CISG Convention

The Convention

The UN Convention on Contracts for the International Sale of Goods (CISG) may be chosen to apply to contracts for the international sale of goods. Many countries have ratified the convention, but the UK and Ireland have not done so.

The Convention applies to the commercial sale of goods, if the respective places of business of the parties are in countries which are party to the Convention or if the parties agree that the law of a state which is party to the Convention is to apply.

The CISG provides that the seller’s basic obligation is to deliver goods, hand over the documents relating to them and transfer the property in them when required by the contract. The CISG provides that the buyer’s basic obligation is to pay the price.

The Convention deals with the formation of the contract and the remedies available. It excludes issues regarding the legality of the contract, the competence of the parties, the rights of third parties and liability for death and personal injury. The illegality exclusion arises from the difference in laws and social values throughout the world.

Where the Convention applies, it substitutes for the domestic law. The only permissible remedies are those provided by CISG.


Non-Apllication

The Convention does not apply to the sale of

  • household, personal and family goods;
  • auction sales, sales on execution;
  • stock shares investments and money;
  • ships, hovercraft and electricity.

Domestic sales are excluded and the benefit of consumer protection laws is not lost by incorporating the CIGS. Most such laws cannot be overridden by the terms of the contract in any event.


Formation I

The parties’ statements and conduct are to be interpreted according to the understanding of a reasonable person of the same kind as the other party in the circumstances. Due consideration is to be given to all circumstances including any negotiations leading to the contract, practices established and conduct after the agreement.

The parties may provide that regard shall not be had to defined circumstances to derogate from or vary the effect of the contract. If the contract provides that all prior or contemporaneous agreements and circumstances are to be ignored, then effect must be given to this position.

The parties are bound by practices and usages which they have agreed or established between themselves, which they are presumed to have made applicable to the contract or its formation, and usages which they know or ought to have known and which are widely known in international trade and regularly observed by parties to contracts of the type concerned.


Formation II

A contract for sale need not be in writing or proved in writing or subject to any formal requirement. It can be proved by any means such as by witnesses including the parties themselves. Certain states, whose legislation requires contracts to be in writing, may make a declaration that this position applies to their law.

A contract is formed when the party’s offer to buy or sell is accepted. An offer is a proposal addressed to a specific person indicating an intention to be bound by a sale or purchase of particular goods for a price.

Where a contract has been concluded but does not expressly fix or make provision for determining the price, the parties are considered in the absence of any indication, otherwise to have impliedly made reference to the price charged at the time of conclusion for goods under comparable circumstances in the trade concerned.

An offer must be addressed to one or more specific persons. Unless an offer states that it is irrevocable, it can be revoked at any time before acceptance is dispatched. As under US laws, a firm offer, namely one which offers that the promise is kept open, is enforceable and may not be withdrawn during the relevant period. An offer is enforceable and can be accepted if the offeror agrees that it is irrevocable or the offeree reasonably relies on conduct to the effect that implies the offer is firm.


Formation III

A contract comes into existence when an offer is accepted. Acceptance is a statement or conduct by the person offered, indicating agreement, that is communicated to the offeror. Silence does not, of itself, constitute acceptance. However, if the seller accepts a duty to respond, silence can constitute acceptance. It may be agreed that the offer is deemed to be accepted unless contradicted.

Acceptance must be received within the time specified. If no time is specified, acceptance must be within the reasonable period. If the offer is oral, acceptance must be made immediately unless the circumstances point otherwise. If the offer requires the performance of an act, rather than acceptance, it is effected once the act is performed. Trade usage or practice may make it clear that offeree is not required to notify the offeror.

An offeree may withdraw acceptance before it is received. The rejection of an offer is effective once it reaches the person making the offer.

Where a seller sends an offer, and the buyer responds with a modified offer, questions can arise as to whether there is a final agreed contract. If there are material differences in the terms and conditions returned in the purported acceptance, then this is a counteroffer.

Additional or different terms relating to matters such as price, payment, quality, time of delivery, the extent of the party’s liability or disputes, are deemed to alter the terms of the offer materially. Terms that are not material are considered to be an additional proposal that may become part of the contract unless promptly objected to.


Performance

CIGS defines the general standards of performance on the part of buyer and seller. The party that fails to perform is in breach of contract. The other party may avoid the contract and/or make a demand for specific performance.

Where one party substantially fails to deliver what the other reasonably anticipated receiving, there is a fundamental breach. A breach of contract is fundamental if it results in such detriment to the other party, so as to substantially deprive him of what he is entitled to expect under the contract. This is unless the party in breach did not foresee and a reasonable person could not have foreseen such a result.

