With the modern day increase in international trade and commerce, national commercial law has often proved inadequate to international business needs and the resolution of disputes involving international contracts.[1] As the needs of commerce have changed, so have the practices by which businessmen conduct their trade. Increased trade overseas has drawn attention to the problems that are caused by the different ways in which countries have chosen to regulate international sales. Businessmen have found that their contracts and dealings with foreign traders have been subject to different standards and usages.[2]

1.1 INTRODUCTION

The last century has seen a huge change in the field of international trade. The development of the market economy, the growth of markets for manufactured goods and the opening up of new markets in raw products from developing countries has led to a boom in overseas trade. Newer and faster methods of communication have enabled traders to buy and sell goods at a distance more reliably, and modern technology has made it much easier to transport goods around the globe in shorter periods of time. It has become clear that in the modern world, it is no longer possible for a country to isolate itself from the international circulation of goods and persons. This growth in international trade has led to the re-emergence of the need for the harmonization of the services that facilitate overseas trade: global monetary mechanisms, cross-border transport possibilities, and universal rules and standards which allow traders the world over to conduct business on the same terms.[3]

Against such a background, the legal community has tried to facilitate overseas trade through efforts to harmonise national laws by legislative or non-legislative means; thereby reducing the uncertainties and potential costs associated with transacting business under unfamiliar laws. Among such efforts, there is above all in this contribution the reference to the relevant rules of the United Nations Convention on Contracts for the International Sale of Goods (1980; hereinafter "CISG" or "Convention"). On the other hand, the need of general principles in international contract law, usage and custom of international trade and lex mercatoria has led to certain other unification actions in addition to the CISG. Since the CISG came into force in 1988, there have been other efforts to develop overall unifying principles covering the field of contract law. The UNIDROIT Principles of International Commercial Contracts (1994, hereinafter "UPICC" or "UNIDROIT Principles") and the Principles of European Contract Law (1998, hereinafter "PECL" or "European Principles") represent the core of such other efforts. As these two Principles were introduced in 1994 and 1998 it is perhaps premature to consider these principles as a "generally accepted lex mercatoria". However, these rules have potential to be generally accepted by the international trading community and thereby achieve a position to be regarded as lex mercatoria.[4]

Thus, the studied legal instruments in this contribution will be focused on the three instruments mentioned above -- CISG, UNIDROIT Principles and PECL. These instruments are internationally drafted instruments governing contracts which combine elements from both civil law and common law systems. The CISG harmonised interests and ideas of different legal systems and of countries on different levels of economic development and is understood as a modern uniform substitute for the wide array of foreign legal systems; thus, a text that is suited for implementation in civil law countries and common law countries and for economies that are developed and those which are developing. The UNIDROIT Principles and the European Principles in turn represent the latest developments in the field of contract law and combine civil law and the common law as well as international contract practices.

1.2 OVERVIEW OF THE STUDIED INSTRUMENTS

1.2.1 CISG

In April, 1964, twenty-eight states approved two conventions which were the 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) referred to collectively as the 1964 Hague Conventions, which were not very successful.[5] The United Nations Commission on International Trade Law (UNCITRAL), which is the core legal body within the UN system in the field of international trade law and was tasked by the UN General Assembly to further the progressive harmonization and unification of the law of international trade, set out to study the 1964 Hague Conventions to improve and reform them hopefully ending up with a product more successful than the first. Finally, after several drafts after the realization that an entirely new text was needed, the General Assembly convened a conference on a product that is today the CISG.

As suggested by the legislative history, consideration of each individual article of the CISG proceeded on the basis of compromise. For this reason, there was a conscious desire to restrict the content of the CISG to those areas on which it was possible to agree.[6] As a result, certain kinds of sales were excluded according to Art. 2 and matters such as the validity of the contract and the passing of property (Art. 4), the liability of the seller for death or personal injury caused by the goods to any person (Art. 5) were not included. In addition, there was a deliberate attempt not to rely on existing legal definitions which could then be subject to contradicting interpretations in different member states. The aim was not to take the best from every jurisdiction, but to develop an empirical code which, where possible, used independent terms to convey its meaning. Indeed, no international commercial legal regime can expect to be perfect, especially when it is developed on the basis of compromise between legal systems.

While the drafters of the CISG represented various legal systems that possessed their own unique methods of solving certain problems, a commonality existed among the majority of the drafters. So while the remedies provided for by the CISG might not represent part of the "consistent and universal form of international mercantile law" desired by a modern lex mercatoria, they do represent a step forward in that process. From the point of view of legislation as well as from the point of view of practical application, the Convention seems to be a success. Moreover, this success may fuel further uniformity as it is already influencing other fields of international trade law. Indeed, after it came into force on January 1, 1988, the CISG has gained tremendous political and economic significance as the uniform sales law for sixty-two countries that account for two-thirds of all world trade.[7]

As for the application issue, the CISG is the domestic law of each Contracting State. Important conclusions and recommendations follow from this: For parties with their relevant places of business in different Contracting States, where their contract falls within the scope of the CISG, the contract is automatically governed by the CISG, unless the parties indicate otherwise. In other words, where without reference to the CISG, the parties state that the contract is governed by the law of a Contracting State or the applicable law so holds, the contract is likely to be governed by the CISG. For parties to such international sales transactions who do not wish to have them governed by the CISG, the recommended procedure is to so state in their contracts. The above conclusion and recommendation can also apply when only one of the parties has his relevant place of business in a Contracting State of the applicable domestic law regards the law of that Contracting State as the governing law. In these two situations -- contracting parties from different Contracting States, and a contract between a party from a Contracting State and a party from a non-Contracting State -- the relevant CISG provisions are Arts. 1(1) and 95. On the other hand, there are also cases in which principles of the CISG can apply to transactions between parties neither of whom has his relevant place of business in a Contracting State. The CISG can apply to such a contract solely by the election of the parties.

One should note that, however, subject to the fact that when the CISG applies by law it can supersede otherwise applicable domestic law to the contrary; when the CISG applies solely by contract, it acts somewhat like a set of terms and conditions incorporated in the contract -- in other words, in this situation it does not supersede mandatory provisions of the applicable domestic law where that law does not so permit.[8]

1.2.2 UNIDROIT Principles

The regime covering the greatest geographical scope among the studied instruments is the UNIDROIT Principles resulted from the work of the International Institute for the Unification of Private Law (UNIDROIT), which was set up in 1929 as an auxiliary organ of the League of Nations and whose primary task was to draft a uniform sales law which aimed to combat the problems of trading goods across different jurisdictions.[9] The UNIDROIT Principles do not apply to domestic contracts and are intended to operate globally, which are broader in scope and more detailed in provisions than the CISG.

Because the UNIDROIT Principles are not in the form of a convention or a model law, they do not have a binding effect. They will be applied in practice only because of their persuasive character. According to the Preamble, application of the UNIDROIT Principles to international commercial contracts in four different contexts is possible: (a) Where the parties agree that their contract shall be governed by the UNIDROIT Principles, the Principles are undoubtedly applicable because they are incorporated into the contract like any other contractual clause. Here, the principles will bind the parties only to the extent that they do not contradict mandatory rules of the applicable law. (b) The Principles may also apply when the parties have agreed that their contract be governed by "general principles of law" or the lex mercatoria. (c) The Principles may also be of relevance if the contract is governed by a particular domestic law, even though the application of the Principles is not provided for in the contract. This is the case, whenever dealing with a specific issue, it proves impossible to establish the relevant rule of that particular domestic law and a solution can be found in the Principles. Recourse to the Principles, however, as a substitute for otherwise applicable domestic law is a last resort. (d) The Principles may further serve as instruments for the interpretation and filling the gap of international uniform law. The main idea is to preclude an easy resort to the domestic law indicated by the conflict of laws rule by the forum. In conclusion, it can be said that the UNIDROIT Principles apply only if incorporated into the contract, or if they find enough favour with an arbitrator or judge looking for a rule to fill a gap encountered in the regulation of a given international commercial contract.[10]

