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BTW3201 International Trade Law

International sale of goods:
The Vienna Convention on the
International Sale of Goods 1980
(CISG) – Part 1

Accredited by: Advanced Signatory:

Choice of law clause
What is a ‘choice of law clause’?
• In a contract, a ‘choice of law clause’ states the governing law of the
contract.
• An international sale contract should contain a choice of law clause
since the seller and the buyer are from different jurisdictions where
the laws may be different. But sometimes, a drafting oversight could
mean that it is unclear which law apply in the event of a dispute.

What happens if an international sale contract does not contain a

choice of law clause?
Where an international sale contract is silent on the choice of law but
expressly adopts a specific Incoterm, a dispute that arises from the
sale contract can be decided in accordance with the rules laid down by
that Incoterm.
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Choice of law clause
What happens if an international sale contract does not contain a
choice of law clause and does not incorporate any Incoterm?
• This scenario could well happen. An international sale contract could
specify that delivery would be CIF (carriage, insurance and freight).
However, the CIF contract need not be a ‘CIF Incoterm’ contract. A CIF
contract that is not referenced to the Incoterm can be decided in
accordance with domestic law, where applicable.
• So what happens when the Incoterms do not apply?
• In some circumstances, the Vienna Convention on the International Sale of
Goods 1980 (CISG) could be applicable. In which case, the CISG imply
terms of delivery into the international sale contract.
• The CISG could be expressly excluded as well, in which case the Sale of
Goods Act 1957 would have to apply.
• In the following slides, we will examine the background and purpose of the
CISG, the threshold criteria for its applicability, followed by the obligations it
imposes on the sellers and buyers. But before that, let’s look at the order of MONASH
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priority.
Choice of law clause
To ascertain the governing law, start with the choice of law clause. If
there is none, examine in accordance with the order of priority:

Choice of law clause (intention of the parties)

Whether the international sale contract adopts an Incoterm

The CISG (to the extent not excluded or modified)

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The Sale of Goods Act 1957 BUSINESS
CISG: Background
What is the CISG?
• The CISG was drafted under the auspices of the United Nations
Commission on International Trade Law (UNCITRAL). It was signed
in 1980 and came into force in 1988.
• The CISG is intended for worldwide adoption, and through this
process, it seeks to harmonize the law relating to international sale
contracts.
• Australia and the US is a signatory country of the CISG, but not the
UK. Malaysia has not signed the CISG.
[As of April 2021, 94 States have adopted the CISG].
What does the CISG cover?
• The CISG covers a host of areas, from the formation of contract,
obligations of the sellers and the buyers respectively, the passing of
risk, to remedies for the breach of contract. [Here, the focus is only
on delivery terms.] MONASH
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CISG: Scope and applicability
Scope of the CISG:
• The CISG only applies to international sale contracts for ‘goods’.
• It does not apply to goods bought for personal, family or household
use.
• It does not apply to financial instruments (stocks, shares, investment
securities, etc.).
• It also does not apply to sale by auction.
• See Article 2 of the CISG.

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CISG: Scope and applicability
The CISG only applies where:
- Both parties have their places of business in different countries.
- Their countries are state parties to the CISG.
- The parties are aware of the international character of the contract (i.e.
from the contract itself or dealings/information disclosed before or at the
conclusion of the contract, both parties knew that they have places of
business in different states.
- See Article 1 of the CISG.
- Note that the nationality of the parties is irrelevant.
- Importantly, the parties have not opted out of the CISG.
- This is because the CISG recognizes the parties freedom of contract,
including the right to exclude the application of the Convention (Article 6 –
party autonomy).
- Alternatively, the parties may exclude the CISG in parts or vary the effect of
any of its provisions subject to the limitations laid down in Article 12. MONASH
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CISG: Scope and applicability
- Please take note:
- Article 1(b) further states that the CISG will apply
“when the rules of private international law lead to the application
of the law of a Contracting State”.
- There is an area known as ‘Conflicts of law’. As this is beyond the syllabus,
the rules of private international law will not be examined here.
- For the purpose of this Unit, we will keep the position simple by focusing
on Article 1(a) which states that both countries have to be signatory states
to the CISG.

