Source: http://www.cisg.law.pace.edu/cisg/principles/uni55.html
Timestamp: 2019-04-23 07:51:49+00:00

Document:
Article 55 of the Convention provides a mechanism for the determination of the price in an international sales contract that has been validly concluded in situations in which the contract does not state a price or expressly or impliedly make provision for determining the price. In other words, CISG Art. 55 deals with the uneasy question concerning open price contracts, and it becomes a controversial provision in the light of CISG Article 14(1), which provides that determination of price is one of the criteria for an offer. The two provisions seemingly contradict each other.
Counterpart provisions regulating the same issues, but in a more detailed manner, are also found in the UNIDROIT Principles of International Commercial Contracts [the "Principles"] Articles 5.7 ["Price Determination"] and 2.2 ["Definition of Offer"].
This paper examines whether and the extent to which the provisions of the Principles may be used to aid the interpretation of Art. 55 of the Convention.
CISG Art. 14 generally deals with the criteria for an offer, and Art. 14(1) expressly provides that for an offer to be sufficiently definite, the price must be expressly or implicitly fixed or a provision must be made to determine the price.
On the other hand, CISG Art. 55 permits the possibility that a contract may be validly  concluded even without expressly or implicitly fixing the price.
The legislative history of the Convention offers no clear or convincing explanation of the inter-relationship between CISG Arts. 14(1) and 55. However, two distinct interpretations of the relationship between those two provisions are drawn from the views of two leading CISG commentators, Professors Honnold and Farnsworth, respectively.
The main divergence of those two interpretative approaches to the issue is that, according to the approach propounded by Prof. Honnold, CISG Art. 14(1) should be read together with Article 55, resulting in an interpretation that a contract "may be validly concluded" - not that a contract "must already have been concluded" in the first place, either under a domestic sales law or a declaration under CISG Art. 92(1), before the Convention's mechanism to determining the price under Article 55 can be activated, as per the latter approach of Prof. Farnsworth.
The former approach, the chief proponent of which is Prof. Honnold, seems to have gained most support in academic circles.
"A proposal for concluding a contract constitutes an offer if it is sufficiently definite and indicates the intention of the offeror to be bound in case of acceptance."
In defining an offer, the Principles lay down the same two requirements also embedded in the Convention: the proposal must (i) be sufficiently definite to permit the conclusion of the contract by mere acceptance and (ii) indicate the intention of the offeror to be bound in case of acceptance.
Furthermore, the wording of the Principles is, to a degree, similar to CISG Art. 14(1), albeit not similarly detailed, because, unlike the Convention, it does not make reference to the matters of "quantity" and "price" to determine whether the proposal is sufficiently definite to constitute an offer.
The Principles merely focus on the matter of "the intention of the offeror to be bound in case of acceptance". In this regard, and based on the Official Commentary on the Principles, no apparent contradiction exists similar to the one that exists in the CISG. As such, it is easier to read together Arts. 2.2 and 5.7 of the Principles. In that regard, it is submitted that the Principles offer a similar but simpler regime when compared to the Convention and might arguably be used to aid the interpretation of the particular textual controversy in the Convention, discussed above.
Regarding a sales contract which neither fixes the price to be paid for the goods, nor makes provision for determining the price, the Principles provide a presumption that the parties "have made reference to the price generally charged at the time of the conclusion of the contract for such performance in comparable circumstances in the trade concerned, or, if no such price is available, to a reasonable price" [emphasis added]. The applicable provision (Principles Art. 5.7) also permits the rebuttal of the presumption if there is any indication to the contrary.
The Official UNIDROIT Commentary on Article 5.7 sheds illuminating light on the origins of this general rule governing price determination, by revealing that the provision "is inspired by Art. 55 CISG".
Furthermore, the notion of "reasonableness", which prevails in that article of the Principles, is also a general principle on which the Convention is based.
Thus, it is submitted that the two instruments adopt the same general policy to determine open price terms.
