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 A LAW FOR INTERNATIONAL SALE OF GOODS
0
Michael Bridge*

Commercial sale of goods transactions are remarkably diverse, rangingfrom the

sale of precision, manufactured goods, where negotiations and post-delivery trials
may be complex, to the sale of commodities such as grain and oil, which take place
in impersonal and expedited circumstances. The market backgroundmay be stable,
as in the former case, or highly volatile, as in the lattercase. This article concentrates
on the differences between these two types of sale and assesses the suitability of two
instrumentsfor dealingwith them. One instrumentis the United Nations Convention
on the InternationalSale of Goods 1980, which has been widely adoptedby nations
all round the world. The other is the United Kingdom Sale of Goods Act 1979,
which is replicated in substance in the Hong Kong Sale of Goods Ordinance (Cap
26). English law plays a dominant role as the law applicable to commodity sales
whose performance is in no way connected to England. Commodity traders have
resisted the application of the United Nations Convention. Comparingthe merits
and limitations of the two instruments, the article concludes that the United Nations
Convention may be better suited for the sale of manufacturedgoods and the Sale of
Goods Act (with a well-establishedcase law) for commodity sales.

Introduction

The United Nations Convention on the International Sale of Goods

(CISG) was signed in Vienna in 1980 and came into force in 1988. The
process of drafting and signing the CISG took 12 years, but it built upon twin
predecessor instruments that were signed at The Hague in 1964 and were
themselves the product of an extensive process of consideration, beginning
with the pioneering efforts in the 1920s of the great German jurist, Ernst
Rabel. The CISG is celebrated for having been deliberated on and subscribed
to by a large number of nation states from different legal traditions. An
examination of its various provisions shows the influence of both com-
mon law and civil law.' The concerns of socialist states are evidenced in its

* Professor Michael Bridge, University College London. This is a revised version of the Jerome Chan
Memorial Lecture that was delivered at the University of Hong Kong on 28 March 2007.
1 These cannot be listed in full, but for example the civil law influence is evident in the emphasis
placed on requiring performance as a remedy (Arts 46 and 62) and the price reduction remedy
(Art 50), while the influence of the common law can be seen in the liability in damages of a party in
the absence of personal fault (Arts 74-76) and in the requirement that goods supplied be reasonably
fit for purpose (Art 35).
18 Michael Bridge (2007) HKLJ

provisions, though in a less extensive way.' Similarly, the concerns of devel-

oping states make an occasional appearance.' At the current date, 70 States
have adopted the CISG. That number includes most of the major trading
nations of the world. The UK and Japan, however, have not joined the ranks
of Contracting States.' Neither has Hong Kong.
Participation in any area of uniform legal activity involves compromise
and an acceptance of the adage that the best is the enemy of the good. No
country, whether of civil or common law character, can expect to adopt an
instrument that does not involve at least some measure of departure from
cherished legal traditions. The question is how extensive will the sacrifice
have to be before it constitutes a fatal bar to treaty accession. This article will
examine the reasons, or at least some of the reasons, why the UK has not
adopted the CISG. It may be that some of these reasons hold good for Hong
Kong as well.
Sale of goods transactions are diverse and serve various purposes. The buyer
may be either a business entity or a consumer. A business buyer may be
acquiring goods for its own use or consumption, or it may be looking to resell
the goods. Goods may have a lengthy commercial life, a piece of sophistic-
ated machinery perhaps, or they may be raw materials acquired on a just-in-
time basis by a manufacturing buyer. Depending on the type of goods, their
delivery may be a simple matter, further to an informal and rapidly concluded
contract of sale, or delivery, trials and examination may take place over a
protracted period. A ship is an excellent example of the latter case. Goods
may either be relatively insensitive to market movement or they may be traded
in volatile market conditions. Although the cost of labour and raw materials
rising at intervals will affect a manufacturing seller's profit margin, its prices
on the whole will be modified at reasonably lengthy intervals, even though
changes in the market rate for raw materials and labour will be more fluid.
Commodities, such as oil, on the other hand, are sold in market conditions
where changes in the price can vary dramatically from week to week, and
even day to day. Sometimes rapid market movements can affect indirectly
substantial items whose value might not on first impression be expected to be
volatile. Changes in ocean freight rates can occur rapidly' and these will feed

2 See Arts 11, 29(2) and 96, dealing with formalities.

See Art 39 and the length of a reasonable time for the buyer to give notice of a defect in the goods,
which gave rise to extensive deliberation: see the deliberations of the First Committee at the 1980
diplomatic conference (16th Meeting A/CONF.97/C.1/SR.16 and 21st Meeting A/CONF.97/C.1/
SR.21), reproduced in J. Honnold, Documentary History of the Uniform Law for International Sales
(Kluwer: Deventer, 1989), pp 541ff and 566ff.
4 There is evidence of preparation on the part of Japan (and Turkey) to adopt the CISG.
5 "[Sihip demand, measured in ton miles of cargo, is mercurial and quick to change, sometimes by
as much as 10-20 per cent in a year": M. Stopford, Maritime Economics (London: Routledge, 1997),
p 117.
Vol 37 Part 1I A Law for International Sale of Goods 19

quickly into the value of a ship in the sale and purchase market, which in
turn will determine whether the ship is sold for scrap sooner rather than later.'
The sales statute that can accommodate with ease and equality these dif-
ferent types of goods and the transactions in which they are bought and sold
has not yet been drafted and may never be.' Neither the UK Sale of Goods
Act 1979 nor the CISG is sufficiently protean to embrace in such a spirit the
differing values of different sales environments. It is no accident that both
instruments accord a wide degree of freedom to the contracting parties to
depart from the presumptive rules of performance that they contain, which
indicates some reining in of ambition. That does not however mean that the
starting-points of the CISG and the Sale of Goods Act are the same. The
CISG is a sales instrument that makes it difficult to terminate (or avoid, in
the language of the CISG itself) a contract. The Sale of Goods Act which,
despite modem changes, is basically the same statute as the Hong Kong Sale
of Goods Ordinance, makes it relatively easy to terminate contracts.8
These judgments on the two instruments are superficial. This article will
try to demonstrate why these judgments have been formed and how far they
may be accurate. As points of reference, it will be helpful to bear in mind the
distinction between a market sensitive item, like oil or another commodity,
and a market insensitive item, like heavy machinery. This article expresses
the view that the Sale of Goods Act is better equipped to deal with the former
than with the latter, and the CISG is better equipped to deal with the latter
than with the former. This article shall make this contention by focusing on
a number of aspects of the Sale of Goods Act and the CISG, whilst also
drawing attention to deficiencies in both instruments.