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CISG: Scope and applicability
Article 12 of the CISG:
12. The  basic  principle  of  contractual  freedom  in  the 
international  sale  of goods  is  recognized  by  the  provision 
that  permits  the  parties  to  exclude  the application  of  this 
Convention or  derogate  from  or  vary  the  effect  of  any  of its 
provisions. This exclusion will occur, for example, if parties choose
the law of a non-contracting State or the substantive domestic law
of a contracting State as the law applicable to the contract.
Derogation from the Convention will occur whenever a provision in
the contract provides a different rule from that found in the
Convention.

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CISG: Scope and applicability
Example:
Seller (S) – place of business in Hungary
Buyer (B) – place of business in Germany
Sale contract concerns machinery (not for personal use)
A dispute arose concerning the transfer of risk in respect of the goods

1. Look at the contract – is there a choice of law clause?

Yes = Apply the law of the governing state.
No = Where delivery terms are concerned – is a specific Incoterm
expressly stated?
Yes = Use the Incoterm.
No = If the CISG is applicable, the default/implied delivery terms MONASH
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apply.
CISG: Scope and applicability
Here, S and B certainly have different places of business.
Hungary and Germany are both state parties to the CISG.
Presumably, S and B know that they have different places of business
and that the sale contract is international in character.
Assuming that the contract is silent on the governing law, the CISG
would apply.

In this example, the dispute concerned delivery terms, hence, the

issue of whether Incoterm is incorporated into the sale contract.
Bear in mind that the scope of the CISG is broader – a dispute
need not necessarily concern delivery of goods, in which case,
Incoterm might be irrelevant. For instance, a dispute might
concern the formation of a sale contract. Interestingly, under the
CISG, ‘consideration’ is not required in the formation of contract.
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CISG: Implied terms of delivery (seller’s obligations)
• The CISG contains various provisions concerning the obligations of
a seller and a buyer as regards the delivery of goods. Where the
CISG applies to an international sale contract, these provisions are
implied into the contract.

Seller’s obligations:

Article 30
The seller must deliver the goods, hand over any documents relating 
to them and transfer the property in the goods.

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CISG: Implied terms of delivery (seller’s obligations)
• Why is the point of delivery of goods so important?

Consider this extract (p. 21) from Bath and Moens, Law of International
Business in Australasia (2nd ed, 2019):
“In the first place, it affects the calculation of the contract price.
Secondly, this point establishes whether the seller has duly performed
the obligation to deliver the goods within the time and otherwise in
accordance with the contract. Thirdly, in international sales, it is at this
point that (unless otherwise agreed) the seller should hand over
documents relating to the goods and transfer the property in the goods
as required by the contract. Fourthly, the delivery point will generally be
the time when responsibility (or risk of loss or damage) for the goods
shifts from seller to buyer.”

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CISG: Implied terms of delivery (seller’s obligations)
Article 31
If  the  seller  is  not  bound  to  deliver  the  goods  at 
any  other particular place, his obligations to deliver
For instance, a
consists:
(a)  if  the  contract  of  sale  involves  carriage  of  the  CIF contract or a
goods—in handing the goods over to the first carrier for FOB contract.
transmission to the buyer;
(b) if, in cases not within the preceding subparagraph, the 
contract relates to  specific  goods,  or  unidentified 
goods  to  be  drawn  from  a  specific  stock  or to  be 
manufactured  or  produced,  and  at  the  time  of  the 
conclusion  of the contract the parties knew that the goods
were at, or were to be manufactured or produced at, a
particular place—in placing the goods at the buyer’s
disposal at that place;
(c) in other cases – in placing the goods at the buyer’s
disposal at the place where the seller had his place of MONASH
business at the time of the conclusion of the contract. BUSINESS
CISG: Implied terms of delivery (seller’s obligations)
Extract from Carr & Stone, 2018 (p. 77):
“Article 31 deals with the obligation to deliver. The sale contract is likely to
stipulate the particular place where delivery is to take place. In the absence of
such a stipulation, according to Article 31, delivery is dependent on the
circumstances. So, where the contract of sale involves carriage of goods,
delivery will take place where the goods are handed over to the first carrier for
transmission to the buyer. If the contract 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 according to Article 31(b). 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, according to
Article 31(c).”

