In international trade. Today, more than sixty countries supporting

In
1980, the United Nations proclaimed formally the convention on the
International Sale of Goods to bring an identical laws for transactions of
international commercial contracts. The main objective was to develop the
competence of these transactions and encourage growth of international trade.
Today, more than sixty countries supporting the convention which includes
Australia, China, France, Germany, Russia and the United States. Albeit the
CISG has successfully proven at various extent. It has not been very successful
in the field which is very critical to disputing parties (damages for breach of
contract). Undoubtedly of all the CISG articles, the articles related to
economic remedies are the most written about and largely prosecuted. Because of
inadequacy in uniform guidelines, equivalently at times positioned parties are
presented with enormous decisions; such inequality sabotage the scope of the
CISG and may compel parties to embrace and implement a sales law rather than
the CISG. Primary reasons for such situation is that these CISG means does not
ensure any precise economic remedies. Rather it only explains basic regulatory
provisions for recovery of damages. This is so indisputable. As John Honnold,
who played vital role in the CISG drafting stated, “a breach of contract can
occur in an almost infinite variety of circumstances and thus no statute can
specify detailed rules for measuring damages in all possible cases.” Whereas
the provisions of the CISG only describes basic guidelines to regulate
compensation in the event of breach of contract. These guideline allows court
of justice to resolve afflicted party’s deprivation depending upon particular
case circumstances.

Unfortunately,
such inadequate precision resulted in great dispute and apparently increasing
consequences.

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There
have been many debates that intermissions in the provisions of CISG damages
should be covered by UNIDROIT Principles of International Commercial Contracts.
In my view, principles of the UNIDROIT should not be used as a gap-filler
measure for the CISG. Yet, the UNIDROIT principles may still play important
role in the CISG. These provisions helps to understand basic CISG principles
that provides guidelines to tribunals and court of justice to settle issues
which are not clearly dealt with in the convention. Furthermore, they provide assistance
for solution to widely open matters held out of analysis of the convention
itself.

In
my view, the UNIDROIT principles should not be used as formal scope of
regulatory to form principles that cannot be acquired from the CISG. They may
play vital role in decoding the convention.

Ø USING THE UNIDROIT PRINCIPLES TO
FILL THE GAPS IN THE CISG

The
principles of UNIDROIT encourages basic guidelines for international commercial
transactions. Their aim “is to establish a balanced set of rules designed for
use throughout the world irrespective of the legal traditions and the economic
and political conditions of the countries in which they are to be applied.”

The
founders of the UNIDROIT principles expected them to implement in a wide
variety of circumstances. The preamble explains that:

They
shall be applied when the parties have agreed that their contract be governed by
them.

They
may be applied when the parties have agreed that their contract be governed by
general principles of law, the lex mercatoria or the like.

They
may be applied when the parties have not chosen any law to govern their
contract.

They
may be used to interpret or supplement domestic law.

They
may be used as a model for national and international legislators.

Although
the principles of UNIDROIT follow perceptions found in various regulatory
systems, as well as they “embody what are perceived to be the best solution
even if still not generally adopted.” Thus, clearly they do not summarize
already existing guidelines found in most regulatory system.

In
numerous circumstances, the guidelines in the UNIDROIT principles are based
upon or similar to articles found in the CISG. Such as, the principles of
UNIDROIT Article 1.9(1), which states “the parties are bound by any usage to
which they have agreed and by any practices which they have established between
themselves,” is almost similar to Article 9(1) of the CISG. Furthermore,
Article 5.1.7(1) of the UNIDROIT principles, which deals with the general
guidelines for deciding the contract price when the agreement does not make
arrangement for deciding the contract price is identical to Article 55 of the
CISG. At some instances, the UNIDROIT principles follows basic means which are generally
found in the CISG, but adopt the guideline “to reflect the particular nature
and scope of the principles.” For instance, Article 7.2.2 of the UNIDROIT
principles which deals with the right to require accomplishment of non-monetary
responsibilities follows the basic guidelines of Article 46 of the CISG but
involves “certain qualifications.”

The
damages provisions of the UNIDROIT principles are comparable to the provisions
of the CISG in numerous ways.

Article
74 of the CISG states general provisions for recovery of damages. It grants:

Damages
for breach of contract by one party consist of a sum equal to the loss,    including loss of profit, suffered by the
other party as consequence of the breach. Such damages may not exceed which the
party in breach foresaw or ought to have foreseen at the time of the conclusion
of the contract, in the light of the facts and the matters of which he then
knew or ought to have known as a possible consequence of the breach of
contract.

Thus
Article 74 of the CISG not only provides recovery for actual suffered loss but
also for net profit forbidden. Yet it does not provide certain rules for
calculations of damages. Rather Article 74 of the CISG allows court of justice
to resolve the afflicted party’s loss depending upon the circumstances in
certain cases. The objective of the Article 74 of the CISG is to provide
“benefit of bargain” to the afflicted party. Thus, Article 74 of the CISG is
adequately interpreted to compensate an afflicted party all damages suffered as
an outcome of the breach of contract. Though all damages claims comprised in
Article 74 of the CISG are liable to conventional restrictions enforced on the
damages recovery for breach of contract, such as, the principle of foreseeability
and mitigation.

Articles
75 and 76 of the CISG provides very narrow substitutes to Article 74 of the
CISG. Article 75 of the CISG states procedure for calculating damages when the
afflicted party has refrained the contract and tried to get into alternative
transactions. The afflicted party here “may recover the difference between the
contract price and the price in the substitute transaction as well as any
further damages recoverable under Article 74.” On the contrary Article 76 of
the CISG sets forth that when an afflicted party has refrained the contract but
has not made an alternative transaction under Article 75 of the CISG. It is
only available to damages measured by “the difference between the prices fixed
by the contract and the current price at the time of avoidance as well as any
further damages recoverable under Article 74.”

