International Sales Law International Sales Law -- Practical Issues Related To The Practical Issues Related To The

Application Of Application Of

THE UN CONVENTION ON CONTRACTS FOR INTERNATIONAL

SALES OF GOODS(“CISG”)

Andrea Čárska-Sheppard, Esq. International Trade & Business Lawyer & Arbitrator

Smith Moore Leatherwood LLPHrubý & Buchvaldek, v.o.s.

AgendaAgenda

1. Why is the CISG important ?1. Why is the CISG important ?

2. Selected Practical Issues Related to the Applicati on (USA)2. Selected Practical Issues Related to the Applicati on (USA)

3. Comment on the application in the Czech Republic3. Comment on the application in the Czech Republic

4. Looking towards the future4. Looking towards the future

Basic FactsBasic Facts

78 Signatories of the CISG (San Marino joined last week)78 Signatories of the CISG (San Marino joined last week)

Major Absentees (ex. Brazil, UK, Portugal, Saudi Arabia, India)Major Absentees (ex. Brazil, UK, Portugal, Saudi Arabia, India)

The United States ratified the CISG in 1986The United States ratified the CISG in 1986

The Convention had entered in effect in the Czechoslovakia on 1 The Convention had entered in effect in the Czechoslovakia on 1 April 1991. The Czech Republic and Slovak Republic succeeded to April 1991. The Czech Republic and Slovak Republic succeeded to

the convention as of 1 January 1993the convention as of 1 January 1993

Structure Of The CISGStructure Of The CISG

Part I Sphere of Application and General Provisions (Art.1-13)

Part II Formation of the Contract (Art.14-24)

Part III Sales of Goods (Art.25-88)

PART IV Final Provisions (Art.89-101)

Common ObligationsCommon Obligations

Include:Include:�� Anticipatory Breach (Art.71Anticipatory Breach (Art.71--76)76)

�� Entitlement to Interest (Art.78)Entitlement to Interest (Art.78)

�� Exemptions (Art.78Exemptions (Art.78--80):80):

�� Effect of Avoidance (Art.81Effect of Avoidance (Art.81--84)84)

�� Preservation of Goods (Art.85Preservation of Goods (Art.85--88)88)

When Does It Not Apply To Sales?When Does It Not Apply To Sales?

�� Stocks, shares, investment securities, negotiable in struments, Stocks, shares, investment securities, negotiable in struments, money, ships, vessels, hovercraft, aircraft, and elect ricity money, ships, vessels, hovercraft, aircraft, and elect ricity

(Article 2)(Article 2)

�� Generally sales of goods for personal, family or househo ld Generally sales of goods for personal, family or househo ld (Article 2)(Article 2)

�� Sales of goods by Auction or Execution (Article 2) Sales of goods by Auction or Execution (Article 2)

�� When substantial part of the contract is supply of l abor or otheWhen substantial part of the contract is supply of l abor or othe r r services services

Advising On The CISG Advising On The CISG

Drafting ContractDrafting Contract Performance of ContractPerformance of Contract Dispute Resolution/Litigation

Dispute Resolution/Litigation

Drafting International ContractsDrafting International Contracts

�� Goods (Description)Goods (Description)

�� PricePrice

�� Delivery conditionsDelivery conditions

�� PackagingPackaging

�� PaymentPayment

�� Delivery Delivery

�� Contractual ResponsibilityContractual Responsibility

�� IP Rights IP Rights

�� Certifications of productCertifications of product

�� Export/Import Documentation Export/Import Documentation

�� Subsistence of Obligations Subsistence of Obligations

�� Termination Termination

�� Force MajeureForce Majeure

�� Applicable lawApplicable law

�� Resolution of Disputes Resolution of Disputes

�� Language Language

Example of Clauses:Example of Clauses:

Why Is It Important To Choose Why Is It Important To Choose Applicable Law?Applicable Law?

