Source: http://www.cisg.law.pace.edu/cisg/biblio/winsor.html
Timestamp: 2019-04-26 15:39:44
Document Index: 224548085

Matched Legal Cases: ['Art. 1', 'Art. 1', 'Art. 6', 'Art. 7', 'Art. 9', 'Art. 2', 'Art. 2', 'Art. 35', 'Art. 35', 'Art. 35', 'Art. 35', 'Art. 35', 'Art. 35', 'Art. 35', 'Art. 49', 'Art. 35', 'Art. 6', 'Art. 9', 'Art. 6', 'Art. 8', 'Art. 9', 'Art. 9', 'Art. 9', 'Art. 9', 'Art. 9', 'Art. 9', 'Art. 9', 'Art. 4', 'Art. 9', 'Art. 9', 'Art. 9', 'Art. 9', 'Art. 9', 'Art. 9', 'Art. 9', 'Art. 9', 'Art. 49', 'Art. 49', 'Art. 74', 'Art. 25', 'Art. 10', 'Art. 25', 'Art. 25', 'Art. 25', 'Art. 25', 'Art. 25', 'Art. 8', 'Art. 30', 'Art. 34', 'Art. 37', 'Art. 49', 'Art. 34', 'Art. 35', 'Art. 2', 'Art. 48', 'Art. 48', 'Art. 37', 'Art. 37', 'Art. 67', 'Art. 67', 'Art. 69', 'Art. 69', 'Art. 6', 'Art. 6', 'Art. 6', 'Art. 45', 'Art. 28', 'Art. 28', 'Art. 28', 'Art. 28', 'Art. 50', 'Art. 74', 'Art. 79', 'Art. 79', 'Art. 79', 'Art. 29', 'Art. 1', 'Art. 95', 'Art. 6', 'Art. 1', 'Art. 3', 'Art. 35', 'Art. 35', 'Art. 33', 'Art. 35', 'Art 35', 'Art. 35', 'Art. 46', 'Art. 52', 'Art. 7', 'Art. 9', 'Art. 49', 'Art. 25', 'Art. 77', 'Art. 30', 'Art. 32', 'Art. 33', 'Art. 59', 'Art. 37', 'Art. 37', 'Art. 48', 'Art. 49', 'Art. 8', 'Art. 8', 'Art. 34', 'Art. 37', 'Art. 67', 'Art. 67', 'Art. 46', 'Art. 62', 'Art. 50', 'Art. 79']

Reproduced with permission of 14 Vindobona Journal of International Commercial Law and Arbitration (1/2010) 83-116
The Applicability of the CISG to Govern Sales of Commodity Type Goods [a1]
Katrina Winsor [1]
Background -- CISG
Trade Abbreviations: Incoterms 2000
The Unique Characteristics of Commodity Sales
4.1 Conformity of the Goods
4.2 Specific Standards in Commodity Sales
4.21 Explicit Consent to Standards, Practices and Usages
4.22 Trade Usages Prevalent in the Commodities Trade
4.3 Avoidance of the Contract
4.31 The Applicable Standard of Breach
4.32 Timely Delivery and Documentary Obligations
4.33 The Cure Principle and Commodity Sales
5.1 Risk Rules Under the CISG and Incoterms
Remedies: Specific Performance, Price Reduction and Damages
In 1980 the United Nations Convention on Contracts for the International Sale of Goods ('the CISG') was introduced to create international certainty and uniformity in the law and to govern issues that arise in an international sale of goods transaction. This paper focuses on the international sale of commodity type goods and the ability of the CISG to govern contracts for the sale of such commodities. Commodity type goods comprise a broad range of products including grains, wheat, oil, soybeans, rice, cotton and chemicals. Commodities are characterised as being substitutable goods that are produced in bulk quantities by a large number of producers. As will be illustrated, commodity markets have many unique characteristics that distinguish the international sales of commodities from the international sale of goods intended for commercial consumption.
The natural flexibility of the CISG warrants it a suitable instrument of law to govern contracts for the international sale of commodities, particularly given the contractual freedom and precedence afforded to parties involved in a sale by Arts. 6 and 9. It is an appropriate tool for use in a commodity sales contract, especially when applied to a contract that incorporates internationally recognised trade terms or standard usages into the contract. Interestingly, although the CISG is an apt and fitting instrument of [page 83] law to govern international commodity sales, it is generally excluded in standard form contracts that instead opt for English law in arbitration and as the proper law of the contract. At present the CISG does not hold the same measure of reported judgments and case law that the United Kingdom retains on commodity sales, but it is more and more frequently being referred to in arbitration cases and national decisions.[2] The CISG is capable of being developed and extended to meet the requirements of international trade in a uniform manner that cannot be accomplished by a single domestic law.
In international sales, interactions between parties prior to a sale of goods will vary depending on the type of goods being sold, the parties involved and the requirements of quality, description and quantity entailed in the contract. Manufactured goods are often ordered to specific requirements and will necessarily be described in a detailed manner, generally stipulated in writing. As the market prices of manufactured goods are not often subject to instability or fluctuations, the buyer and seller will have time to specify particular terms, criteria and particulars of the goods prior to determining the sale contract. In comparison, a commodities market will fluctuate unpredictably based on supply and demand, placing pressure on the parties to conclude their contract quickly. As a result, the negotiations that lead up to the conclusion of a commodity sales contract may be swiftly conducted and highly impersonal; particularly when parties on opposite sides of the world use standard form contracts or international usage terms and practices.
Further, commodities arc interchangeable and it is easily possible to substitute the goods of one producer for the goods of another in the case of avoidance. These unique characteristics of the international commodity trade distinguish international sales in commodities from other international sales of goods, although this paper will illustrate that these very characteristics do not prevent the CISG from being a suitable instrument of law to govern international commodity sale contracts. Rather, it will argue that the CISG is well suited to govern commodity sale transactions, particularly in the area of remedies and damages in the event that a dispute should arise. Illustrating the CISG's applicability to commodity transactions will necessarily include some discussion of traditional English sales law and consideration of the incorporation of international trade terms into a contract governed by the CISG, such as the International Commercial Terms ('Incoterms') created by the International Chamber of Commerce ('ICC'). [page 84]
Commodity traders tend to exclude the CISG, Incoterms and other international conventions by specifically excluding these in many of the standard form contracts,[3] in favour of retaining the certainty of English international sales law. These standard contract forms, such as the GAFTA 100, already provide for arbitration in England and the application of English law as the applicable law. [4] Major oil companies such as BP Global and Shell Global also exclude the CISG from the standard trading forms that they sponsor. As the commodities market tends to be fairly closed, traditionally all parties within the industries have understood the law to be the law of the United Kingdom. However, major English commodity traders are progressively more global in their reach and have increasingly been absorbed by or linked with major multinational companies. The major international traders in commodities today arc generally no longer English buyers and sellers, and instead are increasingly from widely spread trading nations.[5] The common understanding of English law in commodities trading does not rule out the CISG's suitability for such transactions; it merely indicates that commodity traders are perhaps reluctant to discard the familiarity of English law in adopting an internationally uniform law. The provisions found in standard form contracts such as GAFTA can be deleted or specified as the parties deem appropriate and it would be possible to delete the domicile clause including an international convention or internationally recognised term as the parties require.[6]
The majority of the 74 states that have joined the CISG did not have the same prevalent consistency in their international sale of goods laws as in the United Kingdom and in most cases it was more appropriate for them to join a uniform governing law that is flexible to modern day commodity traders. Given the strong background of commodity sales law that the United Kingdom enjoys, it is understandable that the United Kingdom would be reluctant to remove many of the established principles in favour of a newer standardised law. The strength of English international sales law in commodity sales is perhaps one of the key reasons that the United Kingdom has not joined the CISG and has instead retained predictability and certainty under English law. However, the CISG is continuing to build a strong pedigree of reported cases addressing the sale of goods in detail; through cases and articles that are continuously being consolidated in databases and archives to aid interpretation and application of its principles. The CISG is a strong instrument that [page 85] will provide an effective solution to commodity traders in conjunction with the use of Incoterms inserted into a contract for the international sale of commodities. It is a legal instrument suitable for governing commodity sales in 'a reasonable manner that extends beyond the narrow confines of national preconceived views'.[7] As the CISG rules continue to be more frequently used by contracting parties with no relation to the United Kingdom or English law, commodity traders may be encouraged to change their practice and include the CISG in more commodity sales contracts. To date the CISG has been adopted by 74 states from all over the world,[8] and is currently applied in various international sales transactions.
This introduction will provide a general induction to the CISG, Incoterms and commodity sales. The paper will then turn to certain important areas of a commodity sale that illustrate the applicability of the CISG in commodity trade sales. In commodity sales conformity of the goods is fundamental and a fundamental breach under the CISG will entitle a party to avoid the contract. Part I will address non-conformity of the goods and Part II will examine how the parties in a commodity sale will use trade usages and standards to give greater specificity to the description of the goods required. Part III will examine the concept of avoiding a commodity sales transaction under the CISG and the special standard of breach employed for a commodity sales contract to enable contractual avoidance.[9] Part IV will address the passing of risk under both the CISG and Incoterms, and Part V will conclude with an outline of the remedies available to the parties in a sales contract for commodities. The underlying implication of this paper is that standard form commodity contracts should not exclude the CISG in favour of English law. The CISG is a suitable instrument to address the obligations of the traders, govern any issues and disputes, and provide appropriate remedies at a uniform international level common to the 74 member states.[10] In the long term, it will certainly be beneficial to individual nations to [page 86] continue to adopt and utilise the CISG, rather than to depend on a medley of domestic laws.[11]
2. BACKGROUND -- CISG
The CISG was adopted at the Diplomatic Conference held in Vienna in 1980. It entered into force in January 1988 with eleven member states and has subsequently been applied in international commercial transactions in thousands of reported decisions by national courts and arbitral tribunals.[12] The CISG applies to contracts for the sale of goods between parties that have their place of business in different states, when both of the states concerned are contracting states under Art. 1(1)(a) and when the rules of private international law lead to the application of the law of a contracting state under Art. 1(1)(b).[13] In spite of this, Art. 6 maintains contractual freedom and allows the express terms of the parties to prevail over the CISG. The application of the CISG is therefore still dependent on the extent to which the buyer and seller agree to include or exclude CISG provisions, and 'adopts a flexible structure that allows for interpretation in light of whatever type of social-political-economic system is prevalent at the time'.[14] Such flexibility allows the CISG to facilitate international business and trade by existing as an instrument that adapts to change and development in the evolving international business world. Art. 7 enables the CISG to have regard to changing global market situations, illustrating that it is indeed a sales law intended for progressive international markets in a constant state of flux. The application of a neutral set of rules such as the CISG will further prevent arguments about jurisdiction and forum shopping, and limit attempts to gain tactical advantages through the use of private international law rules. The CISG often applies by default, simply because the [page 87] parties do not take active steps to 'deactivate' the rules of automatic application in Art. I.[15]
The CISG is not a complete statement of international sales law; there are gaps that generally result from the compromise of vested interests between the civil and common law member states.[16] As a concession could not realistically be achieved on every aspect of an international sales transaction, the many gaps left in the CISG must be filled by the interpretation of a national court in accordance with general CISG principles.[17] Those matters which are not governed by the CISG and which are not provided for by the parties remain subject to the proper law of the contract applicable in the circumstances according to private international law rules. Therefore, the CISG is able to be supplemented by the parties' own expectations and any recognised trade standards that make up the full sales contract. Trade standards and explicit terms are important particularly given that the CISG does not address the validity of the contract, provisions of usage, or the effect a contract may have on the title of property in the goods sold. The CISG covers only the formation of the contract of sale, the rights and obligations of the buyer and seller arising from the contract and the remedies available. Any questions concerning matters governed by the CISG, but not expressly settled in the provisions, will be determined by the express terms of the contract, or the proper law of the contract, and the general principles on which the CISG is based.
