BUYERS AND SELLERS UNDER THE UN CONVENTION ON

BUYERS AND SELLERS UNDER THE UN CONVENTION ON CISG Presented by Tom Reid Chief Problem Solver Certified Contracting Solutions, LLC CCS Presented to the National Contract Management Association’s Third Annual Commercial Contracting Conference NCMA 3 rd Annual Commercial Contract Management Conference International Contract Management—Better Business by Crossing Borders The Fairmont Dallas, TX 1

CCS ACKNOWLEDGEMENTS CCS Is Fully Responsible For The Content Of This Presentation, But The Valuable Support Of Others Is Gratefully Acknowledged. NCMA 3 rd Annual Commercial Contract Management Conference International Contract Management—Better Business by Crossing Borders The Fairmont Dallas, TX 2

CCS WHAT IS THE CISG? • The Convention On Contracts For The International Sale Of Goods • Designed To Foster World Trade By Acting As A Bridge To Improved Understanding In Business Dealings Between Persons From Different Countries And Cultures NCMA 3 rd Annual Commercial Contract Management Conference International Contract Management—Better Business by Crossing Borders The Fairmont Dallas, TX 3

CCS WHAT IS IT? • Also Referred To As “The Vienna Convention” • In Effect, A Sales Code For International Commercial Transactions • Has 101 Articles (Approx. . 20 Pages) NCMA 3 rd Annual Commercial Contract Management Conference International Contract Management—Better Business by Crossing Borders The Fairmont Dallas, TX 4

CCS WHY HAVE IT? • Provide A Common Baseline Of Terms And Conditions For All Contracting Parties • Choice Of Law Is Always Important • Can Select Either Party’s National Law • Can Select The Application Of A Treaty NCMA 3 rd Annual Commercial Contract Management Conference International Contract Management—Better Business by Crossing Borders The Fairmont Dallas, TX 5

CCS WHERE DID IT COME FROM? • International Institute for the Unification of Private Law (UNIDROIT) In 1930 – Several Drafts And Interruption Due To Wars, But Work Product Never Widely Accepted • Hague Conference (1964) – Uniform Law for the International Sale of Goods (ULIS) – Uniform Law for the Formation of Contracts (ULF) • United Nations Commission on International Trade Law (1966) (CISG Adopted 4/10/80) NCMA 3 rd Annual Commercial Contract Management Conference International Contract Management—Better Business by Crossing Borders The Fairmont Dallas, TX 6

CCS WHAT DOES IT APPLY TO? • Only To “International Sales” • Excludes Coverage Of: – Consumer Sales – Ships, Aircraft, And Electricity – Security Transactions – Sales Of Services (But Parties May Opt In) • Parties May “Contract Out” Of CISG • Does Not Cover “Trade Terms” Or The Passing Of “Title” NCMA 3 rd Annual Commercial Contract Management Conference International Contract Management—Better Business by Crossing Borders The Fairmont Dallas, TX 7

CCS WHO DOES IT APPLY TO? • There Were 14 Original Participants • As Of 1996 – 46 Countries Had Ratified It • Today There Are 62 Signatories • Sometimes Viewed As Being More Favorable To Buyers, Particularly In Developing Countries NCMA 3 rd Annual Commercial Contract Management Conference International Contract Management—Better Business by Crossing Borders The Fairmont Dallas, TX 8

CCS Participating Countries - 2003 NCMA 3 rd Annual Commercial Contract Management Conference International Contract Management—Better Business by Crossing Borders The Fairmont Dallas, TX 9

CCS WHAT DOES IT SAY? • Oral Contracts Are Allowed • Prior Course Of Dealing And Trade Usage Are Honored • Offer Must Be “Sufficiently Definite” • Acceptance Effective When Received (But May Not Be Revoked Once Dispatched) • Battle Of The Forms – “Materiality” NCMA 3 rd Annual Commercial Contract Management Conference International Contract Management—Better Business by Crossing Borders The Fairmont Dallas, TX 10

CCS WARRANTIES • Fit For The Purpose For Which Goods Of The Same Description Would Ordinarily Be Used • Fit For Any Particular Purpose Expressly Or Impliedly Made Known To The Seller At The Time • Does Not Address “Merchantability” NCMA 3 rd Annual Commercial Contract Management Conference International Contract Management—Better Business by Crossing Borders The Fairmont Dallas, TX 11

