PREFACE. Prof. Hikmahanto Juwana, SH, L.LM., Ph.D

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1 PREFACE Praise to Allah SWT's blessings for the gift of His grace the team can complete the Final Report on the Academic Paper Draft Law on the United Nations Convention on Contracts for the International Sale of Goods just in time. International sale of goods is an area of law that is very crucial in the era of globalization, especially in supporting activities in international trade and transaction business. One of the international conventions governing the contract for the international sale of goods is called the United Nations Convention on Contracts for the International Sale of Goods (CISG). This 1980 Vienna Convention is different from previous conventions. This convention applies to contracts between parties whose companies are sited in different countries, therefore the formulation is applied much more widely. This convention has shown alignment with international standard that is more appropriate than the previous formulation of the convention. CISG includes international contract formation aimed at negating the purpose of the law of a particular country in international sales contracts as well as to facilitate the parties in the event of a conflict between the legal systems. CISG applies to contracts for transactions between parties whose companies are sited in different countries, article (1 (1)). Thus, the key factor is the place of trade and not the nationality. Indonesia has not yet ratified CISG, but because it is considered essential, National Law Development Agency established a Working Group on Preparation of an Academic Bill on the Convention for the International Sale of goods by Decree No. PHN. UN- 416.HN Year In a study of Academic Text, the team tries to discuss the importance of Indonesia ratifying CISG. Assessments of academic texts to ratify the CISG are based on research conducted and the results of previous seminars. The study and the seminar developed a recommendation for the Government of Indonesia to ratify the CISG. Finally the team would like to thank those who have provided valuable inputs to the team both during the meetings and at the time of preparation of the final report. Hopefully the results of the team can be a useful input for the development of national law in general and can be used as a guide in the preparation of the Draft Law on the International Sale of Goods Contract or amendment to the Civil Code, especially Book III. Jakarta, November 2013 Team Leader, Prof. Hikmahanto Juwana, SH, L.LM., Ph.D 1

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3 TABLE OF CONTENTS INTRODUCTION TABLE OF CONTENTS CHAPTER I INTRODUCTION CHAPTER II THEORETICAL STUDY OF THE AGREEMENT ACCORDING TO THE UNITED NATIONS CONVENTION ON CONTRACTS FOR THE INTERNATIONAL SALE OF GOOD PRACTICE AND EMPIRICAL CHAPTER III IMPORTANCE TO INDONESIA OF RATIFICATION CISG CHAPTER IV REGULATORY ANALYSIS ON RELATED LEGISLATION CHAPTER V MATERIAL CONTENT 3

4 CHAPTER I INTRODUCTION 1. Background Today almost all businesses run the trading of goods by passing through its borders. Trading goods with foreign traders is a basic need of the traders to expand the opportunity to make a profit, as well as to divert their traded products that are not absorbed in their own markets. Seen from the perspective of relations between countries, international trade becomes a fundamental requirement for survival in a world of economic interdependence. International trade is a cross- border sale and purchase transaction, which involves two parties across state lines. These parties are often those originated from different countries or have different nationalities. Based on the basic assumption described above, it is no wonder today we are witnessing a rapid development in the field of international trade that is characterized by the application of various trade agreements between the countries of the world such in the GATT / WTO, NAFTA, AFTA, APEC, and the EU, including important development occurring recently in ASEAN, namely the desire to realize the ASEAN Economic Community (ASEAN Economic Community). Legally speaking, international trade transaction means a transaction involving the interests of more than one national law. A trade is said to be an international trade, if the sale and purchase transactions have led to the choice of law between two different legal systems, and the objects traded must be submitted across state boundaries, and the existence of foreign elements or elements foreign to the legal system. Areas of law that are important to consider in international trade is a legal contract. Differences in the legal contracts in international sale and purchase transactions involving businesses of two or more different countries would cause a lack of legal certainty. For example, the international sale and purchase transactions conducted by a Singapore businessman with an Indonesian businessman will involve two different systems of law. Singapore contract law, which is derived from the Anglo- Saxon systems of law, has different arrangements with the Indonesian contract law that is derived from Continental European legal tradition. Legal uncertainty arises when there is a dispute in which these businesses are likely to be faced with a system of contract law that is really foreign and unpredictable to the businessman. The phenomenon of international trade has led to a need for rules that are universal to govern the rights and obligations of the merchants in international trade transactions. Laws that are different in different countries have resulted in legal uncertainty and difficulty among the traders in making international trade contracts. 4

