Contracts for International Sale of Goods

Heena Joshi

04 Nov, 2022

A comparative review of legal instruments governing contracts on the international sale of goods

INTRODUCTION

When a contract is entered into by parties there is a natural element of performance on both sides, the parties are bound by the terms and have promised to fulfil their obligations as per the contract which have consequences of breach in the event of failure to perform. 

 

There are two notable acts of law that have remained the benchmark of legal instruments available in the international sale of goods and trade. These are the contracts for sale of goods in English law, governed by the UK Sale of Goods Act 1979 (SGA) which form part of common law and the international contracts under the United Nations Convention on Contracts for the International Sale of Goods (CISG) 1980.  There has been much legal deliberations on which one is more applicable depending on the jurisdiction of trade. It is noted that both Rules focus on the buyers’ demand for performance on the contract and yet they differ distinctly, such so that academics and legal counsels have frequently constructively reviewed them for the purpose of assessing where their individual pertinency remains in international trade.  

 

This article seeks to provide the reader with a synopsis of this much researched subject. 

 

HISTORICAL BRIEF

Expansion of international trade in the late 19th Century and trade relations created an exigency for a fit for legal instruments to define the terms of that trade. The word ‘harmonizing’ is often used to describe the UN Convention on Contracts for the International Sale of Goods mechanisms which were sought to provide trans-national trade with credibility and recourse.  The Contracts for the International Sale of Goods was originated to establish congruence among a different system of laws; it was subscribed by a significant number of nations and became a substantially regarded development in the historical path of international trade of goods. 

 

On the other side, is the UK or English Legal system, a highly reputable and established common law system.  The most notable aspect of the system is that it is a blend of codified statutory legislation and extensive case law.  It is this distinction, plus the fact that it prominently and historically presided over contract law that has given the English Legal System its international recognition and led to the much-regarded Sale of Goods Act 1979.

 

Both instruments provide for obligations of the seller and remedies for the buyer in the international sale of goods as they relate to delivery, performance and conforming to performance on time, as time is the relevant factor in trade. 

 

It is important to mention at this juncture, that historical pathways to trade were once governed by other laws which were elicited from Roman Law. These provided remedies in the form of damages as a general rule, and yet did not specifically enforce that right. This was later revisited in the Mercantile Law Amendment Act 1866, particularly concerning breach of delivery, therefore giving the courts power over specific performance of specific goods.  This intricate web of laws and rules is highly simplified here to arrive at the main differences and accomplishments of the discussion relating to UN Convention on Contracts for the International Sale of Goods and UK Sale of Goods Act.

 

THE UN CONVENTION ON CONTRACTS FOR THE INTERNATIONAL SALE OF GOODS

The dominant headlines of the UN Convention on Contracts for the International Sale of Goods are that it is well known for its specificity on performance, and on a broader scope, it offers remedies as an established right for the injured buyer of goods.  Thus, the focus of the UN Convention is the promotion of performance of the contract by buyer and the seller; Article 62 provides a right in favour of the seller, even if it is exercisable under exceptional circumstances.  The UN Convention emphasizes on specific performance under Article 46 and not damages, as a remedy to non-performance or non-delivery. Further, under UN Convention, the buyer is allowed to invoke the remedy, and does not need to revert to the courts for performance, which is effectively an enabling mechanism in the contract between both parties.

 

THE UK SALE OF GOODS ACT 1979

Section 52(1) of the UK Sale of Goods Act orders the promisor in the event of breach of contract of sale to do what he had promised to do. The relief is therefore limited to the specific performance of the action brought with respect to the delivery of specific goods.  English courts however, are empowered to provide relief at their discretion, in other words courts are not bound to enforce only performance, but rather to determine the nature of the breach. Essentially, the Sale of Goods Act establishes that damages are the most adequate remedy available to the market. The Act follows the common law rules, and within those rules, performance clauses are more restrictive, or rather linked to specific circumstances. 

 

It is often said in law that ‘there is no one size that fits all’.  The differing rules of engagement and contracts under the two most authoritative laws and conventions are likely to remain under debate for the foreseeable future. They inspect the buyer and seller of goods under distinctive lens, and the apparatus that convenes to empower, support and facilitate between the parties is discretionary in its approach to enforce.

 

CHOICE OF LAW

Having researched both substantive acts and rules, it is submitted that on the surface it  appears that the UN Convention on Contracts for the International Sale of Goods is most suited to enable the buyer to perform, as it seeks to compel the seller to perform his obligations under the contractual period. Article 47 of the UN Convention supports this position, in that the buyer can claim damages in addition to requiring specific performance, in spite of the circumstances that the breaching seller has been faced under.

 

Whereas the Sale of Goods Act imposes implied terms such as the ‘satisfactory quality’ and ‘fitness of purpose’, and the failure by the seller of the product to meet these terms may be a breach of the agreement.  The Act provides many rights and remedies. Firstly, it deems that many rights are part of a sale of goods contract, regardless of what the parties have (or have not) agreed on. The Act lays down certain provisions of specific performance by the parties and these rules are established as a primary remedy to the injured party.  The remedies are limited in scope and attached to certain conditions, and the claimant can be either of the parties such that the courts will consider a wide range of factors in determination.  The English courts have exclusively proven the test for uniqueness of goods in assessing the adequacy of damages in their case laws. Effectively, the circumstances prevail in each claim and each case has its own merits.

 

Whereas the UN Convention on Contracts for the International Sale of Goods offers remedial provisions to the buyer and enforces the sellers’ obligations, there are insufficient restrictions imposed on the application of the remedy, therefore placing the seller in an unfair environment, not afforded the opportunity to explain his circumstances of default.  The Sale of Goods Act allows the seller the prospect of justifying his breach and presenting those arguments, and yet must demonstrate that the promise to perform was the virtue behind the contract in the first instance. 

 

Fundamentally, the Right to Cure is available under both legal systems. This means that the law provides the steps and timetables to be followed in resolving any claims, and claims must be pursued through the courts. Article 48 of the UN Convention is one of its most contentious provisions; it allows the buyer from avoiding the contract if breach can be cured. The Article also provides for the seller’s rights under Articles 37 & 38; it establishes the sellers right to defective performance, which is a suitable remedy for international sale of goods and manages the buyers right to avoid the contract. 

 

CONCLUSION

As has been explained above, theUN Convention on Contracts for the International Sale of Goodsprovisions overemphasize an approach towards compelling the seller to perform his contractual duties. On the other hand, theSale of Goods Actprefers to imply obligations and creates distinctions and repudiations. The main issue with respect to theUN Conventionis that does not have a hierarchical authority unlike the English system, which operates on precedent and order of the courts. However, there are important concepts in both for international contracts of sale of goods and if it is harmony of the laws that international trade calls for, then they should seek to harmonize their formulas for achieving it.