The provisions for usages and practices in Art. 9 and the freedom of contract rule in 6 demonstrate that the CISG is not a complete instrument in itself. These Articles identify that an international sales contract is made up from the general CISG principles, as well as usages and the consensus of the parties in the contract. The CISG parties are bound by the express terms of their contract, their own established practices, and the more widely observed usages of the relevant area of international trade. In a commodity sales transaction a contract might include international trade terms found in the Incoterms or standard provisions that would define the requirements of the parties in line with the principles of the CISG. Such limitations are designed and included to protect parties in less developed countries that might not be familiar with usages among the more industrialised trading states. Parties to a CISG contract may agree to be expressly bound by a trade term or usage, or binding practice established by prior conduct in much the same manner that they could agree to exclude the CISG or exclude specific provisions of the CISG. [page 88]
The domestic law of the United Kingdom will still be of great use and relevance if the CISG does not deal with an issue and it is found to be the proper law of the contract through private international law rules. Both the CISG and the English Sale of Goods regime defer to the contractual wishes of the parties and 'are intended to provide assistance where the parties to a contract for the sale of goods have failed to deal with a matter in their contract'.[18] The law of the United Kingdom has traditionally governed international commodities sales and been referred to where the intention of the parties in an international sales contract is not clear or a dispute arises. This is in part because the standard contract forms used in the majority of commodity sales, such as GAFTA, provide for arbitration in England and the application of English law as the proper law of the contract. The majority of reported cases have no physical connections at all with the United Kingdom other than the application of English law and arbitration.[19]
Further, today's commodities markets principally consist of multinational traders and significant English traders arc an increasing rarity.[20] Use of English law traditionally stems from the position the United Kingdom has held as a principle centre of dispute resolution for large sale of goods disputes, particularly in the commodities trade. This provides an explanation as to the exclusion of the CISG by the United Kingdom in retaining English international sales of goods law; English law provides a founded and stabilised regime for commodity sales transactions complete with detailed analysis of problems that have arisen over time and been examined in reported judgments.[21]
The increased use and progression of the CISG will develop principles of a uniform law that will be appropriate for international commodity sales requiring uniformity in the modern markets. The CISG undoubtedly exists as a formidable instrument of law to govern areas of the sale such as the contract formation, general principles and remedies available should a dispute arise. Further, parties to a contract may also wish to continue incorporating internationally recognised terms and usages common to the industry, such as those found in the Incoterms, to add specificity to the description of the commodities involved, delivery terms, and passing of risk. [page 89]
3. TRADE ABBEVIATIONS: INCOTERMS 2000
The Incoterms were first published by the ICC in 1936 and were most recently revised in 2000. The ICC is currently revising Incoterms 2000 and the new edition, Incoterms 2011, is expected to enter into force on 1 January 2011. The standard Incoterms were created because traditional abbreviations used in international trading did not always have the same meaning in different ports and trade centres, leaving room for confusion in a transaction. The purpose of the Incoterms is to provide an optional set of uniform international rules for businessmen who choose certainty and a standardised understanding of the agreement over any potential uncertainty afforded by varied interpretations of the same terms in different countries. Incoterms can be included into a contract governed by the CISG by a simple clause specifying 'Incoterms 2000' after the trade abbreviation selected, such as 'CIF, Incoterms 2000'. The use of Incoterms will avoid disputes where older shipping terms such as Free on Board ('FOB') or Cost, Insurance and Freight ('CIF') are given different meanings in different jurisdictions.[22]
The CISG, used in conjunction with a specified Incoterm, provides a viable and suitable solution to commodity traders that will allow parties to identify precise terms such as when risk passes, costs and delivery times. The CISG will fill in the gaps of a sales contract that includes an Incoterm, and provide for remedies and damages in line with the principles of Arts. 6 and 9. It is advisable to specify that a trade abbreviation used refers to an Incoterm, as '[d]espite the widespread acceptance of Incoterms it cannot be assumed that use of one of the trade usages on its own carries the inference that the parties intended to write in the Incoterm provisions'.[23] By adopting an Incoterm abbreviation, parties include in the contract the detailed rules outlined in the Incoterms. A unified code of commonly used trade terms allows for the development of international trade and ease of international transactions, free from the national interpretations given to trade abbreviations. The thirteen different terms enable an international trader to deal with different situations involving the movement of goods internationally, and to identify which party is responsible for the documentation required in an international sale.
The Incoterms focus on the seller's delivery obligations, and reflect the principle that the risk of loss or damage to the goods, as well as the obligation to bear the costs relating to the goods, passes from the seller to the buyer when the seller has fulfilled its obligations to deliver the goods. A trade abbreviation from Incoterms supplemented by the CISG principles will achieve both a uniform meaning of the governing sales law and a uniform meaning of trade usages -- the ultimate objective in simplifying problems in, or the creation of, a commodity sales contract. [page 90]
4. THE UNIQUE CHARACTERISTICS OF COMMODITY SALES
The CISG covers a wide variety of international sales of goods and only explicitly excludes a small number of sale contracts as listed in Art. 2. Since Art. 2 does not refer to or exclude commodity sales, the CISG will still apply to a sales contract for future commodities even though goods in the futures trade may not exist when a sales contract is created. Contracts for the supply of goods to be manufactured or produced are included as sales for the purpose of the CISG unless the party who orders the goods undertakes to supply a substantial part of the materials necessary for the manufacture or production.[24]
An international commodity sale will generally involve goods such as grains, oils, cotton or other bulk goods that share the common features of being substitutable and produced in large quantities by many producers. Commodities are interchangeable and include anything that holds a use value, either for resale or for the use of the buyer. Commodity pricings are subject to significant day-to-day fluctuations as the markets respond quickly to the pressures of supply and demand. The commodities market is a 'highly speculative market' dominated by major corporations that are able to withstand extreme movements.[25] The unpredictable nature and rapid movements in the market are significant factors that distinguish the sale of commodities from other sale transactions. Further, the supply and demand of natural commodities varies subject to external factors such as weather and climatic changes, the political climate and natural crises. These external factors create an unpredictable market and constantly changing prices that result in the accepted use of contracts to future-proof the relationship between a buyer and a seller.
Commodities can be sold by a variety of different contracts depending on when and how the parties wish to conduct the sale of goods. Commodities may be bought on a 'spot market' where prices are settled in cash 'on the spot' at the current market price. A spot contract is one that is privately negotiated between the parties, and generally requires the immediate delivery of the commodities. Forward and futures contracts are slightly more complex, and involve the sale of a certain quality of commodities for a fixed price to be delivered at a time in the future. Futures contracts were introduced to reduce price fluctuations, and to create obligations at a future delivery date between a buyer and seller trading in commodities (and in particular, agricultural commodities) to counteract such unpredictable markets. This practice reduced the price fluctuations that occurred throughout the year when prices would fall after an autumn harvest because of an oversupply of goods and would rise in spring when goods had become sparse. Futures contracts provide an incentive for producers to store some of their agricultural commodities and to sell them throughout the year, keeping the commodity market less unpredictable. [page 91]
Commodities are traded by documents that represent the goods until the last moment of the transaction when physical delivery takes place at the agreed delivery point. A situation may arise where there are several parties trading on the same 'string' of documents, as the documents are what are being traded in representation of the physical goods. In string sales contracts the intermediate parties deal solely with documents, and it is only the shipper and end buyer that physically deal with the goods.[26] For string trading to be beneficial to all trading parties in the string transaction, commodities must be classified in a standard way to allow for differences that result from variables such as weather conditions and soil quality. String trading therefore works smoothly when a reliable standard is used in all stages of the string. The standard forms generally used to produce consistent results are issued by trading associations based in London like the Grain and Feed Trade Association. These forms 'have a lengthy pedigree and are constantly refined in the light of experience. Perhaps the most famous of these, the GAFTA 100 contract (bulk feeding stuffs tale quale on CIF terms), dates back more than 100 years'.[27]
The majority of commodities shipped in bulk go first to the large ports of Amsterdam, Rotterdam and Antwerp, where the shipments are broken into smaller cargos destined for their final destinations. This shows that the success of string trading is dependent on uniformity and certainty in the law, as multiple parties will deal successively with the same commodities.[28] As the standard forms giving guidance to standards expected are so firmly rooted in English history and tradition, it is easy to see why the United Kingdom has been less than reticent in encouraging the use of the CISG in international commodity sales.
Certain characteristics of the commodities trade illustrate the need for greater certainty and predictability in commodity sales contracts than is typically required in other sale of goods contracts. These generally acknowledged features do not, however, preclude the application of the CISG to such contracts for the sale of commodities. The first quality that is unique to the commodities industry is that the amount awarded for damages may be far greater than the price contracted for in some situations, because of the unpredictable and fluctuating market conditions that exist. The uncertainty in market prices may mean that the value prescribed to the goods changes in a very short amount of time. Therefore, a commodity trader must be able to accurately determine when they can lawfully terminate a sales contract given the potential for a large damages claim if the contract is unlawfully terminated. Secondly, commodity traders must accurately determine whether a commodity sales contract may be terminated. This is due to the large number of contracts that may exist for one physical delivery of cargo, as discussed in relation to string trading. [page 92]
Many contracts for the sale of commodities 'are concluded to speculate on the market price and do not contemplate physical delivery of the goods. Although the word 'speculation' is often used in a pejorative sense, speculation introduces the much-needed liquidity and thus stabilises the market'. [29] As the termination of a sales contract may affect multiple buyers and sellers along a string, it is of the utmost importance that any termination is legitimate and accurately completed. The third unique feature in the commodity trade is the prevalence of string trading resulting from the appropriation of speculative sales dealing with the same goods. The law must be capable of producing consistent results in its application to string sales, as it is clearly undesirable if 'termination of some contracts on a string is allowed but termination of other contracts on the same string is not allowed for the same breach'.[30] As an unmeritorious termination is more likely to be attempted in international sales of commodities than in other types of sales due to the aforementioned market fluctuations,[31] commodities contracts are strict and will be interpreted literally.
