The CISG allows exporters to avoid choice of law issues as the CISG offers ‘accepted substantive rules on which contracting parties, courts, and arbitrators may rely’.
The CISG was developed by the United Nations Commission on International Trade Law (UNCITRAL) and was signed in Vienna in 1980. The CISG is sometimes referred to as the Vienna Convention (but is not to be confused with other treaties signed in Vienna). It came into force as a multilateral treaty on 1 January 1988, after being ratified by eleven countries. CISG has been regarded as a success for UNCITRAL as the Convention has since been accepted by States from ‘every geographical region, every stage of economic development and every major legal, social and economic system’. Countries that have ratified the CISG are referred to within the treaty as 'Contracting States'. Unless excluded by the express terms of a contract, the CISG is deemed to be incorporated into (and supplant) any otherwise applicable domestic law(s) with respect to a transaction in goods between parties from different Contracting States. Of the uniform law conventions, the CISG has been described as having ‘the greatest influence on the law of worldwide trans-border commerce’.
The CISG has been described as a great legislative achievement and the ‘most successful international document so far’ in unified international sales law , due in no small part to its flexibility in allowing Contracting States the option of taking exception to some specified articles. This flexibility was instrumental in convincing states with disparate legal traditions to subscribe to an otherwise uniform code. A number of countries that have signed the CISG have made declarations and reservations as to the Treaty's scope, though the vast majority has chosen to acceed to the Convention without any reservations.
The absence of the United Kingdom, a leading jurisdiction for the choice of law in international commercial contracts, has been attributed to the government not viewing the ratification as a legislative priority, a lack of interest from business in supporting the ratification, opposition from a number of large and influential organisations, a lack of public service resources and a danger that London would lose its edge in international arbitration and litigation.
Japan deposited its instrument of accession with the depositary of the CISG on 1 July 2008. The Convention will thus enter into force for Japan on 1 August 2009.
The CISG is divided into four parts:-
The CISG applies to contracts of sale of goods between parties whose places of business are in different States when these States are Contracting States (Article 1(1) (a)). Given the significant number of Contracting States, this is the usual path to the CISG's applicability.
The CISG also applies if the parties are situated in different countries (which need not be Contracting States) and the conflict of law rules lead to the application of the law of a Contracting State. For example, a contract between a Japanese trader and a Brazilian trader may contain a clause that arbitration will be in Sydney under Australian law with the consequence that the CISG would apply. It should be noted that a number of States have declared they will not be bound by this condition.
The CISG is intended to apply to commercial goods and products only. With some limited exceptions, the CISG does not apply to domestic goods, nor does it apply to auctions, ships, aircraft or intangibles and services. The position of computer software is ‘controversial’ and will depend upon various conditions and situations.
Importantly, parties to a contract may exclude or vary the application of the CISG.
Interpretation of the CISG is to take account of the ‘international character’ of the Convention, the need for uniform application and the need for good faith in international trade. Disputes over interpretation of the CISG are to be resolved by applying the ‘general principles’ of the CISG or where there are no such principles but the matters are governed by the CISG (a gap praeter legem) by applying the rules of private international law.
A key point of controversy had to do with whether or not a contract requires a written memorial to be binding. The CISG allows for a sale to be oral or unsigned but in some countries, contracts are not valid unless written. In many nations, however, oral contracts are accepted and those States had no objection to signing, so States with a strict written requirement exercised their ability to exclude those articles relating to oral contracts, enabling them to sign as well.
An offer to contract must be addressed to a person, be sufficiently definite – that is, describe the goods, quantity and price – and indicate an intention for the offeror to be bound on acceptance. Note that the CISG does not appear to recognise common law unilateral contracts but, subject to clear indication by the offeror, treats any proposal not addressed to a specific person as only an invitation to make an offer. Further, where there is no explicit price or procedure to implicitly determine price then the parties are assumed to have agreed upon a price based upon that ‘generally charged at the time of the conclusion of the contract for such goods sold under comparable circumstances’.