Quality and Fitness Obligations

There is much in common between the Sale of Goods Act and the CISG.
Both accord a prominent place to fitness for purpose' to underpin the quality
of the goods that the seller must deliver in the absence of any other express

6 When the tanker market collapsed in 1975, vessels that should have had an active life of 25 years
were being scrapped in a third of that time.
7 For the difficulties in subjecting all domestic sales transactions, commercial and consumer, to the
same sales law, see M. Bridge, "Do We Need a New Sale of Goods Act?" in J. Lowry and L. Mistelis
(eds), Commercial Law: Perspectives and Practice (Butterworths LexisNexis 2006), pp 15-47.
8 This is because so many of the implied terms are contractual conditions that give rise to termination
rights whenever they are breached, regardless of the factual consequences of the breach.
9 The Sale of Goods Act requires "reasonable" fitness and the CISG just fitness. There is unlikely to be
a real difference between the two standards: Art 7(1) of the CISG requires the Convention to be
interpreted in accordance with good faith and the concept of reasonableness in English law com-
monly produces the same results as good faith and fair dealing.
20 Michael Bridge (2007) HKLJ

quality standard in the contract."o The language of the CISG, indeed, tracks
very closely the language of the Sale of Goods Act. Both instruments, more-
over, lack any express guarantee against latent defects, a characteristic feature
of civil codes." Nevertheless, fitness for purpose, when applied to both gen-
eral and esoteric purposes, is perfectly capable of doing the work of the
guarantee against latent defects. Fitness embraces both manufactured goods,
where the existence of a defect compromises the usefulness of the goods in
the buyer's hands, and natural commodities, where quality often cannot be
achieved in the same uniform way as is possible with manufactured goods.
The protein content of a cargo of wheat is heavily dependent upon soil and
weather conditions in the season and place where the wheat was grown, and
cannot be made the subject of a continuous, uniform standard.
Where the Act and the CISG diverge, however, is in two places. First, the
CISG records the seller's express obligations concerning the quality and
description of the goods, 12 the latter not having the technical meaning that
it has under the Sale of Goods Act. The Sale of Goods Act, unlike Article
2-313 of the American Uniform Commercial Code,13 does not deal with
express warranty obligations. Secondly, and more importantly, the CISG does
not lay down an implied term of merchantable" (or satisfactory)" quality.
Merchantable quality is a very difficult concept to explain. It presupposes
a market place in which goods are sold to a variable standard. The buyer
gets the minimum standard of quality permissible in the market in which the
goods are sold.16 A buyer seeking a higher quality must bargain for a higher
standard. The philosophy of merchantable quality is suitable for natural
commodities but is quite inapt to deal with goods of an unvarying standard,
namely, new manufactured goods." Merchantable quality, moreover, is in
practice superseded in commodities markets by express terms. Formerly, grain
might have been sold with an express warranty along the lines of "fair average
quality of the season's shipments". The modem approach is now to rely upon
the grading standards imposed by agencies and to lay down requirements
concerning the maximum amount of additives and the minimum content of
oil and protein." The experience of the last decades is one of bending or
adapting merchantable quality so that it is applied to manufactured goods,

10 Sale of Goods Act 1979, s 14(3); CISG Art 35(2).

n For example, the French Civil Code, Art 1641.
1 Article 35(1).
13 Its predecessor, the Uniform Sales Act 1906, also had a provision on express warranty (s 12).
14 The concept of "merchantable" quality is still used in the Hong Kong Sale of
Goods Ordinance,
s 16(2).
15 In s 14(2) of the Sale of Goods Act, as amended, "merchantable" has been replaced by "satisfactory".
16 Taylor v Combined Buyers Ltd [1924] NZLR 627, 635.
17 The change to satisfactory quality in the UK is therefore more than semantic.
18 For example, GAFTA 100 (a CIF contract), cl 5.
Vol 37 Part 1I A Law for International Sale of Goods 21

where the work that it can do is already well accomplished by fitness for pur-
pose. Merchantable quality has become redundant and the architects of the
CISG were wise not to replicate it."

Description

One of the attractions of the CISG for a number of civil lawyers was that it
modernised a body of law that was too much grounded in the historical tradi-
tions of Roman law. In this vein, a distinction that has emerged in the civil
law in practice, even if not writ large in the codes themselves, is the distinc-
tion between the seller who delivers non-conforming goods (a peius, to use
the Latin jargon) and the seller who delivers goods that are not of the con-
tract kind at all (an aliud) and thus has not delivered at all. 20 As so often is the
case, an analytical distinction is not being made for its own sake but because
it has important practical consequences, for instance, the tolling of a limita-
tion period. Civil law systems, though laying down very lengthy limitation
periods as the general rule, 21 have been far less generous when it comes to the
seller's liability for delivering non-conforming goods.
The CISG does not tolerate the existence of any such distinction and,
although it recites in Article 35 a duty on the seller to deliver goods that
conform to their contractual description, it does not employ the concept of
description to single out goods that are different in kind or nature from those
the seller was bound to supply. The word should be understood in an anodyne
way as a component of the seller's duty to comply with its express quality
obligations in the contract. If the seller describes a machine as having a par-
ticular output capacity, then that is an express, descriptive undertaking as to
its performance qualities.
Description, in relation to the supply of something different, does indeed
have that meaning in the modern law of sale under the Sale of Goods Act,22
though a distinction between the supply of different goods and the supply
of non-conforming goods is of little practical importance. Whether a seller
delivers the wrong kind of goods or delivers non-conforming goods has little

