International Commercial Transactions · International Commercial Transactions ... 5 Under the 2000...

International Commercial Transactions

John W. Head

Wagstaff Distinguished Professor of Law

May 22-23, 2019 University of Kansas School of Law

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J. W. Head – CLE May 2019 International Commercial Transactions

International Commercial Transactions

Presenter J. W. Head (KU Wagstaff Distinguished Professor of Law) Timing 3:00 – 3:50 pm Wed 22 May 2019 Synopsis

(1) Lawyers advising clients engaging in cross-border sales should know that the current version of Incoterms (international commercial terms, from the International Chamber of Commerce) differs from earlier versions in its allocation of cost, risk, and function between sellers and buyers – and that yet another version of Incoterms is to be released soon. (2) Such lawyers also should know that the Vienna Sales Convention, which automatically governs many cross-border commercial sales unless the contract specifically opts out of it, now applies to nearly all countries in the world, including the USA. This CLE presentation will summarize these developments and why they matter.

Aims & Coverage Standard terms for international commercial contracts – INCOTERMS

Aim: to survey the current version of the INCOTERMS (international commercial terms) used in most transborder commercial sales

Coverage: EXW, FOB, CIF, FCA, and DDP – all as defined by the International Chamber of Commerce in the most recent version of its INCOTERMS, which provide extensive details allocating cost, risk, and function between buyers and sellers in cross-border commercial transactions.

The international commercial code – when does the Vienna Sales Convention apply to your client’s commercial contract? Aim: to survey the growing applicability (sometimes automatic applicability for the

unwary lawyer) of the Vienna Sales Convention due to its now-widespread adoption by nearly 90 countries.

Coverage: the “application” provisions of the Vienna Sales Convention, esp. Articles 1-6, 10, and 95 / updated information on Contracting Parties list

Outline I. INCOTERMS ... update & summary A. Background to Incoterms: Purpose, History, and Status B. Details of the Eleven Incoterms (2010) C. Summing up on Incoterms II. Vienna Sales Convention (CISG) ... applicability

A. Background B. Character and Aims of the CISG C. Applicability of the CISG D. CISG & UCC – Differences and Similarities E. Summing Up on the CISG

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I. Incoterms – Update and Summary Incoterms is1 a set of standard definitions that allocate the risks, costs, and functions of a seller and a buyer in an international sale of goods. Such definitions have existed, of course, for many decades, and they are generically referred to as "trade terms" or "commercial terms". What is special about Incoterms is the attempt it represents — a widely successful attempt — to harmonize the countless variations among such trade terms as they have evolved differently in different countries and settings. In order to appreciate the need for such harmonization, and thus the importance of Incoterms, let us consider the alternative: un-harmonized trade terms. A. Background to Incoterms: Purpose, History, and Status 1. The purpose of trade terms The overall purpose of trade terms generally is to provide shorthand expressions for much more complicated and detailed arrangements between a buyer and a seller in an international transaction. Such shorthand expressions — for example, "FOB" or "CIF" — deal with the following issues, among others:2

• transfer of risk that the goods will be lost or damaged during transport; • arrangements for carriage of the goods and insurance of them during transport; • responsibilities for obtaining export and import licenses and paying of duties; • details regarding the packing and marking of the goods; • the nature and type of documents to be generated and used in the transaction; • responsibility for checking operations and certifying the quality of the goods; and • requirements regarding notification that various arrangements have been made.

A wide variety of trade terms has developed to address these various issues, and often the same trade term — "FOB", for example — is used differently in different countries and different settings. Naturally, this opens the door to confusion in transborder sales. 2. The ICC and the status of Incoterms (and the CISG) It was largely to overcome this confusion that efforts began relatively early in the twentieth century to develop a single, harmonized set of trade terms that would be both clear and comprehensive in their coverage around the globe. One expert on trade terms summarizes those efforts thus:

The International Chamber of Commerce (ICC), in the early 1920's, embarked on the task of unification by exploring the meaning of the most important trade terms and presented the first version of a set of rules for the interpretation of such trade terms as Incoterms 1936.

1 The references here to Incoterms are intended to mean the entire set of Incoterms, not any one specific term within that entire set — hence my use of "is" instead of "are" in this sentence. 2 This list is drawn in part from various writings by Jan Ramberg regarding Incoterms. Among these are Jan Ramberg, ICC GUIDE TO INCOTERMS 2010 (2011) and Jan Ramberg, INTERNATIONAL COMMERCIAL TRANSACTIONS 95-119 (4th ed. 2011). I rely also on Ramberg’s work in other parts of this document.

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The first version was later followed by Incoterms 1953 and Incoterms 1980. By referring to Incoterms, merchants could ascertain that the chosen trade term would be interpreted as set forth in Incoterms and any unpleasant surprises caused by different interpretations under various applicable laws could be avoided.3

An obvious question arises at this point: Who or what is the International Chamber of Commerce ("ICC"), and what sort of "standing" or mandate would it have to develop and issue a set of standardized trade terms? The ICC is a non-governmental entity, headquartered in Paris, established in 1919 with a goal of promoting free competition and self-regulation by business.4 Due to this unofficial status of the ICC, Incoterms is neither national legislation nor part of an international treaty. Instead, Incoterms is significant only if, and to the extent that, it is incorporated by reference into international sales contracts or is otherwise regarded as part of the contemporary "law merchant" (lex mercatoria). 3. Getting to the 2010 version of Incoterms From its beginning in 1936, Incoterms has evolved to keep up with practical developments. It has done this effectively enough — through revisions issued in 1953, 1980, 1990, 2000, and 2010 — as to have largely succeeded in winning out over challenging sets of standardized commercial terms. Very significant revisions to Incoterms 1980 were made in order to create the 1990 version. The changes made in creating the 2000 version of Incoterms were much more modest in scope, although of course the changes that were made might be especially important in the context of a specific transaction. Big changes came, however, in 2010. Instead of the thirteen separate definitions that appeared in the 1990 and 2000 versions, the 2010 version of Incoterms has only eleven. According to the ICC itself, the most recent changes were made in response to various developments in international trade, including the use of free trade zones, the ubiquity of electronic communications, and national security concerns. Changes in transport practices have also played a role in the most recent version. B. Details of the Eleven Incoterms (2010) 1. Groups, terms, and frameworks Incoterms is highly structured. In order to make it easy to use, Incoterms provides a total of eleven separate definitions allocating the risks, costs, and functions between the seller and the buyer

3 This passage is drawn from a 1982 publication by Jan Ramberg. 4 Thousands of companies and associations make up the membership of the ICC; members come from over 130 countries. The ICC interacts regularly with officials of various international organizations. More information on the ICC is available at its website, http://www.iccwbo.org. (The "wbo" portion of the website address stands for "world business organization".)