First, the Principles have chosen not to include in Art. 5.7(1) the words "[w]here a contract has been validly concluded [...]" that appear in CISG Art. 55. Thus, and considering the inter-relationship of Art. 5.7 to Art. 2.2 of the Principles (see Section 3, above), it may be argued that the Principles has in that manner attempted, successfully it seems, to solve the apparent textual contradiction found in the corresponding provisions of the Convention (see Sections 1 and 2, above).
Secondly, in cases where a contract does not fix or make provision for determining the price, the Principles in Art. 5.7(1) has employed the concept of "reasonable price" additionally to the "market price" that is found in CISG Art. 55.
in the case where the price is to be fixed by reference to factors which do not exist or have ceased to exist or to be accessible.
Following an analysis of the counterpart provisions dealing with open price contracts under the CISG and UNIDROIT Principles, respectively, it is submitted that whereas the two instruments adopt the same general policy and also establish similar regimes to regulate the issue, the Principles offer more expansive provisions than the CISG to deal with the issue.
It is, thus, submitted that Principles Art. 5.7 could be properly and efficiently used to interpret and supplement CISG Art. 55.
* Lawyer, The Electricity Generating Authority of Thailand (EGAT); Adjunct Law Lecturer, Faculty of Law, Thammasat University, Thailand.
"Art. 55 must be read in conjunction with art. 14 which deals with the essential constituents of an offer. Art. 55 was substantially amended at Vienna. The adopted version attempts to reconcile the price requirements of art. 14 with the need to provide for a case where the contract contains no reference to the price, and does so by deeming the parties to have impliedly agreed to adopt the price generally charged for such goods at the time of the conclusion of the contract. It is not clear whether this formula is sufficient to overcome the limitations of art. 14, although it was clearly meant to. Difficulties may still be encountered because art. 55 does not come into play unless a contract has been validly concluded. [...]"
2. CISG Art. 14 (1). Emphasis added. For an online presentation of basic information and further links to the relevant legislative history, case law and scholarly commentary on CISG Art. 14, go to <http://cisgw3.law.pace.edu/cisg/text/e-text-14.html>.
(b) the effect which the contract may have on the property in the goods sold."
4. CISG Art. 55. Emphasis added. For an online presentation of basic information and further links to the relevant legislative history, case law and scholarly commentary on CISG Art. 55, go to <http://cisgw3.law.pace.edu/cisg/text/e-text-55.html>.
5. See, generally, Amato, P. "U.N. Convention on Contracts for the International Sales of Goods - the Open Price Term and Uniform Application: An Early Interpretation by the Hungarian Courts", 13 Journal of Law and Commerce (1993), p. 6; also available online at <http://cisgw3.law.pace.edu/cisg/biblio/amato.html>.
6. Ibid., pp. 4 - 6.
"A Contracting State may declare at the time of signature, ratification, acceptance, approval or accession that it will not be bound by Part II of this Convention or that it will not be bound by Part III of this Convention."
"Herewith reference can be made to the prerequisites for validity as contained in the CISG and to national validity conditions [...]. Some authors, therefore, proceed on the assumption that without having fixed a price there is no offer under Article 14, paragraph 1, sentence 2 and, therefore, no delivery can be taken. Hence, there will be no contract so that the rules governing the substance of the contract including Article 55 are irrelevant where there are no exceptions [...]. Others suppose, and the text speaks in favour of this assumption, that the validity of a contract in this case is to be judged only according to national law" [references omitted].
"The second criterion for determining whether a party makes an offer for the conclusion of a contract, or merely opens negotiations, is that party's intention to be bound in the event of acceptance. Since such an intention will rarely be declared expressly, it often has to be inferred from the circumstances of each individual case. The way in which the proponent presents the proposal (e.g. by expressly defining it as an "offer" or as a mere "declaration of intent") provides a first, although not a decisive, indication of possible intention. Of even greater importance are the content and the addressees of the proposal. Generally speaking, the more detailed and definite the proposal, the more likely it is to be construed as an offer. A proposal addressed to one or more specific persons is more likely to be intended as an offer than is one made to the public at large".
