Cross-border disputes. Rights of the parties to the contract resulting from the United Nations Convention on Contracts for the International Sale of Goods of 11th of April 1980 – so-called Vienna Convention

Entrepreneurs are contracting with foreign entities more often than ever. Some of those contracts may be regulated by international law, in particular the United Nations Convention on Contracts for the International Sale of Goods of 11^th of April 1980 – also referred to as the Vienna Convention or CIGS. The convention is currently in force in many European Union countries, as well as in the United States, China and Ukraine. It is worth knowing how its provisions affect the rights and obligations of the parties to the contract.

1. To which agreements does the Vienna Convention apply?

The Convention applies primarily to sales contracts. However, it will apply to other contracts under which the delivery of goods takes place, e.g. contracts for specific work, contracts of mandate, provided that the goods are manufactured primarily from the materials of the contractor performing/producing the goods, and not delivered by the contracting authority. The Vienna Convention excludes its application to certain types of contracts, for example regarding the sale of electricity, shares, stocks, ships, vessels and concluded for personal purposes. It will also not apply to contracts, mainly consisting in the provision of services or the provision of labor. The contract of sale will be subject to the Convention when both parties to the contract will have trade offices in the countries that are its signatories. What’s more, it will also be used when the law applicable to the contract of sale is the law of the country that has ratified the convention. For example, CIGS regulations will be applied in the case of contracts for the sale of goods, which by law or parties’ decisions are subject to Polish law.

The list of countries that are parties to the Vienna Convention is available on the dedicated website. Attention! Some countries apply the Convention without taking into account some of its provisions (e.g. Scandinavian countries). The fact that a country is a party to the Convention will not always mean that all its provisions apply to it.

2. Can the contract exclude the application of the Vienna Convention?

The parties may agree that the Vienna Convention shall not apply to the concluded contract in whole or in part, including appropriate clauses. They can also differentiate in the contract issues regulated by the Convention, with the exception of more stringent requirements as to the form of concluding an agreement in force in some states bound by the Convention in accordance with art. 12.

Since the Vienna Convention is part of the legal order of many countries, mere indication of the law of the state concerned as appropriate will not be a sufficient contractual provision that excludes the application of the Convention. Such an exemption will only be effective if the law of a state that is not a party to the convention has been chosen.

3. How does the Vienna Convention affect the rights and obligations of the parties to the sales contract?

The Vienna Convention governs the conclusion of a contract of sale and the rights and obligations of the parties under this agreement. It does not consider the amount of interest for late payment, jurisdiction and applicable law, time limits for claims arising from a sales contract or the validity of contracts and their effects in relation to the ownership of goods sold.

Among other things, it introduces a maximum two-year period for notifying the seller of non-compliance with the contract delivered goods counted from the date of actual delivery to the buyer (unless the date is inconsistent with the contractual warranty period). As a rule, the declaration of non-conformity of goods should be reported within a reasonable time from the moment they were detected or should be detected. The Convention also introduces an obligation to minimize the damage suffered by the injured party as a result of breach of contract. This means that the party claiming breach of the contract should take such measures that are reasonable under the circumstances to limit the loss, including the loss of profit, caused by the breach of the contract. If he does not do so, the offending party may demand a reduction of compensation by the amount by which the damage should be reduced.

The amount of compensation due under the Convention is limited to a loss predictable by the party.

Compensation for breach of contract may not exceed the loss that the infringing party foresaw or should have provided at the time of conclusion of the contract, in the light of circumstances which she knew or should have known as a possible result of a breach of contract.

The parties’ liability to breach the contract is interpreted very broadly by the Convention. In order to be exempt from liability, the party must demonstrate that the failure to perform the contract’s obligations arises from unimpeded obstacles that party could not take into account at the time the contract was concluded or could not avoid them or overcome their consequences. Apart from compensation, the parties to the contract have a number of independent rights, including the withdrawal from the contract due to its material breach (and without any obligation to call it earlier), a price reduction or refusal to accept a non-compliant product.

Since the provisions of the Vienna Convention, especially as regards the parties’ liability for damages, may be less advantageous to the parties than the provisions of national law, it is worth investigating before concluding the contract whether contractual exclusion of its use will not be the most advantageous solution. If the contract has already been concluded and problems have arisen, the contractor should verify whether the binding party of the Convention does not modify its powers or obligations claimed from the party, which may affect the range of enforceable claims for non-performance of the contract