United Nations Convention on Contracts for the International Sale of Goods (CISG) LLM, Faculty of...

United Nations Convention on Contracts for the International Sale of Goods (CISG)

LLM , Faculty of Law, Chulalongkorn University

Lect.Tidarat Sinlapapiromsuk

Introduction to the CISG :

• 1980 - United Nations Convention on Contracts for the International Sale of Goods (CISG)

CISG: a great success

All important trading nations except The UK

บทบาทของ CISG : Influence Law Reform

• Regional Harmonization of Law e.g. Directives of the EC 1999/44/EC

• International Projects of unification e.g. Principles for the International Commercial Contracts

• China/Japan• ++ ASEAN proposal

PART I -- SPHERE OF APPLICATION AND GENERAL PROVISIONS

CHAPTER I -- SPHERE OF APPLICATION

Scope of Application

• Art. 1 - Places of Business• Art. 2 - Exclusions• Art. 3 - Goods to be manufactured/ Services• Art 4 - Issues includes/excluded e.g. validity of

contracts + the effect on the property.• Art 5 – Exclusion of liability for death and personal

injury• Art 6 – the primacy of contract.

Article 1(1)

“(1) This Convention applies to contracts of sale of goods between parties whose places of business are in different States:

(a) when the States are Contracting States; or

(b) when the rules of private international law lead to the application of the law of a Contracting State.”

Example 1(1)(b)• Thai & UK + ‘arbitration in Wellington under New

Zealand Law’ • if conflict of law = law of New Zealand law• = CISG* Art. 1(1)(b)

• Arguably , even a British Court would have to apply the CISG, if its conflict of law rules pointed to the application of New Zealand Law.

ARTICLE 95

Any State may declare at the time of the deposit of its instrument of ratification, acceptance, approval or accession that it will not be bound by subparagraph (1)(b) of article 1 of this Convention.

Attracted much scholarly attention and consequently some confusion.

Note

• Not applicable Contracting State VS Contracting State

• US VS SING• = 1(1)(a) NO Art.95 ISSUE!

It is advisable to have a Choice of LAW Clause

ARTICLE 1 (1) This Convention applies to contracts of sale

of goods between parties whose places of business are in different States:

(a) when the States are Contracting States; or (b) when the rules of private international law lead to the application of the law of a Contracting State.

Art. 1(2)

• “The fact that the parties have their places of business in different States is to be disregarded whenever this fact does not appear either from the contract or from any dealings between, or from information disclosed by, the parties at any time before or at the conclusion of the contract.”

(3) Neither the nationality of the parties nor the civil or commercial character of the parties of the contract is to be taken into consideration in determining the application of this Convention.

“Neither the nationality of the parties nor the civil or commercial character of the parties or of the contract is to be taken into consideration in determining the application of this Convention”

More than one places of business (Art. 10)

‘For the purposes of this Convention: (a) if a party has more than one place of business, the place of business is that which has the closest relationship to the contract and its performance, having regard to the circumstances known to or contemplated by the parties at any time before or at the conclusion of the contract; (b) if a party does not have a place of business, reference is to be made to his habitual residence.”

Scope of applicability : Exclusions

• Art.2 : Exclusion Types of Goods• Art.3 : Sale Contract (Only)

Article 2 : Exclusions

“This Convention does not apply to sales: (a) of goods bought for personal, family or household use, unless the seller, at any time before or at the conclusion of the contract, neither knew nor ought to have known that the goods were bought for any such use; (b) by auction; (c) on execution or otherwise by authority of law; (d) of stocks, shares, investment securities, negotiable instruments or money; (e) of ships, vessels, hovercraft or aircraft; (f) of electricity.”

Article 3 : Manufactured / Services

• Contract for Sale of Goods Only• vs• supply ‘substantial’ part of materials?Or• ‘Preponderant’ part of obligation is supply of

labor?• IExcluded under Art.3

Article 3• (1) Contracts for the supply of goods to be

manufactured or produced are to be considered sales unless the party who orders the goods undertakes to supply a substantial part of the materials necessary for such manufacture or production.

• (2) This Convention does not apply to contracts in which the preponderant part of the obligations of the party who furnishes the goods consists in the supply of labour or other services.

Art. 4: Validity + Effect on Property Excluded

• Article 4: “This 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. In particular, except as otherwise expressly provided in this Convention, it is not concerned with:

• (a) the validity of the contract or of any of its provisions or of any usage;

• (b) the effect which the contract may have on the property in the goods sold.”