"Even essential terms, such as the precise description of the goods or the services to be delivered or rendered, the price to be paid for them, the time or place of performance, etc., may be left undetermined in the offer without necessarily rendering it insufficiently definite: all depends on whether or not the offeror by making the offer, and the offeree by accepting it, intends to enter into a binding agreement, and whether or not the missing terms can be determined by interpreting the language of the agreement in accordance with Arts. 4.1 et seq., or supplied in accordance with Arts. 4.8 or 5.2. Indefiniteness may moreover be overcome by reference to practices established between the parties or to usages (see Art. 1.8), as well as by reference to specific provisions to be found elsewhere in the Principles (e.g. Arts.5.6 (Determination of quality of performance), 5.7 (Price determination), 6.1.1 (Time of performance), 6.1.6 (Place of performance), and 6.1.10 (Currency not expressed))".
"This article is inspired by Art. 55 CISG. The rule has the necessary flexibility to meet the needs of international trade. It is true that in some cases the price usually charged on the market may not satisfy the reasonableness test which prevails elsewhere in this article. Recourse would then have to be made to the general provision on good faith and fair dealing (Art. 1.7), or possibly to some of the provisions on mistake, fraud and gross disparity (Chapter 3). Some international contracts relate to operations which are unique or at least very specific, in respect of which it is not possible to refer to the price charged for similar performance in comparable circumstances. According to para. (1) the parties are then deemed to have made reference to a reasonable price and the party in question will fix the price at a reasonable level, subject to the possible review by courts or arbitral tribunals."
"Reasonableness is specifically mentioned in thirty-seven provisions of the CISG and clearly alluded to elsewhere in the Uniform Sales Law. Reasonableness is a general principle of the CISG."
14. There is, however, no mention of any such motivation in the Official Commentary on the Principles.
15. If that determination is "manifestly unreasonable", Principles Art. 5.7(2) provides that "a reasonable price shall be substituted notwithstanding any contract term to the contrary".
"In those cases where the parties have made such a provision for determining the price, it will be enforced. To avoid possible abuses however, para. (2) enables judges or arbitrators to replace a manifestly unreasonable price by a reasonable one. This provision is mandatory."
16. If the designated third party cannot or will not do so, Principles Art. 5.7(3) provides that "the price shall be a reasonable price".
"[I]f that third person is unable to accomplish the mission (not being the expert he or she was thought to be) or refuses to do so. Para. (3) provides that the price, possibly determined by judges or arbitrators, shall be reasonable".
17. If reference cannot be made to the specific external factor, Principles Art. 5.7(4) provides that the "nearest equivalent factor shall be treated as a substitute".
"In some situations the price is to be fixed by reference to external factors, typically a published index, or quotations on a commodity exchange. In cases where the reference factor ceases to exist or to be accessible, para. (4) provides that the nearest equivalent factor shall be treated as a substitute.
The price of a construction contract is linked to several indexes, including the "official index of charges in the construction sector", regularly published by the local Government. Several installments of the price still have to be calculated when that index ceases to be published. The Construction Federation, a private trade association, decides however to start publishing a similar index to replace the former one and in these circumstances the new index will serve as a substitute."
18. For an analysis of CISG Art. 55 compared to another Restatement of Contract Law, the Principles of European Contract Law, see Vincze A., "Remarks on whether and the extent to which the Principles of European Contract Law (PECL) may be used to help interpret Article 55 of the CISG", available online at <http://cisgw3.law.pace.edu/cisg/text/peclcomp55.html#er>.
- RUSSIA 22 November 1995 Arbitration proceeding 99/1994, case presentation including English translation available online at <http://cisgw3.law.pace.edu/cases/951122r1.html> (the tribunal held that CISG Art. 55 was applicable to a contract between the parties that had provided for the basic price for the goods having a minimum content of a certain indicator. There was no provision as to the price for the goods in which a content of the indicator was below the minimum level. In such a situation, pursuant to the contract, the price was to be agreed upon by the parties. In some of the delivered goods the level of content of the indicator was below minimum. In this situation, the ICAC deemed it possible to apply Article 55 to determine the price.
