Introduction.
The rising volumes of international trade and globalization trends have made it necessary to increase regulations in international sales. In 1980, the UN Convention of Contracts for the International Sale of Goods (CISG) was put into effect. CISG was the result of efforts originating from the 1964 Hague Conventions of Uniform Law on the International Sale of Goods (ULIS) and the Uniform Law on the Formation of Contracts for the International Sale of Goods (ULF), involving twenty-eight states. The regulation of international trade was further facilitated when, in 1994, the International Institute for Unification of Private Law (UNIDROIT) put forth its Principles of International Commercial Contracts or UNIDROIT Principles. In that same year, the European Contract Law Commission released its first part version in 1998 followed by its complete version later on known as Principles Of European Contract Law (PECL). Many people who participated in creating CISG were also instrumental in drafting UNIDROIT and PECL.
The internationally drafted instruments CISG, UNIDROIT, and PECL contain elements from both civil and common law. The CISG reflects the interests and ideas prevailing in the legal systems of both developing and developed economies. If parties are based in different contracting states under the jurisdiction of the CISG, their contract is automatically subject to its provisions unless stated otherwise. While UNIDROIT Principles do not apply to domestic contracts, they are more detailed and specific with a broader scope for international contracts. The UNIDROIT Principles aim to provide an elaborate governing system applicable universally; in fact, its purpose or preamble emphasizes that it may supplement or interpret international law instruments. Its relevance on CISG is evident as it covers issues also addressed by the CISG with similar solutions.The PECL has objectives similar to those of UNIDROIT Principles but with a different scope of application. The PECL articles provide contract laws in the EU when parties agree to be governed by them. Both UNIDROIT Principles and PECL are Restatements of provisions found in CISG texts and scholarly views on them.It should be emphasized that identifying precisely how these regimes converge or diverge is not easy nor possible through direct article-to-article comparison since regimes may have a single article covering a particular issue or several articles addressing it; vice versa, they may have one article addressing multiple issues or several articles covering them.
Features of the Instruments
Unlike the governmental bargaining and compromises associated with the formation of the CISG, the UNIDROIT Principles and the PECL emerged from the need for uniform laws in contracts. The formation of the CISG considered divergent legal perspectives and doctrines, which led to ambiguous terms and gaps in its interpretation. In contrast, PECL and UNIDROIT were not obligated to consider all local regimes or laws of all countries. Conflicting rules were incorporated by modifying them based on their effectiveness in the entire regime. Therefore, these Principles can be considered as better organized, unified, and more consistent than the CISG. The magnitude of similarities between PECL and UNIDROIT regimes indicates their role in representing the main intentions of international contract law.
However, PECL has a broader scope of application compared to UNIDROIT as it encompasses contracts involving domestic dealings, consumers, and merchants. Although PECL has a smaller geographic focus compared to UNIDROIT Principles, it presents wider coverage of law. Yet the two principles are substantially similar since both strive towards being the general principles of contract governance. The growth in international transactions governed by the regulations of CISG, UNIDROIT and PECL establishes the need for fairness and harmony in international trade. These three instruments may be rightly said to supplement and leverage each other rather than compete with each other. The two principles broadly support and promote the crux of CISG while filling gaps in it. Therefore, the principles can be said to interpret CISG while answering and resolving issues not addressed by CISG.
Although PECL and UNIDROIT share a common approach, there are differences between the two instruments. The provisions of UNIDROIT and PECL have varying content, with certain issues addressed in one but not considered in the other, or vice versa. While some divergences may be technical in nature, others have policy implications.
Notable among the technical divergences is the ‘receipt rule’ in UNIDROIT that relates to all types of notices exchanged by parties as specified by Art. 1.9(2), while PECL’s ‘dispatch rule’ Art. 1.303(4) relates to notices arising from non-compliance by a party. Similarly, Art. 3.18 of UNIDROIT provides reliance damages when a party avoids a contract without considering whether the party has avoided the contract or not, whereas PECL Art. 4.17 grants recovery of damages only when the contract has actually been avoided.