Art. 5 : Liability for Death& Personal Injury

Article 5• This Convention does not apply to the liability

of the seller for death or personal injury caused by the goods to any person.

Article 6 of the Convention explicitly endorses the principle of freedom of

contract:

Flexibility under Art.6

ARTICLE 6

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.

ARTICLE 12 Any provision of article 11, article 29 or Part II of this Convention that allows a contract of sale or its modification or termination by agreement or any offer, acceptance or other indication of intention to be made in any form other than in writing does not apply where any party has his place of business in a Contracting State which has made a declaration under article 96 of this Convention. The parties may not derogate from or vary the effect of this article.

ARTICLE 96A Contracting State whose legislation requires contracts of sale to be concluded in or evidenced by writing may at any time make a declaration in accordance with article 12 that any provision of article 11, article 29, or Part II of this Convention, that allows a contract of sale or its modification or termination by agreement or any offer, acceptance, or other indication of intention to be made in any form other than in writing, does not apply where any party has his place of business in that State.

Article 6 of the Convention explicitly endorses the principle of freedom of

contract:

‘OPT-OUT’ PROVISION

Court in Califlonia (2001)

• Importance of effective

Sample clauses

• ‘This Contract shall be governed by and construed under the laws of State of Florida , not including the 1980 United Nations Convention on Contracts for the International Sale of Goods ‘

Sample clauses

• ‘The validity and performance of this Agreement shall be governed by the internal law of the state of California without regard to its rules on conflicts of law. The parties exclude the application of the 1980 United Nations Convention on Contracts for the International Sale of Goods…’

Changing the Opt out Tradition in the US

by H.M Flechtner (2007)• ‘start up cost’ makes it more competitive • ‘Opt out’ ‘Opt in’‘Opting in’ = Making the Convention Applicable

When It Would Not Otherwise Apply

‘opt-in’ CISG as governing law

• Making the Convention Applicable When It Would Not Otherwise Apply

• ..i.e. ‘Opting-in’

‘opt-in’• The Convention is silent about whether parties may

choose to have the Convention apply to transactions that do not fall within its sphere of application. The Convention might not apply because the transaction is not "international" within the scope of article 1(1) or because the transaction or the property involved are expressly excluded from the Convention's coverage.

• Unless contrary to public policy, courts should enforce the parties' choice. It may be contrary to public policy, however, to apply the Convention to consumer sales or sales on execution of judicial process.

Sample clauses

• ‘The rights and obligations of the parties under this agreement shall be governed by the United Nations Convention on Contracts for the International Sale of Goods.’

Sample clauses

• ‘The rights and obligations of the parties under this agreement shall be governed by the United Nations Convention on Contracts for the International Sale of Goods notwithstanding that the rules of private international law (choice-of-law rules) might otherwise lead to the application of some other law.’

‘Mixed’ =‘gap-filling’

• ‘Notwithstanding that the United Nations Convention on Contracts for the International Sale of Goods governs the rights and obligations of the parties to this contract, disputed issues not settled by the Convention or by the general principles on which it is based shall be resolved by application of the law of the State of Texas, including the Uniform Commercial Code as enacted in Texas.’

• ‘This Contract shall be governed by and construed under the 1980 United Nations Convention on Contracts for the International Sale of Goods, or, to the extent that the Convention does not settle the rights and obligations of the parties, the law of the State of Texas’

• Ultimately , it is the matter of the Conflict of law to decide whether or not the Choice of law clause is valid

CHAPTER II -- GENERAL PROVISIONS

Art.7-13• Article 7 [Interpretation of the Convention] • Article 8 [Interpretation of statements or other conduct

of a party] • Article 9 [Usages and practices applicable to the

contract] • Article 10 [Definition of "place of business"] • Article 11 [Inapplicability of domestic requirement that

contract be in writing and of other domestic requirements as to form] • Article 12 [Declaration by Contracting State preserving

its domestic requirements as to form] • Article 13 [Telegram and telex as a "writing"]

Article 7

• 7(1) Interpretation of the Convention• 7(2) Gap-filling Provision

Art. 7• (1) In the interpretation of this Convention, regard is

to be had to its international character and to the need to promote uniformity in its application and the observance of good faith in international trade.

• (2) Questions concerning matters governed by this Convention which are not expressly settled in it are to be settled in conformity with the general principles on which it is based or, in the absence of such principles, in conformity with the law applicable by virtue of the rules of private international law.

