Ethical Values in International Sales Contract under

The United Nations Convention on International Sales of Goods

by Raisha Puti Diamar

I. Introduction
Not so long ago, many businesses put their concern aside from physical
quality, but also the feelings and emotions they might sell to their customer
and often becomes the most essential factor of their products. This feeling and
emotion a company sells to its customer involves “social-consciences” which
were seen to be two opposites that do not go hand-in-hand.1 For example,
when a customer buys a pair of shoes, physical quality of the shoes surely is
important. However, this is not the only value that business nowadays sells.
Another value of the shoes is the feeling these shoes give you, and this is what
Nike sells. It prohibits any kind of child labour which consequently and
unwittingly gives its customers this emotion of not supporting child labour. This
proves that Nike has been selling not only lifestyle, but feelings to its
customers all over the world, making it a way for Nike to convey its personality
to its customers.2
The ethical values of a product can also be seen in a case between Nestle
USA against Mars Chocolate.3 Both parties are member of UN Global

1
Milton Friedman, “The Social Responsibility of Business is to Increase its Profits”, The New
York Times Magazine,http://www.colorado.edu/studentgroups/libertarians/issues/friedman-
soc-resp-business.html, in Ingeborg Schwenzer’s: Ethical standards in CISG Contracts
2
Kasky v. Nike, inc. case, The Supreme Court of California, 26 June 2003
3
McCoy v. Nestle USA, Inc et al, the District Court of Northern District California, 28
September 2015
 Compact which explicitly forbids child and slave labor. In 2015, Nestle alleged
that the cocoa used for its products were made from Ivorian cocoa beans
produced by children in the worst form of child labour. As a UN Global
Compact member, Nestle has committed itself to adhere to principles under
the UN Global Compact in which includes prohibition of child labour.
Associating certain ethical values to a product also helps a company to gain
more profits as ethically produced goods demands a higher purchase price. In
spite of such fact, consumers are ready to pay a higher purchase price a
product associated with aforementioned values. It is as if giving the consumers
an exclusive feeling from the goods.
In regards to the above-mentioned ethical features of the goods some specific
problems arise when determining conformity of the goods with the contract
and the buyer’s possible remedies in case of non-conformity.

II. Ethical Values in International Sales Contracts

a. Clear Contractual Stipulations
The CISG does not explicitly regulate a party adherence to certain ethical
values. In the CISG, specifically under Article 35, it governs that a supplier
must deliver goods which are of the quantity, quality, and description
required by the contract therefore contracting parties are obliged to
stipulate detailed expected features the goods must posses, depending
what they find to be appropriate for their contractual relationship.4
The best way to incorporate certain ethical values into an international
sales contract is to make a clear stipulation within the contract. A clear
stipulation regarding a party’s adherence to certain ethical values (inter

4
Ingeborg Schwenzer, “Conformity of Goods – Physical Features on the Wane?”,
https://ius.unibas.ch/uploads/publics/9982/20120413143056_4f881c80d278b.pdf
 alia: environmental standards, human rights, child labour prohibition) as a
part of a contract consequently makes it acts as a contractual obligation
for a party, in which the interested party can implement sanctions if certain
standard is violated in order to enforce them. These ethical values are
often a part of the purchaser’s standard terms. Standard terms are drafted
prior the conclusion of a contract and are not meant to be negotiated by
the counterparty as these standards might reflect a company’s CSR-
policy.5 Standard terms can also be referred to a document made by a
third party for example the UN Global Compact Principles. A company
which is a member of UN Global Compact has consently committed itself
to adhere to the Principles.
Nowadays, many companies incorporate these standards by putting a
reference to their websites. This reference can be determined as effective
if it is apparent & accessible to the recipient and there is a clear intention
by the offeror to includes such standards.6
However, many disputes arise as to unclear incorporation of a company’s
supplier codes of conduct. Hence, it is strongly suggested not to include
a set of ethical standards by a mere reference to a website nor a hyperlink
within an email.7 If a contract is concluded by email, a set of ethical
standards has to be in a form of an attachment, so that it will suffice the