5 Recognizing these needs, the United Nations (UN) through one of its bodies took the initiative to develop an international legal instrument, later known as the United Nations Convention on Contracts for the International Sale of Goods ("CISG"). This convention is one of the documents created through diplomatic efforts of the United Nations Commission on International Trade Law ("UNCITRAL"). CISG seeks to bridge the gap between different legal systems in the world, especially among civil law (sub- traditions of France and Germany) and common law (sub- traditions of British and American), by harmonising the law for the international sale of goods (opening CISG). CISG governs the making of the contract of sale, and the rights and obligations of buyers and sellers (including legal measures for them). CISG entered into force on January 1, 1988 for countries that are parties to it at that time. CISG includes international material contract formation aimed at negating the purpose of the law of a particular country in international sales contracts as well as to facilitate the parties in the event of a conflict between the legal systems. CISG applies to contracts for goods made between the trading parties from different countries. In accordance with the purpose of establishing UNCITRAL itself, which is to harmonize and unify private international law, the CISG is an instrument of the law governing the contract of international sale of goods. This means that the more countries in the world are ratifying the CISG, the faster the realization of the unification and harmonization in the field of international goods purchase contracts. Thus, in turn, it will reduce legal barriers often faced by businesses in international trade transactions. With membership of 79 countries from different legal backgrounds, the CISG has gained recognition as a legal instrument that could accommodate all of the interests of the countries. Indonesia has not yet to become a signatory to the CISG, but from the results of the study and also from various discussion forums on the CISG the Indonesian government is advised to accede to the CISG. The need to accede to the CISG is increasing today when there is a commitment of ASEAN countries to strengthen regional cooperation through the establishment of the ASEAN community (Community ASEAN), including the ASEAN Economic Community, which is expected to materialize in In order to realize an ASEAN Economic Community, the ASEAN has recommended to its member countries to harmonize the law of international sales contract through the ratification of the CISG. Indonesia s need to accede to CISG is not solely due to external forces, but is also based on legal requirements and national interest. As a country that adheres to the Continental European legal systems, Indonesia already has a contract law in book III of the Civil Code Part II, under the heading "Regarding agreements" - an agreement born of the contract or agreement; but given a lengthy time span since its formulation 5

6 until now, it is a fitting question whether the various provisions of the law of contract are still able to accommodate the variety of activities that today's rapid business growth is experiencing. It is necessary to study what are the things that are not in accordance with the development of today's business activities and what improvements and refinements that should be implemented, so that Indonesia can have a modern contract law, which can accommodate today's business activities. Repair and improvement of this absolutely must be done considering that in today's global era the contracts of Indonesian legal system, which is based on the civil law tradition, have to meet and interact with a variety of other legal systems, primarily with the Anglo- American legal system. There are undoubtedly similarities between Indonesian contract law and the contract law of the countries applying Anglo American law, but there are also very significant differences between them. Differences arise either at the stage of preparation of the contract or the stage of implementation; so that in order to ensure cooperation contained in an agreement can take place properly and achieve its objectives it is necessary to build harmonization of the legal contract between the two systems. In this regard, Indonesian accession to the CISG will be able to promote and hasten the changes to legal agreements set forth in the Civil Code for the system of contract law so that Indonesia can be more modern and at the same time in harmony with the law of contract in other countries. Considering the importance of the CISG, the National Law Development Agency (or BPHN) thinks that it is necessary to form a working group to develop an academic paper on the ratification of the United Nations Convention on Contracts for the International Sale of Goods. Prior to preparing this academic paper, BPHN has made a report on the Convention on the International Sale of Goods in its relation to the national law, during the year of 1999 and also has arranged a seminar on International Contract Law in the Era of Free Trade. From the results of the assessment and the seminar we recommend the need for Indonesia to ratify the Convention. The reasons why it is necessary include: a. With the increasing of the opening the Indonesian economy as a result of the globalization of more commercial transactions conducted by Indonesian citizens with foreign parties, it is necessary to have the legal principles that support international trades. b. The convention is a convention that unifies the rules of international trade law in the field of International Sale of Goods Contract prepared by UNCITRAL. The Convention is a positive law in force since 1 January Among the participants of the convention there are also participants from developing countries. 6

7 In supporting international trade transactions done by citizens of Indonesia, Indonesia needs to be a participant of the convention on the following grounds: a. The Convention specifies the principles contained in the law of contract in general and these principles do not conflict with the Civil Code; b. At the time Indonesia becomes a party to the convention, Indonesia can express a declaration that is made possible by the Convention, which is based on Article 92 (1), Article 93 (1), Article 94, Article 95 and Article 96. With the possibility to make the declaration, the rules of the International Sales Contract law can be used as the basis or altered by the parties in relation to the Contract on International Sale of Goods. Thus the principles of freedom of contact are respected. c. In support of efforts to conduct contract law reform in Indonesia, Indonesia ratifying the convention means trying to hold legal harmonization between National Purchase Contracts (domestic) and the International Sales Contract. However, before ratifying the Convention there are some tasks to be completed. Due to the fact that ratifying an international treaty is not the end of a job, but is instead the beginning of a job. Therefore there are some national laws that need to be adjusted, such as the need to renew Book III of the Civil Code, and the needs to make a national contract law for the international sale of goods contract is closely associated with contract law developed in line with the growth of the national economy. 2. Identify the Problem 1. What are the principles of the law appearing in the CISG? 2. What are the advantages and disadvantages / challenges if Indonesia ratifies the CISG? 3. What are the necessary preparations to be conduct so that after the accession the CISG can be effectively applied in practice? 3. Purpose and Objectives 1. To determine what principles there are in the CISG. 2. To examine and obtain a comprehensive overview of the advantages and disadvantages / challenges if Indonesia ratifies the CISG. 3. To identify the necessary preparations so that after the accession CISG could apply effectively in practice. 7

