sisu: - remedies for non-performance - perspectives from ...€¦ · cisg art. 73 145 10.2...

Remedies for Non-performance - Perspectives from CISG, UNIDROIT Principles andPECL

Liu Chengwei

CISG Database, Pace Institute of International CommercialLaw. Reproduced with permission of the author.

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Contents

INTRODUCTION 2

LIST OF ABBREVIATIONS 2A. For Documents . . . . . . . . . . . . . . . . . . . . . 2B. For Journals . . . . . . . . . . . . . . . . . . . . . . . 3C. For Organizations . . . . . . . . . . . . . . . . . . . . 4D. For Citations . . . . . . . . . . . . . . . . . . . . . . . 4

PART I. GENERAL REVIEW 5

CHAPTER 1. SOURCES OF INSPIRATION 6

1.1 INTRODUCTION 6

1.2 OVERVIEW OF THE STUDIED INSTRUMENTS 71.2.1 CISG . . . . . . . . . . . . . . . . . . . . . . . . . 71.2.2 UNIDROIT Principles . . . . . . . . . . . . . . . . 81.2.3 PECL . . . . . . . . . . . . . . . . . . . . . . . . . 101.2.4 Brief Comparison . . . . . . . . . . . . . . . . . . . 11

1.3 MAJOR SOURCES OF INFORMATION 13

CHAPTER 2. REMEDIES AVAILABLE UPON NON-PERFORMANCE 16

2.1 INTRODUCTION 16

2.2 THE CONCEPTS: BREACH OF CONTRACT vs. NON-PERFORMANCE 17

2.3 REMEDIAL SCHEMES OF THE STUDIED INSTRU-MENTS 182.3.1 CISG Part III (Partial) . . . . . . . . . . . . . . . . 182.3.2 UNIDROIT Principles Chapter 7 . . . . . . . . . . 212.3.3 PECL Chapters 8, 9 . . . . . . . . . . . . . . . . . 222.3.4 Concluding Remarks . . . . . . . . . . . . . . . . . 22

2.4 STRUCTURE OF THIS PRESENTATION 24PART II. PRESERVING PERFORMANCE . . . . . . . . 24PART III. TERMINATION . . . . . . . . . . . . . . . . . . 25PART IV. DAMAGES . . . . . . . . . . . . . . . . . . . . 26PART V. EXCUSES . . . . . . . . . . . . . . . . . . . . . 26

PART II. PRESERVING PERFORMANCE 28

CHAPTER 3. SPECIFIC PERFORMANCE 29

3.1 COMPRISED APPROACH UNDER THE CISG 293.1.1 Introduction . . . . . . . . . . . . . . . . . . . . . . 293.1.2 Primacy of Specific Performance under Arts. 46/62 303.1.3 Forum’s Rule under Art. 28 . . . . . . . . . . . . . 32

3.2 BUYER’S RIGHT TO SPECIFIC PERFORMANCE: CISGART. 46 353.2.1 Introduction . . . . . . . . . . . . . . . . . . . . . . 353.2.2 General Rule: Art. 46(1) . . . . . . . . . . . . . . . 36

3.2.2.1 Right to require performance . . . . . . . . 363.2.2.2 Non-resorting to inconsistent remedies . . . 37

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3.2.3 Right to Demand Cure: Arts. 46(2) and 46(3) . . . 383.2.3.1 In general . . . . . . . . . . . . . . . . . . . 383.2.3.2 Delivery of substitute goods: Art. 46(2) . . . 393.2.3.3 Right to repair: Art. 46(3) . . . . . . . . . . 413.2.3.4 Time limit restriction . . . . . . . . . . . . . 433.2.3.5 A summary . . . . . . . . . . . . . . . . . . 43

3.3 SELLER’S RIGHT TO SPECIFIC PERFORMANCE:CISG ART. 62 443.3.1 Rationale of Art. 62 . . . . . . . . . . . . . . . . . . 443.3.2 General Application . . . . . . . . . . . . . . . . . 453.3.3 Potential Problems . . . . . . . . . . . . . . . . . . 46

3.4 UNIFORM REMEDY IN UNIDROIT PRINCIPLES /PECL 473.4.1 Introduction . . . . . . . . . . . . . . . . . . . . . . 473.4.2 Performance of Monetary Obligation . . . . . . . . 48

3.4.2.1 Money due generally recoverable . . . . . . 483.4.2.2 Money not yet due . . . . . . . . . . . . . . 49

3.4.3 Performance of Non-monetary Obligation: In Gen-eral . . . . . . . . . . . . . . . . . . . . . . . . . . . 50

3.4.4 Exceptions to Performance of Non-monetary Obli-gation . . . . . . . . . . . . . . . . . . . . . . . . . 523.4.4.1 The principle and exceptions . . . . . . . . 523.4.4.2 Performance impossible . . . . . . . . . . . 533.4.4.3 Unreasonable burden . . . . . . . . . . . . 533.4.4.4 Performance from another source available 543.4.4.5 Performance of an exclusively personal

character . . . . . . . . . . . . . . . . . . . 553.4.4.6 Unreasonable delay in requiring perfor-

mance . . . . . . . . . . . . . . . . . . . . . 563.4.5 Right to Require Remedying of Defective Perfor-

mance . . . . . . . . . . . . . . . . . . . . . . . . . 563.4.6 Other Issues . . . . . . . . . . . . . . . . . . . . . 57

CHAPTER 4. NACHFRIST FOR LATE PERFOR-MANCE 60

4.1 GENERAL CONSIDERATIONS 60

4.2 RATIONALE UNDERLYING THE OPTIONAL AP-PROACH 614.2.1 Optional Approach under the Studied Instruments 614.2.2 Underlying Rationale . . . . . . . . . . . . . . . . . 634.2.3 Granting Additional Period in Two Situations . . . . 64

4.3 SETTING OF A NACHFRIST NOTICE 664.3.1 Transmission of the Intention . . . . . . . . . . . . 66

4.3.1.1 Form of the notice . . . . . . . . . . . . . . 664.3.1.2 Risk in transmission . . . . . . . . . . . . . 67

4.3.2 Fixing of the Time-limit . . . . . . . . . . . . . . . . 684.3.2.1 Fixed period . . . . . . . . . . . . . . . . . . 684.3.2.2 Reasonable length . . . . . . . . . . . . . . 70

4.4 EFFECTS OF SERVING A NACHFRIST NOTICE 714.4.1 Remedies Available/Suspended during the Period 724.4.2 Early End of the Existing Uncertainty upon Rejecting

Notice . . . . . . . . . . . . . . . . . . . . . . . . . 734.4.3 Termination upon Expiry of the Extension . . . . . 73

4.4.3.1 In general . . . . . . . . . . . . . . . . . . . 734.4.3.2 CISG approach . . . . . . . . . . . . . . . . 744.4.3.3 UNIDROIT Principles / PECL approach . . 76

CHAPTER 5. CURE BY NON-PERFORMING PARTY 78

5.1 INTRODUCTION 78

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5.2 CONDITIONS FOR INVOKING CURE 795.2.1 In General . . . . . . . . . . . . . . . . . . . . . . . 795.2.2 Reasonableness of Notice . . . . . . . . . . . . . . 815.2.3 Appropriateness of Cure . . . . . . . . . . . . . . . 82

5.3 SELLER’S RIGHT TO CURE AND BUYER’S RIGHT TOTERMINATION 83

5.4 EFFECTS OF EFFECTIVE NOTICE 865.4.1 Right to Inquire vs. Duty to Accept Cure . . . . . . 865.4.2 Suspension of Inconsistent Remedies . . . . . . . 875.4.3 Retained Rights of the Aggrieved Party . . . . . . 87

CHAPTER 6. PRICE REDUCTION FOR NON-CONFORMITY 89


6.2 FEATURES OF CISG ART. 50 906.2.1 Unique Role and Justification . . . . . . . . . . . . 906.2.2 Self-help Remedy . . . . . . . . . . . . . . . . . . 916.2.3 Seeming Advantages . . . . . . . . . . . . . . . . 93

6.3 IN CONTRAST WITH DAMAGES 936.3.1 Introduction . . . . . . . . . . . . . . . . . . . . . . 936.3.2 Distinctions from Damages under the CISG . . . . 94

6.3.2.1 Diverse ratio legis . . . . . . . . . . . . . . 946.3.2.2 Different manner in calculation . . . . . . . 956.3.2.3 Other differences . . . . . . . . . . . . . . . 956.3.2.4 A summary . . . . . . . . . . . . . . . . . . 97

6.3.3 An Alternative to Damages . . . . . . . . . . . . . 976.3.3.1 Introduction . . . . . . . . . . . . . . . . . . 976.3.3.2 In conjunction with force majeure . . . . . . 98

6.3.3.3 In case of falling market . . . . . . . . . . . 986.3.3.4 Upon difficulty in proving damages . . . . . 996.3.3.5 A summary . . . . . . . . . . . . . . . . . . 99

6.4 ESSENTIALS OF CISG ART. 50 1006.4.1 Scope of Application . . . . . . . . . . . . . . . . . 100

6.4.1.1 General application in case of non-conformity . . . . . . . . . . . . . . . . . . . 100

6.4.1.2 Ambiguity over defects in title . . . . . . . . 1016.4.2 Exercise of the Right to Price Reduction . . . . . . 1026.4.3 Calculation of Proportional Reduction . . . . . . . 103

