd.1078 Piltz and Vennmanns appear to agree with this approach, and argue that the CISG applies to the creation of a retention of property clause, while merely the “effect” of such clauses on the property under national law was left to national law, not their existence in terms of the necessary consent.1079

519

In my view, the opinions expressed obscure an important part of the necessary reasoning:1080 If the question arises who the owner of the goods is, the starting point is the law applicable to the property in the goods, generally the 231 lex rei sitae and not the CISG.1081 Considering an abstract transfer system, i.e., one in which the transfer of property is treated separately from the sales contract, there is no need to apply the CISG to any part of the transfer (or retention) of property.1082 For example, under sections 929 et seq. of the German Civil Code, consent between the parties regarding the transfer of property is evaluated under German (unharmonized) law.1083 Considering a causal transfer system in which the transfer of property is directly linked to a valid sales contract, the CISG might once again come into play by way of an incidental question: When determining the owner of the goods, Dutch law looks at contract law to decide whether the requirement of a valid sales contract under Article 3:84 of the Dutch Civil Code is fulfilled. It is, thus, an incidental question for the applicable Dutch property law whether a valid contract exists. If a sales contract exists and it would generally transfer property, there is a need for an agreement between the parties under the contract to postpone the transfer with a retention of property clause. If the applicable contract law was the CISG, Articles 14–24, 8 can be applied to assess the consent as regards the retention of property clause. Yet, the relevance of the thus determined consent under the CISG is due to national property law. Similarly, Australian sales law codifications make the transfer of property dependent on the contractual consent, hence, posing an incidental question to the applicable contract law.1084 The seemingly contradicting case law can, thus, be explained coherently: The CISG is not directly applicable to determine whether sufficient consent exists with regard to the seller’s retention of property. Article 4, sentence 2(b) excludes this question from the scope of the CISG. Instead, the CISG can become relevant if the applicable property law poses an incidental question to the applicable contract law, which can 232 be the CISG. Article 4, sentence 2(b) does not prevent the application of the CISG’s rules on consent to a question that is outside its scope of application.

520

Irrespective of this coherence in case law, the arguments in favor of applying the CISG have to be considered. Vennmanns advances two arguments. In his view, first, Article 7(1) of the CISG requires an interpretation that furthers a uniform interpretation and applying the uniform law to as many aspects as possible concerning international sales transactions.1085 Yet, Article 7(1) and its mandate to promote a uniform interpretation is restricted to the scope of the Convention and would be misunderstood if it were considered to require an extension of the CISG to as many aspects of an international sales transaction as possible. Moreover, it is unclear why the rules of consent under the CISG should apply to the prerequisites of a retention of property clause, while other requirements, such as form and necessary registrations of security rights, are not claimed to be governed by the Convention. Second, Vennmanns argues that the wording only excludes the “effect” the contract might have on the property under national law and not the consent regarding the retention of property clause, which is why a narrow interpretation of the wording allows applying the CISG to the consent requirement of a retention of property.1086 If one were to follow the argument that only the “effects” of such clauses were excluded from the Convention, one would either have to assume that the other requirements are also subject to the CISG or one would have to explain the differentiation. Given the background of the failed attempt of the first draft of a uniform sales law in 1935 to include an annex on retention of property clauses,1087 it seems improbable that the drafters considered the Convention to preempt national law regarding the prerequisites for retention of property clauses. A differentiation between consent and other requirements also seems improbable, since the drafters did not regard the uniform sales law as relevant to parts of the retention of property clause. Bagge who was involved since the very beginning of the unification process at Unidroit repeated this common understanding when stating that the retention of property was a subject “trop brûlant” and the Commission, therefore, wished not to treat it at all.1088 Both arguments in favor of applying the CISG are, therefore, not convincing.

521

Article 4, sentence 2(b) of the CISG, hence, also excludes the consent and other requirements for a valid transfer of property clause from the CISG without prejudice to whether the CISG can be applied indirectly if the appli 233 cable national law asks the applicable contract law whether sufficient consent exists. If one takes into account the respectively applicable property laws, the case law to date fits squarely with this analysis.

4. Summary

522

Retention of property clauses are only encompassed by the CISG to the extent that they modify or exclude the CISG’s provisions. As far as their effect on the property under national law is concerned, Article 4, sentence 2(b) of the CISG requires national law to be applied, including the rules on whether sufficient consent exists and other requirements for an effective retention of property are fulfilled. The CISG may nevertheless be applicable to assess the consent if the applicable property law raises a respective incidental question to the law applicable to the contract.