�� Promotes greater certainty in international tradePromotes greater certainty in international trade

�� Preserves party autonomy Preserves party autonomy (ex. in the absence of selection the third party decides)(ex. in the absence of selection the third party decides)

�� Reduces litigation/arbitration duration and costsReduces litigation/arbitration duration and costs

�� Reduces risk of the transactionReduces risk of the transaction

Most Fundamental MistakeMost Fundamental Mistake

�� Parties often do not realize the CISG applies to Parties often do not realize the CISG applies to their contracttheir contract

�� It applies with to any contract for the sale of goods It applies with to any contract for the sale of goods between parties whose principal places of business between parties whose principal places of business

is in different CISG countriesis in different CISG countries

�� In order to exclude its application, the signatories In order to exclude its application, the signatories need to expressly optneed to expressly opt--out of its applicationout of its application

Examples Of Choice Of Law ClausesExamples Of Choice Of Law Clauses

�� This contract shall be governed by the Convention This contract shall be governed by the Convention on Contracts for the International Sales of Goods on Contracts for the International Sales of Goods

((““CISGCISG””))

�� This agreement shall be governed by the law of This agreement shall be governed by the law of Czech republic Czech republic

�� The contract between the parties is made, governed The contract between the parties is made, governed by, and shall be construed in accordance with the by, and shall be construed in accordance with the

laws of the State of New York and the laws of United laws of the State of New York and the laws of United States of America applicable therein, which shall be States of America applicable therein, which shall be

deemed to be the proper law hereof deemed to be the proper law hereof

Client Issue (USA)Client Issue (USA)

�� GermanGerman Seller and the U.S. Manufacturer Seller and the U.S. Manufacturer

�� Improper Termination of Contract; Improper Termination of Contract; Restitution/Resale of goods in the possession of Restitution/Resale of goods in the possession of

nonnon--breaching party; Damagesbreaching party; Damages

�� Contract with Dispute Settlement Clause Contract with Dispute Settlement Clause ……

““Any dispute shall be settled by Any dispute shall be settled by a South Carolina, United a South Carolina, United

States Court.States Court.””

Client Issue (continues)Client Issue (continues)

““Any disputes shall be settled by a Any disputes shall be settled by a

South Carolina, United States Court.South Carolina, United States Court.””

Does CISG apply? Does CISG apply?

AnalysisAnalysisWhat commodity? What commodity?

Is the postIs the post--sale service only supplementary? sale service only supplementary? Are the countries signatories of the CISG? Are the countries signatories of the CISG?

The CISG In The United StatesThe CISG In The United States

�� The U.S. Senate ratified the CISG in 1986The U.S. Senate ratified the CISG in 1986

�� It is applies to the transaction between parties from It is applies to the transaction between parties from the signatory states unless specifically excluded the signatory states unless specifically excluded

(e.g. (e.g. Assante Technologies, Inc. v. PMCAssante Technologies, Inc. v. PMC--SierraSierra, Inc., , Inc., 164 F. Supp. 2d 1142 2001)164 F. Supp. 2d 1142 2001)

�� Article 95 Reservation Article 95 Reservation -- Article 1(1)(b) restricts the Article 1(1)(b) restricts the role of private international law in determining the role of private international law in determining the

applicability of the CISG when both contracting applicability of the CISG when both contracting parties do not have their relevant places of business parties do not have their relevant places of business

in Contracting Statesin Contracting States

Withdrawal of reservation under Article Withdrawal of reservation under Article 95? 95?

"NYSBA International Section is looking at this issue "NYSBA International Section is looking at this issue with high interest because it has become known that with high interest because it has become known that the unavailability of Article 1(1)(b) causes technical the unavailability of Article 1(1)(b) causes technical issues and uncertainties that increases transactional issues and uncertainties that increases transactional costs."costs."

Albert BloomsburyAlbert Bloomsbury

Chair, International Contract CommitteeChair, International Contract Committee

Another Client ExampleAnother Client Example

�� U.S. Manufacturer/ Seller and Japanese U.S. Manufacturer/ Seller and Japanese Buyer:Buyer:

““All disputes, controversies, or differences All disputes, controversies, or differences

which may arise between parties, out in which may arise between parties, out in relation to or in connection with this contract, relation to or in connection with this contract, or the breach thereof, shall be finally settled by or the breach thereof, shall be finally settled by

arbitration pursuant to the Japanarbitration pursuant to the Japan--American American Trade Arbitration Agreement by which each Trade Arbitration Agreement by which each

party hereto is bound.party hereto is bound.””

