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Scope and Limits of “Performance-Oriented Remedies” under the CISG1

Felisa Baena Aramburo Much has been said about the classic rivalry between the remedies of specific performance and damages in contract law and about the theoretical prevalence of specific performance over damages in Civil Law jurisdictions. While it appears to be a settled matter2 that in Common Law jurisdictions the default legal remedy is the award of damages3 and that in Civil Law jurisdictions the remedy of specific performance is given much more weight and protection, specific performance has still attracted wide attention from the contract law academia, both from Civil and Common Law backgrounds, and has gained supporters and detractors. Its advocates have defended the availability of specific performance from theoretical, economical4 and moral5 perspectives, and have also analysed the justifications of its existence in the civilian legal traditions6; its critics have questioned its significance and have denounced it from a practical perspective, highlighting the reduced scope of action that specific performance has had in practice in Civil Law systems 7 and in international sales. These discussions have pervaded abstract and practical spheres: they have been debated from the perspective of contract theory8, of comparative contract law9, of economic analysis of law10 and, more recently, from the perspective

1 United Nations Convention on Contracts for the International Sale of Goods (adopted 11 April 1980, 2 Avery W. Katz, ‘Remedies for Breach of Contract Under CISG’ (2005) 25 International Review of Law and Economics 378, 384, ‘It is a truism of comparative law scholarship that civil law systems tend to favour specific relief as a remedy for breach of contract, while common law systems tend to favour monetary damages. In practice, however, this dichotomy is probably overstated’. 3 Oliver Wendell Holmes, ‘The Path of the Law’ (1897)10 Harvard Law Review 457, reprinted in 110 Harv. L. Rev (1997) 991, 995, ‘[t]he duty to keep a contract at common law means a prediction that you must pay damages if you do not keep it,—and nothing else.’ 4 Alan Schwartz, ‘The Case for Specific Performance’ (1979) 89 Faculty Scholarship Series. Paper 1118, 271. 5 Seana Valentine Shiffrin, ‘The divergence of contract and promise’ (2007) 120 Harvard Law Review 708. 6 Solène Rowan, Remedies for Breach of Contract: A Comparative Analysis of The Protection of Performance (OUP 2012). 7 Henrik Lando and Caspar Rose, ‘The Myth of Specific Performance in Civil Law Countries’ (2003) 14 Lefic Working Paper <http://ssrn.com/abstract=462700 or http://dx.doi.org/10.2139/ssrn.462700 > accessed 15 August 2013. 8 See Schwartz (n 4). 9 See Lando and Rose (n 7).

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of Sales Law; specifically in the context of international trade, a field in which the remedies available to the aggrieved buyer have significant importance in every day transactions. Practitioners and scholars in this field have become involved in the discussions related to the remedies available to buyers in international sale instruments and have argued for and against the availability of different remedies. More recently, the discussion regarding the remedies available to aggrieved buyers has centred on the United Nations Convention of International Sale of Goods (CISG), an international sales instrument that celebrates in 2013, 25 years since coming into force. This convention has been ratified by 79 states and governs an important proportion of the international sales that are concluded everyday around the globe. The discussion surrounding remedies under the CISG is often related to the fact that the CISG adopted a system of remedies that has a clear tendency towards encouraging the literal performance by the seller of his contractual obligations (particularly the obligation to deliver the goods), as opposed to promoting the compensation to the buyer by way of damages. Indeed, on the one hand, the Convention includes various remedies that clearly seek to encourage contractual performance, such as specific performance11, the delivery of substitute goods12, repair13, and reduction of price14. On the other hand, the option of avoidance of the contract under the CISG is only available for cases where a fundamental breach has occurred15. This remedial scheme shows that the purpose of the CISG is to keep the contractual bond alive insofar as possible, to reserve avoidance as a remedy of last resort and to encourage the parties to insist on literal contractual performance rather than resorting to a claim for damages.16 The protection of contractual performance in Sales Law is not only present today in several international instruments such as the CISG, the PECL17 and the UNIDROIT Principles,18 but has also been the object of extensive analysis and discussion by the academia. Supporters of the protection of performance not only defend specific

10 Ronald J. Scalise Jr., ‘Why no ‘Efficient Breach’ in the Civil Law?: A comparative Assessment of the Doctrine of Efficient Breach of Contract’ (2007) 55 American Journal of Comparative Law 721. 11 Art. 46 (1) CISG. 12 Art. 46 (2) CISG. 13 Art. 46 (3) CISG. 14 Art. 50 CISG. 15 Art. 64 CISG. 16 Peter Huber, ‘CISG - The Structure of Remedies’ (2007) 71 The Rabel Journal of Comparative and International Private Law. See also Oberster Gerichtshof, 7 September 2000 (Austria) translated at <http://cisgw3.law.pace.edu/cases/000907a3.html > 17 Principles of European Contract Law 18 UNIDROIT Principles of International Commercial Contracts

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performance itself (such as A. Schwartz19 and S. V. Shiffrin20), but also have recently emerged to promote defend the performance interest in general, along with the full range of remedies that aim at its protection. V. Mak, for example, in her recent book 'Performance-Oriented Remedies in European Sale of Goods Law', grouped together the contractual remedies under the classification of “performance-oriented remedies”21, a category which includes specific performance, repair, delivery of substitute goods and reduction of price, and also, for practical purposes, serves as a “common denominator” 22 to include the seller's right to cure, insofar as this mechanism also aims at the preservation of contractual performance. As V. Mak explains, “an argument for grouping the remedies in this overarching category is that they share a common objective – they are aimed at achieving performance by the seller of his obligation to deliver goods that are in conformity with the contract.”23 This is the sense in which the expression “performance-oriented remedies” will be used in the present paper to refer to the group of remedies that aim at contractual performance (as opposed to termination of the contract). V. Mak, advocate of the protection of performance, applauds the inclusion of these remedies in Sales Law instruments such as the CISG and claims for the inclusion of these remedies in future harmonisation efforts, because, as she explains, “the best way to protect this performance interest is through a remedy that takes form of performance by the seller, rather than through an award of damages”.24 However, the tendency of the CISG towards the protection of contractual performance has not been celebrated unanimously. On the contrary, it has been debated among scholars and practitioners in the field of international sales. One sector of the academia, the supporters of specific performance and advocates of the contractual remedies aimed at performance –such as V. Mak- have applauded the fact that the convention followed this trend because they see the fortification of the performance interest as a key point of all the remedial systems and a necessary inclusion in a future European sales law instrument25. Other academics and CISG commentators have disregarded the importance of the inclusion of “performance-oriented remedies” in the CISG and have particularly questioned the applicability of the remedy of specific performance, whose scope was limited by Art. 28 of the Convention -which gave discretion to national courts to grant this remedy where it is not available under the domestic law-. Additionally, scholars and practitioners, 19 Schwartz (n 4) 20 Shiffrin (n 5) 21 Vanessa Mak, Performance-Oriented Remedies in European Sale of Goods Law (Hart Publishing 2009) 22 ibid 53 23 ibid. 24 ibid 205. 25 Mak (n 21).

