Chapter Two The Vienna Convention on the International Sale of Goods 1980 Part I

1. Chapter Two The Vienna Convention on the International Sale of Goods 1980 Part I

2. Key words • Sale of goods, global transactions, International Sales, UNCITRAL, developing nations, developed nations, ‘Vienna Convention’, obligations, the seller, the buyer, remedies, passing of risk, damages, delivering the goods, property, price, payment of a price, cost, places of business, contracting States, documentary sales, international sales transactions, commercial transactions, Trade usage, Formation of a Contract, offer, offeror, offeree, acceptance, consideration, the mirror image rule, counter-offer, Payments, Quantity, Place of delivery, time of delivery, Transfer property, certificates of origin, customs clearance, customs clearance, The sale contract, carriage of goods, export license, import license, a letter of credit, conclusion of the contract.

3. Learning Objectives By the end of this chapter you will: • 1. Understand the Vienna Convention on the International Sale of Goods 1980 and its historical development. • 2. Explain the structure and features of the Vienna Convention on the International Sale of Goods 1980. • 3. Identify when and how the Vienna Convention on the International Sale of Goods 1980 can be applied. • 4. Understand the sale contract. • 5. Explain the issues of Exclusion and the Exclusions within the Vienna Convention on the International Sale of Goods 1980.

4. Learning Objectives • 6. Identify trade usage and interpretation of the Vienna Convention on the International Sale of Goods 1980. • 7. Describe the formation of a contract. • 8. Identify the obligations under Articles of the Vienna Convention on the International Sale of Goods 1980. • 9. Explain the obligations of the seller • 10. Be aware of when goods do not conform to the standards of the Vienna Convention on the Sale of Goods 1980.

5. Introduction • A harmonization of the law relating to international sales of goods in the form of an international convention for worldwide adoption, would allow for a uniform set of rules governing global transactions. • This begun in 1930 (International Institute for the Unification of Private Law (UNIDROIT) but was delayed due to the onset of the Second World War until the early 1950s.

6. Introduction • In 1964, two conventions were adopted, Uniform Law on International Sales (ULIS) and Uniform Law on the Formation of International Sales (ULFIS), which were ratified by a small number of States, including the UK. Both conventions were criticized on political and legal grounds and as a result they had to be re-assessed. The United Nations Commission on International Trade Law (UNCITRAL) was considered as the ideal organization to draft the international convention. This was due to the fact that its membership, which consisted of the both the developing (Third World) and developed nations as well as the socialist States, would counter any political objections that could be made by the Third World or socialist States.

7. Introduction • The Working Group started work in 1969 with ULIS and ULFIS and submitted two draft conventions in 1976 and 1977 to the Commission. • The Commission combined the two draft conventions into one – the Convention on the International Sale of Goods – and submitted it to the Diplomatic Conference held at Vienna. The Convention on International Sales of Goods 1980 (‘CISG’ or popularly known as the ‘Vienna Convention’) came into force in 1988 with the required 10 ratifications and many more to follow.

8. Introduction • Popularity of the Convention on International Sales of Goods 1980 (hereinafter ‘Vienna Convention’) has brought it to prominence in the field of international commercial law.

9. The Vienna Convention: Structure and features • The Vienna Convention consists of socialist, third world, common, and civil law principles. • The Vienna Convention has four parts and each part deals with particular functions: • Part I (Arts 1–13) application and general provisions; • Part II (Arts 14–24) on formation of contract; • Part III (Arts 25–88) obligations of the seller, the buyer, remedies for breach of contract by seller and buyer, passing of risk and damages; and • Part IV (Arts 89–101) on final provisions dealing with matters such as depositary (guardian), reservations and entry into force.

10. Application • Article 1 of the convention applies to ‘contracts of sale of goods’. • the sale contract involves: • the seller delivering the goods • the seller giving any documents relating to those goods • the seller transferring any property in the goods • the buyer is bound to pay the price for the goods and take any delivery of them • the payment of a price/cost is the central ingredient in a sale contract.