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in an international sales transaction. For each of those eleven trade terms, the obligations of the parties are set forth according to the following framework: Seller obligations:

A1. General obligations of the seller A2. Licenses, authorizations, security clearances and other formalities A3. Contracts of carriage and insurance A4. Delivery A5. Transfer of risks A6. Allocation of costs A7. Notices to the buyer A8. Delivery document A9. Checking — packaging — marking A10. Assistance with information and related costs

Buyer obligations:

B1. General obligations of the buyer B2. Licenses, authorizations, security clearances and other formalities B3. Contracts of carriage and insurance B4. Taking delivery B5. Transfer of risks B6. Allocation of costs B7. Notices to the seller B8. Proof of delivery B9. Inspection of goods B10. Assistance with information and related costs

By setting up this two-part framework, with each heading on the seller's list "mirroring" the position of the buyer with respect to the same subject matter, Incoterms aims for extreme clarity. For example, if the specific term calls for the seller to arrange and pay for the contract of carriage, the text under A3 would indicate that obligation for the seller, and the text under B3 would read "no obligation". Following are the eleven Incoterms (in their 2010 form), divided into two categories: "rules for any mode or modes of transport" and "rules for sea and inland waterway transport".5 Some key details of each term are provided here, including a few representative responsibilities of the seller and the buyer under each. It should be borne in mind that the detailed definitions provided by Incoterms fine-tune the summary descriptions given here. Rules for any mode or modes of transport:

EXW (EX Works . . . at a named place of delivery) • seller makes goods available at its premises

5 Under the 2000 version of Incoterms, the (then) thirteen individual Incoterms were divided into four categories: the Group E, Group F, Group C, and Group D categories. These reflected increasing degrees of responsibility shouldered by the seller. This four-category division has now been discarded.

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• appropriate for any form of transport — rail, road, air, sea, inland waterway, or multi-modal

• carriage to be arranged by buyer • risk transfers from seller to buyer when goods are placed at disposal of the buyer • cost transfers from seller to buyer when goods are placed at disposal of the buyer

FCA (Free CArrier . . . at a named place of delivery) • seller hands over goods, cleared for export, to the first carrier (named by the buyer)

at the named place • appropriate for any form of transport — rail, road, air, sea, inland waterway, or

multi-modal (this term, not FOB, is the one that typically should be used for container shipments)

• carriage (onward from the named place) to be arranged by buyer, or by seller on buyer's behalf

• risk transfers from seller to buyer when goods have been delivered to the carrier at the named place

• cost transfers from seller to buyer when goods have been delivered to the carrier at the named place

CPT (Carriage Paid To . . . named place of destination) • appropriate for any form of transport — rail, road, air, sea, inland waterway, or

multi-modal • carriage to be arranged by seller and paid by seller • risk transfers from seller to buyer when goods have been delivered to the carrier (any

form of transport) • cost transfers from seller to buyer at port of destination

CIP (Carriage and Insurance Paid to . . . named place of destination) • appropriate for any form of transport — rail, road, air, sea, inland waterway, or

multi-modal • carriage to be arranged by seller and paid by seller • risk transfers from seller to buyer when goods have been delivered to the carrier

(any form of transport) • seller is responsible for procuring insurance against buyer's risk of loss or damage to

goods during carriage • cost transfers from seller to buyer at port of destination

DAP (Delivered At Place . . . named place of destination) • seller pays for the carriage to the named place, except for costs related to import

clearance, and assumes all risks prior to the point that the goods are ready for unloading by the buyer


• carriage to be arranged by seller and paid by seller

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• risk transfers from seller to buyer when goods are placed (and ready for unloading) at the disposal of buyer on the arriving means of transport at the named port terminal or place of destination

• cost transfers from seller to buyer when goods are placed (and ready for unloading) at the disposal of buyer on the arriving means of transport at the named port terminal or place of destination

DAT (Delivered At Terminal . . . named terminal at port or place of destination) • seller pays for carriage to the terminal, except for costs related to import clearance • appropriate for any form of transport — rail, road, air, sea, inland waterway, or

multi-modal • carriage to be arranged by seller and paid by seller • risk transfers from seller to buyer when goods are placed at the disposal of buyer

once unloaded from the arriving means of transport at the named port terminal or place of destination (provided that delivery occurs in compliance with the contract)

• cost transfers from seller to buyer once unloaded from the arriving means of transport at the named port terminal or place of destination

DDP (Delivered Duty Paid . . . named place of destination) • seller is responsible for delivering the goods to the named place in the country of the

buyer, and pays all costs in bringing the goods there, including import duties and taxes


• carriage to be arranged by seller • risk transfers from seller to buyer when goods are placed at the disposal of buyer at

named place of destination • cost transfers from seller to buyer when goods are placed at the disposal of buyer at

named place of destination • seller delivers goods to buyer cleared for import, with duties paid, but not unloaded

from any arriving means of transport at named place of destination Rules for sea and inland waterway transport:

FAS (Free Alongside Ship . . . at named port of shipment) • seller must place the goods alongside the ship at named port • typically used for heavy-lift or bulk cargo • appropriate only for sea (or inland waterway) transport • seller is responsible for clearing goods for export • carriage to be arranged by buyer, or by seller on buyer's behalf • carriage to be paid by buyer • risk transfers from seller to buyer when goods have been placed alongside the ship • cost transfers from seller to buyer when goods have been placed alongside the ship

FOB (Free On Board . . . at named port of shipment) • seller must load the goods on board the vessel nominated by buyer

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• appropriate only for sea (or inland waterway) transport (not suitable for multimodal sea transport in containers)

• seller is responsible for clearing goods for export • carriage to be arranged by the buyer and paid by buyer • risk transfers from seller to buyer when goods are placed on board • cost transfers from seller to buyer when goods are placed on board

CFR (Cost and FReight . . . to named port of destination) • appropriate only for sea (or inland waterway) transport • carriage to be arranged by seller and paid by seller • seller is responsible for clearing goods for export • risk transfers from seller to buyer when goods are placed on board • cost transfers from seller to buyer at port of destination

CIF (Cost, Insurance and Freight . . . to named port of destination) • same as CFR except seller must also procure and pay for insurance • appropriate only for sea (or inland waterway) transport • carriage to be arranged by seller and paid by seller • seller is responsible for clearing goods for export • risk transfers from seller to buyer when goods are placed on board • seller is responsible for procuring marine insurance against buyer's risk of loss or

damage to goods during carriage • seller is responsible for providing buyer “with the usual transport document” that

will “enable the buyer to claim the goods from the carrier” and (unless agreed otherwise) also “enable the buyer to sell the goods in transit by the transfer of the document to a subsequent buyer or by notification to the carrier”

• cost transfers from seller to buyer at port of destination As a rough-and-ready aid to understanding this system of standardized commercial terms, Diagram #1 offers a diagrammatic representation of some of the differences between all eleven of the various Incoterms.