If there is a fundamental breach, the injured person may avoid the contract. This is done by a notice that he has cancelled the contract. The other party must be notified and be able to return any goods which he has already received. Where the party avoids the contract, his obligation to perform only, is affected. The contract still applies in relation to disputes, arbitrations other provisions dealing with the consequence of breach and avoidance.

An injured party may ask the court to require performance if the other party fails to perform his obligations. The court need not require performance unless it can do so under its own domestic rules. Where specific performance is permitted, disobedience is contempt of court and is punishable by fine or imprisonment. In continental civil law countries, the jurisdiction to require performance is broader, than in Ireland and the UK.

A court may not impose a fine or imprison a disobedient party. In civil law jurisdictions, a person is entitled to require performance whereas in Anglo-American (common law) jurisdictions judges have the discretion to deny the decree. In the United States, the Uniform Commercial Code allows a decree of specific performance, if the court deems this just.


Obligations of Seller

The seller is obliged to deliver the goods, hand over documents and ensure they conform with the contract. The place of delivery is that agreed in the contract. Otherwise, it is the carrier’s place of business, if there is a carriage of goods or the place where the parties know the goods are located or are to be manufactured or produced.

If the seller is obliged to provide for shipping but does not specify the carrier or terms, the transportation must be appropriate in the circumstances. It must be made in accordance with usual terms for such transportation. The seller must identify the goods to the carrier by markings on the goods, by shipping documents or otherwise.

He must give the buyer notice of consignment of the specified goods. The failure to comply with this requirement is a breach of contract.

If the seller is not obliged to arrange insurance, he must at the buyer’s request provide him with available information to allow the latter to organise insurance.


Delivery

The time of delivery is fixed by the contract. If none is fixed, it is to be a reasonable time after the conclusion of the contract. If a time period is provided, the seller may deliver within that period (at any time) unless it is expressly provided to be at a time chosen by the buyer.

At the time and place of delivery, the seller must deliver the documents relating to the goods that the contract requires. If the buyer does so early, he has the right to cure any lack of conformity in the documents as long as this does not cause the buyer any unreasonable inconvenience or expense.

If the seller delivers early, the buyer is not obliged to accept. If the seller delivers more than the amount agreed, the buyer may accept or reject the excess part. The buyer must pay for the excess if he accepts, at the contract rate.


Conformity of Goods

The seller must deliver goods of the quantity, quality and description required by the contract and which are contained or packaged in the manner required by the contract. Unless otherwise agreed, goods do not conform unless

  • they are fit for the purposes for which goods of the same description would ordinarily be used;
  • fit for the particular purpose expressly or impliedly made known to the seller at the time of conclusion of the contract except where the buyer does not rely on or where is not reasonable for him to rely on seller’s skill and judgment;
  • possess the quantities, qualities of goods which the seller has held out to the buyer as a sample or model and
  • are contained and packaged in a manner usual for such goods or where there is no such manner, in a manner adequate to preserve and protect the goods.

Goods do not conform if they are subject to third party claims. This includes assertions of ownership and claims for breach of intellectual property patents, copyright or trademark.


Buyer’s Acceptance and Waiver

The buyer is obliged to examine the goods within as short a time as practicable after delivery. If they are shipped, the examination may be deferred until after the goods have arrived at their destination. If the buyer has to redirect or re-dispatch goods while they are in transit, the examination may be deferred until after the goods have arrived at the new destination.

The buyer may excuse the seller, the obligation to perform and supply conforming goods or impliedly exclude them if the buyer knew or could not have been unaware that the goods were nonconforming. A waiver can be implied from the buyer’s conduct.

In order to avoid waiving rights to require performance, the buyer is obliged to inform the seller of any defects which he discovers within a reasonable time after delivery. If defects are later discovered, he must notify the seller promptly in order to preserve his rights.

The seller is not responsible for a defect that arises more than 2 years after delivery unless the seller knew or out to have known of the nonconformity and did not disclose it to the buyer or the contract establishes a longer period of guarantee.

If the seller delivers goods early, he may cure any defect up to the agreed date for delivery so as long as this does not cause the buyer any unreasonable inconvenience or expense.


Payment for Goods

A buyer is required to pay the price and take delivery of the goods. The detail will generally be prescribed by the contract. The buyer is obliged to take whatever preliminary steps are necessary under the contract, to enable payment to be made. He must pay the price at the time and place designated in the contract. If no time is specified, the buyer is to pay when the goods or documents controlling their disposition are delivered.

