Contracts for International Sale of Goods

In this paper, I will undertake a comparative critical analysis of the rules adopted by the United Nations Convention on Contracts for the International Sale of Goods [hereinafter referred to as ‘the CISG’] concerning the obligations of a seller and the remedies of the buyer, in relation to the delivery of conforming goods on time and the position under English law under the Sale of Goods Act 1979 (as amended) (hereinafter ‘the 1979 Act’) in these respects. This will be followed by identifying which system of law contains the more appropriate rules to be applied to international sales of commodities and international sales of manufactured goods. The CISG rules which pertain to the obligations of the seller are Article 31 to Article 52, which altogether comprise Chapter II of the CISG. The provisions of that Chapter which pertain to the remedies of the buyer in relation to the delivery of conforming goods on time are Article 45 to Article 52 of the CISG, which together comprise Section III of Chapter II of the CISG. On the other hand, the relevant provisions under the 1979 Act for the purpose of discussion will be, inter alia, section 15(A), section 29, section 30, section 31, section 32 and section 51. Throughout the discussion, we will be witnessing the similarities, differences and absence of rules when comparing both regimes together. It will be apparent that the CISG provisions are more appropriate for manufactured goods in theory and practice. Lastly, the discussion will evolve towards the harmonisation of both regimes, where I will be proposing that the CISG should be embedded in the English sales law through compulsory measures at the European Union level.

Firstly, the similarities between both regimes are transpired under Article 32 of the CISG which sets out the seller’s obligations to deliver goods using suitable carriage and logistic. Article 32(1) binds the seller to ensure that the goods are properly identified (by documents, markings or otherwise) or to ensure that the seller notifies the buyer as to the specific consignment pertaining to the contract in question. In this context, Schlechtriem and Butler observe that sale of goods contracts usually contain more stringent notice requirements than this provision confers. This is followed by Article 32(2) of the CISG which confers on the seller a legal duty to arrange for the carriage of goods and to enter into the necessary contracts with carriers to ensure that the goods are delivered to the buyer. Finally, Article 32(3) provides that the seller must give the buyer all of the information required to secure insurance over the goods, unless it is the duty of the seller to arrange such insurance.

These provisions indeed intersect with section 32(1) of the 1979 Act, which is identical to Article 31(a) of the CISG, assumes that delivery has been made once the seller has handed the goods over to the carrier (where a carrier needs to be used to effect delivery), except in so far as it does not apply if the buyer is a consumer. Similarly, Section 32(3) of the Act is identical in provision to Article 32(3) of the CISG, in stipulating that the seller must give the buyer all information necessary for him to arrange insurance, if necessary. In addition, section 29(6) of the 1979 Act provides that it is the seller’s responsibility to arrange and pay for the goods to be carried if delivery is part of the contract, which is in line with Article 32(2) of the CISG, although Article 32(2) goes further in providing that the seller must also enter into the necessary contracts with the carrier. In practice, this distinction is likely to be negligible and does not prevent the possibility of legal transplant of the CISG into the English sales law.

Secondly, it has been aptly argued by Bridge that the essential differences between the CISG and the 1979 Act are either the earlier provisions do not have counterpart in English sales law, or different from their English equivalents, or even though they look the same on the surface, upon closer examination their disparities will be revealed. From the outset, the differences of the CISG and English law can be seen under Article 31 of the CISG which purports to provide a default framework where the relevant contract of sale remains silent on the place of delivery or where usages do not fix the place of delivery. Where the contract in question requires carriage of the goods, Article 31 stipulates that delivery will be deemed to have been made when the seller hands the goods over to the carrier. Where the contract pertains to goods which are to be drawn from stock, produced or manufactured at a certain place, and both parties knew of that fact, and the goods do not require carriage, then the goods will be deemed delivered the moment that the seller has made the goods available for the buyer to collect them. Finally, where neither of the above rules applies, Article 31 provides that the goods will be deemed delivered the moment that the seller has placed the goods at the buyer’s disposal at the sellers regular place of business.