CCS INSPECTION • Buyer Must Inspect And Report Non. Conformance Within A Reasonable Time • Seller Should Specify A Time • Seller May Want To Expressly Override CISG Art. 27, Which Causes Seller To Bear Responsibility For Delay Or Non. Receipt Of Notices From Buyer NCMA 3 rd Annual Commercial Contract Management Conference International Contract Management—Better Business by Crossing Borders The Fairmont Dallas, TX 12

CCS REMEDIES • Full Scope: – Specific Performance – Delivery Of Substitute Goods – Price Reduction – Compensatory Damages – Seller Should Limit Remedies To These • Seller Should Exclude Consequential Damages NCMA 3 rd Annual Commercial Contract Management Conference International Contract Management—Better Business by Crossing Borders The Fairmont Dallas, TX 13

CCS WHAT DOES A CISG AGREEMENT LOOK LIKE? • Preamble • Identification Of Parties • • Description Of Goods Price And Payment Conditions Delivery Periods And Conditions Inspection Of The Goods – Obligations And Limitations NCMA 3 rd Annual Commercial Contract Management Conference International Contract Management—Better Business by Crossing Borders The Fairmont Dallas, TX 14

CCS WHAT DOES A CISG AGREEMENT LOOK LIKE? • Quantity Or Quality Variations Allowed • Reservation Of Title And Passage Of Property Rights • Transfer Of Risk – When And How • Seller’s Warranties And Buyer’s Complaint Process • Assignment Of Rights NCMA 3 rd Annual Commercial Contract Management Conference International Contract Management—Better Business by Crossing Borders The Fairmont Dallas, TX 15

CCS WHAT DOES A CISG AGREEMENT LOOK LIKE? • • • Force Majeure Clause Require All Amendments In Writing Choice Of Controlling Language Choice Of Law Dispute Resolution Mechanism NCMA 3 rd Annual Commercial Contract Management Conference International Contract Management—Better Business by Crossing Borders The Fairmont Dallas, TX 16

CCS PRACTICE TIPS Parties • Not Always What They Seem • Make Sure That Signatory Is Party Whose References Were Checked • Make Sure Company Is Not A Shell Without Assets NCMA 3 rd Annual Commercial Contract Management Conference International Contract Management—Better Business by Crossing Borders The Fairmont Dallas, TX 17

CCS PRACTICE TIPS Subject Matter • Must Be An Adequate Description Of The Seller’s Tender • NOTE: CISG Does Not Cover Pure Services • HOWEVER: Parties Can Opt In NCMA 3 rd Annual Commercial Contract Management Conference International Contract Management—Better Business by Crossing Borders The Fairmont Dallas, TX 18

CCS PRACTICE TIPS Seller’s Tender – Don’t Be Verbose – Delivering “Too Good” Can Allow Avoidance – Too Descriptive Can Disrupt Letter Of Credit – “A Ton Does Not Mean About A Ton” NCMA 3 rd Annual Commercial Contract Management Conference International Contract Management—Better Business by Crossing Borders The Fairmont Dallas, TX 19

CCS PRACTICE TIPS Pricing • • Allow For Currency Fluctuations Public Indexes Often Used Allow For Delay In Payment Define WHEN Payment Has Been Made Since Delays In Remittance May Also Be Affected By Fluctuations • Consider Duties And Taxes – Who Pays? NCMA 3 rd Annual Commercial Contract Management Conference International Contract Management—Better Business by Crossing Borders The Fairmont Dallas, TX 20

CCS PRACTICE TIPS Title • Solely A Function Of National law • Not Addressed In CISG • Seller Should Seek A ROT Clause NCMA 3 rd Annual Commercial Contract Management Conference International Contract Management—Better Business by Crossing Borders The Fairmont Dallas, TX 21

CCS PRACTICE TIPS • • Penalty Or Liquidated Damages Penalties Are Not Honored In Many Countries Liquidated Damages Are More Widely Accepted Must Be Reasonable; Cannot Be Excessive Don’t Violate The New York Pig Theory NCMA 3 rd Annual Commercial Contract Management Conference International Contract Management—Better Business by Crossing Borders The Fairmont Dallas, TX 22

CCS PRACTICE TIPS Force Majeure/ Hardship/ Excusable Delays • UCC Speaks To “Commercial Impracticability” • CISG Speaks To “Impediments To Performance” • Consider: What If Delivery Is Expected In A War Zone? NCMA 3 rd Annual Commercial Contract Management Conference International Contract Management—Better Business by Crossing Borders The Fairmont Dallas, TX 23

CCS POTENTIAL ISSUE • CISG Can Apply Even When Goods Do NOT Cross International Borders NCMA 3 rd Annual Commercial Contract Management Conference International Contract Management—Better Business by Crossing Borders The Fairmont Dallas, TX 24

