What law applies to my international trade contract?

If your business exports or imports goods your Sales Agreement may be automatically subject to the laws of the United Nations Convention on Contracts for the International Sale of Goods (CISG), rather than to New Zealand sale of goods law, or the domestic law of the other parties to the contract.

The CISG aims to provide an international standard when it comes to sale of goods law, contract formation, warranties on goods, and resolving disputes between international traders.

When will the CISG apply?

The CISG will apply when a New Zealand business contracts for the sale of goods with a business registered in another country which has also ratified the CISG.

There are currently 95 Contracting States which includes some of New Zealand’s largest trading partners such as Australia, China, United States, Japan, South Korea, and Singapore.

The CISG will automatically apply unless the parties to the contract both expressly contract out of the CISG or vary its application.

It is important to get this part right as merely stating in the contract that a state’s domestic law is to apply to the contract may not be enough to contract out.

How is the CISG different from New Zealand law?

While the CISG is based on some common law principles, it differs from domestic contract law in the following ways:

• Consideration is not required to enforce the contract. Consideration would usually be money or price exchange for the goods and services – but can be anything that has value;
• There is no difference between a condition and a warranty;
• It is easier to get a judgment for specific performance of the contract rather than just monetary damages;
• If the contract is ambiguous on certain matters, the CISG will read-in elements of good faith between the parties to fill in the gaps; and
• Penalty clauses may be enforced.

The CISG can hugely benefit businesses by providing certainty as to the law that will apply between international parties and businesses which do not have the capacity to negotiate their contracts. They can fall back on the protection and remedies of the CISG.

As always, it pays to seek legal advice from a legal professional who can advise you on your contractual rights and responsibilities.

Leading law firms committed to helping clients cost-effectively will have a range of fixed-price Initial Consultations to suit most people’s needs in quickly learning what their options are.  At Rainey Collins we have an experienced team who can answer your questions and put you on the right track.