The initial work on the Vienna Convention (hereinafter referred to as "CISG", or "Convention") was started in 1968 by the United Nations Commission on International Trade Law (hereinafter referred to as "UNCITRAL"). An international working group was established to draft a document which would help to facilitate trade between companies and corporations from countries of various legal, cultural, and social systems. The draft was finished in 1978 and finalized during the Vienna Conference in 1980.
The Convention was adopted on April 11th, 1980, and the Republic of Turkey ratified it without any declarations or reservations on August 2nd, 2009. It became effective, and therefore automatically applicably as an integral part of Turkish legal system, on August 1st, 2011.
It has become a successful private international law convention which has been adopted by 83 states, so by majority of all significant global business leading nations. Despite its many undeniable advantages, the Convention also has many disadvantages arising both from its international nature, and also from its practical application.
First part of this article will identify and describe some of its crucial faults, which may be reasons for opting out of its application. Second part of this article will describe the base on which contracting parties may opt out of application of the Convention.
1. Scope of application
The Convention is automatically applicable to all commercial contract of sale within its scope, which is defined in article 1 of the Convention. The article 1a states that "the Convention applies to contract of sale of goods between parties whose places of business are in different States." The contracting states can be either both parties to the Convention, or rules of private international law leads to the application of the law of a Contracting State. The first option is very clear, however some terms require further definition.
The term "goods" is further narrowed in article 2 of the Convention and includes only tangible, movable goods and their trade for commercial purposes.
The requirement of "internationality" is fulfilled only if the place of business, so the place in which the business is de facto carried out, is located in two different states. The second part of the article 1 of the Convention is more problematic. For this reason, article 95 gives states an option to make a reservation and do not apply its provisions. Those who decided not to opt out of its application are bound by it. The practical effect of the article comes when one of the contracting parties is a Contracting State to the convention and rules of private international law leads to application of its law, which includes the Convention. Parties to a contract also often make a choice of law. If parties from two non-contracting states make a choice of law of a Contracting State, the Convention will also apply on their legal relationship. Furthermore, article 6 of the Convention allows parties to also opt out of the application of the Convention, or out of some of its provisions, so the autonomy of the contracting parties is upheld and protected. The article will further analyze why parties should opt out of the application of the Convention, and how to effectively exclude its application.
The Convention was drafted carefully as a successor of previous uniform laws. The biggest disadvantage making CISG's predecessors unpopular was the fact that they incorporated many legal principles and institutes of the continental legal system, which are often contrary to the legal principles of the Anglo-American or other legal systems, so it disfavored companies and corporations from other legal cultures. Therefore the idea of the new convention was to incorporate only general statements and principles of international law in the Convention, so it serves rather as a general framework for contracting parties, which further decide which national law will govern details in their contract. The Convention was drafted by representatives from all significant legal regions of the world and fulfills this requirement. Its neutrality is often promoted as its big advantage, but it can be also seen as a disadvantage bringing about many difficulties, which will be further explained.
The most significant complex disadvantage is closely related to its nature and philosophy of its creators. It can be called generally as imprecision. Nevertheless, the imprecision is intentional. The body of drafters of the Convention wanted to avoid previous mistakes and wanted to create a convention, which would be general, universal, and independent from any legal system of the world, so any party could use it as an effective base for its business transactions. This goal was achieved, but the price of it is high, both metaphorically and literally. The Convention contains many vague terms and statements which are not defined in the text. It makes the Convention flexible and easily adaptable to rapid changes in the environment of global business, but on the other hand leaves it vulnerable to misuse, and parties uncertain of results of their potential or factual disputes. Article 7 (1) states that the convention should be interpreted according to its international character in the light of uniformly recognized legal principles of international commercial law and good faith. However, there is no international appellate instance or any body,1 which would defectively decide and unify interpretation and application of the Convention. The interpretation is left on national courts which tend to interpret it in the light of their domestic law, rather then in accordance with recognized principles of international law. Moreover, their decisions do not create precedents which sometimes results in contradicting interpretations. This creates great uncertainty for contracting parties which can hardly predict result of their possible disputes. It may also lead to so called "forum shopping" when parties to a contract choose the court or arbitral body accordingly to its interpretation of the Convention.
