Hidden Risks in International Sales Contracts: The (Non)Exclusion of CISG

What is the Vienna Convention on Contracts for the International Sale of Goods (CISG)?

By default, under Article 1, the rules of the CISG apply with priority over any national legal system with respect to a contract of sale concluded between parties whose places of business are in different states that are contracting states to the CISG (of which there are currently nearly a hundred, including the Czech Republic).

Indirectly, the CISG may also apply in cases where the conflict-of-laws rule determining the law applicable to a specific contract of sale points to the law of a contracting state of the CISG, regardless of the place of business of the contracting parties.

It is precisely the wide applicability of the CISG that is its domain. However, business owners usually have only limited experience with the regulation of the contract of sale under the CISG, which can prove costly. Nevertheless, the application of the CISG can be excluded, as is usually the case in international trade, typically by a provision in the business owner's general terms and conditions ("GTC").

In addition to the modest awareness of the CISG rules, other reasons for excluding the CISG include, for example: (i) the absence of regulation of certain essential issues of sale (e.g., transfer of ownership) or (ii) a broad interpretation of selected concepts in certain jurisdictions (e.g., according to German courts, the buyer has an obligation to grant the seller an additional period of time for performance even in the case of late performance, not just defective performance, based on the interpretation of Article 47 of the CISG).

How to correctly exclude the CISG

Business owners can exclude the application of the CISG either in their GTC or in a specific contract of sale, together with the determination of the governing law. It is in your interest to choose a law with which you or your lawyer are well acquainted, and therefore typically the law of the state in which you have your registered office. 

But beware! According to case law and academics, a reference to the legal system of a certain state as a whole (e.g., "The governing law for this contract of sale is Czech law.") does not exclude the CISG under Article 6.[i]

At the same time, legal uncertainty limits your ability to reduce your own risk exposure and generates significant additional costs. In extreme cases, you will no longer be able to successfully enforce your claim.

To exclude the CISG, an express exclusion of its application in the GTC or in a specific contract of sale is required, or alternatively, a reference to a specific legal regulation within the chosen legal system (e.g., "This contract is governed by Act No. 89/2012 Coll., the Civil Code").

Table of risks when the CISG is not excluded

Summary

The Vienna Convention applies automatically to international contracts of sale between business owners unless the parties expressly exclude it. A mere choice of Czech law is not sufficient for this purpose. If you want the contract to be governed by the Civil Code, state expressly in the contract or in the GTC that the CISG does not apply.

At ARROWS, our Prague-based legal team has many years of experience in setting up legal relations for business owners operating internationally. We successfully create a stable legal environment for business owners, thereby saving them money and time needed for their further development.

[i]  BRUNNER, Christoph. and Benjamin. GOTTLIEB. Commentary on the UN sales law (CISG). Alphen aan den Rijn: Wolters Kluwer, 2019, xxi, 752p. ISBN 9789041199799. – page 94