14 July 2022

International Sale of Goods: Legal Regulation and Contracts

July 14, 2022

BRACE Law Firm ©

Foreign economic cooperation and the international sale of goods have become an integral part of the modern world. However, when agreeing on the terms of international sales contracts, parties to transactions face a large number of various issues concerning the determination of the delivery basis, payment procedures, currency restrictions, questions of applicable law, and a whole range of other nuances.

Recall that a sales contract is a transaction between a seller and a buyer, in accordance with which the seller transfers ownership of goods to the buyer, and the buyer pays the seller a sum specified by the contract for these goods. The main features distinguishing a simple sales contract from an international one are:

the presence of a foreign element, consisting in the fact that the parties to the contract are subjects of different states;
the subject matter of the contract is the import or export of goods on the international market;
the means of payment is foreign currency for both parties or one party to the contract;
the implementation of commercial (entrepreneurial) activity.

Law Applicable to the International Sale of Goods

Based on Art. 1210 of the Civil Code of the Russian Federation (CC RF), the parties to a supply contract may, when concluding the contract or subsequently, choose by agreement between themselves the law applicable to their rights and obligations under this contract. At the same time, certain rules apply regarding the conclusion of an agreement on the choice of applicable law:

the agreement of the parties on the choice of applicable law must be expressly stated or must clearly follow from the terms of the supply contract or the totality of the circumstances of the case;
the choice of applicable law made by the parties to the supply contract after the conclusion of the contract has retroactive effect and is considered valid, without prejudice to the rights of third parties and the validity of the transaction from the point of view of form requirements, from the moment the contract was concluded;
the parties to the contract may choose the applicable law for the supply contract as a whole or for separate parts thereof;
if at the moment the parties to the supply contract choose the applicable law, all circumstances concerning the substance of the parties' relations are connected with only one country, the choice by the parties of the law of another country cannot affect the operation of the mandatory rules of the law of that country with which all circumstances concerning the substance of the parties' relations are connected.

For example, a court determined that a dispute was subject to resolution on the basis of Russian civil legislation and, in particular, on the basis of the Civil Code of the Russian Federation and other federal laws adopted in accordance with it, due to the fact that the parties established in the contract that the ICAC resolves disputes arising between them under the legislation of the Russian Federation.

In accordance with Art. 1211 of the CC RF, in the absence of an agreement of the parties on the applicable law, the contract is governed by the law of the country where, at the time of conclusion of the contract, the place of residence or the principal place of business of the party effecting the performance which is characteristic of the contract is located. The party effecting the performance characteristic of the supply contract is recognized as the seller. Therefore, if the parties do not determine the applicable law in a foreign trade sales contract, the law of the seller's country will apply.

Thus, for example, in one of the cases considered at the ICAC at the CCI of the RF, when determining the applicable law, due to the fact that the contract did not contain an agreement of the parties on the applicable law, the sole arbitrator concluded that it was possible to use the provisions of Art. 1211 of the CC RF.

Vienna Convention on Contracts for the International Sale of Goods

Regarding international sales contracts, one of the main regulatory documents governing these relationships is applied—the United Nations Convention on Contracts for the International Sale of Goods, concluded in Vienna on April 11, 1980 (hereinafter referred to as the "Vienna Convention"). The USSR acceded to this document by Resolution of the Supreme Soviet of the USSR dated May 23, 1990 No. 1511-I, and consequently, the document entered into force for the USSR on September 1, 1991. The Russian Federation is the legal successor of regulatory documents ratified by the USSR. Essentially, this document unified previously applied oral customs and agreements into a single regulatory document, which began to be applied by a large number of countries to regulate issues of the international sale of goods.

When concluding the Vienna Convention, the participating states believed that the adoption of uniform rules governing contracts for the international sale of goods and taking into account different social, economic, and legal systems would contribute to the removal of legal barriers in international trade and promote the development of international trade.

The Vienna Convention includes 101 articles and consists of four parts:

Sphere of Application and General Provisions. Like any regulatory document, the Convention contains general provisions reflecting the legal relations to which it applies and to which it does not apply;
Formation of the Contract. An important section of the Convention reflecting the procedure for concluding a contract, the offer, acceptance, procedure for revoking an offer, and withdrawal of acceptance;
Sale of Goods. A section including general provisions, obligations of the seller, obligations of the buyer, and transfer of risk;
Final Provisions.

