In1980, the United Nations proclaimed formally the convention on theInternational Sale of Goods to bring an identical laws for transactions ofinternational commercial contracts. The main objective was to develop thecompetence of these transactions and encourage growth of international trade.Today, more than sixty countries supporting the convention which includesAustralia, China, France, Germany, Russia and the United States. Albeit theCISG has successfully proven at various extent. It has not been very successfulin the field which is very critical to disputing parties (damages for breach ofcontract). Undoubtedly of all the CISG articles, the articles related toeconomic remedies are the most written about and largely prosecuted. Because ofinadequacy in uniform guidelines, equivalently at times positioned parties arepresented with enormous decisions; such inequality sabotage the scope of theCISG and may compel parties to embrace and implement a sales law rather thanthe CISG.
Primary reasons for such situation is that these CISG means does notensure any precise economic remedies. Rather it only explains basic regulatoryprovisions for recovery of damages. This is so indisputable. As John Honnold,who played vital role in the CISG drafting stated, “a breach of contract canoccur in an almost infinite variety of circumstances and thus no statute canspecify detailed rules for measuring damages in all possible cases.” Whereasthe provisions of the CISG only describes basic guidelines to regulatecompensation in the event of breach of contract. These guideline allows courtof justice to resolve afflicted party’s deprivation depending upon particularcase circumstances.Unfortunately,such inadequate precision resulted in great dispute and apparently increasingconsequences.
Therehave been many debates that intermissions in the provisions of CISG damagesshould be covered by UNIDROIT Principles of International Commercial Contracts.In my view, principles of the UNIDROIT should not be used as a gap-fillermeasure for the CISG. Yet, the UNIDROIT principles may still play importantrole in the CISG. These provisions helps to understand basic CISG principlesthat provides guidelines to tribunals and court of justice to settle issueswhich are not clearly dealt with in the convention. Furthermore, they provide assistancefor solution to widely open matters held out of analysis of the conventionitself.Inmy view, the UNIDROIT principles should not be used as formal scope ofregulatory to form principles that cannot be acquired from the CISG.
They mayplay vital role in decoding the convention.Ø USING THE UNIDROIT PRINCIPLES TOFILL THE GAPS IN THE CISGTheprinciples of UNIDROIT encourages basic guidelines for international commercialtransactions. Their aim “is to establish a balanced set of rules designed foruse throughout the world irrespective of the legal traditions and the economicand political conditions of the countries in which they are to be applied.”Thefounders of the UNIDROIT principles expected them to implement in a widevariety of circumstances. The preamble explains that:Theyshall be applied when the parties have agreed that their contract be governed bythem.Theymay be applied when the parties have agreed that their contract be governed bygeneral principles of law, the lex mercatoria or the like.Theymay be applied when the parties have not chosen any law to govern theircontract.Theymay be used to interpret or supplement domestic law.
Theymay be used as a model for national and international legislators.Althoughthe principles of UNIDROIT follow perceptions found in various regulatorysystems, as well as they “embody what are perceived to be the best solutioneven if still not generally adopted.” Thus, clearly they do not summarizealready existing guidelines found in most regulatory system.Innumerous circumstances, the guidelines in the UNIDROIT principles are basedupon or similar to articles found in the CISG. Such as, the principles ofUNIDROIT Article 1.9(1), which states “the parties are bound by any usage towhich they have agreed and by any practices which they have established betweenthemselves,” is almost similar to Article 9(1) of the CISG. Furthermore,Article 5.1.
7(1) of the UNIDROIT principles, which deals with the generalguidelines for deciding the contract price when the agreement does not makearrangement for deciding the contract price is identical to Article 55 of theCISG. At some instances, the UNIDROIT principles follows basic means which are generallyfound in the CISG, but adopt the guideline “to reflect the particular natureand scope of the principles.” For instance, Article 7.2.2 of the UNIDROITprinciples which deals with the right to require accomplishment of non-monetaryresponsibilities follows the basic guidelines of Article 46 of the CISG butinvolves “certain qualifications.”Thedamages provisions of the UNIDROIT principles are comparable to the provisionsof the CISG in numerous ways.Article74 of the CISG states general provisions for recovery of damages.