6.4.3.1 Decisive point: time of delivery . . . . . . . 1036.4.3.2 Place for comparing . . . . . . . . . . . . . 104

6.4.4 Limited by the Cure . . . . . . . . . . . . . . . . . 104

6.5 STATUS OF THE PRICE REDUCTION UNDERUNIDROIT PRINCIPLES / PECL 1056.5.1 Exclusion under the UNIDROIT Principles . . . . . 1056.5.2 Inclusion under the European Principles . . . . . . 105

PART III. TERMINATION 108

CHAPTER 7. RIGHT TO TERMINATION 109


7.2 GROUNDS FOR TERMINATION 110

7.3 CONCLUDING REMARKS 112

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CHAPTER 8. FUNDAMENTAL NON-PERFORMANCE114


8.2 FORESEEABLE SUBSTANTIAL DETRIMENT 1158.2.1 Introduction . . . . . . . . . . . . . . . . . . . . . . 1158.2.2 Substantial Detriment . . . . . . . . . . . . . . . . 116

8.2.2.1 Existing detriment . . . . . . . . . . . . . . 1178.2.2.2 Substantial deprivation . . . . . . . . . . . . 1188.2.2.3 Discernible expectations . . . . . . . . . . . 120

8.2.3 Foreseeability . . . . . . . . . . . . . . . . . . . . . 1218.2.3.1 Introduction . . . . . . . . . . . . . . . . . . 1218.2.3.2 Test for foreseeability . . . . . . . . . . . . 1218.2.3.3 Time for foreseeability . . . . . . . . . . . . 1238.2.3.4 Burden to prove unforeseeability . . . . . . 124

8.3 OTHER ELEMENTS IN DEFINING FUNDAMENTALNON-PERFORMANCE 1258.3.1 Strict Compliance of Essence . . . . . . . . . . . . 1258.3.2 Intentional Non-performance . . . . . . . . . . . . 1268.3.3 No Reliance on Future Performance . . . . . . . . 1278.3.4 Disproportionate Loss . . . . . . . . . . . . . . . . 128


CHAPTER 9. ANTICIPATORY NON-PERFORMANCE130


9.2 GROUNDS FOR SUSPENSION 132

9.3 SELLER’S RIGHT TO STOP GOODS IN TRANSITUPON SUSPENSION 134

9.4 DUTY TO GIVE NOTICE IN EXERCISING SUSPEN-SION 135

9.5 RESTORING PERFORMANCE BY GIVING ADEQUATEASSURANCE 136

9.6 TERMINATION UPON ANTICIPATORY FUNDAMEN-TAL NON-PERFORMANCE 1379.6.1 In General . . . . . . . . . . . . . . . . . . . . . . . 1379.6.2 Clear Indication of A Fundamental Non-

performance . . . . . . . . . . . . . . . . . . . . . . 1389.6.3 Notice Given in case of Termination . . . . . . . . 140

9.7 ADEQUATE ASSURANCE OF DUE PERFORMANCE 1429.7.1 Purpose of Rule . . . . . . . . . . . . . . . . . . . 1429.7.2 Non-receipt of Adequate Assurance . . . . . . . . 142


CHAPTER 10. TERMINATION OF BREACHED IN-STALLMENT OR PART 145

10.1 TERMINATION OF INSTALLMENT CONTRACTS:CISG ART. 73 145

10.2 TERMINATION OF FUTURE INSTALLMENTS: CISGART. 73(2) 146

10.3 TERMINATION OF A CONTRACT AS A WHOLE:CISG ART. 73(3) 148

10.4 PARTIAL TERMINATIO: CISG ART. 51 149

10.5 COMBINED APPROACH: PECL ART. 9:302 151

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10.6 CONCLLUDING REMARKS 152

CHAPTER 11. DECLARATION OF TERMINATION 154

11.1 NO AUTOMATIC TERMINATION 154

11.2 INFORMALITY OF THE NOTICE 156

11.3 TRANSMISSION OF THE INTENTION 157

11.4 RISK IN COMMUNICATION 15811.4.1 CISG Approach . . . . . . . . . . . . . . . . . . . 15811.4.2 Receipt Principle under the UNIDROIT Principles 16011.4.3 Combined Approach under the PECL . . . . . . . 161

11.5 TIME LIMIT FOR THE DECLARATION: IN GENERAL162

11.6 DECLARATION WITHIN REASONABLE TIME 16311.6.1 Definition of reasonable time . . . . . . . . . . . . 16311.6.2 CISG Approach . . . . . . . . . . . . . . . . . . . 16411.6.3 UNIDROIT Principles / PECL Approach . . . . . 16511.6.4 Concluding Remarks . . . . . . . . . . . . . . . . 166

CHAPTER 12. EFFECTS OF TERMINATION 167

12.1 INTRODUCTION 167

12.2 RELIEF OF FUTURE PERFORMANCE 167

12.3 RETROSPECTIVE OR PROSPECTIVE APPROACH 168

12.4 UNAFFECTED RIGHTS AND OBLIGATIONS AFTERTERMINATION 17012.4.1 Continuing Right to Claim Damages . . . . . . . 17012.4.2 Unaffected Clauses Intended to Apply despite Ter-

mination . . . . . . . . . . . . . . . . . . . . . . . . 171

12.5 RESTITUTION 17212.5.1 In General . . . . . . . . . . . . . . . . . . . . . . 17212.5.2 Entitlement of Parties to Restitution on Termination 17312.5.3 Restitution under the PECL . . . . . . . . . . . . 175

12.5.3.1 Property reduced in value: Art. 9:306 . . . 17512.5.3.2 Recovery of money paid and property: Arts.

9:306, 9:307 . . . . . . . . . . . . . . . . . . 17612.5.3.3 Concluding remarks . . . . . . . . . . . . 177

12.5.4 Restitution of Benefits Received . . . . . . . . . . 17812.5.5 Exceptions: Restitution Not Possible or Appropri-

ate . . . . . . . . . . . . . . . . . . . . . . . . . . . 17912.5.5.1 CISG approach: making restitution a pre-

requisite for avoidance . . . . . . . . . . . . 17912.5.5.2 UPICC/PECL approach: focusing on the al-

lowance upon impossible restitution . . . . 18112.5.5.3 Comparative perspectives . . . . . . . . . 18212.5.5.4 Concluding remarks . . . . . . . . . . . . 183

PART IV. DAMAGES 185

CHAPTER 13. GENERAL MEASURE OF DAMAGES186

13.1 RIGHT TO DAMAGES 186

13.2 FULL COMPENSATION 187

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13.3 RECOVERABLE LOSSES 189

13.4 COMPENSATION OF NON-PECUNIARY LOSS 190

13.5 COMPUTATION OF LOSSES AND GAINS 191

CHAPTER 14. LIMITS TO CLAIMS FOR DAMAGES193


14.2 FORESEEABILITY OF LOSS 19314.2.1 In General . . . . . . . . . . . . . . . . . . . . . . 19314.2.2 Test for Foreseeability . . . . . . . . . . . . . . . 19514.2.3 Party Concerned and Reference Point . . . . . . 19514.2.4 Evaluation of Foreseeability . . . . . . . . . . . . 19614.2.5 Content of Foreseeability . . . . . . . . . . . . . . 19914.2.6 Concluding Remarks . . . . . . . . . . . . . . . . 201

14.3 CERTAINTY OF HARM 202

14.4 CONTRIBUTION TO HARM 20314.4.1 In General . . . . . . . . . . . . . . . . . . . . . . 20314.4.2 Ways of Contributing to the Harm . . . . . . . . . 20414.4.3 Remedies Affected by the Contribution . . . . . . 205

14.4.3.1 Remedies available upon non-performancecaused solely by the contribution . . . . . . 205

14.4.3.2 Damages proportionately reduced due topartial contribution . . . . . . . . . . . . . . 206

14.5 DUTY TO MITIGATE 20814.5.1 In General . . . . . . . . . . . . . . . . . . . . . . 20814.5.2 Reasonable Measures Taken . . . . . . . . . . . 21014.5.3 Effects of Failure to Mitigate . . . . . . . . . . . . 212

CHAPTER 15. DAMAGES UPON TERMINATION 214


15.2 DAMAGES UPON SUBSTITUTE TRANSACTIONS 21415.2.1 Introduction . . . . . . . . . . . . . . . . . . . . . 21415.2.2 Presupposed Situations Calling for Concrete Cal-

culation . . . . . . . . . . . . . . . . . . . . . . . . 21615.2.3 Substitute Transaction must be Reasonable Sub-

stitute . . . . . . . . . . . . . . . . . . . . . . . . . 217

15.3 DAMAGES UPON CURRENT PRICE 21815.3.1 Introduction . . . . . . . . . . . . . . . . . . . . . 21815.3.2 Presupposed Situations Calling for Abstract Cal-

culation . . . . . . . . . . . . . . . . . . . . . . . . 22015.3.3 Determination of “Current Price” . . . . . . . . . . 221

15.3.3.1 In general . . . . . . . . . . . . . . . . . . 22115.3.3.2 Reference point . . . . . . . . . . . . . . . 22115.3.3.3 Relevant place . . . . . . . . . . . . . . . 222

