Does the CISG Apply to Your Contract in South Korea?

1. What Was This Case About?

The plaintiff was a Dutch company and the defendant was a South Korean company. The plaintiff supplied wristwatches and other goods to the defendant from approximately 2007 to 2014 and brought a claim for the outstanding purchase price. The defendant initially argued at first instance that the debt had been extinguished by an agreed reduction, then raised a statute of limitations defense at the appellate stage. The lower court accepted the limitations defense on the assumption that Korean civil law applied as a matter of course, and the plaintiff appealed to the Supreme Court.

The Supreme Court’s Ruling

The Supreme Court found that the lower court had misapplied the law on governing law by failing to conduct the necessary inquiry, set aside the lower court’s judgment, and remanded the case to the Seoul Southern District Court (Supreme Court of South Korea, 13 January 2022, Case 2021Da269388). The Court articulated three core legal principles. First, contracts for the sale of goods between South Korean and Dutch companies are governed by the CISG on a priority basis. Second, since the CISG does not directly govern the statute of limitations, the governing law for that issue must be determined separately under the Private International Law Act. Third, courts have an obligation to investigate the applicable governing law ex officio in cases involving foreign elements.

2. What Is the CISG and When Does It Apply in South Korea?

The CISG is an international treaty governing the formation of international sales of goods contracts and the rights and obligations of sellers and buyers. It was adopted in Vienna in 1980 and entered into force in 1988. South Korea acceded to the CISG in 2005, and as of 2026 more than 90 states are contracting parties. The Supreme Court of South Korea has consistently held that international treaties ratified by South Korea take precedence over domestic legislation including the Civil Act, the Commercial Act, and the Private International Law Act (Supreme Court, 24 March 2016, Case 2013Da81514).

Scope of Application — Article 1(1) of the CISG

The conditions for the CISG to apply are set out in Article 1(1).

In this case, since both South Korea and the Netherlands are CISG contracting states, the CISG applied automatically to the goods sale contract under Article 1(1)(a). The fact that neither party raised the governing law issue during the proceedings does not change this conclusion.

Limits of the CISG’s Scope — Article 4

However, the CISG does not govern all aspects of a contract. Article 4 expressly limits what the Convention covers.

As the Supreme Court confirmed, the CISG does not directly govern the statute of limitations, contractual validity, the effect of the contract on property in the goods, or product liability. For these matters, the governing law determined under the conflict-of-laws rules of the forum state applies on a supplementary basis.

The table below summarises which matters fall within and outside the scope of the CISG.

Does a “Governed by Korean Law” Clause Exclude the CISG?

When parties to an international sales contract include a clause stating “This Agreement shall be governed by the laws of the Republic of Korea,” a question frequently arises in practice: does this clause exclude the CISG? The answer, in short, is no — this clause alone is not sufficient to exclude the CISG.

The CISG Is a Default Rule — Article 6

The CISG is an opt-out instrument — parties may by agreement exclude its application in whole or in part. This is provided for in Article 6.

Article 6 gives parties broad freedom to exclude the CISG, whether expressly or by implication. However, whether a particular clause amounts to an implied exclusion is precisely what is at issue.

Designating “Korean Law” Does Not Exclude the CISG — The International Consensus

The overwhelming weight of international academic opinion and case law holds that a clause simply designating the law of a particular contracting state does not, by itself, exclude the CISG. Two reasons underpin this position.

First, the CISG is itself part of the law of South Korea. As a ratified treaty, the CISG carries the same force as domestic legislation under Article 6(1) of the Constitution of the Republic of Korea. Designating “the laws of the Republic of Korea” therefore incorporates the CISG within the designated governing law rather than excluding it. Second, a bare governing law clause falls short of the clear expression of exclusion intent that Article 6 of the CISG requires.

The CISG Advisory Council addressed this issue directly in Opinion No. 16 (2014), stating that a choice of law clause designating the law of a contracting state does not, by itself, exclude the CISG, and that the CISG continues to apply unless the parties clearly indicate their intention to exclude it (CISG-AC Opinion No. 16, Rapporteur: Professor Sieg Eiselen, 2014). The German Federal Court of Justice (BGH VIII ZR 185/91, 8 October 1992) and the Austrian Supreme Court (OGH 1 Ob 624/94, 11 January 1996) have reached the same conclusion.

How Should a Governing Law Clause Be Drafted?

To eliminate any uncertainty about whether the CISG applies and which law fills the gaps it leaves, the safest approach is to address both points explicitly in the contract.

A clause that simply states “governed by the laws of the Republic of Korea” leaves it unclear whether the CISG applies and, if so, which law governs the matters the CISG does not address. The statute of limitations — which falls entirely outside the CISG’s scope — is a prime example of the ambiguity this can create. The case discussed in this article is a textbook illustration of that risk.

3. If the CISG Applies, Does It Also Govern the Statute of Limitations?

No. The CISG does not govern limitation periods. The Supreme Court stated clearly: the CISG “governs the formation of international sales contracts, the obligations of the seller and buyer, the passing of risk, and the scope of damages, but excludes product liability from its scope and does not address the validity of the contract, the effect of the contract on the property in the goods, or — as was at issue in this case — the statute of limitations.”

How Is the Governing Law for Limitation Periods Determined in South Korea?

For matters outside the CISG’s scope, the governing law is determined under the conflict-of-laws rules of the forum state — in this case, South Korea’s Private International Law Act. The process works as follows.

