Reproduced with permission from 20 Australian Business Law Review (1992) 442-460. © Lawbook Co, part of Thomson Legal & Regulatory Limited <www.thomson.com.au>.
Mark N. Rosenberg
Corporate Solicitor, Ampol
The United Nations Convention on Contracts for the Sale of Goods, or as it is more commonly known, the Vienna Convention (the Convention) seeks to introduce a uniform international law for the sale of goods. This goal is expressly stated in Art. 7(1) which provides that in interpreting the Convention, regard is to be had to its "international character and the need to promote uniformity in its application". At the time of writing, the Convention has been ratified or acceded to by 33 States  and it appears likely, that further States will ratify or accede to the Convention in the future. The Convention will not only apply to contracts between parties whose respective States have adopted the Convention as law. It will also apply "when the rules of private international law lead to the application of the law of a Contracting State". Given this considerable scope and the likelihood that further States will adopt the Convention, it appears that the Convention is well on the way to achieving its goal of creating a uniform law. Yet the mere adoption of the Convention by numerous [page 442] States will not in itself ensure the achievement of world-wide uniformity in the law of international sale of goods contracts. For this to be achieved there must be:
This paper will focus on the second of these two requirements, namely, the need for a uniform approach to gap-filling.
The inability of any statute to address and solve all circumstances and problems that arise under it is well recognised. A number of civil law Codes expressly provide for gaps to be filled by referring to the provisions of the Code and the principles which form the basis of the Code. The Civil Codes of Austria, Egypt, Italy and Spain all contain such provisions. Other civil law countries such as France and Germany, whose Codes do not contain express gap-filling provisions, in practice supplement their Civil Codes by referring to the general principles which underlie the provisions of their respective Codes. Common law countries such as Australia, England and the United States have traditionally filled statutory gaps by referring to the general principles that may be found in the appropriate case law. More recently, a number of common law countries have been filling gaps by giving effect to the purpose and object underlying a statute.
Given the enormity of the task that faced the drafters of the Convention, the complexity and duration of the consensus-style drafting process  and the difficulty of revising an international convention, [page 443] it is inevitable that gaps will be identified in the Convention. This article will examine what the writer believes to be a gap in Art. 16 of the Convention and will provide an analysis of how the gap-filling procedure set out in Art. 7(2) should be utilised to ensure uniformity in international law for the sale of goods. It is hoped the approach adopted in dealing with this relatively simple gap problem will be of assistance to judges and practitioners faced with more complex problems under the Convention.
ARTICLE 16 OF THE CONVENTION
Article 16 sets out the law under the Convention in relation to revocability of offers. It provides that an offer is revocable prior to acceptance unless:
An examination of the legislative history of Art. 16 reveals that it was one of the most controversial articles discussed by the Convention's drafters in the 11-year period that elapsed between the establishment of the Working Group and the approval of the Convention at the diplomatic conference in 1980. The principal cause of the controversy surrounding Art. 16 is the apparent lack of agreement among the drafters as to how the Article was meant to be interpreted. It appears that there is a considerable risk that Art. 16 will be interpreted differently depending on whether a civil law or [page 444] common law tribunal is hearing the matter. Clearly this is a serious threat to the Convention's objective of achieving uniformity.
As pointed out above, a second threat to uniform international sale of goods law is the failure to adopt a common approach to gap-filling under the Convention. Article 16 appears to contain a gap in the situation where an irrevocable offer has clearly been made. Specifically, the gap appears in the following situation identified by Professor Honnold:
"Buyer offered to purchase complex machinery from Seller which Seller would manufacture according to designs supplied by Buyer. The offer included a stated price and stated that the offer would be held open for two months to enable Seller to determine whether he could make the machinery at that price. Seller immediately started the process of designing manufacturing procedures and computing costs of production. Two weeks later, when Seller had spent substantial sums in computing costs but had not completed this work, Buyer notified Seller that he could no longer use the machinery and withdrew the offer. Seller thereupon stopped work on the cost estimates since it would be uneconomical to invest further funds in preparing to make machinery that Buyer would not accept and perhaps could not pay for."
In the above situation (the Problem Case) the Seller has relied on the Buyer's irrevocable offer and incurred considerable expense to determine whether it can accept the Buyer's offer. At the time the Buyer advises the Seller that the offer is being withdrawn, the Seller has not reached the point where it is able to accept the offer. To do so would require further expenditure. Naturally, the Seller does not wish to waste additional resources given the Buyer's express statement that it will not perform its obligation to pay under the contract if the Seller should decide to accept the offer. Can the Seller recover his reliance expenditure under the Convention? [page 445]
Article 74 of the Convention provides that damages for a loss may be obtained for "breach of contract". Given that the Seller has not accepted the irrevocable offer, Art. 23 would suggest that a contract has not been entered into. If this is the case, damages will not be available to the Seller. Plainly the Convention intended to provide parties with effective remedies. The inability of the Seller to recover in the Problem Case suggests that there is a gap in the Convention.
AN ANALYSIS FOR GAP-FILLING
Article 7(2) calls for a particular method of analysis when considering whether there is a gap in the provisions of the Convention. Specifically, the Article requires a determination of two questions, namely:
Is the Matter Governed by the Convention?
Just what is and is not governed by the Convention will not always be easy to determine. The Convention itself provides some assistance in specifying that it is not concerned with:
In addition, the Convention does not govern rights based on fraud or agency law.
However, one can imagine that there will be many instances where after examining the provisions of the Convention and having "regard to its international character and the need for uniformity in its application", the answer to the question will remain unclear. For example, it is not clear whether the Convention is concerned with precontractual negotiations in situations where an irrevocable offer has not been made. While there is no express provision governing precontractual negotiations generally, a principle that underlies the Convention is that it is concerned with precontractual negotiations where a party has acted in reliance on a representation made by the other. Article 16(2)(b) protects a party who has "acted in reliance" on an offer in the reasonable belief that it was irrevocable, while Art. 29(2) provides that a party may be precluded by his or her conduct from asserting that a modification to a contract must be in writing "to the extent that the other party has relied on that conduct".