15.4 FURTHER DAMAGES 223

CHAPTER 16. AGREED PAYMENT FOR NON-PERFORMANCE 225

CHAPTER 17. RECOVERY OF ATTORNEYS’ FEES 228

17.1 GENERAL CONSIDERATIONS 22817.1.1 Introduction . . . . . . . . . . . . . . . . . . . . . 22817.1.2 Recoverability under “Loser-pays” Principle . . . 22817.1.3 Excluded by “American Rule” . . . . . . . . . . . 229

17.2 CISG DECISIONS CONCERNING ATTORNEYS’ FEES230

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17.3 PROBLEMATIC RECOVERY UNDER ART. 74 CISG 232

CHAPTER 18. PAYMENT OF INTEREST 233


18.2 GENERAL ENTITLEMENT TO INTEREST 234

18.3 ADDITIONAL DAMAGES 237

18.4 INTEREST ON DAMAGES 238

18.5 ACCRUAL OF INTEREST 239

18.6 RATE OF INTEREST 240

PART V. EXCUSES 245

CHAPTER 19. CHANGE OF CIRCUMSTANCES 246


19.2 UNSDERLYING DOCTRINCE; REBUS SIC STAN-TIBUS 247

19.3 DIFFERENT APPROACHES TO CHANGED CIRCUM-STANCES 24919.3.1 Historical Review . . . . . . . . . . . . . . . . . . 24919.3.2 National Doctrines . . . . . . . . . . . . . . . . . 25019.3.3 International Perspective . . . . . . . . . . . . . . 253

19.3.3.1 Public international law . . . . . . . . . . . 25319.3.3.2 International commercial practice . . . . . 254

19.3.4 Conclusion . . . . . . . . . . . . . . . . . . . . . . 255

19.4 DEFINITIONS OF force majeure AND HARDSHIP 25619.4.1 Force Majeure . . . . . . . . . . . . . . . . . . . . 25619.4.2 Hardship . . . . . . . . . . . . . . . . . . . . . . . 25719.4.3 Comparison . . . . . . . . . . . . . . . . . . . . . 258

19.5 GENERAL APPROACHES IN THE STUDIED IN-STRUMENTS 25919.5.1 Approach under the CISG . . . . . . . . . . . . . 25919.5.2 Approach under the UNIDROIT Principles . . . . 26019.5.3 Approach under the PECL . . . . . . . . . . . . . 26119.5.4 Concluding Remarks . . . . . . . . . . . . . . . . 261

CHAPTER 20. force majeure 263


20.2 RELEVANT TEXTS 26320.2.1 Exemptions: CISG Art. 79 . . . . . . . . . . . . . 26320.2.2 Force Majeure: UNIDROIT Principles Art. 6.1.7 . 26520.2.3 Excuse Due to an Impediment: PECL Art. 8:108 26620.2.4 Comparison . . . . . . . . . . . . . . . . . . . . . 267

20.3 GENERAL RULE 26820.3.1 Scope of Excusable Non-performance . . . . . . 26820.3.2 Existence of Qualifying Impediment . . . . . . . . 269

20.3.2.1 Introduction of a new word . . . . . . . . . 26920.3.2.2 Interpretation of the word . . . . . . . . . . 27020.3.2.3 Problematic situations . . . . . . . . . . . 271

20.3.3 Conditions for Exempting Impediment . . . . . . 27320.3.3.1 Beyond control . . . . . . . . . . . . . . . 27320.3.3.2 Unforeseeable . . . . . . . . . . . . . . . . 274

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20.3.3.3 Unavoidable or insurmountable . . . . . . 27620.3.3.4 Causation . . . . . . . . . . . . . . . . . . 277

20.4 RESPONSIBILITY FOR THIRD PARTIES 277

20.5 TEMPORARY IMPEDIMENT 279

20.6 DUTY TO NOTIFY 282

20.7 EFFECTS 28220.7.1 In General . . . . . . . . . . . . . . . . . . . . . . 28220.7.2 Effect on Right to Damages . . . . . . . . . . . . 28320.7.3 Effect on Right to Performance . . . . . . . . . . 28420.7.4 Effect on Right to Termination . . . . . . . . . . . 287

CHAPTER 21. HARDSHIP 289

21.1 GAP IN THE CISG? 289

21.2 INTERPLAY BETWEEN CISG EXCUSE ANDUNIDROIT PRINCIPLES / PECL HARDSHIP 29121.2.1 Hardship: UNIDROIT Principles Arts. 6.2.1

through 6.2.3 . . . . . . . . . . . . . . . . . . . . . 29121.2.2 Change of Circumstances: PECL Art. 6:111 . . . 29321.2.3 Gap-filling Application of Hardship Provisions? . 294

21.3 CONDITIONS FOR INVOKING HARDSHIP 29621.3.1 In General . . . . . . . . . . . . . . . . . . . . . . 29621.3.2 Crucial Point: Fundamental Alteration of Equilib-

rium . . . . . . . . . . . . . . . . . . . . . . . . . . 29621.3.3 Additional Requirements for Hardship to Arise . . 298

21.3.3.1 Time factor: occurrence after conclusion . 29821.3.3.2 Unforeseeability . . . . . . . . . . . . . . . 29921.3.3.3 Risk not assumed . . . . . . . . . . . . . . 299

21.4 EFFECTS OF HARDSHIP 30021.4.1 In General . . . . . . . . . . . . . . . . . . . . . . 30021.4.2 Triggering of Renegotiation . . . . . . . . . . . . 30121.4.2.1 Request for renegotiation . . . . . . . . . . . . 30121.4.2.2 Renegotiation in good faith . . . . . . . . . . . . 30221.4.3 Court Measures in case of Hardship . . . . . . . 30321.4.4 Concluding Remarks . . . . . . . . . . . . . . . . 305

CHAPTER 22. FORCE MAJEURE and HARDSHIPCLAUSES 306


22.2 FORCE MAJEURE CLAUSE 30822.2.1 Introduction . . . . . . . . . . . . . . . . . . . . . 30822.2.2 Drafting Considerations . . . . . . . . . . . . . . 309

22.3 HARDSHIP CLAUSE 31022.3.1 Introduction . . . . . . . . . . . . . . . . . . . . . 31022.3.2 Drafting Considerations . . . . . . . . . . . . . . 311

22.4 OVERLAPPING OF THE CLAUSES 312

22.5 USE OF STANDARD FORMS: ICC No. 421 (partial) 313

SiSU Metadata, document information 315

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Remedies for Non-performance - Perspectives from1CISG, UNIDROIT Principles and PECL,Liu Chengwei*

*LL.M. of Law School of Renmin University of ChinaP.O. Box 9-01 No. 1 (International Law) Law School of Renmin University ofChina 59 Zhongguancun Street, Beijing 100872, ChinaE-mail: [email protected]

1

Remedies for Non-performance - Perspectives from CISG, UNIDROIT Principles and PECL

INTRODUCTION2

The growth of international trade makes some kind of unification3necessary. Increased trade overseas has drawn attention to theproblems that are caused by the different ways in which countrieshave chosen to regulate international sales. And the legal commu-nity has tried to facilitate overseas trade through efforts to harmo-nize national laws by legislative or non-legislative means.

Against such a background, the analysis in this contribution is fo-4cused on the CISG, UNIDROIT Principles and PECL – three of themost important international instruments for the regulation of in-ternational commercial transactions which combine elements fromboth civil law and common law systems. In so doing, this contri-bution provides a comparative analysis of these instruments. It ismerely thought that comparison is, probably, one of the most ef-ficient ways to underline some of the unique features inherent insome legal regimes and to develop solutions to existing theoreticalproblems. However, as most of the authors dealing with the vastdomain of this area would have done, the author in this contribu-tion has never meant to make an exhaustive examination of inter-national commercial law, bearing in mind that the ability of a singlecontribution to deal with its many issues is limited. The approachoffered here is to review some of the key issues frequently befell ininternational trade, based on those generally accepted principlesor elaborate rules as evidenced by international restatements orconventions and usages and practices or so-called lex mercato-ria that is widely known to and regularly observed in internationalcommercial transactions.

Particularly, it is said that no aspect of a system of contract law is5more revealing of its underlying assumptions than is the law thatprescribes the relief available for non-performance (breach). Is-sues relating to the remedial provisions are difficult and central sub-stantive issues, which will no doubt be the focus of a large part of

the discussion and deliberation surrounding application of commer-cial law on both a domestic and an international level. Therefore,the study in this contribution focuses, in light of traditional and mod-ern theories, on the remedial scheme established under each of thethree bodies of rules, namely Part III (partial) of the CISG, Chapter7 of the UNIDROIT Principles and Chapters 8 and 9 of the PECL.In practical terms, these sectors are the substantive heart of theparticular instruments. It is where the corresponding solutions to alarge proportion of real world disputes in commercial transactionsare to be found.

The comparative analysis contained speculates on the potential 6similarities and differences of these sectors, intending to enunciaterules which are common in international commercial law and at thesame time to select the solutions which seem best adapted to thespecial requirements of international trade. One should note, how-ever, that to the extent this contribution doesn’t give absolute pri-ority to any one of the three instruments, whenever it is necessaryto choose between conflicting rules and sometime then to derive anumber of general principles which apply to all of the rules, what’sdecisive to the criterion used is not just which rule is mandatoryor adopted by the majority of jurisdictions, but rather which of therules under consideration have the most persuasive value and/orappear to be particularly well suited for international commercialtransactions.

