This article will analyze the scope of application of the United Nations Convention on Contracts for the International Sale of Goods (CISG and) due to its relevance in international economic transactions. We will also discuss questions related to the convention’s scope of application.
What is the United Nations Convention on Contracts for the International Sale of Goods (CISG)?
The United Nations Convention on Contracts for the International Sale of Goods (CISG) is an international treaty ratified by 89 countries, which together account for more than three-quarters of international trade. The United States, Germany and Turkey are all members of the CISG. The treaty was signed in Vienna in 1980 and it came into force in 1988. The CISG deals with the law of international sales contracts.
When is a sale international?
An international sale in the sense of the CISG occurs when both parties to the contract have their places of business in different countries. Here, in the event of several places of business of the parties, the establishment closest to the sales transaction is the decisive one.
In addition, the CISG requires the parties to be aware that they are entering into an international sale. The CISG is not applicable in cases where the parties are unaware of the international nature of their sale. Therefore, for instance, in a situation where one party is represented by a third party and the country of establishment of that party is not known to the other contracting party, this will not fall within the scope of the CISG.
Moreover, logically, both parties’ countries of establishment must be among the 89 countries that have ratified the CISG for the treaty to apply. However, the nationalities of the contracting parties are not relevant, at this point only their places of establishment is important.
What types of sales are excluded from the scope of the CISG?
There are a few types of international sales that fall outside the scope of the United Nations Convention on Contracts for the International Sale of Goods (CISG). The first type of sale excluded from the CISG will be consumer sales. This includes any product used by the purchaser for personal, family or household purposes, as these sales will often be treated separately by countries under national consumer law.
Secondly, sales will not fall under CISG when consent and contract formation are atypical or non-existent. This includes, for example, sales by auction, sales on seizure or any other sale carried out by judicial authority.
Finally, when the nature of the goods is particular, their international sale is not governed by the CISG. This applies to the sale of shares, securities, currencies, ships, aircraft and electricity. However, contrary to what one might think, this list of exceptions drawn up by the CISG does not include the sale of gas or oil.
Can contracting parties influence the scope of the CISG?
Crucially, the parties to a sales contract can reduce or modify the scope of the CISG affecting their sale, in accordance with the principle of freedom of contract. This means that the parties can exclude applying the agreement in its entirety if they so wish.
In addition, parties can extend the scope of the CISG and use it in a situation in which it would not normally be used. Parties can also change and modify the CISG rules for their sale to make them more suitable for their particular transaction.
For example, the parties could include the UNIDROIT principles as the law applicable to their sale, which are principles drawn up by the International Institute for the Unification of Private Law in 2004 to govern international commercial contracts.
Moreover, the countries in which the parties are established, which have ratified the CISG, can also generally decide to exclude the CISG as far as they wish, and instead let private international law determine international sales. This would suspend the CISG for the contracting parties of the international sale.
Having said this, we must note the limits to the contracting parties’ freedom of contract in international sales. Obviously, both parties must agree on how to modify, limit or extend the effects and scope of the CISG. Moreover, whatever the parties decide regarding their contract and the law they apply must remain within the bounds of private international law.
How can the gaps in the CISG be filled?
However, the question arises as to how gaps of the United Nations Convention on Contracts for the International Sale of Goods (CISG) can be filled which, after all, limits its scope of application. This is a question that regularly arises with international treaties in general.
To answer this question, it should be noted that the CISG encourages a uniform and autonomous interpretation of its text. In other words, the loopholes in its clauses should not be filled by national laws or private international law.
On the contrary, the CISG is designed to be applied effectively on its own to international sales, without the need for supplementation. So, in most cases, the gaps in the CISG will be filled by the general principles of the CISG. That is, the treaty will be analyzed as a whole and in good faith (a general principle of the CISG) and in conformity with the rest of the treaty to fill gaps.
In addition to this, the CISG also provides for gaps to be filled by considering practices and customs. This includes the established habits between the contracting parties, their agreed usages and also the customs of international trade. These will form part of the contract too, and will help to interpret the sales contract when the CISG remains inconclusive.
INCOTERMS – FILLING THE GAPS AND INCREASING THE CISG’S SCOPE
Incoterms can also help fill gaps in the United Nations Convention on Contracts for the International Sale of Goods (CISG), and often through successfully complementing the CISG help increase its scope. Although the Incoterms therefore clash with the autonomy of the CISG, they help the CISG to succeed in widening their scope as much as possible.
The by the International Chamber of Commerce (ICC) created Incoterms are a set of widely accepted definitions of the commercial terms most commonly used in the sale and purchase of goods. They specify the allocation of various risks, costs and obligations between buyer and seller, particularly with regard to import and export formalities and transport. Originally created in 1936, these principles are regularly updated to reflect today’s international trade.
Incoterms comprise a total of 11 separate but similar rules. Seven of these (EXW, FCA, CPT, CIP, DAP, DPU, DDP) apply to all modes of transport, while the remaining four (FAS, FOB, CFR, CIF) are rules for sea and inland waterway transport.
With regard to the CISG, Incoterms are considered to be agreed usages, established habits between the parties and commercial practices. There is significant interaction between the CISG and Incoterms in terms of delivery, transfer of risk and payment.
The use of Incoterms does not disregard the CISG rules on the transfer of risk and is only a partial expansion on them. Moreover, Incoterms do not regulate contract formation or contravention, where the CISG is more useful. So, in some cases, incoterms are a good compliment to the CISG for managing international sales.
Do Not Hesitate To Contact An Expert
Given the complexity of the subject and the multitude of international rules, it is always advisable to contact a lawyer specialized in the field. Expert advice can quickly clear up any questions you may have. With the right advice, your international sale is likely to go more smoothly and you avoid getting entangled in the midst of international commercial law.
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Summer Intern Nicolaus CASATI
Att. Muhittin KURNAZ
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