Law of International Trade Module

Question: Discuss the english law governing the international sale of goods would be greatly improved if the United Kingdom were to ratify the Convention on Contracts for the International Sale of Goods.? Answer: Introduction For over a period of forty year governments have been harmonizing the international law governing sale of goods. At present international law dealing with sale of goods has been significantly harmonized through the United Nations Convention on International Sale of Goods (also referred to as the CISG or the Vienna Convention ) which came into force in the year 1988 after being concluded on 1980 in Vienna has been accepted widely. The United Nations Commission on International Trade Law (also referred to as the UNCITRAL) is responsible for bringing into effect the CISG. Primarily the CISG is applicable to those contracts for sale of goods which have been signed by parties belonging to different States. The underlying principle behind the adoption of the CISG is to eradicate the barriers which prevent the States from entering into contracts with the other States. Till date the CISG has been ratified by almost sixty states. The states which have ratifies CISG include, majority of the st ates of the European Union, Canada, U.S.A, Australia and also numerous Third World Countries. In spite of this widespread acceptance the United Kingdom has been reluctant to ratify the CISG. The United Kingdom had not adopted the CISG. The CISG was drafted was drafted by the representatives of different states from around the world. All these states have different legal frameworks. Many compromises had to be made. As the consequence of the said compromises various inconsistencies followed. Howsoever, there are various useful provisions in the CISG which may be treated as a model for making amendments to the British Sale of Goods Act, 1979(also referred to as the SOGA). The CISG governs a majority of areas concerning sale of goods most particularly the performance of contracts. Arguments in favor of harmonization of international sales law As per scholars the prime reason for harmonization and unification of international sales law is its legal certainty. The CISG is said to increase legal certainty as the application of different state laws would lead to imparation and hence the adoption of CISG would improve this scenario. Some scholars have pointed out that international law governing trade and commerce requires precise rules and the CISG contains such rules. Many countries lack plausible domestic sales laws and contracting parties are not very keen to submit to the laws of the other party. For such countries the CISG is a very good option. Important Provisions of the CISG Reduction of Price Article 35 of the CISG mandates that the goods delivered must conform to description, quality and quantity as laid down in the contract. In case a seller does not abide by this requirement then Article 50 of the Convention gives right to the buyer to reduce cost. The extent to which cost may be reduced is to the same proportion as the value which the goods actually delivered had when delivered to the value which the goods if conforming to the standard set in the contract would have had during the said time. There are several provisions in the CISG which have the background of civil law. This is one of the many such provisions. The common law countries are not aware of the right to reduce cost and thus while the Convention was being drafted many common law nations ended up confusing this provision with the right which provides for deduction of damages from the price. This right may be found under Section 53(1) (a) of the SOGA and also under Section 2-717 of the Uniform Commercial Code . But the crux of Article 50 is that the buyer is provided with the opportunity to retain the good non conforming with the standard set in the contract and bring the said contract in line with the altered circumstances by proportionately reducing the purchase price. Importance in International Law The scope of this price reduction provision is limited in the context of international sale of goods. According to the provisions of Article 45(1) (b) of the CISG, the buyers can avail of the damages for each and every breach on a no-fault basis. This provision is very much in favor of the buyer as the amount which a buyer may recover under the provision of Article 45(1) (b) is generally much higher as compared to the amount up to which price may be reduced. Yet from this we may not come to the conclusion that the price reduction provision provided under the CISG is unessential. Under specific circumstances this provision is useful. At times this remedy is more reliable than right to damages. It serves as an alternative to damages. The specific cases include the following; Force majeure This provision is important in cases where the seller can show that his failure to abide by the obligation falls under the exception of force majeure as laid down under Article 79(1) of the Convention. For instance; if the subject matter of the contract is perishable goods and due to labor issues which is an impediment out of control of the seller, at the time of delivery the goods may not conform to the standard set in the contract. In such cases the vendor can avail of the protection provided under Article 79(1) of the CISG. This exception does not affect the rights of the buyer other than the right to damages and the buyer has the option of avoiding the contract by rejecting the goods if the failure of the seller it such that it amounts to a fundamental breach of the contract. But if the buyer decides to accept the goods, then he is not entitled to recover damages under Article 45(1) (b) cause as per the provisions of Article 79(1) of the CISG the seller does not have to bear liab ility. Thus under the aforesaid circumstances reduction of purchase price is the only remedy available to the buyer. Falling Market Again in cases when the market price of the goods which are conforming to the contractual standard decreases substantially during the period after the contract has been entered into and the time of delivery of the goods, the price reduction provision would be of great help to the buyer rather than the provision of damages. For instance, the contractual price of a consignment of shirts is 100,000, but the shirts which are ultimately delivered are non-conforming to the standard set in the contract so the amount is 40,000 as against 80,000 for the goods conforming to the standard. However by the date of delivery the market price falls to 60,000. Under this factual