Cisg and benefits for vietnamese enterprises

Lawyer Le Thanh Tung

Lawyer Pham Minh Luan

1980 Vienna Convention of the United Nations on Contracts for the International Sale of Goods (CISG) comes into force in Vietnam on 1 January 2017, opening quite a few opportunities and advantages for enterprises when they conduct international transactions.

Some points of CISG

Since its inception, CISG has been aiming to harmonize the law and unify the rules governing the contracts on international sale of goods between the contracting parties coming from different nations. CISG is considered as one of the most successful international treaties in the field of international trade, widely disseminated in and applied by eighty-five (85) state members worldwide (this number may increase in the future). Currently, most of Vietnam's major trading partners such as Japan, the United States, China, Australia are members of the CISG.

As far as its content is concerned, CISG sets out rules governing the process of creating, explaining the contracts on international sale of goods and its remedies. The convention governs most of the legal issues that may arise in the process of entering into and implementing the contracts on international sale of goods, such as duration and validity of the offer, acceptance of the offer; rights and obligations of the contracting parties; and measures to prevent and overcome the consequences of contract breach.

Benefits which the enterprise may get when CISG takes effect in Vietnam

Pursuant to Article 1.1.a. of CISG, the Convention will apply to contracts on international sale of goods between the Parties having their headquarters in the contracting parties, except where the parties have agreed not to apply this Convention. Thus, when Vietnam joins CISG, contracts signed between Vietnamese enterprises and enterprises from CISG’s state members will be automatically governed by the provisions of the Convention. Accordingly, joining CISG will bring to Vietnamese businesses lots of considerable economic benefits when they understand and apply CISG.

Firstly, Vietnamese businesses can easily solve a controversial and difficult issue in negotiation, which is choosing the law applicable to the contract. When parties do not compromise on the choice of applicable law being not the law of their country, the application of CISG will be a source of neutral law being acceptable to the parties. This means that the negotiation time to reach the decision on the applicable law will be reduced. Furthermore, in cases where the contracting parties do not agree on the applicable law, CISG will automatically be applied to contracts on international sale of goods between the parties.

Secondly, before CISG comes into effect, Vietnamese businesses can take a lot of time and money to learn foreign laws if they cannot agree with the partner to apply the law of Vietnam. In fact, the ability of Vietnamese businesses to persuade foreign businesses to apply Vietnamese law is often more difficult, and as such, many Vietnamese businesses choose to apply Singapore law as a source of neutral law. Due to lack of thorough understanding of foreign laws as well as the application of foreign law, there are many potential legal risks when conducting the contract or dealing with arising disputes. At the same time, the cost and time required to learn CISG are much less than that of the law in foreign country, as businesses or counsel can easily consult (free of charge) the database being extremely rich of CISG today.

Thirdly, the principle of free will and respect for the agreement between the contracting parties is guaranteed. Specifically, CISG applies only if the parties in the contract have no other agreement. Thus, the freedom of choosing the applicable law of businesses is preserved as well as CISG does not impose or limit self-determination in choosing applicable law of the parties. It can be said that CISG is a safe shield instead of a legal hindrance for businesses from the member states.

Fourthly, joining CISG means that Vietnam has agreed to apply a set of laws regulating the contractual relations on international sale of goods with a number of the Convention’s state members. This helps court judgments or arbitration decisions relating to the resolution of disputes relating contracts on international sale of goods between businesses referencing CISG issued by Vietnamese arbitration bodies or courts will be easily recognized for enforcement in the country members.

It should be emphasized that these benefits above are of great significance to small and medium enterprises when engaging in international trade activities. These firms are less likely to have conditions for accessing to legal consultancy services as well as there is less power in negotiating for choosing the law applicable in the contract. Therefore, they often face many legal risks related to this problem. The greater benefits of legal unified document as CISG bring to the small- and medium-sized enterprises, the more interests this Convention gives to Vietnam, a country with more than 90% of small and medium enterprises.

CISG has clearly demonstrated its superiority in the international commercial legal system, even in economical and legal aspects, especially in terms of reducing transaction costs and business disputes. In addition, businesses have the opportunity to compete fairly and increase the exchange of goods between countries in accordance with the general trend of international law. Therefore, it is crucial to learn and apply CISG to the reality of commercial business relations of Vietnamese enterprises.