Background
This convention (the CISG), sponsored by the United Nations Commission on International Trade Law (UNCITRAL), came into force in 1988 and has now been adopted by over 50 States. It was designed to replace two unsuccessful conventions on sale and the formation of contracts of sale concluded at the Hague in 1964 and brought into force in the United Kingdom by the Uniform Laws on International Sale Act 1967. The UK has yet to adopt the CISG but the Department of Trade and Industry has in a recent consultation document given a clear steer in the direction of adoption. Most of the UK's major trading partners have adopted the CISG; Japan looks likely also to become a Contracting State in the near future. UK merchants may already find themselves subject to the provisions of the CISG.
They may have entered into contracts whose applicable law is that of a country such as Germany that has adopted the CISG, or they may have entered into arbitration agreements empowering arbitrators to resolve disputes according to a general formula that permits arbitrators to invoke the provisions of the CISG.
When is a sale international?
The CISG applies only to international sales defined in either of the following ways (Article 1(1)): first, where buyer and seller reside in different Contracting States; and secondly, where the parties are resident in different States (neither of which need be a Contracting State) and the forum's conflict rules lead to the law of a Contracting State. A party with more than one place of business in different States is deemed resident in the State most closely related to the contract (Article 10). The CISG's definition of an international sale is not the same as the definition of an international supply contract in the Unfair Contract Terms Act 1977. In particular, there is no need for the goods to be delivered across national frontiers or for the contractual offer and acceptance to be made in different States.
Which contracts of sale are included?
The CISG has a narrower coverage than the Sale of Goods Act 1979. It does not apply to all contracts of sale of goods but is limited to commercial, in the sense of non-consumer, sales (Article 2(a)). Furthermore, it does not apply to sales of ships, aircraft or electricity (but it does apply to gas), or to auction sales or sales concluded by authority of law (Article 2(b)-(c), (e)-(f)). The CISG does not define "goods" or even "sale". So there is no easy answer to the question whether it applies to distributorship agreements or to output and requirements contracts. It certainly applies to individual purchases under such contracts. The CISG can apply to contracts where the seller manufactures goods to the buyer's special order (unless the buyer provides a substantial part of the materials) and can also apply to work and materials contracts (unless the preponderant obligation of the supplier is to provide labour or services) (Article 3).
Excluded issues
The CISG does not deal with all of the issues that would be dealt with under or pursuant to the Sale of Goods Act. First it excludes "validity" (Article 4(a)). Validity probably includes mistake and misrepresentation.
Frustration is however included under the odd title of "Exemptions" (Article 79). Secondly, it excludes the passing of property (Article 4(b)) though it does apply to the transfer of risk (Articles 36, 66-70). In addition to these exclusions, the CISG will not apply to claims for personal injury or death (Article 5). This accords with the confinement of the CISG to commercial sales. It is an unresolved question whether, for example, a German retailer, incurring liability to German consumers under German law in respect of their personal injuries, could claim over in accordance with the CISG against a French wholeseller for an indemnity. The better view is that it should be able to since its losses appear on its balance sheet.
Contract formation
In one major respect, the coverage of the CISG exceeds that of the Sale of Goods Act. Apart from auction sales, the Act does not deal with contract formation but Part II of the CISG deals with the subject extensively.
Contracting States are free not to adopt Part II (Article 92 - a freedom that has been exercised by Scandinavian countries). The rules are significantly out of step with general rules of contract formation in English law. There is no room for the doctrine of consideration. Hence an offer may be irrevocable even when made to a gratuitous offeree (Article 16(2)). If the UK does not exclude Part II, there will emerge a need to reconcile common law contract rules with those in the CISG.
Excluding the CISG. The CISG allows the parties to derogate from or vary the effect of individual Articles or the whole (Article 6). They can if they wish opt out entirely, though different national courts may not apply the same standards when it comes to proving such an intention. For example, not all courts may be satisfied with an implied exclusion. It has for some years now been commonplace to see, in the standard forms published by London-based trading associations, such as the Grain and Feed Trade Association (GAFTA), blanket and express exclusions of international conventions including the CISG.
This practice looks set to continue if and when the UK becomes a Contracting State.
Quality and fitness. The seller is bound to supply goods that are fit for ordinary purposes and that accord with statements in the contract concerning quality and description (Article 35). This is very similar to the Sale of Goods Act, except that the CISG clearly deals with express warranties and will have a less technical approach to description than the Act. The CISG departs from the Sale of Goods Act in permitting a seller to cure a defective delivery if this can be accomplished without unreasonable inconvenience to the buyer and unreasonable delay (Articles 37, 48).
Termination for breach. Strict contractual conditions do not exist in the CISG. In the event of a breach, the right of termination (it is called avoidance in the CISG) arises when the breach is a fundamental one (Article 25). A breach is fundamental if it deprives the injured party of substantially all he justifiably expected under the contract, unless the party in breach did not foresee and could not reasonably have foreseen this effect. This is not unlike the common law test of a breach that goes to the root of the contract.