5
René Franz Henschel, “The Conformity of Goods in International Sales”, 2005, page. 162,
http://cisgw3.law.pace.edu/cisg/biblio/maley.html#c
6
Oberlandesgericht München case, 14 January 2009,
http://www.unilex.info/case.cfm?id=1496
7
Sonja A. Kruisinga, “Incorporation of Standard Terms under the CISG and Electronic
Communication”, page. 78
 requirement for certain standards to be incorporated.8 There are many
different approaches in regards to determine whether an inclusion of
standard terms can be regarded as sufficient. It will all depend on whether
or not the parties can establish their intentions for standard terms to be
incorporated.
Expressed terms help the parties to determine whether or not the goods
have been in conformity with the specifications under the contract, in the
sense of Article 35(1) of the CISG.
b. Obligations Interpreted under Article 8 of the CISG
Article 8 of the CISG is focused on intention of a party, interpreting any
statements made by a party or any conducts made during the negotiation.
Under Article 8(1) of the CISG, it is governed that the contract must be
interpreted in light of a party’s intent. If one party’s intention is unclear,
Article 8(2) governs regarding objective interpretation or by a reasonable
person. However, the first problem concerns as there is no uniformity in
literature regarding the definition of the reasonable third party.9 The
definition of “reasonable third person” really varies. Some scholars
suggest “reasonable market participant engaging in transactions of the
same kind” to define it. This definition, then, is narrowed down by Junge
as:
“The relevant person is a professional who knows the practice of
his trade sector, the different modes of sale of the relevant goods

8
Ingeborg Schwenzer (et al.), Global Sales and Contract Law, Oxford: Oxford University
Press, 2011, page. 500.
9
Felix Lautenschlager, “Current Problems Regarding the Interpretation of Statements and
Party Conduct under the CISG - The Reasonable Third Person, Language Problems and
Standard Terms and Conditions”, 2010, page. 3
 and the corresponding jargon, but also the technical procedure of
transaction and the technical properties of the goods and their
utilization.”
Furthermore, negotiations, practices between two parties, and all
circumstances related to the case might be taken into account to interpret
a contract in which identified under Article 8(3) of the Convention. The
interpretation will then essentially depend on whether a reasonable party
in the shoes of the offeree would have understood the language of the
communication.10
c. Established Practices
In cases where expressed terms are absent, contract interpretation may
be based on trade usages on ethical standards. In accordance with Article
9(1) of the CISG, the parties are bound by any usage to which they have
agreed and by any practice they have established between themselves.
Furthermore, according to Article 9(2) of the CISG, the parties are
considered to have impliedly made applicable to their contract any
international trade usages.
Implying to Kimberley Process Certification Scheme as an international
certification scheme for rough diamonds, members of this scheme must
ensure that any diamond originating from the country does not finance a
rebel group, that every diamond export be accompanied by a Kimberley
Process certificate, and this Scheme requires all diamond is imported
from and exported to members of the scheme (are adequate to trades on
ethical standards). Thus, in the diamond trade, the Kimberley Process
Certification Scheme nowadays certainly amounts to such a trade usage.

10
Peter Huber & Alastair Mullis, The CISG: A New Textbook for Students and Practitioners,
Sellier, 2007, page. 79
 If one party from a member country enters into a contract with a party from
another member country, trade usage calls for the necessary certificates
without them being explicitly referred to in the contract.
Another private initiative is UN Global Compact. In international sales, the
UN Global Compact is highlighted as one of the most successful private
initiatives as it covers the protection of basic human rights, labour,
environment, and anti-corruption since its official launch in 2000 and has
grown to more than 12,000 participants. At least between parties who are
members of such initiatives, minimum ethical standards become part of
their contract as an international usage. The framework of UNGC is pretty
similar to Kimberley Process Certification Scheme in which members of
UNGC do not have to stipulate principles under the UNGC, but to make
those principles come into force being a member may suffice.
Thus, via Article 9 of the CISG, minimum ethical standards impliedly may
become in many cases part of the contract in the sense of Article 35(1) of
the CISG.

