Australia: Dealing With The Unknown - Which Law Really Applies To Your International Contract?

Last Updated: 25 June 2008

Key Points

  • The Convention on Contracts for the International Sale of Goods applies to many sales contracts.
  • It is tailored to meet the specific needs of cross-border transactions, and has become a well tested and highly regarded body of law in both arbitral and court proceedings.

When parties negotiate the terms of an international sale or trade agreement it is common practice to include a choice of law clause in their agreement but which law should they choose? Traditionally the choice is between the law of one of the parties' home states or the law of a third neutral state. It often comes as a surprise to the parties when they later discover that the law which ultimately governs their rights and obligations under the contract is not the law which they meant to apply. Why is that?

In 1980 the United Nations Commission on International Trade Law introduced the United Nations Convention on Contracts for the International Sale of Goods 1980 (CISG) - also known as the Vienna Sales Convention. The CISG was designed to facilitate international trade by establishing a system of uniform sale of goods rules which could apply to an international sales contract in place of the sometimes bewildering array of differing legal systems and different business expectations common in cross-border commerce. Not only were the rules designed to take account of different legal traditions but they also tried to ensure a fair risk allocation between buyer and seller.

It's still one of the great unknowns in international trade. In this article we'll look at what it is, how it works, and why it can be an advantage.

When does the CISG apply?

It is critical for the parties to understand when and how the CISG applies and what control parties can take with respect to the applicable law, because the CISG can apply when parties least expect it.

Broadly speaking the CISG applies to sales contracts (but not service contracts) between parties from different states if:

  • the parties have specifically chosen the CISG to govern their contract;
  • the parties have chosen the law of one of the Contracting States to govern their contract;
  • both parties are residents in Contracting States (if parties have made no explicit choice); or
  • the relevant conflict of laws rules lead to the application of the law of a Contracting State.

The second situation is the most likely to result in the application of the CISG and at the same time is the least likely to have been considered by the parties. Accordingly, if one puts this provision into context, the CISG applies if the parties have agreed that the contract be governed by the law of a Contracting State. As the CISG forms part of that country's body of law it applies as the lex specialis in that case.

To date the CISG has 70 signatories (or Contracting States), including Australia, China, Germany, Korea, the Russian Federation, New Zealand and the USA. Accordingly, if the substantive law clause in a contract points to one of the laws of those countries the CISG applies.

If the parties have not specifically agreed upon a law to apply to their contract the chances are high that the CISG applies. This is the case when either both parties are residents (or domiciled) in a country or state which is a Contracting State or where the conflict of law rules point to the law of one of those countries.

To illustrate this further, the following scenarios show common situations in which the CISG applies but which might not be immediately obvious to the parties involved:

Scenario 1: Japanese car parts manufacturer and Australian importer enter into a sales & delivery contract choosing Singaporean law to apply to their contract.
Scenario 2: Australian resources company and Chinese steel manufacturer enter into a contract for the delivery of iron ore to China sales contract specifying the laws in Western Australia to govern their contract.
Scenario 3: Australian seller and Indonesian purchaser enter into a sales contract without choosing a specific law to govern their contract.

What these three scenarios have in common is that the CISG applies although the parties have not explicitly agreed to the application of the CISG (and may not even have considered the application of the CISG at all).

In scenario 1 the CISG applies because the parties have agreed to the application of the laws of Singapore, a Contracting State. In that scenario it is of no relevance that Japan is not a signatory to the CISG.

In scenario 2 the CISG applies as the parties have agreed that the laws in Western Australia shall govern their contract. Each of the States and Territories in Australia has incorporated the CISG into their legislation.

In scenario 3 the CISG applies by virtue of the application of private international law (conflict of laws), which (in most situation) will point to the law of the seller - in this case Australia, a Contracting State - as the law which has the closest connection to the transaction.

Contracts to which the CISG does not apply

The CISG does not apply to certain types of goods and contracts, such as:

  • goods bought for private use;
  • goods sold by auction;
  • the sale of shares;
  • stocks and investment securities;
  • the sale of ships, vessels or aircrafts; and
  • contracts for the sale of electricity.

Sales at commodity exchanges are not, however, regarded as auctions and the CISG generally applies to those type of contracts.

The CISG is also excluded for contracts in which the predominant part of the obligation of the party who furnishes the goods consists of the supply of labour and services, for example turnkey contracts. It cannot be assumed however that all construction or infrastructure contracts are excluded from the application of the CISG - you must carefully analyse what the predominant obligations are under the contract (service and labour / delivery of goods).

How you can exclude the CISG...

