The Sale of Goods (United Nations Convention) Ordinance (New Ordinance) was enacted in September 2021 to implement the United Nations Convention on Contracts for the International Sale of Goods (CISG) in the HKSAR. The New Ordinance is expected to take effect in around the third quarter of 2022. ⁱ

What is the CISG?

Adopted in 1980 and prepared by the United Nations Commission on International Trade Law (UNCITRAL), the CISG is "the most successful substantive uniform commercial law treaty" according to Anna Joubin-Bret, Secretary of the UNCITRAL. There are 94 Contracting States to the Convention, including more than half of Hong Kong's top 20 trading partners by total trade value.  

Without the benefit of the CISG, parties to an international sale of goods need to decide what law governs the transaction. The answer will be given by the application of private international law rules and very likely be the domestic sales law of the seller or buyer. This situation results in certain transaction costs such as uncertainty regarding the applicable law, and one party being at a disadvantage as it needs to deal with "foreign" law. 

The Convention addresses the above applicable law issue. Where it is applicable, the CISG provides neutral legal rules governing contracts of sale of goods and largely avoids the necessity of determining which jurisdiction's law governs key issues, thereby enhancing certainty in commercial exchanges and decreasing transaction costs.  

When does the CISG apply?

Geographical scope 

The Convention applies only to an international sale of goods contract (namely, a contract of sale of goods between parties whose places of business are in different States), with the contract having one of the two alternative relationships with the CISG: (1) those States are Contracting States (Article 1(1)(a)) or (2) the rules of private international law of the forum lead to the application of the law of a Contracting State (Article 1(1)(b)).  A Contracting State may, however, make a declaration that excludes the Article 1(1)(b) route of application of the CISG.ⁱⁱ

Transactional scope 

The CISG applies to commercial sales of goods, and it will not generally apply to consumer sales. Further, certain sales are excluded from its scope, including sales by auction or on execution by authority of law, and sales of certain "goods" e.g. shares and other securities, ships and aircraft, and electricity. 

Subject matter scope 

The CISG governs two of the most important matters arising in contracts of sale of goods. They are (1) whether and when a contract has been concluded, and (2) the rights and obligations of the seller and buyer arising from the contract, and remedies for breach of contract. 

Certain matters are expressly excluded from the scope of the CISG, for example, the Convention is not generally concerned with the validity of the contract or with the effect of the contract on the property in the goods sold. Matters not governed by the CISG will be governed by the law applicable under private international law principles.  

Party autonomy and opting out

Party autonomy is a fundamental principle of the CISG. Parties can, by agreement, opt out of the CISG entirely in favour of other law or derogate from or vary the effect of virtually any CISG rule.ⁱⁱⁱ There are no formal requirements for exclusion, derogation or variation. It is sufficient that the parties express their agreement to that effect. 

Benefits of applying the CISG to Hong Kong

Applying the CISG to the HKSAR would enable local businesses to trade with their overseas counterparts using a sales law that both are familiar with, namely, the uniform rules in the Convention. Further benefits of the application include the potential to drive GDP and trade growth, and improving the HKSAR's competence in resolving disputes involving CISG issues. 

For traders who have not considered or included specific provisions to govern their relevant contractual relationships, the automatic application of the CISG could also provide a safety net to protect their interests.

Inconsistency between the New Ordinance or the CISG and any other Hong Kong law

There are differences between the CISG and relevant existing Hong Kong law concerning rules for formation of contract of sale and the rights and obligations of the seller and buyer arising from such a contract, which include remedies for breach of contract. Under section 5 of the New Ordinance, these differences will be subject to the overriding effect of the relevant provisions of the CISG.

Mainland-Hong Kong transactions 

Being a Convention governing international sale of goods, the CISG does not apply to transactions within China, including those between businesses in the Mainland and businesses in the HKSAR. To follow up, the HKSAR Government is working on reaching an arrangement to apply the CISG rules to Mainland-HKSAR transactions through discussion with the Central People's Government.

Applying the CISG to the HKSAR marks an important development of our law on international sale of goods. For more practical information about the CISG, please visit the Department of Justice's webpage on the Convention.
https://www.doj.gov.hk/en/featured/un_convention_on_contracts_for_the_international_sale_of_goods.html

i     The application of the CISG to the HKSAR is subject to the completion of the relevant process under Article 153 of the Basic Law as well as requisite formal notification by the Central People's Government to the Secretary-General of the United Nations (as the depositary for the CISG) for applying the CISG to the HKSAR. The Convention is expected to apply to the HKSAR with effect in around the third quarter of 2022, tying in with the commencement date of the New Ordinance.

ii    China has made a reservation under Article 95 of the CISG (declaring that it is not bound by Article 1(1)(b)), meaning that it applies the CISG rules only to international sales contracts between parties whose places of business are in different Contracting States to the CISG (as required by Article 1(1)(a)). Subject to the completion of the requisite application procedures and notification mentioned in endnote (i), the CISG is expected to apply to the HKSAR in full, that is without China's Article 95 reservation – an arrangement permissible under the principle of "one country, two systems" under the Basic Law.

iii    The only exception as provided in Article 6 of the CISG is Article 12 which concerns requirements as to form of a contract.