International Trade Law

(UUK6135)

Lecture-3:
International Sale of Goods under of
the United Nations Convention on
Contracts for International sale of
Goods (CISG)
 I. What is CISG?
What?
CISG is an international legislation that harmonizes
the laws of various countries relating to international
sale of goods.
What is an international sale?
A sale in which the transaction involves the carriage
of the goods from one country to another, or
The transaction is entered into between parties who
are situated in different states, the place where the
goods are situated and they are to be delivered is
immaterial. (Chua, 20)
Is the first definition a real problem or second?
Second. How?
 II. Why CISG?
M is a Malaysian subsidiary of the English company E.
M enters into a contract with a Japanese company J to
purchase Toyota cars. The contract is negotiated and
signed in North Korea. The contract stipulates that J
will deliver cars to the parent company E, which is in
England. The contract laws of Japan and Malaysia or
England do not conform with regard to many matters.
At the time of the negotiation M and J fail to agree
upon which country law will apply in the event of any
dispute and which court of law will determine the
issue. As a result they leave the choice of law
clause empty. J fails to supply the order.
Now,
Which country court will decide the legality of Js act?
Under which law?
Harmonization of all countries laws will help?
II. Why CISG? (contd.)
Yes, harmonization will help.
So, CISG aims to attain this goal so that
international trade may promote:
the adoption of uniform rules which
govern contracts for the international sale
of goods and (taking) 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. (Preamble to the CISG)
III. How CISG came into being?
(History)
First harmonization initiative in 1930 by the International Institute for the Unification
of Private Law (UNIDROIT), which was an auxiliary organ of the League of Nations.
Interruption by the World War II
UNIDROIT revived under UNO and it resumed the task in 1950s
In 1964 two conventions were adopted:
Uniform Law on International Sales (ULIS), and
Uniform Law on the Formation of International Sales (ULFIS)

They were criticized on political and legal grounds and received a poor ratification

United Nations Commission on International Trade Law (UNCITRAL) took the

responsibility to draft a new convention
The Working Group started working in 1969 taking the ULIS and ULFIS as the
foundation
Submitted two drafts in 1976 and 1977 to UNCITRAL
The UNCITRAL combined the two drafts into one: Convention on International Sale of
Goods
Submitted to the Diplomatic Conference held in Vienna
Adopted the Convention on International Sale of Goods (CISG), popularly known as
Vienna Convention
Effective from 1988 with required 10 ratifications.
III. Applicability of CISG
The Convention has come to prominence by large number
of state ratifications. So far 78 States have ratified.
Malaysia has not ratified.

To whom it applies?
Article 1: This Convention applies to contracts of sale of
goods between parties whose places of business (not their
nationality or anything else) are in different States:
(a)When the States are Contracting States; or
(b)When the rules of private international law (conflict of law)
lead to the application of the law of a Contracting State.
Or by the principle of freedom of contract, when the
parties choose the CISG as the applicable law to their
contract.
Rules of private international law:
These rules may vary from State to State, being a part of the
domestic law (example, law of the forum country, such as
Germany which according to Rome Convention Art 4(2)
applies the sellers country law)
However, common formulation of the rules is that the parties
can nominate in their contract the law to be applied.
Alternatively, the law to which the contract has the closest
connection is applied.
Nomination: Parties may nominate the Convention directly or
indirectly by choosing a Contracting partys law which does
not have any reservation with respect to Art. 1(1)(b) under
Art. 95. US made a reservation to Art 1(1)(b) under Art. 95,
for example. UCC applies.
Alternative to nomination, law of a Contracting State closely
connected to the contract will apply.
The country whose law applies must be a member of the
CISG at the time of contract if it (CISG) is to apply.
 III. Applicability of CISG
(contd.)
What is the effect of choosing of one
partys domestic law, which is a party to the
Convention?
Conflicting views:
Domestic law only (Nuovo Fucinati SpA v.
Fondemetall International AB, case No RG
4267/88, 29 March 1993)
Domestic law includes the Convention unless
parties agree upon purely domestic law (ICC
Arbitration Case No of 6653 of 1993 in line with
predominant view of commentators on the
Convention).
III. Applicability of CISG
(contd.)
Is CISG binding on the parties to a
contract of international sale of goods?
- NO.
The Convention is not mandatory. Under Article 6
Parties to a contract may contract out the
Convention even though both or one of them are/is
a party/ies to the Convention.
They may also contract out Article 1(1)(b) or any
part of the Convention.
A party is not bound by Art. 1(1)(b) if its State has
maintained a reservation to it under Art. 95 as did
US.
III. Applicability of CISG
(contd.)
Limitations of the CISG
Applies to a contract of sale of goods only, not services or intellectual
property
Applies not to a contract whose parties places of residence are not in one of
the Contracting parties
Applies not to a contract of sale of certain things, e.g., sales by auction, sale
on execution or by authority of law, sales of stocks, shares, investment
securities, etc., and sales of ships and electricity. (Art. 2)
A number of areas of international sales transaction are specifically excluded
by Arts. 4 and 5. Thus the validity of a contract (such as legal capacity,
illegality, mistake), issue of property, liability for personal injury or death
caused by goods to any person are excluded.
Some matters the Convention touches partially leaving the rest to be dealt
with under applicable law in the areas where it (Convention) does not apply
e.g., the Convention obliges the seller to transfer the property., but where,
when and how is to be determined the by applicable law. According to Art
7(2), applicable law in this case is the general principles or rules of private
international law.
 IV. CISG and national law