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especially from the English law background, have criticised the CISG and its “performance-oriented” approach for not being suitable for the “termination-oriented” dynamic of commodity trade, and for being incompatible with the centenary sales law developed by English courts regarding the sale of these type of goods. The fact that the United Kingdom has not ratified the Convention despite its active participation during the drafting process has, undoubtedly, added further tension to this discussion. This dissertation will show that the criticisms that have been made against the CISG’s “performance-oriented” approach are not entirely accurate, and will defend the justifications, applicability and suitability of the CISG’s “performance-oriented remedies” from three different perspectives. From a theoretical perspective (regarding the justifications for the protection of performance); from a more technical perspective (through an analysis of the scope of these remedies and of the true impact of Art. 28 of the CISG); and from a more practical perspective (by assessing the suitability of the CISG’s “performance-oriented” spirit for the dynamic of the international trade). These three perspectives will be developed, correspondingly, in the following sections: Section 1 will take a brief overview of some theoretical and economical arguments that support the availability of “performance-oriented remedies” under the CISG. Section 2 will analyse the scope of application of the most characteristic “performance-oriented remedies” present in the CISG (specific performance, replacement and repair)26 and will show that despite the discretion given to national courts by Art. 28 of the CISG to grant specific performance where it is not available under their domestic law, the inclusion of this remedy can be still regarded as a very important step towards the protection of performance in the field of international sales. Section 3 will defend the suitability of the CISG’s “performance-oriented” approach for all types of international sales, despite the weaknesses and incompatibilities that it may have with the “termination-oriented” approach developed by English Law in the field of commodity trade. Based on those three instances of analysis, this paper will conclude that the CISG’s “performance-oriented” approach and the inclusion of “performance-oriented remedies” was not inadequate. On the contrary, “performance-oriented remedies” are indispensable for the protection of performance, and their inclusion in the CISG was essential for this purpose. Even if the Convention limited the application of specific performance with Art. 28 (by giving the national courts the discretion to grant it), its inclusion was surely one step forward to the protection of the performance interest of buyers in international trade. While it is true that the “performance-oriented” approach of CISG may not always provide the best solutions for disputes of breach of 26 The most relevant discussions regarding performance-oriented remedies have centred on the applicability of specific performance – including the sub-remedies of repair and replacement (See Mak (n 21) 124)-. The remedy of price reduction and the device of the seller’s right to cure (not strictly a remedy, but included in V Mak’s categorisation of ‘performance-oriented remedies’) will not be analysed in this dissertation.

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contract in commodity trade, it must be taken into account that there are legal and contractual devices that can be implemented to make the CISG suitable for these sales. Besides, it cannot be forgotten that international sales are not only comprised of commodity trade, but have a significant component of sales of manufactured goods, or machinery, or other goods which are not sensitive to market fluctuations and which can benefit enormously from the availability of these remedies to ensure full contractual performance and to prevent economic waste. Therefore, it is sensible to conclude that the CISG was not wrong in assuring that every international buyer had “performance-oriented remedies” available, and that, undoubtedly, the inclusion of those remedies was an important step towards the protection of the performance interest, which is consistently and rightly vindicated as an essential feature of the contractual sphere.

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1. Theoretical and economical justifications for the availability of “performance-oriented remedies” under the CISG

The term “performance interest”, essential to the concept of “performance-oriented remedies”, has its origins in D. Friedmann’s article 'The Performance Interest in Contract Damages'27. Here, Friedmann argues that the widely used term “expectation interest”, introduced by the famous article from Fuller and Perdue28, is simply an inappropriate term, and suggests that “performance interest” is a better term to describe what he calls “the only pure contractual interest” of the promisee. He explains the importance of this interest by arguing that “a person enters into a contract because he is interested in getting that which the other party has to offer and because he places a higher value on the other party's performance than on the cost and trouble he will incur to obtain it”. 29 However, Friedmann uses the term “performance interest” in a wider sense than that which is used in this paper. He explains that the performance interest can be protected by two means: by specific remedies, which aim at the very performance, and by substitutional remedies (damages).30 This paper focuses on the first form of protection of the “performance interest” described by Friedmann; this is, on the protection of performance by way of “performance-oriented remedies”. This last narrow sense of the “performance interest” coincides with what C. Webb understands as “performance interest”. Indeed, C. Webb, in his valuable article 'Performance and Compensation: An Analysis of Contract Damages and Contractual Obligation'31 makes an important contribution to clarify the definition and scope of the term “performance interest” as the interest aimed exclusively at the protection of right to the very performance, which can be contrasted to the “compensation interest”; the latter corresponding to the right to get compensation of the losses by way of damages. The term “performance-oriented remedies” used by V. Mak to group the contractual remedies aimed at the performance of the obligor, is, certainly, consistent with the term “performance interest” as delimited and defined by C. Webb. Civil Law countries, at least apparently 32 , afford a strong protection to the “performance interest” in this latter sense. The CISG adopted this approach. In 27 Daniel Friedmann, ‘The Performance Interest in Contract Damages’ (1995) 111 LQR, 628, 629. 28 Lon L. Fuller and William R. Perdue Jr., ‘The Reliance Interest in Contract   Damages’ (1936) 46 Yale L.J. 52. 29 Friedmann (n 27). 30 Ibid. 31 Charlie Webb, ‘Performance and Compensation: An Analysis of Contract Damages and Contractual Obligation’ (2006) 41 OJLS . 32 Katz (n 2).

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contrast, Common Law jurisdictions, such as English law, offer a weaker protection of the performance interest: specific performance is only exceptional, and priority is given to damages and to the compensation of the expectation interest, but not to the very performance of the contractual obligation. From the perspective of contract theory, advocates of the more civilian approach defend the protection of performance and applaud the availability of “performance-oriented remedies”33, and advocates of the remedy of damages, more inclined towards the common law approach, regard it as the best remedy34. While there is, in theory, no last word on this matter, very solid arguments have been made from theoretical and from economical perspectives in defence of the performance interest and of the consequent availability of “performance-oriented remedies” such as the ones included in the CISG. Subsection 1.1 will take an overview of the theoretical arguments that have been put forward to support the protection of performance. Subsection 1.2 will show that the protection of performance has also been defended from an economical perspective. 1.1 The theoretical perspective Every legal system has circumstances in which the law will make sure that the promisee gets the contractual performance that he bargained for, rather than obtaining a substitute, such as monetary compensation.35 Those circumstances may differ between systems. While in Civil Law jurisdictions such as France, specific performance is normally available and the aggrieved promisee can freely choose between specific enforcement and damages, in Common Law systems, such as in English Law, specific performance is exceptional36. This differing treatment given to specific performance has been attributed to the divergent ideological backgrounds that surround the legal traditions of each system. Indeed, while Common Law is prevalently guided by economic efficiency standards, Civil Law follows the principle of the binding nature of contracts (pacta sunt servanda) 37. Numerous arguments have been put forward in favour of specific performance from the perspective of contract theory. As V. Mak explains38, the binding nature of contracts and the entitlement of the promisee to contractual performance has its basis in Kantian theory for civil law systems and in Charles Fried's rights-based theory in

33 Mak (n 21) 205-06. 34 Wendell Holmes (n 3). 35 Hugh Beale, Bénedicte Fauvarque-Cosson, Jacobien Rutgers, Denis Tallon and Stefan Vogenauer. Cases, Materials and Text on Contract Law (2nd ednedn, Hart Publishing 2010) 840. 36 ibid 834. 37 Mak (n 21) 77. 38 ibid 46.

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common law systems. However, both civil and common law systems share the view that “subjective rights lie at the heart of contract law and that it is the law's objective to uphold them”39. The binding nature of contracts has also been defended from the field of moral obligations, as explained by C. Fried40, and from the perspective of the trust that the other party puts in the promised performance, as explained by D. Kimel.41 C. Fried, from the moral perspective, argues that “An individual is morally bound to keep his promises because he has intentionally invoked a convention whose function it is to give grounds—moral grounds—for another to expect the promised performance”42. While the existence of this interest has been recognised by most contract theories as worthy of general protection by contract law, the extent of this protection has been, however, a source of discussion. “Performance interest” in the widest sense, as a synonym of expectation interest, entails a general protection of performance, either by performance as such, or by compensation by way of damages. All systems seem to protect this interest in a wide sense and contract theorists have recognised this extensively. But performance interest in the narrow sense43, as the protection of the right to obtain the very performance by the promisor through “performance-oriented remedies”, has not been equally defended by all theories. However, it can be affirmed that there is a wide - and growing - recognition of the importance and justification of “performance-oriented remedies”. A. Schwartz claims in the final line of his famous article 'The Case for Specific Performance' that “if the law is committed to putting disappointed promisees in as good a position as they would have been had their promisors performed, specific performance should be available as a matter of course to those promisees who request it”44. Similarly, S. V. Shiffrin has developed moral justifications for the availability of specific performance and has denounced the divergence of contract and promise on the fact that the default remedy in Common Law systems is damages and not specific performance, taking into account that the latter is the “appropriate moral response to breach”45. C. Webb has also defended the “performance interest” and has promoted the differentiation of “performance interest” from “compensation interest”. E. McKendrick has

39 Ibid. 40 Charles Fried, Contract as Promise: A Theory of Contractual Obligation (Harvard University Press 1981) 17. 41 Dori Kimel. From promise to contract: Towards a liberal theory of contract (Hart Publishing 2003) 16, 22. 42 Fried (n 40)16. 43 Rowan (n 6) 2. 44 Schwartz (n 4) 306. 45 Shiffrin (n 5) 722-23-33.

