UPDATE: International Commercial Contracts

By Anne Mostad-Jensen and Cyril Emery

Anne Mostad-Jensen is a Legal Officer and Librarian for the Secretariat of the United Nations Commission on International Trade Law.

Cyril Emery is the Head of the Documentation Division and Library of the International Court of Justice (ICJ).

NOTE: The opinions expressed in this article are the authors’ own and do not necessarily reflect those of the United Nations or the ICJ. Specific mention of any information products or institutions should not be considered an endorsement of those products or institutions.

Published September/October 2021

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1. Introduction

Transactions conducted under international commercial contracts, especially those related to the sale of goods, are considered to form the backbone of international trade. The goal of this research guide is to provide an overview of the major primary sources of law for international commercial contracts, in particular those related to sales, and the related research resources. The focus is global, and the guide does not cover regionally focused instruments or economic integration organizations, such as the European Union. The guide also does not focus on the complexities of some contracts related to sales, such as those of carriage, insurance, and financing.

2. The Nature of International Commercial Contracts

2.1. Definition

International instruments have identified contracts as “international” when the parties concluding the agreement come from two or more different States (see United Nations Convention on Contracts for the International Sale of Goods (Vienna, 1980) (the “CISG”), Article 1(1); Principles on Choice of Law in International Commercial Contracts (2015) (the “Hague Principles”), Article 1(2)). That said, more flexible definitions are possible, such as contracts with “‘significant connections with more than one State’, ‘involving a choice between the laws of different States’, or ‘affecting the interests of international trade.’”[1]

As described in the Hague Principles, one approach to identifying a contract as “commercial” may be where “each party is acting in the exercise of its trade or profession” (Hague Principles, Article 1(1)). Another approach is found in the CISG, which limits its scope to commercial matters by excluding, for example, consumer contracts, such as those for “goods bought for personal, family or household use” (CISG, Article 2(a)).

On this topic, the Legal Guide to Uniform Instruments in the Area of International Commercial Contracts, with a Focus on Sales (2021) (“Tripartite Guide”) provides an overview of the uniform law instruments in the area of international commercial contracts that were developed by the United Nations Commission on International Trade Law (“UNCITRAL”), the Hague Conference on Private International Law (“HCCH”), and the International Institute for the Unification of Private Law (“UNIDROIT”), including their different approaches to defining contracts and the scope of their instruments’ coverage of contracts.

2.2. Choice of Law and International Commercial Arbitration

When considering an international commercial contract, two questions are of key importance: (1) where will disputes arising under the contract be heard; and (2) what law or rules govern the contract. A typical best practice would be for contractual parties to answer both of these questions by including in the contract a choice-of-forum clause and a choice-of-law clause.

While there are certain exceptions and limitations, the relevant rules in the vast majority of States allow for party autonomy, permitting parties to select both the forum and governing law for their contracts. If parties fail to select an applicable law, a court accepting jurisdiction of the dispute will have to apply the relevant conflict rules of private international law to determine which law is applicable to the contract, including any international instruments that might apply by default (see section 3.1). The rules of private international law are notoriously complex, and this guide will focus on scenarios where parties have chosen the applicable law, or an international instrument applies by default.

In international commercial practice, it is common for parties to choose arbitration as the method for resolving disputes.[2] International commercial arbitration may be particularly popular because, unlike for court judgments, there is a single nearly comprehensive regime for enforcement of foreign arbitral awards (governed by the Convention on the Recognition and Enforcement of Foreign Arbitral Awards (New York, 1958) (the "New York Convention") with 168 State parties).[3]

Arbitral tribunals are governed by the arbitration law at the seat of arbitration. The vast majority of international commercial arbitration laws, many derived from the UNCITRAL Model Law on International Commercial Arbitration, also recognize party autonomy, permitting parties to choose the rules of law applicable to the contract. In addition, arbitral tribunals, unlike most courts and depending on the law at the seat of arbitration, may be authorized to decide cases based on general principles of fairness and justice without applying a specific law or to apply “rules of law,” such as lex mercatoria (see section 3.3.2) and the UNIDROIT Principles of International Commercial Contracts (the “UNIDROIT Principles”) (see section 3.3.1) without reference to any national law.[4] For more information about arbitration, see the GlobaLex article on international commercial arbitration.

