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FROM THE BLOG

Look out! your Swiss law contract may unwittingly be subject to "Vienna Convention" rules

Posted by on 5 February 2019

Even if a contract designates "Swiss law" as the governing law, the United Nations Convention on Contracts for the International Sale of Goods (the "Vienna Convention" or "CISG") could in principle apply. Where it applies, the CISG takes precedence over the ordinary national laws. This is often overlooked by the parties at the time they negotiate and sign the contract, and at the point they find themselves in dispute.

What is the CISG?CISG-application-in-contracts-Froriep

The CISG is considered part of the national law of countries which are Contracting States to the CISG. Switzerland joined the CISG in 1991. Currently there are 89 Contracting States, among them important trading partners of Switzerland such as China, Italy, France, Germany, Japan and the US, however not the UK.

The CISG is a compromise of different national legal systems with the goal to remove the legal barriers in international trade. It contains rules to address the distance sales of goods. For instance, the period for the notification of defects of goods by the buyer is in general longer under the CISG than under Swiss law. Furthermore, the threshold for assuming a fundamental breach of contract and with that the possibility to declare an avoidance of contract is higher than under Swiss law. The rationale for this is the high cost associated with the reversal of a transaction for distance sales contracts.

It must be borne in mind that even if the CISG applies to a contract, it does not cover all matters. For example, the CISG does not contain rules on the statute of limitations, validity of contract or procedural law. Matters not covered by the CISG will be governed by the applicable national law.

When does the CISG apply?

The CISG will in principle apply, if:

  • the parties have their places of business in different states at the time of conclusion of the contract, and either

    • the states of the places of business of the parties involved are Contracting States to the CISG at the time of the conclusion of the contract, or
    • the rules of private international law lead to the application of the law of a Contracting State to the CISG; and
  • the parties have not excluded the CISG. Note that a choice of law clause designating the national law of a Contracting State as the governing law without further specification will not lead to the exclusion of the CISG, as the CISG is part of that national law. Likewise simply excluding the application of conflicts of laws rules does not exclude the application of the CISG. Indications beyond the wording of a choice of law clause are required to assume the exclusion of the CISG; and
  • the arrangement qualifies as a "contract of sale", meaning a contract directed at the exchange of goods in consideration for the price. "Goods" are moveable and tangible objects at the time of delivery. Also considered as "contracts of sale" are contracts for goods to be manufactured or contracts for supply of goods and services if the main obligation is the supply of goods. On the contrary,

    • consumer sales,
    • sale of rights and know-how,
    • stock or share deals,
    • distribution agreements, or
    • contracts in which the main obligation of the party who furnishes the goods consists in the supply of labour or other services,

are not typically considered as "contracts of sale" under the CISG (but single contracts of sale under a master distribution agreement will be covered by the CISG); and

  • the goods that are subject to the agreement are acquired for business purposes and not for personal use.

Please click here for a list of cases where the CISG would in principle apply.

Conclusion

It is often ignored that the CISG is considered part of the national law of Switzerland and will apply automatically if not excluded. The choice of "Swiss law" as the governing law will not lead to the exclusion of the CISG. On the contrary, the CISG will regularly apply to exports of Swiss companies.

We recommend taking an active decision on whether to include or exclude the CISG, as this will affect the parties' rights and obligations in a dispute. If the parties wish to exclude the application of the CISG, they should explicitly provide for this in the governing law clause, for example by stating: "This agreement shall be governed by the laws of Switzerland, excluding the provision of the United Nations Conventions for the International Sale of Goods (CISG)."

The laws of Switzerland excluding the CISG are not necessarily more beneficial for a contracting party than the laws under the CISG, but the parties should be aware of what it is they are agreeing to by excluding, or not excluding, the application of the CISG.

 

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Topics: Corporate & Commercial | TMT | Intellectual Property

  
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Nicola Benz

Nicola Benz’s practice is focused on technology and life sciences transactions. She assists technology companies of all sizes, from start-ups to established players, as well as investors, suppliers and customers across a broad range of industries and sectors. Nicola Benz’s expertise covers outsourcing, licensing, joint ventures and collaborations and associated intellectual property issues. She also has considerable experience advising on all types of commercial contracts, competition and regulatory issues and data protection. Nicola Benz is recognised as a globally leading patent and technology licensing lawyer, as well as a leading practitioner in the field of intellectual property. Chambers Europe (2018) ranked her as leader in the fields of Intellectual Property and Life Science, and she was recommended in the 2018 edition of the Legal 500 EMEA for Intellectual Property as well as TMT matters. She has also been named as a thought leader for data law in the publication "Who's Who Legal 2018". Born in Scotland, Nicola obtained her law degree from the University of Edinburgh (LLB Hons) in 1997. She joined our firm as an associate in 2002 and became a partner in 2010. Since 2017 she has been the managing partner of our firm. Her working languages are English and German. Nicola is a member of the Zurich Bar Association, the International Trademark Association (INTA), the Licensing Executives Society (LES) and the International Technology Law Association (iTechLaw).

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Daniela Wälchli

Daniela Wälchli's practise focuses on intellectual property law, commercial contracts and data protection. She has particular expertise in the negotiation and drafting of agreements in the life sciences sector and other contracts relating to intellectual property. Prior to joining Froriep, Daniela Wälchli worked for several years as a legal counsel in a leading global healthcare company in Basel and thereafter as an associate in an international law firm in Zurich. Daniela Wälchli studied at the Universities of Freiburg i.Ue, Copenhagen (Denmark) and Berne, and graduated with a Master of Law degree in 2008. She was admitted to the Berne Bar in 2011. In 2014 she obtained a Postgraduate Diploma in EU Competition Law from King's College, London. Her working languages are German and English.

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