As with any question involving interpretation of the Convention, it is both useful and advisable to look to the legislative history for assistance. An examination of the legislative history in this instance reveals that a proposal by the former German Democratic Republic [page 447] to introduce a provision which would have created a general liability for precontractual negotiations was rejected by the drafters. According to Professor Schlechtriem, it follows that damages caused by one party to the other in the course of precontractual negotiations "remain subject to regulation by domestic law applicable to conflict rules" unless the case concerns the revocation of an offer which "is a matter regulated by the Convention".
Is the Matter "Expressly Settled" by the Convention?
To this writer a matter will be expressly settled by the Convention if it could be said that the drafters intended the provisions of the Convention to be the exclusive and comprehensive law in relation to that matter. Where there is such an intention there cannot be a gap.
An illustration of a matter that is expressly settled is "time for delivery". Article 33 provides that if a date for delivery is fixed by the contract, the seller must deliver the goods on that date. If no date is fixed, the seller must deliver "within a reasonable time after the conclusion of the contract". A failure to do so will enable the buyer to exercise its rights under Section III of the Convention, which include the right to fix an additional time for delivery, to declare the contract avoided  and to seek damages. Clearly there is no gap in the Convention in relation to the matter of "time for delivery".
However, there will be some instances where it will not be clear that the provisions of the Convention were intended to be the exclusive and comprehensive law in relation to a matter. The Art. 16 Problem Case is one example. The Convention appears to allow an offeree to recover damages if it has accepted the irrevocable offer which is unlawfully withdrawn, but does not allow recovery of damages in the absence of acceptance. In these circumstances, a question arises as to whether the drafters intended not to provide damages in the absence of acceptance, or whether there is a gap in the remedial provisions of the Convention. The gap-filling procedure can only take place if one concludes that the absence of the remedy resulted from the failure of the drafters of the Convention to foresee the situation and resolve it.
But how do you determine whether the absence of the application of a remedial provision to a specific case is a gap or, alternatively, was intended by the drafters? Three steps are appropriate. First, an examination of the legislative history. The discussion of the drafters of the Convention may reveal that it was expressly intended that no [page 448] remedy be available in the particular case in question. Secondly, an examination of similar cases regulated by specific provisions of the Convention may prove to be of assistance. If the remedy is available in analogous situations, it will usually be reasonable to conclude that a gap exists. (However, provision for a remedy in an analogous situation may not have been intended to extend to cases other than those specifically dealt with by that provision.) Alternatively, if the remedy is not available in analogous situations, it will be reasonable to conclude that the drafters did not intend it to be available in the case in question. Finally, an examination of the principles which underlie the provisions of the Convention may help to clarify the drafters' intentions. If the availability of the remedy conflicts with any of the principles which underlie the provisions of the Convention, it is unlikely that a gap exists. Conversely, if the absence of a remedy conflicts with any of the Convention's general principles, it is likely that a gap exists.
Professor Honnold suggests that the gap-filling procedure set out in Art. 7(2) represents "a delicate balance between developing the Convention's general principles and recourse to domestic law". The legislative history of Art. 7 supports such an observation. The provision represents a compromise between representatives who favoured the wording of Art. 17 of the Uniform Law on the International Sale of Goods (ULIS) and those who did not. Article 17 of ULIS states:
"Questions concerning matters governed by the present Law which are not expressly settled therein shall be settled in conformity with the general principles on which the present Law is based."
Those who opposed the approach of Art. 17 felt that the concept of "general principles" upon which the Uniform Law was based was too uncertain to provide guidance. They argued that the Convention should provide for gaps to be filled by domestic law, as indicated by private international law. The supporters of Art. 17 on the other hand, emphasised the need to have regard to the international character and the goal of uniformity of the proposed law. They stressed that disparate domestic law solutions would increase uncertainty and reduce uniformity in the law. [page 449]
The compromise that is Art. 7 does three things. First, as noted above, it makes clear that for the purposes of interpretation of the Convention "regard is to be had to its international character and the need for uniformity in its application". Secondly, it indicates that gaps are to be filled where possible by applying the general principles on which the Convention "is based". Thirdly, it states that it is only in the absence of such principles that recourse is to be had to solutions provided by domestic law.
Although Art. 7(2) is a compromise, it is a compromise more favourable to the supporters of Art. 17 of ULIS than its opponents. And this is not a bad thing. The Convention represents an attempt to codify the law on international sale of goods contracts. It was intended that, in relation to the matters governed by it, the Convention would replace existing domestic law, whether embodied in statutes or developed by case law. It was not meant to be complementary to national laws but rather was intended to be an exhaustive regulation. Had the compromise favoured the opponents of Art. 17, so that recourse to domestic law were more readily available, the Convention's goal of'uniformity would have been severely undermined. The law would vary according to the domestic law deemed to apply under the principles of private international law and the parties would be faced with the uncertainty that accompanies such a determination. Gaps will be filled in some jurisdictions and left open in others. Where a decision is made to fill a gap, the manner will vary from one jurisdiction to the next. The Convention minimises the risk of such problems arising. Recourse may only be had to domestic law solutions when it is not possible to fill a gap by applying the general principles on which the Convention is based, or where no such principles exist.
But how does one go about determining what the general principles are? Further, when one has identified such principles, how does one apply them to fill a gap? In addressing these questions, tribunals must be conscious of the mandate in Art. 7(l) that regard is to be had to the international character of the Convention and the need to promote uniformity in its application. The temptation to adopt a domestic law analysis of the problem should be resisted. Tribunals must recognise the uniquely international nature of the Convention and its function as uniform law.
