The UN Convention on the Sale of International Goods (CISG)
 
In a domestic agreement for the sale of goods between U.S. or Canadian-only parties, domestic law (state, provincial, federal) will apply to construe contract provisions and resolve disputes.  In a cross-border agreement, however, companies should know about and be familiar with the United Nations Convention on Contracts for the International Sale of Goods (1980). 
 
The CISG has been adopted by the U.S., Canada (since 1992 in Ontario), and approximately 60 other countries.  Because it is an international treaty, it is the “law of the land.”  The CISG does not preempt provisions in a private contract between parties; instead, it provides a legal framework for interpreting the contract, fills any gaps in contract language, and governs issues not addressed by the contract. 
 
In cross-border disputes, U.S. courts have consistently determined that a simple choice of law provision in a contract does not allow the parties to “opt-out” of the CISG.  If the parties intend to do so, they must use language that expressly excludes the CISG.  Companies should also be aware that using purchase orders, confirmations, emails and other “less formal” transaction documents that can form a contract for the cross-border sale of goods will be governed by the CISG unless there is express language excluding it. 
 
This means parties should not expect laws such as the Uniform Commercial Code (UCC) or the Ontario Sale of Goods Act to apply if a choice of law provision states only that “the law of the State of New York shall apply” or “this agreement shall be governed by the laws of the Province of Ontario.”  U.S. and Canadian companies and unknowing legal counsel may be in for a surprise if a dispute arises over matters such as product warranty, delivery date, or rejection of defective products.  Of course, parties should also understand the differences between the CISG and domestic law before making an informed decision on whether to “opt-out” or not.
 
Avoiding Litigation in Favor of International Arbitration
 
Whether the CISG will apply to your cross-border sale or not, disputes can (and often do) arise in business.  International arbitration is highly favored to resolve cross-border disputes.  A cross-border agreement should always contain a clearly written arbitration provision.  The parties to the agreement are encouraged to address this issue early in negotiations and not to hastily insert this provision.  While it might not be viewed as a “deal-breaking” provision, it can help to avoid significant costs and even preserve a commercial relationship between the parties. 
 
Some advantages of international arbitration include: recognition of the award under the New York Convention on the Recognition and Enforcement of Foreign Arbitral Awards; avoiding protracted and costly litigation (and appeals), particularly in the U.S. where the rules of discovery tend to prolong litigation; the ability of parties to control the dispute resolution process; the involvement of arbitrators experienced in international dispute resolution; and the private, confidential nature of the proceedings. 
 
When negotiating and drafting an arbitration provision, the parties should be mindful of a number of important aspects of it.  Depending on the parties, the subject matter and even the value of the contract involved, the arbitration provision can be brief or quite comprehensive.  Parties should always remember that this is their opportunity to control the dispute resolution process and take the time to consider and address these issues. 
 
When negotiating and drafting the arbitration provision, the parties should consider and determine matters such as: whether negotiations or mediation will be required before commencing arbitration proceedings; what the scope of the arbitration will be; the applicable law; the location and language to be used in the proceedings; whether the arbitrator(s) will have certain qualifications or special knowledge; whether an administering body will be used; what arbitration rules will apply (UNCITRAL or arbitral body’s rules); whether the arbitrator(s) will have authority to grant interim relief; whether the parties must continue to perform their obligations regardless of an on-going dispute or claim; and what, if any, pre-hearing discovery will be permitted.
 
For more information about international arbitration, you may want visit websites of well-respected arbitral institutions such as the International Centre for Dispute Resolution (www.icdr.org) or the British Columbia International Commercial Arbitration Centre (www.bcicac.com). 
 
Conclusion

Doing business internationally offers a wealth of potential for U.S. and Canadian companies.  Like any matter, being prepared by knowing the rules in advance, how to avoid or reduce risk, and how to efficiently resolve disputes that arise should not be overlooked by companies on either side of the border.
 

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