CCS LIMITATION OF CLAIMS • Both UCC And CISG Use A Four-Year Standard • UCC Allows Reduction Of Time; CISG Does Not • UCC Speaks To “Action For Breach” • CISG/Limitation Convention Speaks To Any Claim “Arising From A Contract…Or Relating To Its Breach, Termination, Or Invalidity” NCMA 3 rd Annual Commercial Contract Management Conference International Contract Management—Better Business by Crossing Borders The Fairmont Dallas, TX 25

CCS STATUTE OF FRAUDS • UCC Sec. 2 -201 – Sales Of Goods Over $500 Must Be In Writing • CISG Allows Oral Agreements In Any Amount – Art. 96 Allows Countries To “Reserve” This – Eastern Bloc Countries Did – US Did Not NCMA 3 rd Annual Commercial Contract Management Conference International Contract Management—Better Business by Crossing Borders The Fairmont Dallas, TX 26

CCS FIRM OFFERS • UCC Sec 2 -205 Provides That An Offer May Not Be Revoked If Stated At Outset That It Will Remain Open NTE Three Months • CISG Allows Firm Bids If So Stated At Time Of Offer, OR If It Is Reasonable For The Offeree To Rely On The Offer As Being Irrevocable NOTE: Without A Writing, This May Be Hard To Prove NCMA 3 rd Annual Commercial Contract Management Conference International Contract Management—Better Business by Crossing Borders The Fairmont Dallas, TX 27

CCS PAROL EVIDENCE • UCC Sec. 2 -202 Prohibits Parol Evidence • CISG Encourages It Article 8(3) “In Determining Intent…Due Consideration Is To Be Given To All Relevant Circumstances…Including The Negotiations, (Course Of Dealing), Usage And Any Subsequent Conduct Of The Parties” NCMA 3 rd Annual Commercial Contract Management Conference International Contract Management—Better Business by Crossing Borders The Fairmont Dallas, TX 28

CCS BATTLE OF THE FORMS • Under UCC Principles, A Contract Exists And Consists Of Those Terms That Are Not In Variance With Each Other • Under CISG, No Contract Is Formed And A Counter Offer Is Recognized • 1998. "Battle of the Forms" Under the 1980 United Nations Convention on Contracts for the International Sale of Goods: A Comparison with Section 2 -207 UCC and the UNIDROIT Principles, 10 Pace International Law Review (1998) 97 -155 NCMA 3 rd Annual Commercial Contract Management Conference International Contract Management—Better Business by Crossing Borders The Fairmont Dallas, TX 29

CCS SOURCES OF LAW • Best Web Site: – http: //www. cisg. law. pace. edu/ Contains Links To Specific Country Sites, Legislative History, Adoption Documents From Various Countries, Native Language Sites, And Case Law In Multiple Languages NCMA 3 rd Annual Commercial Contract Management Conference International Contract Management—Better Business by Crossing Borders The Fairmont Dallas, TX 30

CCS EFFECT ON STATE LAW “The Sales Convention Was Enacted In This Country As A Treaty. Thus, It Became Binding On Each Of Our Fifty States By Action Of The President With The Concurrence Of The Senate … Without The Need For Attention Or Action By The Legislatures Of The States. ” New York Court of Appeals Judge Stewart F. Hancock, Jr. NCMA 3 rd Annual Commercial Contract Management Conference International Contract Management—Better Business by Crossing Borders The Fairmont Dallas, TX 31

CCS INTERPRETATION • Intent Is To Have Interpretation Be Autonomous, Without Reference To Any Particular National Legal System NCMA 3 rd Annual Commercial Contract Management Conference International Contract Management—Better Business by Crossing Borders The Fairmont Dallas, TX 32

CCS DETAILED COMPARISONS • 1980. A Comparison of the Uniform Commercial Code to UNCITRAL's Convention on Contracts for the International Sale of Goods, 6 North Carolina Journal of International Law and Commerce Regulation (1980) 63 -80 NCMA 3 rd Annual Commercial Contract Management Conference International Contract Management—Better Business by Crossing Borders The Fairmont Dallas, TX 33

CCS CONCLUSION • CISG Can Replace UCC Rules In Many Transactions • Parties Should Be Careful In Opting In Or Out Of CISG, And Be Equally Careful In Selecting A Proper “Gap. Filler” National Law • Dealings With Parties In Other Countries Can Be Facilitated With CISG NCMA 3 rd Annual Commercial Contract Management Conference International Contract Management—Better Business by Crossing Borders The Fairmont Dallas, TX 34