THE AUTHORS:
Cesar Pereira, Chartered Arbitrator & Partner at Justen, Pereira, Oliveira & Talamini
Leonardo F Souza-McMurtrie, PhD candidate at the University of Cambridge & International Dispute Resolution Specialist with Justen, Pereira, Oliveira & Talamini
Lorenzo Galan, Associate at Justen, Pereira, Oliveira & Talamini
Introduction
The United Nations Convention on Contracts for the International Sale of Goods (CISG) (1980) is arguably the most widely accepted legal framework for international sale contracts. With harmonisation as its central aim, the CISG offers a set of uniform rules that govern cross-border sales, enhancing predictability and reducing legal barriers in international commerce. However, its applicability to state-owned enterprises (SOEs) or government entities—primarily when engaged in public procurement—raises specific questions. This text examines the conditions under which contracts involving SOEs fall under the CISG, discussing relevant provisions and case law to clarify when the CISG applies to such entities.
The CISG Advisory Council has picked up the issue and appointed Cesar Pereira, one of the authors, as the rapporteur for its upcoming Opinion. The draft will be discussed further in 2025. Cesar has been working on the application of the CISG to government contracts since 2014.
This article draws from materials in Cesar Pereira’s most recent paper here, which was released during the CISG Advisory Council’s first meeting about government contracts, in Serbia, and it builds upon his previous works on the topic since 2014.
The Sphere of Application of the CISG
The CISG applies primarily to contracts for the international sale of goods between parties whose places of business are in different states, provided that both states are contracting parties to the CISG or that the rules of private international law lead to the application of a contracting state’s laws. Articles 1 to 3 outline this scope of application, emphasising the convention’s purpose to create a uniform and predictable framework for cross-border sales. This applicability is essential in minimising barriers to international trade by offering clear rules for contract formation, obligations, and remedies across jurisdictions, thus fostering smoother transactions and stronger legal predictability. Additionally, the CISG’s binding nature for contracting states implies that its terms become a default set of rules unless expressly excluded by the parties, giving it a unique role as a harmonising force in international trade.
A critical characteristic of the CISG’s scope is its indifference to the “civil or commercial character of the parties or contract,” as stated in Article 1(3). This provision means that the CISG applies equally to private enterprises and government entities engaged in the sale of goods across borders, sidestepping any national distinctions between civil, commercial, or public transactions. The CISG’s design to accommodate diverse legal and economic entities ensures its terms apply in various settings—from small private deals to significant government procurements. By neutralising the nature of the parties involved, the CISG sets an inclusive approach that broadens its applicability and reinforces its objective of providing a standardised legal structure independent of individual states’ distinctions between civil and commercial law.
Government Contracts and Article 2 Exclusions
The CISG contains several exclusions in Article 2, outlining types of transactions that the CISG does not cover. Among these, Article 2(b) excludes “sales by auction,” and Article 2(a) excludes goods bought for personal or household use unless the seller knew or ought to have known that the goods were for such purposes. These exclusions aim to prevent the CISG from governing transactions not typically intended to be standardised by international sales laws, such as personal purchases or sales conducted through specific mechanisms like auctions.
However, the Article 2(b) exclusion does not apply to government procurement contracts merely because an auction-like process was involved. In many jurisdictions, reverse auctions or bidding processes are standard procurement methods. Yet, these are still generally subject to the CISG’s rules if the transaction involves selling goods abroad. This is due to the purpose behind Article 2(b) exclusion.
Auctions were traditionally considered a domestic transaction. They were held in person, and no significance was attributed to the parties’ places of business or habitual residence. Also, the seller would often not know who the buyer was until after the successful bidder was “revealed”. A foreign element would remain unclear throughout the entire procedure, as would the applicability of the CISG under Article 1. The purpose of Article 2(b) lies therein. Article 2(b) aims at shielding the seller against an unexpected application of the CISG.