It grants:Damagesfor breach of contract by one party consist of a sum equal to the loss, including loss of profit, suffered by theother party as consequence of the breach. Such damages may not exceed which theparty in breach foresaw or ought to have foreseen at the time of the conclusionof the contract, in the light of the facts and the matters of which he thenknew or ought to have known as a possible consequence of the breach ofcontract.ThusArticle 74 of the CISG not only provides recovery for actual suffered loss butalso for net profit forbidden. Yet it does not provide certain rules forcalculations of damages.
Rather Article 74 of the CISG allows court of justiceto resolve the afflicted party’s loss depending upon the circumstances incertain cases. The objective of the Article 74 of the CISG is to provide”benefit of bargain” to the afflicted party. Thus, Article 74 of the CISG isadequately interpreted to compensate an afflicted party all damages suffered asan outcome of the breach of contract. Though all damages claims comprised inArticle 74 of the CISG are liable to conventional restrictions enforced on thedamages recovery for breach of contract, such as, the principle of foreseeabilityand mitigation.
Articles75 and 76 of the CISG provides very narrow substitutes to Article 74 of theCISG. Article 75 of the CISG states procedure for calculating damages when theafflicted party has refrained the contract and tried to get into alternativetransactions. The afflicted party here “may recover the difference between thecontract price and the price in the substitute transaction as well as anyfurther damages recoverable under Article 74.
” On the contrary Article 76 ofthe CISG sets forth that when an afflicted party has refrained the contract buthas not made an alternative transaction under Article 75 of the CISG. It isonly available to damages measured by “the difference between the prices fixedby the contract and the current price at the time of avoidance as well as anyfurther damages recoverable under Article 74.”Invarious ways, provisions for the damages in the UNIDROIT principles are verymuch similar to the principles of the CISG. Alike Article 74 of the CISG, theUNIDROIT principles states general proposition that the party breachingcontract is liable to compensate the afflicted party for all damages sufferedby the afflicted party. The UNIDROIT principles moderate damages to those whichwere foreseeable, similar to the CISG. However, UNIDROIT principles comprisesmore precise guidelines and in the case of nature and extent of compensation,the principles of UNIDROIT are wider than the CISG.Theprinciples of UNIDROIT comprises provisions similar to Articles 75 and 76 ofthe CISG.
Similar to CISG Article 75, Article 7.4.5 of the UNIDROIT principlessets forth: “where the aggrieved party has terminated the contract and has madea replacement transaction within a reasonable time and in a reasonable mannerit may recover the difference between the contract price and the price of thereplacement transaction as well as damages for any further harm.” Furthermorelike Article 76 of the CISG, UNIDROIT principles Article 7.4.6 sets forth: “wherethe aggrieved party has terminated the contract and has not made a replacementtransaction but there is a current price for the performance contracted for, itmay recover the difference between the contract price and the price current atthe time the contract is terminated as well as damages for any further harm.”Theprecise difference which should be noted is that Article 5 of the CISGparticularly sets out claims for damages arising from personal injury or death,whereas the principles of UNIDROIT cover them.
Thereare some issues which damages provisions in the CISG does not specificallystate but are covered by the principles of UNIDROIT. First is that the CISGprovisions do not specifically mandate that damages consist of any compensationreceived by the afflicted party arising from the breach of contract. Whereas,the principles of UNIDROIT precisely comprises these compensations. Second isthat Article 74 of the CISG does not state the scope and extent to which theafflicted party must determine in order to recover damages that it sufferedloss. On the contrary, the UNIDROIT principles Article 7.4.
3 address that”compensation is due only for harm, including future harm that is establishedwith a reasonable degree of certainty.” The CISG has no provision for thecurrency to be used in loss calculation as well. Whereas, the UNIDROITprinciples expressly address that damages must be determined either in thecurrency in which contract was expressed or in the currency in which loss wassuffered, whichever is more convenient.
PerhapsArticle 78 is the most prosecuted guideline of the CISG, which addresses issuesrelating to payment of interest. Despite article 78 needs paying interestwhenever payment is in debts, but it does not determine how to calculate owedinterest.Whereas,the principles of UNIDROIT consist of precise guidelines on interest.
Article7.4.9 of the UNIDROIT principles addresses that interest is payable from thetime when payment is due. The UNIDROIT principles with respect to theapplicable rate of interest encourages hierarchy to determine the appropriateinterest rate, coming out with “the average short-term lending rate to primeborrowers prevailing for the currency of payment at the place of payment.