A stated purpose as suggested in the Preamble is to be stressed: "They may be used to interpret or supplement international uniform law instruments". In practice the question is particularly relevant in the context of the CISG, Art. 7 of which expressly states that "[i]n the interpretation of this Convention regard is to be had to its international character and to the need to promote uniformity in its application" and that "[q]uestions concerning matters governed by this Convention which are not expressly settled it are to be settled in conformity with the general principles on which it is based". In this respect, Bonell, one of the principal architects of the Principles has stated: "The answers given are sharply divided. On the one hand there are those who categorically deny that the UNIDROIT Principles can be used to interpret or supplement the CISG, invoking the rather formalistic and not necessarily convincing argument that the UNIDROIT Principles were adopted later in time than the CISG and therefore cannot be of any relevance to the latter. On the other hand there are those who, perhaps too enthusiastically, justify the use of the UNIDROIT Principles for this purpose on the mere ground that they are 'general principles of international commercial contracts'. The correct solution would appear to lie between these two extreme positions. In other words, there can be little doubt that in general the UNIDROIT Principles may well be used to interpret or supplement even pre-existing international instruments such as the CISG; on the other hand in order for individual provisions to be used to fill gaps in the CISG, they must be the expression of general principles also underlying the CISG."[11]

It is said that to the extent that the two instruments address the same issues, the rules laid down in the UNIDROIT Principles are normally taken either literally or at least in substance from the corresponding provisions of CISG; cases where the former depart from the latter are exceptional.[12] On the other hand, to the extent that they formulate general principles which cannot be derived directly from the CISG, these Principles can be utilized for filling gaps in the Convention.[13] However, an important caveat to recourse to the UNIDROIT Principles to interpret the general principles of the CISG has been pointed out by Bonell: there is a need to show that the relevant provisions of the UNIDROIT Principles are the expression of a general principle underlying the CISG. This need is, of course, not satisfied where the Principles and the CISG adopt different solutions -- for example, in their approach to the battle of the forms.[14]

Indeed, the approach in developing the Principles appears appropriate with respect to the current state of attempts to unify law.[15] The UNIDROIT Principles was published in 1994 as a result of comparative research and deliberations by a group composed of representatives of all the major legal systems of the world. The UNIDROIT Principles have, in practice, only a persuasive value. The Principles can, however, have significant role in international and domestic legislator's adoption policy, court and arbitration proceedings, contract drafting or choice of law clauses. The reason for such significance can generally be seen in the modern and functional solutions adopted in the principles. The potential users of the UNIDROIT Principles to which they are addressed to are especially international law firms, corporate lawyers, arbitration courts and the like. The Principles have so far proved to be successful and widely accepted.[16] The UNIDROIT Principles are regarded to be especially useful in arbitration proceedings. Although there have been only a handful of cases actually decided solely by reference to the UNIDROIT Principles, research has shown that the Principles are being referred to in a growing number of cases as representative of the general principles and established trade practices on which international trade is based.[17]

According to the Preamble, the UNIDROIT Principles set forth "general rules for international commercial contracts". It is also said that the aim of UNIDROIT was to specifically elaborate a general regulatory system which could apply universally and restate the general principles of contract law, thus reflecting all the major legal systems of the world.[18]

1.2.3 PECL

Unlike the CISG which is a uniform sales law adopted by countries that account for over two-thirds of all world trade in goods, the PECL, like the UNIDROIT Principles except for their sphere of application, are a set of principles whose objective is to provide general rules of contract law in the EU, and will apply when the parties have agreed to incorporate them into their contract or that their contract is to be governed by them.

The PECL (also known as the "Lando-Principles") is the product of work carried out by the Commission on European Contract Law (the "Lando Commission"). The Lando Commission was founded in 1982, which is a body of lawyers drawn from all of the Member States of the European Union (EU), under the chairmanship of Professor Ole Lando. The Commission ran with funding from the European Community (EC) and its work was specifically endorsed by the European Parliament in a Resolution in 1994. In 1989, the European Parliament passed a resolution in favour of pursuing a European Code of Private Law. In 1994, this intent manifested itself with a resolution in favour of the Lando Commission's efforts at the harmonisation of contract law. The ambit of the Commission was to draft a European Restatement of Contract law which was to serve as: a basis for the future codification of European contract law; a legal guide for the EU Organs; a text to be used by member states in future codification or updates of their own law; and a text which parties could chose as the applicable law of their contracts. In 1995, the Lando Commission published the first part of its Principles of European Contract Law (the PECL). After three years, a second version were finalized in 1998, and reflects aspects of contract law from many of the EU's member states.

Unlike the UNIDROIT Principles (as well as the CISG) which applies exclusively to international contracts, the European Principles are to be applicable (a) to domestic European contracts as well as to trans-European Union international contracts and (2) to virtually all European contracts, including merchant consumer contracts as well as contracts between commercial parties. Moreover, in addition to the express purpose, similar to the UNIDROIT Principles, of being applied "as general rules of contract law in the European Union" (Art. 1:101), the PECL is intended to represent a modern European lex mercatoria and most importantly for future legal developments, "as a model on which [European] harmonisation work may be based". If the PECL will in fact be used by EU entities in interpreting European contract law or as the basis for further harmonisation efforts, it is a particularly important document to consider as indicating future legal developments.[19] Furthermore, work is already underway to compile a third version of the Principles, and it is envisaged that the Principles will eventually form part of a future European Civil Code. At present, though, the principles are more of academic value as opposed to being applied in practice.[20]

1.2.4 Brief Comparison

So far as the general nature of the studied instruments is concerned, there already exists one important binding instrument in the field of international commercial law - the CISG, which contains the core of a true international commercial code.[21] The Convention has already codified a substantial part of the lex mercatoria and is currently adopted as the law in sixty-two countries. The Convention elaborates the common law and practices of international sales and the common core of domestic commercial rules.[22]

In contrast to the governmental negotiation and compromise leading to the CISG, the UNIDROIT Principles and the PECL were fundamentally born of the same need for a uniform body of law applicable to contracts and do not have the status of an international convention; therefore, their applications mainly rely on express or implied incorporation into a contract by the parties. On the other hand, the two Principles, unlike the CISG, where, due to the divergent legal regimes and views, consensus could only be reached on compromise solutions with some ambiguous wording and gaps in coverage, were not bound to take the viewpoints of every single country, legal regime or rule into account. The final choice among possibly conflicting rules was made on the persuasiveness or suitability of the rule within the overall regime. These efforts can thus be seen as more unified and coherent regimes than the CISG. These regimes definitely are a step forward in legal thinking and the number of similarities between the two regimes suggests that they represent the main directions being taken by international contract law.[23]

As for the relationship between the two sets of Principles, it is also found that the PECL covers similar areas of law to the UNIDROIT Principles, but its geographical sphere of application is confined to the EU. The material scope of the application of the PECL is, however, wider than that of the UNIDROIT Principles, as it is intended to apply to all contracts including domestic transactions and those involving consumers and merchants.[24] So while the PECL is of a narrower geographic focus than the UNIDROIT Principles, it covers a wider area of law. Despite of this, the substantial scope of application of the two Principles is identical in that they both aspire to be general principles of contract law. To use an expression well known in the world of international commerce, both are held out as a sort of codification of the modern lex mercatoria. Both of the two undertakings aspire to be models for national and international legislators, they each describe themselves as formulations of the lex mercatoria, and to some extent promote the harmonization of the law of contracts. It may be said that in the not too far future principles for international commercial contracts as elaborated in the UPICC and the PECL, in the light of the CISG which is the only one among the three instruments with mandatory application to the signatory States, will be developed and worthy of the name lex mercatoria which expresses rules accepted and observed by the international economic community.[25]

The need for uniformity and harmony in international trade can be expected to lead to growth of international transactions subject to the CISG, UNIDROIT Principles, and PECL. In a summary fashion as to the relationship between the three instruments, to some extent it can be described briefly that they enable themselves to supplement each other and fit well with each other as part of the multi-layered approach that is becoming dominant, rather than compete or claim to displace the other harmonizing projects. In so far as the three instruments seem to have their own raison d'être they not only do not compete with each other but may actually fulfil very important functions side by side. Particularly, so as to preclude an easy resort to the domestic law indicated by the conflict of law rule of the forum, the two sets of Principles serve a gap-filling role for the interpretation of CISG contracts; they endorse and promote many of the principles outlined in the CISG. Although, in this instance, the articles are not drafted in an identical or substantially similar manner, it is nonetheless possible to identify some supports and the two Principles can be used to: (1) interpret the CISG; (2) answer unresolved questions that fall within the scope of the CISG; or (3) resolve issues that are not addressed in the CISG.