Professor Bonnell suggests that there are two "complementary" methods of gap-filling allowed under Art. 7(2). First, an analogical application of specific provisions of the Convention and secondly, a consideration of the general principles underlying the Convention as a whole. [page 450]
The analogical application of specific provisions requires examination of the provisions of the Convention dealing with similar cases. According to Professor Bonnell, if the cases expressly governed by the provision and the case in question are so analogous "that it would be inherently unjust not to adopt the same solution", the gap should be filled by applying the principle of that provision. There are inherent problems with an "inherently unjust" test. What is inherently unjust to one person may not be inherently unjust to another. Perhaps the better approach to the problem is that suggested by Professor Honnold, who would focus on whether the cases were so analogous that the drafters "would not have deliberately chosen discordant results". In such circumstances it is reasonable to conclude that the general principle embracing the analogous situation is authorised by Art. 7(2).
If the gap is unable to be filled by analogical application of specific provisions, resort may then be had to a broader use of general principles. Professor Bonnell explains the difference between the two gap-filling methods as follows:
"Recourse to 'general principles' as a means of gap-filling differs from reasoning by analogy insofar as it constitutes an attempt to find a solution for the case at hand not by mere extension of specific provisions dealing with analogous cases, but on the basis of principles and rules which because of their general character may be applied on a much wider scale."
According to Bonnell, while some general principles will be expressly stated in the Convention, they will usually be extracted from provisions dealing with specific issues. The rules established by specific provisions must be analysed to determine whether they can be considered an expression of a more general principle which is capable of being applied to cases not specifically regulated. General principles said to be revealed by such an analysis include:
APPLICATION OF THE GAP-FILLING ANALYSIS TO ARTICLE 16
I now wish to consider the application of the Convention to the Problem Case set out in the text accompanying note 17.
Is the Matter of Revocation of Offers Governed by the Convention?
The Convention clearly governs revocation of offers. Article 16 was intended to govern the field as to when an offer can or cannot be revoked. This is plain from both the express language of the provision and its legislative history.
Is the Matter of Revocation of Offers Expressly Settled by the Convention?
As discussed above, the Convention appears to deprive an offeree in the Problem Case of a remedy in damages for the expenditure incurred in reliance on an irrevocable offer that is withdrawn prior to the expiration of the period the offeror stated it would hold the offer open. Did the drafters intend to deny such an offeree an effective remedy, or, can it be said that the absence of the remedy resulted from the failure of the drafters of the Convention to foresee the situation and resolve it? [page 452]
There is nothing in the legislative history of either Art. 16 or Art. 74 to suggest that the Problem Case had been envisaged by the drafters and that they had intended that damages ought not be available to the Seller.
What does an examination of other cases governed by Art. 16 reveal?
Let us change the facts in our Problem Case so that the offeree has carried out all its research and accepted the offer prior to the expiration of the two-month period the offer was promised to remain open.
The Buyer offers to purchase machinery from the Seller for a fixed price and promises to keep the offer open for two months to allow the Seller (offeree) to determine whether it can design machinery at the offer price. The Seller incurs considerable expense to determine whether it can accept the offer, concludes that it can, and notifies the Buyer that it accepts the offer. The Buyer subsequently informs the Seller that it can no longer use the machinery and will not go through with the sale.
Can the Seller recover damages from the Buyer for the expenditure incurred in reliance on the offer? The communication by the Seller to the, Buyer of its acceptance becomes effective under Art. 18 at the moment the indication of assent reaches the offeror, and under Art. 23 the contract would be concluded at that time. Article 53 of the Convention obliges the Buyer to pay the price for the goods and take delivery of them as required by the contract and the Convention. Under Art. 72 the Seller may declare a contract avoided if prior to the date for performance, it is clear that the Buyer will commit a fundamental breach of contract. A breach of contract is "defined by Art. 25 to be fundamental "if it results in such detriment to the other party as substantially to deprive him of what he is entitled to expect under the contract". The failure to pay the contract price is clearly a fundamental breach. Article 72(2) requires the offeree to give reasonable notice to the offeror that it intends to avoid the contract to permit the offeror to provide adequate assurance of its performance. If, as is likely to be the case, the Buyer declares that it will not perform its obligation to pay, the Seller would be able to avoid the contract. That is, in Case A, the Seller would be able to avoid the contract.
In addition to avoiding the contract, the Seller will be able to exercise its right to claim damages under the Convention pursuant to Arts. 61 [page 453] and 74. Given that Art. 74 allows damages for the loss suffered as a consequence of the breach, the Seller would be able to recover the costs it incurred in reliance on the offer and the Seller would also be entitled to damages for any reasonably foreseeable loss of profit which flowed from the breach.
Let us change the facts of Case A so that the Buyer informs the Seller it is withdrawing its offer before the Seller has notified the Buyer of its acceptance.
The Buyer offers to purchase machinery from the Seller for a fixed price and promises to keep the offer open for two months to allow the Seller (offeree) to determine whether it can design machinery at the offer price. The Seller incurs considerable expense to determine whether it can accept the offer and concludes it can. Prior to notifying the Buyer that it accepts the offer and prior to the expiration of the two-month period during which the offer was to remain open, the Buyer notifies the Seller that it can no longer use the machinery and withdraws its offer. After receiving the Buyer's notification that the offer is withdrawn, the Seller ignores the Buyer's notice and informs the Buyer that it accepts the offer.
Can the Seller recover damages for the expenditure incurred in reliance on the offer? Under Art. 16(2) the offer cannot be revoked prior to the expiration of the two-month period during which it was represented it would be held open. It appears that for the purposes of the Convention, the Buyer's revocation in Case B would have no legal effect. Since the Seller has notified the Buyer that it has accepted the offer within the time the offer was to remain open, the analysis of Case A would apply with the result that the Seller would be able to recover damages for the expenditure incurred in reliance on the offer and for any other reasonably foreseeable loss that flows from the breach. Thus in both Case A and Case B, the Convention enables the Seller to recover damages for the expenditure incurred in reliance on the Buyer's offer.
Case A and Case B are clearly analogous to the Problem Case. In all three cases the Seller has relied on the Buyer's irrevocable offer and suffered a loss of expenditure. However, in Case A and Case B the Seller has:
By comparison, the Seller in the Problem Case has not completed its research, has not decided to accept the offer and has not notified the Buyer that it accepts the offer within the relevant period.
