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When you are trading with an international party, it may well be that the UN Convention on contracts for the International Sale of Goods (CISG) is also applicable to the contract. Currently 97 countries are a member of this CISG, so there is a realistic chance that this CISG is also applicable to your contract of sale.
Article 1(1)(a) of the CISG states that if the parties have their places of business in different states, then the rules of this CISG are applicable. Article 1(1)(b) states that if the parties are situated in different states, then the CISG is also applicable if the local law of a member state is applicable to the contract, either if parties have expressly agreed to it. For example, if Dutch law is applicable to a contract of sale of goods with another party registered in Greece, then the CISG is applicable in addition to Dutch law.
The CISG is not applicable in the event that:
- one of the parties is a consumer;or,
- the contract is for the sale of services or fixed assets such as ships, aircrafts etc; or,
- parties have contracted out of the applicability of the CISG.
What are the pro’s and con’s of the applicability of the CISG in the event of international trade?
- There is unified application and interpretation of CISG;
- CISG is supranational law and applies over and above national law;
- CISG provides for a better enforcability in negotiations with international contracting parties due to its widespread use and also clarity on formation of a contract, payment of the purchase price, delivery and consequences of a breach;
- CISG is available in many different languages such as English, Chinese, Arabic, Spanish and Russian;
- CISG is seller friendly when it comes to a breach, which needs to be material. Also the complaint period under the CISG is very strict. Both of these are beneficial if you are the seller.
What are your rights under CISG in the event of breach of contract?
CISG is quite strict on rescission of the contract due to breach. The breach needs to be a fundamental breach, whereas under Dutch law this is any breach. This makes it more difficult under the CISG to rescind the agreement. The goods delivered need to be examined for non-conformity within a reasonable time after discovery of the non-conformity. Reasonable time depends on the type of goods. This right lapses after 2 years (article 39(2) CISG). The notice of non-conformity also needs to be specific. The remedies under CISG are specific for the seller (article 45 to 52 CISG) and the buyer (article 74 to 77 CISG). Inclusion or exclusion of CISG cannot be regulated under the General Terms and Conditions of either contracting party.
CISG and General Terms and Conditions
What happens if both contracting parties state in the contract that their own General Terms and Conditions (GTC’s) are applicable? The question is which GTC’s apply in this instance. This is what is called a “battle of forms”.
The CISG states that the GTC’s are applicable in accordance to the rules of offer and acceptance (article 18(1) of the CISG).
In the event that your offer states that your GTC’s are applicable, and the other party reacts by acceptance under the condition of the applicability of their GTC’s, then there is a potential conflict issue. The CISG tends to resolve this by treating acceptance as performance of the contract. Quite often this means that the GTC’s of the last party are applicable.
Under Dutch law however the “first shot” principle is applied in this situation. This means that the first party declaring their GTC’s to be applicable goes first provided the provisions of article 6:265 (3) of the Dutch Civil Code have been met. This means that the other party should expressly reject the applicability of GTC’s of the other party. Case law has shown that by merely adding wording to your company’s GTC’s is not sufficient and my advice is to include specific wording in your offer to the other party. It needs to be extremely clear to the other side that your company will and is rejecting their GTC’s.
As you can read, there are some challenges to be met in the event that your business enterprise regularly contracts with international parties.
If I can help you in relation to the above, please feel free to contact Madelon van Breemen.