The 1980 UN Convention on Contracts for the International Sale of Goods (CISG), is an international treaty that unifies the law for international sales and purchases of movable goods. When doing business internationally, it is important to realize what risks and opportunities the CISG offer for international trading companies. It is a so-called uniform convention and trading companies from (mainly) member states can rely on it. Our Dutch contract attorney in the Netherlands frequently receives questions about the CISG. What does this convention mean? Does the CISG apply to all my international sales contracts? How do I incorporate the Viennese Sales Convention into my general purchase and sales conditions? When do I benefit from the CISG? These and many other questions are frequently asked. In this article, our Dutch lawyer discusses some important aspects of the CISG.
Dutch attorney about the CISG
The UN Convention on Contracts for the International Sale of Goods (CISG) is labeled as one of the most successful international treaties in the world. 85 Member States are party to the SIG and that makes it a treaty to be reckoned with. When a company does business internationally, the CISG can quickly become applicable. Our lawyer in contract law, who frequently advises and litigates about the SISG, has noticed that in practice there is often a lack of clarity as to when this international treaty applies.
International commercial contracts
First of all, it is important that the CISG only applies to international sales contracts. In national relations, the CISG does not apply. In short, this uniform convention only becomes applicable when you do business across borders. In addition, the CISG does not apply to the business-to-consumer relationship. It therefore only applies in international B2B relations and it must concern movable property. The CISG does not apply to:
- the purchase of movable items purchased for personal use or for use in the family or household, unless the seller did not know or should not have known at any time before or at the time of concluding the agreement that the items were purchased for such use;
- the purchase at public auction;
- a foreclosure or other judicial sale;
- the purchase of securities, securities and means of payment;
- the purchase of seagoing vessels, inland waterway vessels, air-cushion vessels or aircraft;
- the purchase of electrical energy.
It is important to realise that the CISG applies (bearing in mind the requirements listed above) unless it is excluded. It is therefore not the case that the parties first have to agree that the CISG will apply. If the parties do not want to contract with the application of the CISG, they will have to explicitly exclude it. This exclusion usually occurs in the purchase conditions of a buyer or the sales conditions of a supplier.
To include or not to include the CISG in purchase conditions or conditions of sale?
If you are a supplier of movable goods in a B2+B relationship and you trade internationally, there is almost always a strong argument for not excluding the UN Convention on Contracts for the International Sale of Goods (CISG) in your general terms and conditions. Standard contracts or general conditions very often contain the sentence (or words to that effect): ‘The CISG shall not apply to all existing and future contracts‘. Often, parties easily overlook this, because they do not know the added value of the CISG.
According to our lawyer in contract law in the Netherlands, this is a missed opportunity. Precisely where a substantial shortcoming must be at the basis of the dissolution, the complaint period (so timely complaints by the buyer) is subject to stricter principles than Dutch law and force majeure also has a larger scope, there is a lot to be said for a supplier to contract under the CISG. When the following sentence is included in the general terms and conditions of sale: “Dutch law shall apply to any contract concluded by the parties” and you ensure that these general terms and conditions apply to your contracts, the applicability of the CISG is a fact in international contracts.
Exclude the CISG in general sale and purchase conditions?
Conversely: as a buyer, you may have an interest in agreeing with your supplier that the CISG is excluded. In that situation, it is important to make explicit arrangements, or for example to include in purchase conditions, that the CISG is excluded. In this way, you, as a buyer, will prevent having to face a higher threshold when you want to get out of the agreement, or have to complain more quickly about a defect.
In short, let yourself be assisted by a lawyer for the CISG in the Netherlands who will point out the pitfalls and commercial opportunities in commercial contracting. The CISG is usually only excluded because people have no knowledge of it. According to our lawyers, this cannot and must not be a reason to ignore the convention.