Finally, one must become aware of the existence and basic content of different concepts contained in these instruments, because they will be shaping the rules for contractual dealings in the future. Particularly, one must be on the lookout for superficial harmony which merely mutes a deeper discord and for verbal conflict which hides a fundamental identity of aim. In both cases the key lies in the conceptual presuppositions of each system or family of systems. The deeper discord escapes notice because the same formula means different things according to the frame-work in which it is read; the fundamental agreement on the end to be achieved is not seen because the conceptual routes which lead that to end are different.[26]

1.3 MAJOR SOURCES OF INFORMATION

In view of their close relationship, these instruments merit a comparative study in order to understand their similarities and differences, at least with respect to certain matters. In so doing, every conscientious author would refer to an extensive amount of sources of information available for the three instruments. In this contribution, I carry on my analysis depending mostly on the followings which bear the greatest significance: as for the CISG, it is above all the Secretariat Commentary on the 1978 Draft of the CISG (hereinafter "Secretariat Commentary"). To the extent it is relevant to the Official Text, the Secretariat Commentary is perhaps the most authoritative source one can cite. It is the closest counterpart to an Official Commentary on the CISG.

Indeed, the drafting history of the Convention is a legitimate and valuable aid in the interpretation of the Convention's provisions. The CISG has a rich and detailed legislative history. The challenge is not paucity of material, but an overabundance of travaux préparatoires spread over thousands of pages of un-indexed volumes, located in sources we are not used to accessing, with frames of reference (article numbers) that generally differ from those of the CISG.[28] The most recent and, generally, the most important segment of the legislative history of the CISG is contained in the Official Records of the Conference (Vienna, 10 March - 11 April 1980 [A/CONF.97/19]; hereinafter "O.R."), which is very useful as a guide to the rationale behind many of the Articles.

As for the UNIDROIT Principles, unlike the CISG to whose text there is no official commentary, each article of the Principles is accompanied by the Official Commentary. The Official Commentary consists of comments and, where appropriate, factual illustrations intended to explain the reasons for the black letter rule and the different ways in which it may operate in practice. The comments are an integral part of the UNIDROIT Principles, all the more so as sometimes they not only explain but to a certain extent even supplement the black letter rule.28 Like the commentary to the UNIDROIT Principles, the Commentary to the PECL contains comments and, where appropriate, factual illustrations helping explain the text. In addition, the Notes contained in the Commentary to the PECL identify civil law and common law antecedents and related domestic provisions.[29]

Furthermore, all of the three instruments expressly state, inter alia, that in their interpretation regard is to be had to their international character and the need to promote uniformity in their application (CISG Art. 7(1); UPICC Art. 1.6(1); and PECL Art. 1:106(1)). This signifies that overviews of the existing case law with parallel references to the areas where there is theoretical debate concerned are, at least in abstracto, useful for practical purposes. Importantly, theory is tested by outcome. It is of great importance to draw on experience from arbitral awards or domestic courts' decision. Therefore, in this contribution regards are also to be had to what national or international courts have already done and, where there are no "precedents", to the solutions proposed by legal scholars. In this context, particular regard is had to the case law on the CISG, which is widely available via the UNCITRAL Database- CLOUT (Case Law on UNCITRAL Texts; available online at <http://www.uncitral.org>>), which is a systematic collection and distribution mechanism for information on court decisions and arbitral awards relating to the Conventions and Model Laws including the CISG that emanated from the work of the UNCITRAL.[30]

Finally, it is to be found that a significant feature of this contribution is its referring to extensive sources of information available over the Internet online. In this point, besides the CLOUT database mentioned above, there are other three databases most frequently used so contributed to this contribution that I would like to list them so as to express my gratitude here: (a) the Pace database on the CISG and International Commercial Law (available online at <http://www.cisg.law.pace.edu>) produced as a public service by the Pace University School of Law in New York, which has compiled lots of valuable sources of information on the CISG including a Bibliography listing all articles and books on the CISG and thus is extremely useful and user friendly. (b) UNILEX database (available online at <http://www.unilex.info>), which is an “intelligent” database of international case law and bibliography on the CISG and on the UNIDROIT Principles. (c) TLDB (CENTRAL Transnational Law Database; available online at <http://tldb.uni-koeln.de/TLDB.html>), which contains the largest bibliography on the new lex mercatoria in the internet and provides the hithereto missing link between the theory of transnational commercial law and international legal practice.

Go to table of contents to full text of Remedies for Non-performance: Perspectives from CISG, UNIDROIT Principles & PECL.

FOOTNOTES: Chapter 1

1. See Rivkin, David R. in “Lex Mercatoria and Force majeure”: Gaillard ed., Transnational Rules in International Commercial Arbitration (ICC Publ Nr. 480,4; Paris 1993); p. 163. Available online at <http://tldb.uni-koeln.de/TLDB.html; TLDB Document ID: 116100. It is not questioned here that the majority of contracts in international business are still subject to a specific national law and the questions are left aside regarding the conditions under which a contract may be insulated from the application of any such law.

2. See Alison E. Williams in “Forecasting the Potential Impact of the Vienna Sales Convention on International Sales Law in the United Kingdom”: Pace Review of the Convention on Contracts for the International Sale of Goods (CISG), Kluwer Law International (2000-2001); pp. 9-57. Available online at <http://www.cisg.law.pace.edu/cisg/biblio/williams.html>.

3. Ibid.

4. See Jussi Koskinen in “CISG, Specific Performance and Finnish Law”: Publication of the Faculty of Law of the University of Turku, Private law publication series B:47 (1999). Available online at <http://http://www.cisg.law.pace.edu/cisg/biblio/koskinen1.html>.

5. Few countries signed the treaties and there were many criticisms that the treaties “primarily reflected the legal traditions and economic realities of continental Western Europe”.

6. Supra. note 2.

7. As of 10 October 2002, the UN Treaty Section reports that 62 States have adopted the CISG: Argentina, Australia, Austria, Belarus, Belgium, Bosnia-Herzegovina, Bulgaria, Burundi, Canada, Chile, China (PRC), Columbia, Croatia, Cuba, Czech Republic, Denmark, Ecuador, Egypt, Estonia, Finland, France, Georgia, Germany, Greece, Guinea, Honduras, Hungary, Iceland, Iraq, Israel, Italy, Kyrgystan, Latvia, Lesotho, Lithuania, Luxembourg, Mauritania, Mexico, Moldova, Mongolia, Netherlands, New Zealand, Norway, Peru, Poland, Romania, Russian Federation, Saint Vincent & Grenadines, Singapore, Slovakia, Slovenia, Spain, Sweden, Switzerland, Syria, Uganda, Ukraine, United States, Uruguay, Uzbekistan, Yugoslavia, and Zambia. (<http://http://www.cisg.law.pace.edu/cisg/countries/cntries.html>)

8. See General Information on the Application of the CISG; available online at <http://cisgw3.law.pace.edu/cisg/cisgintro.html>. In addition, there are situations in which principles of the CISG can be deemed applicable even when neither party has his relevant place of business in a Contracting State and the parties have made no reference to the CISG in their contract. There are cases in which tribunals have so held (see, for example, ICC Arbitration Case No. 5713 of 1989).

9. The fruits of its efforts were the 1964 Hague Conventions. These Conventions, as mentioned previously, since entering into force in 1972, have, however, failed to achieve widespread acceptance. Other works of UNIDROIT have met with greater success; most notably in the area of international trade are the 1994 UNIDROIT Principles.

10. See Joern Rimke in “Force majeure and hardship: Application in international trade practice with specific regard to the CISG and the UNIDROIT Principles of International Commercial Contracts”: Pace Review of the Convention on Contracts for the International Sale of Goods, Kluwer (1999-2000); pp. 237-238. Available online at <http://www.cisg.law.pace.edu/cisg/biblio/rimke.html>.

