American seller, Czech buyer. Advantages of the UN Convention on Contracts for the International Sale of Goods
The provisions of the Convention prevail over Czech law. Few people realize, however, what impact this may have on the rights and obligations of the two parties.
The UN Convention, also known as the CISG, was concluded in 1980 and is applied in 78 countries, including the US. Large countries that are not parties to the Convention include Brazil, India and Great Britain.
The procedures followed pursuant to the Convention have distinct advantages. If you enter into a purchase agreement with an American company you know what the basic obligations are and can rely on the fact that the American courts will follow the Convention. Any rights and obligations not stipulated in the Convention, however, would be governed by the laws of the respective country and such laws would be decisive for the agreement in question.
Article 7 of the Convention requires any interpretation of the Convention to be uniform. In practice this means that, for example, your situation could thus depend on the interpretation of a provision of the Convention adopted by an arbitration court in China. This fact is illustrated by Article 2, which contains a list of cases to which the Convention shall not apply. Exceptions include purchases of securities and money. The Chinese International Economic and Commercial Arbitration Committee, however, determined in a resolution in 2000 that the Convention shall also apply to collectors’ coins, despite the fact that the Committee itself considers them to be money (and even though they are intended for collectors only and not for circulation). To interpret this provision, the Czech courts should also rely on the cited resolution.
Practice and customs are binding
Article 9 provides that parties are bound to what they agree on and to any practice that they have established between themselves. What does this mean? For example, according to the International Court of Arbitration (ICC), parties may establish a custom concerning the prompt delivery of spare parts based on customer orders. Thus, if on several occasions the supplier delivers the goods immediately any breach of this practice may mean a breach of the contract. If the supplier does not want such practice to be mandatory, this should be expressly agreed with the customer.
Parties may thus agree on the practices that they follow, and any infringement of such practices would result in an infringement of the agreement. A problem may appear in cases where the parties do not expressly agree on a practice but do not exclude it either, even though they know that it exists in the area in question. In such an event, the practice would become binding. This has been determined by the Supreme Court in Austria. It should, however, be mentioned that a practice that is widely known and applied in international trade is also binding between parties pursuant to the Convention, unless the agreement sets forth otherwise.
If parties do not want the Convention to apply to their relationship, their agreement must state such fact expressly, i.e. that the Convention shall not apply. A mere reference to Czech law is not enough. Where the Convention is excluded by the parties, the rules set forth by the relevant law that is decisive for the parties shall apply in place of the Convention.