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UNITED NATIONS CONVENTION ON CONTRACTS March 2005 FOR THE INTERNATIONAL SALE OF GOODS

A publication of Miller Thomson LLP’s Construction Law Practice Group There are a number of complexities which accompany international business transactions, not least of which are the diversity of domestic rules which may impact the purchase and sale of goods across national borders. While a statement as to which jurisdiction’s laws will govern the parties’ relationship should exist in every contract, a choice of law provision is particularly important where the transaction involves an international aspect.

Although governing law provisions are clearly open for contractual negotiation, it is often the party with the most clout who will make the determination. Among evenly matched or more compromising parties, negotiations may lead to the selection of the laws of a “neutral” jurisdiction to govern their contract. Both scenarios create the risk that the contract will be subject to unfamiliar laws, hindering the parties’ ability to fully understand, and therefore arrive upon, contractual terms and conditions that protect their respective business interests.

These problems were acknowledged by a number of countries, whose response came in the form of the United Nations Convention on Contracts for the International Sale of Goods1 (“CISG”). Enacted in 1980 (and adopted by Canada in 1992) for the purpose of promoting uniformity in international transactions, the CISG provides a set of standardized rules which govern contracts for the sale of goods. Rather than parties’ negotiations stalling on the issue of whose laws will apply or facing the prospect of adopting unfamiliar foreign laws, the CISG was intended as the preferred option, providing the benefit of neutrality along with a set of rules which both parties would have some familiarity with.

The CISG is divided into 4 principal parts:

• scope of application Note: • rules governing the formation of contracts of sale This Communiqué is provided as an information service and is a summary of • rules governing the seller’s and buyer’s substantive obligations current legal issues of concern to the Construction Industry. Communiqués are • adherence and ratification of the CISG by Contracting States not meant as legal opinions and readers are cautioned not to act on information The CISG applies to most contracts for the sale of goods between parties whose provided in this Communiqué without places of business are in different Contracting States, or where the rules of seeking specific legal advice with respect private international law result in the application of the law of a Contracting State. to their unique circumstances. Your As both Canada and the United States are “Contracting States”, the CISG will comments and suggestions are most apply to many Canadian contracts for the sale of goods. However, certain welcome. Please direct them to: contracts of sale, including sales of securities, ships, vessels, hovercraft, aircraft [email protected] and electricity, are specifically excluded.

1 U.N. Doc. No. A/Conf.97/18 (1980), incorporated by, International Sale of Goods Contracts Convention Act, R.S.C. 1991, c. 13.

One of the hallmarks of the CISG is that, in the absence of an express provision precluding its application, the CISG governs all contracts that fall within its scope. It is therefore critical that business people involved in international sale of goods transactions be aware of the CISG and its impact on their dealings.

Despite the laudable goals which led to the CISG, its utility has been the subject of debate among academics and legal practitioners alike. It has been criticized for failing to clearly identify when its provisions apply. For instance, the concept of a “contract for sale”, which contracts are the very subject matter of the CISG, is not clearly defined. Likewise, the term “place of business”, which is critical in determining whether a contract of sale has the requisite nexus to a Contracting State, lacks clarity. Given the absence of Canadian judicial decisions which have interpreted the CISG, no guidance has been provided with respect to these and other ambiguities which exist within the text of the CISG.

In addition, the CISG alters a number of basic rules which exist in Canadian and United States law surrounding such concepts as contract formation, the parole evidence rule and the Statute of Frauds.

These problems have led to the common practice among business people and their advisors to expressly preclude the application of the CISG to their contracts. Particularly where a business transaction involves parties based in the United States or other English common law jurisdictions whose legislation and jurisprudence is largely consistent with that in Canada, the decision whether to adopt these laws over the CISG should be given careful thought.

ABOUT THE AUTHOR:

Paul Verriour is a lawyer in our Construction Law Group. His practice focuses on corporate and commercial law, with a particular emphasis on construction and energy-related matters.

Paul Verriour Vancouver 604.643.1223 [email protected]

Our Construction Law Practice Group is dedicated to providing comprehensive and integrated legal services to construction industry clients. For more information about our group, visit our website at www.millerthomson.com or contact one of our regional contacts listed below.

REGIONAL CONTACTS Vancouver Brian T. Ross 604.643.1216 [email protected] Wendy A. Baker 604.643.1285 [email protected] Stephen R. Ross 604.643.1205 [email protected] Charles W. Bois 604.643.1224 [email protected] Donald J. Sorochan, Q.C. 604.643.1214 [email protected] Terrance A. Kowalchuk 604.643.1222 [email protected] Mari A. Worfolk 604.643.1240 [email protected] Owen D. Pawson 604.643.1254 [email protected] Paul Verriour 604.643.1223 [email protected] Michael J. Percival 604.643.1230 [email protected]

Edmonton Toronto / Markham Kent H. Davidson 780.429.9790 T. Keith Billings 416.595.8517 [email protected] [email protected] Scott J. Hammel 780.429.9726 Drazen F. Bulat 416.595.8613 [email protected] [email protected] Darin J. Hannaford 780.429.9714 Lloyd D. Cadsby, Q.C. 416.595.8639 [email protected] [email protected] Sandra L. Hawes 780.429.9787 Patricia M. Conway 416.595.8507 [email protected] [email protected] William J. Kenny, Q.C. 780.429.9784 Peter K. Foulds 416.596.2112 [email protected] [email protected] Bryan J. Kickham 780.429.9713 Brett-David Moldaver 416.595.2642 [email protected] [email protected] Daniel C.P. Stachnik, Q.C. 780.429.9761 William M. Pigott 416.595.8179 [email protected] [email protected] David N. Thomlinson 780.429.9778 Franklin T. Richmond 416.595.8180 [email protected] [email protected] Calgary Anthony D. Scane 416.595.2661 [email protected] Michael D. Aasen 403.298.2438 [email protected] Michael L. Shell 905.415.6709 [email protected] Mary Jayne Assaly 403.298.2439 [email protected] Michael T. Tamblyn 416.595.2660 [email protected] Michael J. Bailey 403.298.2411 [email protected] Erin M. Tully 416.595.8651 [email protected] Paige Coulter 403.298.2450 [email protected] Thomas R. Whitby 416.595.8561 [email protected] E. Sigurd Ruud 403.298.2459 [email protected] Whitehorse E. Jane Sidnell 403.298.2435 Murray J. Leitch 867.456.3301 [email protected] [email protected] Nicole T. Taylor-Smith 403.298.2453 Waterloo-Wellington [email protected] F. Stephen Finch, Q.C. 519.579.3660 [email protected]

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