8 4. Period of implementation and financing This activity is made within 9 (nine) months from March to November Financing activities result from the budget of the National Law Development Agency in

9 CHAPTER II THEORETICAL STUDY ON TRANSACTION AGREEMENT ACCORDING TO THE UNITED NATIONS CONVENTION ON CONTRACTS FOR THE INTERNATIONAL SALE OF GOODS AND EMPIRICAL PRACTICE I. Theoretical Study CISG is a convention that governs the rules of material law that will apply to every international trade transaction. In this respect, the Convention relates to the choice of law, not the conventions governing the rule of law in international trade transactions, but only enforce the provisions of domestic law in an international trade transaction 1. A. The Structure and Substance of the CISG CISG contains 101 chapters arranged in a structure that is divided by 4 (four) main parts, namely: a. Part I: Governing the scope (Article 1-6) and the general provisions (Article 7-13) b. Part II: Rules governing the formation of contracts for the international sale of goods (goods 14-24) c. Part III: Rights and Obligations of the seller and the buyer of the written contract i. Chapter I: General Terms & Conditions (Article 25, - 29) ii. Chapter II: Seller Obligations a. General: Article 30 b. Section 1: The delivery of goods and document setting c. Section 2: Conformity of the goods and third party claims (Article 35-44) d. Section 3: Losses due to breach of contract by the seller (Article 45-52) iii. Chapter III: Buyer Obligations a. General: Article 53 b. Section 1: Payment (Article 54 59) c. Section 2: Submission (Article 60) d. Section 3: Losses due to breach of contract by the buyer (Article 61 65) 1 Gunawan Wijaya, Licence [Series Business Law, King Grafindo Persada Jakarta, 2001, p 30 9

10 iv. Chapter IV: Risks (Article 60 s / d 70) v. Chapter V: General Conditions of Seller and Buyer Liability a. Section 1: Anticipatory breach of contract and reimbursement (Article 71-73) b. Section 2: Losses (damages) (Article 74 s- 77) c. Section 3 Gain (interest) (Article 78) d. Section 4 Exceptions (Article 79-80) e. Section 5 Impact of cancellation vi. Part IV: Final Provisions B. Application of the CISG The terms of CISG do not provide a specific definition of the international goods sale and purchase agreement. The provisions of Article 1 of the CISG contains the following provisions: (1) This Convention applies to contracts of sale of goods between parties whose place of business are in different states: a. When the states are signatories to the Convention; or b. When the rules of private international law lead to the application of the law of a signatory to the Convention; Thus, according to Article 1 of the CISG, CISG is known to apply to a sale and purchase between the parties in the different countries and where the countries are signatories to the Convention or when Private International Law would otherwise require the application of the one of the law of the signatory states. A problem arising from Article 1 (1) (b) is whether or not the CISG will apply, if there is a clause on choice of law by the parties in the sale and purchase contact, in which the parties have chosen the law of one of the States participating in the Convention? Some argue that the choice of law of the parties is not sufficient to apply the CISG. To be able to apply the CISG there must be an objective relationship factor, because we must able to determine whether it is only a legal choice for sale and purchase based on domestic law (domestic sales law) or a choice of law that includes the CISG. If the CISG has become a domestic law, the CISG will automatically apply and on the contrary, the Article 6 of the CISG has made it possible for the parties to apply the CISG itself. This means that Article 1 (1) (b) is not applied. Expansion of the scope of the convention, which is based on Article 1 (1) (b) caused a controversial view. As a compromise, there is a provision in Article 95 of the CISG, which allows participating countries at the time of depositing the 10

11 instrument of ratification, acceptance (acceptance), Approval or accession to declare that they are not bound by Article 1 (1) (b). Article 1 (3) provides that to apply the convention of 1980, the citizenship/nationality of the parties or the civil or commercial character of the parties or the contract in question is not considered. Article 4 of CISG only provides for the establishment of an international trade contract, the rights and obligations of the seller and the buyer mentioned in the international trade contracts, and does not regulate issues concerning the legal consequences that may arise as a result of the status of ownership of the goods that are the objects of sale. Article 5 CISG does not apply to obligations of the seller in case of death or personal injury of any person caused by objects that are traded. The parties to this Convention are free to waive the application of the CISG, or to regulate differently according to their intention, as stated in Article 6 of the CISG. Article 11 CISG stipulates that a contract of sale does not need to be made or evidenced in writing, and do not have to meet any other requirements of the form. Any evidence, including testimony, may prove the existence of a contract of sale. It says further in Article 18 CISG, that a statement made or then conduct by the party receiving the offer (does not absolutely have to be the buyer) indicating approval of the offer submitted by other parties is treated as a form of acceptance. Thus, an international trade contract is only valid when there is an offer made, and acceptance must be manifested in the form of action or a declaration made by the party receiving the offer. Meanwhile, an acceptance is effective upon receipt by the offeror of acceptance, provided that acceptance of the offer should be accepted within a time period determined by the offer or within a time period that is generally considered appropriate to accept an offer of transaction. According to Gunawan Wijaya, there are four (4) aspects to determine the application of the CISG, namely 2 : a. Regarding the parties to an international trade contract : i. The parties must be parties whose places of business are located in different countries, which are both signatories to CISG; ii. The parties must be parties whose places of business are located in different countries, which are both signatories to CISG; but the law refers to international legal norms of a country (signatory to CISG) as the applicable law for the purchase and sale transactions; b. Regarding the content of international trade contracts 2 Ibid 11

