Tips on Choice of Applicable law of International Sales of Goods contracts | LegaMart Articles
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Tips on Choice of Applicable law of International Sales of Goods contracts

Introduction

The current state of international law that governs global commercial contracts is hardly adequate. Despite having a phenomenal increase in trade, such transactions that go beyond the borders are still subject to that country’s national laws. Thus, disputes arising from such transactions are governed by the law of the nation involved.

One may ask: what is the issue with that? Each country has laws dealing with multiple daily transactions within its boundaries, so why would they not apply to cross-border transactions? When determining which law will apply to a commercial transaction, it is crucial to consider whether that contract includes a proper choice of law clause or an arbitration clause. This article will highlight the aspects of choice of the applicable law of international sales of goods contracts keeping in mind contracts for International sales of goods. 

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International Sales of Goods Contracts and Choice of Applicable Contracts

A buyer and a seller negotiating on their International sales of goods contracts

International Sales of Goods Contract is an agreement between the parties that manages the international sale and purchase of goods. In the case of International Sales of Goods Contracts, there remain the chances of dispute about the choice of the applicable law.

In cross-border contracts, parties belong to different countries with different legal systems. In case of dispute, the choice of law or the forum for dispute resolution is a question of great importance. It is very beneficial in delivering a modern, uniform, and appropriate regime for International sales of goods contracts.

In simpler terms, the United Nations Convention on Contracts for the International Sale of Goods (the “Convention” or “CISG”) is a binding agreement or contract between countries. It defines a compilation of rules and regulations that govern significant factors of commercial contracts between vendors and customers from diverse nations. It is 

The primary objective of the CISG is to make it more straightforward and economical to buy and sell goods in international trade.

When the question arises as to which laws shall apply, the partakers are not confident of their privileges and responsibilities under the international sales of goods contracts. It will only lead to conflicts and disputes, leading to heavy losses on both sides. 

The convention on the sales of goods plays a vital role in resolving the dispute about the choice of the applicable law in international sales of Goods contracts. It is the work of UNICITRAL to promote trade between the states. It provides a uniform framework that governs the international sale of goods contracts. It strives to safeguard the rights of both parties to the contract. Yet, there are certain limitations under which CIGS works. 

It governs the international sale of goods contracts in which the parties have a place of business in contracting states. If the parties have a place of business in contracting states, the rules of CIGS will apply to such International Sale of Goods contracts.

Thus, CIGS provides a predictable and universal framework for contracting states in the case of International Sales of Goods contracts. It sets out specific regulations for creating contracts and the rights and obligations of sellers and buyers of goods regarding their partnership. But it is essential to note that it only involves the trade of goods between merchants, not sales to consumers, and does not typically apply to service arrangements.

The CISG states that the risks shall pass to the Buyer at the time of the shipment.

A executive preparaing a sales contract as per International sales of goods contracts

As long as casualties or injuries caused to the goods can be assigned or credited to the Seller after the risks are transferred, the Buyer can’t claim such losses or injuries to discharge its obligation to pay. In sales involving a carriage, the risks shall pass to the Buyer when the goods are turned over to the first carrier. 

Now that we know the scope of where CISG applies let us focus on where it does not apply. It does not govern issues related to the contract’s validity, such as fraud. In addition, the issue of the title to the goods does not come under the purview of CISG. In other words, if a manufacturer sells the goods to a distributor who sells them subsequently to a final customer. It also does not apply to the sale of services. 

Are you still unsure if the CISG applies? Pick up your mobile or computing device, and visit Legamart Directory, where highly experienced legal professionals are available to resolve your queries.

Applicability of CIGS to Resolve the Issue of Choice of the Applicable Law of International Sales of Goods Contracts

The CISG incorporates regulations governing international sales of goods contracts. It also provides laws that manage the responsibilities and treatments for disputes of the partakers to such dealings.

CISG has been very triumphant in the amalgamation of commercial law at the global level. It strives to facilitate transactions and terminate international trade obstructions by forming regulations that govern International Sales of Goods Contracts. The type of contract and where the partakers reside decide the relevance of CISG.

The sovereignty of the partakers regarding International Sales of Goods Contracts is the principal idea behind the convention. When involved, it does not supervise every problem arising from the International Sale of Goods contracts. For instance, concerns regarding the contract’s validity or issues outside the convention’s coverage are applicable under the rules of private international law.

Choosing the Right Choice of Applicable Law of International Sales of Goods Contracts

Two business partners handshake after signing International sales of goods contracts

When parties to a contract reside in diverse countries, diverse situations can arise regarding which rules should apply or which nation’s laws will apply. Conflict of regulations or a nation’s international laws is a collection of laws or procedures that confirm which jurisdiction or the legal system will apply in a disagreement related to contracts between the parties. 

These rules usually apply once a dispute includes a ‘foreign’ element. Thus, these laws and regulations exist to negotiate the disparities among laws of various countries. It is possible to observe the conflict of regulations at numerous stages, such as whether the bench or the forum has the authority to decide. If it has jurisdiction, then that country’s law should be taken into account by the bench or the forum to determine the issue, and thirdly, whether the tribunals are flexible enough to recognize and implement a decision by another court.

As discussed earlier, there could be some foreign elements in a dispute relating to contracts, such as a British individual entering into a contract with a French citizen. They agree that the goods will be delivered and paid for in the United States. 

However, one of the parties breaches the contract, and a question will arise as to which nation’s laws will apply here British, French, or the USA? Of course, they will all be very diverse in numerous aspects. In such sticky situations, each international contract should have a governing law termed the ‘proper law of the contract.

The proper law of the contract is beneficial in determining the problems in a case. The parties can choose the appropriate law of the country with which the contract has the most extensive genuine connection. However, this does not ensure that problems are resolved because the idea of proper law is unclear. 

Likely, regulations of a single nation may not be sufficient to deal with the contract since it may not connect with certain aspects of the contract. Thus, some parts may be subject to one nation’s law, and others of the same contract may be subject to another nation’s laws. It will lead to multiple intricacies within the courts while determining proper law. 

If you still can’t decide which law to choose, we offer our readers the opportunity to post and view other questions for FREE on our community page, where people are discussing and have already answered your questions. 

Two legamart lawyers working for a client on International sales of goods contracts

Conclusion

From the article, it is clear that the aspect of the choice of the applicable law of international sales of goods contracts has been very controversial since the very beginning. It gets more complicated when there is vagueness regarding the regulations for Contracts for the International Sale of Goods. Therefore, all concerned parties must agree on the provision for proper choice of the applicable law of international sales of goods contracts. 

It may not be the case in every situation. While getting into an agreement, at least two systems of regulations merge upon the trade, and the rules and policies of private international law enter the field. These issues can be addressed through international conventions, such as the United Nations Convention on Contracts for the International Sale of Goods (CISG).

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