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Diagram #1 — Incoterms in a Nutshell Delivered Delivered Delivered Delivered Delivered Delivered Delivered Onboard Seller buys at Seller’s to First Alongside Onboard Onboard Unloaded Transport, insurance Facility Carrier Ship Ship Transport at Terminal duties paid for Buyer’s _____ _____ (outbond) (outbond) (“place”) (destination) (destination) benefit

EXW ---------●

FCA ------------------●

CPT -----------------® - - - - - - - - - - - - - - ©

CIP -----------------® - - - - - - - - - - - - - - © ✔

DAP ----------------------------------------------●

DAT -------------------------------------------------------●

DDP ----------------------------------------------------------------●

Port of Ocean Port of Ocean Terms for ocean Shipment Destination shipment : x ~~~~~~~~~~~~~ x

FAS ---------------------------●

FOB ------------------------------------●

CFR ----------------------------------- ® - - - - - - - ©

CIF ----------------------------------- ® - - - - - - - © ✔ ______________________ Legend :

● = Seller is responsible for both cost and risk to this point

® = Seller is responsible for risk to this point

© = Seller is responsible for both cost to this point ✔ = Seller is responsible for acquiring insurance, with Buyer as beneficiary 2. Practical implications and observations A thorough understanding of how each of the various Incoterms operates in practice would require attention to many details; and there is most assuredly an inexhaustible supply of details available to study. However, for our purposes, it will perhaps be sufficient to focus on a few specific points. Several of these specific points emerge from the foregoing summary, and some are less obvious but nonetheless important.

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(a) The extremes: EXW and DDP

First, as should be clear from this array of eleven Incoterms (2010), the seller minimizes his risk under EXW by only making the goods available at his own premises. By contrast, the seller maximizes his risk and responsibility (and the buyer's risk and responsibility are correspondingly minimized) under DDP, which stands at the far extreme from EXW.

(b) Incoterms and mode of transport Second, the mode of transport to be used in a transaction will often affect the availability of a trade term. Of the eleven terms, four — FAS, FOB, CFR, and CIF — are available only if sea (or inland waterway) transport is used.6 The seven other terms may be used when any form of transport — including maritime transport — is used. Two of the more oft-used terms — FOB and CIF — assume that transport will be by ship. However, as the use of other forms of transport has become more prevalent in international sales transactions, and as multi-modal transport arrangements have in particular become more common, other terms that do not depend on ocean transport, such as FCA and CIP, have become more important. Some authorities assert that FCA is perhaps the most suitable term for cases where it is intended that the buyer should arrange and pay for the carriage and bear any risks in connection with the unavailability of transport.7 By the same token CIP is perhaps the most suitable term for cases in which the seller, not the buyer, is to arrange and pay for the carriage (and to insure the buyer against loss) when some form of transport other than ocean transport is being used.

(c) Limits of Incoterms Third, it must be borne in mind that Incoterms cannot answer all questions. The details and demands of any particular transaction would be impossible to define precisely in advance, so Incoterms cannot cover every eventuality. Some sense of the types of circumstances not specified in Incoterms can be gained by reading this explanation from an expert in the area, focusing on the EXW term:

In practice, it is not always easy to determine how the buyer should take delivery of the goods [in an EXW term]. There are several variations depending upon the nature of the

6 FAS, FOB, CFR, and CIF may only be used when "the point of delivery and the place to which the goods are carried to the buyer are both ports." ICC-2010, supra note 10, at 7. 7 See the works of Ramberg, cited supra note 2. Ramberg also offers this history of the FCA term, and the initial reason for its inclusion:

FCA, as first presented in the Incoterms 1980 rules (where it was referred to as FRC), was originally intended to solve the particular problems arising from changed cargo handling techniques, such as containerization or other means of assembling parcel cargo in transportation units before the vehicle of transport arrived. In such cases, FCA should be used instead of FOB, the latter of which is intended to be used in cases where the seller tenders the goods to the ship. By using FCA instead of FOB, the point of delivery is moved to the prior point where the goods are delivered to the carrier, either at his cargo terminal or to a vehicle sent to pick up the goods after they have been containerized or other assembled in transportation units at the seller's premises.

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goods and the facilities available at the seller's premises Quite frequently the seller would do more than merely tell the buyer where he can pick up the goods. The seller's personnel may assist the buyer by moving the goods inside a cargo terminal by a forklift truck to a loading ramp from which the buyer could take delivery. In some cases the seller's personnel may even assist the buyer by letting the forklift truck move into the vehicle arranged by the buyer and there render further assistance in stowing the goods on the vehicle. Needless to say, it would not have been possible to specify in Incoterms exactly how the work should be done. Instead, one would have to investigate if the parties have established a practice between themselves in prior dealings or, alternatively, how the delivery is normally done for the particular type of goods. Although the seller under EXW should bear no risk whatsoever connected with the carriage of the goods, it could happen in the situation just mentioned that the goods are damaged in the process of loading them on the vehicle arranged by the buyer. If so, any negligence attributable to the seller or his personnel could engage his liability, since the transfer of risk does not free a party from liability for breach of contract or negligence in performing various services unless an exemption of liability has been agreed. Sometimes, obligations for the seller are explicitly placed upon him by an addition to EXW, e.g. "EXW loaded upon departing vehicle". Such an addition would presumably . . . extend the seller's obligations so that he would not only have to bear the costs for loading the goods on the departing vehicle but also the risks connected with such loading even if no negligence could be established on his part.8

(d) Passage of cost and risk in CIF (Incoterms 2010)

Fourth, it is important to notice a feature of the CIF (Incoterms 2010) term that might at first glance seem anomalous and counter-intuitive: although the cost passes from the seller to the buyer at the port of destination — which is to say that the seller must pay for the contract of ocean carriage of the goods — the risk passes from the seller to the buyer not at the port of destination but instead at the port of shipment, when the goods are on board the vessel. Of course, the buyer does not carry that risk alone, because the seller under CIF (Incoterms 2010) must arrange for insurance of the goods during the transport. The buyer is the beneficiary of that insurance, so that if the goods do suffer loss or damage, the buyer can make a claim under the insurance policy.