3. Researching the Applicable Law and Rules

As a starting point, the Legal Guide to Uniform Instruments in the Area of International Commercial Contracts, with a Focus on Sales (2021) (“Tripartite Guide”) provides an overview of the uniform law instruments prepared by the United Nations Commission on International Trade Law (“UNCITRAL”), the Hague Conference on Private International Law (“HCCH), and UNIDROIT in the area of international commercial contracts. The Tripartite Guide aims to clarify the relationship among the instruments from the three organizations by providing an orientation to the instruments, describing the interaction between the instruments, referencing regional uniform texts and model contracts based on uniform texts, and exploring recurring issues in international sales contracts and how they are addressed in uniform law instruments. As such, the Tripartite Guide is a good place to begin research on the applicable law and rules for international commercial contracts, especially sales contracts, and it discusses many of the main legal instruments in international commercial law, both current and historical. In addition to instruments prepared by UNCITRAL, HCCH, and UNIDROIT, it references other applicable law and rules relevant to international commercial contracts, such as lex mercatoria principles and Incoterms, along with information about model contracts and clauses. The Tripartite Guide also includes an annex with information on case law repositories, bibliographies, and other sources relating to uniform legal instruments in the area of international commercial contracts.

3.1. Conventions

In some cases, the law applicable to a contract will be provided for in a treaty. The United Nations Commission on International Trade Law (UNCITRAL) has created three treaties that provide the applicable rules governing certain contracts.

3.1.1. CISG

The United Nations Convention on Contracts for the International Sale of Goods (Vienna, 1980) (the “CISG”) is the most widely adopted treaty providing substantive contract rules. The 94 CISG States account for more than 75% of global exports.[5] The CISG’s provisions cover the treaty’s scope of application, contract formation, obligations of the contractual parties, remedies, passing of risk, damages, etc. The CISG was drafted by UNCITRAL in response to a failed earlier attempt to unify the law of sales through two conventions prepared by UNIDROIT and adopted in 1964, one covering the international sale of goods and the other the formation of contracts for the international sale of goods. The conventions were seen as primarily Western European instruments and did not gain widespread support.[6]

Scope of Application: The CISG’s scope is limited to commercial contracts for the cross-border sale of goods (see CISG, Part I, Articles 1-5). Under Article 6, contractual parties may opt out of the CISG or any of its provisions, but it will otherwise apply in a variety of situations.

Primarily, it will apply to contracts concluded by parties from two or more CISG States (CISG, Article 1(1)(a)). In addition, the CISG will govern contracts between parties from two or more States where the rules of private international law point to the application of the law of a CISG State (CISG, Article 1(1)(b)), including, for example, in most cases where parties have chosen the law of a CISG State to govern the contract.[7]

If contractual parties have selected arbitration to settle disputes, the CISG will also apply in the above cases. In a potential slight difference from some State courts, however, and depending on the law at the seat of arbitration, arbitral tribunals may also apply the CISG where parties have chosen it on its own and without reference to any State law.[8] Finally, in certain cases, an arbitral tribunal may apply the CISG on its own initiative, for example, as part of the lex mercatoria (see section 3.3.2).

Uniform Interpretation: Successful implementation of the CISG requires more than countries to adopt it and parties to use it. Courts and arbitral tribunals must interpret the CISG in a uniform manner and not through the lens of domestic laws. If it is not interpreted in a uniform manner, divergent precedents will emerge, and the benefits of a harmonized regime will not be realized as parties will incur transaction costs through the need for endless assessment of how each jurisdiction interprets the Convention.[9]

CISG, Article 7, addresses this issue by creating a public international law obligation for States, via their courts, to interpret the Convention with regard “to its international character and the need to promote uniformity in its application.” This obligation requires courts to interpret the CISG autonomously, without regard to the national law, and taking into account foreign case law and scholarly writings.[10] For many courts, this is a novel approach, as it is not typical to consider foreign case law instead of, for example, domestic judicial precedent or legislation. As provided below, the UNCITRAL Secretariat and others have created several mechanisms to assist in this endeavor.