Whether or not a gap exists will depend on the answer to the following question: Do the differences outlined above lead to the conclusion that damages were not intended to be available in the Problem Case?
It is arguable that the differences between Case B and the Problem Case lead to the conclusion that damages were not intended to apply to the Problem Case. The argument would run as follows. An underlying principle of the Convention is that there must be an acceptance of an offer (so as to create a contract) before the Convention's remedial provisions are brought into effect. Article 16 was intended to enable a party relying on an irrevocable offer to accept that offer and recover damages if the other party failed to perform its obligations. The Article was not intended to operate to enable a party to recover damages if it did not accept the offer, as in such circumstances there would be no contract. It would follow that, as there was no acceptance in the Problem Case, there is no remedy available and, consequently, no gap.
To this writer such an argument is unpersuasive. It does not make any sense to allow the Seller to recover damages in Case B, yet to deny the Seller the right to damages in the Problem Case. The reason it makes no sense is that on such an interpretation, the Seller not entitled to damages in the Problem Case may become entitled to damages by incurring additional expenditure (which it would subsequently recover if it can establish a breach) and notifying the Buyer that the offer was accepted. Such conduct would be in conflict with the general principle of mitigation which underlies Art. 77. It is ridiculous to conclude that the drafters of the Convention intended to force a party to act in an economically inefficient manner by incurring additional expenditure and loss in order to benefit from the available remedies.
Further, it can be argued that the drafters did in fact intend that the Convention's remedial provisions would be available in cases where, while there was no breach of contract, there was a failure by one party to perform an obligation created by the Convention. Article 61 provides that damages will be available to a seller:
"if the buyer fails to perform any of his obligations under the contract or this Convention" (emphasis added).
While the damages provisions are written in terms of providing remedies for breach of contract, those provisions must be read in light of Art. 61. There is a strong argument that the principle underlying Art. 74 is that damages should be available for both a breach of contract and a breach of obligation under the Convention. If this argument [page 455] is correct, parties may be exposed to actions for damages in a variety of situations where obligations are created by the Convention. It would follow that damages were intended to be available in the Problem Case given that the Seller has suffered a loss as a consequence of the Buyer's breach of its obligation (as stated in Art. 16(2)) to hold the offer open.
It is submitted that the differences between Case A and Case B on the one hand and the Problem Case on the other, do not support the conclusion that damages were not intended to be available in the Problem Case. Rather, the absence of a specific legislative intent to exclude the remedy, the availability of the remedy in closely analogous situations, the conflict with the principle of mitigation, and the existence of Art. 61, compel the conclusion that the drafters simply failed to foresee the Problem Case arising. In other words, the matter has not been expressly settled and a gap exists.
Filling the Gap for the Problem Case
Having concluded that a gap exists it is necessary to determine how it should be filled. As explained previously, there are two alternatives. Either the gap is filled by applying the general principles on which the Convention is based, or, in the absence of applicable principles, recourse is had to domestic law. In considering these alternatives, regard must be had to the Convention's international character and the need to promote uniformity in its application. It is submitted that in the Problem Case, the gap can, and should, be filled by applying the Convention's general principles. Specifically, the gap should be filled by applying the principle underlying Art. 74, that damages are available to an innocent party where the other party has breached its obligation under the contract or the Convention. [page 456]
Case B and the Problem Case are analogous. In both instances an irrevocable offer has been made. In both instances the Seller has reasonably relied on the offer and spent a considerable sum to determine whether to accept the offer. In both instances the Buyer has unlawfully withdrawn the offer with the result that the reliance expenditure is wasted. The cases are so similar, that the Seller in the Problem Case can, by its unilateral action, place itself in the same situation as the Seller in Case B and obtain damages under Art. 74 of the Convention. The similarity between the two cases, together with the statement in Art. 61 that a seller may recover damages where a buyer breaches its obligation under the Convention, leads to the conclusion that damages should be available to the Seller in the Problem Case. The drafters "would not have deliberately chosen discordant results" for the two cases. In sum, Art. 7(2) requires that the gap be filled by applying the principle underlying Art. 74 of the Convention.
If on the other hand, a tribunal nevertheless decided that there was no general principle under the Convention that could be applied to fill the gap, recourse would be had to domestic law. The writer's examination of a number of domestic legal systems in relation to this point reveals that, while most domestic law will enable the Seller, in the Problem Case to institute proceedings to recover damages for its reliance loss, this will not always be the case.
Civil law States are likely to allow the Seller to recover reliance damages. In France, while an offer stated to be open for a set period can be withdrawn by the offeror before the expiry of that period, the law provides that such a withdrawal will render the offeror liable to the offeree in damages. Although there is some dispute in French law as to the legal basis for the offeror's liability in damages, it seems likely that the Seller in the Problem Case could obtain damages equivalent to the expenses it incurred in reliance on the Buyer's offer remaining open. In Italy, the Codice Civile would allow the Seller to recover damages for the loss suffered in preparing to perform. In Germany, Brazil, Greece and Switzerland an offeror "is not simply under a duty not to withdraw the offer but actually has no power to do so ... an attempted withdrawal simply has no legal effect at all." It would seem to follow that the Seller in the Problem Case could also recover damages in these States.
Australian and United States Courts would also be likely to allow the Seller damages under the doctrines of equitable or promissory estoppel. In the United States, the Uniform Commercial Code, (UCC) Art. 2-205 would be of no assistance in the Problem Case as the offer [page 457] is not in writing. However, UCC Art. 1-103 provides that unless displaced by particular provisions of the Act, the principles of law and equity, including estoppel, shall supplement the provisions of the Act. The law of promissory estoppel in the United States is derived from s. 90 of the Restatement (Second) of Contracts which provides:
"A promise which the promisor should reasonably expect to induce action or forbearance on the part of the promisee or a third person and which does induce such action or forbearance is binding if injustice can be avoided only by enforcement of the promise. The remedy granted for breach may be limited as justice requires."
United States courts have consistently shown a willingness to apply the principles of promissory estoppel to enable plaintiffs to recover reliance damages in cases where UCC Art. 2-205 does not apply. It follows it is likely the Seller would recover reliance damages if United States domestic law applied.