In ensuring that goods conform to a contract description, it is a fundamental obligation of the seller to meet the requirements of fitness, quality and description of the goods. There is no need to apply a different measure to the conformity of commodity type goods from that applied to goods generally contracted for under the CISG. However, the importance of meeting these requirements is quickly realised when the unique characteristics of the commodities trade, such as the considerable fluctuations in market prices, are considered. Under a standard form contract for the sale of commodity goods, the usual requirements with respect to quantity, quality, description and packaging under futures contracts are commonly standardised. For example, under GAFTA 100 the standard of quantity allows the seller a 2% leeway in the quantity provided. Further, the quality of the goods must not contain more than 2.5% of sand and/or silica, although the parties may specify an amount of oil and protein the goods may have.[32] Non-conformity of the goods in such a transaction will generally constitute a fundamental breach and give rise to the subsequent right to avoid the sales contract. In addition, other types of contracts for commodities are not standardised and parties are free to agree on the amount and the quality of the anticipated goods. For instance, a futures contract for the sale of a commodity is generally not a standardised contract. Thus, while it has been argued that the CISG cannot be applied to transactions involving commodity sales,[33] an in depth analysis of the CISG with *94 respect to non-conformity, fundamental breach and avoidance indicates that the CISG will be an entirely applicable regime for commodity markets.[34]
Art. 35 of the CISG governs the prerequisites for establishing the non-conformity of goods and the requirement of the seller to deliver goods in the manner required by the contract. A significant number of international sales cases relate to claims that the goods delivered did not conform to a description in the sales contract -- an increasing number of which have been governed by the CISG.[35] Any requirements concerning the conformity of the goods according to the CISG are applicable only where the parties themselves have not made their own agreements on the matter.[36] Art. 35(1) confirms that the CISG conformity determination begins with the terms of the contract including the obligations expressly undertaken by the seller as regards the quantity and quality of the goods. The CISG, like English sales law, will always defer to express description in the contract and grading standards used by the parties in the contract.
The CISG provides the general rule that the seller must deliver goods which are of the quantity, quality, and description required by the contract, and which are packaged in the required manner. There is not a great divergence between traditional English sales law and the CISG regarding quality problems -- the seller is expected to abide by a promised standard specified in the contract under both regimes. Art. 35(1) of the CISG addresses the express obligations undertaken by the seller and required by the contract, while Art. 35(2) sets out the implied CISG obligations in respect of quality except where the parties have agreed otherwise. The CISG imposes these implied obligations irrespective of a seller's good or bad faith, as a modern commodity trader is entitled to expect goods to possess certain basic qualities. It is important to determine whether the goods can be used for a particular purpose in deciding if a breach in quality is indeed fundamental. In the absence of alternative specification by the parties, goods are deemed to be in conformity if they are 'fit for the purposes for which goods of the same description would ordinarily be used' under Art. 35(2)(a). Resale will be considered an ordinary use in the international trade of commodities and a CISG buyer who purchases for resale will be entitled to expect goods that can be resold in the ordinary course of business,[37] as '[w]hat constitutes reasonable will depend on the reasonable expectations of the ultimate purchasers'.[38] Under Art. 35(3) the seller will not be liable for any lack of conformity of the goods if at the time of [page 94] conclusion of the contract the buyer knew, or could not have been unaware of, such a lack of conformity.
Goods will also not be deemed to conform with the contract if they are not fit for any purpose expressly or impliedly made known to the seller. If the buyer purchased the commodities for a particular purpose expressly or impliedly made known to the seller, the delivered goods must be able to be reasonably used for that purpose. If the goods cannot be used for the implied or explicit purpose made known to the seller, then a fundamental breach of the contract will have occurred entitling the buyer to avoid the contract and to purchase alternative goods fit for the purpose they are required for. Although it is often not possible for commodities to reach an exact uniform standard of quality because of external factors, particularly in regard to agricultural commodities, the seller is still obliged to meet fitness for purpose of the goods and any described standards. The CISG will still require fitness for purpose of quality even where a continuous standard is difficult to achieve, for example in the trading of wheat that is 'heavily dependent upon soil and weather conditions in the season and place where the wheat was grown, and cannot be made the subject of a continuous, uniform standard'.[39] The CISG does not use the implied term of merchantable quality found in the Sale of Goods Act 1979 (UK); '[m]erchantable quality has become redundant and the architects of the CISG were wise not to replicate it'.[40] The term merchantable quality was largely phased out in the United Kingdom because it only covered sales by description, and was a difficult term to apply to the sale of specific goods. The general approach taken in international commodity sales also avoids the term.
The CISG is suitable for addressing fitness for purpose and quality in a commodity sales transaction if the parties to a contract do not make express requirements;[41] although the general practice of commodity traders is to make express provisions concerning the required standard.[42] Where necessary, the CISG is applicable in the areas of description, fitness for purpose and quality, and is suitable for use in determining the conformity of goods in a sales contract. In a contract where both written and unwritten standards exist, deference will usually be given to written standards. Any unwritten standards are likely to be more adept at incorporating the rules and practices of particular trades, including overlapping commodity trade terms and the standard form provisions from commodity trade associations.[43] The consequences under the CISG of not meeting agreed standards may be less exacting than a fundamental breach requiring avoidance, as suppliers may be able to replace or [page 95] repair the goods in a breach of quality specifications.[44] This is generally to maintain contractual and business relationships in the modern commercial world, by allowing some excuse for commercial impracticability and the restriction of termination rights.[45] By being more readily willing to uphold contract formation than in the English law tradition and by 'being cautious about allowing termination unless all hope is lost for the relationship, [the] CISG seems to mesh better with the expectations and practices of traders world-wide'.[46]
With regard to quantity, the CISG encourages a commodities buyer to cure a defect himself if the non-conformity of the goods is due to the delivery of the wrong amount; particularly given the substitutability of sellers and buyers in the commodity markets. If the quantity is less than what is contracted for, the buyer can purchase the missing quantity on the spot market with relative case and claim damages for any loss; meaning there is unlikely to be a fundamental breach leading to avoidance of the contract.[47] In terms of a surplus of commodities delivered, an excess will also constitute a breach under Art. 35(1) of the CISG and the buyer will have the right to simply reject the excess quantity.[48] As rejection is subject to good faith,[49] it may be that the buyer will be required to take delivery of the excess quantity and store the excess appropriately until the seller can sell that excess to another buyer. In this industry it will often be more economic for the seller to sell the excess goods from the buyer's delivery point, rather than returning them to the initial port for resale. International shipping is both costly and time consuming, suggesting that the direct on sale of commodities (which may or may not also be perishable) from the end delivery point may often be the most appropriate outcome for the seller. Of course, in this situation the buyer would be entitled to compensation for any inconvenience caused by the seller.
Although there is some debate as to whether a buyer can reject the entire quantity if there is a surplus, Art. 49(1) of the CISG will allow the buyer to reject an entire delivery where the goods are packaged in a manner that does not allow them to be separated without risking deterioration that will result in a fundamental breach. As time is of the essence in the commodities trade, there is less possibility for the seller to remedy a fundamental breach and repackage non-conforming goods before a fundamental breach occurs and the buyer is entitled to avoid the contract. This indicates that it is more likely that a commodities buyer would be entitled to avoid a contract for fundamental breach, if there is a surplus quantity delivered. Arguably, the [page 96] purpose the goods were intended for could give an indication as to whether the breach in surplus in quantity was a fundamental one; if the purpose of the buyer was to resell the goods, the buyer may well be in a position to quickly sell the excess goods on and would not necessarily need to avoid the contract. However, if the buyer only needed a certain quantity for a particular purpose, it might not be feasible to attempt to on sell the excess goods without incurring high damage costs for storage or for the resulting deterioration of perishable goods.
The parties to a commodities contract are able to specify more particular standards into a sales contract than the general guidance given by Art. 35 of the CISG in several ways. The parties may incorporate a strict standard explicitly in their contract or agree to specific usages and standards under the contractual freedom provided for in Arts. 6 and 9. The CISG may implicitly read practices and usages into the contract that will provide a similar result to express agreement of trade terms. Parties may further indicate a specific standard for the conformity of goods through trade practices that are prevalent in the particular trade.
Art. 6 of the CISG recognises the principle of contractual freedom that allows parties to a contract to agree to particular standards and requirements in a commodity sales transaction.[50] The use of a specified grade in a contract allows the expectations of the buyer to be identified from the outset of the contract and maximises the legal certainty in a case of non-conforming goods. The more specific and certain a contract is in specifying the required terms and standards, the more likely it is that the buyer will be able to identify the right to lawfully avoid a contract. Art. 9(1) endorses the application of Art. 6 and Art. 8, in recognising that the parties may incorporate trade usages and practices to which they have agreed. Maximum certainty will be ensured by expressly including a clause referring to an Incoterm trade abbreviation such as 'CIF, Incoterms 2000'. The incorporation of trade usages under Art. 9(1) is based on the consensus of the parties; when the usages are explicitly agreed to, it will not be an issue if the usage is locally or internationally known, as the parties will have intentionally included the particular term.
However, an agreement under Art. 9(1) of the CISG may be made by either implied or express agreement. For instance, due to the changing market conditions and constant price fluctuations in commodity trading, parties to a sales contract will not have the time to explicitly specify a detailed description of the goods complete with individual elements, and may instead rely on grading standards in the particular trade as well as [page 97] on the general CISG principles and gap filling provisions.[51] If the buyer does wish to be highly specific when outlining the conformity and description of the goods, long and costly negotiations prior to agreement in the sales contract may be required. Such specificity is more frequently called for in contracts for the sale of manufactured goods however, as the availability of standard form contracts and grading standards create predictability of quality between commodity traders and speed up the negotiation time required prior to the conclusion of a contract.
It is therefore not necessary to detail strict standards in each individual commodities contract, as the CISG will recognise that the parties will be bound by an established practice of the buyer and seller.[52] If the parties agree to a trade usage, the standard and threshold for avoiding the contract must be respected if they are outlined within the usage regulations or rules such as the Incoterms. Although the term 'usage' is not defined in the CISG, Art. 9(1) will bind the parties if they have included an Incoterm abbreviation into the contract. Further, if the parties repeatedly stipulate a standard for conformity of the goods or repeatedly apply usages that require a certain standard, then within Art. 9 of the CISG this will constitute repetitive behaviour that amounts to an established practice.[53] In a civil case decided in Switzerland,[54] the seller took back and replaced non-conforming mattresses twice -- claiming later that the returns were acts of goodwill. The court found that the parties had established a practice within the meaning of Art. 9(1) to which the seller had agreed and was bound to, and that the seller was under an obligation imposed by the establish practice to replace the mattresses.