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acknowledged the general importance of protecting the “performance interest” under English Law and has denounced the reluctance of English courts to grant specific performance in some cases46. More recently, publications by V. Mak47 and S. Rowan48 in the United Kingdom have also defended and analysed the protection of performance from different perspectives. It is, indeed, a highly relevant topic today, with visible repercussions in light of international sales law proposals and harmonisation efforts.49 The main argument put forward by contract scholars who claim for the availability of specific performance is simple: the essence of contracts is the entitlement of the promisee to obtain the promised performance. Indeed, C. Fried’s50 theory of contract as promise, for example, explains that a promissory obligation entitles the promisee to receive the full value of the promised performance and therefore serves as a basis for the defence of “performance-oriented remedies”. S. V. Shiffrin argues, based on Fried’s theory that “a promisor is morally expected to keep her promise through performance. Absent the consent of the promisee, the moral requirement would not be satisfied if the promisor merely supplied the financial equivalent of what was promised.”51 C. Webb claims, in the context of English Law:

“If we wish to continue the current prioritization of compensatory claims, an explanation is needed as to why the claimant is barred from enforcing his right to performance. It would be more honest to admit that, in such cases, the claimant acquired no such right upon contract formation”.52

Another relevant argument put forward by advocates of the availability of specific performance is the fact that the remedy of damages can be under-compensatory, as argued, for example, by V. Mak, A. Schwartz and S. Rowan. Mak explains that this can be especially true in relation to consumer sales (where there is often a consumer surplus not always indemnified by way of damages), but also, even if not very common, in commercial sales53. Mak gives the example of a sale of machinery to be

46 Ewan McKendrick, Contract Law (9th edn, Palgrave Macmillan Law Masters) 382. 47 Mak (n 21). 48 Rowan (n 6). 49 Mak (n 21) ch 2, 8. 50 Fried (n 40). 51 Shiffrin (n 5) 722 citing Fried (n 40) 17. 52 Webb (n 29) 71. 53 Mak (n 21) 87, 88.

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used in the buyer’s business, as shown in the English case of Bronx Engineering54, where the court refused to make an order for specific performance and the substitute machinery was only available with delay, causing inconveniences and losses to the buyer that were not recognised on the damages award. Along the same line of thought, Rowan argues that specific remedies (awards of the agreed sum, specific performance and injunctive relief) give the aggrieved promisee a non-financial advantage, or surplus associated with the very performance55, because “the promisee should receive from the defaulting promisor not only the economic benefit associated with the performance for which he contracted, but also any idiosyncratic non-financial advantages he expected from performance”56. In the context of commercial sales and the CISG, Amy H. Kastely explains that the drafting history of the convention shows that various delegates of the countries involved in the drafting process were convinced of the fact that parties are entitled to receive full performance of the obligations57. Kastely argues that in international sales, aggrieved buyers cannot always find substitute goods in their local market and that an award of damages can not only be easily erred, but can also be, in many instances, under-compensatory of the true costs incurred by the aggrieved buyer, who invests time and effort to find substitute goods that are not always recognised in the damages award.58 1.2 The economical perspective From the perspective of economic analysis of law, the remedy of specific performance has been analysed, criticised and defended. Based on the American theory of Efficient Breach, detractors of specific performance have argued that damages are the most efficient remedy for the breach of contract and have denounced the difficulties of achieving efficient results in scenarios where specific performance is available59. As explained by Gregory Klass “the simplest version of that theory recommends expectation damages on the grounds that they give parties a reason to perform when and only when performance will increase social welfare”60. This theory states that in some instances breaching a contract will be so profitable for the

54 Societè des Industries Mètalurgiques SA v The Bronx Engineering Co Lt [1975] 1 Lloyd’s Rep 465 (CA). 55 Rowan (n 6)19. 56 Ibid. 57 Amy H. Kastely, ‘The Right to Require Performance in International Sales: Towards an International Interpretation of the Vienna Convention’ (1988) 63 Washington Law Review 607, 614-15. 58 ibid; Schwartz (n 4) 274. 59 Scalise (n 10) 3. 60 Gregory Klass. Efficient Breach Is Dead; Long Live Efficient Breach. ���Georgetown University Law Center, in The Philosophical Foundations of Contract Law (G. Klass, G. Letsas & P. Saprai, eds. Oxford University Press forthcoming) 1.

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breaching party, that he will be able to compensate the other party for his losses and also earn profit for himself, so that neither party are worse off economically than if the contract had been performed61. Thus, not only should the law not punish breaches of contract, but it ought to encourage them. This is true, according to the supporters of the theory, in cases where the seller breaches because a second buyer appears offering to buy the contractual goods for a higher price and it is only feasible in systems where the default remedy are damages62. In cases where the general remedy for the breach of contract is specific performance and not damages, there would be no scope for an efficient breach; or it could only be discussed hypothetically.63 This is so, because in cases where the seller is offered a better price for the goods, he cannot simply choose to breach and pay damages, but has to take into account that the aggrieved buyer may demand specific performance64. As S. Rowan explains, “the wide availability of specific relief would be incompatible with, and might deter, efficient breach”65.

However, this reasoning has it flaws. Law and economic scholars such as A. Schwartz have shown that it is not true that specific performance is less efficient than monetary damages. R. Barnett, for example, notes that there is a flaw from the angle of under-compensation because while it is clear that the promisor and the second buyer are in a better position, it is not possible to assume that the first buyer is better, because, as he argues, damages are not always fully compensatory as there is a subjective interest of the promisee that is not taken into account by monetary damages. Indeed, Barnett explains: “Money damages are calculated by others; the amount of money damages is not a price that is consented to by the promisee thereby demonstrating his subjective preferences”.66

In effect, contract scholars convincingly show how the remedy of specific performance does not prevent efficient outcomes, but only alters the distribution of the profit between the parties67. R. Scalise shows that in the classic example of the Theory of Efficient Breach, where a second buyer offers a higher price for the goods, and supposing that specific performance was readily available, the initial seller and the initial buyer could reach a settlement upon which the buyer will be satisfied in exchange of releasing the seller from the contract. If the value of the settlement were under the value of the price offered by the second buyer, then an efficient outcome would be reached. The initial buyer would win by obtaining a settlement that profits 61 Scalise (n 10) 3. 62 Scalise n (10) 1-2. 63 ibid 3. 64 Ibid. 65 Rowan (n 6) 33. 66 Randy Barnett, The Oxford introduction to U.S. Law: Contracts (OUP 2010) 62. 67 Scalise (n 10) 6.

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him, the seller would also keep a profit for himself, and the second buyer would obtain the goods that he was interested in68 . Thus, the objections to specific performance from the economic perspective loose strength.