For criticism of the tribunal's judgment, see Saidov D., "Cases on CISG Decided in the Russian Federation", 7 Vindobona Journal of International Commercial Law and Arbitration (2003) 1 - 62, at 37 - 38: "It is not clear why the Tribunal deemed it possible to apply Article 55. Such a decision seems to run counter to the provision of the contract according to which in the situation that took place in the case, a price was to be agreed upon by the parties. It is submitted that Article 55 could only be applied where the parties intended to regard an open price contract as valid. Therefore, a price could be determined according to Article 55 only if such a determination of a price stemmed from interpretation of the contract. The decision does not make it clear whether the Tribunal interpreted the agreement. On the basis of the information available, it seems that the parties' intention was not to leave the price open, but to come to an agreement to this effect. In such a case, Article 55 could not be applied. This decision appears to be inconsistent with the decision taken in a case No 304/1993 [of 3 March 1995] where Article 55 was held to be inapplicable in the situation where the parties have agreed to negotiate the price in future and failed to do so" [citations omitted]).
A contract usually fixes the price to be paid, or makes provision for its determination. If however this is not the case, para. (1) of this article presumes that the parties have made reference to the price generally charged at the time of the conclusion of the contract for such performance in comparable circumstances in the trade concerned. All these qualifications are of course significant. The provision also permits the rebuttal of the presumption if there is any indication to the contrary.
This article is inspired by Art. 55 CISG. The rule has the necessary flexibility to meet the needs of international trade.
It is true that in some cases the price usually charged on the market may not satisfy the reasonableness test which prevails elsewhere in this article. Recourse would then have to be made to the general provision on good faith and fair dealing (Art. 1.7), or possibly to some of the provisions on mistake, fraud and gross disparity (Chapter 3).
Some international contracts relate to operations which are unique or at least very specific, in respect of which it is not possible to refer to the price charged for similar performance in comparable circumstances. According to para. (1) the parties are then deemed to have made reference to a reasonable price and the party in question will fix the price at a reasonable level, subject to the possible review by courts or arbitral tribunals.
1. A, a firm specialised in express mailing throughout the world, receives from B a parcel to be delivered as soon as possible from France to the United States. Nothing is said as to the price. A should bill B with the price usually charged in the sector for such a service.
2. The next order which A receives from B is one to deliver another parcel as soon as possible to Antarctica where a team of explorers is in need of urgent supplies. Again, nothing is said as to price, but since no possible market comparison can be made A must act reasonably when fixing the price.
In those cases where the parties have made such a provision for determining the price, it will be enforced. To avoid possible abuses however, para. (2) enables judges or arbitrators to replace a manifestly unreasonable price by a reasonable one. This provision is mandatory.
A provision that the price will be determined by a third person can give rise to serious difficulty if that third person is unable to accomplish the mission (not being the expert he or she was thought to be) or refuses to do so. Para. (3) provides that the price, possibly determined by judges or arbitrators, shall be reasonable. If the third person determines the price in circumstances that may involve fraud, gross disparity or threat, Art. 3.11(2) may apply.
In some situations the price is to be fixed by reference to external factors, typically a published index, or quotations on a commodity exchange. In cases where the reference factor ceases to exist or to be accessible, para. (4) provides that the nearest equivalent factor shall be treated as a substitute.
3. The price of a construction contract is linked to several indexes, including the "official index of charges in the construction sector", regularly published by the local Government. Several instalments of the price still have to be calculated when that index ceases to be published. The Construction Federation, a private trade association, decides however to start publishing a similar index to replace the former one and in these circumstances the new index will serve as a substitute.

References: Art. 55
 Art. 55
 Art. 14
 Art. 14
 Art. 55
 Art. 14
 Art. 92
 Art. 14
 Art. 5
 Art. 55
 Art. 5
 Art. 55
 Art. 5
 Art. 2
 Art. 5
 Art. 55
 Art. 5
 Art. 55
 art. 14
 Art. 55
 art. 14
 art. 14
 art. 55
 Art. 14
 Art. 14
 Art. 55
 Art. 55
 Art. 1
 Art. 55
 Art. 5
 Art. 5
 Art. 5
 Art. 55
 Art. 55
 Art. 55
 Art. 3