19 When was the last time that a case could only be resolved by means of merchantable or satisfactory
quality and not by means of reasonable fitness for purpose?
20 On the distinction between the seller's delivery obligation and the guarantee against latent defects,

see eg J.Huet, Les principauxcontrats spiciaux (LGDJ, 2nd edn, 2001), §§11238 et seq.
21 Thirty years is common as the general rule, eg, French Civil Code, Art 2262. But an action to have

the contract set aside because goods are defective must be brought within a short period ('bref delai'),
which does not apply to the case where the goods delivered were not the gods ordered.
22 Reardon Smith Ltd v Yngvar Hansen Tangen (The DianaProsperity) [1976] 1 WLR 989.
22 Michael Bridge (2007) HKLJ

impact on the buyer's right to terminate the contract and claim damages for
breach of contract. Article 2 of the American Uniform Commercial Code,
like the CISG, shrinks description so as to render it just an aspect of the
seller's express warranty obligations.23 It is therefore difficult to see any reason
why the concept of description still has a part to play in the Sale of Goods
Act. Any work assigned to it can be performed by the seller's express and
implied quality obligations or basic duty of delivery. Compared to the UK
Sale of Goods Act, the CISG has a simpler and clearer sense of purpose in the
areas of description, quality and fitness for purpose.
In sophisticated international sales, implied terms of description, quality
and fitness are likely to play only a background role, the more important role
being played by express terms. That said, the leaner and simpler features
of the CISG are suited to contracting parties operating across contractual
frontiers, especially where the value of the transaction is relatively small and
there is little if any prior negotiation. The rules in the Sale of Goods Act,
more complex and dependent on an understanding of the historical back-
ground, are less suited to transactions of this type. They also play a very limited
role in international commodity sales, where express quality and analysis
clauses intervene. So far as description, for example, matters, in modem times,
it will be invoked to strike down an examination clause providing that an
independent examiner's certificate of quality and analysis is binding on
the parties. 24 Examination clauses of this type play an invaluable part in
smoothing contractual performance and in pre-empting disputes. The sur-
vival of a body of law that compromises their effectiveness is not desirable.

Termination of the Contract

The rules on termination for breach under the Sale of Goods Act and under
the CISG are starkly different. The former, backed up by case law develop-
ments, look as though they were designed with volatile markets in mind,
hence the relative ease with which a contract may be terminated. The latter
make it difficult to avoid (that is, terminate) a contract and thus appear
designed to avoid the economic waste that arises when manufactured goods
are rejected.

23 Article 2-313(1)(b). The antecedent Uniform Sales Act 1906 had a provision on express warranty
(s 12) broad enough to catch description but it also had a provision on the implied warranty of
correspondence with description (s 14). The draftsman of that Act, Williston, had some difficulty in
explaining why both provisions were needed: see. S Williston, The Law Governing Sales of Goods
(Baker Voorhis & Co Inc, rev edn, 1948), §2 2 3a.
24 See Vigers Bros v Sanderson Bros [1901] 1 QB 608 (rejection clause did not apply to breaches of
description).
Vol 37 Part 1I A Law for International Sale of Goods 23

The implied terms of description, quality and fitness in the Sale of Goods
Act are all classified as conditions of the contract,25 which means that, for
any breach, the buyer is entitled to reject the goods and terminate the con-
tract, no matter how slight are the consequences of that breach.26 As will be
shown later, no role is given in the Act to the concept of cure, though the
issue was considered at some length by the Law Commission some 20 or so
years ago.27 The consequence of the decision not to amend the Sale of Goods
Act so as to admit cure was that the decision was taken instead to introduce
some measure of control over abusive contractual termination. This is to be
found in section 15A of the Act, a provision with no Hong Kong equivalent,
which disallows rejection of the goods and termination where a breach is so
slight that it would be unreasonable to reject the goods.
At least two points are worthy of note in relation to section 15A. First,
there is no reference to good faith (in the sense of unfair conduct) as a
requirement of its application. There has long been resistance to the formal
implant of good faith in that sense into English law. This is in part because
the concept of commercial reasonableness, which emerges in statute and in
contractual construction, has been thought more suitable to deal with issues
that might in other legal systems be assigned to good faith. Secondly, section
15A is confined in its operation to the implied terms of description, quality,
fitness and correspondence to sample. It does not touch at all on time and
documentary obligations, where opportunistic termination is most likely to
be met. This area of performance, protected from statutory controls, has also
proved immune to judicial attempts to constrain termination. Judicial inter-
vention of this sort has taken two forms: first, limiting the scope of description
in section 13 of the Sale of Goods Act, so that it is confined to the narrow
identity of the contract goods;28 and secondly, developing the notion of inter-
mediate stipulations, for whose breach termination is allowed only where the
consequences deprive the injured party of substantially the whole of the agreed
contractual benefit.29
There is so far no case law on section 15A but one can be certain that it
will have only a slight impact on the exercise of termination rights. Even
when the test is applied, a buyer will still be able to terminate for a breach
of condition that produces injurious consequences far less grave than those
required by the CISG when allowing avoidance for non-performance.
According to Article 25 of the Convention, a contract can be avoided

25 Sections 13-15.
26 Section 11(2). See Jackson v Rotax Motor & Cycle Co [1910] 2 KB 937.
27 Sale and Supply of Goods 1997 (Law Corn No 160). For the inconvenient consequences of having no
statutory provision for cure to be set alongside the rules dealing with rejection and acceptance of the
goods, see J & H Ritchie Ltd v Lloyd Ltd [2007] 1 WLR 670.
28 For example, Reardon Smith Ltd v Yngvar Hansen Tangen (The Diana Prosperity) [1976] 1 WLR 989.
29 For example, Cehave NV v Bremer HandelsgesellschaftGmbH [1976] QB 44.
24 Michael Bridge (2007) HKLJ