Uniform interpretation may also be aided through reference to the CISG’s travaux préparatoires (negotiating history).

Research Resources

Case Law

Scholarly Writings

Travaux Préparatoires

3.1.2. Limitation Convention

The Convention on the Limitation Period in the International Sale of Goods (the “Limitation Convention”) is a sister treaty to the CISG. Originally adopted in 1974, it was amended in 1980 in order to operate seamlessly with the CISG.[12] The Limitation Convention applies to the same types of international sales contracts as the CISG with the same scope of application (see Limitation Convention, Articles 1-6), but its substantive provisions deal solely with limitation or prescription, providing a sort of statute of limitations for international sales disputes. The general period of limitation provided in the Limitation Convention is four years (Limitation Convention, Article 8).

To date, the Limitation Convention has 30 State parties, many fewer than the CISG’s 94. As is the case with the CISG, parties may opt out of its provisions (Limitation Convention, Article 3(2)). The rules of uniform interpretation for the Limitation Convention generally mirror those found in the CISG (Limitation Convention, Article 7). For this reason, the same general categories of research resources are relevant.

Research Resources

Case Law

Scholarly Writings

Travaux Préparatoires

3.1.3. Electronic Communications Convention

The United Nations Convention on the Use of Electronic Communications in International Contracts (New York, 2005) (the “Electronic Communications Convention”) is a much more recent treaty than the CISG or Limitation Convention. Adopted in 2005, it currently has 15 State parties. The purpose of the treaty is to remove any legal obstacles to the use of electronic communications in international contracting, creating certainty for contractual parties that contracts and other communications exchanged electronically are as valid and enforceable as their traditional paper-based equivalents.

The scope of the Electronic Communications Convention is broader than that of the other UNCITRAL treaties in that it is not limited to sales contracts, although it is still aimed at only commercial contracts. Contractual parties may, of course, opt out of its provisions (Electronic Communications Convention, Article 3). Like the Limitation Convention, the rules of uniform interpretation for the Electronic Communications Convention mirror those found in the CISG (Electronic Communications Convention, Article 5), making the same general categories of research resources relevant.

Research Resources

Case Law

Scholarly Writings

Travaux Préparatoires

3.2. National Laws

Parties may also choose national laws to apply to their international commercial contracts. The party with greater bargaining power may insist on its national law, or parties may instead choose the law of a third State, usually one considered to have a well-developed law with regards to commercial transactions.

A first step to researching the selected national law might be to consult the relevant GlobaLex article on foreign law. A 2010 survey on choice of law in arbitration found that English law, New York law (and other US state laws), and Swiss law were particularly popular.[14] English law is frequently used in international transactions, with particular reference to reinsurance, charter parties, and sea trade, among other areas.[15] Parties may select Swiss law because of the perception that Switzerland’s political neutrality makes it a neutral law. Nonetheless, political neutrality may not always be the best guide as to the suitability of a chosen law for a specific transaction.[16] The ICC International Court of Arbitration 2018 statistics mirror the 2010 survey mentioned above and also indicate frequent choice of the laws of Germany and Brazil.[17] When considering these types of surveys, it is important to recall that, generally, the choice of law of any CISG State will also include the CISG unless the Convention’s application is clearly excluded by the parties.[18]