Divergencies not relevant to policy considerations include that while under UNIDROIT Art. 5.7, when a third person cannot or would not fix the price, it must be reasonable; under PECL Art. 6.106 (1), it is assumed that parties have agreed to have someone appointed by court determine price.
Regarding permanent impediments, Art 71(7)(4) associates terminations with actions and initiations of parties while PECL’s Art 9:303(4) provides for automatic termination in such cases.
When comparing CISG to UNIDROIT, it is observed that many rules under CISG Part II concerning sales contract formation are similar to Chapter 2 of UNIDROIT. Part III of the CISG pertains to performance and non-performance or breach, which are considered in Chapter 5, 6 and 7 in UNIDROIT. It should be noted that most provisions of UNIDROIT not dealt with in the CISG may still be applicable without disturbing any other rules.
CISG Art. 11 emphasizes that a contract for sale need not be concluded in writing nor have any other form requirements. Contracts can even be proved with witnesses and other means. Similarly, Art. 1.2 of UNIDROIT provides for the same.
Regarding irrevocable offers, both CISG Art.16 and UNIDROIT Art.2.4 indicate that offers cannot be revoked unless indicated as revocable.
Perceiving Deviations
Remedies are available to a party when it is affected by the performance or non-performance of the other party. This is an area where diverse legal systems focus on, and in recent years there has been a growing demand for increased inclusion of specific performance in contracts. UNIDROIT and PECL have introduced a more organized and coherent structure with regard to specific performances, reflecting this fact. They establish the right to specific performances through UNIDROIT Articles 7.2.1 through 7.2.5 and PECL Articles 9.101 to 9.103, ensuring that remedial specific performances are beyond the discretion of the court.
The term ‘breach of contract’ in the CISG is similar in functionality to the term ‘non-performance’ used in PECL and UNIDROIT. Article 7.1.1 of UNIDROIT perceives non-performance by a party as a failure to perform its contractual obligations, including late or defective performance. Similarly, PECL sees non-performance as a failure to perform at the intended due time, whether early, late or never. Its article 1.301(4) describes non-performance holistically as a failure to cooperate to provide full effect to the contract.
The CISG concept of ‘breach of contract’ encompasses all failures by a party in fulfilling any of its obligations. Article 25 of CISG even considers breach of contract fundamental under certain conditions.
The breach of contract doesn’t take into consideration the grounds for exemption. The term ‘failure to perform’ provided in articles 79 and 80 related to exemption also relate to any breach of contract.
The harmonisation process in contract laws has taken a step ahead by defining non-performance in terms of performance failures and defects along with exclusions.
Remedial Approach in CISG
The remedial clauses of the CISG largely correspond with all major legal regimes. These clauses are directed at providing remedies for specific performance, damages, and contract avoidance. The remedies are provided under Part III for both the buyer and seller under Arts. 45 and 61. However, there are differences in the remedies available to each party. The seller cannot claim a reduction in price as a remedy, nor can they require substitute performance to cure defective performance. Specific performance is available to both the buyer (Art. 62) and the seller (Art. 46). Breaches by the seller may give rise to delivery by the buyer, repair or substitute delivery; while breaches by the buyer may give rise to rights requiring them to pay the price or take delivery or other obligations.
Apart from specific performance remedies, the right to claim damages is an important aspect of the CISG. Damages may be the only remedy for an affected party when relief for specific performance or contract avoidance is not relevant. Monetary compensation puts the aggrieved party in a comfortable position as if the contract had been performed as agreed. Therefore, parties always have the right to seek damages in addition to claiming specific performance or contract avoidance. These damages compensate not only for expenses but also for loss of profit.
The amount of damages provided is regulated by Art. 74, which stipulates that they cannot exceed the loss that was foreseen or should have been foreseen by the breaching party. Article 77 requires aggrieved parties to ensure mitigation of loss, while Art. 78 emphasizes their right to receive interest in addition to damages.