Art. 9(2) of the CISG incorporates implied trade usages into the contract if two prerequisites are met, unless otherwise agreed to by the parties in the contract for sale. These conditions are that the parties ought to have known of the usage and that the usage is widely known and regularly observed by parties to contracts of the type involved in the particular commodity trade. Interestingly, there is no limitation stipulating that the trade usage must be reasonable or in line with the principles of the CISG. The biggest benefit of implying trade usages into a contract under Art. 9(2) is that parties save time, costs and resources.[55] Whether a usage exists in the relevant [page 98] trade will usually be a question of fact and not law,[56] and the burden of proof to demonstrate existence of the usage will be placed on the party that is relying on it.[57] The actual validity of any usage is not governed by the CISG, as stated in Art. 4(a), and will be addressed by the national law found to be applicable through private international law rules.
Art. 9(2) requires that the usage is 'widely known to, and regularly observed by, parties to contracts of the type involved in the particular trade concerned'. This objective requirement ensures that usages known and used nationally are not extended to international transactions, as the other party may either not know of the usage or may prescribe a different meaning to the usage. These limits are also designed to protect parties in less developed countries that might not be familiar with usages among the more industrialised trading countries. Art. 9(2) aims to ensure that an implied usage or practice is made applicable to the contract if the parties in the transaction intended to observe it, as long as both of the parties shared, or ought to have shared, the same intent. It is sufficient that the parties employ the usages regularly at the time the contract is concluded, regardless of how long the usages have existed. In the commodities market the usages and standard terms have existed for hundreds of years, and the problem is generally not that the usages are new, but rather that they may have different interpretations and rules in different jurisdictions. This is where specifying a particular trading abbreviation, such as Incoterms 2000, will maintain consistency between the parties' expectations.
The parties' contractual freedom is always of priority, although the flexibility of Art. 9(2) will allow the CISG to address a dispute where traders have failed to expressly incorporate terms or usages into their contract. The implied incorporation of Incoterm rules will depend on the facts surrounding the contract for the sale of commodities; such as whether the parties knew or ought to have known the abbreviation used referred to the Incoterms rules, and whether the Incoterms rules are widely known to and regularly observed by parties in the commodity trade concerned. Incoterms are commonly incorporated in most oil transactions, for example, meaning that even if they were not expressly identified in a contract they would comfortably be incorporated by Art. 9(2) as either an 'established practice' or 'widely known' and 'regularly observed' usage in the trade. One difficulty that is acknowledged is that the Incoterms are widely known to and observed by parties in general international trade, whereas Art. 9(2) requires knowledge and observance in a particular trade.[58] In the current trade and business worlds, Incoterms are so well known that it is feasible that parties would expressly incorporate them in their mutual dealings if they wanted them to apply. Arguably, if Incoterms are therefore not expressly incorporated, this might [page 99] be seen as evincing a desire by the parties that they not apply.[59] However, in cases where the parties refer to a trade abbreviation found in the Incoterms without explicitly referring to Incoterms 2000 or the Incoterm rules, such a clause has been held to refer to the Incoterms.[60] The applicability of Incoterms under Art. 9 of the CISG will depend on the kind of consensus required in Art. 9(1) or on meeting the requirements of Art. 9(2).[61]
4.3. Avoidance of the Contract
Avoidance of the contract is considered to be the final resort in the scheme of remedies offered by the CISG. The CISG regime provides a clear preference for resorting to alternative remedies such as price reduction or cure, and avoidance is based on a clear indication that one party has committed, or will commit, a fundamental breach.[62] As a general rule, the buyer is only able to avoid the contract when the breach is fundamental and should otherwise resort to remedies encouraged by the CISG such as price reduction or damages.[63] If the failure of a party to perform contractual obligations amounts to a fundamental breach, the other party may avoid the contract under Arts. 49, 51(2) and 64. Art. 49(1)(a) refers to the buyer being able to declare the contract avoided 'if the failure by the seller to perform any of his obligations under the contract or this Convention amounts to a fundamental breach of contract'.[64] The framing of the text of Art. 49 was 'based on the conclusion that ... avoidance should not be available for trivial departures that may readily be redressed by damages (Art. 74)'. [65] The principles under the CISG discourage the avoidance of a contract, and aim to prevent the economic waste and resulting problems that arise when manufactured goods are rejected. This is achieved by only allowing termination for a fundamental breach, except in the case where an additional period of time is given and the contract may be avoided after performance is still not achieved.
In the trade of commodities the right to terminate the contract plays an important role. There are several factors that influence whether the buyer is substantially deprived of [page 100] contractual expectations and subsequently entitled to avoid the contract. A fundamental breach allowing termination under the CISG will more readily occur in a commodity trade than in any other trade, due to the prevalence of string transactions and considerable price fluctuations that exist. International sales of commodities are likely to be susceptible to unmeritorious termination, as they potentially provide a buyer with various opportunities to get out of what may have become a bad bargain due to variations in the market and changes in prices.[66] In the rapidly changing commodity markets, timely delivery by the handing over of clean documents that can be resold in the normal course of business is always of the essence of the contract.[67] Unmeritorious termination is consequently more likely to be attempted in the international sales of commodities than in other international sales of goods, if either party is disadvantaged by a significant change in the market price. As the markets for manufactured goods are less likely to fluctuate, time may not be so strongly of the essence and generally a time breach will not constitute a fundamental breach. Art. 25 aims to achieve a balance between the parties' interests as the market changes and creates situations where the buyer wishes to avoid the contract and purchase cheaper goods when prices are falling, or where the seller wishes to sell the goods to another buyer when prices have risen. In order to account for these competing considerations, the timely delivery of conforming goods or documents will always be of the essence in the trade of commodities.[68]
The English law contains extensive rights of termination in the commodities trade, on the principle that important terms of the contract are promissory conditions and will give rise to termination rights. These are most clearly seen in CIF contracts with the timely performance of obligations and in the tender of conforming documents. The existence of termination rights allow the buyer and seller to know exactly where they stand in the occurrence of a breach and will avoid timely and costly court proceedings or arbitration. This strict approach in the commodities market cannot be described as probuyer or proseller, as the traders in commodities markets are generally both buyers and sellers and would have some capacity in relation to string trading conditions.
4.3.1 The Applicable Standard of Breach
The concept of fundamental breach is central to the scheme of remedies available under the CISG as it provides the basis for the remedies of avoidance and the delivery of substitute goods. The breach that occurs must be fundamental in that one party is substantially deprived of what he was entitled to expect under the contract. The basic concept of fundamental breach stemmed from Art. 10 of the Convention relating to a Uniform Law of the International Sale of Goods and was incorporated without [page 101] question into the drafting of the CISG.[69] The preconditions for the breach being fundamental and the necessity of declaring the contract avoided were debated during the drafting, and it was ultimately decided that the seriousness of the breach should be determined by reference to the interests of the promisee as laid down by the contract. Although the standard for determining non-conformity of the goods is the same for both commodity type goods and goods generally, the standard applied in determining the fundamentality of the breach is influenced by factors in the commodities markets. The standard of a fundamental breach allowing the buyer to avoid the contract will not favour a commodities seller for reasons such as the liquidity of the market and substitutability of the goods.
In the case of an avoided contract for the sale of commodities, the goods can be sold in transit or from the delivery point of the initial sales contract, without needing to be returned to the seller's warehouse and avoiding costly international transportation as most manufactured goods would require. A buyer in the commodities trade will be able to determine a fundamental breach allowing for termination of the contract with greater ease than if manufactured goods were involved, because of the unique characteristics of commodities. The reasoning behind Art. 25 is protecting a seller from unmeritorious termination by the buyer, and avoiding economic waste that might otherwise result from international transport of goods when manufactured goods are rejected and must be returned to the seller's warehouse. Art. 25 defines a breach as being fundamental 'if it results in such detriment to the other party as substantially to deprive him of what he is entitled to expect under the contract' unless the party did not foresee or a reasonable person of the same kind on the same circumstances would not have foreseen such a result.[70] The buyer can lawfully avoid the contract only when he is substantially deprived of his contractual expectations in a contract for the sale of commodities.
The protection of the commodities seller from avoidance due to a non-fundamental breach is less stringent due to commodity market fluctuations in quality, pricing and availability; and Art. 25 is less likely to deprive a commodity buyer of the right to avoid the contract than a buyer of manufactured goods. As goods on the commodities market are generally interchangeable and produced by many producers, the seller is still able to sell the rejected commodities to another buyer who requires the goods. This lowers the seller's need for protection as intended by Art. 25, and lessens the risk that the seller will not be able to sell the commodities at all. A United States CISG case that is illustrative of the low risk to the seller in the commodities market involved the sale of 140,000 barrels of unleaded gasoline containing less than 3 mg of gum per [page 102] 100 millilitres.[71] It was discovered that the gum content in the gasoline was higher than 3 mg and the buyer refused to accept the goods. The seller was still able to quickly sell the goods to another buyer and, given the supply demands that existed at the time, there was little risk that the seller would not have been able to off load the goods. The standard of breach that will allow avoidance of a contract will not be stringent in terms of protecting the seller and avoiding economic loss because of the substitutability of both goods and traders in the commodity markets.
Art. 25 also aims to prevent the economic costs of international shipping and transport by limiting avoidance of the contract. In the commodities industry it is fairly easy to store unsold or rejected commodities at the final point of delivery until they can be sold to another buyer, unlike manufactured goods that will often need to be returned to the seller's place of business. This avoids the costs of shipping the goods back and forth over long distances in the case of avoidance, and is an important factor in lowering the standard of breach that will equate to a fundamental breach in a commodity sale. If the commodities are being traded by documents in a string trade, they may readily be sold to another buyer after the initial sales contract has been avoided, even while the goods are still in transit. The risk is low that the seller will not be able to sell the goods to a substitute buyer and consequently have to ship them back to his own place of business.
