2. The Application of CISG produced by Liu Wanxiao 刘万啸 山东政法学院

3. The Application of CISG  CISG -Introduction The United Nations Convention on Contracts for the International Sale of Goods (the “CISG”) provides a uniform text of law for international sales of goods. The Convention was prepared by the United Nations Commission on International Trade Law (UNCITRAL) and adopted by a diplomatic conference on 11 April 1980.

4. CISG -Introduction  Preparation of a uniform law for the international sale of goods began in 1930 at the International Institute for the Unification of Private Law (UNIDROIT) in Rome. After along interruption in the work as a result of the Second World War, the draft was submitted to a diplomatic conference in The Hague in 1964, which adopted two conventions, one on the international sale of goods and the other on the formation of contracts for the international sale of goods.

5. CISG -Introduction  Almost immediately upon the adoption of the two conventions there was wide-spread criticism of their provisions as reflecting primarily the legal traditions and economic realities of continental Western Europe, which was the region that had most actively contributed to their preparation. As a result, one of the first tasks undertaken by UNCITRAL on its organization in 1968 was to enquire of States whether or not they intended to adhere to those conventions and the reasons for their positions. In the light of the responses received, UNCITRAL decided to study the two conventions to ascertain which modifications might render them capable of wider acceptance by countries of different legal, social and economic systems.

6. CISG -Introduction  The result of this study was the adoption by diplomatic conference on 11 April 1980 of the United Nations Convention on Contracts for the International Sale of Goods, which combines the subject matter of the two prior conventions. The number of Contracting States has now risen to 67 (as of October 25, 2006 according to ).

7. CISG -Introduction  The CISG is divided into four parts: – Part I deals with the scope of application of the Convention and the general provisions – Part II contains the rules governing the formation of contracts for the international sale of goods – Part III contains the substantive rules for the sales contract (obligations and rights of the parties) – Part IV contains the final clauses of the Convention concerning such matters as how and when it comes into force, the reservations and declarations that are permitted and the application of the Convention to international sales where both States concerned have the same or similar law on the subject.

8. CISG -Introduction  The rules in the Convention contain solutions from many legal systems à a symbiosis of common law and continental law; not always precisely defined “hard and fast” rules.  In the following some of the rules are commented on more specifically.

9. CISG -Introduction  Part I. Sphere of application and general provisions (Articles 1-13) Chapter I concerns the scope of application of the CISG and contains two groups of provisions: – Articles 1, 2, 3 and 6 lay down which contracts fall within the scope of the CISG.

10. CISG -Introduction  – Articles 4 and 5 determine the extent to which they are governed by the Convention, i.e. which parts of sales law and general contract law are to be governed by the CISG. The sphere of application is defined by geographical criteria (Article 1 in conjunction with Article 10) and substantive criteria (Article 1(1), Articles 3-5). Its temporal scope is laid down by Article 100.

11. Sphere of application  Article 1 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.

12. Sphere of application  (2) The fact that the parties have their places of business in different States is to be disregarded whenever this fact does not appear either from the contract or from any dealings between, or from information disclosed by, the parties at any time before or at the conclusion of the contract.

13. Sphere of application  (3) Neither the nationality of the parties nor the civil or commercial character of the parties or of the contract is to be taken into consideration in determining the application of this Convention.

14. Sphere of application  “Contract of sale” – No express definition in the CISG – Can be established indirectly from the provisions setting out the obligations of the seller (Article 30) and of the buyer (Article 53): A contract in which one party is obliged to deliver the goods, possibly to hand over any documents relating to them, and to transfer the property in the goods, and the other party is obliged to pay the price for the goods and to co-operate in the manner required by the contract.

15. Sphere of application  “Goods” – Should be understood as widely as possible so as to cover all objects which form the subject matter of commercial sales contracts – Computer programs (software) fall under the CISG – “know-how” that is not incorporated in a physical medium does not

16. Sphere of application  – A transaction which obliges the seller to ship the goods sold, even though the subject matter of the contract is a document of title (bill of lading, warehouse receipt)falls under the CISG à the goods themselves a repurchased, not the document – Must be movable to fall under the CISG; sufficient to become movable as a result of the sale (growing crops)or that, although intended by the buyer to be attached to real estate, they are nevertheless moveable at the date of delivery.

17. Sphere of application  “Place of business” – In different states (applies to international sales of goods) – Article 10 is helpful: For the purposes of this Convention: (a) if a party has more than one place of business, the place of business is that which has the closest relationship to the contract and its performance, having regard to the circumstances known to or contemplated by the parties at anytime before or at the conclusion of the contract;

18. Sphere of application  (b) if a party does not have a place of business, reference is to be made to his habitual residence. “Different Contracting States” – A Contracting State is any state which has ratified the CISG or acceded to it.

19. Sphere of application  Conflicts rules referring to the law of a Contracting State – Rules of private international law lead to the application of the CISG à if the relevant rules of private international law refer to the law of a Contracting State, then the CISG applies also to contracts of sale in which neither, or only one, of the parties has his place of business in a Contracting State. – The places of business must be in different states, but not necessarily in Contracting States.

