Application of CISG brings more business

The National 14th Five-Year Plan supports Hong Kong to enhance its status as an international trade centre. In international sale of goods, the United Nations Convention on Contracts for the International Sale of Goods (CISG) has been described as “the most successful substantive uniform commercial law treaty”. Yet, notwithstanding China is a contracting party to the CISG since 1988, the CISG is currently not applicable to the Hong Kong Special Administrative Region (HKSAR). In line with international practice and the National 14th Five-Year Plan, it is in the best interest of Hong Kong to implement the CISG.

The Sale of Goods (United Nations Convention) Ordinance was passed by the Legislative Council in September this year in order to apply the CISG to the HKSAR. The Ordinance is envisaged to take effect in around the third quarter of 2022. Businesses and their legal advisors are advised to get ready for this important development in our law on international sale of goods.

Major trading partners are contracting parties to the CISG

CISG has 94 contracting states at present, including more than half of Hong Kong’s top 20 trading partners by total trade value. Businesses of Hong Kong need to be familiar and able to adopt the CISG as the guiding rules for their sale of goods contracts as it provides them with a fair and level playing field. This will also avoid the choice-of-law question when they are doing business with different commercial law regimes.

45% of Belt and Road Initiative countries are contracting parties to the CISG

Apart from the National 14th Five-Year Plan, the Belt and Road Initiative (BRI) is another major policy launched by our country. About 45% of the countries and regions participating in the BRI are also contracting parties to the CISG. Therefore, extension of the CISG to Hong Kong allows for a uniform law to govern the bulk of Hong Kong businesses’ international sales transactions, providing more certainty and predictability, which will in turn facilitate more deals and transactions.

Reduce costs of doing business

Without the adoption of the CISG, parties to an international sale of goods need to decide on the law which governs the transaction. Very likely, the answer will be the domestic sales law of one of the parties. The need to deal with different laws involving different jurisdictions will increase legal costs and business risks. The CISG is able to address the applicable law issue by providing a modern and uniform regime for contracts with multiple countries for international sale of goods.

Enhance development of legal and dispute resolution sectors

With national policies expressly supporting Hong Kong to develop a leading centre for international legal and dispute resolution services, there will be an increasing demand for practitioners who are qualified for offering advice on international commercial transactions. Extension of the CISG to Hong Kong will encourage more practitioners to enhance their capability in handling international trade disputes, reinforcing our position as an international legal hub.

It is noteworthy that the CISG does not apply to transactions within China, including those transactions between the Mainland enterprises and the HKSAR enterprises. We are in discussion with the Central People’s Government to arrive at an arrangement for reciprocal application of the CISG rules to such transactions. This approach has been successfully adopted in the context of enforcing arbitral award under the New York Convention.

In order to enable the business and legal sectors to get ready for the application of the CISG, the Department of Justice will roll out a series of events, including two seminars jointly organised with the Hong Kong General Chamber of Commerce on January 19 and 26, as well as a webinar and a workshop respectively on January 24 and February 21 both jointly organised with the Asian Academy of International Law, with a view to promoting a more in-depth understanding of the CISG and practical tips for cross-border sale of goods in light of its application to Hong Kong. Details of the events will be announced later.

You are also welcome to visit the DoJ’s dedicated webpage on the CISG for more practical information on the Convention.

December 28, 2021