11. Application • The Convention does not apply to: • Agency agreements • Barters where goods are exchanged for goods or services and both parties take on the role of seller and buyer. • Distribution agreements. • However, the Vienna Convention can apply to sales concluded under a distribution agreement.

12. Application • @The Vienna Convention will apply to a contract for the sale of goods if: • The places of business are in different States (Art 1); and • Both of these States are contracting States to the Vienna Convention (Art 1(1) (a)); and • Both parties know that they have places of businsess in different States on the basis of the contract, or dealings or information disclosed before or at the conclusion of the contract (Art 1(2)). • حذف هذان سطران • The place of business is important for the Vienna Convention to be applied, but there is not an exact definition of that place of business.

13. Application • Applicability can be extended on the basis of private international law principles even where the parties do not have their places of business in contracting States. There is a provision under Article 1 (1) (b) of the Vienna Convention which allows its application when rules of private international law lead to the application of the law to a contracting State.

14. Application • The purpose of this rule is to broaden the impact of the Vienna Convention to allow its application to those transactions which are entered into by any parties who are not located in contracting States. • The Vienna Convention excludes certain controversial areas and those areas which are already covered by international law. This can affect other types of transactions and the sale of certain types of goods.

15. Exclusions • Consumer transactions – there are goods bought for personal, family or household use – are excluded but the seller has to be aware that they are excluded. • The Vienna Convention is not concerned with procedural issues, such as burden of proof.

16. Exclusions • Auction sales. These are contracts concluded by the fall of a hammer in auction sales. The place of business cannot be determined by the buyer at the conclusion of the contract (Art 2(b)). Sales by auction are unusual in international trade. Sales on execution or by authority of law are also subject to domestic law (Art 2(c)).

17. Exclusions • Sale of stocks, shares, investment securities and negotiable instruments (الصكوك أو السندات القابلة للتداول أو التحويل) as these are all subject to their own rules (Art 2(d)). Negotiable instrument is a document guaranteeing the payment of a specific amount of money, either on demand, or at a set time, with the payer named on the document • Please note, however, that the sales of goods that involve documents (documentary sales), such as a sale of goods on CIF terms are NOT excluded. • CIF= cost, insurance and freight: The cargo insurance and delivery of goods at the seller's expense. • الكلفة والتأمين وأجور الشحن: تعني تأمين الشحن وتسليم البضاعة إلى ميناء الوصول (التفريغ) المحدد على حساب البائ

18. Exclusions • Sale of ships, vessels, hovercraft or aircraft, Article 2(e). Sea- and airborne vessels are considered as real estate by many jurisdictions and are subject to special rules. • Sale of electricity (Art 2(f)) is as this is subject to detailed bilateral agreements.

19. Exclusions • Made-to-order goods. Although goods to be manufactured or produced fall within the scope of the Vienna Convention, if a substantial part of the material used in the manufacture of production of goods is provided by the person who orders, the sale transaction, according to Art 3(1), then this falls outside of the Vienna Convention. There have been a number of court cases regarding this. • Contracts where the dominant part of the party who supplies goods consists of supply of labour or other services.

20. Exclusion of Issues • محذوف • Art. 4 excludes certain areas, such as validity of contract, in international sales transactions. Issues of legal capacity, illegality, mistake and agency contracts remain. Applicable law will, therefore, be relevant where validity of the contract is at issue. • Property due to the divergent approaches, it would be difficult to reach a consensus.

21. Exclusion of Issues • Liability for personal injury or death. (Article 5). Art.5 is silent on the issue of liability for damage to property. This could be a matter for the law of tort but the Vienna Convention displaces tort liability, and compensation is to be calculated on the basis provided by Art 74. • The Vienna Convention is silent on the burden of proof. Both the courts and scholars consider this issue to be decided by domestic law.

22. Party autonomy and the Vienna Convention • @ The independence of a party is considered fundamental to international commercial transactions by private international law in most legal systems and this is approved by the Vienna Convention. • The Vienna Convention is not compulsory which means that parties can ignore it (Art 6). • Contracts do not have to be subject to it and can expressly state this and it can be excluded by the parties agreeing to terms that are inconsistent to it.