3.3. Soft Law and Trade Usages

There are many international texts and standards that may be chosen by traders to govern their contracts. These rules may be referred to variably as “rules of law,” “soft law,” or “trade usages,”[19] but they are connected by their use in international contracting and potential direct application by arbitral tribunals. Even otherwise binding texts, such as the CISG, may fall into this category when chosen by parties to apply to their contracts without reference to a specific State law (see section 3.1.1). Like arbitral tribunals (see section 2.2), State courts may recognize and apply these rules, but, depending on the relevant domestic law, they may do so simply as a set of rules that are considered to be part of the contract and not overriding any mandatory law.[20] The Hague Principles, where followed, may serve to further legitimize some of these sources. The Hague Principles, in Article 3, allow for the law chosen by contracting parties to be “rules of law that are generally accepted on an international, supranational or regional level as a neutral and balanced set of rules, unless the law of the forum provides otherwise,” specifically naming the CISG, UNIDROIT Principles, and Principles of European Contract Law (PECL) in the accompanying commentary. A few of the more prominent texts and standards generally discussed in this category of “rules of law,” “soft law,” or “trade usages” are as follows:

3.3.1. UNIDROIT Principles

The UNIDROIT Principles of International Commercial Contracts (the “UNIDROIT Principles”) were first finalized by UNIDROIT in 1994 and revised in 2004, 2010, and 2016. While following the CISG’s approach in many instances, the UNIDROIT Principles are a set of general rules for international commercial contracts and thus have a broader scope than the CISG, which is limited to sales contracts. In addition, they cover areas that the drafters of the CISG were not able to agree upon, such as validity, agency, and assignment, among others. Unlike the CISG, the UNIDROIT Principles are not a binding text and will generally only be applied where chosen by the parties or through application by an arbitral tribunal with the authority to do so.[21]

Significantly, the UNIDROIT Principles contain rules of interpretation almost identical to CISG, Article 7, (UNIDROIT Principles, Article 1.6) making case law and academic writings of great use in interpreting the Principles. In addition, the UNIDROIT Principles have a built-in commentary that gives detailed guidance.

Research Resources

Case Law

Scholarly Writings

3.3.2. Lex mercatoria

The lex mercatoria has been described as “a synthesis of generally held and generally accepted commercial principles that may be expected to be applied to contracts among the major trading nations.”[22] There is controversy surrounding the lex mercatoria and, in particular, the specifics of its content,[23] but arbitral tribunals can, nonetheless, apply these principles where authorized.[24] Certainly, the content of the lex mercatoria may be informed by or, in fact, contain the content of international instruments such as the CISG and the UNIDROIT Principles.[25] For an example of a contract clause containing choice of such broad principles, consider the United Nations General Conditions of Contract, which state, with regard to dispute settlement, that “[t]he decisions of the arbitral tribunal shall be based on general principles of international commercial law.”

Research Resources

3.3.3. Incoterms

In the specific area of delivery of goods, the International Chamber of Commerce (ICC) has developed a set of rules governing trade terms that describe the obligations of buyers and sellers and supplement any other rules governing the contract. The terms are three-letter combinations. One example is FOB, standing for “Free on Board,” and the Incoterms rules cover who bears the risks and obligations when the seller has contracted to deliver goods in this way, namely “on board the vessel, nominated by the buyer, at the named port of shipment.”[26] The Incoterms come with instructions as to how parties can incorporate them in their contracts. There have been many versions of the rules, and the most recent are the Incoterms 2020.

Research Resources

3.3.4. UCP 600

Another ICC product, the ICC Uniform Customs and Practice for Documentary Credits, 2007 revision (the “UCP 600”), is the standard soft-law instrument for regulating letters of credit, a common payment method in international sales transactions. For the UCP 600 to apply, the credit document itself should indicate that it is subject to the UCP 600. The UCP 600 also contains rules specifically for electronic records.

Research Resources

4. Model Contracts and Clauses

Model contracts are particularly useful for preparing international business transactions, but they are often expensive. The International Trade Centre offers for free online its Model Contracts for Small Firms: Legal Guidance for Doing International Business. It is a collection of model joint venture, sales, distribution, service, and agency contracts, among others. The ICC offers (for purchase) an array of model contracts for international transactions, including an influential model for sales contracts.

