The differences in legal systems among the various countries in the world are substantial. However, a uniform law relating to the contracts on international sale of goods is essential for the smooth functioning of world trade.
For example, in case of dispute between the exporter and importer, a question may arise as to whose law will prevail over the other, where there is no uniform law relating to the contracts on international sale of goods.
The United Nations Convention on Contracts for the International Sale of Goods (CISG) is a notable achievement by the United Nations Commission on International Trade Law (UNCITRAL) to unify the law governing contracts for international sale of goods. The CISG was adopted in 1980 and subsequently came into effect in 1988.
Historical background of CISG
The CISG is the outcome of nearly a decade of effort by the UNCITRAL. However, the history of unification of laws relating to contracts on international sale of goods can be traced back to 1930, when the International Institute for Unification of Private Law (UNIDROIT) in Rome commenced developing a uniform law on contracts for the international sale of goods.
The UNIDROIT continues its task amidst the interruptions caused by World War II. In 1964, the UNIDROIT presented two drafts at a diplomatic conference in Hague and both drafts were adopted. One of the drafts is known as the Uniform Law on International Sale of Goods, whereas other draft is known as the Uniform Law on Formation of Contracts for the Sale of Goods. However, only few countries adopted the aforesaid two conventions.
Thereafter, in 1966, the United Nations General Assembly by resolution 2205 (XXI) established the United Nations Commission on the UNCITRAL, which subsequently commenced drafting the CISG.
Importance of CISG
International trade is the catalyst for economic growth in the modern world. In recent history, no country has achieved economic growth or development without active participation in international trade. The CISG facilitates the cross border sale of goods by ensuring consistent application of law relating to contracts.
In fact, a consistent legal framework is one of the important factors that propel globalisation. The preamble of the CISG indicates the overall purpose, which is “adoption of uniform rules, which govern contracts for the international sale of goods and take into account the different social, economic and legal systems would contribute to the removal of legal barriers in international trade and promote the development of international trade”.
According to the UNCITRAL website, as at February 2019, a total of 89 countries have adopted the CISG, which includes major economies such as the United States of America, China, Canada, France, Germany, Russia, Brazil, Italy, Spain, Australia and Netherlands, etc. Singapore and Vietnam are also parties to the CISG, whereas Sri Lanka is not yet a signatory.
Structure and application of CISG
The CISG consists of 101 articles, which have been divided into four parts. Part I includes Article 1-13 under the title of ‘Sphere of Application and General Provisions’. Part II ‘Formation of Contract’ includes Article 14-24. Part III (Article 25-88) is under the title of ‘Sale of Goods’, which describes the obligations of the seller, obligations of the buyer and remedies for breach of contract by the buyer, etc. Part IV includes (Article 89-101) provisions regarding ratification and accession of the contracting states under the heading of ‘Final Provisions’.
Article 1 makes it clear that the convention applies only to contracts on international sale of goods as it requires the “place of business” of each party (seller and buyer) should be in different countries. The CISG applies to the contracts for international sale of goods under the following mentioned circumstances:
(a) If both exporter and importer are from two countries that are parties to the CISG.
(b) Where only one party of the contract (either exporter or importer) is from the country, which is a signatory to the CISG and the other party agrees that the CISG applies to the contract because according to Article 1, the CISG applies “when the rules of private international law lead to the application of the law of the contracting state”.
The CISG applies only to the business transactions because goods bought for personal, family or household use, fall outside the scope of the convention as per Article 2. The same article specifies that the CISG does not apply to sale of ships, vessels, hovercraft, aircraft and sale of electricity.
According to Article 11 of the CISG, the contracts for international sale of goods don’t have to be necessarily in writing, which means the CISG applies to whether the contract is in writing or otherwise.
Article 30 to Article 44 of the CISG include rules relating to the obligations of the seller (exporter), which include delivery of goods in comply with the quality and quantity as mentioned in the contract and handing over the relevant shipping documents, etc.
Further, according to Article 33 of the CISG, the seller must deliver the goods on the date given in the contract. If there is a period of time given in the contract instead of specific delivery date, then the seller must deliver the goods within that period. The seller should deliver the goods that are not subject to any right or claim by the third party (Article 41).
In international sale of goods (export and import transactions), the point at which the risk of loss or damage to the goods shifts from seller to buyer, is important. Generally, incoterms (e.g.: EXW, FOB, CIF, DDP) indicate the exact point the risk passes from the seller to buyer.
However, if the contract between the exporter and importer does not include incoterms or any other provision regarding the passing of risk, the CISG has specified the set of rules. Articles 66-70 of the CISG explain the rules relating to passing of risk.
The remedies available to the seller and buyer in case of breach of a contract by either party are the same. The remedies are specific performance, avoidance and claim the damages, etc. However, in case of breach, the contract by the seller or buyer can demand a reduction of price as a remedy.
(Eranda Roshan Fernando, a postgraduate-qualified researcher on international trade policies, can be reached at email@example.com)