A seller committing a breach of contract by delivering non-conforming goods should also bear the risk of falling prices -- as the seller is the party that can prevent the breach of contract at a lower cost than the buyer. The seller is less likely to require protection from a buyer avoiding the contract for a fundamental breach, as prices will often be "locked in" in the commodities trade in order to secure predictability. A buyer may secure its profit margins by hedging on a futures exchange, but will lose the predictability of locked in prices, having already sold its futures contracts. The buyer faces a high amount of damages should prices for the commodities market rise, and will hold higher contractual expectations that would entitle avoidance should the seller commit a fundamental breach. Thus, the buyer must be certain that it can rightfully avoid the contract, without potentially committing a fundamental breach itself and failing to mitigate damages.[72]
4.3.2 Timely Delivery and Documentary Obligations
In the commodities market strict standards are of particular importance especially with regard to timely delivery. Therefore, the handing over of clean documents is always of the essence to the contract, and the ability to cure any defects in the documentation does not extend to commodities markets.[73] English law also takes a strict view of [page 103] timely delivery and documentary performance with regard to commodities, finding a breach of these obligations to be 'of the essence' in an international sales contract.[74] In the domestic sales regime of the United Kingdom, the Sale of Goods Act 1979 (UK) states that the time of payment is not of the essence of the contract.[75] This has resulted in the Sale of Goods Act playing a diminished role in international sales cases; however, the common law of the United Kingdom gives the buyer the right to reject the documents where there is a material defect in the documents.[76] In a traditional CIF contract, deviations from the prescribed standard in documentary performance are prohibited; this illustrates the strict manner afforded to documentary compliance. The buyer should not be required to accept documents that cannot be sold to other traders in a string or accepted by banks providing letter of credit financing. Attempts to contract out of strict documentary duties in CIF contracts have not been well received in the United Kingdom courts,[77] and a buyer is entitled to reject documents that fail to meet the passable commercial standard and terminate the sales contract.[78]
Due to the prevalence of string trading and price fluctuations in the commodities market, special standards must be applied to determine whether a fundamental breach has occurred.[79] In the commodities trade, the high price fluctuations and changing market conditions always require the timely delivery of clean documents at the normal hand over of the goods, particularly in cases involving string trading and multiple transactions that result from one shipment.[80] Strict time protocols in sales strings govern the passing on of notices of appropriation and must be concluded promptly in order to avoid any manipulative behaviour in the market if traders delay the passing on of notices to secure the best possible match of purchase and resale commitments. If the parties do not stipulate the importance of timely delivery expressly in the contract, this can be derived from the circumstances by an interpretation of the contract pursuant to Art. 8(2) and (3). Where the seller is required to hand over documents relating to the goods, they must be handed over at the time and place, and in the form, required by the contract. According to Art. 30 of the CISG the, "must deliver the goods, hand over any documents relating to them and transfer the property in the goods, as required by the contract and this Convention."[81]
In addition, Art. 34 states that if the seller is bound to hand over documents relating to the goods, they must be handed over at the time and place and in the form required by [page 104] the contract.[82] If the seller hands the documents over prior to that time, he may cure any lack of conformity in the documents if the exercise of the right does not cause the buyer unreasonable inconvenience or unreasonable expense. Due to the unique situation in the commodities market, the buyer will almost always be caused unreasonable inconvenience or unreasonable expense, meaning that cure is rarely acceptable to the buyer. In this specific trade the solution under the CISG is quite similar to that under the perfect tender rule found in the law of the United Kingdom.
The CISG also provides a particular right of avoidance with regard to time breaches in Arts. 47 and 63. These provisions allow the parties to set an additional period of time for a party to perform, and for the contract to be avoided if performance is still not achieved. This provides a second means to achieve termination of the contract, distinct from fundamental breach, and does not depend on illustrating that the time delay in performance amounts to a fundamental breach.
The last buyer who actually takes the goods may not avoid the contract merely by relying on non-conformity of the documents, as other traders in a string are able to do. When the goods delivered are not in conformity with the contract, it is crucial to determine the date or time period that the parties agreed to for delivery.[83] If the seller delivers goods that are not in conformity with the contract before the expiry of a time period, then the seller will have the possibility of delivering a second shipment of conforming goods.[84] In this situation the time element is not directly at focus and the result is in line with Art. 37 of the CISG.[85] When a particular date has been agreed on and non-conforming goods or no goods are delivered there will almost never be time for the seller to redeliver in the commodities market, due to the availability of readily substitutable producers and goods on the spot market. Accompanying documents that have been delivered but do not conform to the contract description will constitute a defect in the quality of the goods. If the defect in the documents will limit the buyer from using the goods according to his plans, for resale or any other such purpose, then a fundamental breach will have occurred. If the problem is that the accompanying [page 105] documents are actually missing, this will be treated as a defect in quantity and a fundamental breach must be established in accordance with Art. 49(1)(a).
In the commodities trade specifically it is often the documents embodying the goods under the contract that are most relevant to the commodity sale itself. It is generally acknowledged that all international sales contracts referring to Incoterms 2000 can be referred to as document sales; all thirteen terms except for the Ex Works ('EXW') term contain the seller's obligation to deliver or obtain certain documents of title.[86] It will often transpire that it is the documents themselves that entitle the rightful holder to demand delivery of the specified goods, and not the physical goods themselves. It is these documents that are further used in string transactions and transferred many times before the end purchaser takes the final delivery of the physical goods. Although Art. 34 is clear that the sellers right to cure defective goods is extended to the delivery of documents, in the commodities trade the cure of documentary non-conformity will generally disturb any ensuing string transactions relating to the goods.
While Arts. 37 and 48 will be applicable with respect to the cure of defects in documents in a general international sale of goods, in the commodities trade it is particularly important to ensure the documents can be used in the normal course of business and in continuing string transactions.[87] The obligations of the seller and the liability for performance of the contract are not primarily linked to the physical condition of the goods and their physical delivery in string trading, unless the contract of sale contains additional terms in this respect. The key obligations in a string transaction relate to the timely transfer of the documents and their conformity with the seller's obligations in the contract of sale. If the documents identify the goods to be delivered in accordance with their designation and description in the contract of sale, then the seller has complied with his obligations by providing the buyer with the right to access to the goods of the quantity, quality and description required by the contract under Art. 35(1). Trade forms are not excluded sales under Art. 2 of the CISG and the CISG will be suitable for governing the customary trading of such forms and documents in international commodity markets.
4.3.3 The Cure Principle and Commodity Sales
An important limitation on avoidance under the CISG is the seller's possibility to cure. Although non-conformity of the goods is a necessary condition to establish a fundamental breach, a fundamental breach will not exist in every situation. The principle of cure is likely to be used to cure a fundamental breach in the sale of manufactured goods, as it is capable of playing a major role in the avoidance of [page 106] economic waste that would otherwise occur from rejection of the goods.[88] However, it is less likely to be used in the sale of commodities. In relation to the cure principle, it is significant that commodity sales do not have the same consistency as a manufactured line of products; the principle of cure will therefore not be as readily applicable to the commodity industry. A fundamental breach that entitles avoidance of the contract will not be found to exist where it is possible for the seller to repair the goods or deliver substitute or missing goods without unreasonable delay or inconvenience to the buyer.[89] Art. 48 allows the seller to cure defects in the performance after the due date, although the seller's possibility to cure any defect in documents will not exist in the commodity industry because of the special standards applied that have resulted from the prevalence of string transactions and unpredictable prices.[90]
The principle of cure under the CISG encourages fulfilment of the sale and limits the buyer's right to avoid the contract by allowing the seller to cure any defects in its performance before the defects become the subject of litigation and further disputes.[91] This is in accordance with the principle of the CISG in considering avoidance of the contract to be a last resort. The primary justification for cure is that it aims to minimise or avoid economic waste and recognises the customs and practicalities of the modern world and the international trader.[92] Provided non-conformity in the goods can be cured quickly and without great inconvenience to the buyer, that breach should not be regarded as fundamental unless the seller, given a reasonable chance, fails in his attempt to cure.[93] Provided there is no unreasonable inconvenience or expense caused, a seller may cure the defect by delivering missing parts or goods, replacing non-conforming goods, or remedying any lack of conformity in the goods up to the delivery date. This may be possible with commodities, however it is probably easier to cure manufactured goods that are not subject to quality and availability fluctuations.
The possibility of cure after the due date will generally not extend to commodity sales, as the rapidly changing market conditions require the timely delivery of clean documents in order for these documents to be resold in the normal course of business. The timely delivery of clean documents is always of the essence of the contract in commodity sales,[94] and a commodity trader will not be able to cure a defect in the documents according to Art. 48(1) without causing undue inconvenience or delay to [page 107] the buyer.[95] Even without explicit reference to the importance of timely delivery, a contract will recognise and infer that timeliness is vital by interpreting the contract in accordance with Arts. 8(2) and (3). These provisions interpret the statements and conduct of a party 'according to the understanding a reasonable person of the same kind as the other party would have had in the same circumstances' [96] and with due consideration to 'all relevant circumstances of the case including the negotiations, any practices which the parties have established between themselves, usages and any subsequent conduct of the parties'.[97] In commodity transactions it is clearly evident that a timely delivery is of the essence of the contract given the liquidity of the market and substitutability of the goods in the commodities market, unless otherwise stated within the contract.
Arts. 34 and 37 both address a defect in the seller's performance, prior to the due date of delivery. As a commodity sale will often provide for delivery during a time period or specified month, it would be in accordance with Art. 37 for a seller to deliver on January 5th and then to cure non-conformity of the goods on January 25th if 'January' was the delivery period specified and it 'did not cause the buyer unreasonable inconvenience or unreasonable expense'. As early delivery may be a basis for breach of contract, the principle of cure will rarely be applicable in the commodities market, again due to the fundamental nature of timely delivery.[98] Art. 37 does not define the level of reasonable inconvenience or expense that a buyer can expect, although it will undoubtedly depend on the type of sales transaction, the parties involved and the goods concerned. One interpretation is that in explicitly acknowledging a claim for damages, the CISG implies that there will only be unreasonable inconvenience or expense where there is no compensation available in damages.[99] As commodities are subject to highly volatile markets the buyer will almost always be inconvenienced or out of pocket, and cure will not be an easily appropriate remedy.
5. THE PASSING OF RISK
The passing of risk is one of the most important areas of sales law and thus is one of the most important concerns of the parties in an international sales contract.[100] The [page 108] most important notion concerning risk is at what time it is transferred between the parties; in some situations a seller may be exonerated from delivery or the duty to deliver conforming goods where risk had already passed to the buyer.[101] Although the CISG itself does not address the passing of property, it does contain risk provisions in Arts. 66-70. The passing of risk is a contractual concept that determines whether the buyer must pay for the goods despite a seller's failure to deliver the goods contracted for. Transfer and the passing of risk in international sales are therefore intimately connected with shorthand delivery terms employed by traders, such as those contained in the Incoterms or traditional trade abbreviations. Under Incoterms the transfer of risk is precisely defined by the term adopted, unless otherwise stated in the contract. It is necessary to know whether the buyer or the seller bears the risk of loss in order to determine who holds the responsibility of filing an insurance claim, or which party must bear the cost of the loss of goods. Although both parties may carry insurance to protect against the economic consequences of damage to the goods, it is particularly important in the commodities trade to determine which party holds the risk as that party will a suffer a depletion of assets while an insurance settlement or claim is being considered. In a sale for manufactured goods there is less urgency in settling the insurance claim given that these markets do not tend to be as changeable and unpredictable as the commodity markets are.