20. Sphere of application  Article 2 This Convention does not apply to sales: (a) 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;

21. Sphere of application  (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.

22. Sphere of application  “Personal use” – Although the CISG does not apply solely to sales of commercial character (Article 1(3)), the exclusion of goods bought for personal use limits its sphere of application de facto to commercial purchases. Use by members of the family in the household is equivalent to personal use. – The intended use must be discernible, if it is not obvious to the seller that the goods are intended for personal use.

23. Sphere of application  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.

24. Sphere of application  “Contracts of work and materials” – A contract for work and materials is basically treated as a contract of sale. It is otherwise only if the party ordering the goods has to supply “a substantial part” of the necessary raw materials or semi-finished goods àto be determined in each particular case. “Contracts for supply and installation” – In most cases it will be necessary for the share of services to be clearly in excess of 50 % in order to constitute the preponderant part.

25. Sphere of application  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: (a) the validity of the contract or of any of its provisions or of any usage; (b) the effect which the contract may have on the property in the goods sold.

26. Sphere of application  “in particular” – The list of matters connected with the international sale of goods but not governed by the Convention is not exhaustive: The Convention does not cover any matters other than substantive sales law and the formation of contract à questions concerning e.g. public law and procedural law are also excluded.

27. Sphere of application  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.

28. Sphere of application  “by the goods” – contains a restriction: if the seller causes personal injury to the buyer when delivering the goods by lorry, such a breach of duty of care does not fall within the scope of Article 5 àsuch liability for breach of ancillary duty is subject to the CISG. – Claims for property damage caused by the goods are not affected by Article 5.

29. Party Autonomy  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. (“Party autonomy”)

30. Party Autonomy  – Article 12: Any provision of article 11, article 29 or Part II of this Convention that allows a contract of sale or its modification or termination by agreement or any offer, acceptance or other indication of intention to be made in any form other than in writing does not apply where any party has his place of business in a Contracting State which has made a declaration under article 96 of this Convention. The parties may not derogate from or vary the effect of this article.

31. Party Autonomy  Exclusion with or without agreement as to the law applicable – The existence of an agreement, i.e. two co- extensive declarations of intent, is a prerequisite for the effective exclusion of the CISG. – Agreement does not have to be reached by individual negotiation, but may be made by means of general business terms, provided that they have been validly agreed.

32. Party Autonomy  – The parties may exclude the Convention wholly or in part. It is not necessary that they simultaneously agree which rules or law are to replace the rules excluded. If the CISG has been wholly excluded, the applicable law must be determined according to general conflict rules. If those rules lead to the application of the law of a Contracting State, the non-uniform, domestic sales law of that state governs the contract.

33. Party Autonomy  “10. Applicable Law. This Contract shall be governed by and construed in accordance with the laws of the Republic of Finland, excluding the United Nations Convention for the International Sale of Goods (CISG).”

34. Party Autonomy  Implicit exclusion – A hypothetical intention by the parties to exclude the application of the CISG is insufficient à must indicate their actual intention, even though this is not done expressly.

35. Party Autonomy  – A typical case of implicit exclusion is where the parties declare that a different sales law is to govern the contract; that might be either the law of a noncontracting state or the law of a Contracting Stated but without the CISG rules: “This Contract is subject to the Finnish Sale of Goods Act.”

36. Party Autonomy  – The choice by the parties of the law of a Contracting State without an express indication that they wish to have the non- uniform sales law of that state applied (e.g. “the contract is subject to Finnish law”) cannot, as a rule, be assumed to be an – implicit – exclusion of the CISG à the CISG is part of the legal system of each Contracting State.

37. Party Autonomy  – Agreement on a specific provision of domestic law may – at least if it is a provision of central importance – indicate an intention to exclude the CISG as a whole. This also applies if reference is made to particular domestic statutes or codifications.

38. Party Autonomy  – Agreement on INCOTERMS cannot point to the exclusion of the CISG, because they only govern individual aspects of the contract of sale and therefore do not presuppose the basic application of any particular system of law.

39. Party Autonomy  – The incorporation of standard business terms into the contract may give rise to problems if they are clearly drawn up on the basis of a particular domestic legal system. In case of doubt, exclusion must be assumed, even if there is no express reference to the fact that that legal system is to constitute a subsidiary source of rules. That may also apply with regard to an arbitration clause whose terms are clearly based on domestic law.

40. Party Autonomy  – An agreement allocating jurisdiction to a particular court or arbitration tribunal may indicate an intention to derogate from the CISG, where it can be deduced there from that the law applicable at the forum is to apply, and that law is not the law of a Contracting State.

41. Party Autonomy  – On the other hand, if it is concluded therefrom that the parties have chosen the law of a Contracting State, the position is basically the same as if that law had been expressly chosenà the CISG applies.

42. Party Autonomy  – If derogation is made from part of the CISG, how should the gap be filled if it has not been filled by specific rules agreed by the parties? Incase of doubt, it should be assumed that the parties do not wish to have recourse to domestic law, but wish to fill gaps in accordance with Article 7 (2).

43. Party Autonomy  – (1) 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.

44. Party Autonomy  – (2) 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.