Note : ‘Promote Uniformity’

• Persuasive authority (Unlike Common Law System)

Article 7• (1) In the interpretation of this Convention, regard is

to be had to its international character and to the need to promote uniformity in its application and the observance of good faith in international trade.

• (2) Questions concerning matters governed by this Convention (1) which are not expressly settled in it are to be settled in conformity with the general principles (2) on which it is based or, in the absence of such principles, in conformity with the law applicable by virtue of the rules of private international law (3)

Art.7(1) : General Principles = ?

• Good faith, reasonableness, estoppel??

• For esample• Estoppel 16(2)(b)..etce.g. Promissory Estopel Clear Representation+Reliance+Detriment• Reasonableness 16(2)(b) ..etc

16(2)(b)

(b) if it was reasonable for the offeree to rely on the offer as being irrevocable and the offeree has acted in reliance on the offer.

Art 7(2) : Gap-Filling Provision

• (2) Questions concerning matters governed by this Convention (1) which are not expressly settled in it are to be settled in conformity with the general principles (2) on which it is based or, in the absence of such principles, in conformity with the law applicable by virtue of the rules of private international law (3)

Relationship between CISG & applicable domestic Law

• Art. 7 (CISG): CISG vs Singapore Law• 1. The CISG takes precedence over Singapore Law :

e.g. 18(2): Receive Rule• 2. The Principles of the CISG (also)• 3. Singapore Law (including the Singapore Sale of

Goods Act and the common law) is the Residual Law for Matters not Governed by the CISG (Art.4b: Property in Goods)

--------------------------------------------------------------• 4* Singapore Public Order takes precedence over the

CISG : Art. 4(a)

1. CISG takes Precedence over Singapore Law

• This is confirmed by the Implementing Act which states at s. 4 that “The provisions of the Convention shall prevail over any other law in force in Singapore to the extent of any inconsistency”.

• Therefore if both parties are from contracting states, the CISG will take precedence over Singapore law.

Example :Art. 18(2) ‘different rule’

(2) An acceptance of an offer becomes effective at the moment the indication of assent reaches the offeror. An acceptance is not effective if the indication of assent does not reach the offeror within the time he has fixed or, if no time is fixed, within a reasonable time, due account being taken of the circumstances of the transaction, including the rapidity of the means of communication employed by the offeror. An oral offer must be accepted immediately unless the circumstances indicate otherwise.

Parties can exclude 18(2) by virtue of Art. 6

• The CISG is part of Singapore law and if the parties want to exclude the application of the CISG they should do so explicitly ควรระบ�ไว ให้ ชั�ดแจ้ ง

• (Example : “this contract is governed by the law applicable in Singapore to the exclusion of the United Nations Convention on Contracts for the International Sale of Goods (CISG)”).

• CISG also take precedence over Singapore law in matters governed by the CISG

• matters governed e.g. (formation of contracts and rights and obligations of the parties).

3. Singapore Law (including the Singapore Sale of Goods

Act & the common law) is the Residual Law for Matters not

Governed by the CISG

Singapore law will therefore fill inthe gap.

• For example the CISG does not govern “the effect which the contract may have on the property in the goods sold” (article 4(b)) and therefore does not govern the passing of title in the goods (ตั�วอย่�าง

เร��องท�� CISG จ้ะไม่�ครอบคลุ�ม่ไปถึ ง) VS (though the CISG does govern the passing of risk at

article 66 to 70). • The Sale of Goods Act applicable in Singapore

(Statutes of Singapore, c. 393) and the Singapore law generally will therefore govern the passing of title.

4.Singapore Public order takes Precedence over the CISG

‘Validity’ (excluded under Art.4)• The CISG “is not concerned with the validity of the

contract or of any of its provisions or of any usage” (article 4(a) CISG).

• Therefore a contract or the provisions of a contract that would be against public policy under Singapore law could be declared invalid even if the contract is also governed by the CISG.

sum up : CISG & applicable domestic LawArt. 7 (CISG): CISG vs Singapore Law

• 1. The CISG takes precedence over Singapore Law : e.g. 18(2): Receive Rule

• 2. The Principles of the CISG (also)• 3. Singapore Law (including the Singapore Sale of

Goods Act and the common law) is the Residual Law for Matters not Governed by the CISG (Art.4b: Property in Goods)

--------------------------------------------------------------• 4* Singapore Public Order takes precedence over the

CISG : Art. 4(a)

7(2) CISG = 4(2) CCC?