In addition, contracts can be terminated for delay when either buyer or seller has by notice made time of the essence and the other party has failed to perform within a further reasonable period fixed by that notice (Articles 47, 63).
Other remedies
There is a concession to those countries, like the United Kingdom, which rarely award specific performance. They can continue to express a preference for damages (Article 28). The award of damages (in Article 74) is in broad accordance with the rule in Hadley v Baxendale (1854) 9 Exch 341. Consequential damages are therefore permitted. It is unclear whether the rules concerning rejection of the goods by the buyer are the same as those in the Sale of Goods Act (Articles 82, 84(1)) but they are probably more generous to the buyer. The CISG also gives the buyer of non-conforming goods a price reduction action, inspired by the civil law and operating in ways that might surprise common lawyers (Article 50). The CISG allows pre-judgment interest but gives no guidance on the rate (Article 78).
Interpretation
Since the CISG is uniform law, designed to be applied in the same way in all Contracting States, there is a paramount need for national courts to adopt the same approaches to interpretation and to interpret its provisions in the same way. Courts are expected to recognise the international character of the CISG (Article 7(1)), which means that they should put aside domestic prejudices and be open to the citation of judgments from other jurisdictions. There is no Protocol empowering an international court to give authoritative interpretations but UNCITRAL has established a service - the CLOUT (Case Law on Uncitral Texts) - that gives summaries in English of cases from across the world. There are also a number of very useful web sites (especially, and ) that provide invaluable assistance.
Gaps in the coverage of the CISG cannot be dealt with by reference to outside sources, in the way that common lawyers turn to the general law of contract when the Sale of Goods Act fails to provide the answers. Instead, courts and arbitrators are expected to find answers to questions primarily by means of an internal search for general principles within the text of the CISG (Article 7(2)). There is no general principle of good faith in the performance of contracts but it is expected of courts and arbitrators that they follow the standard of good faith when interpreting the CISG itself (Article 7(2)). As a last resort, courts may turn to the applicable law to fill gaps in the CISG (Article 7(2)).
Conclusion
The CISG is here to stay and will feature prominently in international sales. Common lawyers must come to terms with it as a matter of urgency.
Michael Bridge, Director of Research, Norton Rose
This convention (the CISG), sponsored by the United Nations Commission on International Trade Law (UNCITRAL), came into force in 1988 and has now been adopted by over 50 States. It was designed to replace two unsuccessful conventions on sale and the formation of contracts of sale concluded at the Hague in 1964 and brought into force in the United Kingdom by the Uniform Laws on International Sale Act 1967. The UK has yet to adopt the CISG but the Department of Trade and Industry has in a recent consultation document given a clear steer in the direction of adoption. Most of the UK's major trading partners have adopted the CISG; Japan looks likely also to become a Contracting State in the near future. UK merchants may already find themselves subject to the provisions of the CISG.
They may have entered into contracts whose applicable law is that of a country such as Germany that has adopted the CISG, or they may have entered into arbitration agreements empowering arbitrators to resolve disputes according to a general formula that permits arbitrators to invoke the provisions of the CISG.
When is a sale international?
The CISG applies only to international sales defined in either of the following ways (Article 1(1)): first, where buyer and seller reside in different Contracting States; and secondly, where the parties are resident in different States (neither of which need be a Contracting State) and the forum's conflict rules lead to the law of a Contracting State. A party with more than one place of business in different States is deemed resident in the State most closely related to the contract (Article 10). The CISG's definition of an international sale is not the same as the definition of an international supply contract in the Unfair Contract Terms Act 1977. In particular, there is no need for the goods to be delivered across national frontiers or for the contractual offer and acceptance to be made in different States.
Which contracts of sale are included?
The CISG has a narrower coverage than the Sale of Goods Act 1979. It does not apply to all contracts of sale of goods but is limited to commercial, in the sense of non-consumer, sales (Article 2(a)). Furthermore, it does not apply to sales of ships, aircraft or electricity (but it does apply to gas), or to auction sales or sales concluded by authority of law (Article 2(b)-(c), (e)-(f)). The CISG does not define "goods" or even "sale". So there is no easy answer to the question whether it applies to distributorship agreements or to output and requirements contracts. It certainly applies to individual purchases under such contracts. The CISG can apply to contracts where the seller manufactures goods to the buyer's special order (unless the buyer provides a substantial part of the materials) and can also apply to work and materials contracts (unless the preponderant obligation of the supplier is to provide labour or services) (Article 3).
Excluded issues
The CISG does not deal with all of the issues that would be dealt with under or pursuant to the Sale of Goods Act. First it excludes "validity" (Article 4(a)). Validity probably includes mistake and misrepresentation.