The CISG undertakes a new approach to the passing of risk that differs from that found in conventional international sales law. Arts. 66-70 of the CISG provide for the passing of risk, outlining a specific rule for goods sold in transit and a residual rule to cover other cases.[102] The basic CISG rule states that risk will pass to the buyer when the goods are handed over to the first carrier in accordance with the contract of sale.[103] If the goods are to be handed over to a carrier at a particular place then this will be an exception to the general rule and risk will pass at that place. Art. 67 is clear that the transfer of risk only occurs when the goods are handed over to a third party carrier and will not cover a situation where a seller's own transportation or carrier is used. The fact that the seller is authorised to retain documents controlling the disposition of the goods does not affect the passage of the risk. This avoids the unintended disturbance of the basic rule on risk in a commodity sale, as a rule causing risk to pass when documents are handed over would be difficult to apply and inadequate to determine when damage is done.
Art. 67(1) operates only in relation to identified goods and the risk does not pass to the buyer unless and until the goods arc clearly identified by the contract. In a bulk commodities sale of goods a particular buyer bears the risk as to his undivided share in the bulk if that share has been identified by '[n]otice to the buyer that a particular bulk [page 109] contains 'his/her' goods is sufficient to transfer the risk'.[104] Art. 69 provides the residual gap-filling rules for the passing of risk in non-carriage cases. If the buyer is obligated to take over the goods at the seller's place of business, risk will generally pass when the buyer takes the goods. If the buyer is obligated to take the goods at a place other than the seller's place of business, risk will pass when delivery is due and the buyer is aware of the fact that the goods are placed at his disposal under Art. 69(2).
The Incoterms rules are similar to the CISG concerning price risk, in that the buyer is required to pay the price even though he may not receive the goods because of loss or lack of conformity with the contract. Incorporating an Incoterm trade abbreviation into a contract governed by the CISG will, unless otherwise specified by the parties, determine the allocation of risk in an international sales contract. Referring to Incoterms in a contract does not mean that the CISG is to be excluded any more than a reference to Incoterms would exclude the national laws of a country. Use of a term such as an Incoterm simply serves to enunciate the agreement between the parties as to risk and when risk will pass. As such trade terms will not normally outline the legal consequences of a breach, the CISG will supplement and accompany the use of a trade term by identifying any resulting options or consequences if an issue arises, in accordance with the term.[105]
It has been argued that reverting to the general CISG rule of handing over to the first carrier would 'disastrously undermine the commercial expectations of the parties'.[106] This is because the general rule does not contain the same specificity to pin-point the passing of risk found in traditional trade terms, such as in an FOB contract that requires the goods to pass the rail of the ship or a CIF contract where there is not a requirement to ship from a particular port and a seller may not be under an obligation to hand over goods at a particular place.[107] The discrepancy between the general rule and the particular requirements of a term such as an Incoterm will be considered alongside Art. 6 and the established primacy of the agreement, meaning that clauses such as FOB or CIF will have priority over the provisions of the CISG -- in particular, with respect to the passing of risk.[108] As a practical reality parties will often derogate or vary the provisions of the CISG under Art. 6, rendering the CISG provisions redundant. By including a shorthand reference to a particular Incoterm term into a contract, the parties effectively incorporate a detailed set of risk rules with respect to that term,[109] while still maintaining the general CISG principles to govern any areas that are not covered by the Incoterm. The importance of carriage and the concept of a [page 110] third party carrier under the CISG are consistent with the definition of a carrier found in Incoterms, as being unrelated to the seller. The parties to a contract should clearly indicate their intention by including an Incoterm or trade abbreviation to specify when the risk will pass. If they do not do so the CISG will identify when risk will pass and will use the point of delivery as the key indicator to determine when risk has passed in a similar manner to the approach taken by Incoterms. Arguably, the use of traditional shipping clauses may make the inclusion of risk provisions in the CISG redundant, given that the risk rules will apply to so few contracts.[110] However, the CISG drafters were well aware of the small number of cases that the risk rules would be applied to, and nevertheless extensively addressed and expressly provided for risk within the CISG.[111]
The primary focus of the passing of risk under the English domestic Sale of Goods regime is that risk will pass at the time property is passed, whether the delivery has been made or not. In the international sale of commodities the assumption that risk is passed when property passes is not accurate enough to be appropriate. The CISG is likely to provide a more suitable back-up regime should the contract be silent on when risk will be passed, and given the risk provisions it contains. '[T]he international contract of sale will often resolve the question of risk by the incorporation of a simple trade term, with the effect that the Convention risk-regime is wholly displaced'.[112] Although the CISG rules on risk can be easily displaced by Incoterms and may in fact often be redundant,[113] the ability of the parties to specify a given time for risk to pass is entirely in line with their contractual freedom under Art. 6. As the passing of risk is one of the most important concepts in an international sale, reference to an Incoterm would imply that the parties intended for the Incoterm rules on risk to apply and to displace the CISG risk rules by incorporating their own preferences for when risk passes.
6. REMEDIES: SPECIFIC PERFORMANCE, PRICE REDUCTION AND DAMAGES
The CISG provides for various remedies for the parties to a contract should an issue arise in the sales transaction that is not provided for by the parties. The CISG diverges from the general remedy principles found in English law, particularly in that specific performance is a rarely used remedy in the sale of goods in common law systems. The CISG focuses on the buyer's remedies for a seller's breach in Arts. 45-52 and on the seller's remedies for buyer's breach in Arts. 61-65. The CISG encourages parties to exercise self-help, setting forth inspection, notice and cure provisions that allow a [page 111] party to remedy a situation before the parties resort to a formal dispute resolution process.
The remedy of specific performance is generally an order given by the courts for a party to perform its obligations under the contract. Under the common law of the United Kingdom an award of damages is the normal course of action, and specific performance is available only where damages would not do adequate justice to the parties.[114] In contrast, the CISG generally provides that the buyer may require the seller to perform in order to fulfil obligations under the contract and the CISG, unless the buyer has resorted to a remedy that is inconsistent with specific performance.[115] Arts. 46(2) and 46(3) specify particular types of performance that may be required of the seller, allowing the buyer to request substitute goods or request repair of non-conforming goods. The seller may also demand that a defaulting buyer pays the price, takes delivery or performs any other obligations; again except for where the seller has resorted to an inconsistent remedy.[116] Art. 45(2) further confirms that the buyer is still able to claim damages even if specific performance is requested. While it would be inconsistent to ask for a full refund as well as specific performance under the CISG, it would not be inconsistent to claim damages for losses relative to the seller's breach of its obligations, such as any losses caused by a late delivery. However, due to the liquidity of the commodities market and the substitutability of traders, the remedy of specific performance will be much better suited to sales for manufactured consumer goods as this type of product cannot be as readily substituted.
Art. 28 limits the availability of specific performance under Arts. 46 or 62 with reference to the domestic law of the court hearing the claim. This provision was intended as a compromise between the common law and civil law positions, in order to allow the common law courts to continue to use specific performance in exceptional circumstances only.[117] In accordance with Art. 28, a court is not bound to enter a judgment for specific performance unless it would do so under its own law with respect to similar contracts of sale falling outside of the CISG. The provision illustrates that the CISG defers to domestic law in certain areas that may be of special concern or deemed to be of particular national interest.[118] Given that commodities can be substituted and readily acquired from another trader, Art. 28 is important in allowing discretion to remain with a domestic court so that specific performance will not be awarded if damages would be an adequate remedy in the situation. If a buyer purchases commodities from another trader instead of requiring performance by the seller, he will be entitled to claim adequate damages from the seller in the case of a lawful avoidance of the contract. In the commodities trade it will be possible to opt for [page 112] the remedy of specific performance (and damages), although the Art. 28 provision affirming a court's discretion acknowledges that in many situations specific performance will not be ordered. This may be especially so concerning commodities.
Art. 50 sets forth a remedy by which the buyer is entitled to rewrite the price provision in the contract if the seller delivers non-conforming goods. The buyer can reduce the price in accordance with the diminished value of the goods if it has received goods of a non-conforming standard.[119] This is not a right of damages, but allows the buyer to rewrite the contract so that the price accords with the true worth of the goods. Price reduction is neither damages nor partial avoidance of the contract, but rather an adjustment of the contract.[120] The buyer may recover the difference between the two prices if the price has been paid, or can pay the reduced price to the seller. If the buyer has paid too much for the goods, given their non-conformity, the buyer is entitled to financial relief regardless of whether the seller's failure to deliver non-conforming goods causes any loss. The most important decision required is for the buyer to calculate the monetary relief that would be received from price reduction compared to the damages available. This is because the market can rapidly rise and fall, creating significant differences in the remedy or relief obtained depending on whether the buyer chooses a reduction in price or damages. In the commodities trade the reduction of price will recognise the importance given to the buyer's performance expectations in the contract regardless of any loss if too much has been paid for the non-conforming goods.
In calculating damages for non-delivery or non-acceptance under the CISG, a court will look first at any substitute transactions, and where no substitute transaction has been made it will then examine the current market price of the commodities.[121] The CISG provides that a party can always seek damages for losses suffered regardless of the remedy sought for an alleged breach, and provides background principles to the contract that are more transparent and truer to the commercial purpose of the contracting parties.[122] Art. 74 outlines the general rule governing damages; that an injured party may seek damages whether or not the breach is fundamental. The standard form contracts such as GAFTA 100 have similar default provisions on damages, and advocate an approach that is not dissimilar from the CISG.[123] For example, in GAFTA 100 the default provision defines the damages payable to be based on, but not limited to, the difference between the contract price and the default price established in a subsequent purchase or sale or the actual or estimated value of [page 113] the goods.[124] The general rule as to the assessment of damages under the CISG is that damages consist of a sum equal to the loss, including loss of profit, suffered as a consequence of the breach. Damages may not exceed the loss to which the party in breach foresaw, or ought to have foreseen, at the time the contract was concluded in light of the facts and matters that they knew or ought to have known.
Under Art. 79(1) a party is not liable for failure to perform if it cannot complete its obligations due to an impediment beyond its control, which the party could not reasonably be expected to have taken into account at the time of the contract. A party is also not liable for failure to perform if they could not reasonably be expected to have avoided or overcome an impediment or its consequences. Where a subcontractor causes such a failure, protection also exists under Art. 79(2) provided that the subcontractor's failure is due to an impediment of the same kind. This relief from liability only extends to claims for damages and the right to seek other remedies will still exist. The CISG does not provide for the termination of the contract on the ground of frustration, and the exemption from liability for damages has effect only for the period during which the impediment exists.[125] However, it is common practice for traders to write their own force majeure or excusable delay clauses into a contract, in order to provide the coverage that is most appropriate according to the type of product and industry they are involved in. This is because it is often difficult to include a clause encompassing circumstances that are unpredictable into domestic law or a convention like the CISG. Accordingly, whether the CISG and Art. 79 are applicable will, as always, depend on the will of the parties and whether they have included their own clause addressing frustration of the contract.
