On April 1st, 2014, the Vienna Convention for the International Sales of Goods (CISG) entered in force in Brazil. It is a result of the Legislative Decree No. 538/2012, enacted by the National Congress in March 2013, which incorporated the CISG into the Brazilian legal framework.
Enacted in 1980 by the United Nations, CISG aims to give effectiveness to the United Nations’ resolutions seeking the institution of a new equitable economic order, and mutually advantageous international relationships, eliminating uncertainties in interna- tional trade, caused by the diversity of social, economic and legal systems present in international contracts.
The CISG is applicable to contracts for sales of goods, executed between parties located in different countries, provided that such countries are signatories to the CISG. It is also applicable to facilitate conflict resolution whenever the laws of one particular jurisdiction are exclusive of any other law.
While the CISG has been created as a mechanism to standardize international trade practices and drive the contracting parties to a common law, it does face the challenge of being fit in the various signatory countries’ legal framework. Such difficulty occurs especially because the rules of CISG are essentially based on principles, whereas specific regulation of the signatory countries may cause a good extent of conflict of regulation.
CISG’s rules will apply to international contracts for sales of goods involving Brazilian parties, unless otherwise expressly excluded in the contract. Notwithstanding this particular aspect, CISG’s principles will also apply to the parties’ pre-contrac- tual actions imposing, therefore, a new duty to the contracting parties making them additionally wary of their actions prior to execution of the contract.
In spite of the commitment of the members of CISG in pursuing the adoption of the Convention - which is considered a decisive elements for the fostering of international trade relations – it is anticipated a good level of resistance in the adoption and recognition of the CISG by the various parties. This is because the CISG will have to be interpreted and fitted into the Brazilian legal system along side with other contractual law rules.
In view of the possible uncertainties in the Brazilian legal system resulting from the application of CISG, the chart below highlights some controversial points or potential risks in the usage of CISG, as well as recommendations to the parties if they do decide to use it.
ARTICLE 3.2: APPLICATION OF THE CONVENTION
The convention is not applicable to contracts that provide mainly workmanship and other services by one of the parties. Lack of definition of “mainly” was source of great doubts. In view of that, the Advisory Board of CISG1 established the criteria of economic price of the contract to be considered in the determining if contracts provide “mainly” workmanship and other services. In the event of non-exis- tence of such criteria, the Advisory Board defines tha the essential nature of the contract may alterna- tively2 be used.
ARTICLE 7: GOOD FAITH
CISG stipulated the good faith principle in international negotia- tions. This principle is already foreseen in the laws of Brazil and is disseminated and used in contract interpretation in the country.
However, in international negotia- tions, this principle should be interpreted disregarding other internal side laws. Hence, the application and interpretation will be very difficult, and may cause legal insecurity in the event of a dispute being decided in countries governed by Common Law.
ARTICLE 8: PRE-CONTRACTUAL STAGE
The convention establishes that indications and behavior of the parties should be interpreted in accordance with the intention of the parties, considering the negotiation between them and their previous actions. It also establishes that the parties are subject to the uses and practices previously adopted between them and, also, the market practices, which they should be aware of.
Accordingly, the pre-contractual responsibility and the use of parties’ behavior in this phase were raised to the condition of extreme importance in the interpretation of the contract, leading to a decreasing importance of the pacta sunt servanda principle.
Therefore, it is important that the parties decide if they will use CISG or if such law will be derogated, in the initial stage of negotiations to avoid major issues in the future
ARTICLE 19: COUNTER OFFER AND PROPOSAL ACCEPTANCE
The convention establishes that when the party receiving a proposal replies to the proponent and the answer contains amendments, limitations or modifications to the proposal, such response is consid- ered as a counter offer. However, if complementary or different elements are presented in such response, but they do not change substantially the terms of the proposal, it shall be understood as an acceptance to the proposal, with the relevant changes.
Thus, it is important that the party that receives the proposal takes due care when sending a response to the proponent, so that it is not accepted or received as counter offer, without that intention.
It might be interesting to include in the contracts governed by CISG some clauses that exclude this article, and consider acceptance of the proposal or counter offer only when the party expressly mentions an opinion in that regard.
ARTICLE 38: ANALYSIS OF GOODS
The convention does not establish certain terms/deadlines for analyzing the conditions of goods after receiving them and verifying if they have any defects or non-conformities.
Therefore, express reference in the contract to the term for examination of the goods is recommended.
ARTICLE 45: LOSSES AND DAMAGES INDEMNIFICATION
The Convention establishes that when the seller breaches its obligations, the buyer may ask for indemnification for losses and damages, including the interruption of ongoing business. The losses and damages cannot be greater than the loss suffered or the business interruption that the defaulting party foresaw or should have foreseen at the moment of execution of the contract.
This subjectivism regarding the predictable consequences by the defaulting party may cause issues, and it is advisable to establish in the contract a maximum amount of indemnification for losses and damages.
ARTICLE 51: PARTIAL EXECUTION OF THE CONTRACT BY SELLER
The Convention establishes that if only part of the goods is delivered, the buyer may terminate the contract if the partial breach constitutes an essential violation of the contract. The essential violation of the contract is understood as the losses caused by one party to the other, and prevents such party from receiving the result presumably expected from the contract.
Therefore, it is recommended that buyer establishes in the contract exactly what result is expected from the sale, and that the partial delivery of goods constitutes an essential violation of the contract.
ARTICLE 59: GUARANTEES FOR PAYMENT
The convention establishes that the buyer shall make the payment of the price on a fixed date, but does not foresee any guarantee for such payment.
Therefore, it is important that the contract establishes the guarantees for the payment, so that the seller is not prevented from receiving the price, even after the conclusion of its obligation.
ARTICLE 78: INTEREST
The convention establishes that if one of the parties does not pay the price, or there is breach of any obligation, the other party, in addition to the possibility of requiring indemnification for losses and damages, may charge interest on the amount that was not actually paid.
It is clear that CISG is really strict in relation to the payment of the price. The buyer when adopting CISG, should avoid including the possibility of charging interest.