Governing law in International Contracts – Would you choose CISG or UPICC (Part 1)

Governing law in International Contracts – Would you choose CISG or UPICC (Part 1)

For much of human history, the enactment of law is the monopoly power of states. This practice preserves the sovereignty of a country, but it erects a great barrier to international trade since the legislation in each country is different which substantially raises the costs of doing business overseas. The boom of international trade in the late 20th century had prompted countries and international organisations to unify international trade laws. The United Nations Convention on Contracts for the International Sale of Goods (Vienna Convention or CISG) and UNIDROIT Principles on International Commercial Contracts (UPICC) are the products of this process. Having knowledge on both of them can increase the power of procurement professionals in negotiating international contracts. In this first part of the series, let’s discover about the Vienna Convention.

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

Vienna Convention was prepared by by the United Nations Commission on ­International Trade Law (UNCITRAL) and adopted by a diplomatic conference on 11 April 1980. The Convention was welcomed by several countries from different geographic areas, with different legal and political systems. As of 20 August 2020, the Convention has 93 Contracting States. The Convention has proved the effectiveness of an uniform text on international trade law.

What CISG covers, and what it does not

In the 6 first articles of the Convention, the authors set up the boundaries of its application. 

  1. First is about where it applies. According to UNCITRAL, the Convention applies to contracts of sale of goods between parties whose places of business are in different States and either both of those States are Contracting States or the rules of private international law lead to the law of a Contracting State. A few States have availed themselves of the authorisation in article 95 to declare that they would apply the Convention only in the former and not in the latter of these two situations. As the Convention becomes more widely adopted, the practical significance of such a declaration will diminish. Finally, the Convention may also apply as the law applicable to the contract if so chosen by the parties. In that case, the operation of the Convention will be subject to any limits on contractual stipulations set by the otherwise applicable law.
  2. Second, the Convention has a list of goods that are not subject to its application in Article 2. Article 3 clarifies the differences between manufacturing contracts and sale contract. 
  3. Third, Article 4 and 5 clearly states what CISG does not covers, including grounds for contract invalidity and liabilities to death or injury of person caused by the the goods
  4. Finally, the Convention respects the contractual freedom of the trading parties. Trading parties may select this convention as governing law or select other instrument, such as UPICC or domestic laws.

The formation of contract under CISG rules

Since the Convention does not provide any ground for invalidity, the formation of contract only depends on offer and acceptance. The Convention defines offer very clearly as in the first paragraph of Article 14: “A proposal for concluding a contract addressed to one or more specific persons constitutes an offer if it is sufficiently definite and indicates the intention of the offeror to be bound in case of acceptance. A proposal is sufficiently definite if it indicates the goods and expressly or implicitly fixes or makes provision for determining the quantity and the price.”

On the other hand, the rule of acceptance in CISG is similar to most of domestic laws. Silence or inactivity cannot be seen as acceptance. Acceptance must be absolute and unconditional.

Obligations of seller and buyer

The general obligations of the seller are to deliver the goods, hand over any documents relating to them and transfer the property in the goods, as required by the contract and this Convention. The Convention provides ­supplementary rules for use in the absence of contractual ­agreement as to when, where and how the seller must perform these obligations.

The general obligations of the buyer are to pay the price for the goods and take delivery of them as required by the contract and the ­Convention. The Convention provides supplementary rules for use in the absence of contractual agreement as to how the price is to be determined and where and when the buyer should perform his obligations to pay the price.

Transfer of risks

If the contracting parties has not identified the point of risk transfer, CISG provides a default point in the Chapter IV of the Convention. However, in practice, contracting parties would prefer separate rule of risk transfer, such as Incoterms. At least, you can read Article 66 to understand how transfer of risk works. 

Breach of contracts and remedies for breach of contracts

Like domestic laws, CISG spends a lot of its contents on specifying the remedies on breach of contracts. Breach of contract by the seller has links with seller’s obligations, while breach of contract by the buyer has links with buyer’s obligations.

Generally, CISG provides each party 3 types of remedies: specific performance, contract avoidance and claim for damages. The buyer also has the right to reduce the price where the goods delivered do not conform with the contract.

Other remedies may be restricted by special circumstances. For ­example, if the goods do not conform with the contract, the buyer may require the seller to remedy the lack of conformity by repair, unless this is unreasonable having regard to all the circumstances. A party cannot recover damages that he could have mitigated by taking the proper measures. A party may be exempted from paying damages by virtue of an impediment beyond his control.

Exemptions from liability to pay damages

A party who fails to perform the obligations specified in the contract can be exempted from the consequences of his failure to perform, including the payment of damages in case that there is an impediment beyond his control that he could not reasonably have been expected to take into account at the time of the conclusion of the contract and that he could not have avoided or overcome. This situation sounds like force majeure event.

I have summarised some notable points of Vienna Convention. In the next post, we will discover UNIDROIT principles and its relationship with Vienna Convention.


United Nations Convention on Contracts for the International Sale of Goods

4 thoughts on “Governing law in International Contracts – Would you choose CISG or UPICC (Part 1)

  1. You’re so awesome! I don’t believe I have read a single thing like that before. So great to find someone with some original thoughts on this topic. Really.. thank you for starting this up. This website is something that is needed on the internet, someone with a little originality!

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