[Take note that Article 31 is a gap-filling provision. It covers the situation where there MONASH
are no specific provisions dealing with the place and time of delivery.] BUSINESS
CISG: Implied terms of delivery (seller’s obligations)
Article 32
• If  the  seller hands over to a carrier (e.g. the ship) and if the goods
are not clearly identified to the contract by markings on the goods, by
shipping documents or otherwise, the seller must give the buyer
notice of the consignment specifying the goods. [In other words, the
seller must provide the buyer with a means of identifying the goods
he contracted for.]
• If the seller is under an obligation to arrange for the carriage of
goods, he must make the necessary arrangement using the most
appropriate transportation.
• Where the seller is not required to insure the goods, he must still
provide the buyer with necessary information so that the buyer can
insure the goods.

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CISG: Implied terms of delivery (seller’s obligations)
Article 33
The seller must deliver the goods: If a date is
fixed, deliver
(a) if a date is fixed by or determinable from  on that date.
the contract, on that date;
If a time frame is fixed,
(b)  if  a  period  of  time  is  fixed  by  or  deliver within that
determinable  from  the  contract, at  any  period. Sometimes,
time  within  that  period  unless  circumstances show
circumstances  indicate  that  the  that the buyer is to
choose the date.
buyer is to choose a date; or

(c) in any other case, within a reasonable If no date/time
time after the conclusion of the contract. frame is stated,
deliver within a MONASH
reasonable BUSINESS
time.
CISG: Implied terms of delivery (seller’s obligations)
Article 34
• If the seller is required to hand over
documents relating to the goods, this must
be done at the time and place specified by
the contract.
Can there be
• If the seller handed over documents inconsistencies in such
before they are due, and it transpires that documents? Yes. When
there is lack of conformity in the we examine letter of
documents, the seller can cure this – credit, we will see that
provided that it does not cause there are situations
unreasonable inconvenience/expense to where strict compliance
the buyer. However, the buyer retains any can be waived.
right to claim damages against the seller
(where loss is incurred due to the lack of
conformity in the documents).
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CISG: Implied terms of delivery (seller’s obligations)
Article 35
• The seller must deliver goods which are of the quantity, quality and
description required by the contract and which are contained or
packaged in the manner required by the contract.
• You will find the requirement of ‘fitness for purpose’ in Article
35(2)(a).
• Goods that do not comply with these requirements suffer from ‘lack
of conformity’.
• However, if at the time of the conclusion of contract, ‘the buyer knew
or could not have been unaware of such lack of conformity’, the
seller is not liable. [Article 35 (3)]

[In Article 35, ‘lack of conformity’ refers to the goods, not the documents
relating to the goods.] MONASH
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CISG: Implied terms of delivery (seller’s obligations)

Oberlandesgericht Koln [1996] (Used car case)