III. Ethical Defects under the CISG

a. Article 35
Goods’ conformity is often associated with physical appearance of the
goods. Moreover, the CISG does not explicitly govern regarding ethical
defects.
Under article 35(1), conformity is defined as what is agreed under a
contract. Any failure by a party to conform to the contract will constitute
as a breach of the seller’s obligation. This article requires seller to meet
all the expected specifications agreed by the parties in terms of
description, quality, quantity, and packaging.
 The agreement between the parties means the seller’s contractual
obligations can include the requirement to supply goods with certain
characteristics.11 A wide interpretation is not restricted to only the goods’
physical condition.12 The goods’ characteristic can be encompassed as a
certain ethical standard which can be regarded as one quality requirement
a product must possess as quality must be understood not only by
physical condition, but also all circumstances related to the goods, which
comprises ethical value expected from the goods.13
b. Article 35(2)
Article 35(2) of the CISG rules how goods must meet specific
requirements in case the contract is silent about characteristics the goods
must possess, or when the contract is too vague, or when practices or
usages between both parties cannot be established.
Under Article 35(2), it governs the most minimum requirement a product
must meet when the parties have failed to sufficiently establish
characteristics in their contract.14
Governs under Article 35(2)(a), the goods must be for the purposes for
which goods of the same description would ordinarily be used. In other
words, the goods must be examined by a reasonable third person’s
perspective. The objective assessment done by a reasonable third person

11
Peter Schlechtriem & Petra Butler, UN Law on International Sales: the UN Conventio on
the International Sales of Goods, Wellington: Springer, 2008, page. 114
12
Peter Huber & Alastair Mullis, op. Cit, page. 132
13
Ingeborg Schwenzer & Benjamin Leisinger, “Ethical Values and International Sales
Contracts”, page. 267, http://cisgw3.law.pace.edu/cisg/biblio/schwenzer-leisinger.html#iii
14
Austrian Supreme Court case, 27 February 2003,
https://cisgw3.law.pace.edu/cases/030227a3.html
 helps to determine whether the goods has met the expectation that is
expected with persons in the same situation.15 Under this Article, what is
meant by “ordinary purpose” is the commercial purpose of the goods. It
does not require that the goods be perfect or flawless, unless perfection
is required for the goods to fulfil their ordinary purposes.16 This Article is
described as requiring goods to be “average” quality, “marketable” quality,
or “reasonable” quality.17 The goods has fitted the commercial purpose if
it is possible for the goods to be resold.18
Ordinary purpose also contains the notion that goods must be fit for that
purpose for a certain period of time. This means that, for example, goods
such as fruits and meat should then be fit for human consumption.
The resaleability of the goods also depends on domestic laws and this
attracts many questions to arise in regards to which domestic law should
be “the assessment tool”. Domestic law should be taken into
consideration as it provides provisions in regards to consumers’
protection, law on environment, and other provisions which rarely can be
disobeyed. Various scholars agree that resaleability of the goods should
be determined from supplier’s country domestic law.19

15
Franco Ferrari, Contracts for the International Sales of Goods, Nijhoff Publisher, 2012,
page. 196
16
CLOUT case No. 341, Ontario Superior Court of Justice, Canada, 31 August 1999,
http://cisgw3.law.pace.edu/cases/990831c4.html
17
Shoes case, Landgericht Berlin, Germany, 15 September 1994,
http://cisgw3.law.pace.edu/cases/940915g1.html
18
Peter Schlechtriem & Ingeborg Schwenzer, Commentary on the UN Convention on the
International Sale of Goods (CISG), Oxford, Oxford University Press, 2010, page. 182
19
Stefan Kröll (et al.), UN Convention on Contracts for the International Sale of Goods (CISG),
2011, page. 512
 Should the parties have succeeded in setting out the specific
requirements, then Article 35(2)(b) shall apply. This Article governs that
goods must be “fit for any particular purpose expressly or impliedly made
known to the supplier at the time of the conclusion of the contract, except
where the circumstances show that the purchaser did not rely, or that it
was unreasonable for him to rely, on the supplier's skill and judgment”.
The goods will be judged based on the purchaser’s perspective only if the
purchaser has explicitly or impliedly express certain purpose of the goods,
then this purpose must be met. This purpose does not necessarily have
to be agreed, but a mere “made known” of such purpose is sufficient to
expect suppliers for fulfilling the aforementioned.20 Moreover, supplier’s
awareness of a particular purpose makes the supplier responsible for any
of these special uses to be met in the product. The particular purpose
must of course be made known sufficiently clearly so that the seller has
an opportunity to decide whether or not he wishes to take on the
responsibility of selecting goods that are appropriate for the purpose for
which the buyer intends to use them.21 The willingness to include standard
terms in the contract differs in different jurisdictions. There are examples
of strict prerequisites to include standard terms. In a German Supreme
Court case from 2001 it is apparent to the offeree that the offeror wants
to include its terms and conditions into the contract. Furthermore, under
the Article 8(2) CISG, the German Supreme Court stated that the CISG