First, if the parties have expressly chosen a governing law, that law applies (Private International Law Act, Art. 25(1), first sentence). Second, even without an express agreement, a tacit choice may be recognised if it can reasonably be inferred from the terms of the contract and all the circumstances (Art. 25(1), second sentence). Third, if no governing law has been chosen, the contract is governed by the law of the country most closely connected with it (Art. 26(1)); in the case of a transfer contract, the law of the country where the corporate transferor has its principal place of business is presumed to be most closely connected (Art. 26(2)(i)).

In this case, had the parties not chosen a governing law, Dutch law — the law of the country where the seller (plaintiff) had its principal place of business — could potentially have governed the statute of limitations. The lower court bypassed this entire analysis and applied Korean civil law by assumption, which the Supreme Court found to be unlawful.

Note — A Separate Convention on Limitation Periods

A dedicated treaty, the United Nations Convention on the Limitation Period in the International Sale of Goods (New York, 1974), exists to govern limitation periods in international sales. However, as the Supreme Court confirmed, neither South Korea nor the Netherlands has acceded to that convention. It therefore had no application to this case.

4. Does Silence on Governing Law Mean Korean Law Applies?

No. In this case, neither the plaintiff nor the defendant raised the governing law question during the litigation. The lower court treated this as a basis for applying Korean civil law by default. The Supreme Court rejected that reasoning entirely.

Foreign Law Is Treated as Law, Not Fact, by South Korean Courts

The Supreme Court reaffirmed the established principle that “foreign law applicable as governing law in a legal relationship involving foreign elements is treated as law, not fact, and must therefore be investigated by the court ex officio” (Supreme Court, 10 April 1990, Case 89DaKa20252; Supreme Court, 24 December 2019, Case 2016Da222712, among others). Because foreign law is “law” rather than “fact,” it is not for the parties to plead and prove — the court must investigate it on its own initiative.

The Court’s Obligation Persists Even When the Parties Are Silent

The Supreme Court held that “even where no argument concerning the governing law has been made, the court must actively exercise its power of inquiry, afford the parties an opportunity to submit their views, require the production of necessary materials, and in all other respects investigate the international convention or governing law applicable to the legal relationship.” This distinguishes governing law from ordinary factual matters: when it comes to governing law, the court cannot passively wait for the parties to raise the issue.

Silence During Proceedings Does Not Amount to a Tacit Agreement on Governing Law

The Supreme Court stated expressly that “the mere fact that the parties did not dispute the governing law during proceedings is insufficient to establish a tacit agreement on governing law.” The Private International Law Act permits a tacit choice, but only where it “can reasonably be inferred from the terms of the contract or all the circumstances of the case” (Art. 25(1)). Silence in litigation does not satisfy this requirement.

5. What Are the Practical Implications of This Ruling?

This judgment carries several important lessons for foreign businesses engaged in trade with South Korean counterparties and for legal practitioners handling cross-border disputes in South Korea.

Implication 1: Always Verify Whether the CISG Applies

When entering into an international sales contract or handling a related dispute involving a South Korean company, always verify whether the counterparty’s country of business is a CISG contracting state. If it is, the CISG will apply automatically unless expressly excluded under Article 6. Even where the contract contains a governing law clause designating a particular country’s law, if that country is a CISG contracting state, the CISG will still take precedence over that country’s domestic law with respect to the formation of the contract and the rights and obligations of the parties.

Implication 2: Address the CISG Expressly in the Governing Law Clause

A clause simply stating “governed by the laws of the Republic of Korea” is not sufficient in practice. As discussed above, this clause does not exclude the CISG, and it leaves the governing law for matters outside the CISG’s scope — including the statute of limitations, contractual validity, and the transfer of title — unclear. Based on accumulated experience advising on international trade contracts, the contract must address both: (1) whether the CISG is excluded or retained, and (2) which domestic law governs matters the CISG does not cover. To exclude the CISG entirely, the contract must contain an express exclusion clause in accordance with Article 6.

Implication 3: Overlooking the Governing Law Issue in Litigation Can Be Fatal

In this case, the lower court failed to examine the governing law question at all, applied Korean civil law to the limitation issue, and dismissed the plaintiff’s claim — only for the Supreme Court to reverse on that very ground. In contract disputes involving a foreign party, identifying the applicable law from the outset of proceedings is critical to the outcome. In particular, where a defendant raises a statute of limitations defense, the plaintiff should consider challenging the governing law for the limitation period itself as part of its litigation strategy.

Implication 4: The CISG’s Force Majeure Exemption (Article 79) Deserves Attention

Where performance under an international sales contract is disrupted, the requirements of CISG Article 79 should be assessed. Article 79(1) provides that a party is not liable for a failure to perform if it proves that the failure was due to an impediment beyond its control and that it could not reasonably be expected to have taken the impediment into account at the time of conclusion of the contract. The requirements and effects of this provision differ from the force majeure doctrine under Korean civil law, and the distinction matters whenever the CISG governs the contract.

Based on experience handling a broad range of international trade disputes, the governing law and CISG applicability questions are often already settled in an unfavourable direction by the time a dispute arises. Obtaining legal advice at the contract drafting stage is the most efficient form of risk management.

6. FAQ

Atlas Legal advises foreign businesses and corporations on international trade contracts, CISG applicability assessments, governing law clause drafting, and cross-border litigation and arbitration involving South Korean counterparties. With accumulated experience across a wide range of international commercial matters, the firm provides practical legal advice tailored to the realities of doing business in South Korea.

※ The information in this article is provided for general informational purposes only and does not constitute legal advice. The applicable legal analysis may differ depending on the specific facts of each case. Please consult a qualified attorney for advice on your particular situation.