12 i. International trade of buying and selling contracts regulated in the CISG is the international trade and commercial contracts and it does not include sales to consumers or end users; and ii. Not all objects can be traded subject to the provisions of the CISG. This can be seen from the provisions of Article 2 CISG which excludes: a. goods bought for personal, family and household use, unless the seller at a time before or at the time of closing the contract in question neither knew nor ought to have known that the goods had been purchased for that purpose (for personal, family or household use) b. Buying and selling by auction; c. Buying and selling in order to execute a court decision; d. Sales of Shares, securities, investment securities, negotiable instruments or money; e. Vessels, hovercraft or aircraft; f. sale of electricity From the formulation of Article 2 CISG, it seems that its provisions are only applied to moveable goods and tangible goods. C. The scope of the CISG CISG only governs the establishment of international sales contract and the rights / obligations of the Seller and the Buyer a. Requirements on Contract Form Article 11 CISG stipulates that a contract of sale does not need to be made and prove its existence in writing, and does not have to meet any requirements of form. Any evidence, including testimony, may prove the existence of a contract of sale. In line with the principles contained in Article 11 above, Article 29 CISG stipulates that changes to the content of the terms or termination of the validity of a contract of sale can be done only by agreement of the parties. If the written contract contains a provision that the contract changes or termination of the contract must be in writing, it is imperative for the parties 3. 3 Furthermore, one of the parties because of the behavior or actions themselves can be excluded from the use of written requirements, if the other party has relied on the behavior or actions of the first party. This is roughly equal to what is called the inconsistent behavior set out in Article 1.8 UNIDROIT Principles of International Commercial Contracts, UNIDROIT, UNIDROIT Principles of International Commercial Contracts, 2004, Rome, p. 21. Dalan Bayu Hardjowahono Seto, " Aspects of International Trade and Sale Theory based on CISG In Comparison With Indonesian Law on Sales- Purchase loose paper presented at the Workshop on the Future 12

13 Note also that Article 11 and Article 29 CISG are some of the provisions in the CISG which can be overridden by a state that is a party of the CISG (Article 12 CISG), to ensure that the requirements regarding the form and procedures for modification or termination of contract applicable in the domestic legal system remains valid even if the country ratifies this convention 4. b. Offer and Acceptance In the CISG, matters relating to the offer and acceptance are contained in Section II, Article 14 through Article 24. Article 14 relates to minimum criteria for an offer, Articles 15 and 16 concerning the withdrawal of an offer, Article 17 concerns the termination of the offer, Article 18 related to the indication of the time of receipt of an offer, Article 19 regarding acceptance accompanied by a change or Counter- offer, Article 20 and 21 regarding acceptance of a period, Article 22 regarding withdrawal against a receipt. Articles 23 and 24 relating to the time when the contract has been agreed. Offer Article 14 CISG regulates the supply, and establishes the requirements for the existence of the offer, as follows: (1) Proposals to agree on a contract addressed to one or more specific parties constitutes an offer if it is sufficiently clear and indicates the intention of the offering party to be bound in case of acceptance. The proposal is considered quite clearly demonstrated if the goods do explicitly or implicitly set or make provision for determining the quantity and price. Of the provisions of Article 14 paragraph (1) it can simply be concluded that a proposal does not in itself be regarded as an offer. That is, so that a proposal can be considered as an offer, it must be sufficiently definite/specific and contains adequate instructions concerning the offering party's intention to be bound if his offer is accepted by the offeree. An offer must be "sufficiently definite" in the sense that in the offer must be presented key elements of the agreement. The subject of this agreement is commonly called as elements essentialia 5. D nature of buying and selling, there must Prospect of Indonesian's Accession to the CICG, organized by the Development Board of National Law, 8 July Bayu Seto Hardjowahono, " Aspects of International Trade and Sell Theory based on CISG In Comparison With Indonesian Law on Sales- Purchase "Paper freelance presented at the Workshop on the Future Prospect of Indonesian's Accession to the CICG, organized by the National Law Development Board, 8 July R. Subekti, "Assorted Agreement", Alumni, London, 1985, p 2. 13