Arbitration institutions and rules typically offer model clauses that can be useful for incorporating an arbitration clause in a contract. For example, the UNCITRAL Arbitration Rules (in the 2010 and 2013 versions) contain an annex with a model arbitration clause. For arbitration institutions, consider, for example, among many, the model clauses of the Arbitration Institute of the Stockholm Chamber of Commerce, the LCIA, and the International Centre for Dispute Resolution.

Choice of law clauses can be found in the model contracts mentioned above, but there are also other sources. UNIDROIT, for example, has prepared Model Clauses for the Use of the UNIDROIT Principles of International Commercial Contracts. Some arbitration institutions also offer model choice of law clauses. Consider, for example, the clauses from the Chinese European Arbitration Centre.

[1] Preamble, Comment 1 UNIDROIT Principles 2016 archived here.

[2] Ingeborg Schwenzer et al., Global Sales and Contract Law 59 (3d ed. 2012).

[3] The status quo may now be changing with the entry into force in 2015 of the Convention on Choice of Court Agreements (The Hague, 2005) (the “Choice of Court Convention”). The Choice of Court Convention will ensure enforceability in Contracting States of certain civil and commercial judgments rendered in other Contracting States if they result from an exclusive choice-of-forum clause concluded by the parties to a contract. To date, the countries of the European Union, Mexico, Montenegro, Singapore, and the United Kingdom are State parties to the Convention. The adoption in 2019 of the Convention of 2 July 2019 on the Recognition and Enforcement of Foreign Judgments in Civil or Commercial Matters (The Hague, 2019) (the “Judgments Convention”) has the potential to be even more groundbreaking, facilitating recognition and enforcement in one Contracting State of civil and commercial judgments given by a court of another Contracting State without the requirement of a specific choice-of-forum clause. Nonetheless, it will be a long time before the Judgments Convention can develop the level of universality enjoyed by the New York Convention with its 168 State parties. While a major accomplishment, the Judgments Convention is not yet in force and has no State parties. Parties to a contract may also consider dispute resolution through mediation. To facilitate enforcement, UNCITRAL developed the United Nations Convention on International Settlement Agreements Resulting from Mediation (New York, 2018) (the "Singapore Convention on Mediation"). The Singapore Convention on Mediation is now in force with six State parties, but like the Judgments Convention has a long way to go before it reaches broad acceptance.

[4] Schwenzer, supra note 2, at 59-60. The Hague Principles provide a model facilitating party choice of certain “rules of law” (Hague Principles, Article 3) in certain situations and may influence State practice in that regard. If that model is successful, more State courts could also be foreseen to permit party choice of “rules of law.” A comprehensive comparative report on the Hague Principles and State rules in this area can be found in Choice of Law in International Commercial Contracts (Daniel Girsberger et al. eds., 2021). The Tripartite Guide also discusses choice of law in arbitral settings—both when parties have a choice of law agreement and when parties do not have a choice of law agreement.

[5] Using 2019 data from the International Trade Centre on country percentage share in value of world's exports.

[6] United Nations Convention on Contracts for the International Sale of Goods, Explanatory Note by the UNCITRAL Secretariat on the United Nations Convention on Contracts for the International Sale of Goods 33-34 (2010) archived here.

[7] A few States have made declarations under CISG, Article 95, including the United States, indicating that they will not be bound by Article 1(1)(b). With regard to choice of law, it should be noted that courts and arbitration tribunals have generally found that, for the purposes of considering which law should apply when parties have generically chosen the law of a CISG State, the CISG forms part of the law of that State and will apply unless the parties have excluded its application or have specifically referred to the domestic law of the State, for example, by identifying the particular code in question. UNCITRAL Digest of Case Law on the United Nations Convention on Contracts for the International Sale of Goods art. 6, paras. 9-17 (2016 edition) archived here.