LIST OF ABBREVIATIONS 7

A. For Documents 8

BGB German Civil Code 9

Chinese CL Chinese Contract Law 10

CISG/Convention United Nations Convention on Contracts for the 11

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International Sale of Goods

Clunet Journal du Droit International12

CLOUT Case Law on UNCITRAL Texts13

COM Working Documents of the European Commission14

Contract Code Contract Code Drawn upon on behalf of the En-15glish Law Commission

Draft 1978 Draft of the CISG16

HGB German Commercial Code17

ILR International Law Report18

ITC International Trade Code19

OJ Official Journal of the European Communities / Union20

O.R. Official Records of the 1980 Vienna Conference21

PECL/European Principles Principles of European Contract22Law

Secretariat Commentary Secretariat Commentary on the 197823Draft of the CISG

TLDB CENTRAL Transnational Law Database24

UCC Uniform Commercial Code25

ULF Uniform Law on the Formation of Contracts for the Interna-26tional Sale of Goods

ULIS Uniform Law on the International Sale of Goods27

UPICC/UNIDROIT Principles UNIDROIT Principles of Interna-28tional Commercial Contracts

YCA Yearbook Commercial Arbitration29

B. For Journals30

AJIL American Journal of International Law 31

Am.J.Comp.L. American Journal of Comparative Law 32

Am.Rev.Int’l.Arb. American Review of International Arbitra- 33tion

Ann.Surv.Int’l andComp.L. Annual Survey of International and 34Comparative Law

Arb.Int. Arbitration International 35

Ariz.J.Int’l andComp.L. Arizona Journal of International and 36Comparative Law

Col.J.Transnat’l L. Columbia Journal of Transnational Law 37

Comp.L.Yb.Int’l Bus. Comparative Law Yearbook of Interna- 38tional Business

Europ.Rev.Pr.L. European Review of Private Law 39

Georgetown L.andP.Int’l Bus. Georgetown Law and Policy in 40International Business

G.Wash.J.Int’l L.andEc. George Washington Journal of Interna- 41tional Law and Economics

Harv.Int’l L.J. Harvard International Law Journal 42

Harv.L.Rev. Harvard Law Review 43

ICLQ International and Comparative Law Quarterly 44

ILM International Legal Materials 45

Int’l Arb.Rep. International Arbitration Report 46

Int’l Arb.L.Rev. International Arbitration Law Review 47

Int’l and Comp. L.Q. The International and Comparative Law 48

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Quarterly

J.Bus.L. Journal of Business Law49

J.Int’l Arb. Journal of International Arbitration50

J.Int’l Bus.L. Journal of International Business Law51

J.Int’l L.andPol. Journal of International Law and Policy52

J. L. and Com. Journal of Law and Commerce53

JWTL Journal of World Trade Law54

L.and Pol.Int’l Bus. Law and Policy in International Busi-55ness

Tul.J.Int’l Comp.L. Tulane Journal of International Comparative56Law

Unif.L.Rev. Uniform Law Review57

Vand. J. Transnat’l L. Vanderbilt Journal of Transnational58Law

Va. J. Int’l L. Virginia Journal of International Law59

C. For Organizations60

CENTRAL Center for Transnational Law61

EC European Community62

EU European Union63

IBA International Bar Association64

ICCA International Council for Commercial Arbitration65

ICJ International Court of Justice66

Lando Commission Commission on European Contract67Law

P.C.I.J. Permanent Court of International Justice68

UN United Nations 69

UNCITRAL United Nations Commission on International Trade 70Law

UNIDROIT International Institute for the Unification of Private 71Law

D. For Citations 72

Art. Article 73

Arts. Articles 74

Ch. Chapter 75

Cf. Cited from 76

ed. edition or editor 77

eds. editors 78

e.g. for example 79

et seq. and following 80

fn. footnote 81

ibid. ibidem - see above 82

infra. vide infra- see below 83

p. page 84

pp. pages 85

Sec. Section 86

supra. vide supra - see above 87

Vol. Volume 88

vs. versus 89

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PART I. GENERAL REVIEW90

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CHAPTER 1. SOURCES OF INSPIRATION91

With themodern day increase in international trade and commerce,92national commercial law has often proved inadequate to interna-tional business needs and the resolution of disputes involving in-ternational 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 thatare caused by the different ways in which countries have chosento regulate international sales. Businessmen have found that theircontracts and dealings with foreign traders have been subject todifferent standards and usages.2

1.1 INTRODUCTION93

The last century has seen a huge change in the field of interna-94tional trade. The development of the market economy, the growthof markets for manufactured goods and the opening up of newmar-kets in raw products from developing countries has led to a boom inoverseas trade. Newer and faster methods of communication haveenabled traders to buy and sell goods at a distance more reliably,andmodern technology hasmade it much easier to transport goodsaround the globe in shorter periods of time. It has become clear that

1See 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 ofcontracts in international business are still subject to a specific national law andthe questions are left aside regarding the conditions under which a contract maybe insulated from the application of any such law.

2See Alison E. Williams in “Forecasting the Potential Impact of the ViennaSales Convention on International Sales Law in the United Kingdom”: PaceReview 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›

in the modern world, it is no longer possible for a country to isolateitself from the international circulation of goods and persons. Thisgrowth in international trade has led to the re-emergence of theneed for the harmonization of the services that facilitate overseastrade: global monetary mechanisms, cross-border transport possi-bilities, and universal rules and standards which allow traders theworld over to conduct business on the same terms.3

Against such a background, the legal community has tried to facil- 95itate overseas trade through efforts to harmonise national laws bylegislative or non-legislative means; thereby reducing the uncer-tainties and potential costs associated with transacting businessunder unfamiliar laws. Among such efforts, there is above all inthis contribution the reference to the relevant rules of the United Na-tions Convention on Contracts for the International Sale of Goods(1980; hereinafter “CISG” or “Convention”). On the other hand, theneed of general principles in international contract law, usage andcustom of international trade and lex mercatoria has led to certainother unification actions in addition to the CISG. Since the CISGcame into force in 1988, there have been other efforts to developoverall unifying principles covering the field of contract law. TheUNIDROIT Principles of International Commercial Contracts (1994,hereinafter “UPICC” or “UNIDROIT Principles”) and the Principlesof European Contract Law (1998, hereinafter “PECL” or “EuropeanPrinciples”) represent the core of such other efforts. As these twoPrinciples were introduced in 1994 and 1998 it is perhaps prema-ture to consider these principles as a “generally accepted lex mer-catoria” . However, these rules have potential to be generally ac-cepted by the international trading community and thereby achievea position to be regarded as lex mercatoria. 4

3Ibid.4See Jussi Koskinen in “CISG, Specific Performance and Finnish Law”:

Publication of the Faculty of Law of the University of Turku, Private lawpublication series B:47 (1999). Available online at

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Thus, the studied legal instruments in this contribution will be96focused on the three instruments mentioned above – CISG,UNIDROIT Principles and PECL. These instruments are interna-tionally drafted instruments governing contracts which combineelements from both civil law and common law systems. The CISGharmonised interests and ideas of different legal systems andof countries on different levels of economic development and isunderstood as a modern uniform substitute for the wide array offoreign legal systems; thus, a text that is suited for implemen-tation in civil law countries and common law countries and foreconomies that are developed and those which are developing.The UNIDROIT Principles and the European Principles in turnrepresent the latest developments in the field of contract law andcombine civil law and the common law as well as internationalcontract practices.

1.2 OVERVIEW OF THE STUDIED INSTRUMENTS97

1.2.1 CISG98

In April, 1964, twenty-eight states approved two conventions99which were the Uniform Law on the International Sale of Goods(ULIS) and the Uniform Law on the Formation of Contracts forthe International Sale of Goods (ULF) referred to collectively asthe 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 systemin the field of international trade law and was tasked by the UNGeneral Assembly to further the progressive harmonization and

‹http://www.cisg.law.pace.edu/cisg/biblio/koskinen1.html›5Few countries signed the treaties and there were many criticisms that the

treaties “primarily reflected the legal traditions and economic realities ofcontinental Western Europe”.

unification of the law of international trade, set out to study the1964 Hague Conventions to improve and reform them hopefullyending up with a product more successful than the first. Finally,after several drafts after the realization that an entirely new textwas needed, the General Assembly convened a conference on aproduct that is today the CISG.

As suggested by the legislative history, consideration of each indi- 100vidual article of the CISG proceeded on the basis of compromise.For this reason, there was a conscious desire to restrict the con-tent of the CISG to those areas on which it was possible to agree.6As a result, certain kinds of sales were excluded according to Art.2 and matters such as the validity of the contract and the passingof property (Art. 4), the liability of the seller for death or personalinjury caused by the goods to any person (Art. 5) were not in-cluded. In addition, there was a deliberate attempt not to rely onexisting legal definitions which could then be subject to contradict-ing interpretations in different member states. The aim was not totake the best from every jurisdiction, but to develop an empiricalcode which, where possible, used independent terms to conveyits meaning. Indeed, no international commercial legal regime canexpect to be perfect, especially when it is developed on the basisof compromise between legal systems.

While the drafters of the CISG represented various legal systems 101that possessed their own unique methods of solving certain prob-lems, a commonality existed among the majority of the drafters. Sowhile the remedies provided for by the CISG might not representpart of the “consistent and universal form of international mercan-tile law” desired by a modern lex mercatoria, they do represent astep forward in that process. From the point of view of legisla-tion as well as from the point of view of practical application, theConvention seems to be a success. Moreover, this success may

6Supra. note 2.