14 be clarity and certainty regarding the three elements, namely the certainty of / certain of the aspects: a. Description / description of the goods offered (in terms of the quality of the goods) b. Description of the amount of goods on offer (in terms of quantity of goods) c. Description of the price of the goods offered Other matter (outside of the three items above) are basically left to be negotiated between the parties. Article 14 paragraph (2) of the CISG: (2) A proposal other than one addressed to one or more specific parties is to be considered merely as an invitation to make offers, unless the contrary is clearly indicated by the party making the proposal. This article states that the proposal that is not clearly directed at one or more specific parties (specific person) will only be considered as an invitation / invitation to bid, unless the submitting proposals clearly stated otherwise. Thus the binding offer is the offer that indicates an intention to be bound. This is a requirement of the common law, commonly called Intention to Create Legal Relations (ICLR). Given this condition, the expression or the will to transact or conduct negotiations but not included in the offer is not categorized as an invitation to bid (invitation to treat) Article 15 paragraph (1) provides that: "A bid will be considered effective when he reached the offeree" 6 CISG has a principle that if the offer has been submitted by the offeror to the offeree, the offeror is considered to have had a purpose / intention to bind themselves to the bid submission. That's what causes the CISG system to apply the principle that: At the time the offer is accepted by the offeree, the offer is considered BINDING the Offeror. Article 15 paragraph (2) of the CISG establishes an exception to the above principle, which is as follows: 6 Article 15 CISG (1) An offer becomes effective when it reaches the offeree. (2) 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. 14

15 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. So an offer (though it may be irrevocable and can not be withdrawn), still may be withdrawn if withdrawal of the offer reaches the addressee before or at the same time as the offer. Article 16 paragraph (1) and (2) CISG further open the possibility that: (1) Until a contract is concluded an offer may be revoked if the revocation reaches the offeree before he has dispatched an acceptance. (2) However, an offer cannot be revoked: (A) (B) If it indicates, whether by stating a fixed time for acceptance or otherwise, that it is irrevocable; or If it was reasonable for the offeree to rely on the offer as being irrevocable and the offeree has acted in reliance on the offer. So according to Article 16 paragraph (1) of the CISG, an offer can still be canceled (revoked), if notice of the cancellation to the offeree arrives before the offeree sends his Acceptance. However, Article 16 paragraph (2) of the CISG also provides that: An offer CANNOT be canceled (revoked), if: a. Time span specified for acceptance, unless otherwise specified can not be undone; b. If there is acceptable reasonable cause to the offeror that the offer is an irrevocable offer and the offeror has acted in accordance with the offer. CISG principle that: "An offer will be considered as FIRM OFFER (which is irrevocable), where in it is stated explicitly as a Firm Offer, or if there are instructions / indication in the offer which can be used as a basis by the offeree as a sign that the Offer is a Firm Offer and the offeree has performed actions by relying on it." Acceptance According to the Theory of Acceptance, the contract will occur after the statement. CISG uses Acceptance Theory as a general rule for all statements made in writing and any form of communication. In the Common Law system, it has been quite clear that mail box rules do not apply if the offeree uses means of communication other than letter or telegraph. Acceptance theory is used to 15

16 determine the composition of the contract at the time the offeree uses means of direct communication, such as facsimile, telex, Electronic Data Interchange (EDI) and e- mail. Acceptance will be a statement of acceptance by the parties offered. Acceptance includes terms and conditions in its offer. Conditional acceptance cannot be assessed as acceptance but rather as a counter- offer. Acceptance is effective when there is consent to the offering party. Acceptance is not effective if the approval does not come to the party that makes the offer during the duration specified or a reasonable period of time. In a lengthy negotiation process, counter offer often occurs because the acceptance does not fit/match with its bid. In the event of a counter offer, the bid may lose its power due to rejection. Article 18 Paragraph (1) of the CISG governs Bid Receipt / Acceptance, by providing the following meaning: (1) 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. Thus an offer can be considered acceptable if there is acceptance by the statements made or may be inferred from the party's subservience to the bid. Silence or inactivity cannot be considered as acceptance. Instead, offer becomes ineffective when the approval is not arrived to the offeror within the time specified, or if no time is specified then to a reasonable time according to the usual custom adopted in the transaction, including the speed of communication used by the offeror. Article 18 Paragraph (2) of the CISG provides that: 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 cırcumstances of the transaction, Including the rapidity of the means of communication employed by the offeror. An oral offer must be accepted immediately unless the cırcumstances indicate otherwise. 16