(e) Incoterms and transport documents Fifth, one of the many ways in which modern developments have affected Incoterms relates to transport documents. Whereas the traditional CIF term typically assumed the use of a negotiable ocean bill of lading, a variety of other forms of transport document now have also been developed. Three of these are (a) sea waybills, (b) multimodal transport bills of lading, and (c) electronic bills of lading. The most recent versions of Incoterms (that is, the 1990, 2000, and 2010 revisions) do not require the use of a negotiable bill of lading per se but instead require the seller to supply "the usual transport document"; and some alternatives to the traditional negotiable ocean bill of lading are then expressly identified. Businesspersons must be careful, however, to recognize that CIF (Incoterms 2010) still includes the requirement that the "transport document" supplied by the seller must, "unless 8 This is drawn from the writings of Ramberg, cited supra note 2.

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otherwise agreed, enable the buyer to sell the goods in transit by transfer of the document" to a subsequent buyer. While the traditional negotiable bill of lading does just that, the same is not true of some other more modern types of transport documents. For example, sea waybills are definitely not negotiable (that is, not effective to facilitate a sale of the goods in transit), and some multimodal transport bills of lading are also not negotiable. These transport documents will not work under CIF (Incoterms 2010) unless the parties "otherwise agree" that they may be used. As for electronic bills of lading, the landscape is changing quickly. Electronic bills of lading have generated much interest in recent years but so far have not evolved to the point of replacing more traditional negotiable bills of lading because of difficulties in making them simultaneously paperless and negotiable. Of course, this might change: maybe new technology or techniques will be developed that make such electronic transport documents readily negotiable. We might regard Incoterms 2010 as seeking to "future-proof" its definitions by allowing for the use of electronic equivalents to the usual transport documents if and when the negotiability issues are accommodated. In the meantime, caution is imperative.

(f) Choosing the best Incoterm A last observation relates to choosing the most appropriate term under Incoterms 2010. As was noted above, the seller's obligations are least under EXW; the buyer's are least under DDP. Does that mean sellers should always negotiate for EXW and buyers for DDP, and that the term appearing in a contract will simply reflect the parties' respective bargaining positions in those negotiations? No. Experts suggest making the choice on the basis of an economic analysis examininf how the lowest costs could be reached considering the positions of both parties. The determination is one of business strategy. For instance, in countries where the seller has good possibilities of procuring the maritime transport, or where he is induced to use a national shipping line, he may prefer to use CFR or CIF. Where the buyer for the same reasons has good possibilities to procure the transport, he is likely to insist on the choice of FAS or FOB. In the same manner, the choice between CFR and CIF depends on the seller's and the buyer's insurance arrangements and their possibilities to arrange insurance at the most competitive rate.

(g) The future of Incoterms It is worth bearing in mind that Incoterms will change. Just as a regular ten-year cadence of revisions has occurred for several decades—with the current result being Incoterms 2010—likewise further revisions should be anticipated. Indeed, the preparation of an Incoterms 2020 is reportedly underway. C. Summing Up on Incoterms A great many international commercial transactions use Incoterms (2010), so attorneys need to know the basics of them and how to select the best specific term for a client’s transaction. The set of Incoterms is not static; roughly every 10 years another version emerges as the International Chamber of Commerce works to reflect changes – especially technological changes – affecting international commerce.

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II. The Vienna Sales Convention (CISG): Character, Aims, and Application

A. Background If an international commercial transaction involves parties who are from two different countries — and who are therefore generally subject to two different national legal systems — one approach to determining what law governs their commercial transaction is to let them explicitly select one of those national legal systems or, failing that, to provide conflicts-of-law rules instructing courts as to which system's rules to apply. There is, however, a different and perhaps simpler approach: remove (or at least reduce) the opportunity for a conflicts-of-law issue to arise in the first place by replacing national commercial laws with a single global commercial code. This was, after all, the situation that existed in Europe for several centuries under the old lex mercatoria. In recent years, vigorous efforts have been made to take that alternative approach, and, in effect, to create a global commercial code. The principal work product of those efforts is the 1980 United Nations Convention on the International Sale of Goods, known by its acronym "CISG" as well as by its less formal name, the "Vienna Sales Convention". Achieving this result — that is, the adoption of the CISG — was difficult. The process may usefully be seen as having two stages. The first lasted from the 1920s to the 1960s, the other from the 1970s to 1988. In the interest of brevity, we can skip over the first of these and focus only on the second one.

Starting in the early 1970s, the UN Commission on International Trade Law ("UNCITRAL"), established in 1966 with the task of promoting the progressive harmonization and unification of the law of international trade, undertook an initiative to revise the Hague Uniform Laws. With this initiative came new energy and ultimate success. In 1978 the General Assembly of the United Nations authorized the convening of a diplomatic conference, held from March 10 to April 11, 1980 in Vienna. At the end of the conference, which was attended by representatives of 62 States, the "United Nations Convention on Contracts for the International Sale of Goods" was approved. Upon receiving the requisite number of ratifications, the convention came into force on January 1, 1988. Several key issues arise with respect to the CISG. International commercial lawyers should be aware of these issues and how to address them. For our purposes, the most important issues relate to the CISG's character, aims, and (especially) application. We will not concentrate here on issues relating to the CISG’s content and operation. B. Character and Aims of the CISG The CISG may be regarded as having a dual nature. First, it is a treaty. As such, it is binding in international law on the states that are parties to it. But what obligations does the CISG impose — or, more precisely, what obligations does a nation-state voluntarily undertake when it becomes a