Avoidance of a contract can be claimed under Articles 49 and 64 of the CISG. Contract avoidance brings an end to the performance obligations of the parties towards each other. However, apart from the remedy of damages, avoidance is only available when the breach is fundamental. The CISG has taken into consideration the environment of international goods sale, which involves long distances, transportation costs and contract duration. The CISG intends to preserve contracts despite breaches. Thus, Articles 47 and 63 relevant to the popular Nachfrist Principle provide options for the aggrieved party to give additional time for the breaching party to fulfill their commitments.
Remedial Approach in UNIDROIT
The remedial measures provided by the UNIDROIT Principles are considered to be the major feature of the entire set. Chapter 7 specifically reflects how these principles work and their role in promoting harmony in international trade law. This chapter is closely associated with decisions made by arbitral tribunals, court rulings, and other legal institutions, emphasizing how harmonization of relevant international laws can contribute to improved legal implementation.
Similar to Part III of the CISG, Chapter 7 is systematically structured to facilitate performance and continuance of contracts. Section I focuses on contract continuance and termination continuance. Article 7.1.4 ensures that a non-performing party has an opportunity to cure their breach while Art. 7.1.5 provides for additional time for performance if needed.
These two articles are instrumental in bringing about performance when a contract faces difficulties or failure leading to termination.
Section 2 of Chapter 7 deals with the right to performance, commonly referred to as specific performance – a preferred remedy in many legal systems.
For instance, articles 7.2.1 and 7.2.2 focus on monetary obligation performance and non-monetary obligation performance respectively seeking to ensure proper execution although Art. 7.2 has some exceptions where specific performances may be excluded if a party can obtain it from another source comparatively.
If defective performances occur, they are dealt with under Art. 7..3 which provides for repair or replacement options available for parties involved
Section 3 of Chapter 7 provides the last resort or the right to termination, similar to the avoidance provisions of CISG. These provisions enable the aggrieved party to terminate the contract when the delivered performance is either too defective or too late for the aggrieved party to achieve its intended results.
Remedial approach in PECL.
The remedial measures of PECL revolve around Chapters 8 and 9. These measures are available for non-performance, depending on whether the non-performance is excused under Art. 8.108. This article excuses non-performance if it is proved to be due to reasons or impediments beyond its control that were not anticipated at the time of contract. If the impediment is temporary, the excuse is provided only until such time. The non-performing party must inform the other party about any anticipated impediments and consequences as soon as possible after becoming aware of them; failure to do so may result in damages for loss arising from non-receipt of such notice.If the non-performance is not excused under Art.8.108, then the affected party may seek remedies as set out in Chapter 9. The aggrieved party can seek recovery of money due, claim specific performance, claim damages or even seek to suspend its own performance through various provisions of Chapter Nine 10.It should be noted that although Art. 8.108 provides exemptions, the aggrieved party may still seek remedies under Chapter 9 except for claiming performance or damages; however, a party cannot avail itself of remedies if it was responsible for causing the other party’s non-performance.Remedies for non-performance are perceived to be excluded or restricted unless doing so would be unfair and against justice.A party is entitled to terminate a contract under Art. 9.301 when there has been fundamental non-performance by the other party; additionally, an aggrieved party may terminate a contract due to delay under Art. 8.106.
Nachfrist
Although the concept of Nachfrist, which allows for automatic time extension to fulfill obligations, aligns with the CISG approach, it should be noted that neither CISG Art. 47 nor 63 mandate an extension. Likewise, UNIDROIT Principles Art. 71.5 and PECL Art. 8.106 do not automatically apply Nachfrist, as evidenced by the use of the term may” within these articles.
Two important policy aspects relevant to the Nachfrist procedure as approached by CISG, PECL and UNIDROIT are:
While the aggrieved party can claim specific performance, they are not obliged to provide additional time for the non-performing party to perform.
Termination is considered an act of the aggrieved party and not that of the court or mediator. If there is a fundamental non-performance, the aggrieved party is entitled to terminate the contract by giving a termination notice. The aggrieved party is not obliged to grant additional time for performance.
