Through these Frequent Questions and Answers, BLawyers Vietnam will provide an overview of the United Nations Convention on Contracts for the International Sale of Goods 1980 (CISG).
General introduction and scope of application
1. What is CISG?
CISG stands for United Nations Convention on Contracts for the International Sale of Goods. The CISG was drafted by the United Nations Commission on International Trade Law (UNCITRAL) to unify sources of law for the international sale of goods contracts. This Convention was adopted in Vienna (Austria) on 11 April 1980 and entered into force on 01 January 1988.
2. Objectives and role of CISG in international trade?
The objects of the CISG, include:
- Unifying the law applicable to contracts for the international sale of goods;
- Reducing legal conflicts, limiting disputes arising; and
- Establishing a foundation to develop trade in goods among countries.
The role of the CISG in international trade is reflected in the following figures:
- CISG has become one of the most widely ratified and widely applied international conventions about trade with 85 member countries;
- Contributing regarding legal aspects for around 80% of global trade;
- Disputes over contracts for the international sale of goods do not arise only in CISG member states. In the states which are not members of CISG, CISG still be applied, either by the parties choosing CISG as the applicable law for the contract; or by the courts or arbitrators choosing to apply CISG for dispute resolution;
- It is the premise and important reference source of the UNIDROIT Code of Conduct on International Commercial Contracts (PICC) and the Principles of European Contract Law (PECL); and
- It is an important reference source for commercial and contractual laws in many countries, including Vietnam (CISG has officially effected in Vietnam since 01 January 2017).
3. The content of CISG?
CISG consists of 101 articles, divided into 4 parts with the following main contents:
- Part 1: Scope of application and general provisions (Articles 1 – Article 13): This part prescribes the cases in which CISG is applicable as well as specifies the principles in the application of CISG, such as the principles of interpretation statements, the performance and behavior of the parties, the principle of freely decision contract form, the principle of application of customs and habits.
- Part 2: Procedures for signing the contract (Article 14 – Article 24): This part prescribes legal issues raising in the process of entering a contract for the international sale of goods. CISG regulates the validity of offers, withdrawal, and cancellation of offers; the content of the acceptance of the offer; the deadline for acceptance. In addition, CISG also provides for the withdrawal of acceptance and the time when contracts go into effect.
- Part 3: Purchase and sale of goods (Article 25 – Article 88): This part prescribes legal issues during the performance of the contract such as the rights and obligations of the seller and the buyer. The seller is obliged to deliver goods and documents, in particular the obligation to ensure the suitability of the goods delivered. CISG emphasizes the inspection of delivered goods (duration of inspection, the time limit for notification of defects). Obligations of the buyer, including the obligation to pay and the obligation to receive the goods.
- Part 4: Final Provisions (Articles 89 – Article 101): This part prescribes the procedures for a state to join such as signing, ratifying, and acceding to CISG, applicable reservations, date of entry into force of CISG, and several other procedural matters.
4. How is the scope of application of CISG?
According to the provisions of CISG and the practice of contracts for the international sale of goods, there are 04 cases where CISG is applied:
- When the parties have their business location in countries that are members of CISG; or
- When the rules of private international law led to the application of the law of a member country;
- When the parties choose CISG as the applicable law to their contract; or
- When the dispute settlement authorities select CISG as the applicable law.
5. Does the member country have reservations under CISG? What effect does this reservation have on determining the scope of CISG?
Article 95 of CISG states that “any State may declare (…) that it will not be bound by subparagraph (1)(b) of article 1 of this Convention”. This provision means that in case a member country declares to reserve a provision of CISG, CISG shall not apply to a contract entered between a party having a business location in that country with another party that has a business location in a non-member country.
6. What are “goods” under CISG?
CISG does not have a particular description of goods. However, according to specific cases in practice, the objects that are considered “goods” under CISG must be tangible and movable assets.
7. Does CISG apply to contracts for the exchange of goods?
The Commercial Law 2005 has not regulated goods exchange contracts (Barter transactions) yet, but the 2015 Civil Code has provisions on property exchange contracts. The Civil Code 2015 stipulates that “A contract for the exchange of property means an agreement between the parties under which the parties hand over the property and transfer the ownership rights over such property to each other”. Either party shall be considered the seller of the property which is handed over to the other party and the purchaser of the property received.
It can be seen that under the law of Vietnam, an property exchange contract is a special form of a contract sale of the property. Besides, goods are also a form of property, thus the contract of exchange of goods is also a form of contract for the sale of goods.
The CISG applies to contracts for the international sale of goods (Article 1.1) but does not provide a specific definition of what a contract of sale is or the types of contracts for the sale of goods. From the provisions regulated on the obligations of the seller and the buyer under the CISG (Articles 30 and 53), it can be understood that a contract on the sale of goods is a contract under which the seller is obliged to deliver goods, deliver documents, and transfer the ownership of the goods while the buyer is obligated to pay and receive the goods.
Therefore, it is uncertain that CISG is applied to goods exchange contracts.