All the arguments that defend the availability of specific performance have been extended to other “performance-oriented remedies”. Indeed, the remedies of repair and replacement - which are, in civil law jurisdictions, regarded as sub-forms of specific performance69 - are also defended from the same perspective because they also aim at performance and do not have the risk of inaccurate calculation of the damages or the risk of under-compensation70. Equally, the seller’s right to cure the breach (not strictly a remedy, but included in V. Mak’s category of “performance-oriented remedies”) has been supported by all the arguments that promote contractual performance as opposed to monetary compensation, and has also been recognised to have an economic justification71 based on the prevention of economic waste. As Mak explains, with a breach of contract not only does the buyer loose the benefit of performance, but the seller may have incurred expenditures for performance that would be wasted if he did not have a second chance to perform. As seen in this section, specific performance and “performance-oriented remedies” are consistently justified from theoretical and economical perspectives as important tools for the protection of the performance interest, and, as A. W. Katz points out, “the CISG’s treatment of specific relief appears to accord with modern thinking”.72 Therefore, the inclusion and availability of “performance-oriented remedies” under the CISG was not only reasonable but solidly supported by the most current tendencies of the contract law academia.

68 ibid 6. 69 Mak (n 21) 124. 70 Ibid. 71 ibid150. 72 Katz (n 2) 385.

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2. Specific performance, repair and replacement in the CISG: one step forward towards the protection of performance

The theoretical importance of the performance interest (discussed in the previous section) was acknowledged by the CISG with the inclusion of “performance-oriented remedies”, despite opposition from common law representatives during the drafting process. While the inclusion of these remedies was seen as a triumph from the perspective of the protection of performance, some scholars have discredited the importance of the inclusion of these remedies and have not acknowledged their significant scope of action. Particularly, the inclusion of the remedy of specific performance (under Art. 46) has been said to be of no effect because of the limitation that was imposed by Art. 28, which gives national courts the discretion to grant it.

This section will focus on the most characteristic “performance-oriented remedies” of the CISG (specific performance, replacement and repair) and will show that their inclusion was an important step for the protection of performance in international sales; that these remedies have an important scope of action; and that even with the limitations imposed by Art. 28, specific performance plays an important role in the remedial framework of the convention.

Subsection 2.1 will take an overview of the important scope of action of the remedies of specific performance, replacement and repair under the Convention. Subsection 2.2 will show that in spite of the discretion given to courts by Art. 28, the inclusion of specific performance can still be considered a step forward towards the protection of performance in the international sphere.

2.1 Specific performance, repair and replacement under the CISG

2.1.1 Drafting history and inclusion of these remedies The CISG, conscious of the different treatment given to many legal issues and remedies under Civil and Common Law jurisdictions, sought to reconcile the divergent interests of both systems73, but the inclusion of the performance-oriented remedies, and particularly those of specific performance, was certainly one of the most controversial issues. The final inclusion of “performance-oriented remedies”, which was initially seen as a triumph of the civilian tradition over the Common Law tradition in the international sales field, was later more precisely described as a 73 Nayiri Boghossian, ‘A Comparative Study of Specific Performance Provisions in the United Nations ���Convention on Contracts for the International Sale of Goods’ [1999] Pace Review of the Convention on Contracts for the International Sale of Goods 3.

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compromise74 between Civil Law and Common Law traditions, because it was heavily limited by article Art. 28 of the convention75, which gives the discretion to courts to deny the remedy where under domestic law it would not be granted. A. Kastely puts together three key reasons that were suggested in the drafting of the Convention in favour of the inclusion of specific performance. The first one is the theoretical idea of the entitlement of the parties to the promised performance, which was put forward by delegates during the drafting of the convention76. The second reason put forward by delegates, as explained by A. Kastely77, is that upon the breach, buyers could not be able to acquire the goods from an alternative source78. The third reason listed by A. Kastely and put forward by the Secretariat in the Comments to the Draft of the Convention is that the remedy of damages requires litigation to fix the extent of the liability, resulting in cost and delay. Kastely correctly points out that specific performance also involves litigation costs, but that probably the Secretariat's comment was assuming that a clearly established right to specific performance would compel the seller to perform or to negotiate an acceptable settlement with the buyer, which would be cheaper to the seller than to await an eventual litigation procedure. 79 Based on these arguments, specific performance, along with its two sub-remedies (replacement and repair), were finally included under Art. 46 of the CISG.

2.1.2 Scope of action of specific performance, repair and replacement

The scope of application and applicability of these remedies has been discussed extensively. Leaving aside the limitation imposed by Art. 28 - that gives discretion to national courts to grant the remedy - it can be submitted that the right to request specific performance, replace, and repair under 46 is wide. Art. 46(1) establishes the right of the buyer to require the performance in kind by the seller of his contractual obligations “unless the buyer has resorted to a remedy which is inconsistent with this requirement”.80 Art. 46 (2) establishes the buyer’s right to require delivery of 74 UNCITRAL, ‘Digest of case law on the CISG - Article 28’ [2012] <http://www.cisg.law.pace.edu/cisg/text/digest-2012-28.html > accessed 15 August 2013, 75 John Fitzgerald, ‘CISG, Specific Performance, and the Civil Law of Louisiana and Quebec’ (1997) 16 Journal of Law and Commerce 291, 76 Kastely (n 57) 613 citing Summary Records of the First Committee (18th mtg.), U.N. Doc. A/CONF.97/C.1/SR.18 (1980) [reprinted in United Nations Conference on Contracts for the International Sale of Goods, Official Records at 328, 331, 332. 77 Kastely (n 57) 614. 78 ibid citing See Commentary on the Draft Convention on contracts for the International Sale of Goods, Prepared by the Secretariat, art. 42, U.N. Doc. A/CONF.97/5 (1979) reprinted in United Nations Conference on Contracts for the International Sale of Goods, Official Records, art. 42, para. 2. 79 ibid, 614 Footnote 43. 80 Art. 46 CISG.

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substitute goods. Art. 46(3) establishes the right of repair, provided that it is reasonable in the circumstances. As S. Walt explains, referring to specific performance as such, under Art. 46 (1), it is a broad remedy for the following reasons: first, because of the right of election that the injured party has between claiming damages or performance, second, because the only limitation is that this remedy is not available if the buyer has resorted to an inconsistent remedy (avoidance, reduction of the price, and a claim for damages)”81 And third, because the buyer can require the seller to perform all the obligations under the contract, which would include, for example, the obligation to deliver conforming goods (Art. 30), to tender documents 82, and to deliver goods free from claims of third parties (Art. 41 of the CISG establishes the warranty of good title) 83. Finally, as S. Walt also notes, for a claim of specific performance under CISG to be successful, unlike English law, it is not necessary that the goods have been identified to the contract, or that the aggrieved party demonstrates the impossibility to find the goods in the market (in the case of the buyer) or to resell the goods (in the case of the seller) in the market.84 Thus, this remedy has an important scope and can be of great use for international buyers.

2.1.3 Limitations to the right to specific performance, repair and replacement

Of course, as A. Kastely points out, the right to specific performance, repair and replacement have inherent limitations that “are designed to avoid economic waste where the seller has substantially performed or where the cost of repair exceeds the benefit to be gained.” 85 The basic limitations of these remedies under the CISG are: the impossibility to grant specific performance where the aggrieved party has resorted to an inconsistent alternative remedy (Art. 46 and 62); the existence of the requirement of fundamental breach in order to be able to obtain replacement (46-2); the fact that repair is only possible if it is not unreasonable (46-3); and the general obligation of good faith under Art. 7 of the Convention. The latter, it could be suggested, imposes on the buyer, at least the duty not to incur in abusive conducts in the exercise of the remedies. Finally, it is important to note, in relation to the duty to mitigate the damages, that this duty under the Convention has not been interpreted as requiring the buyer to choose the remedy of damages over the remedy of specific performance even if that is cheaper for the seller. As A. Kastely explains, the fact that 81 Steven Walt, ‘For Specific Performance Under the United Nations Sales Convention’ (1991) 26 26 Tex. Int'l L. J. 211, 215-16. 82 Kastely (n 57). 83 Walt (n 81) 215-16. Indeed, as Walt explains in order for the seller to deliver goods free from claims of third parties, if he already delivered them in that condition, he would have to deliver substitute goods free of those claims, or the seller could also pay its debt to the third party in order to extinguish his security interest in the goods. 84 Ibid. 85 Kastely (n 57) 616-24.