The Nachfrist Principles, as contemplated by the three regimes, recognize that late performance is very different from defective performance. Although lapsed time cannot be recalled, sometimes late performance may be preferred to non-performance. Articles 47(1) of CISG, Art. 7.1.5(1) of UNIDROIT and PECL Art. 8.106(1) enable the aggrieved party to provide additional time to the non-performing party to perform.
During this additional time period, the aggrieved party may not seek any other remedy for non-performance as ruled by CISG Art. 47(2) and 63(2), Art. 7.1.5 (2) of UNIDROIT and PECL Art. 8.106 (2). If performance has not been rendered upon expiry of the permitted time, UNIDROIT Art. 7.1 .5 (2) specifies that the aggrieved party may seek any available remedy.
Similarly, PECL Art .8 .106 (2) makes available any remedy under Chapter 9 when the extended period has expired.
The Nachfrist concept, as reflected by the three instruments, is that a contract cannot be avoided simply because a performance is not delivered on time. Nachfrist is not intended to be a remedy or standalone cure in the three instruments but designed to complement other remedies.
Force Majeure
Force majeure is generally considered an excuse for non-performance in contracts based on situations and circumstances. It can partially or even completely suspend a contract. The CISG, UNIDROIT, and PECL define force majeure in terms of ‘impediment,’ although they may be categorized differently. These instruments exonerate a party when its failure to perform obligations is due to conditions beyond its control.
Articles 79 of the CISG, 8.108 of the PECL, and 7.1.7 of the UNIDROIT are similar in reflecting flexibility because they require only relative impossibility to make it applicable. However, neither PECL nor UNIDROIT contains provisions on third persons like that provided by CISG Art. 79(2), although the term ‘impediment’ is used similarly in both.
The term ‘impediment’ encompasses every event such as natural occurrences and third-party acts etcetera.
PECL and CISG provide an excuse for non-performance only for as long as performance is impossible while the UNIDROIT Principles make available an excuse for a ‘reasonable period.’ Notification of force majeure must be done according to PECL Art. 8.108(3), CISG Art. 79(4), and UNIDROIT Art. 7.1 .7 (3). All three fix the risk of late receipt or non-receipt of this communication on the sender.
The non-performing party becomes responsible for damages arising from non-receipt of force majeure communication.
Although the UNIDROIT principles generally permit excuse, Article 7.1.7(4) makes important exceptions when evaluating claims associated with force majeure. The right to terminate contracts, request interest on money, or withhold delivery is exempted. In comparison, the CISG and PECL allow the aggrieved party any remedy during force majeure except to claim damages as specified by CISG Article 79(5) or claim performance and damages under PECL Article 8.102(2). A notable feature of international commercial contracts is that they contain more specific and elaborate rulings regarding force majeure, though they are not mandatory. The regulations associated with force majeure are mostly general, facilitating parties to provide specificities as per their requirements.
Responsibility for Third Party:
Legal instruments aim to address the challenge of determining a party’s responsibility for the failure of a third person. A third party is defined as a party that is legally independent of the contracting parties, but not necessarily economically independent. In many contracts, parties use third parties to fulfill their contractual obligations. Often, non-performance by one party can be attributed to non-performance by a third party.
CISG Art. 79(2) and PECL Art. 8.107 take similar positions in that the contracting party is responsible for the performance of its third-party regardless of their relationship with each other under the contract. However, CISG Art. 79(2) has strict conditions for exemption from liability which must also be fulfilled with respect to any relevant third-party according to Art. 79(1). Therefore, although clauses 1 and 2 may seem misleading, they are directed at addressing different situations.
CISG may be considered lenient regarding non-performance by third parties; however, it is very comprehensive on this issue and restricts establishing an impediment to seek exceptions in CISG13.
Termination.
Preventing the termination of a contract is a primary goal of the GISG. This is achieved by maintaining the validity of the contract for as long as possible, provided it can avoid economic waste. The CISG offers various methods to preserve contracts, such as reducing prices appropriate to losses suffered by the aggrieved party, delivering goods or providing additional time for performance. Both PECL and UNIDROIT closely follow this principle.