20
Peter Schlechtriem & Petra Butler, op. Cit., page. 117
21
CISG Advisory Council Opinion No. 13, http://www.cisg.law.pace.edu/cisg/CISG-AC-
op13.html
 requires the user of general terms and conditions to transmit the text or
make it available in another form where it could not be unaware of them.22
It is necessary for the seller to understand that the purchaser has a
particular purpose to resell the goods to customers who are willing to pay
more for a particular feeling based on the production methods. Special
purposes of goods encompass certain production way of the goods for
example prohibition of child labor and/or environment friendly production
of goods which has been made known to the supplier at the time of the
conclusion of the contract. In other words, the goods are sold to a specific
market with specific customers.23 Typically, a buyer who requires specific
production methods will not be able to sell the non-conforming goods as
such phenomenon would have substantially deprived of what it is
entitled.24 In case of that, the supplier must also understand that a seller’s
production methods entail problems for the purchaser in making profits.

22
Machinery case, Bundesgerichtshof, Germany, 31 October 2001
23
Christina Ramberg, “Emotional Non-Conformity in the International Sale of Goods,
Particularly in Relation to CSR-Policies and Codes of Conduct”, page. 14
24
Ingeborg Schwenzer (et al.), op. Cit., page. 736
IV. Ethical Conformity Notice
The provisions under the CISG are designed for physical defects of the
goods. It is shown under article 38 of the Convention stating that “the buyer
must examine the goods, or cause them to be examined, within as short a
period as is practicable in the circumstances”. In other words, it is the buyer’s
duty to thoroughly examine the goods.25 Physical specifications of the goods
can practically be examined by the buyer, however it is practically difficult for
the buyer to examine certain expected standards or production methods.
In order to ensure its supplier adherence to specific production methods, the
buyer may have to extend its examination by investigating its supplier’s
production method and it is, nowadays, become common for buyers to hire
an expensive third party investigator to do extensive investigation to reassure
its supplier’s and also its subsupplier’s adherence to its codes of conduct.26
Afterward, upon the discovery of non-conforming production method of the
goods, it is the buyer obligation to give its supplier a notification within a
reasonable time.
Referring to a case in Germany concerning barley in 2002, the barley was
deemed as non-conforming when the seller failed to provide a certificate
related to the barley. The buyer lost its right to rely on the non-conformity
because it did not send notice of the non-conformity in time, CISG Art. 39(1).
27
The deliveries took place between November and September and the buyer
gave notice of non-conformity in February the following year.

