The CISG grants reciprocal remedies within three basic categories to the buyer and seller and clearly establishes that the primary remedy available to an injured party is specific relief, i.e. specific performance. Secondly, the Convention establishes that an injured party shall have a right to a substitutionary relief, which requires the party in breach to pay some amount of money to compensate the loss suffered by the other party. Finally, an aggrieved party shall have a right to avoid (terminate) the contract and thus put an end to the contractual relationship. As such, the remedial provisions of the CISG generally correspond with all major legal systems. 41 The CISG also follows the above mentioned three-category system and thus provides three basic remedies, namely specific performance, damages and avoidance of the contract.
Under the Convention, the remedies available for both the buyer and the seller, each dealt with under a section in Part III, are described in a unified scheme that is clear and easy to follow. 42 In this respect, the remedies available for a breach of contract are summarized in Arts. 45 and 61, which set forth reciprocal remedies for the buyer and seller, respectively. Art. 45(1) gives an overview of the remedies available to the buyer in the event of breach of the seller, namely specific performance, avoidance, compensatory damages, and reduction in price. The seller's remedies are enumerated at Art. 61(1). They differ from the remedies available to the buyer for obvious reasons in two respects. First, the remedy of claiming a reduction in price is not available to the seller. Second, there is no need for substitutional performance or the requirement that the buyer cure a defect in his performance. 43
Generally, the CISG represents a compromise between the civil law and common law systems, sometimes reflecting concepts that are unique to one system and not the other. 44 Especially, the availability of specific performance as a primary remedy for a breach of contract under the CISG, corresponds with the civil law countries, contrary to the common law countries which regard damages as the primary remedy for a breach of contract. 45 The CISG makes specific performance available to both the seller (Art. 46) and the buyer (Art. 62). Before the parties have fulfilled their obligations, at least in terms of its placement in the Convention's overall scheme, specific performance is the primary remedy although damages are equally available. Under Art. 46, specific performance of the breaching seller may arise in the form of the seller's right to delivery, substitute delivery and repair. While under Art. 62, the seller may require the breaching buyer to pay the price, take delivery or perform his other obligations, unless the seller has resorted to a remedy which is inconsistent with this requirement.
Besides specific performance, the right to obtain damages for a breach of contract plays an important role within the CISG. Damages (or monetary compensation) may be the only available remedy for an aggrieved party if, e.g. the requirements for granting specific performance or the right to avoid the contract are not met. It can, therefore, also be argued that damages are the primary remedy pursuant to the CISG. Moreover, the aggrieved party's right to obtain monetary compensation supplements substantionally the rights to require specific performance and avoidance in that he always has the right obtain damages. For the sake of putting the aggrieved party into as good a position as he would have been had the contract been performed as agreed, the aggrieved party has, therefore, always a right to claim for damages in addition to a claim for specific performance or avoidance. 46 Damages include not only compensation for the expenses incurred by a party, but also the loss of profit. The amount of damages is limited by two conditions: foreseeability and mitigation. Foreseeability means that damages may not exceed the loss that the party in breach foresaw or should have foreseen (Art. 74). The mitigation rule imposes on the innocent party the duty to mitigate the loss (Art. 77). The right to receive interest is also available in addition to the right to damages (Art. 78).
Arts. 49 and 64 of the CISG provide an aggrieved the right to declare the contract avoided. Avoidance of contract under the CISG puts an end to the performance obligations of both parties. It is, however, required that the breach is a fundamental breach. 47 The idea behind this is said that the CISG was designed to take into account the special characteristics of the international sale of goods, such as long distances involved, costs of transportation and the length of the term of the contracts. Due to this design, the CISG emphasises remedies that seek to preserve the contract notwithstanding a breach. 48 This deliberation is further supported when the CISG provides a tool in Art. 47/63, familiar to the German legal system and known as the Nachfrist principle, where the aggrieved has the option of fixing an additional period of time for the breaching party to perform his obligations, and during that period he may not resort to any other remedy for the breach, unless he receives notice that the other party will not perform.