Frustration is however included under the odd title of "Exemptions" (Article 79). Secondly, it excludes the passing of property (Article 4(b)) though it does apply to the transfer of risk (Articles 36, 66-70). In addition to these exclusions, the CISG will not apply to claims for personal injury or death (Article 5). This accords with the confinement of the CISG to commercial sales. It is an unresolved question whether, for example, a German retailer, incurring liability to German consumers under German law in respect of their personal injuries, could claim over in accordance with the CISG against a French wholeseller for an indemnity. The better view is that it should be able to since its losses appear on its balance sheet.
Contract formation
In one major respect, the coverage of the CISG exceeds that of the Sale of Goods Act. Apart from auction sales, the Act does not deal with contract formation but Part II of the CISG deals with the subject extensively.
Contracting States are free not to adopt Part II (Article 92 - a freedom that has been exercised by Scandinavian countries). The rules are significantly out of step with general rules of contract formation in English law. There is no room for the doctrine of consideration. Hence an offer may be irrevocable even when made to a gratuitous offeree (Article 16(2)). If the UK does not exclude Part II, there will emerge a need to reconcile common law contract rules with those in the CISG.
Excluding the CISG. The CISG allows the parties to derogate from or vary the effect of individual Articles or the whole (Article 6). They can if they wish opt out entirely, though different national courts may not apply the same standards when it comes to proving such an intention. For example, not all courts may be satisfied with an implied exclusion. It has for some years now been commonplace to see, in the standard forms published by London-based trading associations, such as the Grain and Feed Trade Association (GAFTA), blanket and express exclusions of international conventions including the CISG.
This practice looks set to continue if and when the UK becomes a Contracting State.
Quality and fitness. The seller is bound to supply goods that are fit for ordinary purposes and that accord with statements in the contract concerning quality and description (Article 35). This is very similar to the Sale of Goods Act, except that the CISG clearly deals with express warranties and will have a less technical approach to description than the Act. The CISG departs from the Sale of Goods Act in permitting a seller to cure a defective delivery if this can be accomplished without unreasonable inconvenience to the buyer and unreasonable delay (Articles 37, 48).
Termination for breach. Strict contractual conditions do not exist in the CISG. In the event of a breach, the right of termination (it is called avoidance in the CISG) arises when the breach is a fundamental one (Article 25). A breach is fundamental if it deprives the injured party of substantially all he justifiably expected under the contract, unless the party in breach did not foresee and could not reasonably have foreseen this effect. This is not unlike the common law test of a breach that goes to the root of the contract.
In addition, contracts can be terminated for delay when either buyer or seller has by notice made time of the essence and the other party has failed to perform within a further reasonable period fixed by that notice (Articles 47, 63).
Other remedies
There is a concession to those countries, like the United Kingdom, which rarely award specific performance. They can continue to express a preference for damages (Article 28). The award of damages (in Article 74) is in broad accordance with the rule in Hadley v Baxendale (1854) 9 Exch 341. Consequential damages are therefore permitted. It is unclear whether the rules concerning rejection of the goods by the buyer are the same as those in the Sale of Goods Act (Articles 82, 84(1)) but they are probably more generous to the buyer. The CISG also gives the buyer of non-conforming goods a price reduction action, inspired by the civil law and operating in ways that might surprise common lawyers (Article 50). The CISG allows pre-judgment interest but gives no guidance on the rate (Article 78).
Interpretation
Since the CISG is uniform law, designed to be applied in the same way in all Contracting States, there is a paramount need for national courts to adopt the same approaches to interpretation and to interpret its provisions in the same way. Courts are expected to recognise the international character of the CISG (Article 7(1)), which means that they should put aside domestic prejudices and be open to the citation of judgments from other jurisdictions. There is no Protocol empowering an international court to give authoritative interpretations but UNCITRAL has established a service - the CLOUT (Case Law on Uncitral Texts) - that gives summaries in English of cases from across the world. There are also a number of very useful web sites (especially,
Gaps in the coverage of the CISG cannot be dealt with by reference to outside sources, in the way that common lawyers turn to the general law of contract when the Sale of Goods Act fails to provide the answers. Instead, courts and arbitrators are expected to find answers to questions primarily by means of an internal search for general principles within the text of the CISG (Article 7(2)). There is no general principle of good faith in the performance of contracts but it is expected of courts and arbitrators that they follow the standard of good faith when interpreting the CISG itself (Article 7(2)). As a last resort, courts may turn to the applicable law to fill gaps in the CISG (Article 7(2)).
Conclusion
The CISG is here to stay and will feature prominently in international sales. Common lawyers must come to terms with it as a matter of urgency.
Michael Bridge, Director of Research, Norton Rose
This note is intended to provide general information about some recent and anticipated developments which may be of interest. It is not intended to be comprehensive nor to provide any specific legal advice and should not be acted or relied upon as doing so. Professional advice appropriate to the specific situation should always be obtained.
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