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fuel further uniformity as it is already influencing other fields of in-ternational trade law. Indeed, after it came into force on January1, 1988, the CISG has gained tremendous political and economicsignificance as the uniform sales law for sixty-two countries thataccount for two-thirds of all world trade.7

As for the application issue, the CISG is the domestic law of each102Contracting State. Important conclusions and recommendationsfollow from this: For parties with their relevant places of businessin different Contracting States, where their contract falls within thescope of the CISG, the contract is automatically governed by theCISG, unless the parties indicate otherwise. In other words, wherewithout reference to the CISG, the parties state that the contract isgoverned by the law of a Contracting State or the applicable lawso holds, the contract is likely to be governed by the CISG. Forparties to such international sales transactions who do not wish tohave them governed by the CISG, the recommended procedure isto so state in their contracts. The above conclusion and recommen-dation can also apply when only one of the parties has his relevantplace of business in a Contracting State of the applicable domesticlaw regards the law of that Contracting State as the governing law.In these two situations – contracting parties from different Contract-ing States, and a contract between a party from a Contracting Stateand a party from a non-Contracting State – the relevant CISG pro-

7As of 10 October 2002, the UN Treaty Section reports that 62 States haveadopted 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://www.cisg.law.pace.edu/cisg/countries/cntries.html› )

visions are Arts. 1(1) and 95. On the other hand, there are alsocases in which principles of the CISG can apply to transactions be-tween parties neither of whom has his relevant place of business ina Contracting State. The CISG can apply to such a contract solelyby the election of the parties.

One should note that, however, subject to the fact that when the 103CISG applies by law it can supersede otherwise applicable domes-tic law to the contrary; when the CISG applies solely by contract,it acts somewhat like a set of terms and conditions incorporatedin the contract – in other words, in this situation it does not super-sede mandatory provisions of the applicable domestic law wherethat law does not so permit.8

1.2.2 UNIDROIT Principles 104

The regime covering the greatest geographical scope among the 105studied instruments is the UNIDROIT Principles resulted from thework of the International Institute for the Unification of Private Law(UNIDROIT), which was set up in 1929 as an auxiliary organ of theLeague of Nations and whose primary task was to draft a uniformsales law which aimed to combat the problems of trading goodsacross different jurisdictions.9 The UNIDROIT Principles do not

8See General Information on the Application of the CISG; available online at‹http://cisgw3.law.pace.edu/cisg/cisgintro.html› In addition, there are situations inwhich principles of the CISG can be deemed applicable even when neither partyhas his relevant place of business in a Contracting State and the parties havemade no reference to the CISG in their contract. There are cases in whichtribunals have so held (see, for example, ICC Arbitration Case No. 5713 of1989).

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

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apply to domestic contracts and are intended to operate globally,which are broader in scope and more detailed in provisions thanthe CISG.

Because the UNIDROIT Principles are not in the form of a conven-106tion or a model law, they do not have a binding effect. They will beapplied in practice only because of their persuasive character. Ac-cording to the Preamble, application of the UNIDROIT Principlesto international commercial contracts in four different contexts ispossible: (a) Where the parties agree that their contract shall begoverned by the UNIDROIT Principles, the Principles are undoubt-edly applicable because they are incorporated into the contract likeany other contractual clause. Here, the principles will bind the par-ties only to the extent that they do not contradict mandatory rulesof the applicable law. (b) The Principles may also apply when theparties have agreed that their contract be governed by “generalprinciples of law” or the lex mercatoria. (c) The Principles may alsobe of relevance if the contract is governed by a particular domesticlaw, even though the application of the Principles is not providedfor in the contract. This is the case, whenever dealing with a spe-cific issue, it proves impossible to establish the relevant rule of thatparticular domestic law and a solution can be found in the Princi-ples. Recourse to the Principles, however, as a substitute for oth-erwise applicable domestic law is a last resort. (d) The Principlesmay further serve as instruments for the interpretation and fillingthe gap of international uniform law. The main idea is to precludean easy resort to the domestic law indicated by the conflict of lawsrule by the forum. In conclusion, it can be said that the UNIDROITPrinciples apply only if incorporated into the contract, or if they findenough favour with an arbitrator or judge looking for a rule to fill agap encountered in the regulation of a given international commer-cial contract.10

10See Joern Rimke in “Force majeure and hardship: Application in internationaltrade practice with specific regard to the CISG and the UNIDROIT Principles of

A stated purpose as suggested in the Preamble is to be stressed: 107“They may be used to interpret or supplement international uniformlaw instruments”. In practice the question is particularly relevant inthe context of the CISG, Art. 7 of which expressly states that “[i]nthe interpretation of this Convention regard is to be had to its in-ternational character and to the need to promote uniformity in itsapplication” and that “[q]uestions concerning matters governed bythis Convention which are not expressly settled it are to be settledin conformity with the general principles on which it is based”. Inthis respect, Bonell, one of the principal architects of the Principleshas stated: “The answers given are sharply divided. On the onehand there are those who categorically deny that the UNIDROITPrinciples can be used to interpret or supplement the CISG, invok-ing the rather formalistic and not necessarily convincing argumentthat the UNIDROIT Principles were adopted later in time than theCISG and therefore cannot be of any relevance to the latter. On theother hand there are those who, perhaps too enthusiastically, jus-tify the use of theUNIDROIT Principles for this purpose on themereground that they are ‘general principles of international commercialcontracts’. The correct solution would appear to lie between thesetwo extreme positions. In other words, there can be little doubt thatin general the UNIDROIT Principles may well be used to interpretor supplement even pre-existing international instruments such asthe CISG; on the other hand in order for individual provisions tobe used to fill gaps in the CISG, they must be the expression ofgeneral principles also underlying the CISG. ”11

It is said that to the extent that the two instruments address the 108

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

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same issues, the rules laid down in the UNIDROIT Principles arenormally taken either literally or at least in substance from the corre-sponding provisions of CISG; cases where the former depart fromthe latter are exceptional.12 On the other hand, to the extent thatthey formulate general principles which cannot be derived directlyfrom the CISG, these Principles can be utilized for filling gaps inthe Convention.13 However, an important caveat to recourse tothe UNIDROIT Principles to interpret the general principles of theCISG has been pointed out by Bonell: there is a need to show thatthe relevant provisions of the UNIDROIT Principles are the expres-sion of a general principle underlying the CISG. This need is, ofcourse, not satisfied where the Principles and the CISG adopt dif-ferent solutions – for example, in their approach to the battle of theforms.14

Indeed, the approach in developing the Principles appears appro-109priate with respect to the current state of attempts to unify law.15

The UNIDROIT Principles was published in 1994 as a result ofcomparative research and deliberations by a group composed ofrepresentatives of all the major legal systems of the world. TheUNIDROIT Principles have, in practice, only a persuasive value.The Principles can, however, have significant role in internationaland domestic legislator’s adoption policy, court and arbitration pro-

12See Michael Joachim Bonell in “THE UNIDROIT PRINCIPLES OFINTERNATIONAL COMMERCIAL CONTRACTS AND CISG – ALTERNATIVESOR COMPLEMENTARY INSTRUMENTS?”: 26 Uniform Law Review (1996); pp.26-39. Available online at ‹http://www.cisg.law.pace.edu/cisg/biblio/ulr96.html›13See Ulrich Magnus in “Die allgemeinen Grundsätze im UN-Kaufrecht”: 59Rabels Zeitschrift (1995); pp. 492-493. English version: General Principles ofUN-Sales Law, Lisa Haberfellner, trans. Available online at‹http://www.cisg.law.pace.edu/cisg/text/magnus.html›14See 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›15Supra. note 13.

ceedings, contract drafting or choice of law clauses. The reason forsuch significance can generally be seen in the modern and func-tional solutions adopted in the principles. The potential users of theUNIDROIT Principles to which they are addressed to are especiallyinternational law firms, corporate lawyers, arbitration courts and thelike. The Principles have so far proved to be successful and widelyaccepted.16 The UNIDROIT Principles are regarded to be espe-cially useful in arbitration proceedings. Although there have beenonly a handful of cases actually decided solely by reference to theUNIDROIT Principles, research has shown that the Principles arebeing referred to in a growing number of cases as representativeof the general principles and established trade practices on whichinternational trade is based.17

According to the Preamble, the UNIDROIT Principles set forth 110“general rules for international commercial contracts”. It is alsosaid that the aim of UNIDROIT was to specifically elaborate ageneral regulatory system which could apply universally andrestate the general principles of contract law, thus reflecting all themajor legal systems of the world.18

1.2.3 PECL 111

Unlike the CISG which is a uniform sales law adopted by coun- 112tries that account for over two-thirds of all world trade in goods,

16Supra. note 4.17See Austrian Arbitral Proceeding SCH-4318 and Arbitral ProceedingSCH-4366 (both dated 15 June 1994); see also ICC Arbitral Award No. 8128 of1995 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 Principlesas it helped them reason through the CISG. One can anticipate many suchreferences to the UNIDROIT Principles in CISG proceedings. (Supra. note 14.)18See 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.