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party to the CISG through the process of ratification or accession to the treaty? The answer is clear: the obligation to ensure that the courts in that nation-state will apply the substantive commercial-law provisions that the CISG embodies, if and when disputes brought to those courts involve circumstances meeting the criteria laid out in the CISG's provisions on applicability. When so applied, the CISG takes on its second role or character — that of an international commercial code. A glance at its text will reveal that aside from the first few provisions and the last few provisions, the CISG concerns itself with the sorts of issues that would commonly appear in any other commercial code. These include contract formation, sellers' obligations, buyers' obligations, passing of risk, remedies, excuse, and the like. This dual nature of the CISG — as both a treaty among nation-states and a substantive commercial code governing commercial relations among private parties — gives it a special place in the arena of international business law. While there are numerous treaties governing economic relations among states, including the large package of trade-regulation treaties emerging from the Uruguay Round of trade negotiations in 1993, few such treaties speak directly to private-sector parties in their commercial transactions. Conversely, while there are numerous multilaterally-generated sets of guidelines and standards speaking to private-sector parties — including, for example, the INCOTERMS discussed above — such guidelines and standards typically do not constitute binding law and do not emanate from official action by nation-states. The CISG does speak directly to private-sector parties and does constitute binding law, since it emanates from official action by nation-states. Hence, the CISG has an unusual and special character, made all the more remarkable by the fact that the rules it sets forth are of such significance both globally and nationally. Global commerce is more important now in value and influence than it has ever been before, and involvement in the legal aspects of global commerce — that is, in setting and enforcing the legal rules by which such commerce takes place — is jealously guarded by nation-states. After all, most nation-states have their own national commercial codes that they make applicable to commercial transactions within their own borders. To agree on the content and applicability of an "external" commercial code, such as the CISG, amounts to a large commitment by many states, especially those whose own commercial codes have a long and proud history. It is perhaps the magnitude of this commitment that required such a great effort to create the CISG. Why have countries agreed to the CISG? As explained in subsection IIIC1 below, several important trading countries have not so agreed. But many have, and the reason surely lies in the benefits that they saw flowing from the creation of a multilateral commercial code that could (and they hoped would) have global acceptance and applicability. Those benefits were two-fold. First, as a private-sector matter, the CISG would permit merchants and others involved in sales of goods across borders to rely on a set of commercial rules that would be even-handed (not favoring sellers over buyers, for instance), relatively comprehensive (covering most aspects of commercial transactions in a single legal document), and neutral in the sense that neither party would have to accept the "indigenous" commercial code of the other party's home country. The second benefit, related to the first, is a public-sector matter: a global commercial code would tend to encourage and facilitate increased transborder commercial transactions, which in turn would (according to theories regarded in the mid-20th century as liberal and enlightened) tend to increase international

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cooperation and thereby decrease the chances of the world falling into a third World War. The notion of "world peace through world trade" invigorated not only the efforts to create the General Agreement on Tariffs and Trade in the mid-1940s but also numerous other efforts in the latter half of the 20th century. This, then, was the aim of the CISG: to create a global commercial code that would secure the benefits mentioned above. In doing so, it would also tend to short-circuit some of the conflicts-of-law difficulties explored in subsection IIB of this chapter. Specifically, the CISG avoids (in theory, at least) any inconsistency between the two sets of commercial laws that a court would usually have to choose between — those of the seller's state and those of the buyer's state — when the seller and the buyer fail to specify a governing law for their commercial transaction. Why? Because the CISG in effect displaces both of those two sets of commercial laws. For any of these potential benefits to be realized, of course, the CISG would have to attract wide support and participation. So far it has not achieved universal acceptance, and this is why the subject of CISG applicability is so important for international commercial lawyers to understand. C. Applicability of the CISG The following paragraphs explore five main aspects of CISG applicability. All of them find their basis in the first six articles of the CISG. Those six articles are reprinted below in Reading #1. The entire CISG is, of course, available online.

Reading #1 — CISG Provisions on Applicability (Articles 1–6) Article 1

(1) This Convention applies to contracts of sales 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. (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. (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.

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;

(b) by auction; (c) on execution or otherwise by authority of law;

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(d) of stocks, shares, investment securities, negotiable instruments or money; (e) of ships, vessels, hovercraft or aircraft; (f) of electricity.

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.

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.

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.

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.

[end of Reading #1] 1. States participating in the CISG A treaty typically binds only those states that are parties to it — that is, those states that have formally accepted the binding character of the treaty by ratifying or acceding to it. Accordingly, the CISG has no binding character vis-a-vis those states that have not become parties to it. As of early 2019, nearly 90 countries were parties to the CISG, referred to in the treaty itself as Contracting States. They are listed below: Albania

Argentina Armenia Australia Austria

Azerbaijan Bahrain

Belarus Belgium

Benin Bosnia-Herzegovina

Brazil Bulgaria Burundi Canada Chile China (PRC) Colombia

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Congo Croatia Cuba Cyprus Czech Republic Denmark Dominican Republic Ecuador Egypt El Salvador Estonia Finland France

Gabon Georgia Germany Greece Guinea Guyana Honduras Hungary Iceland Iraq Israel Italy Japan Korea (South) Kyrgyzstan Latvia Lebanon Lesotho Liberia Lithuania Luxembourg

Macedonia (Former Yugo. Rep.) Madagascar

Mauritania Mexico Moldova Mongolia Montenegro Netherlands New Zealand Norway Paraguay Peru Poland Romania Russian Federation Saint Vincent & Grenadines San Marino Serbia Singapore Slovakia Slovenia Spain Sweden Switzerland Syria Turkey Uganda Ukraine USA Uruguay Uzbekistan Viet Nam Zambia

What major commercial countries are missing from the list? One country that would come immediately to mind is the United Kingdom; however, numerous other countries that are less central to the world economy—India, Indonesia, Kazakhstan, Malaysia, Pakistan, Saudi Arabia, South Africa—likewise have not yet become parties to the CISG.9 The significance of this

9 Why would these countries, or any other countries, not become Contracting States to the CISG? The reasons would differ, of course, from one country to another, and in any event it might be impossible to identify distinct reasons. One observer explains that the UK government has thus far not regarded ratification of the CISG as a legislative priority because:

• there is a lack of interest among the business community in favor of such ratification; • there is opposition from a number of large and influential organizations (e.g., BP, Shell, and the

Commercial Courts Committee);

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should be obvious. The CISG will not automatically apply by virtue of the terms of Article 1(1)(a) in any transaction involving a party (that is, a buyer or a seller) from one of those countries that have not become Contracting States. Despite the fact that a few major commercial countries are not yet CISG Contracting States, the trend toward global (or at least very comprehensive) acceptance of the CISG seems quite strong, and one expert has asserted that the CISG "is the uniform international sales law of countries that account for over three-quarters of all world trade". Most of that uniformity derives from the terms of Article 1(1)(a), under which the CISG applies to commercial contracts between parties whose places of business are in different states and those states are both Contracting States. 2. Conflicts of law and Article 1(1)(b) CISG applicability can stem also, however, from Article 1(1)(b). That provision returns us to the conflicts-of-law issues discussed above in subsection IIB of this chapter. Article 1(1)(b) makes the CISG applicable to commercial contracts between parties whose places of business are in different states even if one of those states is not a Contracting State, so long as "the rules of private international law lead to the application of the law of a Contracting State". (Note that the term "private international law" carries the same meaning as the term "conflicts of law".) By way of illustration, let us consider two different fact patterns. The first appeared in an arbitration proceeding involving a Bulgarian buyer and an Austrian seller. The results of the arbitration are summarized in Reading #2.

Reading #2 — Case Abstract, UNCITRAL Texts (CLOUT) — Abstract No. 104, ICC Arbitration Case No. 7197 (1991) The dispute concerned the failure of the Bulgarian buyer to pay the Austrian seller within the time period agreed in the sales contract.