The damage rules in the CISG are suitable and practical for calculating the amount of damages to be awarded to a party when a commodity sales contract is not fulfilled, particularly for a buyer that must on sell non-conforming goods. As well as the general damages rule, the rules referring to substitute transactions and the current market price aid clarification of when and how damages may be awarded. The CISG is a flexible instrument in providing parties with the option of a damages claim or price reduction, depending on which is more appropriate where the seller's breach has caused the buyer to be paying a price over and above the value of the non-conforming goods. Where a commodity buyer has paid a surplus price above the value of the non-conforming goods, he will be able to bring a damages claim or reduce the price in the contract to reflect a loss caused by the seller's breach. The rules under the CISG 'may prove in the end to be at least as commercially and forensically useful as those in the Sale of Goods Act [UK]'.[126] [page 114]
As has been illustrated, an international sale of commodities has many unique characteristics that will distinguish it from the general international sale of goods intended for commercial consumption. As commodities are interchangeable it is possible to substitute goods from one producer for the goods of another if a contract is avoided or a rapid sale is necessary. The unique characteristics of the international commodity markets provide the rationale behind distinguishing a commodity sale from other international sales. However, these characteristics do not prevent the CISG from being an appropriate instrument of law to govern international commodity sale contracts. Rather, the CISG is well suited to govern commodity sale transactions, particularly in the area of remedies and damages should a dispute arise between parties. The flexibility of the CISG with regard to the contractual freedom under Arts. 6 and 9 ensures that it is a suitable instrument of law to govern international sales contracts for commodity type goods. It provides a useful tool for filling in the gaps of a commodity sales contract, especially when it is applied to a contract that incorporates internationally recognised trade terms or standard usages into the contract. While the CISG does not share the same lineage of reported judgments and case law that the United Kingdom has accumulated on commodity sales, it is certainly capable of being developed and extended to meet the requirements of international trade in a uniform manner that cannot be accomplished by a single domestic law.
The majority of the 74 states that have joined the CISG did not have the same prevalent consistency in their international sale of goods laws as the United Kingdom does and in most cases it was more appropriate for them to join a uniform governing law that adapts to the needs of modern day commodity traders. The strength of English international sales law in commodity sales is perhaps one of the key reasons that the United Kingdom has not joined the CISG and has instead retained predictability and certainty in the law of the United Kingdom. Exclusion of the CISG in the commodities trade has generally been because standard contract forms, such as the GAFTA 100, provide for arbitration in London and the application of English law as the applicable law.[127] That the CISG is not suitable for such transactions should not be inferred from this; exclusion of the CISG merely indicates that commodity traders are comfortable with existing practices and are in no hurry to adopt internationally uniform rules. Further, the United Kingdom government has not viewed the ratification as a legislative priority, and are aware that London would be likely to lose the central position it holds in international arbitration and litigation after ratification. Despite the fact that the CISG does not have the same pedigree of English law addressing the problems that one sees in reported cases, it will be an effective solution to modern commodity traders in conjunction with the use of Incoterms. The CISG is a legal instrument suitable for governing commodity sales in 'a reasonable manner that [page 115] extends beyond the narrow confines of national pre-conceived views'.[128] As the CISG rules continue to be more frequently used, commodity traders will undoubtedly consider it as a favourable alternative to traditional English law, and will increasingly employ the CISG in commodity sales contracts. The practice of opting out of the CISG in commodity sales contracts will gradually be eroded as the world of international trade law develops, particularly given the CISG's suitability in addressing the changing needs and obligations of international traders and governing transnational disputes through a uniform international law.
a1. A version of this article was awarded First Prize in the 2009 Clive M. Schmitthoff Essay Competition.
1. Katrina Winsor completed her Master of Laws at the University of Auckland in New Zealand.
2. There are now more than two thousand cases reported and available on the CISG Pace website, available at Pace Law School Institute of International Commercial Law CISG Database on the CISG and International Commercial Law (last updated 17 March 2009) available at <http://www.cisg.law.pace.edu/cisg/text/case-annotations.html>. For ease of reference, this paper will generally cite the Pace website address for any international case law cited.
3. See for example Contract for Shipment of Feedingstuffs in Bulk No. 100, cl. 28 (The Grain and Feed Trade Association, effective 1 January 2003) ('GAFTA 100'), which explicitly lists the International Conventions that will not be applied in the contract.
4. See for example the domicile clause of GAFTA 100, cl. 26.
5. Bridge, M., "Uniformity and Diversity in the Law of International Sale" (2003) 15 Pace International Law Review 55 at fn 8.
6. The domicile clause in GAFTA 100, cl. 26 provides that the English Courts have exclusive jurisdiction; and cl. 28 goes further to prohibit the application of a number of international conventions. Either of these clauses could be deleted or altered by the parties, should they wish to keep the bulk of the standard form contract.
7. Schwenzer, I., "The Danger of Domestic Pre-Conceived Views with Respect to the Uniform Interpretation of the CISG: The Question of Avoidance in the Case of Non-Conforming Goods and Documents" (2005) 36(4) Victoria University of Wellington Law Review 795.
8. CISG: Table of Contracting States (last updated 20 January 2010) available at <http://www.cisg.law.pace.edu/cisg/countries/entries.html> stating that 74 states have adopted the CISG as of 20 January 2010.
9. The CISG uses the term 'avoidance' generally and limits the use of 'termination' to Art. 29 where there is termination by agreement, whilst English law uses the term 'termination'. This paper will use the terms 'avoidance' and 'termination' interchangeably when addressing the avoidance of the contract by a contractual party.
10. See for instance Bridge, M., "A Law for International Sale of Goods" (2007) 37 Hong Kong Law Journal 17 arguing that that the United Nations Convention may be better suited for the sale of manufactured goods, while the United Kingdom Sale of Goods Act, with a well-established case law, is better suited for the sale of commodities. See also the reply to this article in Singh, L. and Leisinger, B., "A Law for International Sale of Goods: A Reply to Michael Bridge" (2008) 20 Pace International Law Review 161.
11. Most trading nations have understood that it is more helpful to their trade and economy to adopt and ratify a convention than to insist that their well-tested domestic law is superior to an untested convention; Zeller, B., CISG and the Unification of Trade Law, 2007, Routledge-Cavendish, Oxon [UK], 2007 at pp. 6-7. See also Zeller, B., "Commodity Sales and the CISG" in Andersen, C. B. and Schroeter U. G. (eds.) Sharing International Commercial Law Across National Boundaries: Festschrift for Albert H. Kritzer on the Occasion of his Eightieth Birthday, 2008, Wildy, Simmonds & Hill Publishing, London, 631.
12. CISG Database on the CISG and International Commercial Law (last updated 27 January 2010), available at <http://www.cisg.law.pace.edu/cisg/text/case-annotations.html> (1 February 2010). See also Bonell, M. J., (ed. in chief) UNILEX on CISG and UNIDROIT Principles, available at: <http://www.unilex.info> (1 February 2010); Faculty of Law Basel, Global Sales Law (CISG-online.ch), available at: <http://www.globalsaleslaw.org/index.cfm?pageID=28> (1 February 2010); United Nations Commission on International Trade Law (UNICITRAL,2008), available at: <http://www.uncitral.org/uncitral/en/case_law.html> (1 February 2010).
13. However, some states have declared a reservation against the application of the rule in Art. 1(1)(b) allowed for in Art. 95 of the CISG. Art. 6 allows a party to exclude the application of the CISG or derogate from the provisions of the CISG. The Chinese and United States with respect to Art. 1(1)(b) automatically exclude the CISG where conflict of law rules indicate that Chinese or US law applies.
14. Charters, A., "Fitting the 'Situation'; The CISG and the Regulated Market" (2005) 4 Washington University Global Studies Law Review 1, 17.
15. Lookofsky, J., Understanding the CISG in Scandinavia, 2002, 2nd edition, Djoef Publishing, Copenhagen, at p. 74.
16. See Zeller, B., CISG and the Unification of Trade Law,, at p. 10.
17. J S Hobhouse, J. S., "International Conventions and Commercial Law: The Pursuit of Uniformity" (1990) 106 Law Quarterly Review 530, 535.
18. Burnett, R., Law of International Business Transactions, 2004, Federation Press, New South Wales, at p. 3.
19. The majority of traders are multinational and it will be very rare for a case to involve an English commodity trader.
20. For example, in 2007 over 40% of commodities trading on exchanges was conducted on US exchanges and a quarter in China. Trading on exchanges in China and India has gained importance in recent years due to their emergence as significant commodities consumers and producers; International Financial Services London, "Commodities Trading 2008" (IFSL International Financial Services Report, London, 2 June 2008), available at: <http://www.ifsl.org.uk/output/Reportltem.aspx?NewsID=80> (25 February 2010).
21. Nonage. L., "Who's Afraid of the Vienna Sales Convention (CISG)?" (2005) 36 Victoria University of Wellington Law Review at pp. 815, 836.
22. See for a more detailed discussion of older terms Burnett Law of International Business Transactions, 2004, 3rd ed., Federation Press, New South Wales, at p. 42.
24. See CISG Art. 3(1).
25. Bridge, M., "Uniformity and Diversity in the Law of International Sale" (2003) 15 Pace International Law Review at pp. 55, 64.
26. For a detailed discussion of the tradition of string trading, sec Michael Bridge. M., "Uniformity and Diversity in the Law of International Sale", supra fn 24, at pp. 59-64.
27. Ibid., at p. 60.
28. Ibid., at pp. 61-62.
29. Takahashi, K., "Right to Terminate (Avoid) International Sales of Commodities" [2003] Journal of Business Law, at pp.102-104.
32. See cl. 5 of GAFTA 100.
33. See supra fn 24, at pp. 55-60.
34. See supra fn 6, at pp. 795-800.
35. See for instance the 104 cases indexed under Art. 35 available at Bell, M. J., (ed. in chief) UNILEX on CISG and UNIDROIT Principles, by typing "35" into the Article search bar available at <http://www.unilex.info/dynasite.cfm?dssid=2376&dsmid=13356&x=1> (25 February 2010).
36. CISG Art. 35(2).
37. See Secretariat of the United Nations Secretariat Commentary, Comment 5 to Art. 33 of the 1978 Draft of the CISG [draft counterpart to Art. 35 of the CISG], available at: <http://cisgw3.law.pace.edu/cisg/text/secomm/secomm-35.html>
38. See supra fn 14, at p. 88.
39. See supra fn 9, at pp. 17, 20.
41. CISG Art 35(2).
42. CISG Art. 35(1).
43. Wightman, J., "Beyond Custom: Contract, Contexts and the Recognition of Implicit Understandings" in Campbell, D., Collins, H. and Wightman, J. (eds.) Implicit Dimensions of Contract: Discrete, Relational and Network Contracts, 2003, Hart, Oxford, at p. 143.
