Cross-Border Sales: You May Need to "Un-U.N." Your Contract
If your local company makes a big sale or purchase outside the United States, there is a good chance that the sale contract will be governed under a set of laws that neither side intended.
For example, if your D.C. area company sells equipment to a company in Mexico, and the Mexican purchaser agrees to a provision saying “this contract is governed by the laws of Maryland,” disputes actually will be decided under the United Nations Convention on Contracts for the International Sale of Goods, or the “CISG.”
Why? Both the U.S. and Mexico (along with over 70 other countries, including Canada, China, France, Italy and Australia) have become CISG “Contracting States” and have agreed to make the CISG part of their own country’s law. The CISG in turn governs nearly any contract for the sale of goods if the seller is in one Contracting State and the buyer is located in a different Contracting State. You may find the list of CISG Contracting States by googling “CISG.”
Therefore, even though your cross-border contract says “Maryland law” governs, by treaty the United States has made CISG part of the law of every U.S. state – and the CISG will govern disputes (instead of Maryland’s normal commercial sales statutes) if the other party is located in a different CISG Contracting State.
Is this a bad result for you? If you are a manufacturer and your buyer will agree to contract forms that offer you extensive protection from warranty claims, the CISG is more likely to be harmful than helpful to you. The CISG generally provides an unsatisfied buyer with a greater opportunity to claim that there were additional undertakings beyond the written words of the contract and, depending on the country, a longer time within which to file claims.
However, you may have a case where your customer in Slovenia (another ratifying country) will not buy from you unless you agree that the law of Slovenia governs the contract. Here, the CISG may benefit you by supplying a known and neutral source of law that ultimately is not much different from the uniform U.S. laws governing sales contracts.
The CISG is relatively new, with the vast majority of participating countries ratifying it after 1990. Different countries’ courts have interpreted CISG provisions in different ways, and many decisions are not reported. So the CISG offers much less “settled law” and guidance when disputes arise, compared to our own Uniform Commercial Code.
Fortunately the CISG is very clear on one thing: you can “un-U.N.” your contract simply by agreeing that your state’s law will apply “without regard to the U.N. Convention on Contracts for the International Sale of Goods.” For these reasons, we recommend that you focus carefully on your contracts’ “governing law” provisions for international sales.
Ray Sherbill chairs the firm’s Business & Tax practice group. He has a broad corporate practice advising businesses of all sizes in a variety of transactional, financial, and tax-related matters, as well as handling and resolving disputes. In addition to his extensive business and corporate law experience, Ray represents clients in government contracting and related matters. Contact Ray at email@example.com or 301-347-1275.
This article originally appeared in Lerch, Early & Brewer's Legal Update, 2010, Vol. I. It is for your information only and is not intended to constitute legal advice. Please contact your attorney for more information.
Copyright 2010 by Lerch, Early & Brewer, Chtd.