6.2 FEATURES OF CISG ART. 50

6.2.1 Unique Role and Justification

While CISG Art. 50 and other civil law versions of price reduction both originate from actio quanti minoris, it is important to be cognizant of the distinctions embodied in the CISG remedy of price reduction.

Despite the background of Art. 50 of the CISG, the price-reduction remedy does not play the same role within the context of the Convention as in some civil law system: "It has been pointed out that in the Civil law, rescission and reduction of price are the normal remedies for a buyer who has been delivered non-conforming goods, and damages are, in principle, the exception. In large measure this is because damages can be recovered in the Civil law only if the non-performing party was at fault. Contractual fault can, of course, be understood in ways that lead to a blurring of the distinction between fault and no-fault liability. However, to the extent that contractual fault requires more than the mere showing that the goods delivered were non-conforming, reduction of price provides a remedy by way of monetary relief even though damages are not available for that non-conformity."  ²⁹⁶  However, "[t]he damages provisions of the United Nations Convention on the International Sale of Goods undermine the need of the reduction of the price remedy contained in its article 50 because, unlike the Civil Law system, the CISG, following the Common Law approach, does not require fault of the seller in order to make him liable for damages."  ²⁹⁷ 

Thus, it may be inferred that reduction of price does not have the same justification in the Convention as it does in some Civil law systems. Under the CISG, the justification for a reduction of price for non-conforming performance is a reformation of the original contract which retains the relative balance of the bargain made by the parties: "If the buyer made a bad bargain, in that he contracted to pay more than the value of the goods or the price went down between the conclusion of the contract and the delivery date the buyer has just as bad a bargain in percentage terms after the price has been reduced. If the buyer made a good bargain, after reduction of the price he has just as good a bargain in percentage terms as at the time of the original contract. Where the buyer made a good bargain and therefore would recover more in damages than by reducing the price, the Civil law allows him to claim the higher amount of damages, thereby breaking the original balance of bargain, only if he can show that the seller was at fault. However, since the buyer does not need to show any fault on the part of the seller in order to claim damages under the [...] Convention, reduction of price loses one of its primary theoretical justifications and becomes an alternative form of monetary relief to the buyer."  ²⁹⁸ 

Consequently, the buyer loses the advantages of a profitable purchase if, between the conclusion of the contract and the date of delivery, the price of the delivered but non-conforming goods increases more than the price of conforming goods.  ²⁹⁹  And as to be demonstrated infra. 6.3.3, the remedy of price reduction under the CISG thus becomes an alternative form of monetary relief at the option of the buyer.

6.2.2 Self-help Remedy

Perhaps, the most straightforward feature of Art. 50 is the manner in which it operates: "While civilian legal systems require expert advice or the court to determine the difference in value between the contract price and the actual value, the CISG gives this power of determination solely to the buyer. On this basis, price reduction can be seen as a self-help remedy that can be implemented by the buyer without any requirement to have the determination upheld by a court, expert or other tribunal."  ³⁰⁰ 

Unlike a buyer's damage claim or his right to specific performance, which each relies on the seller or the tribunal's decision, a price reduction claim under Art. 50, which is drafted from the perspective of the buyer, gives the buyer the ability to unilaterally declare a price reduction, even before it has paid. Thus, it is the buyer that has the option and the power to reduce the price paid to the seller. Even the only other remedy under the Convention which is effectuated by the unilateral act of a party, i.e. declaration of avoidance of contract, is required to be made by notice to the other party, no such requirement is placed on the declaration of reduction of price. Presumably it must be done by means appropriate in the circumstances, but it may well be that one such means would be the statement of claim or defense in a law suit. Furthermore, unlike the buyer's other remedies of Art. 46 specific performance and Art. 49 avoidance, Art. 50 may not be subject to a "reasonable time" requirement.