In Australia, the use of equitable estoppel as a cause of action was approved by the High Court in Waltons Stores (Interstate) Ltd v Maher. The law was subsequently succinctly stated by the Supreme Court of New South Wales in the following terms:
"For equitable estoppel to operate ... there must be the creation or encouragement by the defendant in the plaintiff of an assumption that a contract will come into existence or a promise be performed, [page 458] and the reliance on that by the plaintiff, in circumstances where the departure from the assumption by the defendant would be unconscionable."
An Australian court would also be likely to uphold an action by the Seller in the Problem Case on the basis of equitable estoppel. The promise to keep the offer open would amount to the "creation or encouragement" by the Buyer in the Seller "that a promise would be performed", while the actions of the Seller would be regarded as reliance in circumstances where it would be unconscionable to allow the Buyer to depart from its promise. The remedy granted to satisfy the equity will be whatever is necessary to prevent detriment resulting from the unconscionable conduct. That is, the remedy will be what is necessary to reverse the actual harm which results from the reliance.
English courts, on the other hand, would be unlikely to allow the Seller to recover damages. Promissory estoppel in England is still regarded as a "shield" and not a "sword". That is, unlike the position in Australia, it does not give rise to a cause of action, but rather, is the foundation of a defensive equity. It follows that the Seller in the Problem Case would be unable to recover reliance damages in England.
The results of this brief inquiry highlight the fact that if current domestic law is used to fill the gap, non-uniform results may follow.
The benefits of a uniform law for the international sale of goods are substantial. A uniform law provides parties with greater certainty as to their potential rights and obligations than do the amorphous principles of private international law and the possible application of an unfamiliar system of foreign law. Further, a uniform law serves to simplify international sales transactions and thus contributes to the promotion of international trade. The Convention seeks to achieve such uniformity. Whether or not it is successful will largely be dependent on two things: first, whether domestic tribunals interpret its provisions in a uniform manner and, secondly, whether those same tribunals adopt a uniform approach to the filling of gaps.[page 459]
This article has examined the mechanisms for gap-filling required by Art. 7(2) of the Convention. The Article stipulates a three-step approach. First, it must be determined whether the matter is governed by the Convention. If it is not, there can be no gap and recourse may be had to domestic law to find a solution. Secondly, if the matter is governed by the Convention, the tribunal must determine whether it is expressly settled under it. A matter will be expressly settled if the drafters intended the Convention's provisions to be the exclusive and comprehensive law in relation to the matter. If a matter is expressly settled, there cannot be a gap. However, if a matter is not expressly settled (so that a gap exists), the third step requires that the gap must be filled in conformity with the general principles on which the Convention is based or, in the absence of such principles, in conformity with the law applicable by virtue of the rules of private international law. An examination of how the Convention applies to analogous cases will usually be determinative of whether a matter is expressly settled and whether the gap can be filled in conformity with the Convention's general principles.
This article has applied the above analysis to a specific situation, (that is, the Problem Case) that appears to reveal a gap in Art. 16 of the Convention. The Case involves a set of facts where a Seller has reasonably relied on an irrevocable offer, incurring considerable expense in the process, but is not in a position to accept the offer at the time it is unlawfully withdrawn. The provisions of the Convention appear to deny the Seller a remedy that would enable it to recover its reliance expenses, unless it incurs further expense and accepts the offer.
It seems clear that the Convention was intended to govern the field in relation to irrevocable offers. An application of the principles of Art. 16 and Art. 74 to cases closely analogous to the Problem Case lead to the conclusion that (i), the drafters did not foresee the Problem Case, so that a gap in the Convention exists and (ii), the drafters intended that the principle underlying Art. 74 (that damages be available to an innocent party where the other party breaches its obligations under the Convention) should enable the Seller in the Problem Case to recover damages for its reliance expenditure.
An examination of the law of a number of domestic systems reveals that if recourse were had to domestic law to fill in the gap, non-uniform results will follow. This illustrates the consequences of recourse to domestic law as an approach to gap-filling and demonstrates that such recourse may undermine the purpose of the Convention. For this reason, it is imperative that domestic tribunals comply with the mandate in Art. 7(l) that in "the interpretation of this Convention, regard is to be had to its international character and to the need to promote uniformity in its application". [page 460]
1. Argentina, Australia, Austria, Bulgaria, Byelorussian S,S.R., Canada, Chile, China, Czechoslovakia, Denmark, Ecuador, Egypt, Finland, France, Germany, Guinea, Hungary, Iraq, Italy, Lesotho, Mexico, Netherlands, Norway, Romania, Spain, Sweden, Switzerland, Syrian Arab Republic, Ukrainian S.S.R., United States of America, Union of Soviet Socialist Republics, Yugoslavia, and Zambia. It is arguable that under Art. 34 of the 1978 Vienna Convention on Succession of States in Respect of Treaties, all of the new "Soviet" republics have succeeded the former U.S.S.R. to the Convention.
2. See B. Nicholas, "The Vienna Convention on International Sales Law" (1989) 105 L.Q. Rev. 201 at 242; Note on Vienna Sales Convention (1988) (June) Aust. L. News 19.
3. Art. 1(1): "This Convention applies to contracts of sale of goods between parties whose places of business are in different States: (a) when States are Contracting States; or (b) when the rules of private international law lead to the application of the law of a Contracting State."
4. M.J. Bonnell, "Interpretation of the Convention", in C.M. Bianca and M.J. Bonnell (Eds), Commentary on the International Sales Law, 1987, p. 74 (hereinafter Bianca-Bonnell); see also P. Volken, "The Vienna Convention: Scope, Interpretation, and Gap-Filling" in Dubrovnik Lectures, 1986, p. 42; and P. Winship, "The Scope of the Vienna Convention on International Sales Contracts", in Parker School Proceedings (1984), Ch. 1, p. 3, Ch. 1, p. 9 (hereinafter Parker).
5. See Art. 7:
"(1) In 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 the observance of good faith in international trade.
