Asian Academy of International Law
AAIL Foundation
Lecture 1
The Lecture Series commenced with welcome remarks by Ms Teresa Cheng GBM GBS SC, Co-Chairman of AAIL. The first lecture was delivered by Professor Susan-Gale Wintermuth (Distinguished Visiting Professor of Law at the China-EU School of Law, China University of Political Science and Law) and moderated by Mr Terence Wong (Partner of Loeb & Loeb LLP). It explored both practical and theoretical dimensions of the application of the United Nations Convention on Contracts for the International Sale of Goods (CISG) in Hong Kong, with particular attention to resolved and unresolved legal challenges.
Professor Wintermuth began by emphasising the CISG’s core themes, namely notice, reasonableness, and foreseeability. For example, Article 39(2) establishes a strict two-year period for notifying non-conformity of goods, reflecting the CISG’s emphasis on communication and contractual performance over litigation. The classic case of Hadley v. Baxendale was cited to illustrate the role of foreseeability in limiting damages to losses that a reasonable party could have anticipated at the time of contracting.
A central focus of the lecture was the scope of the CISG’s applicability, determined by three cumulative criteria: (1) a contract for the sale of movable goods, (2) between parties located in different States, and (3) where both States are parties to the Convention. Exclusions under Article 2, such as those involving auctions and certain categories of vessels, were noted as areas requiring careful consideration. Mixed contracts involving both goods and services, governed by Article 3(2), call for an economic value analysis to determine whether the sale of goods constitutes the preponderant part of the agreement. Professor Wintermuth referenced CISG Advisory Council Opinion No. 4, which cautions against applying rigid percentage thresholds, advocating instead for a holistic assessment of contractual context and intent.
The evolving role of case law in shaping CISG jurisprudence was also discussed. Given that CISG jurisprudence is not binding but persuasive, practitioners must rely on factual analogies and sound reasoning when referencing precedents. One case in particular, the 2019 Electronic Electricity Meters decision by the Swiss Supreme Court, was discussed for its strict application of Article 39(2), which barred a claim due to delayed notice despite domestic statutes of limitation, reaffirming the primacy of the CISG in applicable disputes.
Professor Wintermuth also addressed strategies for effective contract drafting. She recommended explicitly incorporating the CISG alongside domestic law, especially in hybrid agreements. Drawing inspiration from Professor Ingeborg Schwenzer, she proposed extending the CISG to service contracts through intentional language, such as ‘The CISG applies to service and labour provisions in their entirety’. The discussion also covered arbitration clauses, underscoring the importance of specifying the seat of arbitration and incorporating mediation mechanisms, with reference to the Arbitration Rules 2024 of CIETAC (China International Economic and Trade Arbitration Commission).
Turning to Hong Kong’s unique legal context, Professor Wintermuth noted that while the CISG governs matters of contract formation and performance (as per Article 4), issues such as mistake, misrepresentation, and unconscionability continue to be governed by domestic law. Hong Kong’s adoption of the CISG in 2023 presents challenges in harmonising its common law heritage with CISG’s civil law characteristics.
The lecture concluded with a forward-looking discussion of unresolved issues, including the CISG’s potential applicability to investment contracts and digital goods. Professor Wintermuth encouraged legal practitioners to embrace the flexibility offered by the CISG while staying attuned to evolving judicial interpretations.
Overall, Professor Wintermuth highlighted CISG’s continued significance in promoting uniformity and legal certainty in international trade, and called for greater collaboration to navigate jurisdictional complexities in an increasingly interconnected commercial environment.
Lecture 2
The second lecture, featuring Professor Dr Ulrich G. Schroeter (University of Basel), again moderated by Mr Terence Wong, presented a comprehensive analysis of EU’s Corporate Sustainability Due Diligence Directive (CS3D). It provided critical insights into the directive’s implications for international trade, with a focus on exporters from Hong Kong and mainland China, and addressed recent legislative developments through the EU Commission’s Omnibus Package proposed in February 2025.