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the PECL, like the UNIDROIT Principles except for their sphere ofapplication, are a set of principles whose objective is to providegeneral rules of contract law in the EU, and will apply when theparties have agreed to incorporate them into their contract or thattheir contract is to be governed by them.

The PECL (also known as the “Lando-Principles”) is the product113of work carried out by the Commission on European Contract Law(the “Lando Commission”). The Lando Commission was foundedin 1982, which is a body of lawyers drawn from all of the Mem-ber States of the European Union (EU), under the chairmanship ofProfessor Ole Lando. The Commission ran with funding from theEuropean Community (EC) and its work was specifically endorsedby the European Parliament in a Resolution in 1994. In 1989, theEuropean Parliament passed a resolution in favour of pursuing aEuropean Code of Private Law. In 1994, this intent manifested it-self with a resolution in favour of the Lando Commission’s effortsat the harmonisation of contract law. The ambit of the Commissionwas to draft a European Restatement of Contract law which was toserve as: a basis for the future codification of European contractlaw; a legal guide for the EU Organs; a text to be used by memberstates in future codification or updates of their own law; and a textwhich parties could chose as the applicable law of their contracts.In 1995, the Lando Commission published the first part of its Prin-ciples of European Contract Law (the PECL) . After three years,a second version were finalized in 1998, and reflects aspects ofcontract law from many of the EU’s member states.

Unlike the UNIDROIT Principles (as well as the CISG) which ap-114plies exclusively to international contracts, the European Principlesare to be applicable (a) to domestic European contracts as well asto trans-European Union international contracts and (2) to virtuallyall European contracts, including merchant consumer contracts aswell as contracts between commercial parties. Moreover, in addi-

tion to the express purpose, similar to the UNIDROIT Principles,of being applied “as general rules of contract law in the EuropeanUnion” (Art. 1:101), the PECL is intended to represent a modernEuropean lex mercatoria and most importantly for future legal de-velopments, “as a model on which [European] harmonisation workmay be based”. If the PECL will in fact be used by EU entities in in-terpreting European contract law or as the basis for further harmon-isation efforts, it is a particularly important document to consideras indicating future legal developments.19 Furthermore, work is al-ready underway to compile a third version of the Principles, and itis envisaged that the Principles will eventually form part of a futureEuropean Civil Code. At present, though, the principles are moreof academic value as opposed to being applied in practice.20

1.2.4 Brief Comparison 115

So far as the general nature of the studied instruments is con- 116cerned, there already exists one important binding instrument inthe field of international commercial law - the CISG, which containsthe core of a true international commercial code.21 The Conventionhas already codified a substantial part of the lex mercatoria and iscurrently adopted as the law in sixty-two countries. The Conven-tion elaborates the common law and practices of international sales

19See Peter A. Piliounis in “The Remedies of Specific Performance, PriceReduction and Additional Time (Nachfrist) under the CISG: Are theseworthwhile changes or additions to English Sales Law?”(1999). Available onlineat ‹http://www.cisg.law.pace.edu/cisg/biblio/piliounis.html›20Supra. note 2.21Nonetheless, the parties have the general right to derogate from or modifyany of the provisions in the CISG (subject to Art. 12) and they may even makethe 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 anon-contracting state. The crucial factor is to be able to determine the will of theparties and in determining this will, Art. 8 is applicable.

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and the common core of domestic commercial rules.22

In contrast to the governmental negotiation and compromise lead-117ing to the CISG, the UNIDROIT Principles and the PECL were fun-damentally born of the same need for a uniform body of law ap-plicable to contracts and do not have the status of an internationalconvention; therefore, their applications mainly rely on express orimplied incorporation into a contract by the parties. On the otherhand, the two Principles, unlike the CISG, where, due to the diver-gent legal regimes and views, consensus could only be reachedon compromise solutions with some ambiguous wording and gapsin coverage, were not bound to take the viewpoints of every sin-gle country, legal regime or rule into account. The final choiceamong possibly conflicting rules was made on the persuasivenessor suitability of the rule within the overall regime. These efforts canthus be seen as more unified and coherent regimes than the CISG.These regimes definitely are a step forward in legal thinking and thenumber of similarities between the two regimes suggests that theyrepresent the main directions being taken by international contractlaw.23

As for the relationship between the two sets of Principles, it is also11822See Bernard Audit in “The Vienna Sales Convention and the Lex Mercatoria”: Thomas E. Carbonneau ed., Lex Mercatoria and Arbitration, rev. ed. [reprint ofa 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› Whilecompromises were made on all fronts, and all Contracting States will noticedistinctions between their domestic law and that of the CISG, the commonlawyer as opposed to the civil lawyer will face greater obstacles inunderstanding and applying the CISG. As compared to those schooled in thecommon law, the majority of the drafters had been trained in civil law. Thus, it isnot surprising to find that the CISG is highly reflective of civil law principles. (SeeErika Sondahl in “Understanding the Remedy of Price Reduction - A Means toFostering a More Uniform Application of the United Nations Convention onContracts for the International Sale of Goods” (2003); available online at‹http://www.cisg.law.pace.edu/cisg/biblio/sondahl.html)›23Supra. note 19.

found that the PECL covers similar areas of law to the UNIDROITPrinciples, but its geographical sphere of application is confined tothe EU. The material scope of the application of the PECL is, how-ever, wider than that of the UNIDROIT Principles, as it is intendedto apply to all contracts including domestic transactions and thoseinvolving consumers and merchants.24 So while the PECL is of anarrower geographic focus than the UNIDROIT Principles, it cov-ers a wider area of law. Despite of this, the substantial scope ofapplication of the two Principles is identical in that they both aspireto be general principles of contract law. To use an expression wellknown in the world of international commerce, both are held outas a sort of codification of the modern lex mercatoria. Both of thetwo undertakings aspire to be models for national and internationallegislators, they each describe themselves as formulations of thelex mercatoria, and to some extent promote the harmonization ofthe law of contracts. It may be said that in the not too far futureprinciples for international commercial contracts as elaborated in

24While the UNIDROIT Principles are designed only for internationalcommercial contracts, they are in no way intended to take over the distinctiontraditionally made in some legal systems between “civil” and “commercial”parties and/or transactions, i.e. to make the application of the Principlesdependent on whether the parties have the formal status of “merchants”(commerçants, Kaufleute) and/or the transaction is commercial in nature. Theidea is rather that of excluding from the scope of the Principles so-called“consumer transactions” which are within the various legal systems beingincreasingly subjected to special rules, mostly of a mandatory character, aimedat protecting the consumer, i.e. a party who enters into the contract otherwisethan in the course of its trade or profession. The criteria adopted at bothnational and international level also vary with respect to the distinction betweenconsumer and non-consumer contracts. The Principles do not provide anyexpress definition, but the assumption is that the concept of “commercial”contracts should be understood in the broadest possible sense, so as to includenot only trade transactions for the supply or exchange of goods or services, butalso other types of economic transactions, such as investment and/orconcession agreements, contracts for professional services, etc. (See Comment2 on the Preambles of the UPICC. )

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the UPICC and the PECL, in the light of the CISG which is theonly one among the three instruments with mandatory applicationto the signatory States, will be developed and worthy of the namelex mercatoria which expresses rules accepted and observed bythe international economic community.25

The need for uniformity and harmony in international trade can be119expected to lead to growth of international transactions subject tothe CISG, UNIDROIT Principles, and PECL. In a summary fashionas to the relationship between the three instruments, to some ex-tent it can be described briefly that they enable themselves to sup-plement each other and fit well with each other as part of the multi-layered approach that is becoming dominant, rather than competeor claim to displace the other harmonizing projects. In so far asthe three instruments seem to have their own raison d’être theynot only do not compete with each other but may actually fulfil veryimportant functions side by side. Particularly, so as to precludean easy resort to the domestic law indicated by the conflict of lawrule of the forum, the two sets of Principles serve a gap-filling rolefor the interpretation of CISG contracts; they endorse and promotemany of the principles outlined in the CISG. Although, in this in-stance, the articles are not drafted in an identical or substantiallysimilar manner, it is nonetheless possible to identify some supportsand 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 con-120tent of different concepts contained in these instruments, becausethey will be shaping the rules for contractual dealings in the future.Particularly, one must be on the lookout for superficial harmony

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

which merely mutes a deeper discord and for verbal conflict whichhides a fundamental identity of aim. In both cases the key lies inthe conceptual presuppositions of each system or family of sys-tems. The deeper discord escapes notice because the same for-mula means different things according to the frame-work in whichit is read; the fundamental agreement on the end to be achieved isnot seen because the conceptual routes which lead that to end aredifferent.26

1.3 MAJOR SOURCES OF INFORMATION 121

In view of their close relationship, these instruments merit a com- 122parative study in order to understand their similarities and differ-ences, at least with respect to certain matters. In so doing, everyconscientious author would refer to an extensive amount of sourcesof information available for the three instruments. In this contri-bution, I carry on my analysis depending mostly on the followingswhich bear the greatest significance: as for the CISG, it is above allthe Secretariat Commentary on the 1978 Draft of the CISG (here-inafter “Secretariat Commentary”). To the extent it is relevant tothe Official Text, the Secretariat Commentary is perhaps the mostauthoritative source one can cite. It is the closest counterpart to anOfficial Commentary on the CISG.