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the wording of Art. 77 establishes that “The breaching party may claim a reduction in damages”, presupposes that this duty applies only where the aggrieved party chose to claim damages and did not require specific performance.86

Regarding the limitations to the right of repair and replacement, there is illustrative CISG case law that exemplifies the scope and boundaries of these remedies, as well as their varied practical applicability. The 2012 UNCITRAL Digest on Art. 4687 explains that a request for repair under Art. 46 (3) is unreasonable if the buyer can easily repair the goods himself88, but that, of course, if the buyer repairs, the seller is liable for the costs of the repairs. Regarding the remedy of replacement, which requires fundamental breach, CISG case law explains that the same criteria to identify a fundamental breach for the purposes of avoidance is applicable for the remedy of replacement. French and German courts on CISG cases have held that there is a fundamental breach where it is not possible to resell the goods or to use them with reasonable effort, as happened, for example, in a French case of an artificially sugared wine (where the French Court of Cassation held that the seller “by supplying chaptalized wine, had not performed its obligation to supply goods in conformity with the contract”89), or in the German cases of the shoes that had cracks in the leather90 ant the t-shirts that shrunk by two sizes after the first wash91. The 2012 UNCITRAL Digest of case law on Art. 46, the CISG92 points out that there is also a fundamental breach where the goods “suffer from a serious defect, even though they can still be used to some extent (e.g. flowers that should have flourished the whole summer but in fact did so only for a brief part of the season)”93, or in cases where the delivered goods are defective and the buyer needs them for his manufacturing processes (such as the American case of compressors with lower capacity than those contracted for, needed by the buyer to manufacture air conditioners94), and, also, in cases where there

86 Ibid. 87 UNCITRAL, ‘Digest of case law on the CISG - Article 46’ [2012] http://cisgw3.law.pace.edu/cases/0412173i1.html> accessed 15 August 2013. 88 Oberlandesgericht Hamm (Germany) (9 June 1995) translated at http://cisgw3.law.pace.edu/cases/950609g1.html. 89 Cour de Cassation (France) (23 January 1996) translated at http://cisgw3.law.pace.edu/cases/960123f1.html . 90 Oberlandesgericht Frankfurt a.M. (Germany) (18 January 1994) translated at http://cisgw3.law.pace.edu/cases/940118g1.html. 91 Landgericht Landshut (Germany) (5 April 1995) http://cisgw3.law.pace.edu/cases/950405g1.html. 92 UNCITRAL (n 87). 93 Oberlandesgericht Innsbruck (Austria) (1 July 1994) translated at http://cisgw3.law.pace.edu/cases/940701a3.html . 94 United States Court of Appeals for the Second Circuit (6 December 1995) available at http://cisgw3.law.pace.edu/cases/951206u1.html.

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has been illegal adulteration of the goods95. There is, thus, also, wide scope of applicability for the remedies of repair and replacement despite their normal limitations. 2.2 The limitation imposed by Art. 28 does not close the door to specific performance The limitation imposed by Art. 28, which states “a court is not bound to enter a judgement for specific performance unless the court would do so under its own law in respect of similar contracts of sale not governed by this Convention”96 has generated a discussion regarding the extent to which it can threaten the effectiveness of the remedy and the objective of the CISG to protect the performance interest of international buyers. Given the scarce case law on the matter, scholars have tried to construe the meaning of this limitation and to predict the practical implications in the international sales field. Of course, the fact that specific performance is a remedy that is not readily available in Common Law jurisdictions which ratified the Convention (such as the United States) is at the core of the discussion. The practical consequences of this situation directly affect merchants, whose remedies can be uncertain depending on the seized court. CISG commentators and case law understand that this article simply gives the discretion to national courts to grant the remedy where domestic law does not provide for it.97 The practical impact of Art. 28 has not been visible yet given the very little case law on the matter. In one of the few CISG cases on this issue, a United States Court granted specific performance and made reference to the fact that Art. 28 allows the seized court to look to the availability of such relief under its own substantive law in a similar case. This decision simply stated that “If the national law would also grant specific performance in the case, there is no conflict with the Convention and no problem arises”98. While it is clear that Art. 28 grants a discretion to national courts, scholars have expressed different opinions on the impact of this discretion on the practical scope of action specific performance in international sales governed by the CISG. Some scholars have totally disregarded the importance of the inclusion of specific performance in the CISG and have said that, with Art. 28, the CISG simply left the 95 Cour de Cassation (France) (n 89). 96 Art. 28 CISG 97 Peter A. 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?’ (2000) Pace International Law Review 1-46 98 District Court, Northern District of Illinois 7 (United States) (December 1999) available at http://www.cisg.law.pace.edu/cases/991207u1.html

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question of specific performance unanswered 99, or have affirmed that it simply allows the domestic common law courts “to continue to apply the traditional restrictive regime” 100 and that it is unlikely that courts will take advantage of the discretion to widen the doctrine of specific performance of domestic laws. 101 Furthermore, P. Piliounis argues that this limitation is clearly a compromise that creates commercial uncertainty and that could even encourage forum shopping by the parties102. Other scholars, also not very optimistic on the efficacy of a freely available right to specific performance as stated in the convention, argue that the reality is that parties only seek this remedy in those infrequent cases where English Law usually grant it, so that Art. 28 has no impact in any case. For example, S. Walt explains that cases in which specific performance is sought in contracts regulated by the CISG, coincide with the cases for which common law courts grant the remedy of specific performance, i.e. cases in which there is short supply of the goods in the market of the buyer 103. M.G. Bridge coincides with S. Walt and also disregards the importance of this provision by saying that probably in any case, “it is only in those rare instances where English law exceptionally allows specific performance that a party to an international sale contract would wish to seek it instead of claiming damages.” 104 Equally, H. Fletchner argues that “the fact that Article 28 appears to have had no impact in practice may demonstrate that those (rare) occasions when it makes sense for an aggrieved party to seek a performance-oriented remedy are also the occasions when domestic sales laws -- even in common law jurisdictions that restrict the availability of specific performance -- will grant it”.105

However, another group of scholars with more optimistic views encourage the courts to give a wide scope of action to specific performance: they argue that the discretion on Art. 28 must be used positively by courts to grant the remedy and broaden its availability. A. Kastely, argues for an “international interpretation of Art. 28”106, and rightfully explains that Art. 7 requires that the Convention is interpreted consistently with its international character and with the need to promote uniformity

99 Mak (n 21) 110 citing Peter Schlechtriem and I Schwenzer (eds), Commentary on the United Nations Convention on the International Sale of Goods (2nd edn, OUP 2005) 316. 100 Piliounis (n 97). 101 Ibid. 102 ibid. 103 Walt (n 81) . 104 M.G. Bridge, International Sale of Goods (3d edition, OUP 2013) para 12.47. 105 Harry M. Flechtner ‘Buyers' Remedies in General and Buyers' Performance-Oriented Remedies’(2005-06) 25 Journal of Law and Commerce 339-347. 106 Kastely (n 57) 632.

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in its application. She also argues that while “most civil law courts will readily enforce the right to performance under the Convention’s remedial provisions; certainly courts in common law nations should be encouraged to do the same”107. J. Koskinen also opines that the discretion given by Art. 28 can be used positively by courts to grant the remedy and even to expand the doctrine of specific performance in domestic laws108 and that, indeed, “nothing prevents it from entering a judgment for specific performance in cases in which formerly it refused to do so” and that “the common law courts would not be prevented from going even further in international contract cases than they have gone in domestic contract cases”109. A. W. Katz agrees and argues that “many courts that would incline against specific relief in domestic cases may incline toward it in CISG cases, out of a sense of international comity or of the desire to establish a favourable environment for international business” and that most CISG disputes are heard by arbitral tribunals “with no such compunctions”110.