25
CISG Advisory Council Opinion No. 2, https://www.cisg.law.pace.edu/cisg/CISG-AC-
op2.html
26
Christina Ramberg, op. cit., page. 15
27
Barley case, Oberlandsgerichthof Munchen, 10 December 2002,
http://cisgw3.law.pace.edu/cases/971210a3.html
V. Remedies
a. Specific Performance
Specific performance (Article 46 of the Convention) might not be a
suitable remedy for ethical defects. Ethical defects can be regarded as a
service a supplier provide to its purchaser and it is well known that a
specific performance is rarely a useful remedy in cases of service
contracts.
In sales contract when a product is deemed as physically non conforming,
a purchaser can require its supplier to change the product. However, this
cannot be implied in service contracts. In such contracts the purchaser
can rarely claim specific performance by requiring the supplier to change
his production methods and deliver products with the “correct emotion”. 28
The harm of emotionally non conforming goods cannot be undone by a
specific performance therefore it is unreasonable to claim a specific
performance from a supplier to change its production method. It would be
more efficient if a purchaser to substitute its supplier with another supplier
which adheres to the purchaser’s ethical standards.
b. Avoidance
Avoidance of the contract is possible only in cases where the non-
conformity amounts to a fundamental breach of contract (Article 49(1)(a)
of the CISG). If the parties stipulate in the contract that certain
characteristics have to be adhered to, then if such standards are not
fulfilled, it has substantially deprived expectations the buyer entails.
Therefore, such deprivation is amounted as a breach and will fall under
the scope of Article 35 of the Convention.
A substantial deprivation can easily be determined if both buyer and

28
Christina Ramberg, op. cit., page. 16
 supplier cannot make any use of the goods as intended which
subsequently ascertained a fundamental breach.29
Ethical standards are often to be related to a buyer’s reputation. Selling
non-ethical standards goods will harm a company’s reputation also
endangering its specific market. When a company is in the business of
selling emotions rather than only selling a product, it is practically
inefficient to sell their ethically defected products as it mainly sells
emotions to its specified market. It is considered to be more efficient if the
contract is avoided to prevent any harm for its reputation and the non-
conforming goods is taken over by the supplier to be resold.
It has to be stressed that the breach is fundamental in order to avoid the
contract.
c. Damages
In the case where non-conformity of goods are found prior reselling them,
losing profits from this phenomenon is most likely to occur as the goods
are not resalable since it will harm the buyer’s reputation.
If the goods have already been sold prior to discovering the non-
conformity, damage in the form of loss of reputation may be claimed by
the suffered party. The CISG provides full compensation without leaving
a question of goodwill recovering. However, the difficulty arises as to
financially quantify a loss of goodwill in an such case. In quantifying the
amount, a possible calculation may be based on the expense incurred by
the aggrieved buyer in regaining its reputation and credibility and creating
new customer networks.30

29
CISG Advisory Council Opinion No. 5, https://www.cisg.law.pace.edu/cisg/CISG-AC-
op5.html
30
Schwenzer & Leisinger, op. Cit.
 A producer of fast food had a meat supplier who is responsible for breach
of contract. The supplier supplied horsemeat instead of the contracted
beef. The food producer’s brand name received enormous bad-will when
the horsemeat content was reported in media. It is clear that the food
producer is entitled to early termination, to damages for price difference
in acquiring beef from a substitute supplier and to a price reduction for the
price paid for the meat delivered up until the termination.
It is problematic to determine whether the food producer is also entitled to
damages for the harm to its brand name and damages for the decline in
demand for all the food producer’s products. In this case, it can be seen
how the purchaser’s name is harmed resulting purchaser’s future sales
decline.
d. Price Reduction
The mechanism of establishing the lower value of the non-conforming
goods equals the one just discussed in relation to damages. Thus, the
buyer may reduce the purchase price in proportion to the lower value that
the goods actually delivered had at the time of the delivery.

VI. Conclusion
As has been briefly explained above, it is paramount to find a secure a way
of remedy an ethical defect. Since disputes that may arise even from a
carefully written contract. It has to be stressed, through the negotiation
process, what becomes the substance of the business hence the supplier
may be in the shoes of the buyer. A carefully written contract may seem
exhaustive. However, with detailed specification of the goods (including
certain ethical values), it will bring secure for contractual parties and
inconformity may practically fall within the scope and determination of Article
35 of the Convention. Moreover, during the negotiation both parties have to
establish certain details in regards to future sales of the goods which
encompasses certain ethical standards as to the goods’ particular purpose.
Thus, it may fall within the scope of Article 35(2)(b) of the Convention.
In cases where parties have established a practice between them, the CISG
can protect ethical defects through article 9(1), though the documents in
regard is absent. Private initiatives can become part of the business through
Article 9 of the CISG. When the initiative is adopted by both parties the CISG
may come into play to protect. However, a case-by-case basis must be done
in order to establish the legal binding of an initiative.
 REFERENCES