In government procurement, the circumstances are different. Auctions and similar processes are often used as part of the selection phase to determine the best supplier based on price or other criteria. However, this initial selection process is distinct from the following sale contract. No party in a public procurement process is unaware of its counterparty nationality, and the applicability of the CISG is foreseeable. Unless excluded, the CISG governs the resulting agreement, as the convention focuses on the sale of goods rather than the method used to identify contracting parties. For example, reverse auctions or calls for tender are typical methods in government purchasing that aim to ensure fair competition, transparency, and value for public resources. While such processes may be governed by domestic procurement laws with specific guidelines on fairness or non-discrimination, these rules primarily regulate the selection of suppliers and do not automatically negate the CISG’s applicability to the contract of sale that arises once the winning bid is accepted. Thus, unless the parties explicitly exclude the CISG or a domestic procurement statute specifically provides an alternative legal framework that supersedes it, the CISG applies.
Furthermore, Article 2 exclusions do not extend to all types of sales made by governments or public entities. Under the CISG, an SOE or government agency can purchase goods for public use—such as equipment for infrastructure projects—without the transaction falling into the category of “consumer” purchases excluded under Article 2(a). Government purchases, even those meant for broad public benefit, do not equate to personal or household use and, therefore, do not meet the criteria for exclusion under Article 2(a). Additionally, Article 2(c) exempts sales made under judicial or administrative authority, such as court-ordered sales of seized goods, rather than sales made in government procurement. The exclusions within Article 2 are, therefore, limited in scope and do not exempt government contracts for the international sale of goods from the CISG’s purview. This interpretation supports the convention’s goal of providing a uniform framework for global trade, applicable even to government contracts unless expressly derogated.
SOEs as Parties under the CISG
SOEs have a unique role in global trade, blending governmental and commercial activities. The CISG treats SOEs like private firms in international goods sales. Article 1(3) clarifies that the nature of the parties or contract does not affect the convention’s applicability, allowing SOEs to operate under the same conditions as private businesses. This ensures uniformity and predictability in international commerce by preventing SOEs from claiming exemptions based on their government ties. Therefore, when SOEs conduct commercial transactions, especially for profit or resource distribution, they are treated equally with private enterprises under the CISG.
SOEs sell and buy all kinds of stuff, from raw materials to high-tech gadgets, and sometimes deal with complex procurement steps. Even though they often have government roles or public duties, when SOEs buy or sell goods internationally, they act like any other business. The CISG provides a fair legal base for these deals, which helps avoid any bias or unfair advantage that might come up if local laws treat government entities differently.
However, applying the CISG to SOEs comes with its challenges. The public or private nature of a contract does not concern the CISG, but SOEs can have different legal statuses and perks in their countries. Some countries give SOEs special rights under local laws, but the CISG aims for fairness across the board. So, when SOEs agree to contracts under the CISG, they give up those local advantages for international consistency and fairness. This can benefit SOEs, offering more predictability and access to global markets. However, it also means they must follow the CISG rules closely and cannot rely on national laws that might clash with the convention, keeping their business operations fair and globally accepted.
Public Procurement and Contractual Exclusion under Article 6
Public procurement laws often have unique procedures and standards that differ from typical commercial contracts, influencing how the CISG is applied. Article 6 of the CISG lets parties exclude or change its terms, which matters when government rules impose special contract requirements. These procurement laws might set specific standards for things like performance criteria, compliance paperwork, and dispute resolution, sometimes clashing with CISG provisions. Thus, in international procurement transactions—particularly those involving a state-owned enterprise—parties might decide to leave out the CISG and stick to domestic laws that better fit the government’s public interest goals.
But not every inclusion of public procurement rules in a contract means that the CISG is completely excluded under Article 6. Public procurement rules usually cover pre-contract processes and the selection stage rather than sales contract terms. So, these procurement laws might tweak some CISG rules while the main principles of the convention still apply to other parts of the contract. To ensure the CISG is left out, the parties should clearly say so, like stating that the CISG “shall not apply.” Without precise wording or clear intent, courts should see any mention of domestic procurement laws as derogating the provisions conflicting with the CISG, not excluding it entirely.
Assessing Article 6 in government contracts is a delicate matter. Exclusion or derogation under Article 6 requires such statutes to be independent and comparable in scope to the CISG. The CISG Advisory Council detailed these standards in Opinion No. 16.