8. How are the benefits when Vietnamese enterprises apply CISG in international sale of goods contracts?
Some unofficial research in Vietnam shows the following benefits for Vietnamese enterprises when applying CISG:
- When Vietnam becomes a member of the CISG, Vietnamese traders and partners around the world will have a unified legal framework, which automatically applied to their contracts. This will help Vietnamese enterprises save costs and negotiating time to agree on the choice of law applicable to the contract;
- Reducing difficulties and costs that may arise if the law chosen to apply to the contract is foreign law. If a foreign law must be applied, it may take time for Vietnamese traders to find out on their own or the expense of hiring a legal consultant to learn that foreign law;
- Avoiding having to use conflict of law rules in international law to determine the law applicable to a contract. When the parties to a contract do not choose, or cannot choose the law applicable to the contract, the dispute settlement authorities (the court, the arbitration) refer to the conflict of law rules to select a source of law to related dispute resolution;
- Having a modern, fair and safe legal framework for the implementing of contracts for the international sale of goods and having a reasonable source for dispute resolution if any arise. CISG is considered a source of modern law, in line with international business practice;
- The parties entering into and performing a contract based on a unified common law will create legal equality between the two parties; and
- The mentioned benefits are great significant advantages for small and medium enterprises when participating in international business activities. These enterprises have few resources to access legal consulting services as well as less power and influence in negotiating and choosing the law applicable to the contract, so they often face many legal risks related to the law.
9. When does the CISG apply to international sales of goods contracts to which a Vietnamese enterprise is a party?
Since CISG took effect in Vietnam (01 January 2017), international sale of goods and purchase contracts signed by Vietnamese enterprises will be governed by CISG if the other party has its place of business in a country that is a member of CISG.
CISG can also be applied to an international contract on the sale of goods in which one party is a Vietnamese enterprise. This case usually occurs when one of the parties to the contract is located in one member state while the other is based in a country that is not a member of CISG.
Based on the principle of free choice of law applicable to international contracts of sale of goods in particular and to civil contracts in general, which is widely recognized in the international justice of many countries, the parties to the contract, whether based in the member country or not, has the right to choose CISG as its applicable law.
10. What contractual legal issues does CISG not cover? For those issues, which source of law is used to regulate?
Article 4 of CISG stated that CISG 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”, it is not concerned with (i) the validity of the contract or any of its provisions; (ii) transfer of ownership of goods.
In addition, in CISG, there are no provisions on several other legal issues such as responsibilities of the parties in the negotiation phase, authorization issues, validity, obligations transferring, transferring of contract, and the penalty for breach of contract.
When a contract is governed by CISG, the parties can prepare an additional source of law for matters not covered by CISG, or where the parties do not choose an additional source of law for CISG, the dispute settlement authorities will choose it.
Additional sources of law for the CISG may include:
- The law of the country in which the seller or buyer has their headquarters, or the law of any country agreed upon by the parties;
- Code of Conduct on Contracts (non-binding) such as the UNIDROIT Code of Conduct for International Commercial Contracts (PICC) and the European Code of Contract Law (PECL);
- Other international commercial practices relevant to the subject matter in dispute.
11. Do the parties have the right to refuse to apply CISG? What is considered a valid refusal?
The parties can refuse to apply CISG, but CISG does not specify the procedure for refusal. Practice shows that a way for parties to validly refuse to apply CISG is to add a provision of the applicable law to their contract of sale. If the applicable law selected is the law of a country that is not a CISG member, then CISG does not automatically apply. At that time, the applicable law provision is considered a valid refusal.
Therefore, if the parties wish to choose a member’s national law and exclude the application of CISG, then in addition to specifying the applicable law, the parties should also specify the choice of law clause in the contract that CISG will not be used to govern the contract’s terms.
12. How does CISG regulate the form of a contract? When joining CISG, does Vietnam have reservations about the formality of international sale and purchase contracts?
Article 11 of CISG stated that “a contract of sale does not need to be signed or confirmed in writing and it is not subject to any other contractual form requirements.”
Thus, CISG recognizes the principle of contract freedom. According to CISG, a contract can be made in writing, orally, or by conduct, and it can be proved by any means, including witnesses.
The Commercial Law 2005 stipulates that the international sale and purchase of goods must be established in the form of a document or a legal form equivalent to a document (Article 27.2). When joining CISG, to create compatibility between the laws of Vietnam and CISG, Vietnam also declared to preserve the form of the contract. This means that international contracts for the sale of goods in Vietnam must still be established in writing.
13. What if the parties in the contract applying CISG but have different interpretations?
As a unified law, it is important to unify the principles of interpretation of CISG to ensure that the provisions of CISG are understood and applied uniformly by actors in many different countries and in different legal systems.
There are two principles for the interpretation of CISG including:
- Internationality and uniformity: it is necessary to take into account the international nature of CISG to ensure its interpretation in an international approach and framework, governing an international transaction, regardless of the nationality of the parties, location performance of a contract or type of goods. This will ensure the uniform application of CISG.
- The principle of good faith: this is a guiding principle for courts and arbitrators in the interpretation of contracts and the interpretation of the provisions of CISG.
We will continue to provide Part 2 of these Frequent Questions and Answers. Should you have any questions about the above contents, please revert to BLawyers Vietnam at firstname.lastname@example.org. We are more than happy to hear from you!
Date: 17 December 2022
Writer: Linh Nguyen & Tinh Nguyen
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