As seen, the inclusion of specific performance in the CISG under Art. 46, along with the remedies of replacement and repair, was undoubtedly a step forward for the protection of the performance interest: the reasons for its inclusion during the drafting process were strong and in accordance with the academic trend on the protection of performance; the scope of these remedies is wide and thus constitutes a useful remedial tool for aggrieved buyers; the limitations of the remedy in relation to the other remedies of the convention are only natural limits to its exercise; and the limitation imposed by Art. 28, even if constitutes a hurdle to the availability of specific performance, does not close the door to the granting of this remedy. Indeed, it only gives the courts the discretion to grant it, and this discretion, according to an interpretation that respects its “performance-oriented” purpose, must be used positively to broaden the scope of the remedies and not negatively, to limit it.

107 ibid 638. 108 Jussi Koskinen. ‘CISG, Specific Performance and Finnish Law’ publication of the Faculty of Law of the University of Turku, Private law publication series B:4 Pag. 236. 109 Ibid. 110 Katz (n 2) 384.

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3. Avoidance, “performance-oriented approach” and the dynamic of international trade

Solène Rowan explains that in a system of remedies there is an inverse relationship between the degree of protection of contractual performance and the threshold for termination of the contract. Indeed, referring about termination of contracts she argues that:

“Its inverse relationship with performance is itself potentially revealing of the extent to which performance is protected. If it is hard for the injured promisee to terminate, this suggests a stronger commitment to ensuring that performance is rendered than where his exit from the contract is straightforward.” 111

Termination is thus opposed to availability of “performance-oriented remedies”. While termination puts an end to the contract, performance gives the promisee what he bargained for112. These extremes usually determine the classification of remedial systems, depending on which side is the balance inclined. While some remedial systems encourage performance and regard termination as a last recourse (as has been the tendency of recent sales instruments and some national laws113), other systems do not give importance to the protection of performance and instead give prevalence to an easy termination of the contract. From the practical perspective of international sales the discussion has been intense: while the CISG is clearly “performance-oriented”, English Law - which governs most contracts of commodities nowadays - is “termination-oriented”. Detractors of the convention criticise the CISG’s “performance-oriented” spirit and its aim of maintaining avoidance as a last-resort remedy for being inconsistent with the dynamic of commodity trade114, which follows a trend of easy termination of the sale contract and regards damages and not specific performance as the prevalent remedy for the breach. Indeed, under English Law, minor breaches of obligations of the sale contract especially regarding time and documentary obligations, allow buyers to immediately terminate the contract and to go to the market and take advantage of falling markets in

111 Rowan (n 6) 70. 112 Ibid. 113 Huber (n 16) 17. 114 Michael Bridge, ‘A Law for International Sales’ (2007) Hong Kong Law Review’17, 38. See also Alastair Mullis, ‘Twenty-Five Years On – The United Kingdom, Damages and the Vienna Sales Convention’ (2007) 71 The Rabel Journal of Comparative and International Private Law 35, 36.

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the acquisition of substitute goods115. This scenario has provided certainty for traders, who rely on the English Law criteria to decide how to proceed where a breach occurs. The CISG, on the other hand, with its “performance-oriented approach” and with the requirement of fundamental breach that seeks to reserve avoidance as a last-resort remedy, is not attractive to commodity traders and has been criticised by scholars and practitioners for generating uncertainty to aggrieved buyers in international sales. This discussion between “performance-oriented approaches” and “termination-oriented approaches” has growing relevance due to the fact that the United Kingdom, active participant of the drafting of the convention, has still not ratified it. London is the preferred forum of a large amount of litigation on international sales involving commodity trade, and decisions are usually taken by English courts or by arbitrators based on English Law116. As A. Mulis notes:

“this inevitably brings large amounts of money into the U.K. and there is therefore a perhaps justified wariness of adopting an instrument that might change that. Related to this is the idea that English law is better suited to the resolution of international commercial problems than anything that could be devised at an international level.” 117

In any case, while the English Law perspective has its merits, a closer analysis of the situation shows that the alleged unsuitability of the CISG with commodity trade has often been overstated. This section will show that while it is true that English courts have indeed developed a highly certain and efficient Sales Law, it has mainly been done in the context of sales of commodities -and not in the field sales of manufactured goods and machinery, which follow other market dynamics and therefore could be more compatible with the CISG’s performance-oriented solutions-, and that the CISG’s “performance-oriented approach” can be made more suitable for commodity trade through legal, interpretational and contractual devices. Subsection 3.1 will assess the differences between the CISG’s “performance-oriented” approach the English Law’s “termination-oriented” approach. Subsection

115 See Lachmi Singh and Benjamin Leisinger ‘A Law for International Sale of Goods: A Reply to Michael Bridge (2008) Pace Int’l L. Rev 161, 173 citing Benjamin Leisinger, ‘Fundamental Breach Considering Non-Conformity of the Goods’ (2007) 116 Sellier European Law Publishers. “Commodities can cover a wide range of goods, for example, wheat, cotton, lumber, gold, etc. The common characteristics shared by these products are that they are produced in large quantities by many different producers; they are not unique goods and can be substituted if the need arises’(…) ‘given the peculiarities of commodity markets, namely rapid price fluctuations, when prices are rising the seller would want to ensure a speedy avoidance of the contract so that he can resell the goods at a higher price. The same, for example, the interest to get out of the contract, is true for a buyer on a falling market”. 116 Barry Nicholas, ‘The United Kingdom and the Vienna Sales Convention: Another Case of Splendid Isolation?’ available at: http://www.cisg.law.pace.edu/cisg/biblio/nicholas3.html, accessed August 26. 117 Alastair Mullis, ‘Twenty-Five Years On – The United Kingdom, Damages and the Vienna Sales Convention’ (2007) 71 The Rabel Journal of Comparative and International Private Law 35, 36

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3.2 will show that even though there is some incompatibility of the CISG’s approach with the dynamic of the sales of commodities, it cannot be affirmed that the CISG is incapable of dealing with such contracts, because there are contractual, legal and judicial devices that can be, and have been, easily implemented to make the CISG suitable for the dynamic of commodity trade. 3.1 “Performance-Oriented Approach” vs. “Termination-Oriented Approach” 3.1.1 The CISG’s performance-oriented approach and the high threshold for avoidance The UNCITRAL Digest of Art. 46 of the CISG clearly acknowledges that “the fact that the right to performance is provided for first among the remedies described in articles 46-52 reflects that, under the Convention, the contractual bond should be preserved as far as possible”118. Indeed, as P. Huber explains, the performance-oriented spirit of the CISG is “The most characteristic feature of the system of remedies under CISG”. This approach corresponds with what Huber calls the “modern trend to restrain the scope from termination”, which was incorporated not only by the CISG, the UNIDROIT Principles, the Principles of European Contract Law, but also by German and Scandinavian rules119. According to this tendency, avoidance “should be granted only if other remedies (e.g. performance, price reduction) would not lead to an acceptable result”. This tendency is grounded in three policy reasons: pacta sunt servanda; economic arguments (because termination can be a costly remedy regarding restitution of the goods and the price); and the protection of the legitimate interest of the parties, especially from the seller, who does not want to see his efforts in performance frustrated and will often claim that he can easily cure or repair. 120 The requirement of fundamental breach, under Art. 25 of the CISG, establishes that:

“A breach of contract committed by one of the parties is 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 in breach did not foresee and a reasonable person of the same kind in the same circumstances would not have foreseen such a result”.

