In convention on the International Sale of Goods

In
1980, the United Nations proclaimed formally the convention on the
International Sale of Goods to bring an identical laws for transactions of
international commercial contracts. The main objective was to develop the
competence of these transactions and encourage growth of international trade.1
Today, more than sixty countries are supporting the convention which includes
Australia, China, France, Germany, Russia and the United States.2
Albeit the CISG has successfully proven at various extent. It has not been very
successful in the field which is very critical to disputing parties (damages
for contract violation). Undoubtedly of all the CISG articles, the articles
related to economic remedies are the most written about and largely prosecuted3.
Because of inadequacy in uniform guidelines, equivalently at times positioned
parties are presented with enormous decisions; such inequality sabotage the
scope of the CISG and may compel parties to embrace and implement a sales law
rather than the CISG4.
Primary reasons for such situation is that these CISG guideline does not ensure
any precise economic remedies. Rather it only explains basic regulatory
provisions for recovery of damages. This is so indisputable. As John Honnold,
who played vital role in the CISG drafting stated, a violation of contract may
take place in almost all relevant situations and therefore no law can stipulate
specific regulations for damages calculation in all probable circumstances.5
Whereas the provisions of the CISG only describes basic guidelines to regulate
compensation in the event of breach of contract. These guideline allows court
of justice to resolve afflicted party’s deprivation depending upon particular
case circumstances.

Unfortunately,
such inadequate precision resulted in a great dispute and apparently increasing
consequences.6

We Will Write a Custom Essay Specifically
For You For Only $13.90/page!


order now

There
have been many debates that intermissions in the provisions of CISG damages
should be covered by the Principles of UNIDROIT of International Commercial
Contracts.7 In
my view, principles of the UNIDROIT should not be used for filling gaps in the
CISG. Yet, the UNIDROIT principles may still play important role in the CISG.
These provisions helps to understand basic CISG principles that provides
guideline to regulatory and court of justice to settle issues which are not
clearly dealt with in the convention. Furthermore, they provide assistance for solution
to widely open matters held out of analysis of the convention itself.

In
my view, the principles of UNIDROIT should not be used as formal outlook of regulatory
to form principles which cannot be acquired from the provisions CISG. They may
play vital role in decoding the convention.

Ø THE UNIDROIT PRINCIPLES AS A
GAP-FILLER IN THE CISG

The
principles of UNIDROIT encourages basic guidelines for international commercial
transactions. Their aim is to set up a uniform law which is specifically
designed to be used all over the world irrespective of the regulatory
traditions and the economic and political conditions of the nations in which
they are to be enforced.8

The
founders of the principles OF UNIDROIT expected them to implement in a wide
range of situations. The preamble explains that:

It
may be interpreted when the parties have agreed that their contract be ruled by
themselves.

It
shall be interpreted when the parties have agreed that their contract be ruled
by fundamental guidelines of the regulatory. For example, lex mercatoria.

It
shall be interpreted when the parties have not agreed that their contract is
not governed by any regulatory.

It
can be used in the application or to supplement domestic law.

It
can be used as an example for both national and international administrators.9

Although
the principles of UNIDROIT follow perceptions found in various regulatory
systems, as well as they represent what are anticipated to be the best resolution
even though it is not adopted generally. Thus, clearly they do not summarize
already existing guidelines found in most regulatory system.10

In
numerous circumstances, the guidelines in the principles of UNIDROIT are based
upon or similar to articles found in the CISG provisions. Such as, the principles
of UNIDROIT Article 1.9(1), which expresses the parties are liable to any
regulations to which they have agreed and by any other proceedings which they
have settled among themselves, is almost similar to Article 9(1) of the CISG.11
Furthermore, Article 5.1.7(1) of the principles of UNIDROIT, which deals with
the general guidelines for deciding the contract price when the agreement does
not make arrangement for deciding the contract price is identical to Article 55
of the CISG.12
At some instances, the UNIDROIT principles follows basic means which are generally
found in the CISG provisions, but adopt the guideline to reaffirm the
certainty, scope and extent of the provisions. For instance, Article 7.2.2 of
the principles of UNIDROIT which deals with the right to require accomplishment
of non-monetary responsibilities follows the basic guidelines of Article 46 of
the CISG provisions but involves “certain qualifications.”13

The
provisions for damages under the principles of UNIDROIT can be compared to the
provisions of the CISG in numerous ways.

