The United Nations Convention on Contracts for the International Sale of Goods 1980 (‘CISG’) was the end result of a lengthy process towards unifying international trade law. The CISG became New Zealand law when the Sale of Goods (United Nations Convention) Act 1994 came into force on 1 October 1995, and as such New Zealand businesses dealing with international contracts should be aware of its operation.
What is the CISG?
The CISG provides a universal framework to govern international contracts for the sale of goods. Amongst other things, it sets out which contracts the CISG applies to, rules around the formation of such contracts, the obligations of the buyer and seller, and remedies for breach of such contracts.
When does the CISG apply?
When two parties have their place of business in two different countries, and both countries have ratified the CISG (“Contracting States”), the CISG will govern the operation of a contract for the sale of goods between those parties. For example, where a business based in New Zealand enters into a contract to sell or buy goods with a business based in the USA the CISG would apply, as both these countries are Contracting States.
The CISG may also apply where only one party is a Contracting State. In this instance, the rules of private international law apply, which may lead to the law of the Contracting State being applicable to the contract.
For example, because the CISG is domestic law in New Zealand, it would apply if New Zealand law was found to be applicable under a contract between a business based in New Zealand and a business based in a non-Contracting State.
When does the CISG not apply?
Some contracts for the sale of goods are specifically excluded from the scope of the CISG – for example, goods bought for personal, family or household use, or at auction. Parties to a contract that would usually be subject to the CISG can explicitly choose to exclude its application or choose to deviate from some of its terms.
When an issue arises that is not covered by the terms of the CISG, this situation is to be dealt with either by the general principles of the CISG, or where this is not possible, by the rules of private international law.
Why is the CISG relevant for New Zealand businesses?
Where a business based in New Zealand enters into a contract for the sale or purchase of goods with an overseas based business, the CISG will often apply. With this in mind, it is also important for businesses to note that while the CISG is New Zealand domestic law when it applies to a contract it changes the ‘usual’ New Zealand domestic law. For example, the CISG departs significantly from usual New Zealand domestic law in respect of irrevocable offers.
In order to have peace of mind when entering into international contracts for the sale of goods, it is important to consider firstly the law that applies to your contract, and if the CISG applies. If it does, you will then need to understand the effect it will have and how it can be tailored to meet your needs.