The buyer must pay without the need for any request or formal demand on the part of the seller. The buyer does not have to pay until after he has had the chance to examine the goods unless otherwise agreed.

If no place of payment is provided, but a place of delivery is agreed for either the goods or the documents, payment must be made at that place. If no place of delivery is specified, the buyer must pay at the seller’s place of business.


Risk

The passage of risk determines who is responsible for the loss of the goods and who, in consequence, should insure. Primarily, the passing of risk is determined by the contracts. Parties most commonly specify how risk is to be dealt with by using the appropriate Incoterms.  e.g. CIF, etc.

The buyer must cooperate with the seller in order to facilitate the transfer and delivery of the goods. A buyer who fails to cooperate is responsible for any resulting costs if he fails to take delivery; he assumes any risk for damage after that time.

Generally, the risk will not pass until the goods are identified by markings or notice given to the buyer. When a contract requires the seller to deliver the goods to a carrier for shipment, the risk is presumed to pass when the goods are handed over to the first carrier. If the contract requires the seller to deliver the goods to a carrier at a named place, the risk passes when the goods are handed over to the carrier at that place.

Where the goods are sold after they are already aboard a carrier, the risk passes when the contract is concluded. If the goods are already damaged the risks remains with the seller.

While the contract requires the seller to arrange transport to a named place of destination, the risk passes when they are handed over or placed at the buyer’s disposal at that location. Where goods are delivered without being transported, the risk of loss passes when the goods are handed over or are put at the buyer’s disposal. They must be clearly identified and ascertained.


Buyer’s Options

A buyer may avoid the contract if the seller commits a fundamental breach or the buyer gives a notice of breach, and the seller rejects it or does not perform it within the required reasonable time.

The buyer may give notice fixing an additional period of reasonable time to perform the obligation. The period must be definite and the obligation to perform within that period must be clear. Once this period has run or once the fundamental breach becomes clear, the buyer has a reasonable time in which to avoid the contract.

During the period, the seller is entitled to remedy the nonconformity at its own expense. If there is a breach, the seller is entitled to cure it unless the circumstances indicate the breach is fundamental and the buyer chooses to avoid the contract.

The CISG does not allow the court or arbitrator to grant the seller a further period of grace in which to perform.

If the seller delivers early, the buyer is not obliged to accept. If the seller delivers more than the amount agreed, the buyer may accept or reject the excess part. The buyer must pay for the excess if he accepts, at the contract rate.

If a part of the goods does not conform, the buyer may seek specific performance, obtain a price deduction or avoid that part of the contract. The buyer may avoid the whole contract if the partial delivery amounts to a fundamental breach of the whole contract.


Seller’s Options

The seller can avoid the contract if there is a fundamental breach or following notice giving extra time; the buyer refuses to cure any defect in his performance.

A “missing specification” is where the buyer fails to supply specifications for goods. If he does not produce, for example, the measurements which seller requires by a date specified in the contract or a reasonable time after the seller request them. The Convention allows the seller to ascertain the specification in accordance with the requirements of the buyer that may be known to him. The seller must then inform the buyer of what he has done and set a reasonable time to supply different specifications. If the buyer does not respond, the seller’s specification becomes binding.


Suspension of Performance

Either party may suspend performance of his obligations if it becomes apparent that the other party will not perform a substantial part of his obligations as a result of a serious deficiency, inability to perform, credit-worthiness or conduct in preparing to perform or performing the contract.

If the seller has already dispatched goods before the above circumstances become evident, he may prevent handing over the goods even though the buyer holds a document which entitles it to them.

The party suspending performance after the dispatch of the goods must give immediate notice of the suspension for the other party and must continue with performance if the other party provides adequate assurances.


Termination

A party commits a fundamental breach where he states that he will not perform his obligations on the due date or indicates that he has no intention to being bound. This may happen wrongfully or innocently. For example, goods may be wrongly sold to a third party. A person necessary to perform the task may be no longer available.

The innocent party may avoid the contract immediately. If time allows, he should notify the other party so that it can provide adequate assurance of performance. This is necessary in order to comply with the Convention’s general obligations of good faith.

In the case of instalment contracts, the failure to provide a particular instalment may entitle the innocent party to avoid the contract if it amounts to a fundamental breach with respect to that instalment. If the breach of one instalment gives good grounds to believe that default in later instalments will occur, then the future obligation may be anticipatorily avoided. If the instalments are interdependent, a fundamental breach of one will allow avoidance of the whole.