Dispute concerning CISG in the Netherlands
A dispute about the United Nations Convention on Contracts for the International Sale of Goods (CISG) in the Netherlands can, of course, occur. This may relate to the applicability of the CISG. Usually the preliminary question is whether general purchase conditions or delivery conditions have been handed over in the correct manner. In international contracting, the question of which legal rule should apply to the applicability of general terms and conditions (first shot rule, last shot rule, knock out rule etc.) arises more often. This can be quite complex in an international contractual setting and, in such discussions, it is advisable to engage the services of an experienced lawyer specialising in contract law and with knowledge of the CISG.
Another dispute about the CISG may be about the substance. For example, is there a material breach under the CISG? Are the claims time-barred under the CISG? Which law should I rely on if my situation is not covered by the CISG? These can also be complex questions and it is often necessary to refer to international case law. The CISG-AC, CISG Advisory Council, is a private initiative that aims to promote a uniform interpretation of the CISG. There is no supranational court that rules on the UN Convention on Contracts for the International Sale of Goods (CISG), so rulings by foreign courts can also be of great importance in interpreting the CISG. The CISG Advisory Council was established on the initiative of the inspiring late Prof. Albert Kritzer of the Institute of International Trade Law in 2001. Prof. Kritzer was at the forefront of promoting the harmonisation of international trade law with initiatives such as the CISG Advisory Council, the Institute’s database on the CISG and the Willem C Vis Moot.
Dissolution under the CISG and under Dutch law
Dissolution under Dutch law (article 6:265 of the Dutch Civil Code) is a remedy to be invoked in the event of defective performance in the execution of an agreement. Dutch law prescribes that any shortcoming of a party in the performance of one of its obligations gives the other party the power to dissolve the contract wholly or partially. However, this is not possible if the shortcoming, given its special nature or minor importance, does not justify this dissolution with its consequences. In other words, there must be ‘sufficient weight to the dissolution‘ of the purchase agreement.
It is therefore important to know that there must first be a default. Barring fatal deadlines, announcements by the other party or other insights that fulfilment will no longer take place, this is constructed with a notice of default, in which another reasonable period for fulfilment is offered.
The CISG does not recognize this as such. The CISG does have a higher threshold because there must be a so-called substantial shortcoming. It is not easy to indicate what is or is not a substantial shortcoming. In any case, it must be borne in mind that under the application of the CISG, termination is less easily justified. This is important information, especially for suppliers in the industry, because a customer is less likely to cancel or return an order if there is a defect in the performance. It really has to be a case of a substantial defect. However, a buyer must complain about the defect within a reasonable period of time after discovering it (or when the buyer could have discovered it). If this obligation to complain is not fulfilled, the purchaser’s rights may be cancelled.
Claiming damages under the Convention
After dissolution (or if dissolution is not possible under the UN Convention on Contracts for the International Sale of Goods (CISG), the party suffering damage may claim damages under the CISG. Article 74 of the CISG stipulates that the damages for a party’s default consist of an amount equal to the loss, including loss of profit, suffered by the other party as a result of the default. Such damages shall not, however, exceed the loss which the party who has failed to perform foresaw or ought to have foreseen at the time when the contract was concluded as possible as a result of the breach, given the facts which that party knew or ought to have known.
If the contract is rescinded when the goods in question have a daily price, the party claiming damages, if he has not effected a sale under cover of Article 75, shall be entitled to the difference between the contract price and the daily price prevailing at the time of rescission, without prejudice to his right to damages for other loss in accordance with Article 74. If, however, the party claiming damages rescinds the contract after having taken over the goods, the daily price at the time of taking over shall be used instead of the daily price at the time of rescission.
Contact a Dutch attorney specialized in the CISG
Should you wish to seek advice on the CISG, our Dutch attorney specialized in the UN Convention on Contracts for the International Sale of Goods (CISG) will be pleased to assist you. We will draw up purchase conditions and terms and conditions of sale where required. Conversely, we can also assist you if a dispute has arisen in which the CISG plays a role. Our litigators frequently litigate internationally and know the advantages, disadvantages and risks when it comes to the CISG. You can contact our attorney in the Netherlands, Remko Roosjen. He will be happy to help you.