UN Sales Law (CISG) & International Trade Law
Especially in the area of B2B, international deliveries of goods represent an essential part of daily business. All companies based in Germany deliver their goods abroad. Likewise, many foreign companies make cross-border deliveries of goods. In the context of international trade in goods, however, the question often arises as to the law under which existing claims can be asserted and before which court these can be enforced.
Our German contract lawyers will advise you on applying the UN Convention on Contracts for the International Sale of Goods in connection with the agreement of international sales contracts. We explain the rights and obligations of the parties to the sales contract associated with this legal system and illustrate the circumstances under which the application of the UN Sales Law is excluded.
Unified sales law for international contracts
The full-service law firm Schlun & Elseven supports you in international contract negotiations and reviews and drafts corresponding purchase agreements.
The UN Sales Law as a standardised legal basis
The UN Sales Law (CISG) is an agreement that standardises aspects of sales law in the international trade of goods and came into force on 01.01.1988. It has also been applied in Germany since 01.01.1991 and is thus part of private international law. In the meantime, it applies in more than 80 contracting states. A complete list of these states can be found here.
The UN Sales law has created a unified legal basis for the drafting and executing of international sales contracts. In particular, the UN Sales Law also contains far-reaching provisions for the area of the law on the breach of performance.
Which law is applicable?
According to Art. 1 CISG, an international sales contract exists if the contracting parties have their place of business in different states. Accordingly, UN law applies to agreements that regulate the cross-border purchase and sale of movable objects. The law applicable to an international contract may depend on the individual case. This is because the contracting parties always have the option of freely choosing the appropriate legal system or expressly excluding the applicability of the UN Convention on Contracts for the International Sale of Goods. This choice of law should be recorded in an individual agreement or a corresponding clause in the sales contract to be concluded. If the contracting parties do not choose the applicable law, the UN Convention on Contracts for the International Sale of Goods applies automatically.
The UN Sales Law under Art. 1 CISG shall apply if both parties have their place of business in contracting states or if it applies based on the rules of private international law. The above applies if both parties have their place of business in the UN Sales Law contracting state. However, if a state does not belong to these contracting states, the rules of private international law can still lead to the application of the UN Sales Convention by exception. Private international law (IPR) refers to the totality of legal principles that determine which law is to be applied to the specific facts in cases with a connection to at least two legal systems. In German law, the relevant provisions are mainly laid down in the Introductory Act to the German Civil Code (Einführungsgesetz zum Bürgerlichen Gesetzbuch, EGBGB). In addition, European law in the form of the Rome I and Rome II Regulations may also apply to facts with a foreign connection. In this case, a detailed examination of the contract and any agreed general terms and conditions will be necessary.
The UN Convention on Contracts for the International Sale of Goods will likely apply to sales contracts agreed with German contracting parties in international legal relations unless otherwise agreed. Since this is part of German law, the provisions of the CISG automatically apply to international sales contracts. In national sales contracts, on the other hand, the general conditions of the German Civil Code (BGB) and the German Commercial Code (HGB) apply. If the parties wish to exclude the UN Convention on Contracts for the International Sale of Goods, the contract must be expressly agreed upon.
Overview of the scope of application of the UN Sales Convention
To illustrate the conditions under which the UN Sales Convention is applicable, we list the essential points in this regard below:
- Existence of an international sales contract: The contracting parties are established in different states and conclude a contract for purchasing goods, i.e., movable property.
- The states in which the branch offices of the contracting parties are located belong to the contracting states of the CISG, so the rules of the UN Sales Convention apply. Or: The UN Sales Convention applies based on the rules of private international law of a contracting state.
- The contract of sale may not be concluded for private purposes.
If you have questions about the UN Convention on Contracts for the International Sale of Goods, please contact the lawyers at Schlun & Elseven. Our practice group for contract law and international sales law will be happy to advise you and answer all your questions.
