Unification of international trade law: Overview of Convention on CISG

The CISG facilitates the cross border sale of goods by ensuring consistent application of law relating to contracts – Pic by UNCTAD

By Eranda Roshan Fernando

The differences in legal systems among the various countries in the world are substantial. However, uniform law relating to the contracts on international sale of goods is essential for the smooth functioning of world trade. For example, in case of dispute between the exporter and importer, question may arise as to whose law shall prevail over the other, where there is no uniform law relating to the contracts on international sale of goods.  

UN Convention on Contracts for the International Sale of Goods (CISG) is a notable achievement by the UN Commission on International Trade Law (UNCITRAL) to unify the law governing contracts for international sale of goods. The CISG was adopted in 1980 and subsequently came into effect in 1988. 

Historical background of CISG

CISG is the outcome of nearly a decade of effort by UNCITRAL. However, the history of unification of laws relating to contracts on international sale of goods can be traced back to 1930 when the International Institute for the Unification of Private Law (UNIDROIT) in Rome commenced developing uniform law on contracts for the international sale of goods. 

UNIDROIT continue their task amidst the interruptions caused by World War II. In 1964 UNIDROIT presented two drafts at a diplomatic conference in Hague and both drafts were adopted. One of the drafts is known as Uniform Law on International Sale of Goods (ULIS) whereas other draft is known as Uniform Law on formation of Contracts for the Sale of Goods (ULF). However, only few countries adopted the aforesaid two conventions.

Thereafter, in 1966 the UN General Assembly by resolution 2205 (XXI) established UNCITRAL which subsequently commenced drafting the CISG.

Importance of CISG

International trade is the catalyst for economic growth in modern world. In recent history, no country has achieved economic growth or development without active participation in international trade. The CISG facilitates the cross border sale of goods by ensuring consistent application of law relating to contracts. 

In fact, consistent legal framework is one of the important factors that propel the globalisation. The preamble of CISG indicates the overall purpose which is ‘adoption of uniform rules which govern contracts for the international sale of goods and take into the 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’.  

According to the UNCITRAL website, as at February, a total of 89 countries have adopted the CISG which include major economies such as the US, China, Canada, France, Germany, Russia, Brazil, Italy, Spain, Australia and Netherlands etc. Singapore and Vietnam are also parties to the CISG whereas Sri Lanka is not yet a signatory. 

Structure and application of CISG

The CISG consist of 101 articles which have been divided into four parts. Part I includes article 1 – 13 under the title of ‘Sphere of Application and General Provisions’. Part II ‘Formation of Contract’ includes Article 14 – 24. Part III (Article 25 - 88) is under the title of ‘Sale of Goods’ which describes the obligations of the seller, obligations of the buyer and remedies for breach of contract by the buyer etc. Part IV includes (Article 89 - 101) provisions regarding ratification and accession of the contracting states under the heading of ‘Final Provisions’.Article 1 makes it clear that the convention applies only to contracts on international sale of goods as it requires that the ‘place of business’ of each party (seller and buyer) should be in different countries. The CISG applies to the contracts for international sale of goods under the following mentioned circumstances. 

In recent history, no country has achieved economic growth or development without active participation in international trade

If both exporter and importer are from two countries that are parties to the CISG or where only one party of the contract (either exporter or importer) is from the country which is a signatory to the CISG and the other party agrees that the CISG applies to the contract. Because according to the article 1, the CISG applies ‘when the rules of private international law lead to the application of the law of the contracting state’.

The CISG applies only to the business transactions because goods bought for personal, family or household use, fall outside the scope of the convention as per the article 2. The same article specifies that CISG does not apply to sale of ships, vessels, hovercraft, aircraft and sale of electricity. According to the article 11 of CISG, the contracts for international sale of goods doesn’t have to necessarily be in writing which means CISG applies to whether the contract is in writing or otherwise.

Articles 30 to 44 of the CISG include rules relating to the obligations of the seller (exporter) which include delivery of goods in comply with quality and the quantity as mentioned in the contract and handing over relevant shipping documents etc. Further, according to article 33 of CISG, the seller must deliver the goods on the date given in the contract. If there is a period of time given in the contract instead of specific delivery date, then the seller must deliver the goods within that period. The seller should deliver the goods that are not subject to any right or claim by the third party (article 41).

In international sale of goods (export and import transactions) the point at which the risk of loss or damage to the goods shifts from seller to buyer is important. Generally, incoterms (e.g. EXW, FOB, CIF, and DDP) indicates exact point where the risk pass from seller to the buyer. However, if the contract between the exporter and importer does not include incoterms or any other provision regarding the passing of risk, the CISG has specified the set of rules. Articles 66 to 70 of the CISG explain rules relating to the passing of risk.The remedies available to the seller and the buyer in case of breach of a contract by either party are the same. The remedies are specific performance, avoidance and claim the damages etc. However, in case of breach the contract by the seller, the buyer can demand the reduction of price as a remedy. 

(The writer is postgraduate qualifies researcher on international trade policies. He can be contacted through [email protected].)