On the other hand, section 29 of the 1979 considers the place of delivery to be the seller’s place of business if the contract remains silent on the issue. Furthermore, the 1979 Act provides that delivery must be made at a reasonable hour; the CISG has no equivalent provision. By comparing these two regimes, I can contend that the CISG regime has less interference into the freedom of contract of the parties, whilst the regime under 1979 Act resembles more paternalistic nature in searching for commercial equilibrium. It is therefore submitted that the CISG has provisions pertain specifically to goods which are to be manufactured, for example Article 31(b) of the CISG, whereas the Sale of Goods Act 1979 does not; therefore, in the interests of legal certainty, I conclude that the CISG would be more appropriate in this context. Furthermore, the CISG and the determination procedures provided under Article 7 has been designed to take into account the international character of disputes as well as the need to resolve such disputes very quickly; this is another reason why the CISG would be more appropriate in this international context and perhaps, strengthening the case for converging both regimes.

Next, the CISG rules and the 1979 Act provisions are seemed to be demarcated into ‘proactive’ and ‘reactive’ groups. For instance, Article 33 of the CISG concerns about delivery times and stipulates that the seller must deliver the goods on the date stipulated in (or determinable from) the contract of sale, if any, or within the period of time stipulated in (or determinable from) the contract of sale, if any, or, in all other cases, within a reasonable period of time. In this context, the 1979 Act is much less detailed that Article 33 of the CISG, merely providing that whether or not the seller is under a contractual duty to deliver on time depends upon the nature and provisions of the applicable contract of sale: “whether any other stipulation as to time is or is not of the essence of the contract depends on the terms of the contract.” The reactive nature of the 1979 Act regime permits the buyer to claim damages for non-delivery to be calculated as “the difference between the contract price and the market or current price of the goods at the time or times when they ought to have been delivered.” As to whether the buyer is entitled to treat the contract as avoided and to refuse to accept delivery of the goods; this will depend upon whether or not the seller’s infringement is classed as a condition or a warranty. In turn, this depends upon a variety of factors, including whether or not the buyer was dealing as consumer for the purposes of the contract. In my opinion, the CISG rules are more proactive in such a way that they facilitate the market to perform by providing basic guidance in a commercial framework, whilst the 1979 Act is more reactive towards the failure of the party to perform its contractual obligations.

It is also noted that the CISG consists a plethora of extra judicial measures which permit the parties to put the matters right, quickly without hassle. This is resembled towards the rights available to the buyer in accordance with Article 45(1)(a) of the CISG. First, they buyer may compel performance of the contract, if appropriate; second, he may demand delivery of conforming goods; third, he may demand that the non-conforming goods are repaired. While the seller is under a duty to conform with these demands within a reasonable period of time, the buyer may decide to give the seller an extension to that time, in which case the buyer must refrain from taking any further action until that time period has expired. Unlike the CISG which gives buyers the right to compel performance of the contract, English sales law retains discretion to decide whether or not to allow the buyer to enjoy specific performance; this discretion is a remnant of the days when the law Courts were separate from the Courts of Equity, specific performance being a discretional equitable remedy. The English law, in my opinion, trumps the trust and mutual relationship between the seller and the buyer, which is of an essence in commercial transactions.

Next, the CISG advances the need of the international sales to be working in accordance with commercial ethics and goods customer service, unlike the 1979 Act which is more technical and legal. For example, Article 50 of the CISG provides that the buyer may reduce the price to be paid to the seller in proportion to the reduction on value caused by the lack of conformity. However, the buyer cannot rely upon this provision if the seller has agreed to rectify the breach in accordance with Article 37 or Article 38. If the breach is considered to be a breach of warranty, then the buyer may not avoid the contract but rather may claim damages from the seller to be calculated as “the estimated loss directly and naturally resulting, in the ordinary course of events, from the breach of warranty.” This is not dissimilar to the remedy provided by Article 50 of the CISG, which states that the buyer may choose to recover from the seller the difference in value of the goods received and the goods expected. However, a fundamental difference is that under English law the buyer cannot decide whether or not the breach amounts to a breach of warranty or a breach of condition. If the breach is considered to be a breach of condition, then the buyer may treat the contract as avoided and demand a refund of the full purchase price of the order, if payment has already been made, and reject delivery of the goods, if delivery has not already been made. In this context, Bridge has commented that the English law is more complicated and technical, through the application of caveat emptor, where the buyer can only terminate the contract if he is substantially deprived from imbibing the benefit of the contract. This is resembled in the case of Harlingdon and Leinster Enterprise v Hull (Christopher) Fine Art where it purports transaction ethic.