Article
74 of the CISG states general provisions for recovery of damages. It grants:

Damages
for violation of contract by either party includes an amount equivalent to the
suffered loss, comprising profit loss which other party suffered as aftermaths
of the violation of contract. These damages may not surpass which the party in
violation anticipated or need to have anticipated at the time of the contract
completion, in the facts certainty and the issues which were then noticed or
need to have noticed as a probable aftermath of the contract violation.14

Thus
Article 74 of the CISG provisions not only provides recovery for actual
suffered loss but also for net profit forbidden. Yet, it does not provide
certain rules for calculations of damages. Rather Article 74 of the CISG allows
court of justice to resolve the afflicted party’s loss depending upon the
circumstances in certain cases. The objective of the Article 74 of the CISG is
to provide “benefit of bargain” to the afflicted party. Thus, Article 74 of the
CISG is adequately interpreted to compensate an afflicted party all damages
suffered as an outcome of the breach of contract.15
Though all damages claim comprised in Article 74 of the CISG are liable to
conventional restrictions enforced on the damages recovery for violation of
contract, such as, the principle of foreseeability and mitigation.16

Articles
75 and 76 of the CISG provides very narrow substitutes to Article 74 of the
CISG. Article 75 of the CISG states procedure for damages calculations when the
afflicted party has refrained the contract and tried to get into alternative
transactions. The afflicted party here is entitled recover the differing sum
between the price of contract as well as the alternative transaction price and
any other suffered which can be recovered under Article 74.17
On the contrary Article 76 of the CISG sets forth that when an afflicted party
has refrained the contract but has not made an alternative transaction under
Article 75 of the CISG. It is only available to damages measured by the
difference between the prices fixed by the contract and the current price at the
time of avoidance and any other suffered loss which can be recovered under
Article 74.18

In
various ways, provisions for the damages in the UNIDROIT principles are very
much similar to the guidelines of the CISG. Alike Article 74 of the CISG, the
UNIDROIT principles states general proposition that the party breaching
contract is liable to compensate the afflicted party for all damages suffered
by the afflicted party. The UNIDROIT principles moderate damages to those which
were foreseeable, similar to the CISG provisions. However, UNIDROIT principles
comprises more precise guidelines and in the case of nature and extent of
compensation, the principles of UNIDROIT are wider than the CISG provisions.19

The
principles of UNIDROIT comprises provisions similar to Articles 75 and 76 of
the CISG. Similar to CISG Article 75, Article 7.4.5 of the UNIDROIT principles
sets forth when the afflicted party has not completed the contract and has made
a substitutional provision for transaction within a said time period and in a
moderate way it may recover the differing sum between the price of contract and
the price of the substitutional transaction and damages for any other suffered loss
as well. Furthermore like Article 76 of the CISG, UNIDROIT principles Article
7.4.6 sets forth: when the afflicted party has not completed the contract and
has not made a substitutional transaction but there is a current price for the
completion of the contract, which may recover the differing sum between the
contract price and the price which has taken place when the contract is
terminated as well as damages for any other suffered loss.20

The
clear difference which should be noted is that Article 5 of the CISG
particularly sets out claims for damages arising from personal injury or death,
whereas the principles of UNIDROIT cover these damages.21

There
are some issues which damages provisions in the CISG does not specifically
state but are covered by the principles of UNIDROIT. First is that the CISG
provisions do not specifically mandate that damages consist of any compensation
received by the afflicted party arising from the breach of contract. Whereas,
the principles of UNIDROIT precisely comprises these compensations.22
Second is that Article 74 of the CISG does not state the scope and extent to
which the afflicted party must determine in order to recover damages that it
suffered loss.23
On the contrary, the UNIDROIT principles Article 7.4.3 address that
compensation is considered to be paid only for harm, comprising future loss
which is an outcome of a moderate extent of certainty.24
The CISG has no provision for the currency to be used in loss calculation as
well.25
Whereas, the UNIDROIT principles expressly address that damages must be
determined either in the currency in which contract was completed or in the
currency in which loss was suffered, whichever is more convenient.26