As the previous examples demonstrate choosing a national law for a contract is not always sufficient to exclude the application of the CISG. The CISG applies as part of national law unless the parties choose to exclude it. Therefore if parties intend to exclude the application of the CISG they need to do this explicitly, for example by stating: "The laws of [state], excluding the CISG, shall apply".

... and why you shouldn't

For many people the CISG is an unknown, and the natural behaviour would be to exclude the CISG for that reason, but before doing so one should carefully consider the advantages the CISG may have to offer.

The CISG is tailored to meet the specific needs of cross-border transactions, which may vary significantly from domestic or local sales contracts, due to long transport distances and different trade cultures. In the 28 years since the CISG was introduced it has become a well tested and highly regarded body of law in both arbitral and court proceedings.

The CISG governs contract formation, the obligation of the parties in performing their contractual duties and the remedies available for the parties in case of a breach of contract. An important aspect of the CISG is its informality - for example, the CISG does not require that contracts for the sale of goods be in writing.

Importantly, the CISG does not impact on the parties' freedom of contract. Accordingly, parties are free to agree on their respective rights and obligations under the contract and may tailor their risk and reward scenarios to a particular transaction.

In contrast, parties may arguably prefer to exclude the application of the CISG for bulk commodity contracts which are regularly entered into on an Incoterms 2000 CIF or FOB basis, because of the way in which the obligations are discharged and the very limited time available for the inspection of the goods and documents.

Lessons learned

Individual users and corporations involved in cross-border transactions need to understand that despite what the governing law appears to be on the face of the contract, a different law may potentially apply. Having said that, the CISG has many advantages and potential users should lose their fear of the unknown.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

To print this article, all you need is to be registered on

Click to Login as an existing user or Register so you can print this article.

Some comments from our readers…
“The articles are extremely timely and highly applicable”
“I often find critical information not available elsewhere”
“As in-house counsel, Mondaq’s service is of great value”

Mondaq Advice Centre (MACs)
Related Video
Up-coming Events Search
Font Size:
Mondaq on Twitter
Register for Access and our Free Biweekly Alert for
This service is completely free. Access 250,000 archived articles from 100+ countries and get a personalised email twice a week covering developments (and yes, our lawyers like to think you’ve read our Disclaimer).
Email Address
Company Name
Confirm Password
Mondaq Topics -- Select your Interests
 Law Performance
 Law Practice
 Media & IT
 Real Estate
 Wealth Mgt
Asia Pacific
European Union
Latin America
Middle East
United States
Worldwide Updates
Check to state you have read and
agree to our Terms and Conditions

Terms & Conditions and Privacy Statement (the Website) is owned and managed by Mondaq Ltd and as a user you are granted a non-exclusive, revocable license to access the Website under its terms and conditions of use. Your use of the Website constitutes your agreement to the following terms and conditions of use. Mondaq Ltd may terminate your use of the Website if you are in breach of these terms and conditions or if Mondaq Ltd decides to terminate your license of use for whatever reason.

Use of

You may use the Website but are required to register as a user if you wish to read the full text of the content and articles available (the Content). You may not modify, publish, transmit, transfer or sell, reproduce, create derivative works from, distribute, perform, link, display, or in any way exploit any of the Content, in whole or in part, except as expressly permitted in these terms & conditions or with the prior written consent of Mondaq Ltd. You may not use electronic or other means to extract details or information about’s content, users or contributors in order to offer them any services or products which compete directly or indirectly with Mondaq Ltd’s services and products.


Mondaq Ltd and/or its respective suppliers make no representations about the suitability of the information contained in the documents and related graphics published on this server for any purpose. All such documents and related graphics are provided "as is" without warranty of any kind. Mondaq Ltd and/or its respective suppliers hereby disclaim all warranties and conditions with regard to this information, including all implied warranties and conditions of merchantability, fitness for a particular purpose, title and non-infringement. In no event shall Mondaq Ltd and/or its respective suppliers be liable for any special, indirect or consequential damages or any damages whatsoever resulting from loss of use, data or profits, whether in an action of contract, negligence or other tortious action, arising out of or in connection with the use or performance of information available from this server.

The documents and related graphics published on this server could include technical inaccuracies or typographical errors. Changes are periodically added to the information herein. Mondaq Ltd and/or its respective suppliers may make improvements and/or changes in the product(s) and/or the program(s) described herein at any time.


Mondaq Ltd requires you to register and provide information that personally identifies you, including what sort of information you are interested in, for three primary purposes:

  • To allow you to personalize the Mondaq websites you are visiting.
  • To enable features such as password reminder, newsletter alerts, email a colleague, and linking from Mondaq (and its affiliate sites) to your website.
  • To produce demographic feedback for our information providers who provide information free for your use.