The arbitral tribunal found that, while the parties did not specify any applicable law, the application of Austrian and Bulgarian rules of private international law led to the application of Austrian law. In view of the fact that CISG had been incorporated into the Austrian legal system, the tribunal decided to apply CISG, in accordance with Article 1(1)(b) of the Convention. The tribunal also noted that, as applicable rules of private international law led to the application of the law of Austria, where the seller had its place of business, it was immaterial that Bulgaria, where the buyer had its place of business, was not a party to the Convention at the time the contract was concluded.

[end of Reading #2]

• there is a lack of public service resources (specifically, the original drafter of the ratification

document fell seriously ill and progress was stalled); and • the government fears that CISG ratification by the UK could cause London to lose its edge in

international arbitration and litigation. Sally Moss, Why the United Kingdom Has Not Ratified the CISG, 1 JOURNAL OF LAW AND COMMERCE 483 (2005).

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By way of further illustration of the operation of CISG Article 1(1)(b), let us consider a second fact pattern (this one is hypothetical): Assume that a carpet dealer in Jakarta were to enter into an agreement to sell carpets to a buyer in Germany. Article 1(1)(b) would call for the CISG to apply if a court (whether in Germany or Indonesia, presumably) found that the pertinent conflicts-of-law rules would lead to the application of German law (since Germany is a CISG Contracting State). This result corresponds to the result in the ICC arbitration summarized in Reading #2. By contrast, however, Article 1(1)(b) would call for the CISG not to apply (at least under the terms of that provision) if a court found that the pertinent conflicts-of-law rules would lead to the application of Indonesian law (since Indonesia is not a CISG Contracting State). Does it matter what those conflicts-of-law rules are? Of course it matters. Different countries have established (for the instruction of their courts) different conflicts-of-law rules. The rules that would be pertinent to a German court are set forth in an EU Regulation dating from 2008. Under those rules, a court in Germany (if that is where the case arises) would apply "the law of the country where the seller has his habitual residence" unless "it is clear from all the circumstances of the case that the contract is manifestly more closely connected with a country other than that" in which the seller has his habitual residence, in which case the laws of that other country will apply — assuming of course that the contracting parties did not themselves make an effective choice of a governing law. If, on the other hand, the case arises in a Brazilian court, the Brazilian court would follow the conflicts-of-law rules prescribed for it under Brazilian law. What would those conflicts-of-law rules provide? If Brazil is a party to a treaty prescribing certain rules, then the provisions of that treaty would apply. Such a treaty does exist: the Mexico City Convention. However, although Brazil has signed the Mexico City Convention, it has not yet ratified its signature and therefore is not bound by the provisions of that treaty.

In short, although Article 1(1)(b) widens the scope of potential applicability of the CISG by making it applicable in cases involving one party whose place of business is in a non-Contracting State, that provision illustrates the fact that the CISG does not entirely avoid conflicts-of-law issues. Nor can such issues ever be entirely avoided unless and until all states become CISG Contracting States. The situation is still more complicated because of another CISG provision. Article 95 of the CISG permits a state to enter a reservation against the applicability of Article 1(1)(b). The USA has done so. Hence, Article 1(1)(b) does not apply in any case involving the USA. Diagram #2 offers a summary of the operation of CISG Article 1(1). The upper part of the diagram shows how that provision would apply in each of three contracting situations:

• Contract #1 — when the two private parties (W and X) who enter into a commercial contract both have their places of business in Contracting States (State A and State B);

• Contract #2 — when one of the private parties (X) has its place of business in a

Contracting State (State B) but the other private party (Y) has its place of business in a non-Contracting State (State C); and

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• Contract #3 — when both of the private parties (Y and Z) have their places of

business in non-Contracting States (State C and State D). The lower part of the diagram reflects the situation when one of the states has entered a reservation under the terms of CISG Article 95. In that case, Article 1(1)(b) is irrelevant.

• Contract #4 — when one of the private parties (W) has its place of business in a Contracting State (State A) with no Article 95 reservation, and the other private party (U) has its place of business in a Contracting State (e.g., USA) with an Article 95 reservation;

• Contract #5 — when one of the private parties (U) has its place of business in a

Contracting State (e.g., USA) with an Article 95 reservation and the other private party (Z) has its place of business in a non-Contracting State (State D).

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Diagram #2 – Operation of CISG provisions on applicability State A (CISG Contracting State)

private party W

State B (CISG Contracting State)

private party X

State C (CISG non- Contracting State)

private party Y

State D (CISG non- Contracting State)

private party Z

Contract #1 Contract #2 Contract #3 (W&X) (X&Y) (Y&Z)

* * * * * * * * * *

State A (CISG Contracting State)

private party W

USA – a CISG Contracting State but with an Article 95 reservation

private party U

Contract #4 Contract #5 (W&U) (U&Z)

State D (CISG non- Contracting State)

private party Z

CISG applies by Article 1(1)(a) (unless W & X opt out under Article 6)

* If conflicts-of-law analysis leads to State B’s law, CISG applies by Article 1(1)(b) (unless X & Y opt out under Article 6)

* If conflicts-of-law analysis leads to State C’s law, CISG does not apply (unless X & Y opt in)

CISG does not apply (unless Y and Z opt in)

CISG applies by Article 1(1)(a) (unless W & U opt out under Article 6)

CISG does not apply (unless U and Z opt in)

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3. "Internationality" of the sale So far we have glossed over an important feature of CISG Article 1(1) — the requirement that the parties to the commercial contract at issue have their "places of business . . . in different states". At first glance this might seem to be a rather pedestrian provision, unlikely to raise thorny issues. It isn't; it does. Consider a case in which one party to an international sales transaction has its headquarters in two places – London and Mexico City. Which of the two countries — England or Mexico — should be regarded as the state in which that party has its "place of business" for purposes of Article 1(1)? CISG Article 10 offers guidance on this issue by providing that "if a party has more than one place of business, the place of business [for purposes of Article 1] 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 any time before or at the conclusion of the contract." Does this guidance (which relies on language similar to the language often found in conflicts-of-law provisions) offer a clear answer to the question? In many cases, it does not, because various features of the fact pattern might well lead to contradictory conclusions about which place has the closest relationship to the contract and its performance. In addition to this potential uncertainty in cases featuring a party with two or more possible places of business is another apparent oddity regarding the type of parties and transactions that will trigger CISG applicability. To examine this apparent oddity, let us envision two commercial transactions — one of the sort described in Illustration X and one as described in Illustration Y.