Perhaps
Article 78 is the most prosecuted guideline of the CISG, which addresses issues
relating to payment of interest. Despite article 78 needs paying interest
whenever payment is in debts, but it does not determine how to calculate owed
interest.27

Whereas,
the principles of UNIDROIT consist of precise guidelines on interest. Article
7.4.9 of the UNIDROIT principles addresses that interest is payable from the
time when payment is due. The UNIDROIT principles with respect to the applicable
rate of interest encourages hierarchy to determine the appropriate interest
rate, coming out with the common interim lending rate to primary borrowers
prevailing for the currency of payment at the place of payment. If such rate
does not exist, the UNIDROIT principles stipulates that interest grows at
nominal prime rate in the State of currency of payment. Whereas in the absence
of such rate of interest, the interest rate is to be decided by the regulatory
in the State of currency of payment.28

Ø APPLYING THE UNIDROIT PRINCIPLES IN
THE INTERPRETATION OF THE CISG

Till
the date, regulatory and tribunals have adopted the principles of UNIDROIT
regarding interpretation of the CISG provisions in various ways. Firstly, when
the parties have particularly described the application of the UNIDROIT
principles to support the CISG, parties’ contracts typically respected by the
regulatory and tribunals. Secondly, the principles of UNIDROIT have been used
as supplement for resolutions which are outcome of other sources of authority
by its application.29
Thirdly, using these UNIDROIT principles as a gap-filler in the CISG. For
example, some courts have applied Article 7.4.9 of the UNIDROIT principles to
determine the issues which are not covered in the Article 78 of the CISG,
specifically to settle the rate at which interest increases.30
This application has been matter of dispute which is apparently inappropriate.

Ø ACCURATELY DECODING THE CISG

The
CISG Article 7 addresses interpretation of the convention which states:

1)      In
the application of this convention, main objective is to be had to its
universal integrity and to the requirement to encourage equality in its
interpretation and the compliance of good faith in international commercial law.

2)      Problems
ruled by this convention which are not precisely covered in it shall be
resolved in compliance with the general provisions on which it is established
or, in the absence of these provisions, in compliance with the applicable rules
by integrity of the law of private international commercial law.31

To
fill gaps in the CISG by using the UNIDROIT principles, exponents have sets
forth three interpretation of this Article. Amidst which first is the
principles of UNIDROIT are used as gap filler in the CISG as the UNIDROIT
principles are considered as addressing general guidelines of international
contract law upon which the convention is established.32
Secondly, the principles of UNIDROIT are used as gap filler in the CISG only
when the significant UNIDROIT principle article and the significant CISG
provision are identical in the context and framework so that the principles of
UNIDROIT are substantially providing “meat on the bare bones” of the CISG
provisions. Thirdly, the principles of UNIDROIT are used as gap filler in the
CISG even though the general guidelines upon which they are established cannot
directly be determined from the convention.33

In
my view, it is overemphasizing to apply the principles of UNIDROIT as the primary
source of power to fill a gap in the CISG.34 Although
articles in the principles of UNIDROIT generally correlate to the CISG
provisions, and these principles are not solely an abstract of general
principles of international contract law. As the administrative authority of
UNIDROIT elucidated in the introduction that these principles not only express
ideas found in numerous legal system but also represents what are considered to
be best resolutions, even though it is not widely adopted.35
Thus, these principles altogether does not express general principles on which
the convention is established.

Perhaps,
the principles of UNIDROIT supports the understanding of CISG provisions and
the conclusion obtained from them. Article 7.4.3 of the UNIDROIT principle states
Compensation is to be paid for suffered, comprising future loss which is an
outcome of the moderate extent of certainty.36
Hence, this article re-establish the important requirement of certainty of
suffered loss, since it is not possible that the non-performing party to pay
compensation for damages which may not have taken place or which may never take
place even in future. Thus, Article 7.4.3 of the UNIDROIT principle similar to
provision of the CISG underlying that full compensation is conditional to
restraint, comprising the restraint that person can recover loss only when it
is occurred indeed or there are possibility to occur. In such situation, the
principle of UNIDROIT supports the principle of certainty of harm and aids in
understanding of “reasonable certainty” as well which is expressed through the
convention solely. The principles of UNIDROIT also sets forth that a reasonable
certainty requirement is in favor with universally known principle37.
Hence, these principles emphasize ideals of protecting aspects of the CISG
internationally and encouraging uniformity in the interpretation of CISG.38