�� Silence on Choice of LawSilence on Choice of Law

Drafting The Choice Of Law ClauseDrafting The Choice Of Law Clause

�� Tendency to exclude the application of the Tendency to exclude the application of the CISGCISG

�� Comparative exercise to evaluate the CISG Comparative exercise to evaluate the CISG and the Uniform Commercial Code (UCC) and the Uniform Commercial Code (UCC)

which is applies to the sale of goodswhich is applies to the sale of goods

�� Which benefits your clientWhich benefits your client’’s situation?s situation?

CISG v. UCC: Six Key DifferencesCISG v. UCC: Six Key Differences

�� Statute of FraudsStatute of Frauds

•• Cf. CISG Art. 11 and UCC Cf. CISG Art. 11 and UCC §§§§22--201(1), 202201(1), 202�� CISG allows for oral contracts and CISG allows for oral contracts and parolparol

evidenceevidence�� UCC requires writing for sale of goods above UCC requires writing for sale of goods above

$500, generally no $500, generally no parolparol evidenceevidence�� Price and Contract FormationPrice and Contract Formation

•• Cf. CISG Art. 14 and UCC Cf. CISG Art. 14 and UCC §§22--305305�� Contract will fail for indefiniteness under CISG Contract will fail for indefiniteness under CISG

where no price or price mechanismwhere no price or price mechanism�� UCC will supply a reasonable price if none UCC will supply a reasonable price if none

specifiedspecified

Six Key Differences Six Key Differences (continued)(continued)

�� Mailbox RuleMailbox Rule•• Cf. CISG Art. 18(2) and UCC Cf. CISG Art. 18(2) and UCC §§22--207207

�� CISG: acceptance recognized only when receivedCISG: acceptance recognized only when received�� UCC: acceptance recognized when mailed or UCC: acceptance recognized when mailed or

transmittedtransmitted

�� Nonconforming Goods and Perfect TenderNonconforming Goods and Perfect Tender•• Cf. CISG Art. 49(1), 64 and UCC Cf. CISG Art. 49(1), 64 and UCC §§§§22--601, 601, 606(1)(a)606(1)(a)�� Can only reject Can only reject fundamentalfundamental breaches under CISG; breaches under CISG;

must be prompt to raise objectionmust be prompt to raise objection•• CISG allows for unilateral price reduction as a remedy CISG allows for unilateral price reduction as a remedy

((See Art. 50See Art. 50))�� UCC favors buyer, can reject for UCC favors buyer, can reject for anyany reason (i.e., can reason (i.e., can

require perfect tender); gives greater flexibility of require perfect tender); gives greater flexibility of time to inspect deliverytime to inspect delivery

Six Key Differences Six Key Differences (continued)(continued)

�� Battle of the FormsBattle of the Forms

•• Cf. CISG Art. 19(1) and UCC Cf. CISG Art. 19(1) and UCC §§22--207207�� CISG is consistent with preCISG is consistent with pre--UCC common law rule; UCC common law rule;

modifications treated as rejection and counteroffermodifications treated as rejection and counteroffer�� As between merchants, new terms become part of As between merchants, new terms become part of

contract under UCC, unless objected to promptlycontract under UCC, unless objected to promptly

�� Commercial ImpracticabilityCommercial Impracticability

•• Cf. CISG Art. 79 and UCC Cf. CISG Art. 79 and UCC §§22--615615�� CISG will excuse both parties where seller alleges CISG will excuse both parties where seller alleges

impracticabilityimpracticability�� UCC will excuse only the seller for impracticabilityUCC will excuse only the seller for impracticability

The CISG In The Czech Legal SystemThe CISG In The Czech Legal System

�� The CISG is applicable between signatory The CISG is applicable between signatory states unless excluded (Law No.160/1991 Sb) states unless excluded (Law No.160/1991 Sb)

�� Article 95 declaration, the Czech Republic is Article 95 declaration, the Czech Republic is not to be bound by Article 1(1)(b)not to be bound by Article 1(1)(b)

Client Issue : Canadian Seller and Client Issue : Canadian Seller and The Czech BuyerThe Czech Buyer