The Vienna Convention applies to legal relations regulating international sales contracts if both parties to the contract are located in member states of the Vienna Convention. However, when signing an international sales contract, the parties to the transaction may exclude by mutual agreement the application of the Vienna Convention to the legal relations arising between them.

The Vienna Convention regulates issues not only of the conclusion of international contracts but also of their performance and liability for non-performance or improper performance of obligations under the contract. In any case, the Vienna Convention is a unified document that cannot reflect all private cases of concluding international sales contracts. For example, the Vienna Convention does not regulate issues of warranty obligations or penalties; strictly speaking, the Vienna Convention also does not reflect provisions on the invalidity of a contract.

Having only general characteristics of the international sale of goods in its composition, the Vienna Convention does not reflect all necessary norms for regulating important issues of international transactions; therefore, contracting parties try to exclude the applicable law of the Vienna Convention and often prescribe all necessary aspects of the transaction more clearly directly in the international sales contract.

Incoterms in International Deliveries

For a clearer and more correct interpretation and application of international law norms in the field of the sale of goods, another important international document is used—"International Rules for the Interpretation of Trade Terms 'Incoterms'" (hereinafter referred to as "Incoterms"). On January 1, 2011, the new International Rules for the Interpretation of Trade Terms "Incoterms 2010" entered into force. In September 2019, the "Incoterms 2020" edition was released. The Incoterms Rules are essentially recognized as the world standard for interpreting the most basic terms in international trade.

The purpose of Incoterms is to provide a set of international rules for the interpretation of trade terms most commonly used in foreign trade. Thus, the uncertainty of different interpretations of such terms in different countries can be avoided or at least significantly reduced.

In addition to the rights and obligations of the parties to the contract, Incoterms also reflects the distribution of responsibility for insurance, transportation, customs clearance, and risks of loss of or damage to goods, which strongly influences the prevention of conflict situations in dispute resolution.

Parties to an International Contract for the Supply of Goods

The development of international trade on the basis of equality and mutual benefit is an important element in promoting friendly relations between states, including in the sphere of international trade. The parties to international trade are:

entities engaged in the supply of goods from their country to other countries – exporters;
entities engaged in the purchase and import of goods into their country – importers.

The division of organizations into domestic and foreign exists in most countries of the world. This is related to the place of operation of the legal entity. In the case where an organization carries out its activities in the territory of the country of origin and in the territory of a foreign state, two systems of law apply: national (personal law) and the legal system of the country of activity.

At the same time, in accordance with Article 1202 of the CC RF, the personal law of a legal entity is considered to be the law of the country where the legal entity is established, unless otherwise provided by the legislation of the RF. The scope of issues falling under the personal law of a legal entity includes: issues of creation, reorganization, and liquidation of the legal entity, issues of succession; organizational and legal form; requirements for the name; internal relations, including relations of the legal entity with its participants; issues of liability of the founders (participants) of the legal entity for its obligations, etc.

Export and import operations on the international market may be carried out by:

legal entities – commercial and non-profit organizations;
individual entrepreneurs;
public entities;
other subjects.

Furthermore, Article 1 of the Vienna Convention stipulates that the fact that the parties have their places of business in different states is to be disregarded whenever this fact does not appear from the contract. Moreover, neither the nationality of the parties nor the civil or commercial character of the parties or of the contract is to be taken into consideration in determining the applicability of the Vienna Convention. An important role in concluding an international sales contract is played by the fact that the conclusion of such a contract is influenced not by the belonging of the transaction counterparties to different participating states, but by the location of the parties' companies in different states.

At the same time, the norms of the Vienna Convention do not regulate legal relations connected with the purchase of goods for personal, family, or household use, unless the seller did not know that the goods were bought for such use.

Form of an International Sales Contract

The form of a transaction is a way of expressing the will of each of the parties to an international contract. In accordance with Article 1209 of the CC RF, the form of a transaction is governed by the law of the country applicable to the transaction itself. However, a transaction cannot be declared invalid due to non-compliance with the form if the requirements of the law of the country where the transaction was made regarding the form of the transaction are met. A transaction made abroad, at least one of the parties to which is a person whose personal law is Russian law, cannot be declared invalid due to non-compliance with the form if the requirements of Russian law regarding the form of the transaction are met. These same rules apply to the form of a power of attorney.