The drafters have taken a conflict avoidance approach in

drafting the Convention unlike the Uniform Laws on
International Sales. They have linked the Vienna
Convention with the national systems of private
international law in two respects:
The Vienna Convention does not regulate
o Special trade terms for the delivery of goods and the fixing of the
price; and (parties will choose the terms, ,e.g., CIF INCOTERMS)
o The passing of property in the goods because national laws are very
dissimilar with respect to passing.
National systems of private international law will fill gaps in
the Convention. (Art. 7)
So, national law of international sales contract is
relevant.
 V. How to interpret CISG?
In order to interpret an issue within the meaning of an article of the
Convention the court should consider:
the Conventions international character,
the need to promote uniformity in its application and
the observance of good faith in international trade.
the general principles on which the Convention is based to settle
any questions, which are not settled in the Convention itself, or in
absence of such principles, the law applicable by virtue of the rules
of private international law. (Art. 7)
Should also consider
The history of the Convention
Cases from other jurisdictions where the courts have previously
interpreted that provision
Juristic writings.
Case laws are available at: www.uncitral.org/en-index.htm
VI. What is the scope of the
CISG?
The Convention governs only-
The formation of the contract of sale, and
The rights and obligations of the seller and
the buyer arising from such a contract. (Art.
4)
VII. Formation of the Contract
Offer: An offer
Must be addressed to a specified person;
Must be sufficiently definite (such the
quantity/types of goods, price of goods);
Must indicate the intention on the offerors
part to be bound in the event of
acceptance. (Art. 14)
An offer is effective when received by the
offeree. (Art. 15)
VII. Formation of the Contract
(contd.)
Acceptance:
To accept the offer the offeree needs to
indicate his assent either with a statement
or other conduct. Mere silence will not
constitute an acceptance (Art. 18(1))
Acceptance becomes effective when it is
received by the offeror. (Art. 18(2))
Note: Under the Convention it is possible
make oral offer and acceptance, which
should be done immediately.
VII. Formation of the Contract
(contd.)
Revocability of contract:
Offer may be revoked if the revocation reaches the
offeree before he has despatched an acceptance (Art.
16(1)) [common law]
Offer is irrevocable if the acceptance time is fixed (Art.
16(2)) [civil law]
e.g., please accept by 1st of January
According to common law, this means offer is open until 1 st
of January, but may be revoked anytime before the date.
How to interpret? Common law or civil law rules of
interpretation? Should be interpreted independently of
any legal doctrine taking the intent of the parties into
account according to Article 8.
VIII. Obligations of the Seller
Delivery:
To deliver goods
To hand over the docs, which include the docs
as required by the contract terms plus
certificate of origin, quality, transport docs
and others for customs clearance for the seller
Transfer property in the goods. (Art. 30)
But transfer of property- when? Not defined.
Left to the parties to choose their law
according to which the time/point of transfer
will be settled.
 VIII. Obligations of the Seller
(contd)
Place of delivery:
Normally specified
In absence of specification, where it involves carriage of goods, delivery will
take place when the goods are handed over to the first transmission to the
buyer. Art. 31(a)
If the contract does not involve carriage of goods, and where the contract
related to specific goods or unidentified goods to be drawn from a specific
stock or to be manufactured or produced and the parties knew that goods
were at a particular place to be manufactured at a particular place, the
delivery takes place when the goods are placed at buyers disposal at that
place. Art. 31(b).
It is presumed that the seller will notify the buyer that the goods are at his
disposal so that he can take over the goods.
In all other cases, delivery takes place where the goods are placed at buyers
disposal at the sellers place at the conclusion of the contract. Art. 31(c).

Note: This Article has limited use as the parties use specific trade terms like CIF
INCOTERMS.
 VIII. Obligations of the Seller
(contd)
Delivery date:
The sale contract normally stipulates-
A fixed date or
Period of time or
A contingency such as buyers opening letter
of credit (lc ) or
A reasonable time. Art. 33
Conformity of goods:
The seller must deliver goods in conformity
with the quality, quantity and description
required by the contract. Art. 35.
VIII. Obligations of the Buyer
Pay and take:
The buyer must
Pay the price, and
Take the delivery as per contract and the
Convention. Art. 53
Facilitate the delivery:
Must take actions to enable the delivery and
take the delivery. Art. 60
VIII. Obligations of the Buyer
(contd.)
Examination of goods
Examine within a short time and notify the
seller of non-conformity
If the seller is aware or should be aware of
re-direction or re-dispatch, deferment of
examination (such as where the buyer
request the seller for a transferable bill of
lading), the examination may be deferred
until the arrival of the goods at the new
destination Art. 38(2)
VIII. Obligations of the Buyer
(contd.)
Notification of non-conformity (Art.
39)
Reasonable time
Maximum two years
Parties may fix by contract
If late notice accepted, estoppel applies
Seller cannot plead late notice where the
non-conformity is or should be known to
him. (Landgericht Trier 7 HO 78/95, 12 Oct
1995)
IX. Passing of Risk
Similar with English law- risk passes with
property at the time of shipment. Loss or
damage after passing of risk is no reason of
non-payment of the price unless the loss or
damages is due to the seller. (Art. 66)
IX. CISG and Relevance of UNIDROIT
Principles of International Commercial
Contracts
CISG suffers some shortcomings which are repaired by
the Principles.
UNIDROIT Principles relevant under Art 7(2) of the
CISG. They fill gaps of the CISG.
Example: Good faith is not duty on the parties. Courts
are called upon to apply this principles in interpreting
the CISG under Art 7(1). Can parties exclude this by
Art 6? NO.
UNIDROIT Principles contain a general contractual duty
of good faith and fair dealing and plainly disallow any
attempt to contract it out under Art 1.7(2).