UNITED NATIONS CONVENTION ON CONTRACTS FOR THE INTERNATIONAL SALE OF GOODS

The Convention on the International Sale of Goods (CISG) plays an important role in the globalization of contract and trade law by increasing predictability. As of May 2016, 85 states[1] have adopted the CISG and more than 4,500[2] cases worldwide have addressed its application.

The top 6 countries for decisions relating to the CISG are Germany (534), China (432), The Russian Federation (305), The Netherlands (268), Switzerland (212) and the United States (183)[3].

Many European countries are signatories as are the U.S., Switzerland, and the Russian Federation. Notably, the UK is not.[4]

Some basics

In general, the CISG applies only to the sale of goods. If the counterparties to an agreement for the sale of goods decide to apply the law of the country of one of the parties, in general, that is the law that will apply. However, if the parties agree to apply the law of the country of one of the parties and both parties’ respective “home” country is a signatory to the CISG, the CISG and not the national “chosen” law will likely apply. For example, in the U.S., which is a signatory, the CISG qualifies as American federal law, therefore pre-empting or superseding state law, including the Uniform Commercial Code. Often overlooked is that a purely domestic transaction; for example, a contract for the sale of goods between two Swiss counterparties with Swiss law governing or between two U.S. counterparties with New York law governing, may in fact, be subject to the CISG if the Seller’s goods will be delivered from a non-Swiss store or warehouse or are manufactured outside of Switzerland, in a CISG signatory country, same result for the U.S.

Although some may state that “it is international sales 101” to exclude the CISG from contracts for the sales of goods, many times this is not done either unintentionally or intentionally. A recent Wilk Auslander Wine and Wisdom event at our offices in Geneva including in-counsel and private practice attorneys from various jurisdictions—U.S., Switzerland, Estonia, Finland, Germany and the Russian Federation provided some valuable guidance.

Pros and Cons

“Pros”, or reasons for selecting the CISG, range from unfavorable local law to undeveloped local law where there are, then, advantages with the more developed and perhaps more favorable CISG. The “cons”, or reasons for not selecting the CISG, include that it is perhaps less known or lawyers have less experience with the CISG or known issues with the CISG. For example, under U.S. law and other countries’ laws one of the greatest issues for litigation is the “battle of the forms” issue occurring when a buyer submits a purchase order with its standard terms and conditions and the seller responds with its acceptance and its own standard terms and conditions. The CISG follows the “mirror image” rule and the “last shot” rule. Any difference between the offer and acceptance will convert the acceptance into a counter-offer which, typically, will be accepted by performance of the contract (this is the common law in the U.S.) As a result, under the CISG the “last shot” rule applies—it will be the terms of the acceptance of the counteroffer that control[5].

CISG may apply without a written contract

For unwritten contracts: If parties to a contract of sale do not “put it in writing” the CISG will apply; however, under the CISG a contract may fail for indefiniteness if the price is not stated or cannot be determined.

Email: With today’s global marketplace and cross-border email exchanges, parties should make sure that those exchanges will not be deemed a contract because under the CISG a formal written contract is not required in order for it to apply.

Different Languages

The provisions of the CISG were drafted to try to avoid using common law or civil law terms because such terms may not exist or be interpreted differently in different languages, in different jurisdictions. [6] As those of us with cross-border practices know, especially when parties’ “mother tongues” are in languages other than English, but the language of the contract is English, that the same word, business or legal concept, in English, may have different meanings in translation. Indeed, there are many differences in meanings between legal and business terms in the American language and English language. Of note is that there are six “official” language versions of the CISG.[7]

Conclusions

Even if it is common practice to exclude the CISG, the number of cases involving interpretation of the CISG is increasing. Globalization continues as does the internationalization of contract law and trade law. Although I agree with the many commentators on the CISG that the CISG is beneficial because it increases the predictability of outcomes in international trade, I almost always exclude the CISG.

To answer the question of whether to include or exclude the CISG, the answer remains, it depends. However, and most importantly, is to be aware of the CISG’s potential application and then to analyze whether or not it should apply to the contract to avoid having the CISG apply by default because the issue was not addressed in a written contract. Typically the CISG exclusion clause is included in the governing law clause as follows: “The provisions of the United Nations Convention on the International Sale of Goods shall not apply to this Agreement. “