17 The arrival of acceptance at the hands of the offeror signifies the validity of a contract. Observing the difference in principle between systems Common Law and the principles adopted by the CISG, it would seem that 7 : Under Common Law which uses the Mailbox Rule, acceptance is considered to occur when the acceptance is sent by the offeree to the Offeror So, for the contract to be valid, an acceptance does not need to be accepted in advance by the offeror. The risk of the acceptance not arriving in the hands of the offeror will be borne by the offeror. The legal consequence is that the risk of the goods or risk due to late arrival of acceptance by the Offeror switches to the Offeror at the time of the offeree sending acceptance. 8 Instead, based on the CISG, the acceptance occurs when the acceptance is considered sent by the offeree to the offeror, and received by / to the Offeror at the address. At that moment the contract is considered created. The legal consequence is that the risk of the goods or risk due to late arrival of acceptance in the hands of the Offeror is borne by the offeree (not yet transferred to the Offeror) before Acceptance was received by / to the Offeror at the address. Because it is based on the system of the CISG, an offeree is concerned to ascertain whether the Acceptance has arrived at the address of the offeror or not. Article 18 Paragraph (3) of the CISG establishes exceptions as follows: However, if, by virtue of the offer or as a result of practices in the which the parties have established between themselves or of usage, the offeree may indicate assent by performing an act, such as one relating to the dispatch of the goods or payment of the price, without notice to the offeror, the acceptance is effective at the moment the act is performed, provided that the act is performed within the period of time laid down in the preceding paragraph. If the offeree adds to the requirements, imposes restrictions or conducts other changes, this action is considered as a rejection or a counter offer (Article 19 paragraph (1)). But if the answer to the offer contains additional requirements that do not materially change the terms of the offer, it constitutes acceptance of the offer, unless the offeror verbally objected to the incompatibility or delivery of a statement. 7 Bayu Seto, op.cit. 8 See and compare with UNIFORM COMMERCIAL CODE United States, or principle generally accepted in the common law tradition that uses this Principle of Dispatch. Gillette, Clayton P., Walt, Steven D., Sales Law - Domestic and International, Foundation Press, New York, 1999, p. 45 ff. 17

18 If the bid does not object to the requirements of the contract then they would be stated in acceptance. In the presence of different requirements in respect of premises on goods, the price, payment, quality and the large number of goods, place and time of sale, compensation problems may arise and it will also affect the other party. Similarly, if a dispute arises then it must be considered as well. Time of receipt of the offer would be, if the offer made by telegram, namely when the telegram was sent. Meanwhile, if the bidding is done through the mail, it can be seen on the date that is stated on the envelope. If the bidding is done by telephone, telex or other communication devices, the time of receipt of the offer is started when the parties receive offers. If the notice of the notification could not be delivered due to a holiday or a business day, while the final day of the notice period is specified, then a holiday or a day without business will be extended to the next business day. In terms of late acceptance, then the receipt cannot be legally valid. If the delays are due to the fault of the recipient of the bid, the contract agreement is not reached. However, if the delay is caused by the problems in the delivery of the contract, the agreement is valid. If, on the one hand, the delay is caused by the offeree inhibiting the contract agreement, and on the other hand, the delay is not caused by any communication means to inhibit the contract, then the contract agreement is not reached when the delays in the receipt are specifically caused by the offerer. According to Article 23 CISG, a contract occurs when the acceptance of the offer becomes effective in accordance with the provisions of this Convention. Offers, statements, receipts, or other actions that will be considered to indicate the presence of the target if done verbally directly to the party or sent by any means to the party personally, or the place of his business or to a postal address, or if the party does not own a place of business or mailing address to the usual place of residence Rights and Obligations of the Seller CISG provisions specifically regulate the obligations of the parties. It can be concluded that the seller s rights would be the duty of the buyer and vice versa. As for the seller s rights (that are the buyer's obligations) under the CISG are: a. Receive payment of the price on a predetermined date in the contract (Article 59 CISG). 18

19 b. If the buyer fails to perform its obligations under the contract or convention, the seller may: i. Take its right in accordance with Article of the CISG ii. Claim damages in accordance with Article of the CISG c. The seller may set an additional period of time to give the buyer more time to carry out its obligations 9 unless the seller has received notice from the buyer that he will not execute in a predefined period of time 10. d. The seller may declare the contract void, if 11 : i. If the failure of the buyer to carry out its obligations under the contract / convention is such that it can be used as a basis of a breach of the contract, or ii. If the buyer does not, within the extended period to perform its obligations to pay the price / accept delivery of the goods, or if the buyer declares that he will not do so within the time specified. Seller Obligations Article 30 CISG stipulates that the primary obligation of the Seller is: a. Deliver the goods at the place agreed upon in the contract b. Submit documents relating to the goods specified in the contract. c. Transfer the ownership of goods; as agreed in the contract The following articles set the principles about the three things mentioned above, if the parties have not explicitly set in their contract of sale, then it is associated with Place of Delivery, CISG recognizes three (3) types of Delivery Terms (Article 31 CISG), namely: (A) (B) A contract of sale involving carriage of goods with no determination about the place of delivery (called a shipment contract), then the seller is obliged to deliver the goods to the first carrier who will deliver the goods to the buyer; Contract of sale made in a certain place known by the parties, without any intention of being transported to a particular place. If the contract does not involve carriage of goods, and contracts related to specific items (specific goods), or goods which must be determined from a particular stock, or goods manufactured or produced in advance, and the parties realize that the goods mentioned are in a particular place or will be produced in a certain place, 9 Article 63 paragraph (1) of the CISG 10 Article 63 paragraph (2) of the CISG 11 Article 64 CISG 19