Moreover, the CISG contains additional remedies besides the above mentioned. Firstly, as for the anticipatory breach, besides the right to avoid the contract as contained in Art. 49/64 when an anticipatory fundamental breach exists (Art. 72), the CISG provides a possibility to suspend performance in certain situations as provided for in Art. 71. Under this Article a party may suspend the performance of his obligations if, after conclusion of the contract, it becomes apparent that the other party will not perform a substantional part of his obligations. Secondly, the CISG evidences a solicitude for the interests of the seller in "curing" defective performance of the contract. Where a breach has occurred, the CISG encourages the Seller to keep his contractual promises by offering him the express right to cure his own mistakes (Art. 48). Thirdly, the Buyer has, according to Art. 50, the right to a reduction of price in the case of non-conformity of goods. The right to a reduction in price serves as an alternative to damages being a kind of restitutionary measure of monetary relief, available even where the buyer is not entitled to avoidance. Fourthly, if under the contract the buyer is to specify the form, measurement or other features of the goods and he fails to make such specification either on the date agreed upon or within a reasonable time after receipt of a request from the seller, the Seller may, without prejudice to any other rights he may have, make the specification himself in accordance with the requirements of the buyer that may be known to him (Art. 65).
Chapter 7 of the UNIDROIT Principles dealing with remedial issues is significant on at least two levels. In practical terms, it is the substantive heart of the whole Principles. It is where the Principles' solutions to a large proportion of real world disputes in commercial transactions are to be found. It will be a powerful support for the harmonization of actual outcomes and improve the reliability of the often unpredictable results of disputes. The substantive content of Chapter 7 is important as an illustration of the creative power of the UNIDROIT Principles. Chapter 7 is also important as an example of how the Principles work and of their usefulness in the emerging pattern of harmonized international commercial law. Chapter 7 brings closer together the substantive outcomes in courts, arbitral tribunals, and institutions of alternative dispute resolution in different legal systems, thus providing a prime example of how harmonization of international commercial law can improve the law. 49
Chapter 7 is divided into four sections made up of 31 articles. Like the CISG PART III, UPICC Chapter 7 is systematically structured to favor the existence and performance of the contract and to minimize the instances in which the contract is terminated before performance is complete. Section 1 focus on bringing about performance of the contract and avoiding termination, especially with the devices such as Cure by Non-performing Party (Art. 7.1.4) and Additional Period for Performance (Art. 7.1.5), designed to bring about performance rather than contract failure after difficulties have been encountered by the parties during performance. Moreover, Section 2 takes a superior and more harmonious path dealing with the right to performance, what Common-Lawyers call specific performance and which is the basic preferred remedy in the CISG as well as in many legal systems of the world. Arts. 7.2.1 (Performance of Monetary Obligation) and 7.2.2 (Performance of Non-monetary Obligation) states the general preference for orders to perform, but Art. 7.2.2 notes exceptions to this general rule. Art. 7.2.3 further deals with the issue of Repair and Replacement of Defective Performance.
Although often regarded as the most drastic and last resorted remedy in case of non-performance, the right to termination is ensured by Section 3 of Chapter 7, functioning equally as CISG's avoidance provisions, when performance are so late or so defective that the aggrieved party cannot use it for its intended purpose, or the behaviour of the non-performing party may in other respects be such that the aggrieved party should be permitted to terminate the contract. In this Section, Arts. 7.3.1 and 7.3.2 state generally the issues of Right to Terminate the Contract and Notice of Termination. Arts. 7.3.3 and 7.3.4 then deal with Anticipatory Non-performance and Adequate Assurance of due Performance in case of anticipatory non-performance. And Arts. 7.3.5 (Effects of Termination in General) and 7.3.6 (Restitution) finally clear the effects of termination.
Finally, as almost all legal systems or instruments do, Section 4 of Chapter 7 provides damages to the aggrieved party. Arts. 7.4.1 and 7.4.2 state the general Right to Damages and the underlying principle of Full Compensation, subject to the limitations such as Certainty of Harm (Art. 7.4.3), Foreseeability of Harm (Art. 7.4.4) and Mitigation of Harm (Art. 7.4.8), and lessing Harm Due in Part to Aggrieved Party (Art. 7.4.7). In addition, interests is also grouped under the heading of damages in Section 4 and dealt with separately under the titles of Interest for Failure to Pay Money(Art. 7.4.9) and Interest on Damages (Art. 7.4.10).
Under the PECL, two chapters establish the remedial scheme: Chapter 8 deals with Non-performance and Remedies in General. Art. 8:101 states the remedies available as: "(1) Whenever a party does not perform an obligation under the contract and the non-performance is not excused under Article 8:108, the aggrieved party may resort to any of the remedies set out in Chapter 9. (2) Where a party's non-performance is excused under Article 8:108, the aggrieved party may resort to any of the remedies set out in Chapter 9 except claiming performance and damages. (3) A party may not resort to any of the remedies set out in Chapter 9 to the extent that its own act caused the other party's non-performance."