The divergence is further seen under Article 51 of the CISG: if the seller delivers only a part of the goods or if only a part of the goods delivered is in conformity with the contract, Articles 46 to 50 apply in respect of the part which is missing or which does not conform. It also prevents the buyer from treating the contract as avoided, except in the case where he can show that failure to deliver conforming goods amounted to a fundamental breach; for example, where the reduced quantity means that he cannot sell any of the conforming goods. The rule provided by Article 51 of the CISG is highly restrictive on buyers; however, the rule provided by section 31(1) of the 1979 Act, provides that, “Unless otherwise agreed, the buyer of goods is not bound to accept delivery of them by instalments.” This latter rule effectively allows a buyer to reject goods, if not all of the goods have been delivered (and the contract does not provide for delivery by instalments).

There have been situations where the CISG provisions have no counterpart in English sales law. For instance, Article 34 of the CISG provides that the seller must, if contractually bound to do so, hand over documents relating to the goods in the way and at the time stipulated for in the contract. If the seller provides the documents before the due date, then if there are any errors he may rectify them, at his own expense, before the due date, so long as this does not cause the buyer any inconvenience or expense. The 1979 Act has no provision equivalent to Article 34 of the CISG, which concerns the seller’s duty to transfer documents to the buyer. Finally, Article 52 of the CISG provides that the buyer can choose whether or not to take delivery of goods delivered before the scheduled delivery date and also that, where the seller has delivered a quantity of goods greater than that provided for in the contract, the buyer may choose whether to refuse delivery of the excess goods or take delivery of them, in which case he must pay the seller for the excess goods at the contract rate, pro rata. It should be noted that the 1979 has no rule equivalent to that provided by Article 52 of the CISG; the 1979 Act remains silent of the seller’s right to cure if the goods have been delivered early and transpire to be non-conforming.

In a similar vein, Article 37 of the CISG employs a mechanism similar to that utilised in Article 34 of the CISG, providing that if the seller has delivered the goods early, that he may fix any deficiency in the goods (e.g. a missing or broken part), at his own expense, before the due date, so long as this does not cause the buyer any inconvenience or expense. This is known as the seller’s right to cure lack of conformity. This provision has no company in English and once, the Law Commission opined that such right would only introduce uncertainty in commercial contracts. Nevertheless, looking from an optimistic point of view, this measure will enable English law to strengthen the protection and facilitation of contractual regime in international sales law.

On a separate note, I observe that the CISG affords protection to the parties even after the delivery of goods has taken place. There is no equivalent to Article 47 of the CISG under the 1979 Act, although if a buyer promises to allow a seller some time to remedy a breach, it is likely that the common law of estoppel would prevent him from being able to take legal action during the period of time conferred. Article 35 of the CISG pertains to the seller’s duty to ensure that the goods conform to the quantity, quality and description provided under contract, and are packaged appropriately. This Article states that the goods will be deemed inadequate if they are not fit for the purpose for which goods of the kind in question are ordinarily used, if they are not fit for the buyer’s particular purpose(s), purpose(s) which were made known to the seller prior to the conclusion of the contract (either impliedly or expressly), if they do not have the same qualities as the samples or model used to induce the buyer into making the purchase or if they are packaged inappropriately. However, the seller will not be liable if the buyer knew or ought to have known that the goods did not conform to the contract.

Next, Article 36 of the CISG provides that the seller is liable for any lack of conformity, as defined by Article 35, at the time the risk passes to the buyer, even where the lack of conformity does not become apparent until after that time. Furthermore, Article 36(2) of the CISG provides that, “the seller is also liable for any lack of conformity which… is due to a breach of any of his obligations, including a breach of any guarantee that for a period of time the goods will remain fit for their ordinary purpose or for some particular purpose or will retain specified qualities or characteristics.” It should be noted that, in practice, this latter situation is quite rare. Article 38 of the CISG confers on the buyer a duty to examine the goods within a reasonable period of time (after they have arrived at their destination, in the case of goods under carriage). If the buyer fails to comply with this duty and later discovers that the goods lack conformity, then he will lose his right to take action against the seller; similarly, if two years has expired between discovery of the deficiency and the time that the buyer notifies the seller of the goods’ lack of conformity. However, it should be noted that these rules do not apply if the seller knew of the lack of conformity or ought to have known about it. In this context, the provision provides a windfall for the seller if the buyer seems ignorant