Indeed, the drafting history of the Convention is a legitimate and 123valuable aid in the interpretation of the Convention’s provisions.The CISG has a rich and detailed legislative history. The chal-lenge is not paucity of material, but an overabundance of travauxpréparatoires spread over thousands of pages of un-indexed vol-umes, located in sources we are not used to accessing, with frames

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

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of reference (article numbers) that generally differ from those of theCISG. 27 The most recent and, generally, the most important seg-ment of the legislative history of theCISG is contained in the OfficialRecords of the Conference (Vienna, 10 March - 11 April 1980 [A/-CONF.97/19]; hereinafter “O.R.”), which is very useful as a guideto the rationale behind many of the Articles.

As for the UNIDROIT Principles, unlike the CISG to whose text124there is no official commentary, each article of the Principles is ac-companied by the Official Commentary. The Official Commentaryconsists of comments and, where appropriate, factual illustrationsintended to explain the reasons for the black letter rule and the dif-ferent ways in which it may operate in practice. The commentsare an integral part of the UNIDROIT Principles, all the more soas sometimes they not only explain but to a certain extent evensupplement the black letter rule.28 Like the commentary to theUNIDROIT Principles, the Commentary to the PECL contains com-ments and, where appropriate, factual illustrations helping explainthe text. In addition, the Notes contained in the Commentary to thePECL identify civil law and common law antecedents and relateddomestic provisions.28

Furthermore, all of the three instruments expressly state, inter alia,125that in their interpretation regard is to be had to their internationalcharacter and the need to promote uniformity in their application(CISG Art. 7(1); UPICC Art. 1.6(1); and PECL Art. 1:106(1)). Thissignifies that overviews of the existing case law with parallel ref-erences to the areas where there is theoretical debate concernedare, at least in abstracto, useful for practical purposes. Importantly,27See Michael Joachim Bonell, AN INSTERNATIONAL RESTATEMENT OFCONTRACT LAW: The UNIDROIT Principles of International CommercialContracts, 2nd ed., Transnational Publishers (1997); p. 44.28The 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).

theory is tested by outcome. It is of great importance to draw on ex-perience from arbitral awards or domestic courts’ decision. There-fore, in this contribution regards are also to be had to what nationalor international courts have already done and, where there are no“precedents”, to the solutions proposed by legal scholars. In thiscontext, particular regard is had to the case law on the CISG, whichis widely available via the UNCITRAL Database- CLOUT (CaseLaw on UNCITRAL Texts; available online at ‹http://www.uncitral.org›), which is a systematic collection and distribution mechanism forinformation on court decisions and arbitral awards relating to theConventions and Model Laws including the CISG that emanatedfrom the work of the UNCITRAL. 29

Finally, it is to be found that a significant feature of this contribution 126is its referring to extensive sources of information available overthe Internet online. In this point, besides the CLOUT databasementioned above, there are other three databases most frequentlyused so contributed to this contribution that I would like to list themso as to express my gratitude here: (a) the Pace database onthe CISG and International Commercial Law (available online at‹http://www.cisg.law.pace.edu› ) produced as a public service by the PaceUniversity School of Law in New York, which has compiled lots ofvaluable sources of information on the CISG including a Bibliog-raphy listing all articles and books on the CISG and thus is ex-tremely useful and user friendly. (b) UNILEX database (availableonline at ‹http://www.unilex.info› ), which is an “intelligent” database ofinternational case law and bibliography on the CISG and on theUNIDROIT Principles. (c) TLDB (CENTRAL Transnational Law29The purpose of the system is to promote international awareness of the legaltexts formulated by the UNCITRAL and to facilitate uniform interpretation andapplication of those texts. Currently, CLOUT covers the Convention on theLimitation Period in the International Sale of Goods (New York, 1974), asamended by the Protocol of 1980, the CISG, the UNCITRAL Model Law onInternational Commercial Arbitration (1985), and the United Nations Conventionon the Carriage of Goods by Sea, 1978 (the “Hamburg Rules”).

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Database; available online at ‹http://tldb.uni-koeln.de/TLDB.html› ), whichcontains the largest bibliography on the new lex mercatoria in theinternet and provides the hithereto missing link between the the-ory of transnational commercial law and international legal prac-tice.

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CHAPTER 2. REMEDIES AVAILABLE UPON127NON-PERFORMANCE

No aspect of a system of contract law is more revealing of its un-128derlying assumptions than is the law that prescribes the relief avail-able for breach.30 The remedies available to an aggrieved party fora breach of contract can in all significant legal systems be classi-fied into three basic categories. Firstly, an aggrieved party maybe able to claim specific performance. As such, specific perfor-mance hardly gives the aggrieved party exactly the performanceto which he was entitled to, unless it is supplemented with somekind of an additional remedy, such as a monetary relief. Secondly,the aggrieved party may have the right to require substitutionaryrelief. A relevant relief here is compensation, and almost always amonetary compensation, for the loss that the party has suffered forperformance not received. Finally, the aggrieved party may havethe right to put an end to the contractual relationship. In such acase the third remedy can also be seen in that the aggrieved partyis put into a position where he would have been had the contractnever been made. The three categories are not exclusive in thatmonetary compensation will also very often be available togetherwith a claim for specific performance and an act to put an end tothe contract. Furthermore, the above mentioned three basic cat-egories of remedies also appear in different variations, such as aright to price reduction and suspension of performance.31

2.1 INTRODUCTION129

The first and paramount task of international commercial contracts 130is organizing the relationship between the parties in an optimalmanner. This means that contracts must determine the rights andduties of the parties so that the transaction works smoothly andits costs can be minimized. A second important task is providingremedies for cases of breach of contract. Requirements as to therules for such contracts, as well as to the contracts themselves,have to be assessed in light of these aims. The attainment of thefirst goal is mainly a task of the parties in drafting their individualcontracts, but nevertheless may be supported by the applicablerules, as the UNIDROIT Principles do in Chapter 6, Section 1 (Per-formance in General). Though the parties to a contract very oftendeal with the consequences of breaches of contract as well, theyrely more often on the applicable rules. It is easier for parties toorganize their relationship than to deal with its destruction.32

Remedies available to a party are a key consideration for that party, 131particularly if the contract is breached. However, the issue of reme-dies is one of the areas in which the diversity of legal systems isobvious.33 During the drafting of the Convention themost difficult toformulate were those dealing with the remedies of buyer and sellerfor breach of contract by the other party, which are still among the30See 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›.31See Jussi Koskinen in “CISG, Specific Performance and Finnish Law”:Publication of the Faculty of Law of the University of Turku, Private lawpublication series B:47 (1999). Available online at‹http://www.cisg.law.pace.edu/cisg/biblio/koskinen1.html›32See 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› ; TLDBDocument ID: 126400.33See Survey of the International Sale of Goods 3, L. Lafili, et al. eds., (1986);p. 14.

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most likely to generate controversy. Many aspects of the law ofsales reflect merchant practice, and to the extent that this practiceis standardized in international sales transactions, the problems informulating the text of the Draft Convention were reduced. How-ever the provisions in respect of breach of contract do not reflectmerchant practice. They reflect the efforts of lawyers from manylegal systems to reconcile their views on the appropriate actions tobe taken by the parties and by a tribunal in case of breach. The re-sult has been a series of provisions which are in general harmonywith one another but which will often be unfamiliar to lawyers fromany given legal system.

Thus, the present Chapter identifies generally the scope of relief132available under each of the three bodies of rules, namely Part III(partial) of the CISG, Chapter 7 of the UNIDROIT Principles andChapters 8 and 9 of the PECL, in light of traditional and moderntheories. This Chapter seeks to take an overview of remedies inthe event of non-performance while leaving the substantively majorremedial provisions to be discussed in the following chapters. Inso doing, it firstly touches on the definition of non-performance ingeneral. After that, the available remedies are shown in a mannerlimited to a descriptively bare outline rather than a more detaileddiscussion. Finally, this Chapter outlines briefly the structure of thiscontribution.

2.2 THE CONCEPTS: BREACH OF CONTRACT vs.133NON-PERFORMANCE

“Non-performance” is the term used in the UPICC and the PECL,134analogous to “breach of contract” used in the CISG. A brief surveyreveals that breach of contract as a unitary institution of contractlaw is not familiar to all legal systems.34 The concept as such

34For instance, German law and some legal systems inspired by it (such as

is derived from Anglo-American law. But a unitary approach isalso adopted in the Romanic legal systems; there it is called non-performance. 35 To avoid plunging into a battle of conceptual is-sues, I will use the both terms, i.e. “non-performance” and “breach”equally in this contribution to mean that a contract is not performedas originally contracted.