11. See Michael Joachim Bonell in “General Report: A New Approach to International Commercial Contracts: The UNIDROIT Principles of International Commercial Contracts”: XVth International Congress of Comparative Law, Bristol, 26 July-1 August 1998, Kluwer Law International (1999); p. 13.

12. See Michael Joachim Bonell in “THE UNIDROIT PRINCIPLES OF INTERNATIONAL COMMERCIAL CONTRACTS AND CISG -- ALTERNATIVES OR COMPLEMENTARY INSTRUMENTS?”: 26 Uniform Law Review (1996); pp. 26-39. Available online at <http://www.cisg.law.pace.edu/cisg/biblio/ulr96.html>.

13. See Ulrich Magnus in “Die allgemeinen Grundsätze im UN-Kaufrecht”: 59 Rabels Zeitschrift (1995); pp. 492-493. English version: General Principles of UN-Sales Law, Lisa Haberfellner, trans. Available online at <http://www.cisg.law.pace.edu/cisg/text/magnus.html>.

14. See Albert H. Kritzer in “General observations on use of the UNIDROIT Principles to help interpret the CISG”. Available online at <http://www.cisg.law.pace.edu/cisg/text/matchup/general-observations.html>.

15. Supra. note 13.

16. Supra. note 4.

17. See Austrian Arbitral Proceeding SCH-4318 and Arbitral Proceeding SCH-4366 (both dated 15 June 1994); see also ICC Arbitral Award No. 8128 of 1995 and the ruling of the French Court of Appeal of Grenoble 23 October 1996, examples of cases in which tribunals have referred to the UNIDROIT Principles as it helped them reason through the CISG. One can anticipate many such references to the UNIDROIT Principles in CISG proceedings. (Supra. note 14.)

18. See Michael Joachim Bonell in “Unification of Law by Non-Legislative Means: The UNIDROIT Principles for International Commercial Contracts”, 40 Am. J. Intl L. (1992); p. 618.

19. See Peter A. Piliounis in “The Remedies of Specific Performance, Price Reduction and Additional Time (Nachfrist) under the CISG: Are these worthwhile changes or additions to English Sales Law?”(1999). Available online at <http://www.cisg.law.pace.edu/cisg/biblio/piliounis.html>.

20. Supra. note 2.

21. Nonetheless, the parties have the general right to derogate from or modify any of the provisions in the CISG (subject to Art. 12) and they may even make the decision to exclude the CISG in its entirety. This need not be done explicitly. One example of implicit exclusion of the CISG is the choice of the law of a non-contracting state. The crucial factor is to be able to determine the will of the parties and in determining this will, Art. 8 is applicable.

22. See Bernard Audit in “The Vienna Sales Convention and the Lex Mercatoria”: Thomas E. Carbonneau ed., Lex Mercatoria and Arbitration, rev. ed. [reprint of a chapter of the 1990 edition of this text], Juris Publishing (1998); p. 194. Available online at <http://www.cisg.law.pace.edu/cisg/biblio/audit.html>. While compromises were made on all fronts, and all Contracting States will notice distinctions between their domestic law and that of the CISG, the common lawyer as opposed to the civil lawyer will face greater obstacles in understanding and applying the CISG. As compared to those schooled in the common law, the majority of the drafters had been trained in civil law. Thus, it is not surprising to find that the CISG is highly reflective of civil law principles. (See Erika Sondahl in “Understanding the Remedy of Price Reduction – A Means to Fostering a More Uniform Application of the United Nations Convention on Contracts for the International Sale of Goods” (2003); available online at <http://www.cisg.law.pace.edu/cisg/biblio/sondahl.html>.)

23. Supra. note 19.

24. While the UNIDROIT Principles are designed only for international commercial contracts, they are in no way intended to take over the distinction traditionally made in some legal systems between “civil” and “commercial” parties and/or transactions, i.e. to make the application of the Principles dependent on whether the parties have the formal status of “merchants” (commerçants, Kaufleute) and/or the transaction is commercial in nature. The idea is rather that of excluding from the scope of the Principles so-called “consumer transactions” which are within the various legal systems being increasingly subjected to special rules, mostly of a mandatory character, aimed at protecting the consumer, i.e. a party who enters into the contract otherwise than in the course of its trade or profession. The criteria adopted at both national and international level also vary with respect to the distinction between consumer and non-consumer contracts. The Principles do not provide any express definition, but the assumption is that the concept of “commercial” contracts should be understood in the broadest possible sense, so as to include not only trade transactions for the supply or exchange of goods or services, but also other types of economic transactions, such as investment and/or concession agreements, contracts for professional services, etc. (See Comment 2 on the Preambles of the UPICC.)

25. Notably, it is also said that the Convention itself purports to formulate the most common practice and therefore qualifies as an expression of lex mercatoria”. (See Bernard Audit, supra. note 22.)

26. See Barry Nicholas in “Force Majeure and Frustration”: 27 American Journal of Comparative Law (1979); pp. 231-245. Available online at <http://www.cisg.law.pace.edu/cisg/biblio/nicholas.html>.

27. In this respect, roadmaps for each article of the CISG are available, which are designed as navigation aids (pilots) to identify paths and shoals (caveats) of the legislative history. Alternative versions of the roadmap may be accessed: short form; long form. The short form is limited to citations to printed texts and electronic links to further data on this article. The long form adds to this material with background information and other data which, once read, should be regarded as applicable to each roadmap presented.

28. See Michael Joachim Bonell, AN INSTERNATIONAL RESTATEMENT OF CONTRACT LAW: The UNIDROIT Principles of International Commercial Contracts, 2nd ed., Transnational Publishers (1997); p. 44.

29. The source of the Commentary to the PECL is Ole Lando & Hugh Beale eds., Principles of European Contract Law: Parts I and II, Kluwer Law International (2000).

30. The purpose of the system is to promote international awareness of the legal texts formulated by the UNCITRAL and to facilitate uniform interpretation and application of those texts. Currently, CLOUT covers the Convention on the Limitation Period in the International Sale of Goods (New York, 1974), as amended by the Protocol of 1980, the CISG, the UNCITRAL Model Law on International Commercial Arbitration (1985), and the United Nations Convention on the Carriage of Goods by Sea, 1978 (the “Hamburg Rules”).

CHAPTER 2. REMEDIES AVAILABLE UPON NON-PERFORMANCE

     No aspect of a system of contract law is more revealing of its underlying assumptions than is the law that prescribes the relief available for breach.[1] The remedies available to an aggrieved party for a breach of contract can in all significant legal systems be classified into three basic categories. Firstly, an aggrieved party may be able to claim specific performance. As such, specific performance hardly gives the aggrieved party exactly the performance to which he was entitled to, unless it is supplemented with some kind of an additional remedy, such as a monetary relief. Secondly, the aggrieved party may have the right to require substitutionary relief. A relevant relief here is compensation, and almost always a monetary compensation, for the loss that the party has suffered for performance not received. Finally, the aggrieved party may have the right to put an end to the contractual relationship. In such a case the third remedy can also be seen in that the aggrieved party is put into a position where he would have been had the contract never been made. The three categories are not exclusive in that monetary compensation will also very often be available together with a claim for specific performance and an act to put an end to the contract. Furthermore, the above mentioned three basic categories of remedies also appear in different variations, such as a right to price reduction and suspension of performance.[2]

2.1 INTRODUCTION

The first and paramount task of international commercial contracts is organizing the relationship between the parties in an optimal manner. This means that contracts must determine the rights and duties of the parties so that the transaction works smoothly and its costs can be minimized. A second important task is providing remedies for cases of breach of contract. Requirements as to the rules for such contracts, as well as to the contracts themselves, have to be assessed in light of these aims. The attainment of the first goal is mainly a task of the parties in drafting their individual contracts, but nevertheless may be supported by the applicable rules, as the UNIDROIT Principles do in Chapter 6, Section 1 (Performance in General). Though the parties to a contract very often deal with the consequences of breaches of contract as well, they rely more often on the applicable rules. It is easier for parties to organize their relationship than to deal with its destruction.[3]

Remedies available to a party are a key consideration for that party, particularly if the contract is breached. However, the issue of remedies is one of the areas in which the diversity of legal systems is obvious.[4] During the drafting of the Convention the most difficult to formulate were those dealing with the remedies of buyer and seller for breach of contract by the other party, which are still among the most likely to generate controversy. Many aspects of the law of sales reflect merchant practice, and to the extent that this practice is standardized in international sales transactions, the problems in formulating the text of the Draft Convention were reduced. However the provisions in respect of breach of contract do not reflect merchant practice. They reflect the efforts of lawyers from many legal systems to reconcile their views on the appropriate actions to be taken by the parties and by a tribunal in case of breach. The result has been a series of provisions which are in general harmony with one another but which will often be unfamiliar to lawyers from any given legal system.

