The United Nations Convention on Contracts for the International Sale of Goods – PART 3 What does it mean and how does it affect Texas businesses?
The United Nations Convention on Contracts for the International Sale of Goods (CISG) is an international treaty providing a uniform international sale law for buyers and sellers of goods with places of business in different Contracting States. As we’ve seen in part 2 of the series, the application of the CISG to a transaction can lead to legal effects that are unintended by the Texas-based party, and at the very least can cause unwanted ambiguity. The good news is that parties to a transaction that is governed by the CISG can exclude its application and select a different set of laws to apply. However, that’s not as easy to accomplish as it would seem.
It would seem logical, for example, that in a contract for the sale of goods between two parties, one located in Texas (which is, of course, part of the United States, which in turn is a Contracting State), the other party located in another Contracting State, a provision stating that the contract was “governed by the laws of the State of Texas” should be sufficient to exclude application of the CISG. However, it is generally well-settled in the United States that mere reference to the laws of a US state as being the governing law of such a contract will be insufficient to exclude application of the CISG. This is because under the US Constitution, the CISG, as an international treaty ratified by the United States, preempts state law – so in reality, reference to “the laws of the state of Texas” in such a contract, with nothing more said to exclude the CISG, actually reaffirms the applicability of the CISG.
So what is required to exclude the applicability of the CISG to such a contract? The best practice is to both specifically exclude the CISG, and to designate the laws which will apply in its stead. The following language provides a good example:
“This Agreement, and all disputes arising hereunder, shall be governed by and interpreted in accordance with the laws of the state of Texas, USA, without reference to its conflicts of laws principles. However, the United Nations Convention on Contracts for the International
Sale of Goods (“CISG”) shall not govern or apply to this Agreement, and the parties hereby exclude application of the CISG.”
Finally, it should be noted that there may be instances where exclusion of the CISG is disadvantageous to the parties. Each situation should be judged on its own merits. The best course of action is to consult with an attorney experienced in international transactions to assist in determining the best way to proceed in light of the circumstances.