20 then the seller is obliged to put the goods in a certain place where the goods will be controlled by the buyer. (C) In other situations, the seller is obliged to prepare the goods for buyers in the business center controlled by the seller at the time the contract is closed. Other matters relating to the delivery of goods (transport documents, the contract of carriage, or insurance on the item), set in Article 32 paragraph (1) - (3) CISG 12. In terms of time of delivery of goods, Article 33 CISG establishes the following requirements: The seller must deliver the goods: (A) (B) (C) If a date is fixed by or determinable from the contract, on that date; If a period of time is fixed by or determinable from the contract, at any time within that period unless cırcumstances indicate that the buyer is to choose a date; or In any other case, within a reasonable time after the conclusion of the contract. In connection with the documents for the goods, Article 34 CISG stipulates that the seller must submit such documents at a time and at a place specified in the contract. Determinations in this contract are often closely related to the payment system agreed by the parties, especially when using undocumented payment (letter of credit). Article 34 also establishes that, in the event of the seller handing over documents before these times in the contract, the party still has the opportunity to enhance or complement these documents. The latter can only be done if it does not cause inconvenience or increase costs for the buyer. In addition, the same article asserts that even though the seller seeks to enhance these documents, the buyer retains the right to claim compensation under the provisions of the CISG. a. Suitability of Goods (Conformity Of Goods) CISG establishes requirements regarding the obligations of the Seller detailed enough to ensure that the goods, which he submitted, are appropriate (in 12 Article 32 (1) If the seller, in accordance with the contract or this Convention, hands the goods over to a carrier and if the goods are not clearly identified to the contract by markings on the goods, by shipping documents or otherwise, the seller must give the buyer notice of the consignment specifying the goods. (2) If the seller is bound to arrange for carriage of the goods, he must a make such contracts as are necessary for carriage to the place fixed by means of transportation appropriate in the cırcumstances and according to the usual terms for such transportation. (3) If the seller is not bound to effect insurance in respect of the carriage of the goods, he must, at the buyer's request, provide him with all available information necessary to enable him to effect such insurance. 20

21 conformity) with the specifications established and agreed upon in the contract. Basically, the seller is obliged to deliver the goods in quantity, quality and specifications in accordance with what is stipulated in the purchase contract, and placed or packaged in the manner specified in the contract (Article 35 paragraph 1 of the CISG). CISG further sets the criteria that can be used to determine compliance (conformity) of the goods if the parties have not explicitly set in the contract (Article 35 paragraph 2 of the CISG). Goods deems not in accordance with the contract, if: (A) (B) (C) (D) Is not suitable for general purpose of the goods seen from the description that is usually used Not suitable for the use or special use which is explicitly or implicitly told by the seller at the close of the contract, except where the circumstances show that the buyer does not trust or it is appropriate for him not to trust the expertise of the seller. Does not show the quality that has previously been shown by the seller through a sample or model; Not placed at and packed in an adequate manner to preserve and protect the goods. However, the seller can release themselves from the responsibility as mentioned above, if at the time of conclusion of the contract the buyer was aware of the incompatibility of goods or at least should be deemed to know that these items do exist in the condition in point a to d above (paragraph 3 of Article 35 CISG). From the foregoing it appears that the CISG does not specify further requirements that may be imposed on the seller s obligations to ensure the eligibility of goods for use as normal (fitness for ordinary use). In this regard, the major legal issues that can arise are: Under what circumstances, the definition of " ordinary use " should be used? Is it based on common standards in place of the seller or the buyer? In the international trade practice, if the parties do not set otherwise, the general principles apply to determine that the common standard used is a buyer's standard, as the party that will be assumed to use the goods. However, if such a common standard cannot be determined or does not exist, then the goods shall be deemed to have a special designation (particular purposes). Obligation of the seller to ensure the feasibility of the goods in the special designation" only exists when: This special designation is notified by the buyer to the seller, on or before the contract is closed 21