Thus, the present Chapter identifies generally the scope of relief available under each of the three bodies of rules, namely Part III (partial) of the CISG, Chapter 7 of the UNIDROIT Principles and Chapters 8 and 9 of the PECL, in light of traditional and modern theories. This Chapter seeks to take an overview of remedies in the event of non-performance while leaving the substantively major remedial provisions to be discussed in the following chapters. In so doing, it firstly touches on the definition of non-performance in general. After that, the available remedies are shown in a manner limited to a descriptively bare outline rather than a more detailed discussion. Finally, this Chapter outlines briefly the structure of this contribution.

2.2 THE CONCEPTS: BREACH OF CONTRACT vs. NON-PERFORMANCE

"Non-performance" is the term used in the UPICC and the PECL, analogous to "breach of contract" used in the CISG. A brief survey reveals that breach of contract as a unitary institution of contract law is not familiar to all legal systems.[5] The concept as such is derived from Anglo-American law. But a unitary approach is also adopted in the Romanic legal systems; there it is called non-performance.[6] To avoid plunging into a battle of conceptual issues, I will use the both terms, i.e. "non-performance" and "breach" equally in this contribution to mean that a contract is not performed as originally contracted.

The Convention uses the basic and unitary concept of "breach of contract", which may now be regarded as widely, although not yet generally accepted. Under the Convention the notion "breach of contract" covers all failures of a party to perform any of his obligations. There is no distinction between main obligations and auxiliary obligations. And it does not matter whether the obligation had its origin in the contract, in a usage or in the Convention itself. Under certain conditions a breach of contract is considered to be fundamental (Art. 25).[7] A breach of contract is always given when the objective facts of a breach have occurred, hence irrespective of whether there are grounds for exemption or not. It follows from that the term failure to perform as contained in Arts. 79, 80 (Exemption) refers to any breach of contract, which is "to be conceived here in the broadest sense of the word. Apart from late performance and non-performance it includes, in particular, non-conform[ing] performance and relates to the obligations of both the seller and the buyer".[8]

On the other hand, both the UNIDROIT Principles and the PECL, where "breach" is called non-performance, set up a substantially identical definition to the CISG. In the UNIDROIT Principles, it is expressly set out in Art. 7.1.1 that: "Non-performance is failure by a party to perform any of its obligations under the contract, including defective performance or late performance." This article defines "non-performance" for the purpose of the Principles. Particular attention should be drawn to two features of the definition. The first is that "non-performance" is defined so as to include all forms of defective performance as well as complete failure to perform. So it is non-performance for a builder to erect a building which is partly in accordance with the contract and partly defective or to complete the building late. The second feature is that for the purposes of the Principles the concept of "non-performance" includes both non-excused and excused non-performance.[9] The PECL has set up a similar structure and terms for a future European Code. "Breach" is called non-performance, and occurs whenever a party fails to perform any of its obligations under the contract. As the Official Comment to the PECL makes it clear: "Under the system adopted by the Principles there is non-performance whenever a party does not perform any obligation under the contract. The non-performance may consist in a defective performance or in a failure to perform at the time performance is due, be it a performance which is effected too early, too late or never. It includes a violation of an accessory duty such as the duty of a party not to disclose the other party's trade secrets. Where a party has a duty to receive or accept the other party's performance a failure to do so will also constitute a non-performance."[10]

Clearly, the difference between these two basic concepts, i.e. "breach of contract" as used in the CISG and "non-performance" in the UNIDROIT Principles or in the PECL, is not of essence. Indeed, the process of legal harmonization in global economic markets has made a further step forward when non-performance is defined in terms under it that include all failures and defects in performance, including those that are excused, and avoids terminology emphasizing breach or fault. A commentator's statement on the CISG confirms this: "Exemptions, as can be seen particularly well from the context of impediments, only lead to the removal of certain legal consequences of the breach of contract, while others continue to exist. The reason for it is a breach of contract [...] cannot be eliminated as such by way of exemptions. From this it follows that the term 'breach of contract' does not necessarily include an accusation."[11]

2.3 REMEDIAL SCHEMES OF THE STUDIED INSTRUMENTS

2.3.1 CISG Part III (Partial)

The CISG grants reciprocal remedies within three basic categories to the buyer and seller and clearly establishes that the primary remedy available to an injured party is specific relief, i.e. specific performance. Secondly, the Convention establishes that an injured party shall have a right to a substitutionary relief, which requires the party in breach to pay some amount of money to compensate the loss suffered by the other party. Finally, an aggrieved party shall have a right to avoid (terminate) the contract and thus put an end to the contractual relationship. As such, the remedial provisions of the CISG generally correspond with all major legal systems.[12] The CISG also follows the above mentioned three-category system and thus provides three basic remedies, namely specific performance, damages and avoidance of the contract.

Under the Convention, the remedies available for both the buyer and the seller, each dealt with under a section in Part III, are described in a unified scheme that is clear and easy to follow.[13] In this respect, the remedies available for a breach of contract are summarized in Arts. 45 and 61, which set forth reciprocal remedies for the buyer and seller, respectively. Art. 45(1) gives an overview of the remedies available to the buyer in the event of breach of the seller, namely specific performance, avoidance, compensatory damages, and reduction in price. The seller's remedies are enumerated at Art. 61(1). They differ from the remedies available to the buyer for obvious reasons in two respects. First, the remedy of claiming a reduction in price is not available to the seller. Second, there is no need for substitutional performance or the requirement that the buyer cure a defect in his performance.[14]

Generally, the CISG represents a compromise between the civil law and common law systems, sometimes reflecting concepts that are unique to one system and not the other.[15] Especially, the availability of specific performance as a primary remedy for a breach of contract under the CISG, corresponds with the civil law countries, contrary to the common law countries which regard damages as the primary remedy for a breach of contract.[16] The CISG makes specific performance available to both the seller (Art. 46) and the buyer (Art. 62). Before the parties have fulfilled their obligations, at least in terms of its placement in the Convention's overall scheme, specific performance is the primary remedy although damages are equally available. Under Art. 46, specific performance of the breaching seller may arise in the form of the seller's right to delivery, substitute delivery and repair. While under Art. 62, the seller may require the breaching buyer to pay the price, take delivery or perform his other obligations, unless the seller has resorted to a remedy which is inconsistent with this requirement.

Besides specific performance, the right to obtain damages for a breach of contract plays an important role within the CISG. Damages (or monetary compensation) may be the only available remedy for an aggrieved party if, e.g. the requirements for granting specific performance or the right to avoid the contract are not met. It can, therefore, also be argued that damages are the primary remedy pursuant to the CISG. Moreover, the aggrieved party's right to obtain monetary compensation supplements substantionally the rights to require specific performance and avoidance in that he always has the right obtain damages. For the sake of putting the aggrieved party into as good a position as he would have been had the contract been performed as agreed, the aggrieved party has, therefore, always a right to claim for damages in addition to a claim for specific performance or avoidance.[17] Damages include not only compensation for the expenses incurred by a party, but also the loss of profit. The amount of damages is limited by two conditions: foreseeability and mitigation. Foreseeability means that damages may not exceed the loss that the party in breach foresaw or should have foreseen (Art. 74). The mitigation rule imposes on the innocent party the duty to mitigate the loss (Art. 77). The right to receive interest is also available in addition to the right to damages (Art. 78).