Books
Kröll, Stefan (et al.), UN Convention on Contracts for the International Sale
of Goods (CISG), 2011.
Huber, Peter and Mullis, Alastair, The CISG: A New Textbook for Students
and Practitioners, Sellier, 2007.
Schlechtriem Peter and Butler, Petra, UN Law on International Sales: the UN
Convention on the International Sales of Goods, Wellington: Springer,
2008.
Schlechtriem Peter, and Schwenzer, Ingeborg, Commentary on the UN
Convention on the International Sale of Goods (CISG), Oxford University
Press, Oxford, 2010.
Schwenzer, Ingeborg (et al.), Global Sales and Contract Law, Oxford
University Press, Oxford, 2011.

Articles

Emotional Non-Conformity in the International Sale of Goods, Particularly

in Relation to CSR-Policies and Codes of Conduct
Christina Ramberg, 2015
http://www.christinaramberg.se/Download/f4d6cb10-967b-4b57-8eae-
ecda6b7918fe

Examination of the Goods and Notice of Non-Conformity

Articles 38 and 39
CISG Advisory Council Opinion No. 2,
https://www.cisg.law.pace.edu/cisg/CISG-AC-op2.html

Inclusion of Standard Terms under the CISG

CISG Advisory Council Opinion No. 13, 2013
http://www.cisg.law.pace.edu/cisg/CISG-AC-op13.html
The buyer's right to avoid the contract in case of non-conforming goods or
documents
CISG Advisory Council Opinion No. 5,
https://www.cisg.law.pace.edu/cisg/CISG-AC-op5.html

Current Problems Regarding the Interpretation of Statements and Party

Conduct under the CISG - The Reasonable Third Person, Language
Problems and Standard Terms and Conditions
Felix Lautenschlager, 2010
http://www.cisg.law.pace.edu/cisg/biblio/lautenschlager.html

Conformity of Goods – Physical Features on the Wane?

Ingeborg Schwenzer
https://ius.unibas.ch/uploads/publics/9982/20120413143056_4f881c80d278b.p
df

Ethical Values and International Sales Contracts

Ingeborg Schwenzer and Benjamin Leisinger, 2007
http://cisgw3.law.pace.edu/cisg/biblio/schwenzer-leisinger.html#iii

The Social Responsibility of Business is to Increase its Profits

Milton Friedman
The New York Times Magazine
http://www.colorado.edu/studentgroups/libertarians/issues/friedman-socresp-
business.html, in Ingeborg Schwenzer’s: Ethical standards in CISG Contracts

The Conformity of Goods in International Sales

René Franz Henschel, 2005
http://cisgw3.law.pace.edu/cisg/biblio/maley.html#c

Incorporation of Standard Terms under the CISG and Electronic

Communication
Sonja A. Kruisinga, 2011
https://dspace.library.uu.nl/bitstream/1874/241956/1/Kruisinga+-
+Incorporation+of+standard+terms+-2011.pdf
 Cases
The Supreme Court of California, 26 June 2003 [Kasky v. Nike, inc.]
https://supreme.justia.com/cases/federal/us/539/654/

The District Court of Northern District California, 28 September 2015

[McCoy v. Nestle USA, Inc et al]
https://dockets.justia.com/docket/california/candce/3:2015cv04451/291535

Austrian Supreme Court case, 27 February 2003 [Frozen Fish case]

https://cisgw3.law.pace.edu/cases/030227a3.html

CLOUT case No. 341, Ontario Superior Court of Justice, Canada, 31 August
1999 [La San Giuseppe v. Forti Moulding Ltd.]
http://cisgw3.law.pace.edu/cases/990831c4.html

Landgericht Berlin, Germany, 15 September 1994 [Shoes case]

http://cisgw3.law.pace.edu/cases/940915g1.html

Bundesgerichtshof, Germany, 31 October 2001 [Machinery case]

http://cisgw3.law.pace.edu/cases/011031g1.html

Oberlandsgerichthof Munchen, 10 December 2002 [Barley case]

http://cisgw3.law.pace.edu/cases/971210a3.html