Navigating the CISG in Construction Supply Contracts: What Contractors Need to Know
By Nisha Long & Milan Stancevic
What is the CISG?
If your business imports construction materials, whether it’s tiles, cladding, structural steel or machinery, you may be operating under the United Nations Convention on Contracts for the International Sale of Goods (CISG), whether you realise it or not. Many construction professionals assume local Australian law governs their supply contracts, but that’s not always true. The CISG often applies by default to international sales, and unless you actively opt out, it could change how your contract is interpreted and enforced.
The CISG is a global treaty adopted by 97 countries, including Australia, China, Japan and South Korea. It governs cross-border contracts for the sale of goods. That includes supply agreements for tiles, doors, windows, acoustic panels, flooring and other materials routinely sourced from overseas suppliers.
The CISG applies to international contracts for the supply of goods, including goods to be manufactured. However, it does not govern contracts where installation or services are the dominant obligation.
When does the CISG Apply to Construction Contracts?
The CISG does not generally govern construction contracts for works and services. However, it does govern international contracts for the supply of moveable goods such as materials, goods, plant or equipment, even those manufactured to specification.
Under Article 1(1) of the CISG, the Convention applies when:
- Parties have their place of business in different contracting states; or
- Private international law leads to the application of the law of a contracting state
If a contract is for the sale of goods and fits either of these scenarios, the CISG will likely apply unless explicitly excluded.
“Contracts for the supply of goods to be manufactured or produced are generally covered by the CISG under Article 3(1), unless the buyer supplies a substantial part of the materials. The CISG excludes contracts where the main obligations are for labour or service, as set out in Article 3(2). For example, design and installation contracts will likely fall outside the CISG, however a cross-border supply of structural steel without installation services is likely to be governed by the CISG.”
Additionally, the CISG can apply to intangible goods such as software, apps or data, provided they are supplied as goods under Article 1(1). While this is generally less relevant to physical construction supply contracts, contractors who procure software or integrated technology alongside hardware should be aware of this evolving area.
How is the CISG Different from Australian Law?
As Australia is a Contracting State to the CISG, the Convention automatically forms part of Australian law for international sales of goods through the Sale of Goods (Vienna Convention) Act 1986 (NSW) and similar legislation in other states.
The CISG differs from local sales and contract laws. Understanding how the CISG differs from Australia’s domestic laws is crucial before deciding whether to opt out. Below is a comparison of key differences:
| Issue | CISG | Australian Domestic Law |
| Parol Evidence Rule | Broader: Prior negotiations, statements, and conduct can be used to interpret the contract and discern the parties’ intentions (Article 8(3)). | Parol evidence rule applies: extrinsic evidence is generally excluded to contradict plain terms; however, context can be considered. |
| Breach Remedies | Unified breach model: no distinction between types of breaches; remedies depend on whether the breach is fundamental. | Different types of breaches are treated differently: Labels and categories of breach matter (e.g. minor breach, defective goods, repudiation). |
| Specific Performance | Generally available under CISG unless domestic law restricts it (Article 28). | Equitable remedy: Granted at the court’s discretion, and usually only if damages are inadequate. |
| Interest | Interest is payable but no rate specified (Article 78). | Interest rates set by statute or contract (e.g. Civil Procedure Act 2005 (NSW)). |
Key CISG Risks
Without clear drafting, parties may find themselves unable to rely on familiar domestic law remedies or subject to unexpected obligations under the CISG. For example, Article 35 imposes broad conformity requirements where goods must not only match the contract description but also be fit for ordinary use and any specific purposes disclosed to the seller. Globally, approximately 50% of contracts involving the international sales of goods exclude the CISG. The applicable law governing the contract is important as it governs what law the parties wish a court or an arbitrator to use in determining the parties’ rights. However, opting out must be clear and unambiguous.
Simply choosing ‘Australian law’ or ‘Swiss law’ does not exclude the CISG, as these countries are CISG Contracting States and have incorporated the convention into domestic law. In Australia, courts have sometimes inconsistently applied the CISG, using domestic law for some issues and the CISG for others. But parliamentary records show Australia intended to adopt the CISG in full for international sales. Unless the CISG is clearly excluded, courts should apply it comprehensively to your cross-border supply contract. Thus, to avoid unintended application, parties should expressly and clearly exclude the CISG in their contract terms.
How to Manage CISG Risks
- Review Your Supply Contracts: If you’re importing prefabricated goods, plant, or equipment from overseas, check whether the CISG applies.
- Draft Precise Governing Law Clauses: If you do not intend to apply the CISG, say so expressly.
- Understand the CISG’s Remedies and Risks: Ignoring it could leave you exposed to unexpected liability or disputes about contract interpretation.
- Consult Legal Experts Early: International supply disputes often involve complex interplay between the CISG, private international law, and domestic regimes.
References:
https://treaties.un.org/pages/viewdetails.aspx?src=treaty&mtdsg_no=x-10&chapter=10
https://uncitral.un.org/sites/uncitral.un.org/files/media-documents/uncitral/en/19-09951_e_ebook.pdf