23. Trade Usage and the Vienna Convention • محذوف • Art 9 is the result of compromise. Trade usage was recognized in ULIS (Art 9). • The Vienna Convention recognizes both express and implied usages. Knowledge is important in incorporating usages impliedly: • The parties knew or if they should have known of the usage • That the usage is widely known in international trade • The usage is regularly observed by the parties in contracts of the type involved in the particular trade concerned. • Art 9 also includes practices that the parties have established between themselves.

24. Interpretation of the Vienna Convention • محذوف • Art 7, states: • In the interpretation of this convention, regard is to be had to its international character and to the need to promote uniformity on its application and the observance of good faith in international trade. • Questions concerning matters governed by this convention which are not expressly settled in it are to be settled in conformity with the general principles on which it is based or, in the absence of such principles, in conformity with the law applicable by virtue of the rules of private international law.

25. @Formation of a Contract • The Vienna Convention adopts the traditional Offer-Acceptance criteria for deciding the existence of a contract and excludes Consideration, (found in common law). A contract can be a written or an oral exchange. There was debate concerning Art. 11 due to the fact that former socialist countries only allowed strict formal requirements for making contracts and did not want to accept contracts based on oral communication. An agreement was made that those States who required written contracts could make a reservation under Art. 96. However, once the reservation is made, the contracting parties cannot agree to depart from the written contract requirement.

26. Formation of a Contract • An offer, under the Vienna Convention (Art 14) must: • Be made to a specific person; • Be sufficiently definite (i.e., the offer must indicate the goods and fix the quantity and price explicitly or implicitly); and • Indicate the intention on the offeror’s part to be bound in the event of acceptance

27. Formation of a Contract • Art 14 states that the price must be fixed either explicitly or implicitly. • Art 55 states that where a contract has been concluded but does not expressly or implicitly fix the price, the parties are considered to have impliedly made reference to the price at the time that the contract was concluded, or such goods sold under comparable circumstances in the trade concerned, unless there was any indication against it.

28. Formation of a Contract • محذوف • Art 14 and Art 55 appear to contradict each other. This conflict is due to the fact that Art 14 suggests there is no offer if the price is not fixed, either implicitly or explicitly, whereas Art 55 suggests there is a contract even in the absence of explicit/implicit agreement of price. • There is a view that Art 55 should apply to those contracting States to the Vienna Convention who have made a reservation that they will not be bound by Part II. In case law, Art 55 has been cited in a number of judgments.

29. @Formation of a Contract • @The Vienna Convention allows for a firm offer but the rules differ among civil and common law concerning the revocation of an offer. ألغاء ، سحب، ابطال العرض • In common law, an offer can be revoked any time before acceptance, even where the offeror agrees to keep the offer open until a fixed date. One way for the offeree to protect himself against revocation is to provide consideration. • In the civil law, where a period of time is fixed, the offeror cannot revoke the offer during that period.

30. Formation of a Contract • The issue of revocability is found in Art. 16 but it can suffer from either a common law or a civil law biased interpretation. • Art 16(1) states: ‘until a contract is concluded, an offer may be revoked if the revocation reaches the offeree before he has dispatched the acceptance’. There is much that is familiar to the common law system in this provision.

31. Formation of a Contract • @Article 16(2) states: ‘an offer cannot be revoked • (a) if it indicates, whether by stating a fixed time for acceptance or otherwise, that it is irrevocable, or • (b) if it was reasonable for the offeree to rely on the offer as being irrevocable and the offeree has acted in reliance on the offer’. • Equally, there is much that is familiar to the civil law system in Para 2. Given that Art 16 reflects rules familiar to both sides, there is a real danger that, in interpreting this provision, emphasis will be put on the part that is most familiar.

32. Formation of a Contract • To accept, the offeree has to agree with a statement as remaining silent will not be considered as an acceptance (Art 18(1)). • The offer can be withdrawn before the acceptance reaches the offeror or at the same time as the acceptance would have become effective (Art 22). يجوز سحب ُ القبول إذا وصل طلب السحب إلى الموجب قبل الوقت الذي يحدث فيهُ القبول أثََ ره أو في نفس الوقت This is due to the fact that acceptance cannot be immediate if it takes time to reach the offeror. If the offer is oral, then acceptance must be immediate. (Art 18(2)).