 

 

 

 

 

Ø CONCLUSION

In
short, although the principles of UNIDROIT should not be used as gap filler in
the CISG as a primary source of power, they play very important role in finding
resolutions for the issues which are not covered in the provisions of the
convention. Accordingly it can be anticipated that an appropriate communication
between the principles of UNIDROIT and the provisions of CISG eventually promotes
more equitable and uniform out comes under the convention.

1Schwenzer,
I; Commentary on the UN Convention on the International Sale of Goods (CISG) (4th
edn. Oxford University Press 2016) 36

2 CISG:
participating countries, ‘Cisg.law.pace.edu’ http://www.cisg.law.pace.edu/cisg/countries/cntries.html
accessed 30 December 2017

3 Bruno Zeller, ‘Damages under the
Convention on Contracts for the International Sale of Goods’ (2005) pp. 247.
ISBN 0-379-21541-1.

4 CISG Article 6

5 John Honnold, ‘Unification of the
law governing international sales of goods’ (1968) 66(3) 583

6 Honnold (n 5)

7 M.J. Bonnel, “The UNIDROIT
Principles of International Commercial Contracts and CISG – Alternatives or
Complementary Instruments?” (1996) 1(1) 26

8 Artur Rosett, ‘Part I: The
UNIDROIT Principles of International Commercial Contracts: A New Approach to
International Commercial Contracts’ (1998) 46(suppl_1) 347

9 UNIDROIT Principles, preamble

10 K. Berger, ‘The relationship
between the UNIDROIT Principles of International Commercial Contracts and the
new lex mercatoria’ (2000) 5(1) 153

11 UNIDROIT Principles Art. 1.9(1);
CISG Art. 9

12 UNIDROIT Principles Art. 5.1.7(1)

13 UNIDROIT Principles Art. 7.2.2;
CISG Article 9(2)

14 CISG Article 74

15 John Gotanda, ‘CISG Advisory
Council Opinion No. 6, Calculation of Damages under CISG Article 74’ (2007)
7(6)

16 CISG Article 74, 77

17 CISG Article 75

18 CISG Article 76(1)

19 UNIDROIT Principles Art. 7.4.1;
CISG Article 74

20 unidroit76,
‘Cisg.law.pace.edu’ http://www.cisg.law.pace.edu/cisg/principles/uni76.html#ed11#ed11
accessed 31 December 2017

21 CISG Article 5

22 UNIDROIT Principles Art. 7.4.2;
John Gotanda, ‘CISG Advisory Council Opinion No. 6, Calculation of Damages
under CISG Article 74’ (2007) 7(6)

23 CISG Article 74

24 UNIDROIT Principles Art. 7.4.3

25 John Gotanda, ‘CISG Advisory
Council Opinion No. 6, Calculation of Damages under CISG Article 74’ (2007)
7(6)

26 UNIDROIT Principles Art. 7.4.12

27 CISG Article 78

28 UNIDROIT Principles Art. 7.4.9

29 John Gotanda, ‘CISG Advisory
Council Opinion No. 6, Calculation of Damages under CISG Article 74’ (2007)
7(6)

30 UNIDROIT Principles Art. 7.4.9;
CISG Article 78

31 CISG Article 7

32 M.J. Bonnel, “The UNIDROIT
Principles of International Commercial Contracts and CISG – Alternatives or
Complementary Instruments?” (1996) 1(1) 26

 

33 Bonnel (n 32)

34 D. McClean, ‘International Sale of Goods in the Conflict of
Laws. By James Fawcett, Jonathan Harrts and Micheal Bridge. Oxford: Oxford
University Press, 2005. 1,458 pp.  195’ (2007) 77(1) 426

35 UNIDROIT Principles preamble

36 UNIDROIT Principles Art. 7.4.3

37 UNIDROIT Principles Art. 7.4.3

38 CISG Article 7(1)