Mondaq (and its affiliate sites) do not sell or provide your details to third parties other than information providers. The reason we provide our information providers with this information is so that they can measure the response their articles are receiving and provide you with information about their products and services.

If you do not want us to provide your name and email address you may opt out by clicking here .

If you do not wish to receive any future announcements of products and services offered by Mondaq by clicking here .

Information Collection and Use

We require site users to register with Mondaq (and its affiliate sites) to view the free information on the site. We also collect information from our users at several different points on the websites: this is so that we can customise the sites according to individual usage, provide 'session-aware' functionality, and ensure that content is acquired and developed appropriately. This gives us an overall picture of our user profiles, which in turn shows to our Editorial Contributors the type of person they are reaching by posting articles on Mondaq (and its affiliate sites) – meaning more free content for registered users.

We are only able to provide the material on the Mondaq (and its affiliate sites) site free to site visitors because we can pass on information about the pages that users are viewing and the personal information users provide to us (e.g. email addresses) to reputable contributing firms such as law firms who author those pages. We do not sell or rent information to anyone else other than the authors of those pages, who may change from time to time. Should you wish us not to disclose your details to any of these parties, please tick the box above or tick the box marked "Opt out of Registration Information Disclosure" on the Your Profile page. We and our author organisations may only contact you via email or other means if you allow us to do so. Users can opt out of contact when they register on the site, or send an email to with “no disclosure” in the subject heading

Mondaq News Alerts

In order to receive Mondaq News Alerts, users have to complete a separate registration form. This is a personalised service where users choose regions and topics of interest and we send it only to those users who have requested it. Users can stop receiving these Alerts by going to the Mondaq News Alerts page and deselecting all interest areas. In the same way users can amend their personal preferences to add or remove subject areas.


A cookie is a small text file written to a user’s hard drive that contains an identifying user number. The cookies do not contain any personal information about users. We use the cookie so users do not have to log in every time they use the service and the cookie will automatically expire if you do not visit the Mondaq website (or its affiliate sites) for 12 months. We also use the cookie to personalise a user's experience of the site (for example to show information specific to a user's region). As the Mondaq sites are fully personalised and cookies are essential to its core technology the site will function unpredictably with browsers that do not support cookies - or where cookies are disabled (in these circumstances we advise you to attempt to locate the information you require elsewhere on the web). However if you are concerned about the presence of a Mondaq cookie on your machine you can also choose to expire the cookie immediately (remove it) by selecting the 'Log Off' menu option as the last thing you do when you use the site.

Some of our business partners may use cookies on our site (for example, advertisers). However, we have no access to or control over these cookies and we are not aware of any at present that do so.

Log Files

We use IP addresses to analyse trends, administer the site, track movement, and gather broad demographic information for aggregate use. IP addresses are not linked to personally identifiable information.


This web site contains links to other sites. Please be aware that Mondaq (or its affiliate sites) are not responsible for the privacy practices of such other sites. We encourage our users to be aware when they leave our site and to read the privacy statements of these third party sites. This privacy statement applies solely to information collected by this Web site.

Surveys & Contests

From time-to-time our site requests information from users via surveys or contests. Participation in these surveys or contests is completely voluntary and the user therefore has a choice whether or not to disclose any information requested. Information requested may include contact information (such as name and delivery address), and demographic information (such as postcode, age level). Contact information will be used to notify the winners and award prizes. Survey information will be used for purposes of monitoring or improving the functionality of the site.


If a user elects to use our referral service for informing a friend about our site, we ask them for the friend’s name and email address. Mondaq stores this information and may contact the friend to invite them to register with Mondaq, but they will not be contacted more than once. The friend may contact Mondaq to request the removal of this information from our database.


This website takes every reasonable precaution to protect our users’ information. When users submit sensitive information via the website, your information is protected using firewalls and other security technology. If you have any questions about the security at our website, you can send an email to

Correcting/Updating Personal Information

If a user’s personally identifiable information changes (such as postcode), or if a user no longer desires our service, we will endeavour to provide a way to correct, update or remove that user’s personal data provided to us. This can usually be done at the “Your Profile” page or by sending an email to

Notification of Changes

If we decide to change our Terms & Conditions or Privacy Policy, we will post those changes on our site so our users are always aware of what information we collect, how we use it, and under what circumstances, if any, we disclose it. If at any point we decide to use personally identifiable information in a manner different from that stated at the time it was collected, we will notify users by way of an email. Users will have a choice as to whether or not we use their information in this different manner. We will use information in accordance with the privacy policy under which the information was collected.

How to contact Mondaq

You can contact us with comments or queries at

If for some reason you believe Mondaq Ltd. has not adhered to these principles, please notify us by e-mail at and we will use commercially reasonable efforts to determine and correct the problem promptly.