Overview of the CS3D
Adopted on 13 June 2024, the CS3D mandates large EU companies to observe human rights and environmental standards across their global supply chains. As an EU directive, it requires incorporation into national laws by member States by 26 July 2026, with obligations extending to both EU and qualifying non-EU companies. Professor Schroeter emphasised the directive’s dual foci, namely preventing adverse human rights impacts (e.g. forced labour) and environmental harm (e.g. breaches of international environmental conventions), as outlined in its Annex. Notably, all environmental instruments listed in the CS3D have been ratified by China and applicable in Hong Kong, while 8 of the 11 human rights instruments have been ratified by China.
Scope and Application
The CS3D applies to large EU companies meeting staggered thresholds based on turnover and employee numbers, with the strictest criteria (1.5 billion Euro turnover and 5,000 employees) effective from July 2027. For non-EU companies, the directive applies if their turnover in EU exceeds 1.5 billion Euro (from July 2027) or 450 million Euro (from July 2029), with approximately 56 Chinese and 11 Hong Kong companies projected to fall within its scope. Jurisdiction is determined by the location of a company’s EU branch or its highest EU turnover.
Key Obligations for Supply Chain Leaders
Professor Schroeter outlined five core obligations under the CS3D, emphasising their ripple effects on global suppliers.
(1) Identifying Adverse Impacts: Companies must map and conduct in-depth assessments of their entire supply chains, including indirect sub-suppliers. This necessitates contractual disclosure clauses, third-party audits, and compliance with data protection laws, raising challenges for suppliers for exposing trade secrets or violating local regulations.
(2) Preventing Adverse Impacts: Chain leaders must secure contractual assurances from suppliers to adhere to their codes of conduct. This ‘contractual cascading’ obligation risks conflicts for suppliers serving multiple chains with divergent codes, potentially necessitating costly operational adjustments.
(3) Addressing Unpreventable Impacts: As a last resort, chain leaders may suspend or terminate non-compliant suppliers. The Omnibus Package, however, seeks to remove termination rights, limiting remedies to temporary suspensions.
(4) Monitoring Supply Chains: Periodic assessments (initially every 12 months) are required to ensure compliance. The Omnibus Package extends this interval to five years, reducing administrative burdens.
(5) Civil Liability: Under the current CS3D, non-governmental organisations and unions may bring claims against chain leaders for violations, with liability rules applying mandatorily even under non-EU law. The Omnibus Package eliminates these provisions, reverting to national liability regimes, which may weaken enforcement.
Implications for Hong Kong and Mainland Chinese Exporters
While the CS3D imposes no direct obligations on non-EU suppliers, its ‘trickle-down effect’ compels compliance through contractual pressures. Suppliers face heightened risks of audits, renegotiation of existing contracts, and potential exclusion from EU markets for non-compliance. Notably, the directive’s reliance on third-party verification and independent non-governmental organisations introduces uncertainties, particularly where supplier operations intersect with restrictive local laws or confidentiality agreements.
The Omnibus Package: Balancing Compliance and Practicality
Published on 26 February 2025, the Omnibus proposal aims to simplify the CS3D’s framework by postponing implementation deadlines by one year and easing obligations. Key amendments include limiting in-depth assessments to tier-1 suppliers (unless ‘plausible information’ indicates risks further down the chain) and reducing monitoring frequency. While these changes may alleviate burdens for chain leaders, critics argue they dilute the directive’s original intent to enforce accountability across complex supply networks.
Professor Schroeter’s lecture underscored the CS3D’s transformative potential in aligning global trade with sustainability goals, while acknowledging its operational challenges. For Hong Kong and mainland Chinese exporters, proactive engagement with EU partners, rigorous due diligence, and strategic contract drafting will be essential to navigate the evolving regulatory landscape.
The AAIL Annual Lecture Series reaffirmed the critical role of international legal frameworks in addressing contemporary trade challenges, not only bridging theoretical rigor with pragmatic solutions for practitioners worldwide, but also fostering deeper discussions on compliance strategies and cross-border collaboration.
• Well-structured and informative.
• The topic is very comprehensive.