If the law of the country where a legal entity is established contains special requirements regarding the form of a contract for the creation of the legal entity or a transaction related to the exercise of the rights of a participant in the legal entity, the form of such a contract or transaction is governed by the law of that country. Thus, if the personal law of a legal entity contains special requirements regarding the form of an agreement on the creation of a legal entity or a transaction related to the exercise of a participant's rights, the form of such an agreement or transaction is subject to the law of that country. Special requirements are understood as requirements contained in the legislation on legal entities of the relevant country, but not general provisions of civil legislation on the form of a transaction.

If a transaction or the emergence, transfer, limitation, or termination of rights under it is subject to mandatory state registration in the Russian Federation, the form of such a transaction is governed by Russian law. In accordance with the Resolution of the Plenum of the Supreme Court of the RF dated July 9, 2019, No. 24 "On the Application of Private International Law Norms by Courts of the Russian Federation", state registration of a transaction or the emergence, transfer, restriction, or termination of rights under it is not an element of the form of the transaction, and therefore these issues are regulated not by the law applicable to the form of the transaction, but by the law regulating the substance of the corresponding relationship. As a result, if a transaction or the emergence, transfer, restriction, or termination of rights under it is subject to mandatory state registration in a Russian registry, then both the issues of state registration and the form of the corresponding transaction are governed by Russian law.

Along with the norms of the CC RF, Article 11 of the Vienna Convention regulates the form of an international sales contract, according to which a contract of sale need not be concluded in or evidenced by writing and is not subject to any other requirement as to form. It may be proved by any means, including witnesses. "Writing" includes telegram and telex.

Based on the cited norms of international law, an international sales contract may be concluded:

in written form;
in oral form with a number of significant exceptions and limitations.

The application of the oral form of a contract does not contradict the Principles of International Commercial Contracts of 1994 (the "UNIDROIT Principles"). According to Article 1.2 of the UNIDROIT Principles, nothing in these Principles requires a contract, statement, or any other act to be made or evidenced in a particular form. It may be proved by any means, including witnesses.

At the same time, in accordance with Article 159 of the CC RF, a transaction for which the law or agreement of the parties has not established a written (simple or notarized) form may be made orally. An oral contract takes place when the parties have agreed on all essential terms of the contract in oral form. The parties, in such a case, must clearly express their will, which is manifested in the desire to conclude a contract in oral form.

As a general rule, transactions of legal entities between themselves and with citizens are made in written form. However, legal entities may conclude oral transactions when they are executed at the time of their making, for example, in the retail sale of goods, when the goods are transferred to the buyer together with the payment of money to the seller. At the same time, settlements between legal entities are limited by certain rules, including a limit on the maximum amount of a transaction for cash settlements of 100,000 rubles. Exceeding the amount of cash settlements approved for one transaction for legal entities creates the necessity to conclude a written contract and carry out settlements in accordance with its terms.

It is also necessary to take into account that non-compliance with the simple written form of a transaction deprives the parties of the right, in the event of a dispute, to rely on witness testimony in confirmation of the transaction and its terms, but does not deprive them of the right to present written and other evidence. Moreover, in cases expressly indicated in the law or in the agreement of the parties, non-compliance with the simple written form of a transaction entails its invalidity.

Despite the fact that international law provides the opportunity to have an oral form of a contract, parties to a transaction generally prefer a written form of the contract. This is due to the fact that the written form of the contract gives the parties the opportunity to more clearly prescribe all necessary terms of the transaction.

As an example where Article 11 of the Vienna Convention applies, one can cite the Decision of the sole arbitrator of the International Commercial Arbitration Court at the Chamber of Commerce and Industry of the RF (the "ICAC"). The ICAC satisfied the claim for debt recovery, as the fact of the reality of the transaction and the delivery of goods to the defendant was established, as well as the absence of evidence from the defendant refuting this fact. The defendant did not fully fulfill its obligations to pay for the delivered goods and has an unpaid debt to the plaintiff. In accordance with Article 11 of the Vienna Convention, to which the plaintiff and the defendant in the designated dispute are parties, a sales contract need not be concluded in or evidenced by writing and is not subject to any other requirement as to form; it may be proved by any means. At the same time, the Contract stated that facsimile copies of documents, if agreed and signed by both parties, are valid as originals. The decision was made in favor of the Company having its seat in the territory of the Russian Federation. The debt and the monetary sum for the reimbursement of the plaintiff's expenses for the payment of fees in the designated case were recovered from the company having its seat in the territory of the State of Belgium.

