Lecture 7 Introduction to International Trade Law The CISG

AGENDA: Introduction to International Trade Law The CISG – General The CISG – Some Details The CISG – Interpretation International Sales Contracts in General Formation of Contracts The offer The acceptance

A joke: Management style & Cultural differences

Introduction International trade law is the law that relates to the exportation of goods or services from one country to another All companies involved in international trade have to follow some rules in order carry out their transactions in a organized and profitable way Why you should know about the rules? - negotiations, contract drafting (pro-active) - solutions to an existing problem (re-active) This module of the course aims to facilitate you with basic knowledge of the central legal issues relating to the most important types of international contracts and the main principles of international private and procedural law.

Introduction Since the companies are registered in different states, therefore they are subjects to the law of their home countries. When they decide to venture into various international transactions, they will conclude contracts with their parties, but, since sometimes they come from very different legal systems (ex. Common law and Civil law countries), there was a need to unify somehow the international trade rules Today there are some internationally recognized legal texts (see next slide) that help the relevant courts to interpret the contracts between the companies.

Unification of International Trade Law Intergovernmental: UNIDROIT rules UNCITRAL – UN Commission on International Trade Law CISG, UN Convention on the Carriage of Goods by Sea (Hamburg rules, 1978) UN Convention on International Bills of exchange and International Promissory Notes (1988), Arbitration Rules Regional 1: EU Sales law, (PECL), ECE 188 (Economic Commission for Europe standard rules for the Supply of Plant and Machinery for export) Other regions, like OHADA, Pacifics/Asia, North and South Americas Regional 2: The Nordic Countries NL 92, NLM 94 (ORGALIME S 2000, ECE 188) Non-governmental: ICC (International Chamber of Commerce) Incoterms, ICC Model Sales Contract, ICC Arbitration (the ICC Rules of Conciliation and Arbitration, 1998), UCC 500 (Uniform Customs and Practice for Documentary Credits ICC Brochure nr. 500, 1993), Model Commercial Agent Contract, Model Distributor Contract, UNCTA/ICC Rules for a Combined Multimodal Transport

THE CISG CISG is the UN Convention on Contracts for the International Sale of Goods CISG has the following structure: PREAMBLE PART I. Sphere of application and general provisions  CHAPTER I.   Sphere of application (Art. 1 - 6)  CHAPTER II.   General provisions (Art. 7 -13) PART II. Formation of the contract (Art. 14 - 24) PART III. Sale of goods CHAPTER I.    General provisions (Art. 25 - 29)               CHAPTER II.   Obligations of the seller (Art. 30)         Section I.   Delivery of the goods and handing over of documents (Art. 31 - 34)         Section II.  Conformity of the goods and third party claims (Art. 35 - 44)         Section III. Remedies for breach of contract by the seller (Art. 45 - 52)  CHAPTER III.  Obligations of the buyer (Art. 53)          Section I.   Payment of the price (Art. 54 - 59)         Section II.  Taking delivery (Art. 60 - 65)  CHAPTER IV.  Passing of risk (Art. 66 - 70)  CHAPTER V.   Provisions common to the obligations of the seller and of the buyer                  Section I.   Anticipatory breach and instalment contracts (Art. 71 - 73)                 Section II.  Damages (Art. 74 - 77)                 Section III. Interest (Art. 78) Section IV Exemptions (Art. 79 - 80) Section V Effects of avoidance (Art. 81 - 84)     Section VI. Preservation of the goods (Art. 85 - 88) PART IV. Final provisions (Art. 89 – 101)

The CISG But: it does not mean that CISG governs ALL international trade: around 90 % goes to arbitration or contracting parties agree that the Law of England, Switzerland or New York will apply to their contract Important: CISG is the model for other international instruments as well as for the modernisation of domestic sales law and the EU directive on consumer guarantees PECL, UNIDROIT Principles Nordic Sales Law Russian Federation, German BGB etc. So: learning about the CISG, and learn about the most commonly accepted rules on contract formation, interpretation of contracts, obligations of the parties, remedies for breach

Some details: Article 1 “This Convention applies to contracts of sale of goods between parties whose places of business are in different States: (a) when the States are Contracting States; or (b) when the rules of private international law lead to the application of the law of a Contracting State.” Comment: CISG is in itself a private international law rule: for example the courts do not need to go into choice of law analysis. Still, they will do this, as there are various limits or reservations which are allowed by the CISG (Art. 92)

Some details The Convention deals only with “sale of goods” Article 2 “This Convention does not apply to sales of 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; (b) by auction; (c) on execution or otherwise by authority of law; (d) of stocks, shares, investment securities, negotiable instruments or money; (e) of ships, vessels, hovercraft or aircraft; (f) of electricity.”