33. Formation of a Contract • The Vienna Convention adopts the mirror image rule –the offer and acceptance must match. • Art 19(1) states that ‘a reply to an offer that is meant to be an acceptance but contains additions, limitations or other modifications is a rejection of the offer and becomes a counter-offer.

34. Formation of a Contract • محذوف • Art 19(2) states that a reply that contains additional or different terms that do change the terms of the offer will be an acceptance and the contract terms will consist of those in the offer along with the modifications in the acceptance, unless the offeror objects.

35. Formation of a Contract • @If the acceptance contains terms that do change the terms of the offer, the acceptance will be a counter-offer. • Art 19(3) has a list of terms which are regarded as changes: • Price • Payments • Quantity • Place and time of delivery • Extent of one party’s liability to the other • Settlement of disputes • Only minor changes are likely to be accepted. For example, where an offer quotes the price FOB Singapore and the acceptance states Free on Board Singapore. مجانا على متن السفينة على البائع

36. Obligations of the Seller • taught • @@According to Art 30, the seller is under an obligation to: • Deliver goods; • Hand over the documents; and • Transfer property in the goods.

37. Obligations of the Seller • The Vienna Convention does not list the kind of documents the seller is required to hand over to the buyer. In international sales, it is usual for the seller to require certificates of origin, quality, transport documents and other documents required for customs clearance.

38. Obligations of the Seller • Article 31 deals with the obligation to deliver. The sale contract is likely to agree to the particular place where delivery is to take place. If there is no agreement then delivery is dependent on the circumstances. • If the contract of sale involves carriage of goods, delivery will take place when the goods are handed over to the first carrier for sending to the buyer.

39. Obligations of the Seller • محذوف • If the contract of sale does not involve carriage of goods, and where the contract relates to specific goods, or unidentified goods to be drawn from a specific stock or to be manufactured or produced, and the parties knew that the goods were at a particular place or to be manufactured at a particular place, delivery takes place when the goods are placed at the buyer’s disposal at that place. (Art 31(b)).

40. Obligations of the Seller • محذوف • In all other cases, delivery takes place when the goods are placed at the buyer’s disposal, at the seller’s place of business, at the conclusion of the contract. (Art 31(c)). • The Vienna Convention is silent as to whether the seller needs to satisfy any formalities in placing the goods at the buyer’s disposal. The seller will have to notify the buyer that the goods are at his disposal, so he can take over the goods, to avoid risk from the seller to the buyer. If INCOTERMS are used, then there has to be a uniform approach to a number of obligations from delivery, passing of risk to obtaining of export and import licenses. As for the date of delivery, the sale contract would normally agree to this– it could be a fixed date or within a fixed period or on the happening of an event, such as the buyer opening a letter of credit.

41. Obligations of the Seller • Delivery should take place if the date is fixed on that date. (Art 33). • Where the parties agree on a period of time, then it becomes within that period. The choice of when to deliver within that period will be the seller’s, unless circumstances indicate that the buyer is to choose the date. • Where the agreement does not indicate a fixed period or a fixed time, goods are to be delivered within a reasonable time after conclusion of the contract. What is reasonable depends on the circumstances of each case. Equally, where the seller is required under the contract to hand over documents, he has to do so at the time and place agreed by them.

42. Obligations of the Seller • Art 35(1) requires that they are of the quantity, quality and description required by the contract and are contained or packaged in the manner required by the contract.

43. Obligations of the Seller • Goods will not conform if they are: • Not fit for the purpose for which goods of the same description would ordinarily be used (Art 35(2)(a)) • Not fit for the particular purpose made known to the seller expressly or impliedly (Art 35(2)(b)) • Do not possess the qualities of goods the seller has held out to the buyer as sample or model (Art 35(2)(c)) • Are not packaged in the usual manner or adequately to preserve and protect the goods (Art 35(2) (d)).