International Sales Agreement? Don’t forget the Vienna Convention!
This article was originally published in Texpress 10 from October 29th, 2016 (in Dutch)
By LLM Petra Chao
Importing and exporting clothing is common-day practice. Most of the time, all goes well, but sometimes things can go wrong. It’s convenient if both parties have agreed on certain things in a contract when it comes to breaking up the deal for example. Unfortunately, the application of the UN Convention for the International Sale of Goods (CISG or Vienna Convention) is not always taken into consideration.
Consider a Dutch buyer who agrees to do business with a Chinese exporter of women’s clothing. The buyer drafts of a sales agreement in which he applies Dutch legislation to avoid any unforeseen events. The Chinese buyer agrees and the sales agreement is born. After some times, the quality of the Chinese shipments does not align with the agreed quality standards. The buyer mentions the problem and asks if the Chinese exporter can replace the clothing as fast as possible with clothing from the quality as agreed. If this does not happen, the Dutch buyer wants to disband the entire sales agreement. The seller refers to the CISG and points at the fact that he does not have to replace the women’s clothing shipments and the fact that the Dutch buyer cannot just break up the sales agreement. However, the Dutch buyer thought he would only have to deal with the Dutch legislation. How come?
The CISG automatically applies to international sales agreements concerning commercial goods and products such as clothing if both commercial parties, consumers excluded, are based in different countries that both have ratified the CISG. The Netherlands and China have both ratified the convention. As a result, the CISG is automatically legally-binding on this international sales agreement.
The CISG contains a so-called material sales law. The convention includes rules on pay commitments and situations where goods differ from what parties have agreed on. Dutch law also rules concerning such topics. However, the Dutch rules could deviate from those in the CISG. Here’s a situation where I elaborate on what action a Dutch buyer can take to respond to a non-performing seller.
Replacement of the delivered shipment or disbanding the agreement
Initially, the buyer would like to have his clothing that does not meet the agreed standards replaced and if that does not happen, he would like to disband the agreement. The major difference in the CISG and Dutch law lies in the extent to which the Chinese seller did not comply with agreed standards in case the buyer wants a replacement of the clothing. The CISG rules that, in favor of the seller, the buyer can ask for a replacement if the delivery truly failed to meet standards. For example, the seller delivered men’s clothing instead of women’s clothing. In this case, the clothing fails to meet a crucial characteristic from what was ordered. However, such situation is differently dealt with in Dutch law. In general in Dutch law, the buyer has the right for replacement of goods if the delivered goods do not meet the criteria that both parties have agreed on. The buyer is not only entitled on replacement when standards are seriously violated, but also in cases that are less serious. Can a Dutch buyer also demand a full replacement if one seam at one piece of clothing is missing? The answer is no. The deviation that is recognized by both parties cannot justify a full replacement based on article 7:20 recitle 1 of the Dutch Civil Code. If the Dutch buyer wants to disband the sales agreement, under the CISG, the fact that the standards are not met by the Chinese seller forms a major shortcoming. According to Dutch law, the buyer is free to disband the agreement. Because: any shortcoming of a party in meeting terms of an agreement, like delivering clothes that don’t have the agreed-upon quality, gives the opposing party the right to legally disband the agreement. A major exemption on this rule: If the shortcoming is of minor meaning that does not justify a disbandment of the agreement, the agreement cannot be disbanded according to Dutch law. Thus, Dutch legislation has a more flexible approach to disbanding agreements.
Which law applies?
Parties have come to an agreement using Dutch law in the given situation. This does not mean that the CISG does not apply here. The CISG applies along with the Dutch law in this sales agreement. In case of contradiction, the CISG has priority. Our situation has a contraction, as the Dutch legislation has different rules in case of not meeting agreed-upon standards compared to the CISG. In our case, CISG rules have priority. This means that the Dutch buyer can only ask for replacement or disbandment of the agreement in case of serious shortcomings as foreseen in the CISG.
Can I exclude the Vienna Convention?
Parties can exclude application of the CISG partly or fully. This has to be stated explicitly. The fact that exclusively Dutch law will be applied has to be stated explicitly. Preferable, the exclusion of applying the CISG has to be stated explicitly. Whether it’s smart to exclude the CISG depends on the circumstances. In our case, the Dutch buyer should have excluded to CISG.
When signing international sales agreements, one has to take the CISG into account in the agreement even if the Dutch legislation has been chosen as the preferred legislation. The CISG contains a provision concerning the disbandment of agreement that differ from Dutch law. A rule from the CISG is less favorable in some circumstances compared to Dutch rules. It is strongly advisable that you study the CISG and maybe exclude the CISG when signing an international sales agreement.