In
various ways, provisions for the damages in the UNIDROIT principles are very
much similar to the principles of the CISG. Alike Article 74 of the CISG, the
UNIDROIT principles states general proposition that the party breaching
contract is liable to compensate the afflicted party for all damages suffered
by the afflicted party. The UNIDROIT principles moderate damages to those which
were foreseeable, similar to the CISG. However, UNIDROIT principles comprises
more precise guidelines and in the case of nature and extent of compensation,
the principles of UNIDROIT are wider than the CISG.

The
principles of UNIDROIT comprises provisions similar to Articles 75 and 76 of
the CISG. Similar to CISG Article 75, Article 7.4.5 of the UNIDROIT principles
sets forth: “where the aggrieved party has terminated the contract and has made
a replacement transaction within a reasonable time and in a reasonable manner
it may recover the difference between the contract price and the price of the
replacement transaction as well as damages for any further harm.” Furthermore
like Article 76 of the CISG, UNIDROIT principles Article 7.4.6 sets forth: “where
the aggrieved party has terminated the contract and has not made a replacement
transaction but there is a current price for the performance contracted for, it
may recover the difference between the contract price and the price current at
the time the contract is terminated as well as damages for any further harm.”

The
precise difference which should be noted is that Article 5 of the CISG
particularly sets out claims for damages arising from personal injury or death,
whereas the principles of UNIDROIT cover them.

There
are some issues which damages provisions in the CISG does not specifically
state but are covered by the principles of UNIDROIT. First is that the CISG
provisions do not specifically mandate that damages consist of any compensation
received by the afflicted party arising from the breach of contract. Whereas,
the principles of UNIDROIT precisely comprises these compensations. Second is
that Article 74 of the CISG does not state the scope and extent to which the
afflicted party must determine in order to recover damages that it suffered
loss. On the contrary, the UNIDROIT principles Article 7.4.3 address that
“compensation is due only for harm, including future harm that is established
with a reasonable degree of certainty.” The CISG has no provision for the
currency to be used in loss calculation as well. Whereas, the UNIDROIT
principles expressly address that damages must be determined either in the
currency in which contract was expressed or in the currency in which loss was
suffered, whichever is more convenient.

Perhaps
Article 78 is the most prosecuted guideline of the CISG, which addresses issues
relating to payment of interest. Despite article 78 needs paying interest
whenever payment is in debts, but it does not determine how to calculate owed
interest.

Whereas,
the principles of UNIDROIT consist of precise guidelines on interest. Article
7.4.9 of the UNIDROIT principles addresses that interest is payable from the
time when payment is due. The UNIDROIT principles with respect to the
applicable rate of interest encourages hierarchy to determine the appropriate
interest rate, coming out with “the average short-term lending rate to prime
borrowers prevailing for the currency of payment at the place of payment.” If
such rate does not exist, the UNIDROIT principles stipulates that interest grows
at nominal prime rate in the State of currency of payment. Whereas in the
absence of such rate of interest, the interest rate is to be decided by the
regulatory in the State of currency of payment.

Ø APPLYING THE UNIDROIT PRINCIPLES IN
THE INTERPRETATION OF THE CISG

Till
the date, regulatory and tribunals have adopted the principles of UNIDROIT
regarding interpretation of the CISG in various ways. Firstly, when the parties
have particularly described the application of the UNIDROIT principles to
support the CISG, parties’ contracts typically respected by the regulatory and
tribunals. Secondly, the principles of UNIDROIT have been used as supplement
for resolutions which are outcome of other sources of authority by its
application. Thirdly, using these UNIDROIT principles as a gap-filler in the
CISG. For example, some courts have applied Article 7.4.9 of the UNIDROIT
principles to determine the issues which are not covered in the Article 78 of
the CISG, specifically to settle the rate at which interest increases. This
application has been matter of dispute which is apparently inappropriate.

Ø ACCURATELY DECODING THE CISG

The
CISG Article 7 addresses interpretation of the convention which states:

1)      In
the interpretation of this convention, regard is to be had to its international
character and to the need to promote uniformity in its application and the
observance of good faith in international trade.

2)      Questions
concerning matters governed by this convention which are not expressly settled
in it are to be settled in conformity with the general principles on which it
is based or, in the absence of such principles, in conformity with the law
applicable by virtue of the rules of private international law.

To
fill gaps in the CISG by using the UNIDROIT principles, exponents have sets
forth three interpretation of this Article. Amidst which first is the
principles of UNIDROIT are used as gap filler in the CISG as the UNIDROIT
principles are considered as addressing general principles of international
contract law upon which the convention is established. Secondly, the principles
of UNIDROIT are used as gap filler in the CISG only when the significant UNIDROIT
principle article and the significant CISG provision are identical in the
context and framework so that the principles of UNIDROIT are substantially
providing “meat on the bare bones” of the CISG provisions. Thirdly, the principles
of UNIDROIT are used as gap filler in the CISG even though the general
principles upon which they are established cannot directly be determined from
the convention.

In
my view, it is overemphasizing to apply the principles of UNIDROIT as the
primary source of power to fill a gap in the CISG. Although articles in the
principles of UNIDROIT generally correlate to the CISG provisions, and these
principles are not solely an abstract of general principles of international
contract law. As the administrative authority of UNIDROIT elucidated in the
introduction that these principles not only express ideas found in numerous
legal system but also represents what are considered to be best resolutions,
even though it is not widely adopted. Thus, these principles altogether does not
express general principles on which the convention is established.

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