Then, Article 41 of the CISG provides that the goods must be free from encumbrance or claim by any third party, unless the buyer was aware that he was buying the goods subject to such. Article 45 of the CISG provides that if the seller fails to meet any of the aforementioned obligations the buyer may exercise the rights provided by Articles 46 to 52 and/or claim damages. Article 48 of the CISG gives the seller a right to try and remedy his breach as quickly as possible, even after the delivery date, if he can do so without causing the buyer unreasonable inconvenience or expense. However he must first notify the buyer and request permission from him. If the buyer does not respond to the seller’s request, then the seller can proceed and attempt to remedy his breach. Article 49 of the CISG gives the buyer the right to treat the contract as avoided and claim back his money from the seller, if the seller fails to conform to the contract within the additional period granted to him by the buyer pursuant to Article 47(1) of the CISG; this right can be invoked however trivial the initial breach was.

The differences and omissions in these two regimes of law have led to a disparity in treatment for international sales of manufactured goods and commodities. In order to ascertain which set of rules is the most appropriate for international sales of manufactured goods, the CISG seems to have provision which pertain specifically to goods which are to be manufactured, for example Article 31(b), whereas the 1979 Act does not; therefore, in the interests of legal certainty, one might conclude that the CISG would be more appropriate in this context. Furthermore, the CISG and the determination procedures provided under Article 7 (inter alia) has been designed to take into account the international character of disputes as well as the need to resolve such disputes very quickly; this is another reason why the CISG would be more appropriate in this international context. In practice, Hellner has also charitably commented that the CISG regime is more applicable towards the manufactured goods and the regime is working well in the North America.

One could also argue that the CISG would be the most appropriate set of rules to apply because of the international character of this type of transaction. However, it so happens that there is a very large body of settled case law under the 1979 Act on the way to approach the application of the law to sales of commodities and therefore, for legal certainty, one might find the rules provided under English law to be more appropriate. Takahashi has substantiated this point by mentioning that since international sales of commodities on C.I.F. or F.O.B. terms involve numerous obligations classified as conditions, they are vulnerable to unmeritorious termination which can be seen in the cases of Bowes v Shand and Arcos v Ronaasen, where the court allowed the buyer to terminate the contract, notwithstanding that there was probably no difference in quality. He also submitted that a better view is that sections 15A and 30(2A) apply to international sales of commodities save in respect of the breach of time clauses and of documentary obligations.

Lastly, the comparison exercise above has prompted the author to recommend both the CISG system and the 1979 to be harmonised. The benefits of harmonisation that have been identified are including but not limited to, universal and common denominator of commercial rules, reducing uncertainties and transactional costs, and improving the saleability of English Law in such a way that the commercial parties favour the English jurisdiction in settling disputes. This does not mean that the English sales law needs to be revolutionised – of the CISG is not settled under its own terms, then a court can resort to private international law and its national law. Various academics, notably Goode, have criticised the UK of being lack of commitment towards harmonisation, due to preservation and superiority of the 1979 Act. Goode further opined that the CISG has become a reference point for subsequent international commercial law instruments, including the UNIDROIT Principles of International Commercial Contracts and the Principles of European Contract Law. Therefore in this sense, the UK should be more committed towards realising a model of inclusiveness in the international sales of goods.

It is undeniable that various work needs to be completed to overcome the barrier in harmonising the two regimes. For example, legal and business communities have always remained sceptical of the application of the CISG. Furthermore, Lavers has also commented that there has been an apparent lack of understanding of the application of the CISG rules abroad which undermines the credibility of the regime to be applied universally. In this sense, I would propose that the European Union intervention is necessary to entrenched the CISG into the members’ legal system.

