When buying or selling overseas, you often have a choice of which laws will govern your sale:
- domestic contract law;
- your domestic Sale of Goods Act;
- international law;
- foreign law; or
- international instruments, such as the UNIDROIT Principles.
Which law applies depends on the clauses in a contract, such as a Supply Agreement or an International Services Agreement. A court or tribunal will usually see if a law has been expressly chosen. If this is unclear, the intention of the parties to the contract will be used to decide. In most cases where no laws were chosen, tribunals have applied international law. Knowing which laws apply to your contract and what choices you have are essential.
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The United Nations Convention on Contracts for the International Sale of Goods (CISG)
Also known as either the CISG or the Vienna Sales Convention, the Convention was made to harmonise international commercial law and avoid conflict. Its laws apply to any international sale of goods unless the parties have excluded it or shown intention for another law to apply.
In Australia, the CISG applies to contracts of sale of goods between parties whose places of business are in different countries where:
- both countries have signed onto the CISG; or
- when the rules of private international law lead to the application of a CISG country’s law.
Even if the countries of the parties haven’t signed onto the CISG, they can still incorporate the CISG into a contract of sale.
Most of the major trading countries (except for the UK) have signed onto the CISG. Each Australian State has implemented the CISG as their own Sale of Goods (Vienna Convention) Act. Each State Act has small variations in between them, which a Commercial Lawyer can help clear up.
Note: Each State’s Sale of Goods (Vienna Convention) Act is not the same as their Sale of Goods Act. Though similar, if the Vienna Convention is excluded and the State law governs the contract, then the other Act is there to make sure local law can’t be excluded in a contract.
How Do I Know If the CISG Applies?
Has Its Operation Been Excluded?
The Vienna Convention will apply to any international sale of goods unless its operation has been excluded by a contract’s clauses. Other laws will still apply, but the Vienna Convention takes priority if there’s any inconsistency between the two.
Is It a ‘Sale of Goods’?
The Vienna Convention does not apply to sales:
- of goods bought for ‘personal, family or household’ use, except where the seller couldn’t have known the goods were bought for that reason;
- by auction;
- of stocks, shares, investment securities, negotiable instruments or money;
- of ships or aircraft; or
- of electricity
What Are the UNIDROIT Principles?
The International Institute for the Unification of Private Law (UNIDROIT) made the UNIDROIT Principles in 2010 to set general rules for international commercial contracts. The Principles don’t aim to harmonise international law like the CISG, but to ‘restate’ existing international contract law in a way that clarifies any exclusions or inconsistencies in the CISG.
The UNIDROIT Principles are optional; you have to state if you want them to apply. Although, some tribunals have decided to apply the Principles when parties didn’t choose any laws in their contract. The Principles can be a useful supplement to the CISG, since:
- the Principles cover some sales contracts that don’t apply to the CISG; and
- the CISG would take priority if the Principles and it conflicted.
What Laws Should I Pick?
Your choice of laws should depend on if the terms of the law are suited to your intentions. If you’d prefer that your country’s laws apply or that you want to exclude the CISG‘s operation, you should expressly state this in your contract. On the other hand, if you or your seller/buyer’s country hasn’t signed onto the CISG, you can still choose to incorporate it.
If you’d like to have the UNIDROIT Principles apply, then you should state so. You can do so by using model clauses in your contract, which allow you to use the Principles in four ways:
- choosing the UNIDROIT Principles as the rules governing the contract;
- incorporating the Principles as terms of the contract;
- referring to the Principles to interpret and supplement the CISG when the latter is chosen; or
- referring to Principles to interpret and supplement domestic law, including any international instruments that law has incorporated.
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