Main Sections of an International Sales Contract

Having reviewed the main requirements for international sales contracts outlined in the Vienna Convention, let us consider the sections of an international sales contract.

Like any other contract, a foreign trade contract for the supply of goods has main sections consisting of:

General conditions of the contract.
Other conditions of the contract.

In the preamble of any contract, it is important to reflect the correctness of the names of the parties to the contract; this is connected not only with grammatical errors but also with verifiable information regarding the future counterparty. The representative who will sign the contract, in addition to the correctness of the position and personality, must have the authority to sign the international sales contract on behalf of the company. This is due to the fact that signing the contract by an unauthorized person will lead to the invalidity of the transaction, and all the work done to conclude the international sales contract will not yield a result.

Special conditions include the following:

Supplied goods or description of goods. The description of the goods must be reflected in the contract as accurately as possible in order to be able to identify the supplied goods.
Price of goods and contract price. The parties to the contract must clearly designate the price and cost of the supplied goods, reflect the currency of the transaction, which is key in forming the contract price. Considering that currency operations are subject to currency control in accordance with Federal Law No. 173-FZ dated December 10, 2003 "On Currency Regulation and Currency Control," the specific currency of the transaction must be reflected in the international sales contract. At the same time, in the conditions of a dynamically changing market, the procedure for determining the cost of goods can become key when considering a possible dispute.
Payment terms. This is also a significant section of the contract, in which the procedure for making payment for the supplied goods, possible prepayment, etc., is prescribed.
Delivery terms. As a rule, the parties to the contract try to agree on this condition as precisely as possible so that this condition is comfortable for both parties to the transaction. Often, a specific delivery date is prescribed, or a possible delivery period (for example, a specific month), or the delivery term may depend on certain consequences occurring (for example, making a prepayment, passing customs procedures, etc.).
Terms of delivery. This contract condition is also important in sales contracts. In this section, it is worth indicating not only transport costs and the means of delivery of the goods but also the possible packaging of the supplied goods (in case of supplying fragile goods, for example). Parties to the contract are recommended to use Incoterms norms. Incoterms distributes transport costs between the parties to the transaction, customs payments, the moment of transfer of risk for the loss of goods, etc.
Documents provided to the buyer by the seller. For example, when equipment is supplied, with which, as a rule, operating instructions in the buyer's state language must be supplied.
Liability of the parties. In case of violation by one of the parties of its obligations, the second party may recover from the guilty party the incurred losses, fines, etc.
Circumstances of insuperable force or force majeure. Given the instability of the international market in recent years and relationships between states, this point has become not an optional section of the contract, but a rather important element of an international contract that allows parties to an international transaction to regulate relationships between themselves. This is connected not only with natural disasters but also with the political situation in the world.

Procedure for Concluding an International Sales Contract

Most international sales contracts begin with negotiations between the parties to a future foreign economic transaction. This is due to the remoteness of the counterparties and the need to more thoroughly and specifically study not only the subject matter of the contract but also important conditions of the contract being concluded. Negotiations are the first stage of the future conclusion of an international sales contract.

At the same time, in accordance with Article 1222.1 of the CC RF, obligations arising from bad faith negotiation of a contract are governed by the law applicable to the contract, and if the contract was not concluded, the law that would apply to the contract had it been concluded applies. According to the meaning of this norm, the contractual statute applies to the obligation arising from bad faith negotiation of a contract, and if the contract was not concluded – that contractual statute which would have applied to the contract had it been concluded. In this case, the law chosen by agreement of the parties is subject to application if the parties managed to reach such an agreement within the framework of negotiations on the conclusion of the contract, even if other terms of the never-concluded contract remained unagreed by the parties. If the parties did not manage to reach an agreement on the applicable law, the rules on determining the contractual statute in the absence of an agreement of the parties on the choice of law apply, which depend on the type of civil law contract that was concluded or was intended for conclusion by the parties.

If the applicable law cannot be determined in accordance with the above norm, the law subject to application is determined in accordance with Articles 1219 and 1223.1 of the CC RF.

At the same time, the good faith of the parties to a future transaction is an important element of interaction between counterparties; however, there are cases when one of the parties acts in bad faith towards the other party and misleads the counterparty regarding the future transaction. At the same time, one of the fundamental documents regulating the relations of parties when concluding international sales contracts — the Vienna Convention — does not provide rules for the conduct of parties.

