ACCA Applied Skills · Corporate and Business Law (Global)

Introduction to the UN Convention on Contracts for the International Sale of Goods and ICC Incoterms: formula sheet

Full chapter guide

Key formulas

Internationality test: Places of business in different states; Nationality of the parties and the civil or commercial nature of the deal are irrelevant.
Application test: Both states are contracting states, OR private international law leads to a contracting state's law; The second route is subject to any reservation a state has made.
Multiple places of business: Use the place with the closest relationship to the contract and its performance; Judge this by the circumstances known to or contemplated by the parties at or before the contract was made.
Goods to be manufactured: Covered unless the buyer supplies a substantial part of the materials; Also excluded if the preponderant part of the seller's duty is labour or services.
Excluded sales: Consumer, auctions, legal authority sales, securities, negotiable instruments, money, ships and aircraft, electricity; The consumer exclusion applies unless the seller neither knew nor ought to have known of the personal, family or household use.
Party autonomy: Parties may exclude the CISG or vary its terms; Exclusion should be clear. Naming another country's law may not be enough if that country is a contracting state.
Offer: Offer = specific addressee(s) + sufficiently definite + intent to be bound; Definite means it indicates the goods and fixes or allows determination of quantity and price.
Advertisements: Proposal to unspecified persons = invitation to make offers; Unless the proposer clearly indicates otherwise.
Offer takes effect: Offer effective on reaching the offeree; Withdrawal must reach the offeree before or at the same time as the offer.
Revocation: Revocation must reach the offeree before the offeree dispatches acceptance; Not allowed if the offer states a fixed time or is irrevocable, or the offeree reasonably relied on it.
Acceptance: Acceptance effective when assent reaches the offeror, within the time fixed or a reasonable time; No postal rule. Silence or inactivity alone is not acceptance.
Modified reply: Reply with materially different terms = counter-offer; non-material additions = acceptance unless offeror objects without undue delay; Price, payment, quality, quantity, delivery, liability and dispute settlement are material.
Late acceptance: Late acceptance is effective only if the offeror promptly tells the offeree it is so; Otherwise it is treated as a new offer or ineffective.
Contract formed: Contract concluded at the moment acceptance becomes effective; No consideration or writing needed under the CISG.
Seller's core duties: Deliver goods + hand over documents + transfer property; Goods must conform in quantity, quality, description and packaging.
Buyer's core duties: Pay the price + take delivery; Buyer must also examine goods promptly and give notice of non-conformity.
Notice of non-conformity: Reasonable time after discovery (or when it ought to have been discovered); long-stop of two years from handing over; The notice must specify the nature of the lack of conformity. The long-stop does not apply if it conflicts with a longer contractual guarantee.
Fundamental breach: Breach that substantially deprives the other party of what it was entitled to expect; Not fundamental if the result was not foreseen by the breaching party and would not have been foreseen by a reasonable person in the same circumstances.
Damages: Loss suffered, including lost profit, up to the loss foreseen or foreseeable at contract formation; Available to either party. Damages can be claimed alongside other remedies.
Price reduction (buyer): Reduced price = contract price × (value of goods actually delivered ÷ value conforming goods would have had), both values at delivery; Buyer may not use it if the seller has cured the defect or the buyer refuses the seller's offer to cure.
Avoidance: Available on fundamental breach, or on failure to perform within an extra period fixed by the innocent party: the buyer fixes it for the seller (avoidance only for non-delivery); the seller fixes it for the buyer (avoidance for non-payment or failure to take delivery); Avoidance releases both parties from their obligations but does not remove liability for damages.
Any mode of transport rules: EXW, FCA, CPT, CIP, DAP, DPU, DDP; Seven rules. They can be used for any transport, including containers, road, rail, air, or a mix of modes. They can also be used where a ship is involved.
Sea and inland waterway rules: FAS, FOB, CFR, CIF; Four rules. Use only where the goods are carried wholly by sea or inland waterway and the point of delivery is a port, quay or on board a vessel.
What Incoterms cover: Delivery + risk + costs + basic documents and notices; These are the core allocations between seller and buyer.
What Incoterms do not cover: Ownership, price and payment, breach and remedies, carriage contract terms; Anything outside delivery, risk, costs and documents needs to be dealt with by the sale contract or governing law.
Incorporation: Rule + named place + Incoterms 2020; Example: CIP Singapore Incoterms 2020. The parties must choose the rules, as they have no force on their own.
EXW (Ex Works): Delivery: goods placed at buyer's disposal at seller's premises. Risk passes there. Buyer pays carriage, insurance, export and import clearance.; Minimum duty for the seller. The buyer loads the goods unless the contract says otherwise.
FCA (Free Carrier): Delivery: goods handed to the buyer's carrier at the named place. Risk passes there. Seller clears export. Buyer pays main carriage and import clearance.; If the named place is the seller's premises, the seller loads. At any other place, the seller does not unload.
CPT (Carriage Paid To): Delivery: handed to the first carrier. Risk passes there. Seller pays carriage to the named destination and clears export. No insurance duty.; Cost goes to the destination but risk passes early. Buyer clears import.
CIF (Cost, Insurance and Freight): Delivery: goods on board the ship at the port of shipment. Risk passes on loading. Seller pays freight to the destination port, buys minimum-cover insurance and clears export.; Sea and inland waterway only. Buyer pays import duties.
FOB (Free On Board): Delivery: goods on board the ship at the port of shipment. Risk passes on loading. Seller clears export. Buyer pays sea freight, insurance and import clearance.; Sea and inland waterway only. The difference from CIF is who pays freight and insurance.
DAP (Delivered at Place): Delivery: goods ready for unloading on the arriving vehicle at the named destination. Risk passes there. Seller pays carriage and clears export. Buyer unloads and clears import.; Seller bears risk throughout the journey.
DDP (Delivered Duty Paid): Delivery: goods ready for unloading at the named destination, cleared for import. Risk passes there. Seller pays all costs including import clearance and duties.; Maximum obligation for the seller.
Risk rule: Risk passes at delivery. Compare the delivery point with the place of loss.; Loss before the delivery point falls on the seller. Loss after it falls on the buyer.