- Seller (car dealer) sold a used car to the buyer (also a car dealer).
- Documents showed car was licensed in 1992 and mileage was
low. The buyer later sold to a customer, who discovered that the
car was licensed in 1990 and the mileage was much higher.
- Buyer paid damages to the customer, and demanded same
amount from seller.
- The German court held the buyer was negligent. It ought to have
known the age of the car. Thus strictly, the buyer’s claim should
have been rejected under Article 35(1). But on the facts, the seller
had acted fraudulently, thus unable to rely on Article 35(3) to refute
the buyer’s claim.
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CISG: Implied terms of delivery (seller’s obligations)
Article 36
• Article 35 states what constitute goods that lack conformity. Article
36 states the extent of a seller’s liability where the goods suffer from
lack of conformity.
• Where the lack of conformity exists at the time when the risk passes
to the buyer, a seller can still be liable even though this fact is only
discovered after that time.
• The seller is also liable where any lack of conformity occurs after risk
passes to the buyer where this is caused by the seller’s breach of
guarantee.
• Example: S warrants that Product X is heat-resistant. Risk passed to
B when the goods were loaded on board the ship. When the
shipment arrives at the port of destination, it is discovered that the
shape of Product X is distorted due to heat. This constitutes a
breach of guarantee. Although the risk has passed to B, S is still MONASH
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liable in respect of the lack of conformity.
CISG: Implied terms of delivery (seller’s obligations)
Article 37
• What happens if the goods delivered were deficient in terms of
quantity or there is a missing part?
• If the seller has delivered the goods before delivery is due, he has
the chance to remedy the the missing part or replace a non-
conforming good or remedy any lack of conformity in the goods
delivered PROVIDED THAT this does not cause the buyer
unreasonable inconvenience/expense.
• However, the buyer retains the right to claim damages where loss is
incurred.

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CISG: Implied terms of delivery (seller’s obligations)
The following example explains Article 37:
- S contracted with B to sell 10,000 units of Product Z – with delivery
due on 15 November.
- B entered into another contract to sell all 10,000 units to TP – delivery
due on 20 November.
- On 3 November, S delivered 8,000 units of Product Z to B. B
immediately informed S, who promised to deliver the shortfall in
quantity.
- On 25 November, S delivered B the balance 2,000 units.
- Since B had contracted to deliver TP the products on 20 November, B
incurred charges for late delivery.
- B can recover the charges from S.

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CISG: Implied terms of delivery (buyer’s obligations)
Buyer’s obligations:
Article 38
• Article 38 and Article 39 are called the ‘examination and
notice’ provisions. The buyer must examine the goods within
a short period as is practicable in the circumstances.
For example, the
• If the contract involves carriage of the goods, examination  buyer has two
may be deferred until after the goods have arrived at their factories. The goods
destination. [In other words, where transportation is involved, were originally
examination of the goods can be deferred until after they destined for Factory
have arrived at the destination.] 1 but the buyer
decides to
• Where the goods are redirected in transit or redispatched by redirect/re-dispatch
the buyer without a reasonable opportunity for examination; the goods to Factory
and at the time the contract was concluded, the seller knew 2.
or ought to have known of this possibility, examination may
be deferred until after the goods have arrived at the new MONASH
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destination.
CISG: Implied terms of delivery (buyer’s obligations)
Article 39
• As Article 38 states, a buyer must examine the goods within a short
period as is practicable in the circumstances. If the buyer does not
inspect the goods and notify the seller of any non-conformity within a
reasonable period of time, he loses the right to rely on the lack of
conformity.
• It is unclear how thorough the examination must be. Would the
examination of a random sample be sufficient? One way is to refer to
international usage – what is the acceptable practice where the
relevant goods are concerned?
Article 40
• However, Article 40 states that a seller cannot rely on the buyer’s
failure to examine the goods and give notice of non-conformity (as
required by Article 38 and Article 39) if the seller knew (or could not
have been unaware) of the non-conformity when he delivered the MONASH
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goods.
CISG: Implied terms of delivery (buyer’s obligations)
The problem is, what constitutes a ‘reasonable’ period of time?
The Meat Packers case [Chicago Prime Packers, Inc. v. Northam
Food Trading Co. (Case No. 04-2551), 2005]
- Chicago Prime (US) and Northam (Canada) are both wholesalers of
meat products. Chicago Prime contracted to sell Northam a quantity
of pork back ribs. The contract specified that the ribs would be
processed by Brookfield Farms (the meat processor).
- When receiving the goods, the meat processor stated that they were
in good condition – except 21 boxes that had holes gouged in them.
- Nine days later, when the meat processor began to process the ribs,
it noticed their poor condition. The meat processor informed the
buyer and the US Department of Agriculture (USDA).
- The USDA conducted an inspection and ordered the ribs to be
destroyed.
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- Northam refused to pay for the ribs. BUSINESS
CISG: Implied terms of delivery (buyer’s obligations)
- Chicago Prime sued Northam. It argued that Northam had not given
notice of the defects within reasonable time (as required under
Article 38 and Article 39 of the CISG).
- The US District Court found in favour of the seller, Chicago Prime.
- Northam had failed to prove that the goods were non-conforming at
the time of transfer.
- Northam also failed to examine the goods or caused them to be
examined within a short period as is practicable under the
circumstances, as required under Article 38.
- Here, the defect was only discovered nine days after delivery when
the processing began.
- Northam would have discovered the defects earlier if it had opened
some of the boxes containing the ribs.
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CISG: Implied terms of delivery (buyer’s obligations)
• Article 39 may appear very harsh, in that the buyer loses his right to
claim non-conformity if notice is not given within a short period as is
practicable in the circumstances.
• But the harshness of Article 39 is ameliorated (reduced) by Article 44
which states:
“Notwithstanding the provisions of paragraph (1) of Article 39
and paragraph (1) of Article 43, the buyer may reduce the price
in accordance with Article 50 or claim damages, except for loss
of profit, if he has reasonable excuse for his failure to give the
required notice.”