situation two remedies are available to the buyer who wishes to go ahead with the contract. Firstly, Article 45(1) (b) of the Convention avails to the buyer the remedy of breach of contract. The damages which the buyer may claim under this situation would be 60,000-40,000=20,000. Thus the buyer would ultimately have to pay 100 ,000-20,000=80,000. Again the buyer also has the option of reducing the price as per the provisions of Article 50 of the Convention. As per this provision reduced price/ contract price=value of the supplied goods/ value of the goods conforming to the set standards. The buyer would incur expenses of 50,000. Thu we may say in cases of price fall it is advisable for a buyer to adopt the remedy of price reduction. Position under the English Law The remedy of price reduction is not available to the buyers under the English Law. However the provisions of SOGA contains provisions which are almost similar to Article 50 of the CISG, these are Sections 30(1) and 53(1) (a). An evaluation of the above provisions with respect to the CISG Article 35(1) and 50 of the CISG entitles the buyer to reduce the price of the goods in case the quality of the goods does not conform to the standard set by the contract. On the other hand, Section 30(1) of the SOGA does not give any such right to the buyer. This provision provides that in case a buyer accepts goods which do not conform to the standard set in the contract then he will have to pay the contracted price. Thus the method of calculation of reduced price under the SOGA and CISG differ. As regards qualitative defective performance, the principle of reducing price is not encouraged by the SOGA. The buyer is only entitled to deduct the damages he is entitled to as a result of the defect from the price of the goods under the provisions of Section 53(1) (a) of the SOGA. In this respect there are various differences between Article 50 of the Convention and Section 53(1) (a) of the SOGA. Section 53(1) (a) does not provide for the remedy of price reduction to the buyer. It only permits the buyer to to set up his entitlement to warranty against the seller who sues for the price. Under no circumstance the buyer can make the contract to come in line with the changes circumstances. The only option available to the buyer is to bring an action. Thus the setting up of warranty entitlement against the vendors suit for the price would lead to same consequences as claiming of damages instead of price reduction as is possible under the CISG. Evaluation As far as compensation for the breach of contract is concerned the approach of the CISG is similar to that of the Common Law as damages may be readily availed of on a no-fault basis. However, the price reduction provision seems to be better option in cases of fall in market price and force majeure. We may infer that the reduction of price remedy is a very useful one as it enables the merchants to make a contract in conformity with the changed circumstances without the pain of resorting to court. In fact this is one of the reasons as to why majority of nations have ratified the Convention. Making a comparative study of Section 53(1) (a) of the SOGA and Article 50 of the Convention we may say that the CISG provides for a more economically viable solution. Granting of Additional Time This is another aspect of the CISG which deserves mention. If performance has been delayed, it is open to the buyer as well as the seller to mutually decide on an additional time period for the performance of the contract. If a notice which grants additional time has been served under the CISG then; Within the stipulated period the aggrieved party cannot resort to any damages for breach of contract entitling the other party to a further chance to perform If the other party fails to perform within the stipulated extra time, the party who has served the notice is at liberty to avoid the contract. Articles 47 and 63 contain provisions to this effect. An example may be provided to explain the principle. In case a vendor supplies defective and useless goods and the buyer immediately requires the goods he had contracted, he may resort to this provision for the supply of replacement goods. It is very must possible that the vendor would not be able to comply with the requirement of the buyer and during the period when he waits for the alternative goods the stipulated period for the avoidance of the contract expires. As a consequence the buyers right to terminate the contract expires. Under such circumstances it is advisable to fix up a period for the delivery of the substitute goods so that the contract may be set aside in case the vendor fails to abide by the requirement. Position under English Law The SOGA does not provide for anything which is even slightly alike the provisions of Article 47 and 63. Thus as far as delay in rendering performance and the risk associated with unjust avoidance of contract is concerned, it may evoke the interest of individuals as to how the English Law protects the interests of the parties concerned. Rules governing termination of contract under the English Law seems to be quite complicated. If delay occurs in the performance of contract then it is open to the innocent party to treat the contract as being discharged, if time happens to be the essence of the contract. Thus rapid performance is a pre condition for a contract under the English Law. In case the contract does not specify the date within which performance has to be completed then the parties are expected to render performance within reasonable time. But in case the parties specify a date and time for rendering performance, it has to be determined whether the said stipulation is a warranty or a condition. As far as this question is concerned, the SOGA provides for two rules of interpretation. Time for payment is presumably not essence of the contract The construction of the contract would determine if any other provision isthe essence of the contract In a nutshell we may state that under the English Law the risk of avoiding a contract wrongfully is almost non-existent. Evaluation The grant of additional time for performance of contract is a significant aspect of international sales law as if delay occurs the innocent party may resort to this provision so as to avoid wrongful termination of contract. The risk arises from the peculiarity of the provisions of the CISG. But the English Law provides for situations which are less complex. Thus we may conclude that Articles 47 and 63 of the COSG would not be of great help for giving effect to future amendments of the SOGA. Right to Cure If a contract has been