Quick revision

The CISG is a treaty on international sales of goods, with uniform default rules.
Always check first whether the CISG applies on the facts, and whether the parties have excluded it.
The CISG covers contract formation and the rights and duties of seller and buyer, not every sales issue.
Formation follows offer and acceptance, with its own rules on when a reply counts as acceptance.
The seller must deliver the goods, hand over documents and transfer the goods in conformity with the contract.
The buyer must pay the price and take delivery of the goods.
Remedies depend on how serious the breach is, and the most serious breach allows the contract to be avoided.
Incoterms are ICC rules that apply only if the parties incorporate them into the contract.
Incoterms deal with delivery, costs and risk, not with ownership of the goods.
For each Incoterm, state where delivery happens, who pays for carriage and where risk passes.
Incoterms can sit alongside the CISG, because they cover different ground.
Read the question's wording closely, since objective questions are marked all or nothing.

Common mistakes

Using nationality to decide internationality. Fix: Look only at the places of business of the parties.
Thinking the CISG applies to every consumer sale across borders. Fix: Check the purpose of the purchase. Personal, family or household use is excluded unless the seller neither knew nor ought to have known of it.
Applying the postal rule so that acceptance is effective when posted. Fix: Under the CISG acceptance is effective when the assent reaches the offeror.
Treating an advertisement or catalogue as an offer. Fix: Check for specific addressees. Without them it is an invitation to make offers unless clearly stated otherwise.
Treating every breach as allowing avoidance. Fix: Test for fundamental breach first. If it is not fundamental, the remedies are damages, performance, repair (unless unreasonable) or price reduction. Substitute goods can be demanded only where the non-conformity is a fundamental breach.
Forgetting the buyer's duty to give notice of non-conformity. Fix: Always check whether notice was given in reasonable time and described the defect. Late or vague notice can lose the claim.
Saying Incoterms transfer ownership of goods. Fix: Remember that Incoterms deal with delivery, risk and costs. Ownership depends on the contract and the applicable law.
Treating Incoterms as binding law that applies to every international sale. Fix: They are contractual terms published by the ICC. They apply only if the parties incorporate them.
Thinking risk passes at the destination in CIF or CPT because the seller pays freight. Fix: Treat cost and risk separately. In CIF and CPT the seller pays carriage to the destination, but risk passes at the origin loading or first carrier handover.
Saying the seller in FOB arranges and pays insurance. Fix: Remember that CIF adds Insurance and Freight to FOB. In FOB the buyer pays sea freight and decides on insurance.

Exam tips

Read for places of business, not nationality. Examiners often plant a nationality distractor.
Memorise the excluded list as groups: consumer, auction or legal sale, financial items, ships and aircraft, electricity.
If an option says the parties can never exclude the CISG, reject it.
Watch the words 'mainly services' and 'buyer supplies a substantial part of the materials'.
In Section B, answer from the scenario facts only. Do not import details that are not given.
Read dates carefully and ask when each message reached the other party. Sent dates are often a distraction.
Memorise the list of material terms: price, payment, quality, quantity, place and time of delivery, extent of liability, dispute settlement.
In Section B, expect a mix of offer, revocation and counter-offer in one scenario. Take each message in order.