for fundamental breach, which is defined as a foreseeable and substantial

deprivation of a party's contractual expectation. This is not the same thing
as a substantial breach of contract but probably falls short of the rigorous
standard for a discharging breach laid down by intermediate stipulation
authorities in English law. 0 As a rule of thumb, if the buyer is still able to use
non-conforming goods supplied by the seller, then under the CISG the breach
will not be fundamental.31
The requirement of foresight is also alien to English law, though the sever-
ity of the consequences that must arise before the contract can be avoided
renders it somewhat unlikely that the contract-breaker lacks the necessary
foresight. Article 25 gives cause for some concern owing to its lack of cer-
tainty. It does not state when the foresight test applies, nor who bears the
burden of proof in relation to foresight. As a matter of principle, the foresight
in question should be present at the contract date rather than at the moment
of breach,3 2 if one takes the view that avoidance rights go to the basis of the
bargain struck between the parties. In addition, since the absence of foresight
seems to function as a barrier to the avoidance of the contract by the injured
party, the burden of showing lack of foresight ought to rest upon the contract
breaker.33 In practice, the matter is likely to be quite nuanced. The defendant's
foresight will be affected by any information given by the injured party, and it
will be for the latter to prove that such information has been conveyed.
If the UK (and Hong Kong for that matter) were to adopt the CISG, there
might arise some difficulty in applying the CISG alongside existing contract
law. One of the perils of uniform legislation - and the UK has a great deal of
experience of this in the light of its membership of the European Community
- lies in its integration with native legal structures and patterns of thought."
The CISG excludes from its scope the subject of "validity". The meaning of
this undefined expression is unclear but it is quite capable of embracing the
rescission of contracts for misrepresentation. There is a consensus that other
vitiating factors, more broadly recognised across a range of legal systems, like
mistake3 5 and duress, as well as illegality, are excluded from the CISG. The
difficult point of intersection between national law and the CISG concerns
a misrepresentation with some inducing effect on the making of a contract

30 For example, Hongkong Fir Shipping Co v Kawasaki Kisen Kaisha [1962] 2 QB 26.
31 See, eg, Bundesgerichtshod 3 April 1996 (Germany) (translated at http://cisgw3.law.pace.edu/cases/
960403g1.html); Schweizerisches Bundesgericht 28 October 1998 (Switzerland) (CLOUT No 248).
32 For an application of foresight at the contract date, see Oberlandesgericht Duisseldorf 24 April 1997
(Germany) (translated at http://cisgw3.law.pace.edu/cases/970424g1.html).
33 See Bundesgerichtshof 3 April 1996 (Germany) (translated at http://cisgw3.law.pace.edu/cases/
960403g1.html).
34 A good example of this is the Commercial Agents Directive (86/653/EC), transposed by the Com-
mercial Agents (Council Directive) Regulations 1993 (SI 1993 No 3173) as amended.
3 There is a case for arguing that Art 79 on exemption from liability is capable of applying to initial
impossibility (or mistake) as well as subsequent impossibility and frustration.
Vol 37 Part 1I A Law for International Sale of Goods 25

of sale which also becomes a term of the contract. So far as avoidance under
the CISG requires a fundamental breach of that term, it is decidedly odd if
that same contract could be rescinded under English law under the much less
demanding test of an actionable misrepresentation. Rescission and avoid-
ance, though different in concept, both produce an escape from the contract.
Another point of friction concerns a matter that does not arise in English
or Hong Kong law, namely, that a buyer give notice of defect within a reason-
able time after the defect was discovered or ought to have been discovered.
This is not a matter of formal limitation periods but it functions in a way that
is not dissimilar to limitations. According to the CISG, a buyer who fails to
give a conforming notice loses certain major rights, including the right of
contractual avoidance.36 No similar curtailment of a buyer's rights exists in
English or Hong Kong law, though adverse evidentiary inferences may no
doubt be drawn from the conduct of a buyer who neglects to inform the seller
of a defect in the goods that should have been noticed. For example, a tardy
buyer may be hard put to show that a breakdown in the goods existed at the
date of delivery and did not occur through misuse by the buyer after delivery.
The really contentious feature of the CISG lies in the way that certain coun-
tries, notably Austria and Germany, drawing on their own national traditions,
have interpreted a reasonable time as a matter of a few short weeks, even
though the CISG itself sets the ceiling of a reasonable time at two years.37 In
depriving the buyer of substantial rights of redress against the seller, these
national courts have done so without any investigation of whether the buyer's
delay is in any way prejudicial to the seller or compromises the seller's right to
cure a defective delivery. The approach they have adopted has been mechanical
and unreasoned. This is one of the relatively few seriously deficient features
of the CISG.

Breaches of Time and Documentary Obligations

As stated earlier, English law takes a strict view of time obligations in the
area of international sales. A free on board (FOB) seller is therefore bound to

36 Article 39.
37 See, for example, Landgericht Miinchen 3 July 1989 (Germany) (translated at http://
cisgw3.law.pace.edu/cases/890703g1.html); Langericht Stuttgart 31 August 1989 (Germany) (trans-
lated at http://cisgw3.law.pace.edu/cases/890831g1.html). Additional cases are provided by P.
Schlechtriem and I. Schwenzer (eds), Commentary on the UN Convention on the International Sale of
Goods (CISG) (Oxford, 2nd edn, 2005), p 46 8 n 59. For a general review of the case law, see E Ferrari,
H. Flechtner, R. Brand, The Draft UNCITRAL Digest (Sellier Munich, 2004), pp 673-677. More
recently, attempts have been made to give the buyer more time: see P. Schlechtriem and I. Schwenzer
(eds), Commentary on the UN Convention on the InternationalSale of Goods (CISG) (Oxford, 2nd edn,
2005), pp 468-469 and authorities there cited, especially Bundesgerichtshof 3 November 1999
3
(Germany) (translated at http://cisgw3.law.pace.edu/cases/99110 gl.html).
26 Michael Bridge (2007) HKLJ

have the goods ready to be delivered when the ship is available to load or else
suffer a termination of the contract by the buyer." Even though the buyer's
exposure to delay under the charterparty can be quantified as the demurrage
or excess hire that it must pay the shipowner under the charterparty, this
obligation is treated as a contractual condition. It is not just the seller's duty
to deliver that attracts the rule that time of performance is of the essence.
The same view is taken of the buyer's various duties to cooperate in the deliv-
ery process. For example, the buyer's duty to give 15 days' notice of expected
readiness to load under a standard type of FOB contract has been held to be a
condition.39 In addition, the buyer's duty of timely payment, in international
sales at least, is treated as being of the essence of the contract. A buyer who
fails to open a letter of credit within the stipulated period thereby commits a
discharging breach of contract." The remarkable feature of this development
is that it runs completely against the grain of the Sale of Goods Act, which
states that the time of payment is presumptively not of the essence of the
contract." A striking feature of the law of international sales as developed by
the English courts is that it is almost wholly a law of contractual construc-
tion. A consequence of this is that the Sale of Goods Act is cited only
infrequently in decided cases. The diminished role of the Act in interna-
tional sales is not without relevance to the question whether the Act or the
CISG is the more suitable instrument for dealing with international sales.
At various times in the development of the law, attempts have been made
to question the motives of a contracting party exercising rights of termina-
tion when not in fact suffering real prejudice as a result of the breach of
contract. Time and again, courts have made it plain that it is not their busi-
ness to explore the motives of the party terminating the contract." Their
business is to provide the commercial certainty that is the driver of inter-
national trade. And yet, the very reason that closes off any investigation
of motive, or any effort to call contracting parties to account for behaviour
that breaches the standard of good faith and fair dealing, ensures that there is
little discussion in the case law of commercial certainty and of the need
to exercise judicial restraint when contractual rights are implemented. The
English courts see the sense of leaving certain matters well alone. Another
way of explaining the stance taken by English courts is to say that they offer to