Thus, the remedies available for non-performance depend upon whether the non-performance is not excused, is excused due to an impediment under Art. 8:108 or results from behaviour of the other party. A non-performance which is not excused may give the aggrieved party the right to claim performance - recovery of money due (Art. 9:101) or specific performance (Art. 9:102) - to claim damages and interests (Arts. 9:501 through 9:510), to withhold its own performance (Art. 9:201), to terminate the contract (Arts. 9:301 through 9:309) and to reduce its own performance (Art. 9:401). If a party violates a duty to receive or accept performance the other party may also make use of the remedies just mentioned. A non-performance which is excused due to an impediment does not give the aggrieved party the right to claim specific performance or to claim damages (Article 8:108). However, the other remedies set out in Chapter 9 may be available to the aggrieved party. The fact that the non-performance is caused by the creditor's act - or omission has an effect on the remedies open to the obligee. It would be contrary to good faith and fairness for the creditor to have a remedy when it is responsible for the non-performance. This effect may be total, that is to say that the creditor cannot exercise any remedy, or partial. The exact consequence of the creditor's behaviour will be examined with each remedy. 50
It is to be noted that the PECL similarly provides the additional remedies as contained in the CISG or in the UPICC such as cure by non-performing party (Art. 8:104), assurance of performance in case of anticipatory non-performance (Art. 8:105) and notice fixing additional period for non-performance (Art. 8:106). However, it is should also be mentioned here that the party's right to withhold its own performance as contained in PECL Art. 9:201 (as well as in UPICC Art. 7.1.3, CISG Art. 58) until the other party performs its obligation will not be given detailed discussion in this contribution. This right is not regarded as a remedy for breach of contract. 51
As demonstrated above, three basic remedies are provided by each of the three instruments, namely specific performance, damages and termination of the contract. However, the discussions in this contribution are premised on the assumption that the parties have not chosen some other remedy or remedies within their contractual relationship. Any such remedies chosen by the parties would obviously fall outside the scope of this contribution and will not be given detailed discussion. The most important principle of each of the three instruments must be mentioned here, however, that is to regard the contract made between the parties as prevailing.
Contractual freedom is thus the rule, also reflecting the start point for various legal systems in general. Moreover, it is important to note that the remedies available for a breach of contract will be subject to, not only the agreement made between the parties, but also any practice or usage which can be regarded as an implied part of the agreement. In case of a breach of contract it is, therefore, necessary to first look into the contract executed between the parties or any practice or usage of relevance. 52 Only if the agreement and any relevant practice or usage is silent, the provisions of the applicable rules - CISG, UNIDROIT Principles or PECL or any other laws-- concerning remedies will be at hand. However, it should also be noted that, in cases of such remedies chosen by the parties or implied by relevant practice or usage, potential uncertainty may arise depending on the types of remedies chosen by the parties. This becomes a clearer problem in the context of the CISG. Art. 4 of the CISG sets forth the scope of the CISG and expressly excludes "the validity of the contract or of any of its provisions or of any usage". Although the CISG does give the parties the freedom to choose their own remedies, it is not necessarily clear that these remedies will be enforced the same way in every country, if at all. 53
Another important issue related closely to remedial scheme deals with situations in which a party is not able to perform due to the change of circumstances, in the form of hardship or force majeure. It is true that, unlike under ULIS, the remedies available under the Convention or in the two Principles are not effected by a particular type of breach. In general, the type of the breach is of no importance in determining which remedies are available. 54 However, on the other hand, the remedies available for non-performance depend on whether the non-performance is excused. This point is made clear by the Official Comment to the PECL, 55 and similar approaches may also be found in the CISG or in the UNIDROIT Principles. In general, if the non-performance is excused, the aggrieved party does not have the right to claim damages under each of the three instruments. Nor, under the UNIDROIT Principles and the PECL where an excused non-performance arises, can the aggrieved party require specific performance. While under the CISG Art. 79, there seems to be no textual basis for the exclusion of specific performance even in such impediments as making performance impossible.