Generally, an offer may be revoked provided the withdrawal reaches the offeree before or at the same time as the offer or before the offeree has sent an acceptance. Some offers may not be revoked, for example when the offeree reasonably relied upon the offer as being irrevocable. The CISG requires a positive act to indicate acceptance; silence or inactivity are not an acceptance.
The CISG attempts to resolve the common situation where an offeree’s reply to an offer accepts the original offer but attempts to change the conditions. The CISG says that any change to the original conditions is a rejection of the offer – it is a counter-offer – unless the modified terms do not materially alter the terms of the offer. Changes to price, payment, quality, quantity, delivery, liability of the parties and arbitration conditions may all materially alter the terms of the offer.
The CISG defines the duty of the seller, ‘stating the obvious’, as the seller must deliver the goods, hand over any documents relating to them and transfer the property in the goods, as required by the contract. Similarly, the duty of the buyer is to take all steps ‘which could reasonably be expected’ to take delivery of the goods, and to pay for them.
Generally, the goods must be of the quality, quantity and description required by the contract, be suitably packaged and fit for purpose. The seller is obliged to deliver goods that are not subject to claims from a third party for infringement of industrial or intellectual property rights in the State where the goods are to be sold. The buyer is obliged to promptly examine the goods and, subject to some qualifications, must advise the seller of any lack of conformity within ‘a reasonable time’ and no later than within two years of receipt.
The CISG describes when the risk passes from the seller to the buyer but it has been observed that in practice most contracts define the ‘seller's delivery obligations quite precisely by adopting an established shipment term’ such as FOB and CIF.
Remedies of the buyer and seller depend upon the character of a breach of the contract. If the breach is fundamental then the other party is substantially deprived of what it expected to receive under the contract. Provided that an objective test shows that the breach could not have been foreseen, then the contract may be avoided and the aggrieved party may claim damages. Where part performance of a contract has occurred then the performing party may recover any payment made or good supplied; this contrasts with the common law where there is generally no right to recover a good supplied unless title has been retained or damages are inadequate, only a right to claim the value of the good.
If the breach is not fundamental then the contract is not avoided and remedies may be sought including claiming damages, specific performance and adjustment of price. Damages that may be awarded conform to the common law rules in Hadley v Blaxendale but it has been argued the test of foreseeability is substantially broader and consequently more generous to the aggrieved party.
The CISG excuses a party from liability to a claim of damages where a failure to perform is attributable to an impediment beyond the party’s, or a third party sub-contractor’s, control that could not have been reasonably expected. Such an extraneous event might elsewhere be referred to as force majeure, and frustration of the contract.
Where a seller has to refund the price paid then the seller must also pay interest to the buyer from the date of payment. It has been said the interest rate is based on rates current in the seller’s State ‘[s]ince the obligation to pay interest partakes of the seller's obligation to make restitution and not of the buyer's right to claim damages’, although this has been debated. In a mirror of the seller’s obligations, where a buyer has to return goods the buyer is accountable for any benefits received.
The Part IV Articles, along with the Preamble, are sometime characterized as being addressed ‘primarily to States’, not to business people attempting to use the Convention for international trade. They may, however, have a significant impact upon the CISG's practical applicability, thus requiring careful scrutiny when determining each particular case.
A contrary view is that the CISG is ‘written in plain business language’ which allows judges the opportunity to make the Convention workable in a range of sales situations. It has been said ‘the drafting style is lucid and the wording simple and uncluttered by complicated subordinating clauses’, and the ‘general sense’ can be grasped on the first reading without the need to be a sales expert.
Uniform application of the CISG is problematic because of the reluctance of courts to use ‘solutions adopted on the same point by courts in other countries’, resulting in inconsistent decisions. For example, in a case involving the export to Germany by a Swiss company of New Zealand mussels with a level of cadmium in excess of German standards, the German Supreme Court found that it is not the duty of the seller to ensure that goods meet German public health regulations. This contrasted with a later decision in which an Italian cheese exporter failed to meet French packaging regulations and the French court decided it is the duty of the seller to ensure compliance with French regulations.