[8] See, e.g., Schwenzer, supra note 2, at 59-60. This type of choice-of-law clause, selecting a-national law, may be problematic for some State courts where reference to State law is required. In those States, selection of CISG as a-national law may lead to its application simply as a set of rules that are considered to be part of the contract and not overriding the mandatory rules of the applicable domestic law. In other States, however, selection of a-national law on its own is possible. For example, the application of the CISG as “rules of law” (without reference to State law) should be possible in Paraguay and Uruguay since they have substantially implemented the Hague Principles, which facilitate this type of choice in their Article 3.

[9] Renaud Sorieul et al., Possible Future Work by UNCITRAL in the Field of Contract Law: Preliminary Thoughts from the Secretariat, 58 Vill. L. Rev. 491, 500 at n.25 (2013) (citing John O. Honnold, The Sales Convention in Action—Uniform International Words: Uniform Application?, 8 J.L. & Com. 207, 208 (1988) archived here).

[10] John O. Honnold, Uniform Law for International Sales under the 1980 United Nations Convention 96-98 (3d ed. 1999) archived here.

[11] As indicated on the UNCITRAL website, related documents are available from the “third, fourth, fifth, sixth, seventh, eighth and ninth sessions of Working Group II”; the “first, second and third sessions of Working Group I”; and from the “first, second, third, fourth, fifth, sixth, seventh, eighth, ninth, tenth, eleventh, twelfth, [and] thirteenth sessions of the Commission.” The United Nations Conference on Contracts for the International Sale of Goods, Vienna, 10 March - 11 April 1980, Official Records, A/CONF.97/19 (1991), is also available.

[12] References in this article are to the amended Convention unless stated otherwise.

[13] As indicated on the UNCITRAL website, related documents are available from the “first, second and third sessions of Working Group I”; and from the “first, second, third, fourth, and fifth sessions of the Commission.” The United Nations Conference on Prescription (Limitation) in the International Sale of Goods, New York, 20 May - 14 June 1974, A/CONF.63/16 (1975), and the United Nations Conference on Contracts for the International Sale of Goods, Vienna, 10 March - 11 April 1980, Official Records, A/CONF.97/19 (1991), are also available. A brief index to the summary records of the fifth session of the Commission is available on an archived version of the travaux préparatoires.

[14] 2010 International Arbitration Survey: Choices in International Arbitration 13 (2010) archived here.

[15] See, e.g., Giuditta Cordero-Moss, International Commercial Contracts: Applicable Sources and Enforceability 137 (2014); Gerhard Dannemann, Common Law-Based Contracts under German Law, in Boilerplate Clauses, International Commercial Contracts and the Applicable Law 62, 63 (Giuditta Cordero-Moss ed., 2011).

[16] Ingeborg Schwenzer & Christopher Kee, International Sales Law – The Actual Practice, 29 Penn St. Int'l L. Rev. 425, 440-441 (2011).

[17] International Chamber of Commerce, ICC Dispute Resolution 2018 Statistics 13 (2019) archived here. For an exhaustive analysis of choice of law data, see Gustavo Moser, Rethinking Choice of Law in Cross-Border Sales 1-92 (2018).

[18] See supra note 7.

[19] See, e.g., Cordero-Moss, supra note 15, at 31.

[20] Consider, for example, the UCP 600 (see section 3.3.4). While very widely used and applied, State courts have, in some instances, overridden the UCP 600 with State law despite party choice to be governed by its provisions. Cordero-Moss, supra note 12, at 64-68.

[21] UNIDROIT Principles Model Clauses 4-6 (2013) archived here.

[22] William F. Fox, International Commercial Agreements and Electronic Commerce 31 (6th ed. 2018).

[23] See id.; Schwenzer, supra note 2, at 49-50.

[24] Schwenzer, supra note 2, at 59-60.

[25] See, e.g., Alexis Mourre, Applications of the Vienna International Sales Convention in Arbitration, 17 ICC Int’l Ct. of Arb. Bull., no.1, 2006 at 43, 49; Schwenzer, supra note 2, at 49-50.

[26] Incoterms 2020: ICC Rules for the Use of Domestic and International Trade Terms 103 (2019).