Arts. 49 and 64 of the CISG provide an aggrieved the right to declare the contract avoided. Avoidance of contract under the CISG puts an end to the performance obligations of both parties. It is, however, required that the breach is a fundamental breach.[18] The idea behind this is said that the CISG was designed to take into account the special characteristics of the international sale of goods, such as long distances involved, costs of transportation and the length of the term of the contracts. Due to this design, the CISG emphasises remedies that seek to preserve the contract notwithstanding a breach.[19] This deliberation is further supported when the CISG provides a tool in Art. 47/63, familiar to the German legal system and known as the Nachfrist principle, where the aggrieved has the option of fixing an additional period of time for the breaching party to perform his obligations, and during that period he may not resort to any other remedy for the breach, unless he receives notice that the other party will not perform.

Moreover, the CISG contains additional remedies besides the above mentioned. Firstly, as for the anticipatory breach, besides the right to avoid the contract as contained in Art. 49/64 when an anticipatory fundamental breach exists (Art. 72), the CISG provides a possibility to suspend performance in certain situations as provided for in Art. 71. Under this Article a party may suspend the performance of his obligations if, after conclusion of the contract, it becomes apparent that the other party will not perform a substantional part of his obligations. Secondly, the CISG evidences a solicitude for the interests of the seller in "curing" defective performance of the contract. Where a breach has occurred, the CISG encourages the Seller to keep his contractual promises by offering him the express right to cure his own mistakes (Art. 48). Thirdly, the Buyer has, according to Art. 50, the right to a reduction of price in the case of non-conformity of goods. The right to a reduction in price serves as an alternative to damages being a kind of restitutionary measure of monetary relief, available even where the buyer is not entitled to avoidance. Fourthly, if under the contract the buyer is to specify the form, measurement or other features of the goods and he fails to make such specification either on the date agreed upon or within a reasonable time after receipt of a request from the seller, the Seller may, without prejudice to any other rights he may have, make the specification himself in accordance with the requirements of the buyer that may be known to him (Art. 65).

2.3.2 UNIDROIT Principles Chapter 7

Chapter 7 of the UNIDROIT Principles dealing with remedial issues is significant on at least two levels. In practical terms, it is the substantive heart of the whole Principles. It is where the Principles' solutions to a large proportion of real world disputes in commercial transactions are to be found. It will be a powerful support for the harmonization of actual outcomes and improve the reliability of the often unpredictable results of disputes. The substantive content of Chapter 7 is important as an illustration of the creative power of the UNIDROIT Principles. Chapter 7 is also important as an example of how the Principles work and of their usefulness in the emerging pattern of harmonized international commercial law. Chapter 7 brings closer together the substantive outcomes in courts, arbitral tribunals, and institutions of alternative dispute resolution in different legal systems, thus providing a prime example of how harmonization of international commercial law can improve the law.[20]

Chapter 7 is divided into four sections made up of 31 articles. Like the CISG PART III, UPICC Chapter 7 is systematically structured to favor the existence and performance of the contract and to minimize the instances in which the contract is terminated before performance is complete. Section 1 focus on bringing about performance of the contract and avoiding termination, especially with the devices such as Cure by Non-performing Party (Art. 7.1.4) and Additional Period for Performance (Art. 7.1.5), designed to bring about performance rather than contract failure after difficulties have been encountered by the parties during performance. Moreover, Section 2 takes a superior and more harmonious path dealing with the right to performance, what Common-Lawyers call specific performance and which is the basic preferred remedy in the CISG as well as in many legal systems of the world. Arts. 7.2.1 (Performance of Monetary Obligation) and 7.2.2 (Performance of Non-monetary Obligation) states the general preference for orders to perform, but Art. 7.2.2 notes exceptions to this general rule. Art. 7.2.3 further deals with the issue of Repair and Replacement of Defective Performance.

Although often regarded as the most drastic and last resorted remedy in case of non-performance, the right to termination is ensured by Section 3 of Chapter 7, functioning equally as CISG's avoidance provisions, when performance are so late or so defective that the aggrieved party cannot use it for its intended purpose, or the behaviour of the non-performing party may in other respects be such that the aggrieved party should be permitted to terminate the contract. In this Section, Arts. 7.3.1 and 7.3.2 state generally the issues of Right to Terminate the Contract and Notice of Termination. Arts. 7.3.3 and 7.3.4 then deal with Anticipatory Non-performance and Adequate Assurance of due Performance in case of anticipatory non-performance. And Arts. 7.3.5 (Effects of Termination in General) and 7.3.6 (Restitution) finally clear the effects of termination.

Finally, as almost all legal systems or instruments do, Section 4 of Chapter 7 provides damages to the aggrieved party. Arts. 7.4.1 and 7.4.2 state the general Right to Damages and the underlying principle of Full Compensation, subject to the limitations such as Certainty of Harm (Art. 7.4.3), Foreseeability of Harm (Art. 7.4.4) and Mitigation of Harm (Art. 7.4.8), and lessing Harm Due in Part to Aggrieved Party (Art. 7.4.7). In addition, interests is also grouped under the heading of damages in Section 4 and dealt with separately under the titles of Interest for Failure to Pay Money (Art. 7.4.9) and Interest on Damages (Art. 7.4.10).

2.3.3 PECL Chapters 8, 9

Under the PECL, two chapters establish the remedial scheme: Chapter 8 deals with Non-performance and Remedies in General. Art. 8:101 states the remedies available as: "(1) Whenever a party does not perform an obligation under the contract and the non-performance is not excused under Article 8:108, the aggrieved party may resort to any of the remedies set out in Chapter 9. (2) Where a party's non-performance is excused under Article 8:108, the aggrieved party may resort to any of the remedies set out in Chapter 9 except claiming performance and damages. (3) A party may not resort to any of the remedies set out in Chapter 9 to the extent that its own act caused the other party's non-performance."

Thus, the remedies available for non-performance depend upon whether the non-performance is not excused, is excused due to an impediment under Art. 8:108 or results from behaviour of the other party. A non-performance which is not excused may give the aggrieved party the right to claim performance - recovery of money due (Art. 9:101) or specific performance (Art. 9:102) - to claim damages and interests (Arts. 9:501 through 9:510), to withhold its own performance (Art. 9:201), to terminate the contract (Arts. 9:301 through 9:309) and to reduce its own performance (Art. 9:401). If a party violates a duty to receive or accept performance the other party may also make use of the remedies just mentioned. A non-performance which is excused due to an impediment does not give the aggrieved party the right to claim specific performance or to claim damages (Article 8:108). However, the other remedies set out in Chapter 9 may be available to the aggrieved party. The fact that the non-performance is caused by the creditor's act - or omission has an effect on the remedies open to the obligee. It would be contrary to good faith and fairness for the creditor to have a remedy when it is responsible for the non-performance. This effect may be total, that is to say that the creditor cannot exercise any remedy, or partial. The exact consequence of the creditor's behaviour will be examined with each remedy.[21]

It is to be noted that the PECL similarly provides the additional remedies as contained in the CISG or in the UPICC such as cure by non-performing party (Art. 8:104), assurance of performance in case of anticipatory non-performance (Art. 8:105) and notice fixing additional period for non-performance (Art. 8:106). However, it is should also be mentioned here that the party's right to withhold its own performance as contained in PECL Art. 9:201 (as well as in UPICC Art. 7.1.3, CISG Art. 58) until the other party performs its obligation will not be given detailed discussion in this contribution. This right is not regarded as a remedy for breach of contract.[22]

 2.3.4 Concluding Remarks

As demonstrated above, three basic remedies are provided by each of the three instruments, namely specific performance, damages and termination of the contract. However, the discussions in this contribution are premised on the assumption that the parties have not chosen some other remedy or remedies within their contractual relationship. Any such remedies chosen by the parties would obviously fall outside the scope of this contribution and will not be given detailed discussion. The most important principle of each of the three instruments must be mentioned here, however, that is to regard the contract made between the parties as prevailing.