44. CISG Art. 46-48.
45. See supra fn 20.
47. Leisinger, B. K., Fundamental Breach Considering Non-Conformity of the Goods, 2007, Sellier European Law Publishers, München, at p. 127 states that there will never be a fundamental breach for a quantity shortfall.
48. CISG Art. 52(2).
49. CISG Art. 7(1).
50. For example, parties to a contract for the sale of grain may wish to use the Official Grain Grading Guide (effective 1 August 2009), available at: <http://www.grainscanada.gc.ca/oggg-gocg/ggg-gcg-eng.htm> (1 February 2010).
51. Parties may exercise their contractual freedom under Arts. 6 and 9 of the CISG and, in a contract for the sale of grain for example, may expressly choose the Official Grain Grading Guide (effective 1 August 2009), available at: <www.grainscanada.gc.ca/oggg-gocg/ggg-gcg-eng.htm> (1 February 2010).
52. See CISG Art. 9(1).
53. See for instance Decision P4 1996/00448 in the Zivilgericht Basel-Start (Switzerland, 3 December 1997), available at: <http://cisgw3.law.pace.edu/cases/971203s2.html> (1 February 2010).
54. Decision M ... F ... S.r.l. v. A ... & P ... AG (HG 010395) in the Handelsgericht Zürich (Switzerland, 24 October 2003), available at: <http://cisgw3.law.pace.edu/cases/031024s1.html> (1 February 2010).
55. See supra fn 45, at p. 138.
56. Decision 10 Ob 344/99g in the Oberster Gerichtshof (Austria, 21 March 2000), available at: <http://cisgw3.law.pace.edu/cases/000321a3.html> (1 February 2010).
57. Decision 7 U 720/98 in the Oberlandesgericht Dresden, (Germany, 9 July 1998,), available at: <http://cisgw3.law.pace.edu/cases/980709g1.html> (1 February 2010).
58. Bridge, M., The International Sale of Goods, 2007, 2nd ed., Oxford University Press, Oxford, chapter 11.
59. Ibid., as argued by Michael Bridge.
60. St Paul Guardian Insurance v Neuromed Medical Systems (26 March 2002) New York, 00 Civ. 934 (SHS), available at: <http://cisgw3.law.pace.edu/cases/020326u1.html> (18 December 2009); Marc Rich & Co. AG v Iritecna S.p.A. (24 March 1995) 211 CA di Geneva, Italy, available at: <http://cisgw3.law.pace.edu/cases/950324i3.html>.
61. Huber, P., "Some Introductory Remarks on the CISG" (2006) 6 Internationales Handelsrecht, at pp.228-238.
62. See Arts. 49, 64 and 72 of the CISG. See for example Roder v Rosedown Park Ply Ltd (1995) 57 FCR 216; Downs Investment Pty Ltd v Perwaja Steel (2000) SDN BHD QSC 421.
63. See Bill, M., "Fundamental Breach in Documentary Sales Contracts" (2009) 1 European Journal of Commercial Contract Law, at pp. 19-24, for an in-depth discussion on the definition of a fundamental breach.
64. See CISG Art. 49(1)(a).
65. Honed, J., Uniform Law for International Sales under the 1980 United Nations Convention, 1999, 3rd ed.), Kluwer Law International, The Hague, at para. 304.
66. See supra fn 28, at pp. 102-105.
67. See supra fn 6, at pp. 795-806.
68. Mullis, A., "Avoidance for Breach under the Vienna Convention" in Andreas, M. and Marburg, N. (eds.) Anglo-Swedish Studies in Law, 1998, Lusts Forlag, Uppsala, at p. 329.
69. Convention relating to a Uniform Law of the International Sale of Goods (The Hague, 1 July 1964), available at: <http://www.unidroit.org/english/conventions/c-ulis.htm>.
70. See CISG Art. 25.
71. See for instance BP Oil International v Empresa Estatal Petroleos de Ecuador (11 June 2003) US Court of Appeal 5th Circuit, 02-20166, available at: <http://cisgw3.law.pace.edu/cases/030611u1.html> (1 February 2010).
72. See CISG Art. 77.
73. See supra fn 15, at p. 7.
74. See for instance Bunge Corp. v Tradax Export SA (1981) 2 All ER 513.
75. Sale of Goods Act 1979 (UK), at section 10(1).
76. Cehave NV v Bremer Handelsgesellschaft mbH [The Hansa Nord.] (1976) QB 44, 70.
77. SIAT di del Ferro v Tradax Overseas SA (1980) 1 Lloyd's Rep 53.
78. Hansson v Hamel and Horley Ltd (1922) 2 AC 36.
79. CISG Advisory Council Opinion No. 5 "The Buyer's Right to Avoid the Contract in Case of Non-conforming Goods or Documents" (Badenweiler, 7 May 2005), available at: <http://www.cisg.law.pace.edu/cisg/CISG-AC-op5.html>.
80. Bridge, M., The Sale of Goods, 1997, Oxford University Press, Oxford, at p. 155.
81. See CISG Art. 30.
82. The types of documents contemplated in this provision include bills of lading, dock receipts, warehouse receipts, certificates of insurance, commercial or consular invoices, and certificates of origin, weight or quality. See the Secretariat of the United Nations Secretariat Commentary of the 1978 Draft Guide to CISG Art. 32, para 2, available at: <http://cisgw3.law.pace.edu/cisg/text/secomm/secomm-32.html>.
83. Art. 33 provides that the seller must deliver the goods on the date fixed by the contract, within the period of time fixed by the contract, or in any other case within a reasonable time after the conclusion of the contract. Art. 59 allows that the buyer must "pay the price on the date fixed by or determinable from the contract and this Convention without the need for any request or compliance with any formality on the part of the seller."
84. See for example Valero Marketing v Green (4 April 2006) District Court New Jersey, Civ. 01-5254 (DRI), available at: <http://cisgw3.law.pace.edu/cases/060404u1.html> (1 February 2010); where the parties agreed on a delivery between September 10-20, 2001.
85. Art. 37 of the CISG addresses the delivery of non-conforming goods prior to the delivery date and the right of the seller to remedy any lack of conformity provided the exercise of the right does not cause the buyer unreasonable inconvenience or expense.
86. See provision A8 of the respective Incoterms in Incoterms 2000: ICC Official Rules for the Interpretation of Trade Terms, 1999, ICC Publishing Inc., New York, ICC No. 560.
87. CISG Advisory Council Opinion No. 5 "The Buyer's Right to Avoid the Contract in Case of Non-conforming Goods or Documents" (Badenweiler, 7 May 2005), available at: <http://www.cisg.law.pace.edu/cisg/CISG-AC-op5.html> (1 February 2010).
88. See Bridge, M., supra fn 9, at pp. 17-29.
89. Art. 37 allows the seller to remedy the defect before the agreed delivery date, while Art. 48 gives the seller the right to remedy defects after the delivery date.
90. Schwenzer, I., "Avoidance of the Contract in Case of Non-Conforming Goods (Art. 49(1)(A) CISG" (2005) 25 Journal of Law and Commerce, at pp. 436-442.
91. See CISG Arts. 37 and 48.
92. Bridge, M., see supra fn 9, at pp. 17-29.
93. Lookofsky, J., see supra fn 14, at p. 130.
94. See supra fn 88.
95. Zeller, B., "Commodity Sales and the CISG" in Andersen, C. B. and Schroeter U. G. (eds.) Sharing International Commercial Law Across National Boundaries: Festschrift for Albert H. Kritzer on the Occasion of his Eightieth Birthday, 2008, Wildy, Simmons & Hill Publishing, London, at p. 632.
96. See CISG Art. 8(2).
97. See CISG Art. 8(3).
98. Art. 34 relates to the seller's delivery of non-conforming documents under the terms of the contract, whereas Art. 37 relates to the delivery of non-conforming goods.
99. Morrissey, J., and Graves, J., International Sales Law and Arbitration, 2008, Wolters Kluwer, The Netherlands, at p. 218.
100. See for instance Bridge, M., "The Transfer of Risk under the UN Sales Convention 1980 (CISG)" in Andersen, C. B. and Schroeter U. G. (eds.) Sharing International Commercial Law Across National Boundaries: Festschrift for Albert H. Kritzer on the Occasion of his Eightieth Birthday, 2008, Wildy, Simmonds & Hill Publishing, London, at p. 77.
101. See Bridge, M., supra fn 9, at pp. 17, 37-38.
102. See Arts. 68 and 69.
103. See CISG Art. 67(1).
104. See Lookofsky, J., supra fn 14, at p. 113.
105. Honnold, J., Uniform Law for International Sales under the 1980 United Nations Convention, 1991, 2nd edition, Kluwer Law and Taxation Publishers, Boston, at pp. 126-127.
106. See Bridge, M., supra fn 9, at pp. 17, 38.
108. Peter Schlechtriem, "Interpretation, Gap-Filling and Further Development of the UN Sales Convention" (2004) 16 Pace International Law Review, at pp. 279-282.
109. See Lookofsky, J., supra fn 14, at p.111.
110. See Bridge, M., supra fn 9, at pp. 17, 38.
111. See the Secretariat of the United Nations Secretarial Commentary Draft Guide to CISG Art. 67, available at: <http://www.cisg.law.pace.edu/cisg/text/secomm/secomm-67.html>.
112. See Lookofsky, J., supra note 14, at p. 109.
113. See Bridge, M., supra fn 9, at p. 38.
114. Re Wait (1927) C.A.1 Ch. 606, at p. 630.
115. See CISG Art. 46.
116. See CISG Art. 62.
117. See for example the English case supra fn 112; where specific performance is confined to exceptional cases.
118. See Morrissey, J., and Graves, J., supra fn 97, at p. 242.
119. CISG Art. 50. See for instance Bergsten, E., and Miller, A. J., "The Remedy of Reduction of Price" 27 (1979) American J Comparative L 255.
120. Schlechtriem, P., and Schwinger, I., (eds) Commentary of the UN Convention on the International Sale of Goods (CISG), 2005, 2nd ed., Oxford University Press, Oxford, at p. 597.
121. See CISG Arts. 75 and 76.
122. See Bridge, M., supra fn 9, at p. 37.
123. See for instance GAFTA 100, cl. 23.
125. CISG Art. 79(3).
126. See Bridge, M., supra fn 9, at p. 37.
127. See for example the domicile clause of GAFTA 100, cl. 26.
128. See Schwinger, I., supra fn 6, at pp. 795, 800.
©Pace Law School Institute of International Commercial Law - Last updated May 10, 2010