Finally, it should be noted that "fault" is not generally a prerequisite to a finding of contractual liability. However, if the non-performance is caused by the obligee's act - or omission - he may not resort to any of the remedies. Non-performance is applied for cases of failure to perform where the obligor carries the risk. The obligee has no remedies against the obligor if he is unable to receive the performance due to his own "fault". His failure to receive performance may in itself be a non-performance which may give the other party remedies such as the right to terminate the contract.
41. Supra. note 2.
42. See Nayiri Boghossian in "A Comparative Study of Specific Performance Provisions in the United Nations Convention on Contracts for the International Sale of Goods": Pace Review of the Convention on Contracts for the International Sale of Goods, Kluwer (1999-2000); p. 15. Available online at ‹http://www.cisg.law.pace.edu/cisg/biblio/boghossian.html›
43. See Robert Koch in "The Concept of Fundamental Breach of Contract under the United Nations Convention on Contracts for the International Sale of Goods (CISG)": Pace Review of the Convention on Contracts for the International Sale of Goods (CISG) 1998, Kluwer Law International (1999); p. 297. Available online at ‹http://www.cisg.law.pace.edu/cisg/biblio/koch.html›
44. Supra. note 13, p. 10. In general, the CISG has features that are familiar from both of the two major legal systems, i.e. civil and common law systems. However, on the other hand, the CISG is an international convention which reflects the compromise between civil law and common law aspects; and it has therefore not been possible to achieve a totally uniform scheme of remedies compared with different domestic legal systems. The range of remedies is more comprehensive than what is available under common law and some of these remedies are even foreign to common law.
45. Supra. note 2.
47. Under the Convention, apart from the damages remedy, avoidance and substitute delivery are only available when a fundamental breach occurs.
48. In a broad way, remedies for breach of contract in sales law can be broken into two main categories: one where the contract can be terminated or avoided by the parties, the other where the remedy is granted while the contract remains in force. Since parties will typically expect their contracts to be performed or at least stay in effect, the primary emphasis should be on the remedies that operate without having to avoid the contract. (See Peter A. Piliounis in "The Remedies of Specific Performance, Price Reduction and Additional Time (Nachfrist) under the CISG: Are these worthwhile changes or additions to English Sales Law?"(1999). Available online at ‹http://www.cisg.law.pace.edu/cisg/biblio/piliounis.html)›
49. See Arthur Rosett in "UNIDROIT Principles and Harmonization of International Commercial Law: Focus on Chapter Seven". Available online at ‹http://www.unidroit.org/english/publications/review/articles/1997-3.htm› .
50. Supra. note 10, Comment B.
51. See Ole Lando in "Salient Features of the Principles of European Contract Law: A Comparison with the UCC": 13 Pace International Law Review (Fall 2001); p. 360. Available online at ‹http://www.cisg.law.pace.edu/cisg/biblio/lando.html›
52. Supra. note 2.
53. One such example would be if the parties operating under the CISG specifically agreed that the only available remedy was specific performance. Under English law, e.g., specific performance is a discretionary remedy. While it is unlikely that the parties would agree to such a remedy, there would be no conflict between the agreement for specific performance and Art. 46 of the CISG. On the other hand, an English court applying general legal principles would be unlikely to grant specific performance where the court did not consider that the situation merited the exercise of discretion in favour of specific performance. A more likely issue is the question of the quantum of damages agreed by the parties. Under the CISG, there is no limit on the amount of compensation that may be agreed to be paid upon breach of a contract. In contrast, English common law draws a distinction between genuine pre-estimates of damage (referred to as "liquidated damages") versus clauses viewed as punitive or penal. Penalty clauses are considered invalid and will not be enforced by an English court. So while the parties are generally free to choose their own remedies, English law will not enforce all of the remedies, at least not to the same degree. (Supra. note 19.)
54. This principle is subject to two exceptions under the CISG. First, substitute delivery and reduction in price are only available in case of the delivery of non-conforming goods. It is disputed whether goods, which are not free of third-party rights (in the sense of Arts. 41 and 42), can be considered non-conforming. Secondly, in cases of non-delivery and non-payment or failure to take delivery, the buyer's or the seller's right of avoidance, respectively, is subject to a "Nachfrist-type procedure," which allows avoidance only after having fixed a reasonable length of time for the defaulting party to remedy his non-performance (Art. 49(1)(b) / 64(1)(b)). (Supra. note 14, p. 298.)
55. Supra. note 21.
Eric von Hippel
Erik S. Raymond