Introduction:

Picture a situation where a manufacturer in British Columbia enters into an agreement with a buyer in Italy. The buyer in Italy then breaches the agreement and refuses to pay for the goods that he has received because he says that the goods are faulty. The manufacturer disagrees and wants to sue the buyer for default. In this respect, the manufacturer in British Columbia wants to rely on the British Columbia Sale of Goods Act, but the buyer wants to rely on Italian law that deals with sale of goods. How do you decide which law to apply?

In a traditional private international law context, it would be a matter of considering a number of different factors to determine which country’s law would apply. Ultimately, the application of private international law in this type of situation is complicated and unpredictable. This method is not one that is conducive to making international transactions easier and more predictable.

Consequently, the countries of the United Nations have worked to avoid this problem. The result of these efforts is the CISG. The CISG is a document intended to create one standard to govern the international sale of goods. In the above scenario, this would mean that neither BC law nor Italian law would apply; rather, the parties would be governed by the provisions of the CISG. Furthermore, both parties would be able to enter into an agreement knowing what law they would turn to should there ever be a problem.

Application in Canada:

As the sale of goods and contracts fall within the provincial domain of business regulation, the following steps had to occur for the CISG to be applicable in Canada: first, Canada had to federally adopt the CISG; second, the provinces had to each enact a provincial act implementing the treaty. As of the present date, the CISG has been adopted federally, and all provinces and territories have implemented the CISG. The Federal adoption of the CISG can be found in the International Sale of Goods Contracts Convention Act (1991 c.13). In British Columbia, the International Sale of Goods Act (RSBC 1996 c.236) represents the implementation legislation for this province.

The Convention

Generally, the CISG is a comprehensive code that governs most aspects of the sale of goods between parties when those parties are from different countries. Importantly, for businesses here in British Columbia and within Canada, these transactions include those that occur between the United States and Canada.

A key implication of the CISG is that it automatically applies to a transaction unless specifically excluded. Even where there is a choice of laws clause in a contract, but no specific exclusion of the CISG, the CISG shall still apply, as the CISG provides that domestic law contract law is excluded in favour of the CISG in the case of an international sale of goods.

Briefly, the following outlines the scope of the CISG and how it affects the sale of goods from Canada:

First, the CISG has a broad scope of parties to whom it applies as outlined in Article 1 of the Convention:

This Convention applies to contracts of sale of goods between parties whose places of business are in different states:

a) when the states are Contracting States; or

b) when the rules of private international law lead to the application of the law of a Contracting State

Note that “Contracting States” are those countries who have subscribed to the CISG.

Article 2 of the Convention specifies those sale situations to which it does not apply:

This Convention does not apply to sales:

a) of goods bought for personal, family or household use, unless the seller, at any time before or at the conclusion of the contract, neither knew nor ought to have known that the goods were bought for any such use;

b) by auction;

c) on execution or otherwise by authority of law;

d) of ships, vessels, hovercraft or aircraft;

e) of electricity.

Further, Article 6 of the Convention allows for parties to a contract to vary or exclude the application of CISG:

The parties may exclude the application of this Convention or, subject to article 12, derogate from or vary the effect of any of its provisions.

However, it should be noted that Article 6 is ambiguous in its application and as a result, what is required to exclude the application of the CISG is not clear. Some Canadian legislatures have included counterpart provisions in their enabling legislation to remedy the ambiguity posed by Article 6. Nonetheless, this clarification is not uniform within Canada, and insofar, Quebec, British Columbia, the Yukon and the Northwest Territories (including Nunavut) have not amended their legislation to reflect initiatives other provinces have taken. That being said, it is also important to note that the provinces that have included counterpart provisions in their enabling legislation have not had such declarations authorized by the CISG and as such, will not likely be honoured outside the relevant province.

How the CISG affects you and your business

Ultimately, the CISG can directly affect your business when you are involved with international transactions involving the sale of goods. Depending on the nature of your transaction, the CISG can be a distinct advantage as it provides greater certainty in your transaction. However, as between Canada and the United States, there are certain concerns that may arise. The current trend, especially as between Canada and the United States, is to exclude the application of the CISG. This trend has arisen for a number of reasons, one of which importantly is that there are some significant differences between the CISG and provincial Sale of Goods Acts, as well as between the CISG and the United States Uniform Code.

Ultimately, it is recommended that parties involved in international and cross-border transactions be familiar with the content of the CISG and discuss with their counsel the effects of the CISG on their business and business transactions.

If you would like further information, or would like to know how we can help you with your business and any business related transactions, please contact our offices at 604-581-4677.

The contents of this article are for informational purposes only and should not be construed as legal advice.