In practice, however, this difference is largely illusory. Any price reduction by the buyer must certainly be reasonable, otherwise it would be disputed by the seller and subject to review by a court. During these proceedings, expert evidence would in all likelihood be adduced as to the value of the goods. Additionally, the burden of proof on the value of the goods (both the value of delivered goods and conforming goods) is squarely on the buyer. The self-help view of the remedy is further reduced where the buyer has already paid the purchase price. Art. 50 applies "whether or not the price has already been paid." If the buyer chooses to reduce the price before it has paid, it can merely deduct the difference in value from what it pays to the seller. Where the price has already been paid, the buyer must seek a refund from the seller for a portion of the purchase price. Most parties would prefer to be the defendant in any action rather than the plaintiff, and this situation illustrates this principle if the seller refuses to cooperate with the price reduction, the buyer will be required to commence legal proceedings to recover the price difference. This is a much more onerous remedy than the buyer unilaterally determining a price reduction and deducting it from the price it pays to the seller.  ³⁰¹ 

Therefore, as stated by Williams: "Price reduction is said to be advantageous because it is a self help remedy. This supposed advantage is, however, unlikely to be of much use in the majority of international sales since, in most cases, the price will have already been paid. Thus, the Buyer would have to go to court to reclaim part of the price."  ³⁰²  From the point of view of the final adjustment of the financial obligations of the parties, it is of no consequence that the price is reduced by the buyer's unilateral declaration. "On the other hand, some consequences may attach to the fact that the price is reduced by the unilateral act of the buyer. A declaration would probably constitute a binding election of remedies. It may affect the running of a period of limitation and it may have procedural consequences under the law of the forum. None of these matters, however, is governed by the [...] Convention itself."  ³⁰³ 

Interestingly, it was found that in practice Art. 50 was not used "offensively" by the buyer. Instead, it found use predominantly as a counterclaim or a defence to an action by the seller for the purchase price. Such a result is in some respects not surprising. Where there is no dispute between the parties as to the amount of the reduction, the matter would not come to court and the remedy would act in its intended manner: as a self-help remedy of the buyer. This way the remedy avoids the costs and uncertainty of litigation. Where there is a dispute over the price to be paid, then the matter could proceed to litigation. Once the matter proceeds to litigation, the buyer who has already paid the purchase price would in most cases seek the full level of damages for the breach rather than merely reducing the price. Price reduction would usually only come to light where the seller is making a claim against the buyer for the purchase price and the buyer is seeking to reduce or eliminate the obligation to pay the price.  ³⁰⁴  Nevertheless, as to be demonstrated infra. 6.3.3, CISG Art. 50 retains certain important uses for commerce.

6.2.3 Seeming Advantages

It is said that an Art. 50 price reduction seems advantageous for the buyer especially as opposed to damages because it is not subject to the same limitations as damages. First of all, while a seller may escape liability from having to pay damages if he can successfully assert a foreseeability or force majeure defense, these exemptions are specifically not applicable to Art. 50. However, on the one hand, "[i]t may be doubted whether it is of great significance that the remedy of reduction of price is not subject to the test of foreseeability. It would always appear to be foreseeable that non-conformity in respect of quantity or quality would lead to a reduction in value of the goods, although the amount of that reduction might not be foreseeable. This assumption is so strong that under the UCC the requirement that the loss be foreseeable explicitly applies only to the buyer's consequential damages, but not to his direct or incidental damages."  ³⁰⁵  Nevertheless, on the other hand, as to be demonstrated, the fact that "exemption" from damages in case of force majeure under Art. 79 is not applicable to reduction of price has real consequences in the overall remedy scheme of the Convention.

Also, it is said that Art. 50 may even provide further insulation to a buyer if the view is accepted that Art. 50 is not subject to Art. 77, which imposes a duty on the buyer to mitigate her losses. However, even the mitigation principle does not apply to reduction of price, the same result is achieved by Art. 50 itself. According to the second sentence of Art. 50, even if the buyer has already declared the price reduced, if the seller remedies any failure to perform his obligations in accordance with Art. 37 or Art. 48, e.g., by sending the missing goods, by repairing the defect or by sending replacement goods, or if the buyer refuses to accept performance by the seller in accordance with those articles, his declaration of reduction of price will be of no effect.