In conclusion, we have seen the comparison of the framework provided by the CISG and the 1979 Act, in terms of their similarities, differences and provisions which are missing from either of the regime. It has also been discussed that the disputes concerning the international sale of manufactured goods, the CISG is likely to prove more appropriate in light of the international character of the rules and the specific provisions pertaining to manufactured goods. On the other hand, the disputes concerning the international sale of commodities, the Sale of Goods Act 1979 is likely to prove more appropriate for, while this Act has not been designed to operate primarily in an international context, there is a vast body of settled case law on the sale of commodities and this means that the law here is relatively certain in its nature and scope. I have also argued for the case of convergence of the two legal regimes, which requires full and real commitment from the UK as a whole in accepting and entrenching the CISG into our legal system. In this context, it is important for the UK to be more receptive to the CISG so that we maintain our credibility and edge in the international sales framework and end the acrimonious resistance towards the regime to prevent status quo.

References/ Bibliography:

1. A Azzouni, ‘The Adoption of the 1980 Convention on the International Sale of Goods by the United Kingdom’, Pace International Law Review, (Summer 2003) [Online] < http://www.cisg.law.pace.edu/cisg/biblio/azzouni.html> Accessed 17 January 2010.

2. Atiyah, Adams & MacQueen, Sale of Goods, 11th ed 2005

3. Benjamin’s Sale of Goods, 7th ed., 2006

4. B Nicholas, ‘The Vienna CISG on International Sales Law’, The Law Quarterly Review, Vol. 105, 1989.

5. B Zeller, ‘CISG and the Unification of International Trade Law’ (Routledge Publishing: London, 2007).

6. C Brunner, ‘Force Majeure and Hardship under General Contract Principles: Exemption for Non-performance in International Arbitration’, (Kluwer Law International: Germany, 2009).
7. G Moens, ‘International Trade & Business Law Annual’ (Routledge Cavendish Publishing: London, 2003).
8. J Bielecki and MG Desta, ‘Electricity Trade in Europe: Review of Economic and Regulatory Challenges’ (Kluwer Law International: Germany, 2004).
9. J Felemegas, ‘An International Approach to the Interpretation of the United Nations Convention on Contracts for the International Sale of Goods (1980) as Uniform Sales Law’ (Cambridge University Press: Cambridge, 2007).
10. JM Klotz and JA Barrett, ‘International Sales Agreements: An Annotated Drafting and Negotiating Guide’ (Kluwer Law international: Germany, 1998).
11. JM Lookofsky, ‘Understanding the CISG in the USA: a compact guide to the 1980 United Nations CISG on Contracts for the International Sale of Goods’ (2nd ed., Kluwer Law Publishing: USA).
12. JM Lookofsky, ‘Understanding the CISG in the USA: a compact guide to the 1980 United Nations CISG on Contracts for the International Sale of Goods’ (3rd ed., Kluwer Law Publishing: USA, 2008).
13. K. Takahashi, ‘Right to Terminate (Avoid) International Sales of Commodities’, [2003] JBL 103
14. Letter from British Telecom to the Department of Trade, 25 November 1997
15. M Ramjohn, ‘Text, Cases and Materials on Equity and Trusts’ (4th ed. Taylor and Francis Publishing: London, 2008).
16. MG Bridge, ‘The International Sale of Goods, Law and Practice’, (2nd ed., Oxford University Press 2007).
17. MG Bridge, ‘A Law for International Sale of Goods’, Hong Kong Law Journal, Vol. 37, No. 1 (2007) 17.
18. P Huber and A Mullis, ‘The CISG: A New Textbook for Students and Practitioners’, (Sellier European Law Publishing: Germany, 2007).
19. P Schlechtriem and P Butler, ‘UN Law on International Sales: the UN Convention on the International Sale of Goods’ (Springer Publishing: USA, 2008).
20. PA Piliounis, ‘The Remedies of Specific Performance, Price Reduction and Additional Time (Nachfrist) under the CISG: Are These Worthwhile Changes or Additions to English Sales Law?’, Pace International Law Review, Vol. 12, (Spring 2000) 1
21. PJ Mazzacano, ‘Canadian Jurisprudence and the Uniform Application of the CISG’, in Pace International Law Review (ed.), Review of the CISG on Contracts for the International Sale of Goods (CISG): 2005-2006 (Sellier European Law Publishing: Germany, 2007).

22. RM Lavers, ‘CISG: To Use or Not to Use’ [1992] 4 International Q 31
23. Sale and Supply of Goods (1983) Consultation Document No.58, para.2.38.

24. The Sale of Goods Act 1979 (as amended).
25. The United Nations CISG on Contracts for the International Sale of Goods.