Illustration X — CISG applicability, first fact pattern Suppose there is a contract entered into between two parties, Mr. S and Ms. B. Mr. S is an Indonesian national whose only office is in New York City. He sells computers all over the world. Ms. B is a French national whose main office is in Los Angeles. She is engaged in supplying computers to various Vietnamese companies with whom she has long-term business relationships. The contract entered into between Mr. S and Ms. B calls for Mr. S to sell computers that he owns to Ms. B and deliver them (under CIF terms that will be discussed in Chapter 4) from Jakarta, where they are currently in storage, to a stated destination at the port of Ho Chi Minh City. Ms. B has contacted you to ask (for reasons she does not disclose) whether the CISG will apply to this contract if the parties include no clause selecting a governing law.

How will you answer Ms. B's question? The answer would almost surely be that the CISG will not apply to her contract with Mr. S, because the places of business of Mr. S and Ms. B are not "in different states" as called for in CISG Article 1(1).

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The contract has many elements of "internationality": Mr. S. and Ms. B have different nationalities, and both of them are non-nationals of the state where they have their places of business; and the items that are being sold (computers) are located overseas from both Mr. S and Ms. B and are being shipped across national borders to yet another country. Still, the critical factor for purposes of the CISG analysis is that the parties in Illustration X do not have places of business "in different states". CISG Article 1(3) confirms this analysis, at least in part. It provides that "the nationality of the parties" is not to be taken into consideration in determining the application of the CISG. Illustration X shows that a contract with a great deal of "internationality" might not be covered by the CISG. Illustration Y shows just the opposite: a contract with very little apparent "internationality" might be covered by the CISG.

Illustration Y — CISG applicability, second fact pattern Suppose there is a contract entered into between two parties, Mr. T and Ms. C. Both are German nationals. Mr. T has his only office is in Frankfurt. He sells computers in Germany; he has never shipped computers outside Germany. Ms. C is a German national whose only office is in Rome. She is engaged in supplying computers to various companies in Germany, Italy, and Austria with whom she has long-term business relationships. The contract entered into between Mr. T and Ms. C calls for Mr. T to sell computers that he owns to Ms. C and deliver them (under EXW terms that will be discussed in Chapter 4) to Ms. C at Mr. T's warehouse in Frankfurt, where they are currently in storage. Ms. C will take delivery of them there and transport them to a German company located in Berlin. Ms. C has contacted you to ask (for reasons she does not disclose) whether the CISG will apply to this contract if the parties include no clause selecting a governing law.

How will you answer Ms. C's question? The answer would almost surely be that the CISG will apply to her contract with Mr. T, because the places of business of the parties are "in different states" as called for in CISG Article 1(1). The contract has no other obvious elements of "internationality": Mr. T. and Ms. C have the same nationality; and the items that are being sold (computers) will not be crossing any national borders. Still, the critical factor for purposes of the CISG analysis is that the parties in Illustration Y do, in fact, have places of business "in different states". 4. Sales and issues not covered by the CISG The CISG identifies several specific types of transactions and types of issues to which it will not apply. Here are some key examples:

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• Article 2 (in several subsidiary provisions) states that the CISG will not apply to most sales of goods bought for personal, family, or household use, or to sales of goods by auction, or to sales of ships and aircraft.

• Under Article 3(1), a contract for specially manufactured goods (that is, goods

custom-made for a buyer according to the buyer's specifications) would not be subject to the CISG if the buyer supplies a "substantial part of the materials necessary for such manufacture or production".

• Article 3(2) deals with contracts that involve the furnishing of goods but only as

part of a larger undertaking to supply labor or other services; in such cases the CISG will not apply if the "preponderent part of the obligations of the party who furnishes the goods consists in the supply of labour or other services".

• Article 4(a) excludes from CISG coverage issues of contract validity, which

typically would include issues such as mistake, fraud, and duress. • Article 5 provides that the CISG does not apply to the liability of a seller for

personal injury caused by the goods to any person. The CISG remains silent on the definitions of several important terms, including some terms crucial to the provisions noted in the preceding paragraph. For example, the term "substantial part" and "preponderent part" pertinent to Section 3(1) and Section 3(2) remain undefined. Also missing is a definition of the term "goods". It seems clear from the exclusions in Article 2 that the CISG was intended to govern only the sale of movable tangibles, but uncertainties can still arise. For example, would the CISG apply to a contract calling for one party to supply a document to the other party? Perhaps that would depend on the circumstances. In a judgment emerging from litigation in Germany, reported in August 1994, the court held that the CISG was not applicable to a market analysis provided by means of a document. The court reasoned that the contract — entered into between a Swiss market research institute and a Germany company that had ordered a report from it — was neither a contract for the sale of goods (to which CISG Article 1(1) would apply) nor a contract for the production of goods (to which CISG Article 3(1) would apply). Noting that the sale of goods is characterized by the transfer of property in an object, the court found that, although a report is fixed on a piece of paper, the main concern of the parties is not the handing over of the paper but the transfer of the right to use the ideas written down on such paper. Hence, in the judgment of the court, an agreement to prepare a market analysis is not a sale of goods within the meaning of the CISG. 5. Opting out of (and into) the CISG Although the preceding paragraphs enumerate various circumstances in which the terms of the CISG itself operate to make it inapplicable — when one party's place of business is in a non-Contracting State, when both parties' places of business are in the same state even though numerous other aspects of the transaction are heavily international in nature, when the goods at

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issue are for household use, etc. — perhaps the primary circumstance in which the CISG will be determined inapplicable is when the parties themselves opt out of it. This is possible under CISG Article 6, which reads as follows: "The parties may exclude the application of this Convention or, subject to article 12, derogate from or vary the effects of any of its provisions." The Article 6 opt-out possibility places the contracting parties, and their lawyers, in control of the issue of what set of rules and standards are to govern their contract. Contracting parties and their lawyers should exercise that control by considering carefully what set of rules and standards they want to govern the contractual relations. This careful consideration might prompt a decision to opt out of the CISG, if it would otherwise be applicable; or it might prompt a decision in favor of having the CISG serve as the governing law. How would such a decision be made? That is, on what grounds should a business person or a business lawyer determine which set of legal rules and standards should govern an international commercial contract? The short answer, to be expanded on later, is this: by assessing the advantages that are likely to result from one governing law versus another. More precisely, in advising a client on a question of governing law, the international commercial lawyer should assess, to the extent that such an assessment is possible in advance, which set of rules and standards are more likely to reduce unattractive risks to the client's interests. Applying this standard, would it be appropriate for the lawyer to advise his or her client in all cases, as a blanket policy, to opt out of the CISG? Of course not. Some observers have suggested that such advice, given without a thorough assessment of pros and cons, might run afoul of the lawyer's professional responsibilities — including in particular the duty of competence that every lawyer owes to his or her client. What if, after reflection, the decision is made to opt out of the CISG? How can this be done? One thing seems clear, at least according to "common wisdom": in the case of a contract involving a party whose place of business is in the USA, it is not sufficient to provide in a contract that "the law of [a state of the USA] applies", because under the Supremacy Clause of the Constitution of the United States, treaty law (which is what the CISG is) will take priority over state law. Instead, one would have to say something along these lines: “The provisions of the Uniform Commercial Code as adopted in the State of [a state of the USA], and not the Convention for the International Sale of Goods, apply”. CISG Article 6 also permits a partial opt-out. This is the import of the latter part of Article 6, stating that the parties may "derogate from or vary the effects of any of its provisions". As with a total opt-out, a partial opt-out might well require some level of formality and completeness in order to be effective. If, for instance, a party wishes to establish some higher degree of obligation on the other party's performance — for example, on the quality of the goods — than would be required under the pertinent provisions of the CISG, that modification should be clearly stated. Although CISG Article 6 specifically permits parties to opt out of CISG applicability, the treaty does not refer to the opposite possibility — of "opting in" to CISG applicability. So is that, in fact, a possibility? The answer is probably yes, although the legal basis for the answer is