However, even when faced with excusable impediments, non-performing parties have the right to terminate contracts. According to CISG Art. 79 (5), parties can exercise any right except seeking damages. UNIDROIT extends this right to terminate contracts when non-performance is excused or when parties are liable for non-performance.
PECL also has similar provisions that require aggrieved parties to provide termination notices to other parties before terminating contracts. None of these instruments provide for automatic termination of contracts; however, PECL has a provision through Art. 8.106(4) that allows automatic termination without notice if there is complete and permanent impediment under Art 8.108.
In general terms, CISG rules that fundamental non-performance allows parties to terminate contracts – a principle reflected in both UNIDROIT and PECL through their respective articles: 7.3.1 (1) and 9:301(1). The primary grounds for terminating a contract according to CISG, UNIDROIT and PECL are:
A) Fundamental Non-Performance
B) Anticipatory Non-Performance
C) Fundamental non-performance regarding partial shipment or a specific installment.
D) Inability to perform within a reasonable Nachfrist provided.
Conclusions.
Given the vast domain covered by these instruments, a comparative analysis can only broadly speculate on their similarities or differences as they are drafted and organized differently. The three instruments strive to present fairness in complex international economic transactions, intending to offer what is due according to human perception and understanding. The complexity of the issues these instruments seek to resolve is evident from the fact that official commentaries are provided to UNIDROIT and the PECL. These comments and illustrations attempt to explain the rationale behind each instrument so that they can be appropriately applied in practice.
The PECL commentary also contains comments and illustrations to help explain its text. All three instruments highlight the requirement that they need to be interpreted in such a way that their international character is maintained, ensuring uniformity in their application. While there may be variations in how these instruments perceive performance and associate compensation with it, they all share the same goal: justice.
References
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Observations on the use of Principles of European Contract Law as an aid to CISG Research were made by Pace Law School in 2001. The article is available in electronic version and can be accessed at http://www.cisg.law.pace.edu/cisg/text/peclcomp.html. The article was retrieved on December 19th, 2009.
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6 Lafili L. et al., Survey of the International Sale of Goods, 3 (1986), p.14.
7 Fritz Enderlein discusses the rights and obligations of the seller under the U.N. Convention on Contracts for the International Sales of Goods in Sarcevic & Volken eds.’ Dubrovinik Lectures (1986), on page 188. The electronic version can be found at http://www.cisg.law.pace.edu/cisg/biblio/enderlein1.html. Retrieved on December 22, 2009.
The United Nations Convention on Contracts for the International Sale of Goods [CISG] (2007) is available in electronic format and can be accessed at www.cisg.law.pace.edu/cisg/text/treaty.html. The document was retrieved on December 22nd, 2009 from this website.
The UNIDROIT Principles of International Commercial Contracts were published in Rome in 2004. The principles can be accessed at http://www.unidroit.org/english/principles/contracts/principles2004/integralversionprinciples2004-e.pdf. This source was retrieved on December 23, 2009.
The Commission on European Contract Law produced The Principles of European Contract Law in 1999. This document can be accessed electronically and was retrieved on December 22nd, 2009 from http://frontpage.cbs.dk/law/commission_on_european_contract_law/PECL%20engelsk/engelsk_partI_og_II.htm.
11 Sellier, Review of the Convention on Contracts for the International Sale of Goods, 3rd edition, European Law Publishers, Munich (2006), pp. 9-15. [Electronic Version]. Retrieved on December 20th, 2009 from http://books.google.co.in/…
12 Liu Chengwei, Remedies for Non-performance: Perspectives from CISG, UNIDROIT Principles and PECL (2009) [Electronic Version]. Retrieved on December 19th, 2009 from http://www.jus.uio.no/…
Sarah Howard Jenkins’ article Exemption for Non-performance: UCC, CISG, UNIDROIT Principles – A Comparative Assessment” was published in the 72nd volume of Tulane Law Review in 1998. The article can be found on page 2026 and is available in electronic version. It was retrieved on December 19th, 2009 from http://www.cisg.law.pace.edu/cisg/biblio/jenkins.html.