Some details Article 3 “(1) Contracts for the supply of goods to be manufactured or produced are to be considered sales unless the party who orders the goods undertakes to supply a substantial part of the materials necessary for such manufacture or production. (2) This Convention does not apply to contracts in which the preponderant part of the obligations of the party who furnishes the goods consists in the supply of labour or other services.”

Some details Article 4 “This Convention 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. In particular, except as otherwise expressly provided in this Convention, it is not concerned with: the validity of the contract or of any of its provisions or of any usage; the effect which the contract may have on the property in the goods sold.”

Some details Article 5 “This Convention does not apply to the liability of the seller for death or personal injury caused by the goods to any person.” Article 6 “The parties may exclude the application of this Convention or, subject to article 12, derogate from or vary the effect of any of its provisions.” Ex: “Danish law” is a choice of CISG (but with art. 92 reservations)

Interpretation of the Convention (see also UNIDROIT Principles and PECL) Article 7 “In the interpretation of this Convention, regard is to be had to its international character and to the need to promote uniformity in its application and the observance of good faith in international trade. Questions concerning matters governed by this Convention which are not expressly settled in it are to be settled in conformity with the general principles on which it is based or, in the absence of such principles, in conformity with the law applicable by virtue of the rules of private international law.” So, when the courts interpret the contracts and the CISG, they guide after some general principles: good faith, reasonableness, venire contra factum proprium (ex: seller has given buyer the impression that he will not accept the buyers avoidance, but later changes position, when buyer wants to revoke) etc.

International contracts in general Hierarchy: Contract -> Custom -> CISG This means the contract is the underlying part of the transaction, then the usages and customs in that particular domain/industry, then the CISG Also, parties are allowed to derogate from the provisions of CISG as the need The rules on the formation of the contract are subject the rules of sphere of application (1-3) and general provision (4-13) Here, especially art. 4, 8 and 9 is of relevance as we shall see Furthermore, we must be aware of the art. 92-reservation, Part II of the Convention: Denmark, Finland, Norway and Sweden are not contracting parties.

Formation of contracts: the offer What is an offer? An offer is a sufficiently definite communication from the offeror to the offeree containing an intention to be bound (the promise). offeror offeree buyer/seller buyer/seller The contract is made when the offer is accepted rightfully 2. May an offer be withdrawn? Withdrawal is possible until the offer has taken effect. 3. Revocation: Revocation is the right to revoke an effective offer.

Formation of contracts: the acceptance 1. What is an acceptance? A contract has been formed when an offer has been correctly accepted BUT THIS IS IMPORTANT: 2. Acceptance, counter-offer and Battle of Forms Article 19 “(1) A reply to an offer which purports to be an acceptance but contains additions, limitations or other modifications is a rejection of the offer and constitutes a counteroffer.”

Formation of contracts: the acceptance “(2) However, a reply to an offer which purports to be an acceptance but contains additional or different terms which do not materially alter the terms of the offer constitutes an acceptance, unless the offeror, without undue delay, objects orally to the discrepancy or dispatches a notice to that effect. If he does not so object, the terms of the contract are the terms of the offer with the modifications contained in the acceptance.”

Formation of contracts: the acceptance “(3) Additional or different terms relating, among other things, to the price, payment, quality and quantity of the goods, place and time of delivery, extent of one party's liability to the other or the settlement of disputes are considered to alter the terms of the offer materially.”

!!! NEXT TIME: READ THE CISG and CH1&2 WE WILL SOLVE SOME PROBLEMS!!! Online contracts Internet has made it possible to conclude contracts online, i.e. send offers and acceptances via emails. This generates many issues which currently are being analyzed by the scholars Such issues include: is a contract formed, when does an offer/acceptance reach the other party (when it is read or has entered the server), which law applies, who is responsible for errors etc. !!! NEXT TIME: READ THE CISG and CH1&2 WE WILL SOLVE SOME PROBLEMS!!!