In this case, the document Principles of International Commercial Contracts (hereinafter – "UNIDROIT Principles") comes to the rescue, developed by the International Institute for the Unification of Private Law (UNIDROIT), which has the status of an intergovernmental organization, of which the Russian Federation is also a member. They are subject to application if the parties have agreed that their contract will be governed by these Principles. According to the UNIDROIT Principles, parties are free to negotiate and are not liable for failure to reach an agreement; however, a party who negotiates or breaks off negotiations in bad faith is liable for the losses caused to the other party. It is bad faith, in particular, for a party to enter into or continue negotiations when intending not to reach an agreement with the other party.

Bad faith of transaction parties is also reflected in the national document of the Russian Federation – the Civil Code of the RF. Thus, in Part 2 of Article 434.1, bad faith actions during negotiations are presumed to be:

providing incomplete or unreliable information to a party, including silence about circumstances which, by virtue of the nature of the contract, should be brought to the attention of the other party;
sudden and unjustified termination of negotiations on the conclusion of a contract under circumstances where the other party to the negotiations could not reasonably expect this.

Negotiations may be conducted through telephone conversations, email correspondence, personal meetings, etc.; often, for the signing of an international sales contract, the parties spend not only a large amount of time but also incur quite serious financial costs.

The second stage of concluding an international sales contract is the offer, which is a proposal to conclude a contract. In accordance with Article 14 of the Vienna Convention, a proposal for concluding a contract addressed to one or more specific persons constitutes an offer if it is sufficiently definite and indicates the intention of the offeror to be bound in case of acceptance. A proposal is sufficiently definite if it indicates the goods and expressly or implicitly fixes or makes provision for determining the quantity and the price.

In accordance with the norms of Russian civil legislation, an offer is recognized as a proposal addressed to one or more specific persons, which is sufficiently definite and expresses the intention of the person making the proposal to consider himself to have concluded a contract with the addressee by whom the proposal will be accepted.

In addition to the above-designated elements that must be reflected in the offer, it is also worth noting in the proposal to conclude a contract, for example, the following:

possible terms of delivery of goods;
possible conditions for transportation of goods and delivery terms in general;
proposed payment terms.

A proposal containing all essential terms of the contract, from which the will of the person making the proposal to conclude a contract on the indicated terms with anyone who responds is apparent, is recognized as an offer (public offer).

In conditions of dynamically changing international relations, additional elements are also important components of a future contract. Among other things, for example, budgetary institutions of the RF in most cases cannot make a prepayment of more than 30 percent of the cost of the supplied goods, which greatly complicates trade relations established over many years.

The norms of the Vienna Convention provide that an offer becomes effective when it reaches the offeree. At the same time, an offer, even if it is irrevocable, may be withdrawn if the withdrawal reaches the offeree before or at the same time as the offer.

The third stage of concluding an international sales contract is the acceptance of the offer, the receipt by the offeror of consent to conclude the contract. A statement made by or other conduct of the offeree indicating assent to an offer is an acceptance. Silence or inactivity does not in itself amount to acceptance.

An acceptance of an offer becomes effective at the moment the indication of assent reaches the offeror. An acceptance is not effective if the indication of assent does not reach the offeror within the time he has fixed or, if no time is fixed, within a reasonable time, due account being taken of the circumstances of the transaction, including the rapidity of the means of communication employed by the offeror. An oral offer must be accepted immediately unless the circumstances indicate otherwise. An acceptance may be withdrawn if the withdrawal reaches the offeror before or at the same time as the acceptance would have become effective.

A contract is concluded at the moment when an acceptance of an offer becomes effective in accordance with the provisions of the Vienna Convention.

Obligations of the Parties to an International Sales Contract

The seller must deliver the goods, hand over any documents relating to them and transfer the property in the goods, as required by the contract and the Vienna Convention. At the same time, in accordance with Article 506 of the CC RF, under a supply contract, a supplier-seller carrying out entrepreneurial activity undertakes to transfer, within a stipulated period or periods, goods produced or purchased by him to the buyer for use in entrepreneurial activity or for other purposes not related to personal, family, household, and other similar use. In accordance with paragraph 5 of the Resolution of the Plenum of the Supreme Arbitration Court of the RF dated October 22, 1997, No. 18 "On Certain Issues Related to the Application of Provisions of the Civil Code of the Russian Federation on the Supply Contract," purposes not related to personal use should be understood as, inter alia, the acquisition by a buyer of goods to support its activities as an organization or a citizen-entrepreneur (office equipment, office furniture, vehicles, materials for repair work, etc.). However, if the specified goods are purchased from a seller carrying out entrepreneurial activity in the sale of goods at retail, the relations of the parties are regulated by the norms on retail sale.

