CISG: United Nations Convention on Contracts for the International Sale of Goods Hong, Seok Mo

2 Contents 1.What is CISG? 2.Contracting States 3.Structure of CISG 4.Sphere of Application 5.Formation of the Contract 6.Obligation of the Seller 7.Remedies for Breach of Contract 8.Passing of Risk 9.Common Obligation 10. Comparison with Domestic Law

3 What is CISG? 1. CISG = United Nations Convention on Contracts for the International Sale of Goods 2.Definition Set of rules governing certain aspects of the making and performance of commercial contracts, involving sale of goods, between sellers and buyers who have their places of business in different countries 3.History Prepared by UNCITRAL (UN Commission on Int’l Trade Law) in Vienna in 1980 Became effective on January 1, Purpose To make it easier and more economical to buy and sell goods in int’l commerce Without the CISG, there is greater room for uncertainty and disputes It provides a statutory authority from which contract provisions are interpreted, fills gaps in contract language, and governs issues not addressed by the contract.

4 Contracting States As of December 31 st, 2009, 76 States have adopted the CISG. Accounts for two-thirds of all goods moving in international trade. Korea has ratified it on February 17, 2004, and it entered into force on March 1st, Notable exceptions: UK, India, and Brazil have not ratified it yet. (Japan: entry into force) Argentina. Australia. Austria. Belarus. Belgium. Bosnia- Herzegovina. Bulgaria. Burundi. Canada. Chile. China. Colombia. Croatia. Cuba. Cyprus. Czech Rep. Denmark. Ecuador. Egypt. Estonia. Finland. France. Gabon. Georgia. Germany. Greece. Guinea. Honduras. Hungary. Iceland. Iraq. Israel. Italy. Japan, Korea. Kyrgystan. Latvia. Lesotho. Liberia. Lithuania. Luxembourg. Mauritania. Mexico. Moldova. Mongolia. Netherlands. New Zealand. Norway. Peru. Poland. Romania. Russia. Saint Vincent. Singapore. Slovakia. Slovenia. Spain. Sweden. Switzerland. Syria. Uganda. Ukraine, United States. Uruguay. Uzbekistan. Yugoslavia. Zambia

5 Structure of CISG PART I - Sphere of Application and General Provisions Chapter I - Sphere of Application Chapter II - General Provisions PART II - Formation of the Contract PART III - Sale of Goods Chapter I - General Provisions Chapter II - Obligations of the Seller Section I - Delivery of the goods and handing over of documents Section II - Conformity of the goods and third party claims Section III - Remedies for breach of contract by the seller Chapter III - Obligations of the Buyer Section I - Payment of the price Section II - Taking delivery Section III - Remedies for breach of contract by the buyer Chapter IV - Passing of Risk Chapter V - Provisions Common to the Obligations of the Seller and of the Buyer Section I - Anticipatory breach and instalment contracts Section II - Damages Section III - Interest Section IV - Exemptions Section V - Effects of avoidance Section VI - Preservation of the goods PART IV - Final Provisions

6 Sphere of Application 1.CISG applies to ”international sale of goods” between parties whose place of business are in different Contracting States. (or when private international law (Conflicts of law) lead to the application of the law of a Contracting State. Any state may declare reservation to this.) 2. It does not apply to -consumer sales (goods bought for personal use) -sales by auction -sales on execution or otherwise by authority of law -sales of stocks, shares, investment securities, negotiable instruments or money -sales of ships, vessels, hovercraft or aircraft -sales of electricity 3. Neither does it apply to: - contracts to provide services alone; - manufacturing contracts, where the party ordering the goods supplies a substantial part of the material; - contracts, where labor or other services is the preponderant part of the obligations. 4. Parties to the contract are free to adopt or exclude CISG by choice of law clause. CISG can be applied to the sale of ships if agreed between the parties. (e.g., “This contract will be governed by the law of Korea, excluding the CISG.”)

7 Formation of the Contract O F E R O R O F E R E ① OFFER ② ACCEPTANCE - Acceptance is a statement indicating assent to an offer without any condition. If acceptance contains any modification, addition, or restriction then it is a rejection or counter-offer rather than an acceptance. Acceptance becomes effective when it reaches the offeror. ③ CONCLUSION - A contract is concluded when acceptance of an offer becomes effective - Offer is a proposal (1) addressed to one or more specific person; (2) sufficiently definite in terms of goods, quantity, price; and (3) Intended to be bound by an acceptance. And the offer is effective when it reaches the offeree. This chart is a very simplified explanation on the formation of the contract. Generally, a contract is concluded when an offer is accepted. Then, what is offer, and what is acceptance? There are some differences between CISG and Korean civil law in terms of formation of the contract, and the differences will be examined in the later part of this material.

