What is CISG?
CISG is the English abbreviation of the United Nations Convention on Contracts for the International Sale of Goods. The CISG was drafted by the United Nations Commission on International Trade Law (UNCITRAL) in an effort to provide a uniform text of law for the international sale of goods. This Convention was adopted in Vienna (Austria) on 11 April 1980 (also known as the Vienna Convention 1980) and entered into force on 1st January 1988.
Main content of CISG
The CISG consists of 101 articles divided into 4 parts with the following main contents:
Part 1: Sphere of Application and General Provisions (Articles 1 – Article 13): This section prescribes the cases in which the CISG is applicable, and also specifies the principles in the application of the CISG, the principles of interpretation of statements declaration, conduct of the parties, the principle of freedom of the form of the contract, the principle of application of custom.
Part 2: Formation of Contract (order and procedures for signing a contract) (Article 14 – Article 24): legal issues raised in the process of entering into a contract for international sale of goods.
The Convention provides for the provisions of the offer, the validity of the offer, the withdrawal and cancellation of the offer; the content of the acceptance of the offer; when and under what conditions an acceptance of an offer is valid and together with the offer constitutes a contract; deadline for acceptance, late acceptance; extension of the acceptance period. In addition, the Convention also provides for the withdrawal of acceptance of an offer, the time when the contract comes into force.
Part 3: Sale of Goods (Article 25 – Article 88): legal issues in the process of contract performance.
- Chapter I: General Provisions
- Chapter II: Obligations of the Seller
- Chapter III: Obligations of the Buyer
- Chapter IV: Passing of Risks
- Chapter V: Provisions common to the Obligation of the Seller and the Buyer
Part 4: Final Provisions (Articles 89 – Article 101): This part deals with the procedures for States to sign, ratify and access to the Convention, applicable reservations, and the date of the Convention entry into force of the treaty and a number of other procedural matters.
CISG’s role in international trade
- The CISG has become one of the most widely ratified and applied international trade conventions with 85 member countries. Most of the world’s economic powers such as the USA, France, Germany, Japan, Canada, Australia,… have joined the CISG.
- The CISG adjusted transactions account for 80% of world trade in goods.
- There are at least 3000 international sales contract disputes in which courts and arbitrations apply CISG to settle. These cases not only arise in member countries, many business people in non-CISG countries have voluntarily applied the CISG to their international commercial transactions due to the superiority of the CISG over national law.
- It is the premise and important reference source of the UNIDROIT Code of Conduct on International Commercial Contracts (PICC) and the Principles of European Contract Law (PECL). These principles have become important legal unifying documents on contracts, referenced and used by many countries and business people in international commercial transactions.
- It is an important reference source of commercial law and contracts of countries, including Vietnam. For example, the definition of “fundamental violations”, was included in the 2005 Commercial Law of Vietnam on the basis of reference to the corresponding definition in Article 25 of the CISG.
According to experts and businesses, there are many factors that explain why CISG is one of the most successful unified private law conventions:
- First, CISG is drafted and implemented under the auspices of the United Nations – the largest intergovernmental international organization in the world.
- Second, the way CISG was drafted shows real efforts in creating uniform substantive rules for the international sale of goods.
- Third, the content of the convention is assessed as modern, flexible, and in line with the practice of international goods sale and purchase.
- Fourth, CISG has great support from international arbitrators and the ICC (International Chamber of Commerce).
Notices when applying the CISG
Firstly, the CISG is applied to contracts for the international sale of goods, whereby, the criterion to determine the internationality of the contract is the business location.
A contract is considered as an international contract of sale of goods when the contracting parties have places of business located in different countries (Article 1.1.a). In addition, Article 1.3 of the CISG states that the nationality of the parties is not a criterion to be taken into account in determining the international nature of a contract. Thus, a contract for the sale of goods signed between two companies of different nationalities, but having business locations in the same country, is not covered by the CISG. It should be noted that the CISG does not stipulate the criteria for goods to be transported across borders.
Secondly, the CISG does not regulate transactions for certain types of goods.
Article 2 of the Convention contains provisions intended to exclude the application of the Convention in certain circumstances; However, these exclusions need being interpreted rigorously based on the will of the legislator as well as the practice of application in the Member States. The applicable exclusions listed in Articles 2 from a to f, are grouped into three main groups as follows:
(i) the exclusions are based on the purpose of the sale or exchange of goods;
(ii) exclusion based on the type of transaction of the parties;
(iii) exclusion based on the type of goods traded.
Accordingly, the Exclusion Convention applies to (i) contracts for the sale of goods for consumption purposes, (ii) certain types of specific transactions such as auctions, sale of goods on execution or otherwise by authority of law and stock transactions and (iii) transactions in the sale of ships, vessels, hovercraft, aircraft and electricity.
Thirdly, the provisions of the CISG do not cover all legal issues related to contracts for the international sale of goods.
Article 4 of the Convention provides that the Convention governs only “the formation of the contract of sale and the rights and obligations of the seller and the buyer arising from such a contract” without regard to (i) the validity of the contract or of any of its provision or of any usage and (ii) the transfer of ownership of the goods.
In addition, CISG has no provisions on a number of other legal issues such as: responsibilities of the parties in the contract period, negotiation phase, authorization issue, statute of limitations issue, assignment of obligations, contract assignment, penalty for breach of contract. When a contract is governed by the CISG, the parties can expect an additional source of law for matters not covered by the CISG, or where the parties do not choose an additional source of law for the CISG, the agency dispute will choose.
Fourthly, the parties have the right to refuse to apply the convention.
Article 6 of the Convention states that “The parties may exclude the application of this Convention or, subject to article 12, derogate from or vary the effect of any of its provisions.”.
This demonstrates the flexibility of the rules, whereby most of the provisions of the CISG are discretionary terms, meaning that the parties in the contract may agree differently from the provisions of CISG according to the principle of free will. This “flexible” regulation gives traders the freedom to negotiate on the contents of the contract and choose the most appropriate source of applicable law in case they find that the CISG’s regulations are not really accordant.
Read more: Payment Methods Used In International Trade (Part 1)