Lesson 45: International Contracts and CISG

International contracts are agreements between parties from different countries. These contracts often involve complexities that domestic contracts do not encounter. One of the key frameworks governing international sales contracts is the United Nations Convention on Contracts for the International Sale of Goods (CISG) [Learn more from this book].

Introduction to CISG

The CISG is an international treaty that provides a uniform framework for international commerce. It has been adopted by many countries to facilitate international trade by reducing uncertainties and legal barriers.

"The CISG applies to contracts of sale of goods between parties whose places of business are in different States when the States are Contracting States or when the rules of private international law lead to the application of the law of a Contracting State."

Scope of CISG

The CISG primarily applies to commercial contracts for the international sale of goods. It does not apply to:

  • Sales of goods for personal, family, or household use
  • Sales by auction
  • Sales of stocks, shares, investment securities, negotiable instruments, or money
  • Sales of ships, aircraft, or electricity

Formation of Contracts under CISG

Just like under common law, the formation of a contract under the CISG involves an offer and acceptance. However, the CISG offers specific rules that govern these elements:

  • An offer must be sufficiently definite and indicate the intention of the offeror to be bound in case of acceptance.
  • An acceptance must be a clear indication of assent to the offer.

Offer

According to Article 14 of the CISG, a proposal for concluding a contract constitutes an offer if it is sufficiently definite and indicates the intention of the offeror to be bound in the case of acceptance.

Offer: A proposal for concluding a contract is sufficiently definite if it indicates the goods and expressly or implicitly fixes or makes provision for determining the quantity and the price.

Acceptance

Under Article 18 of the CISG, a statement made by or other conduct of the offeree indicating assent to an offer is an acceptance. Silence or inactivity alone does not constitute acceptance.

Acceptance: A statement made by or other conduct of the offeree indicating assent to an offer is an acceptance. Silence or inactivity alone does not constitute acceptance.

Merger and Integration Clauses

Merger clauses, also known as integration clauses, ensure that the written contract represents the complete and final agreement between the parties. These clauses are critical in international contracts to avoid disputes over oral agreements or additional terms.

Note: Always include a merger clause in international contracts to prevent misunderstandings and potential disputes.

Performance of Contracts under CISG

The CISG provides specific obligations for both the buyer and the seller in performing the contract:

  • The seller must deliver the goods, hand over any documents related to them, and transfer the property as required by the contract and the CISG.
  • The buyer must pay the price for the goods and take delivery of them as required by the contract and the CISG.
graph TD; A["Seller's Obligations"] --> B["Deliver Goods"]; A --> C["Hand Over Documents"]; A --> D["Transfer Property"]; E["Buyer's Obligations"] --> F["Pay for Goods"]; E --> G["Take Delivery"];

Risk of Loss

The risk of loss in international sales contracts can be significantly different from domestic contracts. The CISG outlines when the risk transfers from the seller to the buyer:

  • If the contract involves carriage of goods, the risk passes to the buyer when the goods are handed over to the first carrier.
  • If the contract does not involve carriage, the risk passes when the buyer takes over the goods.

Transfer of Risk

graph TD; A["Contract Involves Carriage"] --> B["Risk Passes to Buyer When Handed to First Carrier"]; C["No Carriage Involved"] --> D["Risk Passes When Buyer Takes Over Goods"];

Conclusion

Understanding the provisions of the CISG is essential for anyone involved in international trade. Properly drafted contracts that consider these provisions can minimize legal risks and facilitate smoother international transactions.

Remedies for Breach of Contract under CISG

The CISG provides several remedies for breach of contract, which can differ significantly from remedies available under domestic law. Both buyers and sellers have specific remedies available to them under the CISG.

Seller's Remedies

  • Right to Require Performance: The seller can require the buyer to pay the price, take delivery, or perform other obligations unless the seller has resorted to a remedy that is inconsistent with this requirement.
  • Right to Fix Additional Time: Under Article 63, the seller may fix an additional period of time of reasonable length for performance by the buyer of his obligations.
  • Right to Declare Contract Avoided: The seller may declare the contract avoided if the buyer's failure to perform any of his obligations amounts to a fundamental breach of contract.

Buyer's Remedies

  • Right to Require Performance: The buyer can require the seller to deliver the goods, replace non-conforming goods, or repair non-conforming goods, unless the buyer has resorted to a remedy that is inconsistent with this requirement.
  • Right to Reduce Price: If the goods do not conform with the contract, the buyer may reduce the price in proportion to the reduced value of the goods.
  • Right to Declare Contract Avoided: The buyer may declare the contract avoided if the seller's failure to perform any of his obligations amounts to a fundamental breach of contract.
graph TD; A[Remedies for Breach] --> B[Seller's Remedies]; A --> C[Buyer's Remedies]; B --> D[Require Performance]; B --> E[Fix Additional Time]; B --> F[Declare Contract Avoided]; C --> G[Require Performance]; C --> H[Reduce Price]; C --> I[Declare Contract Avoided];

Damages under CISG

Under the CISG, a party who has suffered a breach of contract is entitled to damages, which consist of a sum equal to the loss, including loss of profit, suffered as a consequence of the breach. Damages may not exceed the loss which the party in breach foresaw or ought to have foreseen at the time of the conclusion of the contract.

Important: Damages under the CISG are limited to foreseeable losses, which can affect the compensation available in international disputes.

Exemptions from Liability

The CISG provides exemptions from liability under certain conditions. A party is not liable for a failure to perform any of his obligations if he proves that the failure was due to an impediment beyond his control and that he could not reasonably be expected to have taken the impediment into account at the time of the conclusion of the contract or to have avoided or overcome it or its consequences.

graph TD; A[Exemption from Liability] --> B[Prove Impediment]; B --> C[Impediment Beyond Control]; B --> D[Not Foreseeable]; B --> E[Not Avoidable];

Case Study: Application of CISG

Let's consider a hypothetical scenario to see how the CISG might apply:

Scenario: A French company sells industrial machinery to a company in Brazil. The contract specifies that the machinery must be delivered by January 31. However, due to unforeseen shipping delays, the machinery is delivered on February 15. The Brazilian company claims damages for the delay. How would the CISG address this issue?

Under the CISG, the French company would need to prove that the delay was due to an impediment beyond their control, such as a natural disaster or unforeseen regulatory changes. If they can prove this, they may be exempt from liability for the delay. However, if the delay was foreseeable and avoidable, the Brazilian company could be entitled to damages for the late delivery.

Note: In international contracts, it's crucial to consider potential delays and include clauses that address these issues to minimize disputes.
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