Contractual freedom is thus the rule, also reflecting the start point for various legal systems in general. Moreover, it is important to note that the remedies available for a breach of contract will be subject to, not only the agreement made between the parties, but also any practice or usage which can be regarded as an implied part of the agreement. In case of a breach of contract it is, therefore, necessary to first look into the contract executed between the parties or any practice or usage of relevance.[23] Only if the agreement and any relevant practice or usage is silent, the provisions of the applicable rules - CISG, UNIDROIT Principles or PECL or any other laws-- concerning remedies will be at hand. However, it should also be noted that, in cases of such remedies chosen by the parties or implied by relevant practice or usage, potential uncertainty may arise depending on the types of remedies chosen by the parties. This becomes a clearer problem in the context of the CISG. Art. 4 of the CISG sets forth the scope of the CISG and expressly excludes "the validity of the contract or of any of its provisions or of any usage". Although the CISG does give the parties the freedom to choose their own remedies, it is not necessarily clear that these remedies will be enforced the same way in every country, if at all.[24]

Another important issue related closely to remedial scheme deals with situations in which a party is not able to perform due to the change of circumstances, in the form of hardship or force majeure. It is true that, unlike under ULIS, the remedies available under the Convention or in the two Principles are not effected by a particular type of breach. In general, the type of the breach is of no importance in determining which remedies are available.[25] However, on the other hand, the remedies available for non-performance depend on whether the non-performance is excused. This point is made clear by the Official Comment to the PECL,[26] and similar approaches may also be found in the CISG or in the UNIDROIT Principles. In general, if the non-performance is excused, the aggrieved party does not have the right to claim damages under each of the three instruments. Nor, under the UNIDROIT Principles and the PECL where an excused non-performance arises, can the aggrieved party require specific performance. While under the CISG Art. 79, there seems to be no textual basis for the exclusion of specific performance even in such impediments as making performance impossible.

Finally, it should be noted that "fault" is not generally a prerequisite to a finding of contractual liability. However, if the non-performance is caused by the obligee's act - or omission - he may not resort to any of the remedies. Non-performance is applied for cases of failure to perform where the obligor carries the risk. The obligee has no remedies against the obligor if he is unable to receive the performance due to his own "fault". His failure to receive performance may in itself be a non-performance which may give the other party remedies such as the right to terminate the contract.

2.4 STRUCTURE OF THIS PRESENTATION

After the general review made in this Chapter (as well as in Chapter 1), in line with the three major remedies and other valuable deliberations, the discussion in this contribution, although the description of the major substantive contents will have to be limited here to a bare outline, is furthered in details grouped roughly under the headings as follows:

PART II. PRESERVING PERFORMANCE

Preserving performance by means of specific performance, so-called Nachfrist procedure, cure by non-performing party or the reduction of price is of great significance in the context of international commercial transactions, where a great deal of time and effort may be incurred by the innocent party in finding an alternate one. This is particularly true when the contract concerns unique and otherwise identified or specific items. But even in cases where the items are not especially unique or otherwise identified it might be easier and less expensive to require performance of obligations of the breaching party instead of seeking damages or obtaining the subject matter from somewhere else.

A clear indication from the present CISG is that it provides an aggrieved party, both the seller (under Art. 46) and the buyer (under Art. 62), a clear right to require performance of obligations under the contract. As a rule, the CISG adopts the primacy of specific performance, which was nevertheless once regarded as one of the biggest obstacles to reaching a compromise on the final text of the Convention. This will be discussed in Chapter3. The CISG has certain provisions that even more clearly demonstrate the priority given to specific performance. This is confirmed through giving rise to an opportunity to save the contract from being avoided, on the one hand, by Arts. 47 and 63, where the aggrieved party is given the right to grant an additional period of time for performance -- the so-called Nachfrist procedure; on the other hand, by Art. 48, which provides the seller with the right to cure (by either remedying the non-conformity or delivering substitute goods) under certain conditions that secure the buyer's interests. These two means serving to preserve performance will be given more details in Chapter 4 and Chapter 5, respectively.

Indeed, the three means mentioned above can be grouped roughly under the aggrieved party's right to performance because the nature of these remedies requires the non-performing party to perform his contractual obligations as originally agreed. However, along with the aforementioned means, there is another remedy designed to preserve the bargain i.e. reduction of the price, provided by the traditional civil law doctrine action quanti minoris, where the aggrieved party is entitled to a proportional reduction in the contract price where the other party's performance is incomplete or otherwise fails to conform to the contract. This is expressly contained in CISG Art. 50 and will be dealt with in Chapter 6.

In sum, theses methods preserving performance illustrate that one of the main purposes of the CISG is to prevent termination of the contract by preserving the enforceability of the contract as concluded by the parties if it is feasible and to avoid economic waste in trade. This principle is also followed under the UNIDROIT Principles and the PECL. Furthermore, the examination in this PART will demonstrate that the two sets of Principles have taken a more modern and uniform way to handle these issues. Arguably, the primacy of preserving performance by mean of various remedies and the preference of specific performance over other remedies such as termination (PART III) or damages (PART IV), appear to be established under each of the three instruments and bear great significance in international commercial transactions.

PART III. TERMINATION

The third major remedy of the aggrieved party -- apart from specific performance and damages -- is termination of the contract. It should be mentioned here that the term "termination" in this context has a meaning resembling in effect the term "avoidance" in the CISG, the same as which is used in the UPICC and PECL in various provisions in the context of the invalidity. In the context of defects of consent resulting in invalidity, "avoidance" means under the UPICC/PECL and most legal systems that a contract becomes void ex tunc. In the context of the CISG "avoidance", by contrast, means that a contract is terminated ex nunc. To avoid being plunged into a battle of conceptual issues, both terms, i.e. "termination" and "avoidance" (as well as their various parts of speech or tenses) are used equally in this PART to mean that a contract is terminated ex nunc, unless specified otherwise.

It is said that the right to termination is the most drastic remedy in case of non-performance, which reflects the gravity of the negative effects of non-performance or performance not complying with the terms of contract. Whether in a case of non-performance by one party the other party should have the right to terminate the contract depends upon the weighing of a number of considerations. A crucial challenge is therefore to identify the grounds on which the aggrieved party may be entitled to terminate the contract where the other party has failed to perform his obligations in accordance with the contract terms. In this respect, Chapter 7 carries on a general discussion on the major grounds for a party's right to terminate the contract as contained in the CISG, UNIDROIT Principles and PECL. To go on with the discussion, Chapter 8 focuses on the concept of fundamental non-performance; Chapter 9 examines the suspension & termination mechanism against anticipatory non-performance; Chapter 10 touches on the termination of breached installment or part.

As to be demonstrated through these examinations, the grounds for termination focus on the fundamentality of the non-performance, actual or anticipatory. An aggrieved party may terminate the contract only if the non-performance of the other party is "fundamental", i.e. material and not merely of minor importance. Read together with the remedial specific performance discussed in PART II, limiting the availability of the right to termination as to be discussed in this PART serves a further contribution to preserving the enforceability of the contract and arguably to promoting good faith and efficiency in commercial dealings.

After the identification of the grounds for termination, Chapter 11 reviews the declaration of termination. As a rule termination is effective only if notice thereof is given by the aggrieved party to the defaulting party. Other than this mere notice, by way of contrast with the approach of some civil law jurisdictions, there is no such procedural requirements restricting the exercise of termination as that the party avoiding the contract obtain judicial approval or confirmation. Termination may be effected by the act of the aggrieved party alone. Generally speaking, termination affects the legal life of the contract and the contractual relationship of the parties. Finally, the effects of termination are to be explored in Chapter 12.

There can be no doubt that it has been established as a general principle of law that in case of breach of contract, the aggrieved party is entitled to damages. Remedies other than damages which are available to an aggrieved party such as specific performance and termination have previously been discussed. To the extent these remedies do not fully protect the aggrieved party's expectations under the contract, a general rule of full compensation which is applied when a party is entitled to claim damages has been well established under each of the three instruments. Generally, damages have to be paid in money and are not to be recovered as restitution or restoration. They require a breach of an obligation regardless of whether the breach consists of non-performance, late performance or defective performance.

