When does CISG apply and what are the benefits of CISG?

Date: 3 August 2021

Writer: Linh Nguyen

Since 01 January 2017, Vietnam has been an official member of the United Nations Convention on Contracts for the International Sale of Goods (“CISG”). This has a direct impact on the purchase and sale of goods between Vietnamese traders and CISG member country partners. Therefore, understanding and applying CISG regulations is critical for enterprises entering into the international sale of goods contracts. Through this article, BLawyers Vietnam would like to share the scope of the CISG application and the benefits CISG brings in commercial relationship.

I. Introduction about CISG

CISG 1980 stands for Contracts for the International Sale of Goods 1980, drafted by the United Nations Commission on International Trade Law (UNCITRAL). It is a binding agreement between nations and establishes a set of rules governing certain aspects of the making and performance of everyday commercial contracts between sellers and buyers who have their places of business in different countries. By adopting it, a nation undertakes to the other nations that have adopted it that it will treat the CISG’s rules as part of its law.

On 18 December 2015, Vietnam officially ratified the CISG and became the eighty-fourth state party to the convention. CISG entered into force for Vietnam on 01 January 2017.

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II. CISG scope of application

The CISG governs contracts for the sale of goods between two parties whose places of business are in different states that have adopted the CISG as part of their legal system (“Contracting States”). The international sale of goods contracts between a Vietnamese company and a foreign partner will be governed by CISG if the following conditions are satisfied:

  1. The states of both parties are the Contracting States;
  2. When the rules of private international law lead to the application of the law of the Contracting States.

The CISG does not govern all legal aspects of an international sale of goods contract, but only some of them:

  1. Rights and obligations of the parties;
  2. Remedies for breach of contract;
  3. Passing of risk;
  4. Exemption from liability to pay damages.

Other legal issues shall be governed by the parties’ respective laws.

III. When parties cannot apply CISG?

Parties cannot apply CISG to a sales contract for:

  1. Goods bought for personal, family, or household use, unless the seller, at any time before or at the conclusion of the contract, neither knew nor ought to have known that the goods were bought for any such use;
  2. Auction;
  3. Execution or otherwise by authority of law;
  4. Stocks, shares, investment securities, negotiable instruments or money;
  5. Ships, vessels, hovercraft, or aircraft;
  6. Electricity.

In addition, CISG also does not apply to contracts for the supply of goods for manufacture or production if the ordering party is obliged to provide the substantial part of the materials necessary for such manufacture or production and does not apply to contracts in which the main obligation of the delivery party is to provide labor or other services.

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IV. Benefits arising from the adoption of the CISG

When Vietnam joins CISG, contracts signed between Vietnamese enterprises and enterprises from the Contracting States will be automatically governed by the provisions of the CISG. Accordingly, joining CISG will bring to Vietnamese businesses lots of considerable economic benefits when they understand and apply CISG:

  1. Cost savings and the avoidance of disputes on the choice of applicable law during contract negotiations;
  2. Not be disadvantaged and be in an unequal position when a foreign partner is oppressive;
  3. Reducing the number of cases in which contract negotiations fail due to a disagreement about applicable law;
  4. Improving the ability to defend themselves in foreign courts if a dispute arises;
  5. Creating a framework for the parties to stipulate and implement stricter contract terms and conditions to protect their rights and interests, rather than signing rudimentary, unsecured model contracts in the past;
  6. More favorable resolution of disputes arising from international sales contracts.

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To summarize, CISG contributes to the unification of the source of law applicable to international sales of goods contracts, thereby reducing contract difficulties and disputes. Understanding CISG regulations will save time and money, as well as limit risks for Vietnamese enterprises.

Should you have any questions about the above contents, please revert to BLawyers Vietnam at consult@blawyersvn.com. We are more than happy to hear from you!

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