"(2) Questions concerning matters governed by this Convention which are not expressly settled in it are to be settled in conformity with the general principles on which it is based or, in the absence of such principles, in conformity with the law applicable by virtue of the rules of private international law."
See also Bonnell, Volken, and Winship, n. 4, supra.
6. J. Honnold, Uniform Law For International Sales, 2nd ed., 1991, p. 97.
7. Bonnell, n. 4, supra, pp. 76-77; Honnold, n. 6, supra. p. 151.
8. Although the U.S. position under the Uniform Commercial Code 1990 (the UCC) effectively adopts both approaches. See Arts. 1-102(1), (2) and 1-103.
9. See, for instance, the Acts Interpretation Act 1901 (cth), s. 15AA; the Interpretation v. Monarch Airlines  A.C. 251 at 272-273, 275, 280 and 291.
10. Honnold, n. 6, supra, pp. 49-56; Nicholas, n. 2, supra, 243.
11. Honnold, ibid., p. 151.
12. See G. Eörsi, "General Provisions", in Parker, n. 4, supra, Ch. 2, p. 11. Eörsi suggests that a gap may exist in Arts. 78 and 84 which provide for the payment of interest by an infringing party, but do not specify the appropriate rate. He also considers that a gap may exist under Art. 1(b) "if one of the parties to a contract has a place of business in State A which has ratified the Convention and another in State B which has not ratified it".
13. Art. 16:
"(1) Until a contract is concluded an offer may be revoked if the revocation reaches the offeree
before he has dispatched an acceptance.
(2) However, an offer cannot be revoked:
(a) if it indicates, whether by stating a fixed time for acceptance or otherwise, that it is irrevocable; or
(b) if it was reasonable for the offeree to rely on the offer as being irrevocable and the offeree has acted in reliance on the offer."
14. A Working Group charged with preparing a text for a uniform law for international sales was established by UNCITRAL in 1969. The Convention was unanimously approved at a diplomatic conference of 62 States on 11 April 1980. See Honnold, n. 6, supra, pp. 47-56. For an examination of the legislative history of Art. 16 see J. Honnold, Documentary History of the Uniform Law for International Sales (hereinafter Docy. Hist.); see also Honnold, n. 6, supra, pp. 205-214; G. Eörsi, in Bianca-Bonnell, op. cit., n. 4, pp. 150-155.
15. Eörsi, ibid., p. 158.
16. Article 16(2)(a) provides that an offer can be revoked "if it indicates, whether by stating a fixed time for acceptance or otherwise, that it is irrevocable". During the drafting of the Convention civil law representatives interpreted the wording of the Article to mean that the offer is irrevocable for the time fixed for acceptance, while common law representatives interpreted the wording to mean that the offer is irrevocable "only if the manner of ‘stating a fixed time for acceptance’ indicated that the offer was irrevocable". This difference in interpretation is a result of the contrast in approach to the problem of revocability taken by the common law and civil law systems. The traditional common law approach is that, in the absence of consideration, an offer is revocable regardless of any statement to the contrary by the offeror. In contrast, civil law provides that an offer is binding unless an offeror makes it clear that it is revocable. French law provides that while revocation is permitted, if an offer provides a fixed time for acceptance, the offeror is required to indemnify or pay damages to the offeree when he or she wishes to exercise the right to revoke. See Eörsi, ibid., p. 155; K. Sono, "Restoration of the Rule of Reason in Contract Formation: Has There Been Civil and Common Law Disparity?" (1988) 21 Cornell Int’l L.J. 478. The position in the U.S.A. is set out at Art. 2-205 of the U.C.C. which, while adopting the civil law approach, limits its application to signed written offers made by merchants.
17. Honnold, n. 6, supra, p. 213.
18. Art. 74: "Damages for breach of contract by one party consist of a sum equal to the loss, including loss of profit, suffered by the other party as a consequence of the breach. Such damages may not exceed the loss which the party in breach foresaw or ought to have foreseen at the time of the conclusion of the contract, in the light of the facts and matters of which he then knew or ought to have known, as a possible consequence of the breach of contract."
19. The Seller might argue that the promise by the Buyer not to revoke its offer was accepted by the Seller's conduct so that a contract is created. This would follow from the effect of Arts. 14, 18 and 23 of the Convention. Article 14 provides that a proposal for concluding a contract will amount to an offer if it is sufficiently definite and indicates an intention to be bound. Article 18 provides that an offer might be accepted by the assenting conduct of the offeree. Article 23 provides that a contract is concluded "at the moment when an acceptance of an offer becomes effective in accordance with the provisions of the Convention". It is not clear that courts would be prepared to find a contract on this basis as it might be said that "it is a sheer fiction to say that the parties have made a special preliminary contract to the effect that the offer should remain open". See K. Zweigert and H. Kötz, Introduction to Comparative Law, 1987, Vol. 11, p. 40 (discussing the legal basis for an offeror's liability in damages in an irrevocable offer situation in France; the French position is discussed further in the text accompanying nn. 74-75. It is the writer's view that a promise not to revoke an offer for the sale of goods would be a contract for the sale of goods within the scope of the Convention. However, for the purposes of discussion, it will be assumed that this argument would not succeed.
20. P. Schlechtriem, Uniform Sales Law: The U.N. Convention on Contracts for the International Sale of Goods, 1987, p. 57; Honnold, n. 6, supra, p. 213; Bonnell, n. 4, supra, p. 75.
21. Bonnell, n. 4, supra, p. 76.
22. Art. 4.
23. Art. 5.
24. Art. 28.
25. Art. 54.
26. Honnold, n. 6, supra, pp. 114-116.
27. Art. 7(1).
28. Honnold, n. 6, supra, p. 14.
29. Ibid., p. 154.
30. Ibid., pp. 138-142; Bonnell, n. 4, supra, p. 20. Recourse to the legislative history of an international treaty for guidance when interpreting its provisions has been recognised as appropriate by both civil law and common law courts. For the U.S. position see Air France v. Saks, 470 U.S. 392 at 396 (1985). For the position in the U.K. see Fothergill v. Monarch Airlines (1981) A.C. 251. It would appear likely Australian courts would follow Fothergill. See Acts Interpretation Act 1901 (Cth), s. 15AB.