38 Cie Commerciale Sucres et Denrees v Czarnikow Ltd (The Naxos) [1990] 1 VLR 1337.
39 Bunge Corp v Tradax Export SA [1981] 2 All ER 513.
40 See InternationalAsset Control Ltd v Films Sans FrontiaresSARL (The Times 26 October 1998); Wahbe
Tamari & Sons Ltd v 'Colprogeca' etc Lda [1969] 2 Lloyd's Rep 18, 22.
41 Sale of Goods Act 1979, s 10(1).
42 For example, Bowes v Shand (1877) 2 App Cas 455; Cargill UK Ltd v Continental UK Ltd [1989] 1
Lloyd's Rep 193, [1989] 2 Lloyd's Rep 290; Richco International Ltd v Bunge & Co Ltd (The New
Prosper) [1991] 2 Lloyd's Rep 93.
Vol 37 Part 1I A Law for International Sale of Goods 27

robust international corporate actors a largely deregulated zone of contractual

activity. Parties selecting English law, which very frequently they do in the
commodities trade, are offered expert arbitration in the City of London and
an informed judiciary, which, in accordance with arbitration legislation,
exercises lightly powers of supervision over arbitral awards. Just as statutory
legislative controls over exclusion and limitation clauses are disapplied in
international sales, so English courts refrain from controlling abusive exer-
cises of contractual power.
It has been argued elsewhere that powerful contracting parties, dealing
with each other on a regular recurring basis, are perfectly capable of imposing
their own commercial sanctions.13 A party availing itself of termination rights
in an abusive way may find itself on the receiving end of similar behaviour in
a future contract. Contractual termination rights may even be invoked by a
party against its own immediate interests when it seeks to teach the other
party a lesson. This may well explain why, in one decision of the House of
Lords, a seller seized on a time breach committed by the buyer on a falling
market when that buyer was willing to perform."4 The commercial logic, of
course, is that sellers exercise termination rights on rising markets and buyers
on falling markets.
The approach adopted by the CISG to time obligations is somewhat dif-
ferent. First of all, the Convention grants a particular right of avoidance
reserved for time breaches." In a way similar to making time of the essence at
common law, the application of which idea is not straightforward in sale of
goods transactions, the CISG allows buyers and sellers to set an additional
period of time of reasonable length for the other to perform and, at the end of
this period, to avoid the contract if performance is still unforthcoming. This
is a second route to contractual avoidance, distinct from fundamental breach.
It does not depend upon showing that the prejudice arising from the delay in
performance amounts to a fundamental breach and it does not mean that
time breaches cannot be fundamental breaches.
Since time breaches are very much in the forefront of concerns about
tactical contractual termination or avoidance, the possibility of a role
accorded to good faith and fair dealing in the CISG needs to be considered. A
principle of that name is present in the Unidroit Principles of International
Commercial Contracts, 6 as well as in the Lando Principles of European Con-
tract Law.17 Its insertion in the CISG, however, was vigorously contested and

43 M. Bridge, "Good Faith in Commercial Contracts", in R. Brownsword and G. Howells (eds) Good
Faith in Contract: Concept and Context (Dartmouth, 1999), pp 139-64.
44 Bunge Corp v Tradax Export SA [1981] 2 All ER 513.
4' Articles 47 and 63.
46 Article 1.7.
47 Article 1:201.
28 Michael Bridge (2007) HKLJ

resisted. In the result, a compromise was reached by which the contracting

parties themselves were not bound by any such duty in their mutual dealings
but a duty was imposed instead on the tribunal to interpret the Convention
so as to ensure good faith in international trade. Since the test for a funda-
mental breach is so difficult to satisfy, the prospect of an abusive avoidance
of the contract is hard to imagine in such a case. This is one reason why
the good faith standard of interpretation has made no substantial appearance
in the case law on the CISG. But the scope for applying good faith is more
apparent in the case of a party who makes time of the essence and then
invokes the relevant provisions of the CISG to justify avoidance. There is
some possibility that a court interpreting those provisions might read into
them a condition that they be applied in favour of the party serving notice
only where this is done in good faith, though no evidence so far that this
position has arisen in the case law.
English law notoriously treats documentary performance in a strict man-
ner. This is apparent in various ways. There are parallels between the rules
governing CIF performance and documentary compliance with letters of credit:
in both cases, the standard of compliance is a strict one. A bank is entitled to
reject non-compliant documents, the nature of such non-compliance being
defined by reference to international standard banking practice. CIF sellers'
attempts to contract out of their strict documentary duties have encountered
stem judicial opposition in the application of the contra proferentem rule of
contractual interpretation." In one House of Lords case dealing with CIF
contracts, Lord Sumner declared that the buyer was entitled to receive docu-
ments that would pass current in commerce, with the result that the buyer
was entitled to reject documents failing to meet this standard and terminate
the contract."9 Cases on documentary breach do not consider the factual con-
sequences of breach. Indeed, if one were to consider what damages a buyer
might recover for just the documentary breach itself, as opposed to any
underlying physical breach of the contract, the buyer would recover modest
or even nominal damages, subject to one exception." Lord Sumner's state-
ment of the currency principle, furthermore, is insensitive to the question
whether the buyer does indeed intend to negotiate the documents in transit.
The buyer might be an end buyer, though even an end buyer might need to
pledge the shipping documents with a bank to raise short-term finance. The
movement in modern shipping practice towards non-negotiable bills of
lading and sea waybills, and away from the negotiable marine bill of lading,

