EPLegal News



Tony Nguyen – Sr Partner of EPLegal

(PART 1: The journey of Vietnam joining CISG)

The birth of CISG and its success

United Nations Convention on Contracts for the International Sale of Goods (“CISG”) was ratified in 1980. Since then, CISG has been contributing greatly to the certainty and cost effective in commerce.[1] Together with the New York Convention 1958, CISG is considered by many as one of the most successful conventions of UNCITRAL.

CISG was drafted by a group of lawyers from different regions of the world under the sponsorship of United Nation Commission on International Trade (“UNCITRAL”). Up until 01/11/2020, 96 states have ratified CISG.[2] The import-export turnover between these contracting states amounts up to ¾ of the world’s turnover, proving the popularity of the convention and its strong influence toward international trade.

The success of CISG can be explained by the following factors:

Firstly, CISG is the effort of decades of negotiations by representatives from various states. This results in a modern convention which is suitable to different legal systems of the world and capable of balancing out the benefit between sellers and buyers.

Secondly, the convention applies to commercial contracts between a buyers and sellers whose place of business is located in Contracting States of CISG or when the rules of private international law lead to the application of the law of a Contracting State. Despite such broad coverage, the convention is flexible and it respects the freedom of contract by allowing parties of a contract to exclude, change or replace one or almost all of CISG’s provisions.[3]

Thirdly, the language of CISG is practical and easy for anyone to read, understand and apply.

Next, CISG has been referred to by many states to develop their own national law of contract. In fact, CISG’s presence can be noticed in commercial law of France, Germany,[4] Switzerland, China[5] and Vietnam.[6]

Lastly, medium and small size enterprises often have limited access to legal services when negotiating a contract. Therefore, they are more likely to be the side with lower bargaining power and are exposed to higher risk in a transaction. Such enterprises are placed in a better position when CISG, which consist of fair provisions for buyers, is apllied by default to their contract.

The journey of Vietnam joining CISG

Vietnam started accessing CISG in the 80s. However, it is until 2010 that the benefits and drawbacks of joining CISG is carefully considered by a group of experts in CISG. The experts were assembled to conduct an extensive research on CISG in response to the proposal by the International Trade Advisory Committee (“INTAC”) which is a unit of the Vietnam Chamber of Commerce and Industry (“VCCI”). The research focuses on analyzing the reasons that other countries joined or refused to join CISG, comparing CISG and Vietnam law in effect at the time, what benefit can the convention bring to Vietnamese enterprises, collecting opinions of scholars, entrepreneurs and law practitioners, the potential risk of ratifying CISG, the procedure for Vietnam to join CISG and how to effectively apply CISG.

In April 2011, a group of researcher from the International Trade Law Research Center of the Foreign Trade University commenced a study on CISG to analyse the behaviour and pratice of Vietnamese enterprises in signing contracts of sale of goods. The goal is to measure the risk an enterprise may encounter when Vietnam is not a contracting state of CISC and compare such risk to the same situation when Vietnam is a contracting state. The study is two parts: 1) A complete and detailed comparison between CISG and Vietnam Law; and 2) Surveying over 75 enterprises on their knowledge about CISG and their point of view on this convention; and examine 150 contracts of sale of goods of different import and export enterprises.[7]

On the 14th January 2013, based on the proposals of Vietnamese enterprises and the Ministry of Industry and Trade (“MOIT”), the Prime Minister approved the plan for Vietnam to join CISG. The MOIT was responsible for undertaking the necessary procedure of the joining. In 2013, MOIT operate its own research on the potential benefit and risk of ratifying CISG. In the research, the Ministry collected opinions and of enterprises and scholars to assess the enterprises’ knowledge on CISG, the governing law of their contracts (or their prefereable governing law), and whether the enterprises and scholars believe that Vietnam should join CISG.

On the 18th December 2015, the Vietnamese President officially signed approval to join CISG. Accordingly, Vietnam became the 84th Contracting State of this convention.

On the 1st January 2017, CISG became effective in Vietnam.

Concerns for Vietnam when joining CISG

According to MOIT’s survey in 2013, 35% of the interviewees (who work in the import and export sector) admitted that they do not understand or have no knowledge about CISG, 40% supposed that they would be able to apply CISG if requested and only 25% claimed to fully understand the convention.[8] This statistic at the time means that enterprises had limited expertise on CISG, for which they are reluctant to apply CISG and would prioritize Vietnam law instead.

The other concern being the principles of CISG is still considerable new for the Vietnamese legal system. The Legal education also does not offer a comprehensive program or subject on CISG and there is only a minimum amount of legal research on the application of CISG in Vietnam.

In addition, the criticism for CISG can be summarized as below:

  • CISG cannot stand alone as an applicable law for a contract.
  • The definition of “sale”, “goods”, “place of business” drafted in CISG can be complex causing the application of the convention to be problematic.
  • CISG does not govern matters such as legal capacity to enter a contract, legal representative, fine (penalty) against breach of contract, transfer of rights and obligations, security transaction, time limits, …
  • The principles, source of law used to interprete CISG are not conclusive, causing the applications of CISG to be inconsistent.
  • The contracting states made a considerable amount of reservations to not apply certain provisions of CISG. Therefore, parties of a contract must take an extra step to examine whether there is any such reservations that could affect their contract. For example, Vietnam reserved that international contract of sale of goods is valid only in writing, which contradict Article 11 of CISG.

Next on this Article, part 2 about CISG’s APPLICATION IN VIETNAM IN THE PAST 4 YEARS will be published on the 7th June 2021.

[1] https://uncitral.un.org/en/texts/salegoods/conventions/sale_of_goods/cisg
[2] https://uncitral.un.org/en/texts/salegoods/conventions/sale_of_goods/cisg/status
[3] Article 6 CISG
[4] Franco Ferarri (ed), The CISG and its Impact on National Legal Systems (Sellier. European Law Publishers GmbH, Munich 2008) 144.
[5] Fan YANG, ‘The Application of the CISG in the Current PRC Law and CIETAC Arbitration Practice’ (PACE, December 2006).
[6] The Vietnam Civi Code 2005 and Civil Code 2015 contains regulations that are similar to CISG’s provisions.
[7] Nguyen Minh Hang, Nguyen Trung Nam, ‘Why should Vietnam Accede to the CISG – A Comparative and Quantitative Study on the Costs and Benefits of Vietnam for joining the CISG’ in The Annual MAA Peter Schlechtriem CISG Conference 2014: Boundaries and Intersections (2014).
[8] Nguyen Minh Hang, Nguyen Trung Nam, ‘Why should Vietnam Accede to the CISG – A Comparative and Quantitative Study on the Costs and Benefits of Vietnam for joining the CISG’ in The Annual MAA Peter Schlechtriem CISG Conference 2014: Boundaries and Intersections (2014).