As an example where a party to an international sales contract did not supply the goods stipulated by the contract and the amount of prepayment was recovered from the seller, one can cite the sole decision of the ICAC. The ICAC partially satisfied the requirement for the recovery of funds, since the goods were not delivered by the defendant within the terms established by the contract. At the time of the decision, the defendant had not fulfilled obligations under the contract for the supply of paid goods.

The seller must deliver goods which are of the quantity, quality and description required by the contract and which are contained or packaged in the manner required by the contract.

The buyer must pay the price for the goods and take delivery of them as required by the contract and the Vienna Convention. The buyer's obligation to pay the price includes taking such steps and complying with such formalities as may be required under the contract or any laws and regulations to enable payment to be made.

The buyer's obligation to pay the price includes taking such steps and complying with such formalities as may be required under the contract or any laws and regulations to enable payment to be made.

Also, a key element of the transaction is the buyer's obligation to take delivery, which consists:

in doing all the acts which could reasonably be expected of him in order to enable the seller to make delivery;
in taking over the goods.

Loss of or damage to the goods after the risk has passed to the buyer does not discharge him from his obligation to pay the price, unless the loss or damage is due to an act or omission of the seller.

Damages for breach of contract by one party consist of a sum equal to the loss, including loss of profit, suffered by the other party as a consequence of the breach. Such damages may not exceed the loss which the party in breach foresaw or ought to have foreseen at the time of the conclusion of the contract, in the light of the facts and matters of which he then knew or ought to have known, as a possible consequence of the breach of contract.

Exemption from Liability of Parties to an International Sales Contract

A party is not liable for a failure to perform any of his obligations if he proves that the failure was due to an impediment beyond his control and that he could not reasonably be expected to have taken the impediment into account at the time of the conclusion of the contract or to have avoided or overcome it or its consequences. The exemption from liability provided by the Vienna Convention applies only for the period during which the impediment exists.

Similarly to international legislation, the civil law of the RF provides for a norm allowing a party not to bear liability who failed to fulfill its obligations due to force majeure circumstances. Force majeure refers only to unforeseen circumstances going beyond the ordinary course of events. In Russian judicial practice, exceptional circumstances, the occurrence of which is not common in specific conditions, are considered as such circumstances. That is, obstacles that a reasonable person in the debtor's place, possessing all the information available to the debtor and the information that could have been available to this debtor, could not have foreseen are considered as force majeure circumstances. The unavoidability of a circumstance can be stated in the case where any participant in civil turnover carrying out activities similar to the debtor could not have avoided the occurrence of this circumstance or its consequences.

A large number of circumstances can potentially be qualified as an impediment to the performance of a contract; however, this does not mean that the party to the contract invoking such circumstances will receive an exemption from liability under Article 79 of the Vienna Convention. The qualification of circumstances as an impediment to the performance of a contract depends on the specific circumstances of the case and is established separately in each case.

The party who fails to perform must give notice to the other party of the impediment and its effect on his ability to perform. If the notice is not received by the other party within a reasonable time after the party who fails to perform knew or ought to have known of the impediment, he is liable for damages resulting from such non-receipt.

Termination of an International Contract for the Supply of Goods

The possibility to terminate an international sales contract is an important element of foreign economic transactions. This has become particularly relevant recently; dynamically changing conditions, political aspects, all this affects international entrepreneurial activity. Avoidance of the contract releases both parties from their obligations under it, subject to any damages which may be due. Avoidance does not affect any provision of the contract for the settlement of disputes or any other provision of the contract governing the rights and obligations of the parties consequent upon the avoidance of the contract.

Situations occur when it becomes simply necessary to terminate an international sales contract, for example, when one of the parties substantially breaches the terms of the international sales contract. In this sense, a substantial breach of contract terms is reflected both in Article 25 of the Vienna Convention and in Article 450 of the Civil Code of the RF.