48 SIAT di del Ferro v

TradaxOverseas SA [1980] 1 Lloyd's Rep 53.
49 Hansson v Hamel and Horley Ltd [1922] 2 AC 36.
50 James Finlay & Co Ltd v NV Kwik Hoo Tong Handel Maatschappij [1929] 1 KB 400.
Vol 37 Part 1I A Law for International Sale of Goods 29

owes much to the insight that end buyers often do not need a bill of lading
that can be negotiated.
As for the CISG and its treatment of documentary duties, it is a blank
page. The CISG in this respect is not unlike the Sale of Goods Act itself,
which is mute on the subject of the seller's documentary duties and the legal
consequences of a breach in relation to them. At least the CISG makes some
reference to the duties themselves," whereas the Act does not. The real point
of course is that there has been time to develop a rich body of case law on
documentary duties under the Act, whereas, even after 20 years of its applica-
tion, there is insufficient evidence in the case law of any distinctive approach
in the CISG to the strictness of the seller's documentary duties and the con-
sequences of non-conformity in the documents. This is a point that will be
returned to in the conclusion.

Curing Defective Performance

One of the cherished features of Article 2 of the American Uniform Com-

mercial Code is the principle of cure, by which a seller is entitled to correct or
improve a defective delivery of the goods.52 Cure thus places limits on the
buyer's rights of rejection of the goods and termination of the contract that
would otherwise exist further to the so-called perfect tender rule. The pri-
mary justification for cure is that it reflects what merchants do in the real
world of commerce and the law of sale should be anchored in the customs and
mores of that world. In the case of manufactured goods, especially bespoke
goods, cure is capable of playing a major role in the avoidance of the eco-
nomic waste that would otherwise occur if the goods were rejected. No
provision is made for cure in the Sale of Goods Act and there are formidable
barriers to any efforts that might be devised through case law innovation.
First of all, if the Act otherwise permits rejection of the goods and termina-
tion," then any such innovation would fly in the face of the language of
the Act. Secondly, so far as goods are substituted unilaterally by the seller,
this could involve a departure from the agreed contractual description of
the goods." English law nevertheless does informally recognise cure prior to
delivery, in those cases where a tender has been made but has not been
accepted by the buyer. This applies to practices such as the giving of a notice
of appropriation of goods to a CIF contract and to the correction and

51 Article 30.
51 Article 2-508.
5 Section 11(2).
54 Section 13.
30 Michael Bridge (2007) HKLJ

substitution of documents in those cases where documents are susceptible to

such action." But the exception is a limited one.
When it considered reform of the law of sale in the 1980s, the Law Com-
mission of England and Wales considered at length the introduction of a cure
principle in reforming legislation but concluded that eventually that cure
should not be recommended. It created undesirable uncertainty in commer-
cial cases and, in consumer cases, it deprived buyers of necessary leverage
against sellers in their already one-sided relationship." Although changes
brought about in consumer sales law further to an European Commission
Directive" are designed to keep a contract alive by repair or replacement of
the goods,"8 the expression "cure" is not explicitly used, whether in the Direc-
tive itself or in secondary legislation in the UK transposing the Directive.
Furthermore, the Directive has been transposed in a clumsy way so that the
new provisions sit alongside existing statutory rules that continue to afford
the buyer strict rights of contractual termination unconstrained by a seller's
right to cure.
The principle of cure, as laid down in the CISG, has two distinct features
that distance it from its American counterpart. First, it comes in two forms,
cure of goods delivered prior to the date of delivery," and cure of goods
delivered at the due date.6 0 Secondly, there is no perfect tender rule to
be limited by cure. On the first point, since early delivery is just as much a
breach of contract as late delivery, it is by no means easy to see why there
should be a principle of cure applicable to early delivery. It is hardly if ever
likely to be needed. On the second point, the introduction of cure may
serve in practice to diminish the loss that would otherwise be suffered by the
buyer, but it is unlikely to be invoked with any frequency to prevent avoid-
ance, if only because avoidance is a strictly rationed remedy given the
fundamental breach rule of avoidance. These points may be developed by
looking at the particular rules on cure laid down in the case of goods time-
ously delivered.
The CISG in such a case allows the seller "to remedy at his own expense
any failure to perform his obligations" so long as this can be done without
causing the buyer unreasonable inconvenience.6 1 A further limitation on the

55 A bill of lading may not be treated in this way. It has to be procured on shipment and it must be clean.
An interesting question, however, would concern a bill of lading in received for shipment form that
is belatedly, after a failed tender, annotated to show that shipment was in fact made, and is thereby
converted into an acceptable on-board bill of lading.
56 Sale and Supply of Goods 1997 (Law Com No 160), paras 4.13ff.
57 Directive 1999/44/EC on Consumer Sale Guarantees.
5 Sale of Goods Act 1979, ss 48Aff.
59 Article 37.
60 Article 48.
61 Article 48.
Vol 37 Part 1I A Law for International Sale of Goods 31

seller's right is that it is subject to the buyer's right of avoidance elsewhere

provided for in the Convention.6 2 A buyer able to avoid the contract should
therefore be able to resist cure, whether the contract is avoided before or after
the seller's offer to cure is made. In this respect, the position taken by the
CISG is diametrically opposed to the position taken in the Unidroit Prin-
ciples of International Commercial Contracts, where the right to terminate
is made subject to cure and not the other way round.63 Yet, on one view that
has much to commend it, the gravity of a breach as a fundamental one under
the CISG may depend in part upon whether the seller is willing and able
to effect a cure.6 4 If this is correct, then much of the problem will go away. If
this is not correct, and assuming that buyers will avoid the contract whenever
they can, the seller's cure will be limited to non-avoidance cases, where it will
diminish the damages that would otherwise be recoverable for non-perfor-
mance, or limit the extent of a price abatement action. Even in this limited
sphere of operation, a straightforward reading of the rule would say that a
seller's right to "remedy" a breach does not embrace a patching-up of goods or
partial improvement but demands instead replacement or repair rendering
the goods as good as new. It is hard to avoid the conclusion that the imperfect
transplantation of an idea (cure) from a national legal system (American
state, uniform law) has led to a rule that will generate more academic interest
than practical outcome.
Finally, there is one aspect to cure in the CISG that would threaten dis-
turbance in the commodities trade. While the CISG is sparing of detail on a
seller's documentary performance, though it is more informative on this sub-
ject than the Sale of Goods Act, it does contain a specific rule entitling a
seller to cure documentary non-conformity. A seller who delivers documents
prior to the agreed time may up to the agreed delivery time "cure ... any lack
of conformity in the documents".65 It might seem that there is little practical
scope for this rule, but, in international sales, documents are usually deliver-
able, not according to any precise date, but rather according to a standard,
such as "as soon as possible after shipment". The reference in this rule to the
date of delivery is likely to be interpreted as being the last date in a permis-
sible range of dates, thereby affording some scope for correction to a seller
whose tender of documents is refused by the buyer. The real problem with
this rule, however, is the effect it might have on the clean documents rule.