31. A/Conf. 97/C.1/L.95.
32. Schlechtriem, n. 20, supra, p. 57.
33. Art. 33(c).
34. Art. 47.
35. Art. 49.
36. Arts. 74-77.
37. See Honnold, n. 6, supra, p. 156.
38. Honnold, n. 6, supra, p. 155-156.
39. Bonnell, n. 4, supra, p. 78; Honnold, n. 6, supra, p. 156.
40. See text accompanying nn. 56-61.
41. Honnold, n. 6, supra, p. 156.
42. Ibid., pp. 148-150; Bonnell, n. 4, supra, pp. 65-71; Schlechtriem, n. 20, supra, pp. 37-38.
43. ULIS was one of two Conventions (the other being the Uniform Law on Formation of Contracts for the International Sales of Goods) that were the culmination of over 30 years' work by European scholars who had been requested by the International Institute for the Unification of Private Law (UNIDROIT) to prepare a draft uniform law for the international sale of goods. See Honnold, n. 6, supra, p. 49.
44. See Honnold, n. 14, supra, p. 150; W/G 1 pars 56-72, I Yearbook 181-183, in Docy. Hist. pp. 19-21; W/G pars 126-137, II Yearbook 62, in Docy. Hist., p. 68.
45. Art. 7(1).
46. Art. 7(2).
47. Bonnell, n. 4, supra, p. 78; Eörsi, n. 12, supra, Ch. 2, p. 6; Schlechtriem, n. 20, supra, p. 57, n. 195; Honnold, n. 6, supra, p. 60.
48. Honnold, ibid, p. 157.
49. Bonnell, "Introduction to the Convention", in Bianca-Bonnell, n. 4, supra, p. 9; Honnold, ibid., p. 150.
50. Bonnell, n. 4, supra, p. 78.
51. Ibid., p. 79.
52. Honnold, n. 6, supra, p. 156.
53. Honnold, n. 4, supra, p. 80.
54. Ibid., p. 80. Expressly stated principles are said to include the principle of good faith (Art. 7(1)), the principle of the parties’ autonomy (Art. 6), the rule that the agreement is not subject to formal requirements (Arts. 11 and 19(1)), the principle that after the conclusion of the contract notice becomes effective on dispatch (Art. 27) and the rule that a delay in payment creates an obligation to pay interest (Art. 78). The writer suspects that given the controversial legislative history of "good faith" in the Convention, there will be considerable debate as to whether Art. 7 expressly states a general principle of good faith. See Honnold, n. 6, supra, p. 146; Eörsi, n. 12 supra, Ch. 2, p. 6, Ch. 2, p. 7.
55. Bonnell, n. 4, supra, p. 80. See also Schlechtriem, n. 20, supra, p. 58: "The authoritative principles can be inferred from the individual rules themselves and their systematic context" and Honnold, n. 6, supra, p. 155: "general principles must be moored to premises that underlie specific provisions of the Convention".
56. See Bonnell, n. 4, supra, p. 80-81 citing Arts. 8(2), 8(3), 25, 35(1), 60, 72(2), 75, 77, 79(1), 85, 86, 88(2) (reasonable persons); 18(2); 33(3), 39(1), 43(1), 47, 49, 63, 64, 65, 73(2) (reasonable expenses); 34, 37, 48, 87, 88(2) and 88(3) (excuse).
57. Ibid., p. 81 citing Arts. 16(2)(b) and 29(2) and Honnold, n. 6, supra, p. 155, citing Arts. 16(2), 29(2) and 47.
58. See Bonnell, n. 4, supra, p. 81 citing Arts. 19(2), 25, 26, 34, 37, 48, 49, 51(1), 64, 71, 72.
59. Ibid., citing Arts. 32(3), 48(2), 60(a) and 65; and Honnold, n. 6, supra, p. 430, n. 2, citing Arts. 19(2), 21(2), 32, 48(2), 58(3), 60(a), 65, 71, 73(2), 79(4), 85-88.
60. See Honnold, n. 6, supra, p. 155, citing Arts. 19(2), 21(2), 26, 39(1), 48(2), 65, 71(3), 72(2), 79(4) and 88(1).
61. See Bonnell, n. 4, supra, p. 81, citing Arts. 77, 85-88 and Honnold, n. 6, supra, p. 155, citing Arts. 77, 85 and 86.
62. See Honnold, ibid., p. 214: "The Convention -- and only the Convention -- controls whether the revocation of the offer is rightful." See also Schlechtriem, n. 20, supra, p. 57, n. 26. Revocation of an offer "is a matter governed by the Convention"; and P. Schlechtriem, "The Borderland Between Tort and Contract -- Opening a New Frontier" (1988) 21 Cornell Int'l L.J. 467 at 475.
63. Art. 23: "A contract is concluded at the moment when an acceptance of an offer becomes effective in accordance with the provisions of this Convention."
64. Art. 72(3) states that the party intending to avoid the contract need not give notice to the other party as to its intention to avoid the contract when the other party has declared it will not perform its obligations. This indicates that such a declaration will make it "clear" that a fundamental breach will take place for the purposes of Art. 72(1).
65. Art. 6(1): "If the buyer fails to perform any of his obligations under the contract or this Convention, the seller may:
(a) exercise the rights provided in Arts. 62 to 65;
(b) claim damages as provided in Arts. 74 to 77."
It is submitted that Art. 61 operates to prevent a narrow reading of Art. 74, which might otherwise result in reliance damages in Case A being denied. See infra, text accompanying n. 69.
66. See Arts. 16, 18, 23, 24, 64, 65 and 71-77.
67. Art. 77: "A party who relies on a breach of contract must take such measures as are reasonable in the circumstances to mitigate the loss of profit, resulting from the breach. If he fails to take such measures, the party in breach may claim a reduction in the damages in the amount by which the loss should have been mitigated."
