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Reproduced with permission of 18 Journal of Law & Commerce (1999) 191-258

excerpt from

Transcript of a Workshop on the Sales Convention:
Leading CISG scholars discuss Contract Formation,
Validity, Excuse for Hardship, Avoidance, Nachfrist,
Contract Interpretation, Parol Evidence, Analogical
Application, and much more

Transcribed and edited by Harry M. Flechtner [*]

[Hypothetical case: a possible basis for arguing that the problem of hardship and adjustment of contracts is a matter governed by the Convention: comments by Peter Schlechtriem]

I. INTRODUCTION

On November 13, 1998, the Center for International Legal Education of the University of Pittsburgh School of Law and the Law Faculty of Meiji Gakuin University (Japan) sponsored a workshop and roundtable discussion on the United Nations Convention on Contracts for the International Sale of Goods ("CISG").[1] The workshop was held in the Rare Books Room of the Library of the University of Pennsylvania Law School, which provided generous support for the program. The purpose of the workshop was to bring together two groups of academics interested in the CISG scholars of substantive international sales law, and researchers in the field of computer artificial intelligence whose work focused on the CISG. Participants included leading CISG scholars from the United States, Japan and Europe, several of whom had been instrumental in the drafting and promulgation of the CISG, and pre-eminent scholars [page 191] of artificial intelligence and the law from Japan and the U.S.[2] Professor Hajime Yoshino of Meiji Gakuin University and Professor Harry Flechtner of the University of Pittsburgh co-moderated the program. The other participants in the workshop were Professor John O. Honnold of the University of Pennsylvania, Professor Kazuaki Sono of Tezukayana University (Japan), Professor Peter Schlechtriem of the University of Freiburg (Germany), Professor Curtis Reitz of the University of Pennsylvania, Professor Joseph Lookofsky of the University of Copenhagen (Denmark), Professor Shigeru Kagayama of Nagoya University (Japan), and Professor Kevin Ashley of the University of Pittsburgh.[page 192]

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Hypothetical Case by Professor Schlechtriem

In May, 1998, the English shipping company Seastar Cruises ordered a cruise ship of 60,000 tons from the Netherlands shipyard Rotterdam Shipbuilding (buyer). Rotterdam invited a number of European manufacturers of diesel engines to negotiate for supplying the engines for the cruise ship. The invitation was accompanied by descriptions of and specifications for the engines, approximate delivery dates, and a general price framework. A German engine manufacturer, LMU (seller), responded to the invitation by communicating its interest in a contract, and the buyer and seller agreed to negotiate the details of an order for the engines. A letter of intent signed by the CEO's of both enterprises provided that each side would supply two teams to conduct the negotiations: one team, comprised of engineers and an authorized board member, was charged with negotiating the technical aspects of the engines' power, weight, consumption, inspection periods, etc. . . .; the second team, made up of financial and business experts and an authorized board member, was to find agreement on non-technical matters such as the exact time for delivery, the terms of payment, letter of credit requirements, and first payment guarantees for conforming deliveries.

The teams of engineers representing buyer and seller started to negotiate on June 25, 1998. As they reached agreement on specific points, the agreements were recorded in documents until they had reached agreement on all technical issues. On July 15, these documents were merged into a "memorandum of understanding" and signed by all members of the respective teams. The financial and business teams began negotiating on June 27, 1998 and followed the same procedure -- they recorded agreements on specific points and then, on July 10, incorporated these agreements into a comprehensive memorandum of understanding signed by all team members from both sides. Under the original letter of intent signed by the CEO's of buyer and seller, the two memoranda of understanding were to be merged into a single document that would be signed by both CEO's in a formal ceremony. The final signing ceremony was planned for August 15, 1998, to be followed by a celebration by all members of the negotiating teams.

On August 10, 1998, however, buyer was informed that Seastar Cruises, the company for whom the cruise ship was to be built, was in financial straits, and that a bankruptcy proceeding was imminent. Buyer therefore asked seller to delay the planned signing ceremony for several days. On August 15, 1998, buyer informed seller that the deal for the [page 221] ship engines was off because Seastar Cruises was bankrupt and had annulled the shipbuilding contract.

Seller asks for an expert opinion as to whether he can claim damages from buyer for his lost profits from the deal, or at least for the expenses seller incurred to the point of cancellation.[page 222]

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SCHLECHTRIEM: With regard to the problem of hardship and adjustment of contract, I think I could argue, first of all, that it's a matter governed by the Convention -- a disturbance in the performance of the contract brought about by certain events not fully covered by Article 79. Of course, that view could be disputed. . . .But if you ask me whether there is somewhere in the Convention the principle of adjustment or adaptation of contracts, I would put forward a very provoking argument. I think the remedy of price reduction in Article 50 of the Convention is a kind of adjustment of the contract to reflect a disturbed balance between performance on one side and obligation on the other side. The defects in the goods, or the non-conformities of the goods, constitute a disturbance of the equilibrium or balance of the exchanged performances. That is why we defended price reduction -- as a just instrument for adjusting the disturbed balance of performances. Of course the Common Law countries who are not familiar with the price reduction remedy regard it as something entirely different -- as a kind of damages set-off against the purchase price. But if you can accept the notion that it has an entirely different function and aim, then it could be -- it's a bit speculative, of course, but in a workshop like this you should allow such speculation -- then you could use this principle as a springboard to develop a general rule of adjustment in hardship cases.[page 237]

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Go to entire text of Transcript of Workshop


FOOTNOTES

* Professor of Law, University of Pittsburgh School of Law. J.D. 1981 Harvard Law School; M.A. 1975 Harvard University; A.B. 1973 Harvard College.

1. United Nations Convention on Contracts for the International Sale of Goods, Apr. 11, 1980, S. Treaty Doc. No. 98-9 (1983), 19 I.L.M. 668 (1980) [hereinafter "CISG" or "Convention"] (entered into force on Jan. 1, 1988), available in 15 U.S.C.A. app. at 49 (West Supp. 1996), 52 Fed. Reg. 6262-80, 7737 (1987), U.N. Doc. A/Conf. 97/18 (1980).

2. For further information on the participants, please see "About the Participants in the CISG Workshop" at pages 194-95.

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