61 Article 48(1).
63 Article 7.1.4(2).
64 J. O. Honnold, Uniform Law for InternationalSales under the 1980 United Nations Convention (Kluwer,
Deventer, 3rd edn, 1999), p 320. See also Oberlandesgericht Koblenz 31 January 1997 (Germany)
(CLOUT No 282); Landgericht Regensburg 24 September 1998 (translated at http://
cisgw3.law.pace.edu/cases/980924gl.html); Text of Secretariat Commentary on Article 44 of the 1978
Draft, para 5.
65 Article 34.
32 Michael Bridge (2007) HKLJ

Suppose that a bill of lading is for carriage to one or more north European
ports when the contract of sale itself calls for discharge in Hamburg. The
seller takes the bill of lading back to the ship's master or agent who strikes out
the reference to north European ports and substitutes with accompanying
initials Hamburg. Under English law, the buyer need not accept an unclean
bill of lading of this sort66 because it creates difficulties when it comes to
transferring or pledging the bill at a later date. But will a CISG tribunal take
the same view?

Acceptance and Restitution

A critic of the common law might say that its much vaunted strictness
towards breach of contract, which is supposed to promote the cause of com-
mercial certainty, promises less than it delivers. The right to reject goods
under the Sale of Goods is relatively easily lost, especially by the passage of
time," though there are other grounds too. The real problem with the pas-
sage of time is that no one really knows how long is the time that bars the
buyer's right of rejection. Some clarity has been achieved by statutory and
case law means in England in determining the effect of a seller's efforts to
repair or replace goods on the quantification of a reasonable time (a type
of informal cure) but the core issue of how long is the period has not been
resolved."6 A matter of a few short weeks represents the safe view of the posi-
tion under the Sale of Goods Act. When it comes to documents, the rules in
the Sale of Goods Act do not apply at all. There is a paucity of case law here
but it seems that the buyer's right to reject non-conforming documents is
more accurately stated as a right to reject a tender of documents, so that a
buyer who takes up shipping documents thereupon loses the right of rejecting
them once and for all. The buyer's documentary right of rejection is therefore
limited to the time that the buyer has to examine them at the point of tender
when deciding to take them up or reject them. The lack of authority on what
is a most important subject is striking and unfortunate, especially because any
reversion to the general law on affirmation, which is by any standard gener-
ous to the injured party,69 might have the most undesirable consequence of
documents being rejected long after they were initially received by the buyer.
The uncertainty concerning the length of a reasonable time has at least
two main consequences. First, if the buyer does not know the length of that

66 SIAT di del Ferro v TradaxOverseas SA [1980] 1 Lloyd's Rep 53.

67 Sale of Goods Act 1979, s 35 .
68 Section 35(6).
69 See especially Peyman v Lanjani [1985] Ch 457, requiring the buyer to affirm with knowledge of the
right to terminate and not just knowledge of the facts underlying the right to terminate.
Vol 37 Part 1I A Law for International Sale of Goods 33

period, the buyer who rejects goods by inviting an unwilling seller to collect
them may find that the risk of neglect and deterioration did not after all
revert to the seller. Moreover, the buyer's own action, if it involves also a
refusal to pay, may amount to an unlawful repudiation of the contract. It is
therefore difficult for any lawyer to give effective advice to a buyer seeking to
reject the goods, even in those cases where the buyer has reached the lawyer
early enough for this still to be a live issue. The second main consequence is
more benevolent. Given the brevity of any period in which the buyer holds
the goods, coupled with the infrequency of prepayment, the termination of
a contract of sale after delivery is uncomplicated in terms of restitutionary
consequences. Of course, money may have to be repaid and goods held at the
disposal of the seller, but it is unlikely that there will be live issues concerning
profits made from the goods or interest earned on the money paid to the
seller. Even if such profits and interest were there to be taken into account,
they could probably be offset against each other in most cases by a cancelling-
out operation.
Although avoidance is less likely to occur under the CISG than rejection
of the goods and termination of the contract under the Sale of Goods Act,
the rules governing the continuing availability of avoidance rights with the
restitutionary adjustments that have to be made are significantly more com-
plicated. First of all, the right of avoidance under the CISG is not time-limited.
The CISG does not contain provisions dealing with affirmation and waiver,
though cogent arguments can certainly be advanced that principles of this
nature can be inferred from the Convention as a whole, further to the provi-
sion that requires tribunals to fill gaps in the Convention with the aid of
general principles underpinning the Convention as a whole.70 Subject to that,
it is the impossibility of making restitution of the goods that constitutes the
barrier to avoidance,71 and even here avoidance may still take place in cases
where this impossibility is not due to the buyer's act or omission or is the
result of examining the goods, or where the goods have been consumed or
sold on to third parties before the buyer ought to have discovered their non-
conformity to the contract. 72 These are large exceptions indeed and ensure
that the right of avoidance, though sparingly granted under the CISG, per-
sists for much longer and in more varied circumstances than the corresponding
right of rejection and termination in the Sale of Goods Act.
In consequence, the mutual and concurrent rights of restitution laid down
in the CISG have the potential for being invoked with some frequency. Apart
from restoring the goods, the buyer must account for all benefits received.13

70 Article 7(2).
71 Article 82(1).
72 Article 82(2).
73 Article 84(2).
34 Michael Bridge (2007) HKLJ

The Convention gives no clue about the valuation of this benefit. Likewise,
no insight is provided into the calculation of any interest on moneys received
by the seller." Is it compound or simple interest and at what rate is it calcu-
lated? Does it depend upon whether the seller invested the money? If it
did, why should the buyer be worse off if the seller made a poor investment
decision? There are many questions that could be asked but the essential ques-
tion is why the Convention went in for such a degree of complexity. There
is a commercial logic in imposing time limits on contractual termination.
Most unwanted goods can be disposed of at the right price, in which case an
aggrieved but tardy buyer can recover damages or claim a reduction in the
price. That buyer may also be better placed than the seller to dispose of
unwanted goods.