2.2. Incompleteness and fragmentation
For the same reason, to keep the Convention as neutral and universal as possible, many areas of law, which would be normally covered in similar text, remained left out. Therefore the convention is not complete, coherent body of law suitable for commercial transactions, but rather just a fragment of a bigger mosaic, which needs to be put together every time an international business transaction is performed by two parties residing in two different states. The usual practice leads to application of some national law which includes the Convention which is automatically applied. But because it does not contain all necessary tools to facilitate the business transaction, the general principles of commercial law and also the national law needs to be applied along with the Convention to fill in the gaps. Several examples illustrating the biggest gaps in the provisions of the Convention are listed bellow.
2.2.1. Validity of a contract
The conventions expressly states in article 4 that it does not deal with a fundamental concept of commercial law such as validity of a contract itself. Therefore validity of every contract needs to be estimated from other applicable law and from general legal principles and obligations established by other provisions of the Convention.
2.2.3. Warranty disclaimers
Principles of warranty are nowadays a necessary part of every contract required mutually by both contracting parties. The CISG contains general principles of warranty in article 35 stating that in order for the good to conform to a contract, they must be "fit for the purposes for which goods of the same description would ordinarily be used" and are "fit for any particular purpose expressly or impliedly made known to the seller at the time of the conclusion of the contract." This general principle seems to be fair for both parties, however matters of warranty should be still further specified in the contract and negotiated between the parties.
2.3. Strict liability
Articles 38 and 39 of the Convention are provisions dealing with the liability of the seller for goods which are not conforming with the terms of a contract or the Convention. Wide range of rulings has been delivered by courts of different countries interpreting these two articles. They have concluded that examination and notice of defect needs to be done promptly and later examination will not be taken into consideration. The notice to the seller must be also in detail specifying the reason for non-conformity of the particular goods.2
2.4. Standard terms
Last but not least, close attention needs to be paid by parties which intend to include standard terms and conditions as a binding document along with their individual contract. Article 19(3) of the Convention states that such standard terms alter the offer materially, and therefore express reference to the terms and conditions shall be made in the contract, and any change in them should be approved by both contracting parties.
3. Opting out
Despite the fact that the Convention is directly applicable within its earlier defined scope, it is of non-mandatory nature, and upholds one of the main principles of private law – the autonomy of choice, so parties to a contract can either opt-in, or opt-out of its application. This possibility is rooted in Article 6 of the CISG. Article 6 allows parties to completely exclude themselves from its application, or just partially derogate from some of the CISG's provisions. Article 12 also allows parties to vary the effect of any provisions of the Convention.
There are several ways of excluding from application of the Convention. Parties to a contract should always pay a close attention to the exclusion clause and keep in mind that invalid exclusion clause results in automatic application of the Convention. Most importantly, it has been decided that the exclusion clause must be explicit. Implicit intention or simple choice of national law is not sufficient means of exclusion from the application of the CISG. The exclusion clause must be in a form of a written express statement clear of doubt. The example of such statement can be as follows: "The parties hereby agree that the United Nations Convention on Contracts for the International Sale of Goods will not apply to this contract." Such an exclusion clause can be included in the contract itself, it can be part of the terms and conditions governing the contract (contract shall contain express reference to the terms and conditions), or it can be in a form of a separate contract between the parties and further specified. The exclusion clause can also refer to some national governing law. Choice of law (which is not by itself, without the exclusion clause, excluding the application of the CISG) is then on the discretion of the parties to the contract. If the contract contains only the exclusion clause without the choice of law clause, the governing law will be determined according to the rules of applicable private international law.
The Convention is so far last and most successful attempt to unify rules of international commercial transactions. It has earned recognition among majority of countries of the world and plays an important role in international business dealings between undertakings with residence in different states. On the other hand, it is very weak and vague document with many gaps, and is unable to alone support business transactions in their complexity. For many specific disadvantages described above, it still seems to be more convenient and safer to opt out from application of the Convention and let some neutral national law govern the mutual contractual relationship. While opting out, it's necessary to expressly state (in an exclusion notice) that parties are excluding the Convention from application. Choice of law is not sufficient, moreover, sometimes may even result in opting in to application of the Convention.
1 Except CISG Advisory Council whose opinions are not binding, more at www.cisgac.com.
2 In decision of Tribunale di Vigevano, Italy, from July 12th 2000, Rheinland Versicherungen v. S.r.l. Atlarex and Allianz Subalpina S.p.A,
In decision of Landgericht Paderborn, Germany from June 25th, 1996 (7 O 147/94),
In decision Handelsgericht Zürich, Switzerland from November 30th, 1998 (HG 930634/O).
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.