8 Obligations of the Seller 1.Delivery Seller’s obligation to deliver consists: In handing the goods over to the first carrier for transmission to the buyer, if the contract involves carriage of the goods In placing the goods at the buyer’s disposal at the place where the goods were manufactured, if the parties knew that the goods were to be manufactured In placing the goods at the buyer’s disposal at the place where the seller has his place of business in all other cases. 2.Conformity of the Goods The seller must deliver goods that are of the quantity, quality and description required by the contract and that are contained or packaged in the manner required by the contract. One set of rules of particular importance involves the seller's obligation to deliver goods that are free from any right or claim of a third party, including rights based on industrial property or other intellectual property. The buyer must give notice of any lack of conformity with the contract within a reasonable time after he has discovered it, and at the latest two years, unless this time limit is inconsistent with a contractual period of guarantee.

9 Remedies for Breach of Contract 1.General The aggrieved party is entitled to ① require performance of the other party's obligations, ② claim damages or ③ avoid the contract. 2.Fundamental Breach A buyer can require the delivery of substitute goods only if the goods delivered were not in conformity with the contract and the lack of conformity constituted a fundamental breach of contract. For a breach to be fundamental, it must result in such detriment to the other party as substantially to deprive him of what he is entitled to expect under the contract. 4.Avoidance of a contract ① Non-delivery of the goods by the seller, ② non-payment of the price, ③ failure to take delivery by the buyer, or ④ failure to perform within a reasonable period of time fixed by the aggrieved party, and ⑤ existence of other fundamental breach can be a ground of avoidance of a contract. 3.Restriction on Damage A party cannot recover damages that he could have mitigated by taking the proper measures. A party may be exempted from paying damages by virtue of an impediment beyond his control.

10 Passing of Risk 1.When the contract of sale involves carriage of the goods The risk passes to the buyer when the goods are handed over to the first carriers for transmission to the buyer. 2.When the goods are sold while in transit The risk passes to the buyer from the time of the conclusion of the contract. 3.All other cases The risk passes to the buyer when he takes over the goods or from the time when the goods are placed at his disposal and he commits a breach of contract by failing to take delivery, whichever comes first.

11 Common Obligation 2. Exemption from liability When a party fails to perform any of his obligations due to an impediment beyond his control (1) that he could not reasonably have been expected to take into account at the time of the conclusion of the contract and (2) that he could not have avoided or overcome, he is exempted from paying damages. 1.Anticipatory Breach A party may suspend the performance of his obligations if it becomes apparent that the other party will not perform a substantial part of his obligations. A party may declare the contract avoided if it is clear that the other party will commit a fundamental breach of contract. 3. Preservation of the goods The Convention imposes on both parties the duty to preserve any goods in their possession belonging to the other party. Under certain circumstances the party in possession of the goods may sell them, or may even be required to sell them if the goods are subject to rapid deterioration.

12 Comparison with domestic law ItemsCISGDomestic Civil & Commercial Law Revocation of offer Can be revoked. (15.2)Can not be revoked (527) When acceptance is effective When it reaches the other party(1) When it reaches the other party.(111) (2) When it is sent by mail or telegram (531) (between two parties in distant places) Delivery time if date is not fixed Within a reasonable time after the conclusion of the contract (33.c) Upon receipt of buyer’s request (387) Delivery place if specific place is not fixed First carrier for transmission (31.a)Placing the goods at buyer’s disposal where the transaction occurred Inspection and notice by buyer - Within as short a period as is practicable (38.1) - at the latest within a period of 2 years (39.2) Immediate inspection and notice (for hidden defects, within 6 months after delivery) (Com. 69.1) Seller’s right to cure for nonconforming goods If he can do so without unreasonable delay and without causing unreasonable inconvenience by the seller. (37 & 47.2 & 48.1) N/A Interest Real interest rate (74 & 78)Predetermined or legally determined rate (397) Remedies for buyer - to reduce the price (50), - to claim damages (45), - to avoid the contract (49), - to require performance by the seller (46.1), - to fix additional period of time for performance (47), - to require substitute goods (46.2), - to require repair(46.3) - to reduce the price (572) - to claim damages (581) - to avoid the contract (574)

13 Thank you. Q & A