The 1980 United Nations convention on contracts for the international sale of goods.

THE 1980 UNITED NATIONS CONVENTION ON CONTRACTS FOR THE INTERNATIONAL SALE OF GOODS

This paper will show that the UN Convention on Contracts for the International Sale of Goods offers solutions to the increasing legal problems which arise when doing business in an international context. Firstly an overview will be given when the Vienna Convention applies and furthermore what remedies a seller has when there is a breach of contract. The UN Convention on Contracts for the International Sale of Goods (CISG), also known as Vienna Convention, came into force on 1 January 1988 and is currently adopted by 62 countries. It is said to be one of the most successful Treaties in history. This Convention was promulgated by the UN Commission on International Trade Law (UNCITRAL) and is a successor of the 1955 Hague Convention. The Vienna Convention has a prior claim of application in relationship to the Rome Convention. But both Conventions state that they ‘do not prevail over international agreements’ (Art.90 CISG) or ‘shall not prejudice the application of international conventions’ (Art.21 Rome Convention). However, as will be explained below, if the states are members of the Vienna Convention this law will always apply and even if it is not stated in the contract the private international law of that country will lead to the application of the Vienna Convention.

If the Vienna Convention is ratified by a country it becomes part of the law of that country and applies automatically to contracts falling within its scope.

One precondition is that the purpose of the contract must be the purchase of a good. Excluded are certain type of goods and sales processes, which are especially the transfer of intangible assets, consumer purchases and sales contracts about property.

Basically the Vienna Convention is to be executed in two ways: directly autonomous if both parties have their branch in a contracting state or through the rules of p.i.l. (Private International Law) which lead to the application of the law of a contracting state.

The former way applies under the terms of Article 1 (1a) CISG when the contracting parties have for example their branch in Ukraine and Luxembourg.

The only precondition therefore is the internationality of the purchase transaction.

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The former way applies under the terms of Article 1 (1a) CISG when the contracting parties have for example their branch in Ukraine and Luxembourg.

The only precondition therefore is the internationality of the purchase transaction.

The latter will be executed when the rules of the private international law are leading to the application of the law of a contracting state. For clarification the case from the Appellate Court of Frankfurt (Germany) is useful. There was a breach of contract between a German company and a Swiss company. On the invoice of the Swiss company was stated, that “all transactions and sales are subject to Swiss law”. The Appellate Court of Frankfurt decided that the parties did not effectively exclude the application of the Vienna Convention through mentioning on the invoice. Since the Swiss has ratified the Vienna Convention this term is ambiguous and it would not be the Swiss law which comes into force but the Vienna Convention according to Art. 1 (1b) CISG. The parties however have the possibility not to apply the Vienna Convention if they exclude the application directly and clearly from the contract (Art. 6 CISG).

Through the Vienna Convention the parties which have their branch in non-contracting states are also liable to it. A buyer from a non-contracting state, for example, sues a German seller in Germany and Article 28 of the EGBGB (German Civil Code) is used, than according to Art. 1 (b) CISG the German Civil Code does not apply and the CISG has to be used although one contracting party has its branch in a non contracting state.

After having discussed the scope of application the question arises what solutions are given when goods are contrary to the contract. This is especially in international business transactions of great importance as the risks during the delivery are often much higher and more complex.

According to Art. 35 (1) CISG the exporter must deliver the goods which is in accordance with the contract, that means correct in quantity, quality and description (including the packaging). After the formal obligations of the good the question comes up when the risk passes from the seller to the buyer. Art. 36 (1) CISG states that the point of time when the seller acts contrary to contract is assessed when the risk passes. In international cross-border trade the INCOTERMS are often used, so that the time when the risk passes complies with the agreed INCOTERMS.

If the buyer receives goods contrary to contract, one precondition in order to keep the right of express warranty is to examine the goods within a short period (Art. 38 (1) CISG) and furthermore he must exactly indicate what is not in accordance with the contract so that the seller can get an idea of what is wrong. Otherwise he will lose his right of express warranty (Art. 39 CISG).

If the buyer claimed in time the following solutions are posed by the Vienna Convention:

The first possibility is the removal of defects through subsequent improvement (Art. 46 (3) CISG). This includes besides the repair or the substitution of missing parts also the delivery of spare parts. But subsequent improvement can not be demanded if it is practically impossible, which occurs if for example the repair is technically not possible, or if it is not reasonable. This is the case when the seller is not the actual manufacturer of the product but only an intermediary.

Instead of subsequent improvement the buyer has the right to demand compensation delivery according to Art. 46 (2) CISG. This means that the damaged goods will be send back to the seller and the seller sends the goods conform to the contract in substitution. But this right is only granted if the goods are basically unchanged (Art. 82 (1) CISG).

To protect the seller, compensation delivery is only granted if there is a substantial breach of contract which means that the result is of such detriment to the buyer from what he has expected (Art. 25 CISG). It is justified with the fact that in international trade there are often significant transport costs or problems by customs law included so that the buyer should not demand unreasonably expensive compensation delivery when only insignificant defects occurred. One example is that a wholesaler ordered first choice apples and gets instead apples slight seconds. He will normally be advised to sell these apples on and to charge the difference in the price to the seller’s account. Another possibility besides that is to claim a reduction of the purchasing price according to Art. 50 CISG. Additionally the buyer is entitled to claim for damages (Art 45 (2) CISG) independent of the claims mentioned above.

This paper gave an introduction to the different solutions the Vienna Convention provides when firstly it is not sure which law or Convention will apply and further on which solution it poses for the buyer when there is a breach of contract. Furthermore the Vienna Convention is through its wide application a good starting basis when doing business abroad. It creates trust when both parties agree to the same uniform clauses. Through the clear and transparent constitution the aim to create a globally valid and particularly globally applied convention on sales is a big step forward.