These two cases were held by one commentator to be an example of contradictory jurisprudence. While another commentator saw the cases as not contradictory as the German case could be distinguished on a number of points. It is noticeable that the French court chose not to consider the German court’s decision in its published decision. In any event, it would seem that if there is room for contrary decisions on the obligation for a seller to conform to the regulations in force in the buyer’s State and the exceptions to that obligation then the Convention should be clarified to increase certainty, particularly if the reluctance to use foreign precedent continues.
CISG advocates are also concerned that the natural inclination of judges is to interpret the CISG using the methods familiar to them from their own State rather than attempting to apply the general principles of the Convention or the rules of private international law. This is despite the comment from one highly respected academic that ‘it should be a rare, or non-existent, case where there are no relevant general principles to which a court might have recourse’ under the CISG. This concern has been supported by research of the CISG Advisory Council which has said, in the context of the interpretation of Articles 38 and 39, there is a tendency for courts to interpret the articles in the light of their own State’s law and some States have ‘struggled to apply [the articles] appropriately’. In one of a number of criticisms of Canadian court decisions to use local legislation to interpret the CISG one commentator said the CISG was designed to ‘replace existing domestic laws and case law’ and attempts to resolve gaps should not be by ‘reference to relevant provisions of [local] sales law’.
Critics of the multiple language versions of the CISG claim it is inevitable the versions will not be totally consistent because of translation errors and the untranslatability of ‘subtle nuances’ of language. This argument, although with some validity, would not seem peculiar to the CISG but common to any and all treaties that exist in multiple languages. The reductio ad absurdum would seem to be that all international treaties should exist in only a single language, something which is clearly neither practical nor desirable.
Other criticisms of the Convention are that it is incomplete, there is no mechanism for updating the provisions and no international panel to resolve interpretation issues. For example, the CISG does not govern the validity of the contract, nor does it consider electronic contracts.
Despite the critics, a supporter has said ‘[t]he fact that the costly ignorance of the early days, when many lawyers ignored the CISG entirely, has been replaced by too much enthusiasm that leads to … oversimplification, cannot be blamed on the CISG’.
Secondly, business people will increasingly pressure both lawyers and governments to make sales of goods disputes less expensive and reduce the risk of being forced to use a legal system that may be completely alien to their own. Both of these objectives can be achieved through use of the CISG.
Finally, UNCITRAL will need to develop a mechanism to further develop the Convention and to resolve conflicting interpretation issues. This will make it more attractive to both business people and potential Contracting States.
Depending on the country, the CISG can represent a small or significant departure from local legislation relating to the sale of goods, and in this can provide important benefits to companies from one contracting state that import goods into other states that have ratified the CISG.
In the USA, 49 of 50 states have adopted common legislation referred to in the U.S. as the Uniform Commercial Code ("UCC"). The UCC is similar to the CISG in most ways as a means for promoting contracts for the sales of goods. The UCC departs from the CISG in some areas, such as the following areas that tend to reflect more general aspects of the U.S. legal system:
Nevertheless, because the U.S. has ratified the CISG, it has the force of federal law and supersedes UCC-based state law under the Supremacy Clause. Among the U.S. reservations to the CISG is the provision that the CISG will apply only as to contracts with parties located in other CISG Contracting States, a reservation permitted by the CISG in Article 95. Therefore, in international contracts for the sale of goods between a U.S. entity and an entity of a Contracting State the CISG will apply unless the contract's choice of law clause specifically provides for non-CISG terms, or for the application of the law of a non-Contracting State. Conversely, in "international" contracts for the sale of goods between a U.S. entity and an entity of a non-Contracting State, to be adjudicated by a U.S. court, the CISG will not apply and the contract will be governed by the domestic law applicable according to private international law rules .
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