The Convention uses the basic and unitary concept of “breach of 135contract”, which may now be regarded as widely, although not yetgenerally accepted. Under the Convention the notion “breach ofcontract” covers all failures of a party to perform any of his obliga-tions. There is no distinction between main obligations and aux-iliary obligations. And it does not matter whether the obligationhad its origin in the contract, in a usage or in the Convention it-self. Under certain conditions a breach of contract is considered tobe fundamental (Art. 25).36 A breach of contract is always givenwhen the objective facts of a breach have occurred, hence irre-spective of whether there are grounds for exemption or not. It fol-lows from that the term failure to perform as contained in Arts. 79,

Austrian and Swiss law) do not use a unitary approach. Instead they distinguishbetween the various causes of breach, especially between impossibility ofperformance, delay, and all other instances of breach; in addition, followingRoman 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 separateinstitutions has proved to be quite inadequate in many respects because it givesrise to difficult problems of delimitation. However, under the impact ofcomparative law and the unification of sales law there is now a strong tendencyin German academic writings to adopt the unitary approach.35See Ulrich Drobnig in “General Principles of European Contract Law”: PetarSarcevic & 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›36See 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›

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80 (Exemption) refers to any breach of contract, which is “to beconceived here in the broadest sense of the word. Apart from lateperformance and non-performance it includes, in particular, non-conform[ing] performance and relates to the obligations of both theseller and the buyer”.37

On the other hand, both the UNIDROIT Principles and the PECL,136where “breach” is called non-performance, set up a substantiallyidentical definition to the CISG. In the UNIDROIT Principles, it isexpressly set out in Art. 7.1.1 that: “Non-performance is failure bya party to perform any of its obligations under the contract, includ-ing defective performance or late performance.” This article defines“non-performance” for the purpose of the Principles. Particular at-tention should be drawn to two features of the definition. The firstis that “non-performance” is defined so as to include all forms ofdefective performance as well as complete failure to perform. So itis non-performance for a builder to erect a building which is partlyin accordance with the contract and partly defective or to completethe building late. The second feature is that for the purposes ofthe Principles the concept of “non-performance” includes both non-excused and excused non-performance.38 The PECL has set up asimilar structure and terms for a future European Code. “Breach” iscalled non-performance, and occurs whenever a party fails to per-form any of its obligations under the contract. As the Official Com-ment to the PECL makes it clear: “Under the system adopted bythe Principles there is non-performance whenever a party does notperform any obligation under the contract. The non-performancemay consist in a defective performance or in a failure to perform atthe time performance is due, be it a performance which is effected

37See Fritz Enderlein, Dietrich Maskow, International Sales Law: UnitedNations Convention on Contracts for the International Sale of Goods, OceanaPublication (1992); p. 318, 320, 336. Available online at‹http://www.cisg.law.pace.edu/cisg/biblio/enderlein.html›38See Comment on Art. 7.1.1 UPICC.

too early, too late or never. It includes a violation of an accessoryduty such as the duty of a party not to disclose the other party’strade secrets. Where a party has a duty to receive or accept theother party’s performance a failure to do so will also constitute anon-performance.”39

Clearly, the difference between these two basic concepts, i.e. 137“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 economicmarkets has made a further step forward when non-performanceis defined in terms under it that include all failures and defectsin performance, including those that are excused, and avoidsterminology emphasizing breach or fault. A commentator’s state-ment on the CISG confirms this: “Exemptions, as can be seenparticularly well from the context of impediments, only lead to theremoval of certain legal consequences of the breach of contract,while others continue to exist. The reason for it is a breach ofcontract [...] cannot be eliminated as such by way of exemptions.From this it follows that the term ‘breach of contract’ does notnecessarily include an accusation.”40

2.3 REMEDIAL SCHEMES OF THE STUDIED 138INSTRUMENTS

2.3.1 CISG Part III (Partial) 139

The CISG grants reciprocal remedies within three basic categories 140to the buyer and seller and clearly establishes that the primary rem-edy available to an injured party is specific relief, i.e. specific per-formance. Secondly, the Convention establishes that an injured39See Comment and Notes to the PECL: Art. 8:101. Comment A. Availableonline at ‹http://www.cisg.law.pace.edu/cisg/text/peclcomp45.html›40Supra. note 6.

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party shall have a right to a substitutionary relief, which requires theparty in breach to pay some amount of money to compensate theloss suffered by the other party. Finally, an aggrieved party shallhave a right to avoid (terminate) the contract and thus put an endto the contractual relationship. As such, the remedial provisions ofthe CISG generally correspond with all major legal systems.41 TheCISG also follows the above mentioned three-category system andthus provides three basic remedies, namely specific performance,damages and avoidance of the contract.

Under the Convention, the remedies available for both the buyer141and the seller, each dealt with under a section in Part III, are de-scribed in a unified scheme that is clear and easy to follow.42 In thisrespect, the remedies available for a breach of contract are sum-marized in Arts. 45 and 61, which set forth reciprocal remedies forthe buyer and seller, respectively. Art. 45(1) gives an overviewof the remedies available to the buyer in the event of breach ofthe seller, namely specific performance, avoidance, compensatorydamages, and reduction in price. The seller’s remedies are enu-merated at Art. 61(1). They differ from the remedies available tothe buyer for obvious reasons in two respects. First, the remedy ofclaiming a reduction in price is not available to the seller. Second,there is no need for substitutional performance or the requirementthat the buyer cure a defect in his performance.43

41Supra. note 2.42See Nayiri Boghossian in “A Comparative Study of Specific PerformanceProvisions in the United Nations Convention on Contracts for the InternationalSale of Goods”: Pace Review of the Convention on Contracts for theInternational Sale of Goods, Kluwer (1999-2000); p. 15. Available online at‹http://www.cisg.law.pace.edu/cisg/biblio/boghossian.html›43See Robert Koch in “The Concept of Fundamental Breach of Contract underthe United Nations Convention on Contracts for the International Sale of Goods(CISG)”: Pace Review of the Convention on Contracts for the International Saleof Goods (CISG) 1998, Kluwer Law International (1999); p. 297. Availableonline at ‹http://www.cisg.law.pace.edu/cisg/biblio/koch.html›

Generally, the CISG represents a compromise between the civil 142law and common law systems, sometimes reflecting concepts thatare unique to one system and not the other.44 Especially, the avail-ability of specific performance as a primary remedy for a breach ofcontract under the CISG, corresponds with the civil law countries,contrary to the common law countries which regard damages asthe primary remedy for a breach of contract.45 The CISG makesspecific performance available to both the seller (Art. 46) and thebuyer (Art. 62). Before the parties have fulfilled their obligations, atleast in terms of its placement in the Convention’s overall scheme,specific performance is the primary remedy although damages areequally available. Under Art. 46, specific performance of thebreaching seller may arise in the form of the seller’s right to deliv-ery, substitute delivery and repair. While under Art. 62, the sellermay require the breaching buyer to pay the price, take delivery orperform his other obligations, unless the seller has resorted to aremedy which is inconsistent with this requirement.

Besides specific performance, the right to obtain damages for a 143breach of contract plays an important role within the CISG. Dam-ages (or monetary compensation) may be the only available rem-edy for an aggrieved party if, e.g. the requirements for grantingspecific performance or the right to avoid the contract are not met.It can, therefore, also be argued that damages are the primary rem-edy pursuant to the CISG. Moreover, the aggrieved party’s rightto obtain monetary compensation supplements substantionally the

44Supra. note 13, p. 10. In general, the CISG has features that are familiarfrom 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 whichreflects the compromise between civil law and common law aspects; and it hastherefore not been possible to achieve a totally uniform scheme of remediescompared with different domestic legal systems. The range of remedies is morecomprehensive than what is available under common law and some of theseremedies are even foreign to common law.45Supra. note 2.

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rights to require specific performance and avoidance in that he al-ways has the right obtain damages. For the sake of putting the ag-grieved party into as good a position as he would have been hadthe contract been performed as agreed, the aggrieved party has,therefore, always a right to claim for damages in addition to a claimfor specific performance or avoidance.46 Damages include not onlycompensation for the expenses incurred by a party, but also theloss of profit. The amount of damages is limited by two conditions:foreseeability and mitigation. Foreseeability means that damagesmay not exceed the loss that the party in breach foresaw or shouldhave foreseen (Art. 74). The mitigation rule imposes on the in-nocent party the duty to mitigate the loss (Art. 77). The right toreceive 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 de-144clare the contract avoided. Avoidance of contract under the CISGputs an end to the performance obligations of both parties. It is,however, required that the breach is a fundamental breach.47 Theidea behind this is said that the CISG was designed to take into ac-count the special characteristics of the international sale of goods,such as long distances involved, costs of transportation and thelength of the term of the contracts. Due to this design, the CISGemphasises remedies that seek to preserve the contract notwith-standing a breach.48 This deliberation is further supported when

46Ibid.47Under the Convention, apart from the damages remedy, avoidance andsubstitute delivery are only available when a fundamental breach occurs.48In a broad way, remedies for breach of contract in sales law can be brokeninto two main categories: one where the contract can be terminated or avoidedby the parties, the other where the remedy is granted while the contract remainsin force. Since parties will typically expect their contracts to be performed or atleast stay in effect, the primary emphasis should be on the remedies that operatewithout having to avoid the contract. (See Peter A. Piliounis in “The Remedies ofSpecific Performance, Price Reduction and Additional Time (Nachfrist) under the

the CISG provides a tool in Art. 47/63, familiar to the German legalsystem and known as the Nachfrist principle, where the aggrievedhas the option of fixing an additional period of time for the breach-ing party to perform his obligations, and during that period he maynot resort to any other remedy for the breach, unless he receivesnotice that the other party will not perform.

Moreover, the CISG contains additional remedies besides the 145above mentioned. Firstly, as for the anticipatory breach, besidesthe right to avoid the contract as contained in Art. 49/64 when ananticipatory fundamental breach exists (Art. 72), the CISG pro-vides a possibility to suspend performance in certain situations asprovided for in Art. 71. Under this Article a party may suspend theperformance of his obligations if, after conclusion of the contract,it becomes apparent that the other party will not perform a sub-s