Judicial Remedies

The buyer may compel specific performance, avoid the contract for fundamental breach or non-delivery, reduce the price, refuse partial delivery, seek damages or refuse excess quantities. The availability of a specific performance order (to perform the contract) depends on the jurisdiction of the state concerned.

If the buyer is not entitled to damages when a seller delivers nonconforming goods, it will be entitled to a reduction in price. The price reduction applies when the buyer accepts nonconforming goods. This is determined by a formula that considers the relative prices of conforming and non-conforming goods at the time of delivery. The buyer may reduce the price in the proportion which the value of goods delivered at that time, bears to the value of conforming goods.

The seller’s rights are similar to the buyer. It is the right to recover damages, compel specific performance, avoid the contract or provide the missing specification (see below).


Damages

Damages for breach of contract is the sum equal to the loss, including loss of profit suffered by the other party as a consequence of the breach. It may not exceed the loss which the party foresaw or ought to have foreseen at the conclusion of the contract in the light of the facts and matters then known or which ought to have been known, as a possible consequence of the breach.

Where a person is entered into a good faith alternative transaction, such as by buying alternative goods, damages are measured by the difference in the contract price and the price under the substituted transaction. Alternatively, if there is no substituted price, damages are calculated as the difference between the current market price and the contract price.

The relevant current price is that prevailing at the place where delivery of the goods should have been made and if there is no such price, at such other place is a reasonable substitute. The party claiming damages must take reasonable steps to minimise or mitigate their loss. If not, the other party would be entitled to a proportionate reduction in its obligation to pay damages.


Force Majeure

A party is not liable for damages resulting from matters beyond its control if it can show that it

  • was not due to an impediment beyond control,
  • was not something that could reasonably be taken into account at the of time contracting and
  • remains unable to overcome the impediment or its consequence.

Force majeure applies only to circumstances such as war, embargo, strikes, bankruptcies of suppliers that frustrate all attempts to perform. A person relying on force majeure is obliged to notify the other party of the impediment, and its effect on the ability perform promptly.

If it is based on the failure of a third person to perform, the third person must be able to claim the excuse. The excuse is only available for as long as the underlying impediment continues.


Specific Performance

Specific performance is available under CIGS if it is available under the local law. It requires the buyer to accept delivery, pay the contract price and perform any other obligations. This is rarely   available in Anglo-American /common law countries.

A legal action to recover the full price is not specific performance but is an action in debt.

In civil law countries, it is possible to require the buyer to take delivery and pay the price. This rarely happens.


References and Sources

Consumer Law           Long    2004

Commercial Law White         2nd ed  2012

Commercial & Economic Law in Ireland      White  2011

Commercial Law Forde          3rd ed   2005

Irish Commercial Precedents (Looseleaf)                  2004

Modern law of personal property in England and Ireland Bell 1989

Commercial & Consumer Law: Annotated Statutes O’Reilly           2000

UK Texts

Schmitthoff: The Law and Practice of International Trade 13th ed Carole Murray, David Holloway, Daren Timson-Hunt, Schmitthoffs 2018

Damages Under the Convention of Contracts for the International Sale of Goods 3rd ed Bruno Zeller 2018

International Economic Law 4th ed Asif Qureshi, Andreas Ziegler 2018

Law of International Trade: Cross Border Commercial Transactions 6th ed Jason C.T. Chuah 2018

World Trade Law: Text, Materials and Commentary 3rd ed 2018

The International Sale of Goods 4th ed Michael Bridge 2017

International Trade Law 6th ed Indira Carr, Peter Stone 2017

International Institute for the Unification of Private Law 2nd ed (UNIDROIT) 2017

Understanding the CISG Understanding the CISG 5th (Worldwide) ed 2017

The Law and Policy of the World Trade Organization: Text, Cases and Materials  2017

International Trade Law and Regulation:: Michael Blakeney, Aline Doussin, John Clarke, Mark Clough, 2017

International Sale of Goods: A Private International Law Comparative Edited by: Nicolas Nord, Gustavo Cerqueira 2017

International Sales Law Edited by: Franco Ferrari, Clayton P. Gillette 2017

The CISG Advisory Council Opinions Edited by: Ingeborg Schwenzer 2017

World Competition: Law and Economics Review – Editor in Chief: Jose Rivas 2017

Making Money with Incoterms 2010:  Strategic Use of Incoterms Rules in Purchases and Sales Arthur O’Meara 2017

World Trade Organization: Law, Practice and Policy World Trade Organization: Law, Practice and Policy 3rd ed Mitsuo Matsushita, Thomas J. Schoenbaum, Petros C. Mavroidis, Michael Hahn 2017