Q: Our company sells products overseas. Many customers have asked that the sales contracts be governed by something called “CISG” instead of using New Hampshire law. What is CISG and should we agree to use it?
A: The United Nations Convention On International Sales of Goods (“CISG”) is a body of rules governing sales of tangible goods between private parties located in signatory countries. CISG will apply automatically if both parties to the sale are located in countries which have signed the CISG. The US is a signatory to the Convention. Thus, unless you follow certain opt-out rules in your contracts, the CISG will apply to your sales contracts automatically if your customer is in another signatory country. To date, only Ireland, Japan and the United Kingdom are not signatories. To “opt out” of CISG, you must include a provision in your international contracts stating (i) CISG will not apply, (ii) which country law applies, and (iii) the selected country law applies without regard to its conflicts of law rules. Additionally, you must be able to show that your buyer agreed to the opt-out; a statement in a PO acknowledgement which is not signed by the buyer may be insufficient.
As an alternative to opting out of CISG completely, the parties may, by clear language in the agreement, modify any of the particular terms of the CISG to suit their needs.
The CISG is increasingly becoming the preferred set of rules governing international sales of tangibles and you may be at a competitive disadvantage if you insist on using US or New Hampshire law to govern your product sale contracts. CISG does not apply to licenses, leases, real estate or services. While similar in many aspects to US commercial law, there are some profound differences. For example, verbal contracts are valid under CISG, regardless of the price of the goods. Another profound difference is that under CISG, a Buyer receiving non-conforming goods can, subject to notice requirements, keep the goods and unilaterally reduce the price, even if the Buyer has already paid for the goods. This is a particular risk for products with long lead times and unstable pricing, or where currency fluctuation makes the value of delivered goods less than the PO price. A third major difference between CISG and US law is that under CISG, delivery terms are through INCOTERMS, which is much more comprehensive than US law.
In many ways, the CISG is more flexible than US law and its use can be advantageous. While it is important that you adapt to the international business pressures to utilize CISG, it is equally important to understand the scope of its terms and risks.
Legal counsel experienced in CISG and US commercial law can answer any questions you have.