22 Buyers within the reasonable limits, recognizing and relying on expertise and discretion of the seller (reasonable reliance principle) Sellers may be released from liability for faulty goods if the buyer already knows or could be unaware (could not have been unaware) that the defect already existed at the time the contract is closed. There is a difference of opinion on the understanding of the principles could not have been unaware under Common Law, the principle could not have been unaware is interpreted more subjectively, meaning by looking at the buyer's awareness of the mind. While based on the Civil Law tradition, it is interpreted more objectively by looking at the knowledge of the buyer after he or she has researched and obtained information about the goods to be bought. b. Seller Responsibilities And Risk Transition According to article 36 of the CISG, the seller is responsible for the discrepancy; although it has already been identified after risk passes to the buyer. The seller is also responsible for the discrepancy after passing risk posed by violations of its obligations. In this case, a violation of the obligation to ensure that at a certain period the goods remain in good condition. Furthermore, the CISG stipulates that the seller is also responsible for the mismatch of the goods when the risk has been passed, but those caused by violation of its obligations, including a breach of the obligation to ensure that for a certain period of time the goods will remain fit (warranty) for normal use or special use, or will still have the quality or certain characteristics (Article 36 paragraph 2). If the Seller has executed submission before the due date specified in the contract, then up to the limit of that date, the Seller is entitled to do: Redelivery of the lost goods or Additional delivery to meet the shortage of the amount of goods that have been sent previously, or Delivery of substitute goods to replace goods that are considered incompatible with items that are considered non- conforming goods, or To repair any deficiencies or discrepancies contained in the goods that have been shipped. The above can be done as long as they do not cause inconvenience or additional costs to the buyer. The possibility for the buyer to claim against the Seller on the basis of lack of conformity by the CISG is limited by Article 38 of the CISG, which puts an obligation on the part of the Buyer to inspect the goods in the shortest possible time after such 22

23 examination may be implemented, in accordance with the real situation. If the contract of sale involves carriage of goods to a place or a specific purpose, then the examination of the goods can be postponed until the arrival of the goods at the destination. If the shipping destination was changed in a place of transit or sent back to another destination without any reasonable possibility for the buyer to inspect the goods, and by the time the contract is made the buyer knows or should have known of the possibility of a change of purpose or further delivery, the examination of the goods can be deferred until the goods arrive at your new destination. CISG also establishes that the buyer will lose the right and the chance to use the excuse of lack of conformity if the buyer does not give notice to the Seller on the matter within a reasonable period after the party knows or should have been aware of any lack of conformity (Art. paragraph 39 (1 ) CISG). CISG further provides that "a reasonable period" it should not exceed two (2) years from the date of the goods handed over to the buyer, unless the time limit is not in accordance with the warranty time limit stipulated in the contract. Be aware also that the right of the Seller to hold on Articles 38 and 39 would be lost if the nonconformity of goods with respect to the facts which he had seen, or not may not have known, but not communicated to the buyer (Article 40 CISG). c. Seller Obligations on Third Party Claims Article 41 CISG requires the seller to deliver goods independent from the rights or claims of any third party, unless the buyer has agreed to accept goods containing such claims. However, based on Article 42 of the CISG, determined that the seller is obligated to deliver goods free from third party rights or claims regarding the property rights of the sort, which at the time of conclusion of the contract the seller knows or should have realized that there will be a claim on industrial property rights or other intellectual property rights: (A) (B) Under the laws of the country where the goods would be resold or used, if the parties are aware at the closing of contracts that they will be resold or used in the country; Beyond that, it is based on the law of the place of business of the buyer. Seller's obligation cannot be enforced if: (A) (B) At the close of the contract, the buyer has known or impossible not to have known the existence of the right or claim, or Right or claim arising from the actions the seller to comply with technical drawings, designs, formulas or other such specifications provided by the buyer. 23

24 Furthermore, Article 43 of the CISG limits the right of the Buyer to hold on to Articles 41 and 42 if seller does not tell the buyer about the nature of the rights or claims of third parties in a reasonable period after it is known or considered aware of the claim. On the contrary, the Seller cannot reject claims of third parties to rely on the absence of notice from the Buyer above, if Seller discovers any third party rights or claims as well as the origin of these rights. d. Remedies Against Default Seller This problem is set in Section III of the CISG. Article 45 paragraph (1) of the CISG stipulates that in the event the seller fails to perform its obligations under the contract (or under the CISG), then the buyer may (a) exercise their rights in accordance with articles in in Section III, the Article 46-52, and (b) may sue for damages in accordance with the general provisions of the CISG damages as contained in Article Article 45 paragraph (2) also confirms that the rights of the buyer to claim damages cannot by itself be dismissed if the buyer uses his or her right to make efforts in other laws. If buyer is undergoing legal measures against the defaulting seller, the court (or arbitration) is not allowed to give additional period of time for the Seller to carry out the achievements that have been denied. Types of Remedies Article 45 If the seller does not fulfill its obligations as specified in the contract, the buyer may request: a. To use rights specified in Article 46 s / d52 (breach of contract losses caused by the Seller) b. To seek redress under Article 74 s / d 77 (article/regulation about losses (& damage)) Article 46 paragraph (1) of the CISG stipulates that the Buyer may require Seller to perform its obligations, except in the case of buyers having used the remedy, which was inconsistent with those obligations. If the goods are not in accordance with the contract, the buyer may require the seller to deliver substitutes. This right can only be exercised if the goods are fundamentally a mismatch, and the buyer's request must be filed after the notice (notice - in accordance with Article 39) in advance, or within a reasonable period after it (paragraph (2)). Moreover, in same situation, the Buyer has the right to also require the Seller to make repairs / improvements to the goods, unless it is 24