As of April 1, 2014, the United Nations Convention for the International Sale of Goods came into force in Brazil (“Convention”), also known as the “Vienna Convention” or CISG.
However, there is still some discussion on the date of the Convention’s applicability in Brazil. Although there is a legislative decree enacted in October 2012, the ratification instrument of which was deposited at the UN in March 2013, many believed that the enforceability of the Convention was subjected to a Presidential Decree still to be edited. Since the Presidential Decree No. 8,327, that enacts the CISG in Brazil, was published in the Union’s Official Gazette on October 17, 2014 there is still doubt if the contracts entered between April 1st and October 17th, 2014, will be governed by the Convention.
The Convention is an international treaty ratified by 79 countries, including the largest economies in the world, such as the USA, China, Japan and the main countries of the European Union. Drafted by the United Nations Commission on International Trade Law (UNCITRAL) of the UN, the Convention establishes uniform rules for the international sale of goods in the contracting states. The Convention offers the parties a greater level of security in relation to the applicable rules on sales of goods, reducing transactional costs. Click here to see the Convention’s text.
Please see below the main provisions of the Convention:
Scope and Application
The Convention is applicable to international purchase and sale of goods between parties located in different contracting states. Even if one of the parties is not located in a Contracting State, the Convention is still applicable if the rules of private international law points to a country where the convention is currently in force. The parties may also choose the Convention as applicable law whenever possible, as in arbitration proceedings in Brazil (Art.1).
The Convention does not apply to certain contracts of sale, such as those entered for the personal or family use of the goods, for the sale of shares and other negotiable instruments, and for the sale of ships and electricity (Art. 2).
The Convention may be applied to contracts for the supply of goods to be manufactured or produced, except where the preponderant part of the obligations lies in the supply of labor and/or services (Art. 3).
Main rules of the purchase and sale
The Convention is a careful set of instructions of the international sale of goods, with its rules based in the rule of reason, understood as the conduct of a person in good faith, considering the circumstances of the case and the practices and usages observed in international trade.
The Convention adopts the concept of Good Faith as a principle of contract interpretation (Art. 7), while also accepting the general trade usages, known as lex mercatoria (Art. 9).
As to the main obligations of international sales contracts, the Convention foresees that the seller has the duty to deliver the goods, and their related documents, in the appropriate time and place (Art. 30, 31 and 33), where such goods must conform with the quantity, quality and type provided in the contract (Art. 35).
On the other hand, the buyer must examine the goods when they are delivered (Art. 38), pay the price, and take the necessary measures for the price is duly paid and the delivery site is ready for the goods. (Arts. 53).
The Convention also governs the transfer of risk in the transportation and delivery of the goods (Art. 66) and the conditions in which a party may exempt itself from its obligations under the contract due to force majeure (Art. 79).
Contract breach and damages
In case of a contractual breach, the Convention prefers solutions that maintain the contract valid, with the specific performance (Arts. 46 and 62) or the cure of the nonconformities of the goods (art. 48).
The avoidance of the contract is possible when the other party commits a fundamental breach. A breach is considered fundamental when it creates a detriment that deprives the aggrieved party of what its is entitled to expect under the contract (Art. 25). In these cases, the parties may avoid the contract and request damages to cover its losses (arts. 49 e 64).
The Convention also contain rules providing for the calculation on the amount of damages. Besides the provision for the full compensation of all damages, including loss of profit (Art. 74) and the payment of interest for delay (Art. 78), the Convention contemplates that damages are limited to those “which the party in breach foresaw or ought to have foreseen at the time of the conclusion of the contract” (art. 74).
Moreover, the Convention stipulates that, in accordance with the principle of Good Faith, the parties must act in a diligent manner, so as to limit the damages arising out of a breach; otherwise, the amount of damages recoverable may be reduced in the same amount that the losses could be avoided (Art. 77).
Our practice groups in infrastructure and litigation/arbitration are at your disposal to give any additional information on the opportunities that the Vienna Convention may offer to the international commerce of goods.