The protection of legitimate expectations also affects how we understand exclusion clauses in contracts with government bodies. Article 6 exclusions are usually interpreted in a limited way to support the CISG’s goal of consistent international transactions. If the government party writes an exclusion or change clause by itself, ambiguities might be resolved against that party due to the contra proferentem principle. This ensures unclear or restrictive rules do not unfairly bind private parties. So, even if procurement rules are mentioned, without an explicit exclusion under Article 6, the CISG might still apply to parts of the contract that do not directly clash with those rules.
Case Law and Interpretations
Case law shows that the CISG applies broadly to government entities and state-owned enterprises in international goods sales. In the case of Hilaturas Miel, S.L. v. Republic of Iraq, a Spanish supplier tried to enforce the CISG against Iraq, which was part of the Oil for Food program. The U.S. court supported this, highlighting that Iraq being a government did not exclude the contract from the CISG’s scope.
In another interesting case, Republic Bank v. Etecsa, the Cuban telecom company Etecsa, which is partly government-owned, made an international deal to buy cell phones from a South African seller. The tribunal in Cuba used the CISG for this, showcasing its importance in standardising international trade contracts involving SOEs This case shows that SOEs can be treated like private companies in business deals under the CISG, as long as no contract says otherwise. It also hints that using the CISG by default can simplify complicated jurisdictional issues by offering a consistent standard for contract responsibilities, even when public entities are involved.
The 2019 decision by the Swiss Federal Supreme Court in the Electronic electricity meters case is another good example. A Swiss SOE had a contract with a Slovenian subsidiary governed by the CISG. The court decided that since there were not any specific rules about excluding it or conflicting public procurement requirements, the CISG applied to the contract. This highlights how widely accepted the CISG is for contracts involving SOEs and confirms its usefulness in ensuring consistency in international government deals.
Government contract practice in Brazil showcases recognition of the CISG’s relevance. The Brazilian state-owned company Nuclep included the CISG in at least three contracts (see CS-164/2020, CB-012/2020, and CB-103/2021). Conversely, the Brazilian military purchasing office in Washington expressly excludes the CISG in some contracts, but it leaves room for CISG application as part of the applicable national law in the ones where such exclusion does not exist (compare Contracts 1071/2023 and 1126/2023 here). Both instances show that state-owned entities know the CISG’s application to their international contracts and can make rational and informed decisions when to exclude, derogate or expressly adopt the CISG in its entirety.
ABOUT THE AUTHORS
Cesar Pereira is a Chartered Arbitrator and partner at Justen, Pereira, Oliveira & Talamini, in Sao Paulo, Brazil, and is responsible for the firm’s infrastructure and arbitration practices. He has a doctorate in administrative law and has been a visiting scholar in the areas of arbitration and public procurement at Columbia University, George Washington University and the University of Nottingham. He is a Fellow of the University of Nottingham’s Public Procurement Research Group. He frequently sits as an arbitrator in commercial cases, often involving administrative law or state parties, and public procurement. In 2022, he was appointed by the CISG Advisory Council as the rapporteur for an Opinion on the application of the CISG to government contracts. His published books and articles cover several areas of infrastructure, administrative law, international sales (CISG) and dispute resolution.
Leonardo F Souza-McMurtrie is a Gates Scholar and a PhD candidate at the University of Cambridge and an international dispute resolution specialist associated with Justen, Pereira, Oliveira & Talamini (Brazil). He holds an LLM in International Dispute Resolution from Queen Mary University of London, where he was a Chevening Scholar and received the Comparative and International Dispute Resolution Prize for the best academic performance of the year (2020). He is qualified as a lawyer in Brazil and as a solicitor in England and Wales.
Lorenzo Galan is an associate at Justen, Pereira, Oliveira & Talamini, in São Paulo, Brazil. He is a partner and senior editor at Arbipedia. He holds a Bachelor of Laws degree from the Federal University of Rio Grande do Sul. He is qualified as a lawyer in Brazil.
*The views and opinions expressed by authors are theirs and do not necessarily reflect those of their organizations, employers, or Daily Jus, Jus Mundi, or Jus Connect.