Art. 8 : Interpretation of statements or other conduct of a party

• Article 8 :• (1) For the purposes of this Convention statements made by

and other conduct of a party are to be interpreted according to his intent where the other party knew or could not have been unaware what that intent was.

• (2) If the preceding paragraph is not applicable, statements made by and other conduct of a party are to be interpreted according to the understanding that a reasonable person of the same kind as the other party would have had in the same circumstances.

• (3) In determining the intent of a party or the understanding a reasonable person would have had, due consideration is to be given to all relevant circumstances of the case including the negotiations, any practices which the parties have established between themselves, usages and any subsequent conduct of the parties.

“Article 8 (1) For the purposes of this Convention

statements made by and other conduct of a party are to be interpreted according to his intent where the other party knew or could not have been unaware what that intent was.

(2) If the preceding paragraph is not applicable, statements made by and other conduct of a party are to be interpreted according to the understanding that a reasonable person of the same kind as the other party would have had in the same circumstances.

“Article 8 (3) In determining the intent of a party or the understanding a reasonable person would have had, due consideration is to be given to all relevant circumstances of the case including the negotiations, any practices which the parties have established between themselves, usages and any subsequent conduct of the parties.”

‘Homeward Trend’

• Art. 8 vs Parole Evidence Rule+ Art.7(2) Gap-Filling Provision

• MCC-Marble Ceramic Center, Inc. v. Ceramica Nuova D'Agostino, S.p.A

Trade usage + Art. 9 issue

Article 9 :• '1. The parties are bound by any usage to which they

have agreed and by any practices which they have established between themselves.

• 2. The parties are considered, unless otherwise agreed, to have impliedly made applicable to their contract or its formation a usage of which

• the parties knew or ought to have known(1) and• which in international trade is widely known

to(2),and • regularly observed by(3), parties to contracts of the

type involved in the particular trade concerned.‘

Art. 9 : Trade Usages• By virtue of CISG Article 9, commercial custom

and usage become part of the international contract of sale.

Incoterms and Art. 9

• By reference (an explicit exclusion of Art. 55-60 use Art. 6)

or• As a usage of Trade ( Art. 9(2))

CISG & UCP / INCOTERMS • ‘Importantly,… the CISG, used in conjunction

with the INCOTERMS and the UCP , offers a workable solution for the scope of issues and potential problems in the area of commodity and documentary sales law. Rather than working against the pressures of time and efficiency required in such transactions, the CISG instead plays a supplementary role.’

(Victoria University of Wellington Law Review)

Art 9 CISG vs 368 CCC

• ++ Supreme Court Case no. 1222/2499

Art. 9 : Problem

• Yet it fails to define the concept of usages and does not deal with the questions of proof and of validity of usages.

• This article clearly refers to « usages» in the widest possible sense,

• i.e., to any practice or line of conduct regularly observed within a particular trade sector or at a particular market place, irrespective of whether, according to some national law

• it being understood that, once the existence of the usage has been proved by the party, the judge decides as a question of law whether the usage is applicable to the particular contract

Legal Advice :

• In any event, the parties would be wise to set out expressly in their contract what rules should be applicable for the interpretation of the typical terms or forms used by them

• ‘ At least with respect to INCOTERMS and to the Uniform Customs and Practice (UCP) relating to Documentary Credits, it should not be too difficult to justify finding such an implied reference, given the world-wide acceptance which these instruments prepared by the.International Chamber of Commerce and supported by UNCITRAL have gained in the meantime’

ARTICLE 10 For the purpose of this Convention:

(a) if a party has more than one place of business, the place of business is that which has the closest relationship to the contract and its performance, having regard to the circumstances known to or contemplated by the parties at any time before or at the conclusion of the contract; (b) if a party does not have a place of business, reference is to be made to his habitual residence.

Article 11+13

Article 11• A contract of sale need not be concluded in or

evidenced by writing and is not subject to any other requirement as to form. It may be proved by any means, including witnesses.

Article 13• For the purposes of this Convention "writing"

includes telegram and telex.

ARTICLE 12

Any provision of article 11, article 29 or Part II of this Convention that allows a contract of sale or its modification or termination by agreement or any offer, acceptance or other indication of intention to be made in any form other than in writing does not apply where any party has his place of business in a Contracting State which has made a declaration under article 96 of this Convention. The parties may not derogate from or vary the effect of this article.

Discuss• Art.12 vs relevant Thai CCC ?• Supreme Court Case ?

Part I : Sphere of Application and General Provisions.

Part II : Formation of Contract

CISG