The Relative Costs of Incorporating Trade Usage into Domestic versus International Sales Contracts: Comments on Clayton Gillette, Institutional Design and International Usages under the CISG

Clayton Gillette's paper on the use of trade usage in reported disputes arising under the United Nations Convention on Contracts for the International Sale of Goods ("CISG") presents a challenge to recent scholarly critiques of modern contractual interpretation.1 As Gillette explains, much recent writing by economically influenced US scholars in contracts and commercial law has argued in favor of more formalistic methods of interpretation, and against the overwhelming trend of the last half of the twentieth century: a trend toward a more contextual interpretative approach that takes into account a variety of evidence, including the business purpose of the transaction, the customs and practices of the market in which the parties transact, the history of the parties' dealings, and even the parties' pre- and post-contractual communications.2 These critiques have extended even to the interpretative use of trade usage, which has long been regarded as an especially reliable source of information about the parties' intentions and which enjoys a privileged status in US domestic sales cases decided under the Uniform Commercial Code ("UCC").3 Gillette argues, based on a survey of international case law, that Article 9(2) of the CISG, which directs tribunals to incorporate international trade usage into private contracts governed by the Convention unless the parties agree otherwise, works well in practice and has not led to the adverse consequences of which formalist critics have warned. This Comment expands upon Gillette's argument to provide a more robust account of when substantive interpretative doctrines such as trade usage might be desirable, and why such doctrines appear to be especially useful in the transnational setting of the CISG. In my view, Gillette's account is incomplete because it does not provide an explanation of why international tribunals have not fallen prey to the temptations of more substantive interpretation in the way that US domestic courts have, and because it focuses primarily on the costs of interpretative uncertainty to the exclusion of a fuller list of costs and benefits relevant to the choice of interpretative regime. Taking this list of considerations into account renders more comprehensible the widespread use of trade usage and similar contextual standards in the transnational setting, and reinforces Gillette's conclusions regarding trade usage's commercial functionality. I. THE DEBATE OVER FORMAL VERSUS SUBSTANTIVE INTERPRETATION The basic critique made by contemporary formalist scholars in the fields of contracts and commercial law is that trade usage, even when it exists, is considerably more complex, subtle, and heterogeneous than mainstream scholars and commentators have appreciated. The formalists argue that much regularly observed behavior reflects not compliance with what the parties regard as customary legal obligation, but rather a conscious departure from those obligations for purposes of business goodwill or an implicit settlement of a potential contractual dispute. Generalist courts deciding disputed cases ex post, on this view, are unlikely to be able to observe and understand this complex environment with the accuracy that is needed for their interventions to be helpful. Additionally, these critics have argued that the value of commercial certainty and the need to maintain a strict separation between legal obligations and social regularities conferred as a matter of grace are so great as to foreclose inquiry into trade usage even where the adjudicators are themselves experienced trade participants.4 The growing influence of this formalist thesis in the US scholarly literature stands in sharp contrast to the view of most international commercial lawyers and scholars, who are accustomed to a legal regime in which courts and arbitrators routinely consider contextual factors, such as trade usage, and apply open-textured legal standards, such as good faith, when rendering their decisions. …