The CISG or German sales law?

When does the CISG apply?

Under Article 1 of the CISG, contracts of sale for goods between parties with places of business in different States are governed by the CISG if both States are Contracting States or if the law of a Contracting State is designated by the rules of private international law. The decisive factor is the place of business that has the closest connection to the contract and its performance. Nationality or the group’s registered office are not relevant.

The Convention does not apply to all transactions. Under Article 2, consumer sales, auctions, securities, ships, aircraft and electricity are excluded. In the case of contracts for goods to be manufactured, the CISG may apply provided that the buyer does not supply a substantial part of the necessary materials. If, on the other hand, services predominate, the mixed contract may fall outside the scope of the Convention.

The CISG primarily governs the conclusion of contracts and the rights and obligations of the buyer and seller. Issues relating to the validity of contracts, agency, transfer of ownership, security interests or limitation periods, however, are not covered and are governed by the applicable national law.

Does the choice of German law preclude the application of the CISG?

No, because the CISG is an international treaty and therefore forms part of German law. A clause such as ‘German law shall apply’ therefore generally leads to the application of the UN Convention on Contracts for the International Sale of Goods in an international sale of goods covered by the CISG. The BGB and the HGB merely supplement those areas not regulated by the CISG or deliberately left to national law.

Anyone wishing to exclude the CISG should do so expressly. One possible wording is: ‘The law of the Federal Republic of Germany shall apply, to the exclusion of the UN Convention on Contracts for the International Sale of Goods (CISG).’ If the CISG is to apply, the contract may be worded as follows: ‘The UN Convention on Contracts for the International Sale of Goods (CISG) applies to this contract. In addition, insofar as the CISG does not regulate a particular matter, the law of the Federal Republic of Germany applies, to the exclusion of its conflict-of-law rules.’

The decision should be consistent with the contract. An exclusion based solely on custom may negate the benefits of a uniform set of international rules. Unintentional application, on the other hand, may alter liability and claim procedures for which the company is unprepared.

How do the rules on the conclusion of contracts differ?

The CISG regulates offers and acceptances separately. A reply containing material changes is generally regarded as a rejection and a new offer. Changes to price, payment, quality, quantity, place of delivery, liability or dispute resolution are generally treated as material. Silence is not automatically deemed to be acceptance, whilst conduct and established business practice take on greater significance.

In the ‘battle of forms’, the terms and conditions of the buyer and seller clash. The CISG does not contain any explicit, globally uniform special provisions for this. Companies should therefore not leave the outcome to subsequent interpretation, but should manage the incorporation process both technically and organisationally.

The structure becomes robust when every step of the contract formation process is carried out deliberately. The desired terms and conditions should be incorporated in full and made accessible as early as the portal or in the tender, with a documented version and verifiable access. The purchase order must clearly state the choice of law, the decision for or against the CISG, and the hierarchy of the contractual documents. In the order confirmation, any deviations must be explicitly identified and linked to a defined acceptance process. A signed framework agreement or a clear priority clause is the most reliable way to resolve conflicting terms. No contradictory practices should arise during the ongoing business relationship. Version changes and the acceptance of amendments are therefore documented.

General Terms and Conditions should not simply be added retrospectively to invoices or delivery notes. What is crucial is their timely inclusion, the reasonableness of expecting the other party to take note of them, and a demonstrable consensus.

When are goods deemed to be non-conforming to the contract?

Under Article 35 of the CISG, the quantity, quality, nature and packaging must comply with the agreement. In the absence of precise specifications as to quality, the goods must, as a general rule, be fit for their ordinary purpose and for any specific purpose of which the seller is aware. Samples, specimens and packaging requirements may influence the standard required.

The CISG uses the concept of non-conformity and does not distinguish between different categories of defects in the same way as the BGB. For the legal consequences, it is significant whether a breach of contract is to be regarded as fundamental within the meaning of Article 25. Only then may particularly drastic remedies, such as termination of the contract or substitute delivery, be considered, subject to the further conditions.

Quality agreements should integrate technical specifications, testing methods, tolerances, approvals and change management processes. A general reference to standards is not sufficient where different versions, measurement conditions or priorities are possible.

What are the obligations regarding inspection and notification of defects?

Under Article 38 of the CISG, the buyer must inspect the goods or have them inspected within a reasonable time. Under Article 39 of the CISG, the buyer generally loses the right to rely on a breach of contract if they do not give specific notice of it within a reasonable time after discovery or possible discovery.

Inspection and notice of defects procedure under Articles 38 and 39 of the CISG

The procedure follows a fixed sequence. The examination begins upon delivery or at the first available time for inspection. It must be carried out as promptly as possible. Subsequently, the specific nature of the defect and the goods concerned are identified. The notice of non-conformity must be given within a reasonable time. New findings and any resulting claims are recorded on an ongoing basis.

The notice must specify the nature of the breach of contract in detail. General statements such as ‘goods defective’ are insufficient. The buyer should specify the product, the quantity or batch, the observed defects and the available inspection results, and expressly reserve the right to carry out further investigations.

Irrespective of the reasonable time limit for raising a complaint, Article 39(2) of the CISG generally sets a maximum time limit of two years from the date of actual delivery, provided this is not incompatible with a contractual warranty period. Companies should provide for shorter internal inspection and escalation deadlines, as the law only recognises an upper limit of two years.

What remedies and rules on damages apply?

Under certain specific conditions, the CISG provides for performance, rectification or replacement, reduction of the price, termination of the contract in the event of a material breach, and compensation for damages. However, termination of the contract is not a general right of withdrawal. It generally requires a fundamental breach of contract or the expiry of a reasonable period of grace without the breach being remedied.

Under Article 74 of the CISG, compensation generally covers the loss incurred, including loss of profit, but is limited to damages which the party in breach foresaw or ought to have foreseen as a possible consequence at the time the contract was concluded. Under Article 79 of the CISG, an impediment beyond the parties’ control, which could not reasonably have been taken into account at the time the contract was concluded and which is unavoidable, may exempt a party from the obligation to pay damages. Other remedies may remain available.

Force majeure and hardship clauses should supplement this framework. Among other things, they should address events, controllability, obligations to provide information and evidence, mitigation of loss, procurement risk, temporary impediments to performance, adjustment negotiations and rights of termination. A general force majeure clause must not be broader or narrower in scope than Article 79 of the CISG.

How should the choice of law be formulated in a supply contract?

The first step is to make a conscious decision as to whether the CISG should apply or be expressly excluded. The next step is to ensure that the definition of a defect, the inspection and notice of defects, subsequent performance, limits of liability, force majeure, title, limitation periods and dispute resolution are aligned with this set of rules.