�� Agricultural CommoditiesAgricultural Commodities

�� Article 11: BINDING ARBITRATIONArticle 11: BINDING ARBITRATION

““THE BUYER AND SELLER AGREE TO ATTEMPT TO RESOLVE ALL THE BUYER AND SELLER AGREE TO ATTEMPT TO RESOLVE ALL DISPUTES IN CONNECTION WITH THIS CONTRACT OR THE DISPUTES IN CONNECTION WITH THIS CONTRACT OR THE

FULLFILMENT OF THIS CONTRACT THROUGH FRIENDLY FULLFILMENT OF THIS CONTRACT THROUGH FRIENDLY DISCUSSION. IF THE DISPUTE CANNOT BE RESOLVED THROUGH DISCUSSION. IF THE DISPUTE CANNOT BE RESOLVED THROUGH

FRIENDLY DISCUSSION, THE DISPUTE SHALL BE ARBITRATED FRIENDLY DISCUSSION, THE DISPUTE SHALL BE ARBITRATED IN LONDON, UNITED KINGDOM BY THE ICC WITH THE IN LONDON, UNITED KINGDOM BY THE ICC WITH THE

PREVAILING LAW TO THE "UNITED NATIONS CONVENTION ON PREVAILING LAW TO THE "UNITED NATIONS CONVENTION ON CONTRACTS FOR THE INTERNATIONAL SALES OF GOODS CONTRACTS FOR THE INTERNATIONAL SALES OF GOODS

(1980)"AND THE LAWS OF CANADA.(1980)"AND THE LAWS OF CANADA.””

““UniverseUniverse”” of Choice of Law of Choice of Law

CISG

Unrelated Law

of 2nd party

Law of1st

Party

Substantive Law

Making a Choice

How To Exclude CISGHow To Exclude CISG’’s Application?s Application?

Effective opting out

� Choice of law clause must use specific language of opting out

� For example, “The parties hereby agree that the United Nations Convention on Contracts for the International Sale of Goods will

not apply to this contract.”

� Both parties must exclude in their contracts

Jurisprudence In The Czech RepublicJurisprudence In The Czech Republic

Examples:Examples:

�� Supreme Court, 32 Odo 725/2004] (Carpet case) Supreme Court, 32 Odo 725/2004] (Carpet case) Arts. 8(3), 18, 35, 50Arts. 8(3), 18, 35, 50

�� Supreme Court, 32 Odo 824/2007] (Manufactured Supreme Court, 32 Odo 824/2007] (Manufactured paint case), Arts 18, 55paint case), Arts 18, 55

�� Supreme Court, Supreme Court, 23 Cdo 4197/200923 Cdo 4197/2009

�� Supreme Court, Supreme Court, 4 Tdo 460/20114 Tdo 460/2011

Looking Towards The Future Looking Towards The Future

�� Tremendous international successTremendous international success

�� Real Alternative to stalling a transaction Real Alternative to stalling a transaction

�� CISG strides towards uniformity of application and CISG strides towards uniformity of application and PredictabilityPredictability

�� Article 95 developments to Watch Article 95 developments to Watch

SpeakerSpeaker’’s Recent Work & Contact s Recent Work & Contact Examples Examples -- February 2012:February 2012:

�� Management of the potential global product recalls related to thManagement of the potential global product recalls related to the claims e claims that the products sold by my client infringe the IP rights.that the products sold by my client infringe the IP rights.

�� International contracts (Sales to the EU, Japan).International contracts (Sales to the EU, Japan).

�� Export Export –– Import Advice on the US Customs laws, FDA and FTC laws and Import Advice on the US Customs laws, FDA and FTC laws and regulations, Consumer Product Safety Act related to the labelingregulations, Consumer Product Safety Act related to the labeling and and designation of the imported consumer products from Asia. designation of the imported consumer products from Asia.

�� Choice of Law Issues, Settlement Negotiation: Dispute pending inChoice of Law Issues, Settlement Negotiation: Dispute pending in the the Canadian court involving Czech & French parties and the insurancCanadian court involving Czech & French parties and the insurance e company based in the United States. company based in the United States.

Contact through: Contact through:

More Information on the CISG More Information on the CISG

CISG database: http://www.cisg.law.pace.edu/

UNCITRAL (Clout Search) http://www.uncitral.org/clout/showSearchDocument.do

Thank you.