118 UNCITRAL (n 87). 119 Huber (n 16) 17. 120 ibid 18, 19.

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This requirement has been interpreted in most CISG cases in a very restrictive way121. If the buyer can still use the goods, even for a purpose different to the one intended, or if he can resell them, there will not be a fundamental breach and he would have to keep the goods and resort to a performance-oriented remedy, such as price reduction, repair, or opt to get compensation by way of damages.122 Thus, the standard for avoidance is very high, and also, not very certain. 3.1.2 English Law’s “Termination-Oriented Approach” in commodity trade English Sales Law is founded on certainty as an essential value to merchants upon breach because it has developed around the dynamic of commodity trade, in which speedy avoidance is crucial to the buyer, who often wants to escape from a bad bargain in a falling market123. A patent manifestation of this aim for certainty is that English Law has classified contractual terms very clearly into conditions, warranties and innominate terms (not only in Sales Law but in Contract Law in general)124. In commodity sales, for example, obligations involving timely and documentary performance are often regarded as “of the essence” and case law has regarded them as conditions125, which, if breached, even in a minor way, allow an easy termination of the contract and a claim for damages126. Thus, international traders act guided by the parameters established by English Law (which govern most of the contracts in the world of commodity trade). Illustrative examples of obligations under English Sales Law which if breached give rise to termination are: obligations as to the date of shipment in physical obligations (because time is considered of the essence of the contract, as stated in Bowes v Shand127 and Bunge Corporation v Tradax Export SA )128; the accuracy of the date of shipment regarding documentary obligations (Procter & Gamble Philippine Manufacturing Corporation v Kurt A Becher GmbH & Co KG129); obligations as to the place of shipment both documentary and physical (Petrotrade v. Stinnes Handel130); provisions describing the goods (SOGA 13 (1A), Arcos v. Ronaasen & 121 Michael G Bridge, International Sale Goods (3 edn, OUP 2013) par 12.04 122 Oberlandesgericht Düsseldorf (Germany) (23 January 2004), translated at < http://cisgw3.law.pace.edu/cases/040123g1.html > 123 Singh and Leisinger (n 115) 168. 124 Bridge, The Sale of Goods (2nd edn, 2009), paras 10.14 – 16. 125 Bridge (n 121) par. 12.02. 126 Nicholas (116). 127 [1877] 2 App Cas 455, 46 LJQB 561, 3 Asp MLC 461, 25 WR 730, [1874-80] All ER Rep. 128 [1981] 2 Lloyd’s Rep 1. 129 [1988] 2 Lloyd’s Rep 21. 130 [1995] 1 Lloyd’s Rep. 142.

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Sons131, Re Moore & Co, Ltd and Landauer & Co132); the physical obligation as to the quantity of the goods (with some exceptions for minor breaches or “de minimis”133 (Sect. 30 Sale of Goods Act 1979); and the obligation to correctly state the quantity in documentary obligations, as held in Re Keighley Maxtead Co. and Bryant Durant & Co134. Indeed, in general, documentary obligations have been regarded as conditions (despite some academic debate surrounding the application of “de minimis” to documentary obligations)135. Hence, under English law, regarding commodity trade, the parties have a high certainty on which breaches give rise to termination, and as A. Mullis explains, “Certainty, it is thought, is what traders and business people want and English law gives them that certainty.” 136 Thus, from this approach, the CISG’s remedial frawork does seem to be, to a certain degree, incompatible with commodity trade. Mullis argues, referring to the different dynamic of commodity trade, that “the Convention’s remedial structure, with its emphasis on contract performance and avoidance as a last resort, does not sit easily with this”137. Bridge also claims that “a willingness in English Law to regard certain types of contractual term, notably those concerning timely and documentary performance in international sales as conditions, so that any breach regardless of consequences gives rise to termination, is not something for which the CISG makes provision or even recognizes”138. 3.1.3 A polemic case There is a polemic CISG case (The “Cobalt Sulphide case”139) that illustrates the different approaches of English law and the CISG. It is a German case in which defective goods were delivered (they were of South African origin instead of British origin as stated in the contract), the documents were defective (the certificate of origin was incorrect about the origin of the goods), and the seller only tendered one copy of the certificate while the contract required four. Under English law, the buyer would

131 [1933] AC 470. 132 [1921] All ER Rep 466. Court of Appeal. 133 From the expression de minimis non curat lex (‘The law does not concern itself with trifles’). 134 [1894] 7 Asp. MLC 418. 135 For these discussions see Charles Debattista, Bills of Lading in Export Trade (3d edn, Tottel Publishing 2009) par. 914-916. 136 Mullis (n 117) 36. 137 Ibid. 138 Bridge (n 121) par. 12.03. 139 Bundesgerichtshof (Germany) (3 April 1996 ) translated at <http://cisgw3.law.pace.edu/cases/960403g1.html>

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have been entitled to reject both goods and the documents, to terminate the contract and to claim damages (for a substitute purchase, for example). However, the German Federal Supreme Court (BGH) held that the goods could still have been used or resold by the buyer in Germany or abroad, and that the documents were not defective because the test of the fundamental breach required by the CISG was not fulfilled: the buyer had not been essentially deprived of what he was entitled to expect under the contract, and the buyer could have obtained copies of the documents himself.140 Decisions such as this, which differ openly with English Law, are used by the detractors of the CISG to criticise its system of remedies and its performance-oriented spirit. As Mulis claims, “to English eyes, this decision appears strange. In English law, a buyer is entitled to documents that are perfect:141 he is not, as has been said, obliged to accept a litigation, nor is he obliged to accept documents that might be acceptable. Yet the decision of the Bundesgerichtshof would appear to require him to do so”142. It is because of this type of cases that critics have said that “the Convention should be relegated to sale of market of insensitive goods and leave the market sensitive goods to more experienced legal regimes”143 3.2 In defence of the CISG performance-oriented approach It cannot be denied that the CISG’s “performance-oriented approach” is sometimes incompatible with the highly certain termination parameters developed by English Courts in commodity trade. However, these criticisms are not entirely accurate and have been rightfully rebated by scholars with the following arguments: First, it must be remembered that these criticisms are based on the dynamic of sales of commodities and that they are not taking into account the vast amount of sales of other types of goods which do not respond to market fluctuations and in which strategic behaviour and market efficiency criteria are nor relevant. Indeed, A. Mullis explains, for English lawyers, international sales, are often a synonym of documentary sales of commodities on shipment terms (CIF, FOB)144, and little attention is paid to the relevant number of sales concluded daily regarding

140 Alastair Mullis ‘Avoidance for Breach under the Vienna Convention; ���A Critical Analysis of Some of the Early Cases’ (1998) Andreas & Jarborg eds., Anglo-Swedish Studies in Law, Lustus Forlag 326-355. 141 See, for example, Hansson v. Hamel & Horley, [1922] A.C. 36 and Toepfer v. Lenersan Poortman, [1981] 1 Lloyd's Rep.143. 142 Mullis (n 140). 143 Singh and Leisinger (n 115)168. 144 Mullis (n 140).

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manufactured and specialised goods145. The CISG, with its “performance-oriented approach”, deals efficiently and adequately with these sales. Second, the mechanism stated in Art. 47 of the CISG (known as Nachfrist for its German equivalent institution), which entitles the aggrieved buyer to fix an additional period of time of reasonable length for performance by the seller of his obligations, also serves to easily reach the threshold of fundamental breach. Indeed, according to Art. 49, if the additional time for performance is breached by the seller, the breach will classify as fundamental, thus overcoming the uncertainty. As Peter Huber explains, Nachfrist may “upgrade” a non-fundamental breach to one which justifies avoidance”146 This is particularly helpful in obligations involving timely performance, in which the threshold of fundamental breach is met with the breach of the additional time given by the buyer. Third, and more importantly, there are useful mechanisms that can give certainty regarding the existence of a fundamental breach, that can lower its threshold or that can help to impliedly recognise that an essential obligation was breached or that an essential interest of the parties was affected. The most basic mechanism is an express contractual agreement either to exclude the parameter of fundamental breach of the CISG, to pre-classify breaches of time and documentary obligations as fundamental, or to define that some interests of the parties are essential. It is in this sense that L. Sing and B. Leisinger claim that the CISG is perfectly suitable for the sale of commodities as long as the convention is used efficiently and effectively by the drafters of the contracts of sale147 . Indeed, M. Bridge acknowledges that in accordance with Art. 6148 of the CISG, “It is of course always open to the parties to provide for stricter rights of avoidance in the contract”149 On the other hand, in the absence of an express provision in the contract, the existence of a fundamental breach could be interpreted from the circumstances in cases in which it is clear that an essential interest of the party was affected by the breach, such as timely and documentary performance in sales of commodities. Indeed, as Schwenzer and Hachem explain, based on Art. 8 (2), 150“the importance of 145 ibid “These type of sales of special goods normally entail time consuming or customized production, so that the goods are not easily replaceable in the market and full performance is thus fundamental, either by way of insistence in performance where there has been non-delivery, or by repair where in the circumstances it is reasonable, or by replacement where the breach is fundamental”. 146 Huber (n 16). 147 Singh and Leisinger (n 115) 173. 148 Art. 6. “The parties may exclude the application of this Convention or, subject to article 12, derogate from or vary the effect of any of its provisions’. 149 Bridge (n 121) par 12.03. 150 CISG 8(2)‘(…) statements made by and other conduct of a party are to be interpreted according to the understanding that a reasonable person of the same kind as the other party would have had in the same circumstances’.