In accordance with the Vienna Convention, a breach of contract committed by one of the parties is fundamental if it results in such detriment to the other party as substantially to deprive him of what he is entitled to expect under the contract, unless the party in breach did not foresee and a reasonable person of the same kind in the same circumstances would not have foreseen such a result. And in accordance with the CC RF, a breach of contract by one of the parties is recognized as substantial if it entails for the other party such damage that it is largely deprived of what it was entitled to count on when concluding the contract. As an example where one of the parties to an international transaction substantially breached an international sales contract, one can cite the case of a company located in the territory of the British Virgin Islands against an Organization having its seat in the territory of the Islamic Republic of Mauritania.

At the same time, a party who has performed the contract either wholly or in part may claim restitution from the other party of whatever the first party has supplied or paid under the contract. If both parties are bound to make restitution, they must do so concurrently.

The buyer loses the right to declare the contract avoided or to require the seller to deliver substitute goods if it is impossible for him to make restitution of the goods substantially in the condition in which he received them. At the same time, these conditions do not apply:

if the impossibility of making restitution of the goods or of making restitution of the goods substantially in the condition in which the buyer received them is not due to his act or omission;
if the goods or part of the goods have perished or deteriorated as a result of the examination provided for in Article 38 of the Vienna Convention;
if the goods or part of the goods have been sold in the normal course of business or have been consumed or transformed by the buyer in the course of normal use before he discovered or ought to have discovered the lack of conformity.

If the seller is bound to refund the price, he must also pay interest on it, from the date on which the price was paid. The buyer must account to the seller for all benefits which he has derived from the goods or part of them:

if he must make restitution of the goods in whole or in part;
if it is impossible for him to make restitution of the goods in whole or in part or to make restitution of the goods substantially in the condition in which he received them, but he has nevertheless declared the contract avoided or required the seller to deliver substitute goods.

The modern world is impossible without international sales contracts; at the same time, coordinated actions between parties to an international sales contract lead to successfully executed contracts. Import substitution of goods with everything necessary within the territory of only one state is practically impossible in the modern world. Foreign economic ties between states have become so strong that the world community cannot do without international sales contracts. And the stability of international transactions, the fulfillment of obligations by parties, and their interaction depend on the correctness of their drafting, the coordination of all terms, and the applicable international legislation.

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References:

[1] Decision of the sole arbitrator at the CCI of the RF dated 05.02.2018 in case No. M-158/2017.

[2] Decision of the sole arbitrator of the ICAC at the CCI of the RF dated 17.02.2021 in case No. M-63/2020.

[3] Resolution of the Plenum of the Supreme Court of the RF dated 09.07.2019 No. 24, On the Application of Private International Law Norms by Courts of the Russian Federation.

[4] Ibid, Article 13.

[5] Subparagraph "C" of paragraph 1 of Article 161 of the CC RF.

[6] Decision of the sole arbitrator of the ICAC at the CCI of the RF dated 03.10.2019 in case No. M-198/2019.

[7] Paragraph 55 of the Resolution of the Plenum of the Supreme Court of the RF dated 09.07.2019 No. 24, On the Application of Private International Law Norms by Courts of the Russian Federation.

[8] Paragraph 1 of Article 1.7 of the UNIDROIT Principles.

[9] Ibid, paragraph 1 of Article 2.15 of the UNIDROIT Principles.

[10] Article 435 of the CC RF.

[11] Ibid, paragraph 2 of Article 437.

[12] Article 18 of the Vienna Convention.

[13] Ibid, Article 30.

[14] Decision of the sole arbitrator of the ICAC at the CCI of the RF dated 14.12.2020 in case No. M-119/2020.

[15] Article 53 of the Vienna Convention.

[16] Ibid, Article 74.

[17] Ibid, Article 79.

[18] Paragraph 3 of Article 401 of the CC RF.

[19] Paragraph 8 of the Resolution of the Plenum of the Supreme Court of the RF dated 24.03.2016 No. 7, On the Application by Courts of Certain Provisions of the Civil Code of the Russian Federation on Liability for Breach of Obligations.

[20] Article 81 of the Vienna Convention.

[21] Decision of the ICAC at the CCI of the RF dated 19.10.2016 in case No. 292/2015.

[22] Article 82 of the Vienna Convention.

[23] Ibid, Article 84.