The United Nations Convention on Contracts for the International Sale of Goods (“CISG”), sometimes referred to as the Vienna Convention, is a treaty intended to provide a uniform body of laws relating to the sale of goods between nations.
The CISG aims to substantially reduce barriers to international sales by creating modern, substantive rules to govern the respective rights and obligations of parties to an international sales contract.
There are currently approximately 84 countries who have adopted the CISG. By formally adopting the Convention, countries undertake to treat its rules as part of their laws.
In other words, the CISG aims to simplify the process of buying and selling goods in international commerce.
How is the CISG useful to international businesses?
The laws governing sales can differ widely from one country to another. As such, there is often confusion as to which country’s law will govern the contract. This uncertainty is frequently cause for conflict, and certainly does not encourage or assist in facilitating international trade.
The CISG was created to eliminate some of that uncertainty and to provide a body of rules that parties could choose to adhere to in their commercial dealings, outlining obligations and remedies for the parties to international transactions. By applying the CISG, parties can often avoid difficult conflict-of-law issues and fill in gaps in contracts.
Some of the most significant provisions of the CISG address:
- Sellers’ obligations regarding the quality of the goods;
- The buyers’ obligations to take delivery, examine goods and provide notice of any lack of conformity; and
- The buyers’ remedies for breach of contract by the seller.
But when does the CISG come into play?
First, for the CISG to apply, the parties to the contract must have places of business in different countries.
In simpler terms, the CISG will not apply to contracts for the sale of goods between two Canadian corporations.
The Convention could, however, apply to a sales contract between entities from Canada and the U.S.
It is also important to note that the CISG does not apply to contracts for the sale of services alone, nor does it generally apply to the sale of goods purchased for personal use.
A few scenarios to highlight when CISG rules might apply:
- When both parties to the sales contract’s places of business are in countries who have adopted the CISG (the “Contracting States”), the CISG can apply automatically to your transaction.
- When one party is from a Contracting State and the contract expressly states that the law of that Contracting State will govern the agreement, the CISG can apply.
- When neither party is from a Contracting State, but the parties agree in their contract to have the CISG apply.
Keep in mind that parties are free to opt out of applying the CISG, either partially or in its entirety. As such, in the first scenario above where both parties are from Contracting States, they can decide to opt out of the CISG’s otherwise automatic application by so stating within their contract.
Know your country’s domestic laws to make most advantageous contracts
When determining which law will govern the contract, countries will typically look to have their own domestic laws take precedence.
For example, if you are a Canadian company contracting with a company from Japan, it may be in your interest to have Canadian law apply to and govern the contract, as opposed to Japanese law.
This often leads to conflicts between negotiating parties as to which law to apply. The CISG provides an alternative and neutral option to this dilemma.
For a complete list of countries who have adopted the CISG, see https://www.cisg.law.pace.edu/cisg/countries/cntries.html.
Before signing a contract it is crucial to know which countries are Contracting States, and whether or not your transaction may be subject to the CISG’s provisions.
Canada has adopted the CISG, and as such, if you are contracting with another Contracting State, the CISG can automatically apply to your transaction.
Even where the other party is not from a Contracting State, the fact that one side of the transaction is Canadian is enough for the CISG apply, if Canadian law governs the contract.
That’s why it’s so important to look carefully at all laws and conventions before signing a contract, to know which rules and regulations will apply to you.
If you have any questions regarding the CISG and its potential application to your business feel free to contact Catherine Walsh at cwalsh@conlinbedard.com.
Have you solved any contract issues using the CISG provisions?
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