Did You Know - Series 1
While drafting "Governing Law" clause in cross-border contracts for sale of goods, if the companies entering into the contracts would want governing law of a particular country to apply they must ensure the following:
• It is pertinent for the companies entering into the contract, to check if the countries where they carry on business or countries where they are headquartered have ratified the United Nations Convention on Contracts for the International Sale of Goods (CISG)*.
• If the answer to the same is yes, then it is essential for both parties to expressly state in their contract that they disclaim the application of CISG.
• Parties must ensure that the preferred "Governing Law" is clearly mentioned in the contract, and that any law that directs the application of another jurisdiction's law is expressly excluded/disclaimed, in the contract
* The United Nations Convention on Contracts for the International Sale of Goods was adopted by a diplomatic conference on 11 April 1980. CISG establishes a comprehensive code of legal rules governing the formation of contracts for the international sale of goods, the obligations of the buyer and seller, remedies for breach of contract and other aspects of the contract. The Convention entered into force on 1 January 1988.1
As of today CISG, has been ratified by 74 countries and therefore a significant proportion of world trade, is governed by this Convention. It is important, therefore for all legal professionals involved in drafting contracts for their clients/company, to note that unless excluded by the express terms of a contract - CISG would still govern, at least on the plain meaning of this clause. The parties, therefore, have to make it clear if they want to derogate from the CISG, by stating that the CISG should not apply.2
1 http://www.uncitral.org/uncitral/en/uncitral_texts/sale_goods/1980CISG.html
2 http://www.austlii.edu.au/nz/journals/VUWLRev/2005/36.html#fn15