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particular obligations can be interpreted from the circumstances” and “timely delivery by handing over of clean documents - that can be resold in the normal course of business - is always essential to the contract”151. P. Huber agrees and argues that “if it appears from the commercial background of the contract that time and quality are of the essence, then any breach of these requirements will certainly be ‘fundamental’”152. This interpretation, which serves to make the standards of fundamental breach in commodity cases more flexible, seems to be the most adequate and effective solution for commodity contracts and it has the advantage that it has already been successfully applied in several CISG decisions. Indeed, Bridge notes 153 that the CISG cases have already been recognising this possibility in a consistent line of cases154 of breaches regarding timely performance in commodity sales in which the courts are interpreting time to be of the essence of the contract (just as in Bowes v Shand155 under English Law) and are leaving aside the strict requirement for avoidance that had been developed for the principal line of cases regarding fundamental breach for sales involving “non market-sensitive goods”. As Bridge explains, “Given the evident importance of time and documentary integrity in the commodities world, the case has been made successfully for applying the test for fundamental breach in the CISG in a flexible enough way to accommodate rules of strict performance in these matters”156. While Bridge argues that this flexible interpretation of Art. 25 regarding fundamental breach in order to find a “time is of the essence” rule, is to disregard the wording of Art. 25 and to ignore the historic reasons that led the drafters of the CISG to consciously depart from strict termination rights in documentary breaches157, the reality shows that the courts are already making a flexible interpretation of the requirement of fundamental breach and developing this mechanism consistently in a line of cases in the ambit of commodity trade. Thus, as Huber concludes, the CISG

151 Ingeborg Schwenzer and Pascal Hachem ‘The CISG - Successes and Pitfalls’ (2009) American Journal of Comparative Law 457-76. 152 Huber (n 16) 30. 153 Bridge (n 121) par 12.05. 154 ICC Arbitration No 8786 (January 1997) available at <http://cisgw3.law.pace.edu/cases/978786i1.html , District Court München (Germany) (6 April 2000) translated at <http://cisgw3.law.pace.edu/cases/000406g1.html>, Appellate Court Düsseldorf [15 U 88/03] (Germany) (21 April 2004) available at <http://cisgw3.law.pace.edu/cases/040421g3.html>, Tribunal of International Commercial Arbitration (Ukraine) (5 July 2005) translated at http://cisgw3.law.pace.edu/cases/050705u5.html, ICC Arbitration No 8128 (1995), translated at <http://cisgw3.law.pace.edu/cases/958128i1.html> 155 Bowes v Shand (n 127). 156 Bridge (n 121) citing CISG Advisory Council Opinion No 5 (The Buyer’s right to Avoid the Contract in Case of Non-Conforming Goods or Documents). 157 Bridge (n 121) par. 12.05.

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can “easily accommodate those cases in which immediate rights of termination are needed without endangering the principle of legal certainty”158. In conclusion, even if it is true that the performance-oriented remedial system of the CISG might be more suitable for the sale of manufactured goods than for the sale of commodities that work on a termination-oriented platform, this situation is not irreconcilable. As seen, legal, interpretational and contractual devices can turn the performance-oriented approach of the CISG into a more termination-oriented device, in which the uncertain and strict threshold of fundamental breach can easily be reached. The CISG’s “performance-oriented” remedial system can successfully govern sales of manufactured and capital goods in non-fluctuating markets for which “performance-oriented remedies” are perfectly suitable; and can also perfectly govern contracts of sales of commodities with some minor efforts on behalf of the contract’s draftsmen and the courts and arbitral tribunals who decide CISG cases.

158 Huber (n 16) 30.

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CONCLUSION The CIGS’s “performance-oriented tendency”, along with its “performance-oriented remedies”, has won three important battles in theoretical, technical and practical fields. In the theoretical arena, the inclusion of a full range of “performance-oriented remedies” in the CISG proved to be, as A. Katz notes, “a decision in accordance with modern thinking”. Indeed, the inclusion of these remedies under the Convention was entirely justified from theoretical and economical perspectives, which regard the protection of the “performance-interest” as a fundamental feature of the contractual sphere. The inclusion of “performance-oriented remedies” in the CISG was revealing of the Convention’s wholehearted commitment to the protection performance and was regarded as a triumph that vindicated the important scope of action of “performance-oriented remedies” in modern remedial frameworks. In a more technical arena, regarding the scope, limits and applicability of the “performance-oriented remedies” under the CISG, it was shown that the inclusion of the remedies of specific performance, replacement and repair under Art. 46 was, unquestionably, a step forward to the protection of performance: the scope of these remedies proved to be wide and varied; their limitations proved to be reasonable; and the much discussed strong limitation imposed by Art. 28 of the Convention proved not to be the invincible hurdle that was initially denounced by critics. Indeed, this limitation, which gives national courts the discretion to grant specific performance, does not significantly compromise the scope of the remedy insofar as the discretion is construed by the courts in accordance with the “performance-oriented purpose” of the Convention, so that it is used positively to broaden its scope, and not negatively, to limit it. Finally, in the practical arena, the CISG defeated the criticisms regarding the alleged incapacity of its “performance-oriented” approach to deal adequately with the “termination-oriented” dynamic of commodity trade that was developed by centenary English Law. While it is true that the CISG’s “performance-oriented approach” (which gives priority to performance-oriented remedies and which establishes a high threshold for avoidance) is mainly suitable for sales of machinery or capital goods not sensitive to market fluctuations and that its default rules may be incompatible with the particular dynamic of commodity trade, there are legal, contractual and interpretational mechanisms that have allowed the Convention to successfully govern contracts in this field. Therefore, the CISG’s remedial system oriented towards performance can be defended as an adequate framework for all kinds of sales and business realities within international trade.

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Tribunal of International Commercial Arbitration (Ukraine) (5 July 2005) translated at <http://cisgw3.law.pace.edu/cases/050705u5.html> English Cases Bowes v Shand [1877] 2 App Cas 455, 46 LJQB 561, 3 Asp MLC 461, 25 WR 730, [1874-80] All ER Rep Bunge Corporation v Tradax Export SA [1981] 2 Lloyd’s Rep 1. Procter & Gamble Philippine Manufacturing Corporation v Kurt A Becher GmbH & Co KG [1988] 2 Lloyd’s Rep 21. Petrotrade v. Stinnes Handel [1995] 1 Lloyd’s Rep. 142 Arcos v. Ronaasen & Sons [1933] AC 470 Re Moore & Co, Ltd and Landauer & Co [1921] All ER Rep 466. Court of Appeal Re Keighley Maxtead Co. and Bryant Durant & Co [1894] 7 Asp. MLC 418 Hansson v. Hamel & Horley, [1922] A.C. 36 Toepfer v. Lenersan Poortman, [1981] 1 Lloyd's Rep.143.