performed defectively, in many cases the said defect may be easily redressed, for instance, by performing the part which was missing. Sellers right to cure is often found to be incorporated in contracts governing sale of goods. The provisions of Article 37 and 48 of the CISG provide the seller with the opportunity to remedy defects prior and post the specified delivery date. As regards Article 37 of the CISG it is said that the provisions would not be unfamiliar to the common or civil legal framework as almost all legal systems identify the principle of freedom to cure defects before the stipulated date of performance. Under English Law the seller has the right to cure a defective performance of goods by substituting it with a performance of contract as per the set standards within the stipulated time period. But Article 48 of the CISG is not a very common provision. Article 48(1) has subjected the right to sure to various limitations. These include; The seller ought to be able to cure the breach without causing unreasonable inconvenience to the buyer or ambiguity of recompense of expenses. The right of the seller to cure is also subject to the provisions of Article 49 of the CISG. Thus if there has occurred a fundamental breach of contract, the seller cannot cure the defect and thereby deprive the purchaser of his right to set aside the contract. Thus we may infer that though the interest of the seller is served by providing for right to cure, yet, this right cannot be availed so as to cause detriment to the buyer. Position under English Law The SOGA does not lay down any provision stipulating the sellers right to cure. The English Law only recognizes the provision of retender before the date of delivery. But as regards performance after due date is concerned, the position of English Law is not very clear. The dictum in the case of Bernstein v. Pamson Motors (Golden green) Ltd. it was stated that the English Law presumably allows the vendor to cure a defect even after the stipulated date of performance. But there is no certainty of this principle. Thus we may infer that still there exists great deal of uncertainty under the English Law as regards the right of the seller to cure defective performance. Evaluation As far as short delivery and delivery of goods not conforming to the standard set in the contract are concerned the English Law of Sale of Goods provides a proper solution as it only makes provision for a few remedies to the buyer when the stipulated date for rendering performance has lapsed. It is left up to the whim of the buyer as to whether he intends to set aside the contract and thereby reject the goods or he may as well retain the goods and claim for damages. Article 48 of the CISG lays down various safeguards. These include, the sellers right to be able to cure the breach without causing unreasonable inconvenience to the buyer or ambiguity of recompense of expenses. Again the provision of Article 49(1) of the CISG, if the failure leads to a fundamental breach of contract the buyer has the option of setting aside the contract. Moreover, if the performance is not in conformity, the buyer has the option of requiring the seller to remedy the missing part by agreeing on a further period for compliance. Under these circumstances, if the seller refuses to cure the defect or fails to do so within the further stipulated time period then Article 49(1) (b) of the CISG entitles the buyer to set aside the said contract. Thus we may conclude that even though the right to cure available to the seller might give rise to ambiguity yet the CISG serves to balance the interest of both parties concerned by providing opportunity to the buyer to either termina te the contract or make the seller to change his/ her name. The provision of Article 48 does not unduly favor the seller. The right to cure defect is more viable for commercial transactions rather than the English Law. For instance, in the practical scenario when the goods delivered are found to be defective a typical buyer would reject the consignment and at the same time require the vendor to cure the defect and thus rendering the contract open for performance. Thus we may infer that buyers generally tend to give sellers a second chance for rendering performance. The entitlement of the right to set aside the contract along with the right to cure the defect leads to a perfect balance of interest. The right to cure defect has been subjected to Article 49 of the CISG and thus when there occurs a breach of a provision which is fundamental to the said contract the buyer may set aside the contract. But if the failure of the vendor is not fundamental the contract is very much valid and the buyer may allow the vendor an additional time period so that he may cure the defect. Having regard to all the above stated factors, we may conclude that the CISG lays down a valid remedy in favor of the vendor, i.e., the right to cure the defect after the time for the performance of contract has expired. In fact as the corresponding provision of the SOGA is very uncertain it has been opined by many that it is regrettable that United Kingdom has failed to utilize the opportunity to modernize the sale of goods legislation by including provisions of the CISG. Conclusion We may conclude the aforesaid discussion by stating that an analysis of the above three provisions out of over a hundred provisions of the CISG did not serve to disapprove the ratification of the Convention and the amalgamation of the provisions in International Sales Law. The above study reveals that the Convention lays down prudent solutions for the issues concerning international sale of goods. We may although say that few provisions like Article 47 and 63 which provides for grant of additional time is not very useful as the situations under which they would prove to be useful do not take place usually. But we may not as well ignore the provisions regarding price reduction and right to cure which provide practical solutions to the problems faced by the commercial world. They are much more viable than the solutions provided by the SOGA. Owing to these and various other reasons we may well say that the British commercial world would benefit significantly if the British Government ra tifies the CISG. I would finally state that it is high time that the United Kingdom does way with the reluctance to ratify the Convention. Moreover, the provisions of the CISG which have been proved to be economically reasonable should be attempted to be introduced into the arena of sales law governing domestic transactions. 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