Exclusion of the CISG
If the parties to the contract have not expressly excluded the UN Convention on Contracts for the International Sale of Goods and this, therefore, applies automatically due to the circumstances described in more detail above, it must also be examined whether the application of the CISG is not excluded in individual cases by way of exception.
First, the contract of sale must concern the sale of movable objects. The provisions of the UN Convention on Contracts for the International Sale of Goods, therefore, do not apply to the sale of rights and land. Art. 2 of CISG also regulates other circumstances that excluded the UN Convention on Contracts application for the International Sale of Goods. Accordingly, the application of the CISG is excluded if
- the goods are purchased for private use,
- the purchase is made based on compulsory execution or the judicial measure, or
- it is a purchase of securities, means of payment, watercraft, aircraft, or electrical energy.
Similarly, Art. 3 CISG excludes the application of the UN Sales Convention to contracts by which the parties are primarily charged with the duty to perform work or other services.
Furthermore, according to Art. 6 CISG, companies can exclude the application of the UN Sales Convention itself when concluding an international sales contract. In this context, the contracting parties usually ask themselves whether excluding the CISG rules will positively or negatively affect them. However, this question cannot be answered generally and must be answered for each case after carefully considering the interests.
The law firm Schlun & Elseven will be happy to assist you in choosing the applicable law in the context of drafting your international sales contract. Since a conscientious formulation is required to exclude the UN Convention on Contracts for the International Sale of Goods, the assistance of an experienced lawyer for contract law and international sales law is advantageous. An imprecise wording may result in the UN Sales Convention being applicable, contrary to the parties’ will.
Rights and obligations of the contracting parties
In Part III CISG, the UN Convention on Contracts for the International Sale of Goods also contains provisions on the rights and obligations of the seller (Chapter II, Art. 30 et seqq. CISG) and the buyer (Chapter III, Art. 53 et. seqq. CISG). According to Art. 30 CISG, the following obligations belong to those of the seller:
- Delivery of the goods,
- handing over of corresponding documents,
- transfer of ownership of the goods.
The requirements of the international sales contract concluded between the parties must be complied with (cf. Art. 35 para. 1 CISG).
On the other hand, the buyer must pay the agreed purchase price and accept the goods. If the buyer does not fulfil his obligation, the seller can enforce his right to fulfil this obligation by setting a deadline for completion. If the buyer fails to meet the deadline, the seller may terminate the contract. The seller also has the option of claiming compensation.
If the seller does not properly fulfil his obligations, the buyer may demand subsequent performance or a price reduction, assert a claim for compensation or declare the contract avoided.
To be able to go into more detail on the claims to which the buyer or seller is entitled, we will explain to you in the following under which criteria a default in performance is given according to the provisions of the CISG and under which conditions a warrant right can be asserted.
Default under the UN Convention on Contracts for the International Sale of Goods
According to German law, a default occurs when the debtor cannot perform the contractually owed service in due time or at all. Defective services also fall under the definition (so-called lousy performance). A distinction is made here between material defects and defects of title. If an object of purchase suffers from such a defect, the warranty rights of the law on sales apply.
In the UN Convention on Contracts for the International Sale of Goods, Art. 35 and 41 CISG contain provisions on material defects and defects of title. If the requirements for the goods set out in these two norms are not met, the goods could be defective, and thus a deficiency in performance could exist under the UN Sales Convention. According to Art. 35 para. 1 CISG, the seller is obliged to deliver the goods following the contract’s requirements in terms of quantity, quality, and type, as well as in terms of packaging. In addition, the goods must be free of rights and claims of third parties (defect of title, cf. Art. 41 CISG).
Warranty rights and their prerequisites
The remedies of the buyer set out above are listed in Art. 45 CISG. In the following, we will go into more detail on the rights to which the buyer is entitled in the event of non-performance or defective performance and explain the prerequisites in this respect.
Article 38, 39 and 43 of the CISG regulate the buyer’s duty to examine the goods and notify the seller of any lack of conformity within a reasonable time. Otherwise, the buyer could lose the right to invoke the defect in the goods and assert corresponding claims.