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CISG: Implied terms of delivery (buyer’s obligations)
Article 53: The buyer must pay for the goods and take delivery as
required by the contract.

Article 54: The buyer must pay for the price of the goods.

Article 55: Where a contract does not specify the price, the buyer has to
pay a price at which the goods would normally be sold under comparable
trading terms.

Article 58: The buyer does not have to pay until he has inspected the
goods, unless otherwise agreed or procedures for payment indicate
otherwise.

Article 60: In taking delivery, the buyer has to do all that could be MONASH
reasonably expected of him in order to enable the seller to make delivery. BUSINESS
CISG: Passing of risk
• Before we examine the provisions of the CISG concerning the
passing of risk, the following extract from the Explanatory Note by
the UNCITRAL Secretariat on the CISG is highlighted.
• The purpose is to refresh your memory on ‘when does the CISG
apply?’ and ‘how does the CISG relate to Incoterms?’.

Part D Paragraph 31 and 32 of the Explanatory Note:

31. Determining the exact moment when the risk of loss or damage to
the goods passes from the seller to the buyer is of great importance in
contracts for the international sale of goods. Parties may regulate the
issue in their contract either by an express provision or by the use of a
trade term such as, for example, an INCOTERM. The effect of the
choice of such a term would be to amend the corresponding provisions
of the CISG accordingly. However, for the frequent case where the
contract does not contain such a provision, the Convention sets forth a MONASH
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complete set of rules.
CISG: Passing of risk
32. The two special situations contemplated by the Convention are
when the contract of sale involves carriage of the goods and when the
goods are sold while in transit. In all other cases the risk passes to the
buyer when he takes over the goods or from the time when the goods
are placed at his disposal and he commits a breach of contract by
failing to take delivery, whichever comes first. In the frequent case
when the contract relates to goods that are not then identified, they
must be identified to the contract before they can be considered to be
placed at the disposal of the buyer and the risk of their loss can be
considered to have passed to him.

What do these paragraphs of the Explanatory Note mean?

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CISG: Passing of risk
1. Examine the contract – if there is an express term that deals with
passing of risk, follow that term. For example, a contract may
specifically say that ‘The buyer bears the risk from the time the goods
are loaded on board the carrier’.
2. Where an Incoterm is incorporated, follow the rules laid down by the
specific Incoterm.
3. If no Incoterm is adopted, ascertain whether the CISG applies.
4. Assuming that the CISG applies, below are the rules of thumb.

