Aligning International Contracts

The United Nations Convention on Contracts for the International Sale of Goods (“CISG”), or the Vienna Convention, is a treaty that affects international sales law.

As of May 2016, the CISG has been ratified by 85 nations that account for a significant proportion of world trade. It was developed by the United Nations Commission on International Trade Law (“UNCITRAL”), and was signed in Vienna in 1980. It came into force as a multilateral treaty on January 1, 1988, after being ratified by 11 nations. It is regarded as one of the most successful international uniform laws.

Since the CISG is applicable in 85 nations that account for a significant proportion of world trade, to competently represent a client conducting international business, a lawyer must have at least a basic understanding of the CISG. To that effect, the following generally explains three elements essential to an international lawyer’s knowledge: (1) the purpose of the CISG; (2) the CISG’s applicability; and, (3) some CISG general substantive issues.

The Purpose Of The CISG

The CISG is a treaty with a broad purpose: to promote international trade. A challenge to the construction of the treaty was the fact that it was designed to operate in nations implementing both of the world's major legal traditions: the civil law and the common law. Since substantive elements of the CISG are rooted in these different legal systems, architects of the treaty had to compromise. Ultimately, the CISG adopted principles from each legal system, to produce a uniform treaty on the international sale of goods, with the following stated purpose:

The States Parties to this treaty . . . considering that the development of international trade on the basis of equality and mutual benefit is an important element in promoting friendly relations among States . . . The adoption of uniform rules which govern contracts for the international sale of goods, that takes 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.

Since its adoption, some legal commentators have argued that CISG has met its purpose, in part by effectively bringing certainty to the international sale of goods.

The Applicability Of The CISG

Purely domestic sales contracts are not affected by the CISG and remain regulated by domestic law. The CISG applies only to international transactions. The CISG has two flaws in application, which should be understood.

First, the CISG does not cover all substantive issues relating to international sales contracts. Hence, for completeness, international sales contracts must be supplemented by domestic law in various areas such as the interpretation of standard form contracts. Secondly, since the CISG operates across both civil law and common law jurisdictions, there are certain legal concepts and terms that have lead to different interpretations of the uniform law. Therefore, understanding an international sales transaction requires understanding the CISG as well as the sales and contract laws of the nations party to the contract.

General Substantive Issues

The CISG is purposely broad in scope. It does not cover all risks associated with international sales contracts. Therefore, parties to an international sales contract must provide gap fillers, such as choice of substantive law not covered by the CISG.

Gap filling according to Article 7(2) of the CISG is achieved through a two-step process. First, through application of the uniform rules within the Convention ("internal gaps"); and, second, with domestic rules determined by the conflict rules of the forum ("external gaps"). International lawyers should be aware of the gaps that exist in the CISG.

The CISG has the force of federal law and supersedes UCC-based State law under the Supremacy Clause. Since the CISG affects all elements of a sales contract, from contract formation (ex. writing requirements) to warranties, a lawyer representing a business conducting international sales must have a competent understanding of the CISG. The international case, BP v. PetroEcuador, proves why.

In international contracts for the sale of goods between an American entity and an entity of a member nation to the Convention, the CISG will apply, even if the contracting parties selected American domestic law in a choice of law provision. In BP v. PetroEcuador, the court held that if contracting parties do not explicitly opt out, CISG applies.

The case provides a cautionary tale for international lawyers.