25


unclear. This would be consistent with the trend toward broad acceptance of the doctrine of party autonomy, it seems fairly clear that parties to a commercial contract may elect to have their contract governed by the CISG in situations where it would not otherwise apply. In such cases, the opt-in provision would be like any other choice of law clause. D. CISG & UCC – Differences and Similarities Although our attention has been mainly on aims, character, and applicability, it is worth giving brief attention to some key differences and similarities between the CISG and the commercial law most familiar to American lawyers (and many non-American lawyers) — the UCC. Here are, in simplified form, some differences and similarities. Five Key Differences

(1) Price? If the price term is not specified or provisions are not made for its specification, then no contract has come into existence under the CISG. By contrast, the UCC does not require a settled price term in order for a contract to exist.

(2) Irrevocable offers? Under the CISG, irrevocable offers will be held open without any exchange for value (known in US law as "consideration") and without being in writing. The UCC, by contrast, requires a writing (or under new e-commerce rules, some record).

(3) Mailbox rule? A contract will be created under the CISG at the time the acceptance is received by the offeror. Under the UCC, by contrast, the contract is created at the time the acceptance is mailed or transmitted. This will not make much practical difference because the ability of the offeror (under the CISG) to revoke his offer is suspended at the time the acceptance is mailed or transmitted.

(4) Mirror image? The CISG requires that the acceptance of the offer more or less "mirror" its terms. This had been the law in the United States prior to the UCC, but now under the UCC if an acceptance differs in immaterial respects from the offer or adds additional terms, the UCC will find a contract despite this fact. Under the CISG, the differences between the offer and acceptance will have to be worked out (or performance will have to actually occur) before a contract will come into being. Moreover, note that the terms that the CISG says will "materially alter" a deal include price, payment, quality and quantity of goods, place and time of delivery, extent of one party's liability to the other, and provisions relating to the settlement of disputes. This covers just about all of the deal, so most nonconforming acceptances will operate as counteroffers only.

(5) Writing requirement? The CISG does not require the formalities of the "statute of frauds" in order to find a contract. That is, a contract need not be evidenced in writing, nor are other formalities required. Although a state can enter a reservation to the pertinent CISG provision, the USA did not do so; as a result, there is no statute of frauds writing requirement for US companies doing business under the CISG.

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Key Similarities

The list of similarities between the CISG and the UCC is much longer than the list of differences. Of those many similarities, here are a few especially noteworthy points.

(1) Character as a "Gap-Filler" (the contract governs). Both the CISG and the UCC provide in essence that they are "safety nets" designed to fill in missing terms where the parties themselves have failed to specify in the contract what they intended. The best protection under the CISG, as under the UCC, is to have a carefully drafted agreement by which both parties spell out all of their rights and obligations. If one does that, then only a rare or unanticipated event will give rise to the necessity of looking to the law, rather than to the contract, to resolve a dispute.

(2) "Customary" rules — course of dealing, course of performance, and usage of trade. The CISG, like the UCC, takes into account those three types of "customary" rules and behaviors to help fill in the blanks in a contract. Accordingly, in both regimes, contracts are not judged in the abstract; instead, all the facts surrounding the transaction, including how the parties have dealt with each other in the past, are important.

(3) Warranties. Under the UCC, any statement the seller makes about its product can become an express warranty, and the UCC also allows implied warranties of merchantability and fitness for a particular purpose. The CISG creates essentially the same net result by a different formulation. Under the CISG, the goods do not conform unless they are "fit for the purposes for which goods of the same description would ordinarily be used" and are also "fit for any particular purpose expressly or impliedly made known to the seller" when the contract was concluded, unless it is clear that the buyer did not rely (or that it would be unreasonable for the buyer to rely) on the seller's skill and judgment in that regard.

(4) Excuse. The UCC will excuse a party from performance if there has been "the occurrence of an event, the nonoccurrence of which was a basic assumption of the contract", and the party's performance has thereby become "commercially impractical". Although the CISG uses a different formulation (see Article 79), the intention appears to be largely the same: a party is excused if he proves that "the failure was due to an impediment beyond his control and that he could not reasonably be expected to have taken the impediment into account at the time of the conclusion of the contract or to have avoided or overcome it, or its consequences".

(5) Remedies. Both the UCC and the CISG basically have the concept of a "make whole remedy". When one party breaches a contract, the other party should be entitled to a remedy which will "make him or her whole" or put him or her into the same position he or she would have been in if the party had performed.

(6) Adequate Assurances of Performance. Under the UCC, each party is entitled to two things: (i) the fruits of her bargained-for agreement and (ii) peace of mind, in the sense that she should not have to worry about whether the other party will perform. If

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something happens that causes concern in this regard, there is an express UCC provision allowing the worried party to request "adequate assurances of performance" and to cancel the contract if not received. The CISG contains a similar concept, but it is not quite so direct: if the one party makes a threat of non-performance, the other party can request assurances of performance. However, if there is no actual threat, then the rights are not as clear.

E. Summing up on CISG applicability Although there are some close similarities between the CISG (Vienna Sales Convention) and the UCC (which most US lawyers are more familiar with), the differences can be quite significant. This makes it imperative that any attorney providing legal advice regarding sales of goods across national borders knows when the CISG will apply under its own terms – terms that are, after all, incorporated into US law whether the attorney likes it or not. While Article 6 of the CISG permits commercial parties to opt out of the CISG, (i) an attempt to do so might be ineffective unless the pertinent provisions are carefully drafted, and in any event (ii) the client’s best interests might in fact be served not by opting out but rather by having the CISG apply to the commercial sales contract – especially now that the CISG itself has been adopted by so many countries around the world.

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