68. E.g., the failure of a buyer to do "all acts which could reasonably be expected of him in order to enable the seller to make delivery" as required under Art. 60(a) may result in an action for damages. Other obligations under the Convention which might give rise to actions for damages include: the obligation of an offeror to notify an offeree that a late acceptance has lapsed, when such acceptance would have been in due time "had the transmission been normal" (Art. 21(2)); the obligation of a seller to give notice to a buyer of the consignment specifying the goods, if the goods are not clearly identified to the contract (Art. 32(1)); the obligation to make any contracts necessary for the carriage of goods (Art. 32(2)); the obligation of a seller to provide a buyer, at the buyer's request, with all available information necessary to enable the buyer to effect insurance in respect of carriage of goods (Art. 32(3)); the obligation of a buyer to tell a seller whether or not the buyer will accept late delivery when the seller has made such an inquiry (Art. 48(2)). Further, the failure to fulfil an obligation which is expressly relied upon by the other party may result in an action for damages in spite of the existence of a contractual provision specifying that modification must be in writing. Art. 29(2) provides that "a party may be precluded by his conduct" from relying on a contractual provision which requires that modification or termination of the agreement be in writing.
69. While Section III of the Convention is headed "Remedies for Breach of Contract by the Buyer" and tends to support the argument that no gap exists, it is submitted that such headings ought not be given greater weight than the provisions themselves.
70. Supra, text accompanying nn. 45 and 46.
72. Supra, text accompanying nn. 66 and 67.
73. Honnold, n. 6, supra, p. 156.
74. See Zweigert and Kötz, n. 19, supra, p. 39, citing Civ. 10 May 1968, Bull. civ. 1968 III. 162.
75. Ibid., p. 40; F. Kessler and E. Fine, "Culpa in Contrahendo, Bargaining in Good Faith, and Freedom of Contract: A Comparative Study" (1964) 77 Harv. L. Rev. 401; Eörsi, n. 14, supra, p. 155.
76. Zweigert and Kötz, n. 19, supra, p. 41.
78. Art. 2-205 provides: "An offer by a merchant to buy or sell goods in a signed writing which by its terms gives assurance that it will be held open is not revocable, for lack of consideration, during the time stated or if no time is stated for a reasonable time, but in no event may such period of irrevocability exceed three months; but any such term of assurance on a form supplied by the offeree must be signed by the offeror."
79. U.C.C., Art. 1-103: "Unless displaced by the particular provisions of this Act, the principles of law and equity, including the law merchant and the law relative to capacity to contract, principal and agent, estoppel, fraud, misrepresentation, duress, coercion, mistake, bankruptcy, or other validating or invalidating cause shall supplement its provisions."
80. For an examination of U.S. developments under s. 90 see P. Gibson, "Promissory Estoppel, Article 2 of the U.C.C. and the Restatement (Third) of Contracts" (1988) 73 Iowa L.Rev. 659; D. Farber and J. Matheson, "Beyond Promissory Estoppel: Contract Law and the Invisible Handshake" 52 U. Chi. L. Rev. 903 and C. Knapp, "Reliance in the Revised Restatement: The Proliferation of Promissory Estoppel" (1981) 81 Colum. L. Rev. 52.
81. E. A. Coronis Associates v. M. Gordon Construction Co. 90 N.J. Super. 69, 216 A. 2d 246 (1966); Janke Constr. Co. v. Vulcan Materials Co. 386 F. Supp. 687 (W.D. Wis. 1974), affd, 527 F.2d 772 at 777-779 (7th Cir. 1976); Jenkins and Boller Co. v. Schmidt Iron Works 36 Ill, App. 3d 1044, 1046-1047, 344 N.E.2d 275 at 277-278 (1976); R J. Taggart, Inc. v. Douglas County 31 Or. App. 1 137 at 1140-1144, 572 P.2d 1050 at 1052-1054 (1977); Loranger Consrr. Corp. v. E. F Hauserman Co. 384 N.E.2d 176 at 178-181 (Mass. 1978); Loranger Constr. Corp. v. E: F. Hauserman Co. 6 Mass. App. 152 at 154-159, 374 N.E.2d 306 at 307-311 (1978); R S. Bennett and Co. v. Economy Mechanical Indust. 606 F.2d 182 at 184 (7th Cir. 1979); Harry Harris v, Quality Constr. Co. 598 S.W.2d 872 at 874 (Ky. App. 1979). See also E. A. Farnsworth, "Precontractual Liability and Preliminary Agreements: Fair Dealing and Failed Negotiations" 87 Colum. L. Rev. 217 at 236-239.
82. (1988) 164 C.L.R. 387 at 406, 416.
83. Silovi Pty Ltd v Barbaro (1988) 13 N.S.W.L.R. 466 at 472. See also Austotel Pty Ltd v Franklins Selfserve Pty Ltd (1989) 16 N.S.W.L.R. 582 at 585, 610; Commonwealth of Australia v. Verwayen (1990) 170 C.L.R. 394. Recent articles on the development of equitable estoppel include: M. Dorney, "The New Estoppel" (1991) 7 Aust. Bar Rev. 19; A. Leopold, "Estoppel: A Practical Appraisal of Recent Developments" (1991) 7 Aust. Bar Rev. 47; B. Mescher, "Promise Enforcement by Common Law or Equity?" (1990) 64 A.L.J. 536; Parkinson, "Equitable Estoppel: Developments after Waltons Stores (Interstate) Ltd v. Maher" (1990) 3 J.Cont. L. 50; K. Sutton, "Contract by Estoppel" (1989) 1 J. Cont. L. 205.
84. See Waltons v. Maher (1988) 164 C.L.R. 387 at 405, 419, 423.
85. See Combe v. Combe (1951) 2 K.B. 215 at 219, 220, 224, 225; Beesly v. Hallwood Estates Ltd (1960) 1 W.L.R. 549 at 560 aff'd on another point (1961) Ch. 105; Crabb v. Arun Dist. Council (1976) Ch. 179 at 187, 188.