According to Art. 46 CISG, the buyer can demand that the seller fulfil his obligations. If the seller has not delivered the contractually owed goods or has not delivered them following the contract, the buyer can assert his right to subsequent performance. In this case, the seller is required to fulfil his contractual obligations. This takes place in the form of the delivery of goods in conformity with the contract. If the buyer has already obtained the item, the seller must replace the defective item if necessary (replacement delivery) or put it in a proper condition by, e.g., repair (rectification).
In principle, however, the claim to replacement delivery exists only under the following conditions:
- The lack of conformity constitutes a fundamental breach of contract and
- The replacement delivery is required either together with a notice under Art. 39 CISG or within a reasonable time after that.
On the other hand, the claim for repair according to Art. 46 (3) CISG is subject to the following conditions:
- The repair of the item must be economically reasonable for the seller, and
- the repair is demanded either together with a notice under Art. 39 CISG or within a reasonable time after that.
Cancellation of the contract
Art. 49 CISG provides for the buyer’s right to declare the contract avoided. According to the UN Convention on Contracts for the International Sale of Goods, the cancellation of the contract is possible if
- the seller’s failure to perform constitutes a fundamental breach of contract or
- the seller fails to deliver the goods within the period of grace granted by the buyer under Art. 47 (1) CISG or if the seller declares that it will not be delivered within the time limit.
Reduction of the purchase price
If there is a defect, the buyer can demand a reduction of the purchase price, according to Art. 50 CISG. However, the reduction is excluded according to Art. 50 S, 2 CISG if
- the seller remedies a defect in the performance of his obligations under Art. 37 or 48 CISG, or
- the buyer refuses to accept the seller’s performance.
If the buyer suffers damages because of the seller’s non-performance or default, he may claim compensation for his damage and loss of profit under Art. 45 para. 1 b) in connection with Art. 74 et. seqq. CISG.
A compensation claim is also conceivable in the context of a covering purchase made after the cancellation of the contract (cf. Art. 75 CISG). A covering purchase exists if the buyer has acquired an object which serves the purpose that the originally purchased object was also intended to serve.
Rights of the seller
If the buyer fails to fulfil his contractual obligations, the seller is entitled to the rights listed in Art. 61 (1) CISG. The seller’s remedies mentioned above and the relevant prerequisites are discussed below.
Setting a grace period and cancellation of the contract
Art. 53 CISG defines the buyer’s obligations: payment of the purchase price and acceptance of the goods. If the buyer fails to fulfil one of these obligations, the seller has the right under Art. 63 para. 1 CISG to grant the buyer a reasonable grace period to fulfil his obligations. If his period expires unsuccessfully, the seller may declare the contract avoided. The enforcement of this right is possible, according to Art. 64 para. 1 CISG if
- the buyer’s failure to perform constitutes a fundamental breach of contract, or
- the buyer fails to perform its contractual obligations within the period of grace set by the seller (Art. 63 para. 1 CISG) or the seller makes a declaration that it will not perform its contractual obligations within the period set.
Retention of the object of purchase
If it turns out after the conclusion of the contract that the buyer will not perform an obligation, the seller may suspend the performance of his responsibilities by retaining the goods (cf. Art. 71 para. 1 CISG). However, this presupposes that the buyer’s failure to perform is
- a severe defect in his ability to perform the contract or in his creditworthiness, or
- his conduct in the preparation of performance or the performance of the contract.
The seller is also entitled to compensation, according to Art. 61 para. 1 b) in connection with Art. 74 et. seqq. CISG. This can be asserted, among other things, in the case of damage caused by the refusal to accept the goods.
The lawyers at Schlun & Elseven will be pleased to examine whether you are entitled to one of the claims mentioned. After an initial assessment, we will explain your options for action and support you in implementing them. Contact us today and benefit from our services in international sales law.
Practice Group: German Contract Law and International Sales Law
German Contract Law
and International Sales Law
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