The United Nations Convention on Contracts for the International Sale of Goods (CISG) is an international treaty governing the sale of goods. The United Nations Commission on International Trade Law drafted the CISG, which was opened for signature on April 11, 1980. Its purpose is to encourage and develop international trade on the basis of equality and mutual benefit, important ingredients in promoting friendly relations between countries. These uniform trade rules are intended to remove legal barriers between countries with distinct social, economic and legal systems, which may otherwise serve to stymie trade relations.

More than 80 counties are signatories to this treaty, including the United States, Brazil, Canada, Denmark, France, Germany and Japan, just to name a few. It is applied to international sales contracts meeting specific criteria. A contract for the sale of goods is “international” within the meaning of Article 1 of the CISG where the parties have, at the time the agreement is concluded, their relevant places of business in different countries. A relevant place of business has been interpreted to mean principal places of business. This means that where parties to a contract have their relevant places of business in different countries that are signatories to the CISG, the CISG will likely apply. Article 6 of the CISG provides that “[t]he parties may exclude the application of this Convention. . .” This is based on the premise that parties to a contract are free to designate the law that should govern their agreement. In order to exclude the application of the CISG, clear language indicating that both contracting parties wish to apply law other than the CISG must be present in the contract. This affirmative opt-out requirement requires express language from both parties that they do not wish to apply the CISG to the agreement and a statement of what law should apply in lieu of the CISG. Merely stating that another country’s laws will apply is ineffective without express language disclaiming the application of the CISG. Such a requirement is premised upon the promotion of good faith and uniformity in international trade, two of the guiding principles of CISG interpretation.

The CISG defines the formation of contracts, and buyer and seller obligations. Goods, under the CISG, are items that are moveable and tangible. Pursuant to Article 3(2), the CISG “does not apply to contracts in which the preponderant part of the obligations of the party who furnishes the goods consists in the supply of labour or other services.” In order to determine whether the seller’s obligations consist preponderantly in the supply of labor or services, a comparison is made between the economic value of the obligations regarding the goods, as if two separate contracts had been made. Where the obligation regarding the supply of labor or services amounts to more than 50 percent of the seller’s obligations, the CISG is generally inapplicable.

Companies with relevant places of business in signatory countries who are engaging in international trade should be aware of the CISG and its potential application to their agreements around the world.