” Ifsuch rate does not exist, the UNIDROIT principles stipulates that interest growsat nominal prime rate in the State of currency of payment. Whereas in theabsence of such rate of interest, the interest rate is to be decided by theregulatory in the State of currency of payment.Ø APPLYING THE UNIDROIT PRINCIPLES INTHE INTERPRETATION OF THE CISGTillthe date, regulatory and tribunals have adopted the principles of UNIDROITregarding interpretation of the CISG in various ways. Firstly, when the partieshave particularly described the application of the UNIDROIT principles tosupport the CISG, parties’ contracts typically respected by the regulatory andtribunals.
Secondly, the principles of UNIDROIT have been used as supplementfor resolutions which are outcome of other sources of authority by itsapplication. Thirdly, using these UNIDROIT principles as a gap-filler in theCISG. For example, some courts have applied Article 7.4.
9 of the UNIDROITprinciples to determine the issues which are not covered in the Article 78 ofthe CISG, specifically to settle the rate at which interest increases. Thisapplication has been matter of dispute which is apparently inappropriate.Ø ACCURATELY DECODING THE CISGTheCISG Article 7 addresses interpretation of the convention which states:1) Inthe interpretation of this convention, regard is to be had to its internationalcharacter and to the need to promote uniformity in its application and theobservance of good faith in international trade. 2) Questionsconcerning matters governed by this convention which are not expressly settledin it are to be settled in conformity with the general principles on which itis based or, in the absence of such principles, in conformity with the lawapplicable by virtue of the rules of private international law.Tofill gaps in the CISG by using the UNIDROIT principles, exponents have setsforth three interpretation of this Article. Amidst which first is theprinciples of UNIDROIT are used as gap filler in the CISG as the UNIDROITprinciples are considered as addressing general principles of internationalcontract law upon which the convention is established. Secondly, the principlesof UNIDROIT are used as gap filler in the CISG only when the significant UNIDROITprinciple article and the significant CISG provision are identical in thecontext and framework so that the principles of UNIDROIT are substantiallyproviding “meat on the bare bones” of the CISG provisions. Thirdly, the principlesof UNIDROIT are used as gap filler in the CISG even though the generalprinciples upon which they are established cannot directly be determined fromthe convention.
Inmy view, it is overemphasizing to apply the principles of UNIDROIT as theprimary source of power to fill a gap in the CISG. Although articles in theprinciples of UNIDROIT generally correlate to the CISG provisions, and theseprinciples are not solely an abstract of general principles of internationalcontract law. As the administrative authority of UNIDROIT elucidated in theintroduction that these principles not only express ideas found in numerouslegal system but also represents what are considered to be best resolutions,even though it is not widely adopted.
Thus, these principles altogether doesnot express general principles on which the convention is established.Often,the principles of UNIDROIT supports the understanding of CISG provisions andthe conclusion obtained from them. Article 7.4.3 of the UNIDROIT principlestates “Compensation is due only for harm, including future harm that isestablished with reasonable degree of certainty.” Hence, this article “reaffirmsthe well-known requirement of certainty of harm, since it is not possible torequire the non-performing party to compensate harm which may not have occurredor which may never occur.” Thus, Article 7.4.
3 of the UNIDROIT principlesimilar to provision of the CISG underlying that full compensation isconditional to restraint, comprising the restraint that person can recover lossonly when it is occurred indeed or there are possibility to occur. In suchsituation, the principle of UNIDROIT supports the principle of certainty ofharm and aids in understanding of “reasonable certainty” as well which isexpressed through the convention solely. The principles of UNIDROIT also setsforth that a reasonable certainty requirement is in favor with universallyknown principle.
Hence, these principles emphasize ideals of protecting aspectsof the CISG internationally and encouraging uniformity in the interpretation ofCISG.Ø CONCLUSIONConclusively,although the principles of UNIDROIT should not be used as gap filler in theCISG as a primary source of power, they play very important role in findingresolutions for the issues which are not covered in the provisions of theconvention. Accordingly it can be anticipated that an appropriate communicationbetween both eventually promotes more equitable and uniform out comes under theconvention.