In this PART, the discussion in Chapter 13 will indicate that the right to damages is established under the three instruments as a controlling remedy almost invariably pursued either in and of itself or in conjunction with other remedies; and that the principle underpinning the general measure of damages is full compensation. Damages can be claimed no matter whether the breach of contract has been culpably committed intentionally or negligently or in any other way. The mere fact of a breach of contract is sufficient. Compensation for damages is, however, limited by the some methods such as foreseeability of loss, certainty of harm, contribution to harm or the duty to mitigation. These limiting methods will be given details in Chapter 14. Nonetheless, the aggrieved party is generally entitled to recover damages whenever it suffers loss from the other party's unjustified failure to perform. Thus, even in the case of termination of the contract, damages may be requested to compensate the loss arising from such termination. In such a situation, two methods of measuring damages are available. As to be demonstrated in Chapter 15, when the contract is avoided, damages generally amount to the difference between the contract price and the costs of a cover transaction, together with any further damages; where a cover transaction has not been undertaken with regard to the contract breached and a market price is available, the injured party can also measure his damages with the difference between the contract price and the market price.

All legal systems appear to recognize the validity and social utility of a clause which estimates future damages, especially where proof of actual damage would be difficult. Such a clause, sometimes referred to as a "liquidated damages clause" and sometimes as a "penalty clause", is dealt with in the two Principles as agreed payment for non-performance (although the CISG doesn't expressly make such clauses valid in all systems). Such clauses are to be discussed in Chapter 16. Another important aspect which may falls under the general heading of damages is the recovery of attorneys' fees. This issue is of particular significance in international commercial transactions where such fees usually amount to a large number, and therefore will be explored in Chapter 17. Finally, the damages recoverable may include interest upon the amount of the loss from the date at which the loss was incurred to the date of payment. However, the determination of interest is not an issue to be simply resolved after the establishment of liability, but a question that deserves the strictest scrutiny. Thus, Chapter 18 will focus on the payment of interest.

PART V. EXCUSES

The three main aspects of non-performance in a broad sense are the facts of the breach, i.e. failure to perform an obligation including defective performance and late performance, the responsibility of the non-performing party and the legal consequences of the breach, i.e. particular remedies such as specific performance (PART II), damages (PART III) or termination (PART IV). The matter to be discussed in this PART relates to the responsibility of the non-performing party. The main question addressed in this PART is: How can a party be excused from his primary and secondary obligations (performance and damages) under an originally agreed international commercial contract, or entitled to restoring its equilibrium in case of changed circumstances?

This PART begins with a general review of different approaches to the problem of changed circumstances, which excuses a party from performance of its obligations when a contract has become unexpectedly onerous or impossible to perform. It demonstrates that the concept of changed circumstances, also referred to as rebus sic stantibus, has in its basic form been incorporated into so many legal systems and has found a widely recognized expression in international instruments such as the Vienna Convention on the Law of Treaties, the CISG, UNIDROIT Principles and PECL, that it may be regarded as a general principle of law, albeit on different theoretical bases. This is confirmed by international arbitral practice that lots of awards have also admitted, albeit in exceptional cases and with care and prudence, the application of rebus sic stantibus, and regarded it as a general principle of law. (Chapter 19)

Then the discussion focuses on the two major legal concepts dealing with the problem of changed circumstances, which are exceptions to the basic rule pacta sunt servanda: force majeure (Chapter 20), which is at stake where the performance of the party concerned has, at least temporarily, become impossible, and primarily directed at settling the problems resulting from non-performance, either by suspension or by termination; and hardship (Chapter 21), which occurs where the performance of the disadvantaged party has become much more burdensome, but not impossible, and is mainly directed at the adaptation of the contract. Finally, the force majeure or hardship clauses which are frequently introduced into contracts in international trade are at hand (Chapter 22). It is to be noted that the doctrine of changed circumstances or rebus sic stantibus should only be applied with care and prudence and admitted in exceptional cases, especially if the intention of the parties has been clearly expressed in a contract. The standardized use of relevant clauses may help to define the criteria which may trigger excuses for non-performance and simplify an appropriate procedure for the suspension, termination or adaptation of agreed contracts, and are thus necessary to protect the interests of both parties in cases of unexpected changes in circumstances, in light of the observation of the good faith and equity principle.

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FOOTNOTES: Chapter 2

1. See E. Allan Farnsworth in "Damages and Specific Relief": 27 American Journal of Comparative Law (1979); pp. 247-253. Available online at <http://www.cisg.law.pace.edu/cisg/biblio/farns.html>.

2. See Jussi Koskinen in "CISG, Specific Performance and Finnish Law": Publication of the Faculty of Law of the University of Turku, Private law publication series B:47 (1999). Available online at <http://www.cisg.law.pace.edu/cisg/biblio/koskinen1.html>.

3. See Maskow, Dietrich in "Hardship and Force Majeure": 40 Am.J.Comp.L. (1992); p. 657. Available online at <http://tldb.uni-koeln.de/TLDB.html>; TLDB Document ID: 126400.

4. See Survey of the International Sale of Goods 3, L. Lafili, et al. eds., (1986); p. 14.

5. For instance, German law and some legal systems inspired by it (such as Austrian and Swiss law) do not use a unitary approach. Instead they distinguish between the various causes of breach, especially between impossibility of performance, delay, and all other instances of breach; in addition, following Roman traditions, defects of individual goods are dealt with on a special basis. This system of splitting up breach of contract into several more or less separate institutions has proved to be quite inadequate in many respects because it gives rise to difficult problems of delimitation. However, under the impact of comparative law and the unification of sales law there is now a strong tendency in German academic writings to adopt the unitary approach.

6. See Ulrich Drobnig in "General Principles of European Contract Law": Petar Sarcevic & Paul Volken eds., International Sale of Goods: Dubrovnik Lectures, Oceana (1986); p. 318. Available online at <http://www.cisg.law.pace.edu/cisg/biblio/drobnig.html>.

7. See Fritz Enderlein in "Rights and Obligations of the Seller Under the U.N. Convention on Contracts for the International Sales of Goods": Sarcevic & Volken eds., Dubrovinik Lectures (1986); p. 188. Available online at <http://www.cisg.law.pace.edu/cisg/biblio/enderlein1.html>.

8. See Fritz Enderlein, Dietrich Maskow, International Sales Law: United Nations Convention on Contracts for the International Sale of Goods, Oceana Publication (1992); p. 318, 320, 336. Available online at <http://www.cisg.law.pace.edu/cisg/biblio/enderlein.html>.

9. See Comment on Art. 7.1.1 UPICC.

10. See Comment and Notes to the PECL: Art. 8:101. Comment A. Available online at <http://www.cisg.law.pace.edu/cisg/text/peclcomp45.html>.

11. Supra. note 6.

12. Supra. note 2.

13. See Nayiri Boghossian in "A Comparative Study of Specific Performance Provisions in the United Nations Convention on Contracts for the International Sale of Goods": Pace Review of the Convention on Contracts for the International Sale of Goods, Kluwer (1999-2000); p. 15. Available online at <http://www.cisg.law.pace.edu/cisg/biblio/boghossian.html>.

14. See Robert Koch in "The Concept of Fundamental Breach of Contract under the United Nations Convention on Contracts for the International Sale of Goods (CISG)": Pace Review of the Convention on Contracts for the International Sale of Goods (CISG) 1998, Kluwer Law International (1999); p. 297. Available online at <http://www.cisg.law.pace.edu/cisg/biblio/koch.html>.

15. Supra. note 13, p. 10. In general, the CISG has features that are familiar from both of the two major legal systems, i.e. civil and common law systems. However, on the other hand, the CISG is an international convention which reflects the compromise between civil law and common law aspects; and it has therefore not been possible to achieve a totally uniform scheme of remedies compared with different domestic legal systems. The range of remedies is more comprehensive than what is available under common law and some of these remedies are even foreign to common law.

16. Supra. note 2.

17. Ibid.

18. Under the Convention, apart from the damages remedy, avoidance and substitute delivery are only available when a fundamental breach occurs.

19. In a broad way, remedies for breach of contract in sales law can be broken into two main categories: one where the contract can be terminated or avoided by the parties, the other where the remedy is granted while the contract remains in force. Since parties will typically expect their contracts to be performed or at least stay in effect, the primary emphasis should be on the remedies that operate without having to avoid the contract. (See Peter A. Piliounis in "The Remedies of Specific Performance, Price Reduction and Additional Time (Nachfrist) under the CISG: Are these worthwhile changes or additions to English Sales Law?"(1999). Available online a