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CISG: Passing of risk
Article 67
For example, in a
• When the contract of sale involves cost and freight
carriage of the goods, and the contract, risk is
seller is not bound to hand over transferred once
the goods to the carrier at a the goods are
particular place, risk passes to the loaded inside the
buyer when the goods are handed ship.
over to the first carrier for
transmission to the buyer.
By contrast, here the
buyer named the ship
• However, if the seller is obliged to and the port of
hand over the goods to a carrier at shipment. In which
case, the risk is
a particular place, the risk only
transferred only when
passes to the buyer when this is the seller has handed
complied with. over the goods to the MONASH
carrier named. BUSINESS
CISG: Passing of risk Example: Goods are being
shipped from Country A to
Article 68 Country B. During the voyage,
a sale contract is concluded.
• As regards goods sold in transit, the The risk is transferred to the
risk passes to the buyer from the time buyer the moment the contract
of the conclusion of the contract. is concluded.
• However, if the circumstances so This may occur where there have been a
indicate, the risk passes to the buyer chain of owners of the goods and it was
when the goods were handed over to impossible to establish when damage
the carrier who issued the documents occurred. The risk pass retrospectively to the
embodying the contract of carriage. buyer from the time the goods are delivered to
• Nevertheless, if at the time of the the carrier who issued the contract of carriage.
conclusion of the sale contract, the This embodies the principle of good
seller knew or ought to have known faith. If the seller knew/should have
that the goods had been lost or known that the goods had been
damage and did not disclose this to the lost/damaged but entered into a
buyer, the seller bears the loss. contract of sale nevertheless, the
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buyer is not liable for the contract BUSINESS
price.
CISG: Passing of risk
Article 69
(1) In cases not within articles 67 and 68, the risk Example: An Ex Works
passes to the buyer when he takes over the contract, where the buyer
goods or, if he does not do so in due time, arranges for the transportation
from the time when the goods are placed at of the goods from the seller’s
his disposal and he commits a breach of place of business.
contract by failing to take delivery.
(2) However, if the buyer is bound to take over the
goods at a place other than a place of
business of the seller, the risk passes when The assumption is that the
delivery is due and the buyer is aware of the seller should bear the risk
fact that the goods are placed at his disposal so long as it maintains
at that place. control of the goods/ the
goods are not identified to
(3) If the contract relates to goods not then the contract.
identified, the goods are considered not to be MONASH
placed at the disposal of the buyer until they BUSINESS
are clearly identified to the contract.
CISG: Passing of risk

Pre-shipment/ Pre- Goods loaded for

delivery/ goods not shipment/ goods in
identified to the transit/ goods placed
contract: at the buyer’s
Seller’s risk disposal:
Buyer’s risk
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CISG: Passing of risk
Goods must be identified
• It must be remembered that goods must be identified to the contract
before they can be considered to be placed at the disposal of the
buyer and the risk of their loss can be considered to have passed to
him.
• The requirement that goods be identified to the contract is contained
in both Article 67 and Article 69.
• What does it mean by ‘goods must be identified’?
• Example: Seller (S) enters into an Ex Work contract with the Buyer
(B) for the sale of 5,000 Tamagotchi gadgets to be collected at S’s
warehouse on 20 July. On 4 July, there were 50,000 Tamagotchi
gadgets in the warehouse – among them intended for B. However,
the gadgets have not been separately packaged or designated as
goods for B’s contract. Thus, under Article 69, the risk has not
passed to B because the goods cannot be said to have been MONASH
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identified and placed at the disposal of B.
CISG: Passing of risk
Article 66
Loss  of  or  damage  to  the  goods  after  the  risk  has  passed to
the buyer does not discharge him from his obligation to pay the price,
unless the loss or damage is due to an act or omission of the seller.
Example 1:
The risk has passed to the buyer upon the goods being loaded inside
the ship. The ship sunk. The buyer never received the goods.
Unfortunately, the buyer is required to pay for the goods.

Example 2:
The sale contract states that the products have to be packaged in a
specific manner. The seller fails to conform to the packaging
requirement, consequently the goods become defective due to non-
conformity. Although the risk has passed to the buyer upon the goods MONASH
being loaded inside the ship, the seller is still liable for the damage. BUSINESS
OUTSTANDING …

Passing of property
Remedies under the CISG
Force majeure and impediment

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Interesting read
https://edition.cnn.com/travel/article/superyacht-lost-sea-cargo-intl-
scli/index.html

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