Specific Performance, Price Reduction and Damages

It is in the area of remedies that the most important differences between the
CISG and the Sale of Goods Act are revealed. First of all, specific perform-
ance is a rare remedy in the sale of goods in common law systems. Most items
can be acquired in market conditions, sometimes subject to delay. This means
that damages will rarely be the inadequate remedy that provides a precondi-
tion to specific performance. English courts can, however, be criticised for
being in the past too sparing in the grant of specific performance.
In civil law systems, the principle of pacta sunt servanda has played an
important role in promoting the idea of a contracting party's performance
interest. If a buyer has contracted to receive 1,000 widgets from the seller,
then the binding force of contract is best expressed in the form of an order to
the seller to deliver those widgets to the buyer. Consequently, specific perform-
ance or, a better expression perhaps, direct execution assumes the primary
place in the scheme of remedies that is accorded to damages in the common
law systems. The civil law approach is evident in the CISG in the way that a
seller or buyer, as the case may be, is entitled to "require" performance from a
defaulting party." There is an exception granted in the case of those courts
that would not in their national systems allow specific performance in an
equivalent case."6 In addition, a buyer receiving non-conforming goods may
not require a seller to perform by substituting the goods supplied with con-
forming goods if the seller's breach is not a fundamental one.n Again, the

7 See Art 78.

7 Articles 46(1) and 62.
76 Article 28.
n Article 46(2).
Vol 37 Part 1I A Law for International Sale of Goods 35

CISG does not expressly rank the requiring of performance ahead of dam-
ages. Nevertheless, the philosophy of the CISG is at variance with the common
law, even though commercial expediency will in many cases lead a seller or
buyer to seek an alternative source in order to acquire or dispose of goods,
before bringing a damages claim against the other party.
A novelty in the CISG, from the point of view of a common lawyer, is the
buyer's right to reduce the price where the seller delivers non-conforming
goods." This looks like an action for damages but it is not. Rather, it is a right
given to the buyer unilaterally to rewrite the contract, so that a price is pay-
able that accords with the true worth of the goods."9 The buyer may then pay
the seller this reduced price or, if the price has already been paid, recover the
difference between the two prices from the seller. The calculation of the price
difference does not accord with the common law view that a buyer retaining
non-conforming goods bears all the risk of market movement in those goods
after delivery. The action to reduce the price recognises in an important
way the buyer's performance interest under the contract. If the buyer has
paid too much for the goods, given their non-conformity, the buyer is entitled
to financial relief regardless of whether the seller's failure to deliver non-
conforming goods causes any loss. 0 The subject of the buyer's performance
interest shall be returned to when examining the approach to damages.
A feature of the Sale of Goods Act that distinguishes it even from Article
2 of the American Uniform Commercial Code is that damages are prima facie
measured by reference to the market rather than by reference to any resale by
the seller in the event of a buyer's breach or substitute transaction concluded
by the buyer."1 Instead, a party's damages in the event of non-acceptance or
non-delivery as the case may be are computed according to the market pre-
vailing on the date of delivery. This rule is, misleadingly, often referred to as
the breach date rule, when in fact it is the market on the date immediately
preceding the breach that is taken into account. The difference of 24 hours
can have a dramatic effect on the value of a market-sensitive commodity,
like oil.
In a case involving the collapse of the London tin market in the 1980s, an
English judge examined at some length the logical underpinnings of the mar-
ket damages rule. Damages are not calculated according to the seller's or

71 Article 50.
79 "Price reduction is ... neither damages nor partial avoidance of the contract, but rather adjustment
of the contract": P. Schlechtriem and I. Schwenzer (eds), Commentary on the UN Convention on the
InternationalSale of Goods (CISG) (Oxford, 2nd edn, 2005), p. 597.
80 A point lost sight of in the English damages case of Bence Graphics InternationalLtd v Fasson UK Ltd
[1998] QB 87.
8 Sale of Goods Act 1979, ss 50(3) and 51(3).
82 Shearson Lehman Hutton Inc v Maclaine Watson & Co Ltd [1989] 1 All ER 1056.
36 Michael Bridge (2007) HKLJ

buyer's actual loss, for if they were, the seller or buyer would actually have to
enter into a second transaction, whereas the seller may decide instead to keep
the goods or the buyer to spend money on a different venture. The absence of
any reference to a party's subsequent behaviour has a number of interesting
features. It involves an abandonment of factual causation, so far as proof of a
claimant's actual loss is disregarded. It also simplifies the task of the trial judge.
Evidence of the state of the market at the appointed date stands in for a
careful examination of the reasonableness of a party's conduct in disposing
of or acquiring large quantities of market-sensitive goods over an extended
period in order to avoid exciting the market. Furthermore, complex tracing
exercises involving traders engaged in simultaneous multiple dealings invol-
ving the same type of goods are avoided. Above all, perhaps, the sale of goods
contract is in effect recharacterised by the market damages rule as a market
differences contract.
The approach of the English courts, based squarely on the text of the Sale
of Goods Act itself, usefully rationalises so much market hedging activity
that takes place nowadays, but it hardly seems apt for those sales where the
buyer intends to use the goods or where damages have to be calculated to
reflect the sub-standard condition of goods retained or sold on by the buyer.83
In these circumstances, the English Court of Appeal in a case decided nearly
ten years ago departed from the market approach laid down in the Act - it is
after all a primafacie rule - and opted instead for a calculation based upon the
buyer's actual loss."4 In that case, the buyer of defective raw materials had sold
on the bulk of the goods in a manufactured form and, though it had received
complaints from sub-buyers because of the sub-standard goods it manufac-
tured, there was no evidence before the court that the buyer had incurred
trading losses in disposing of these goods. The buyer therefore was awarded
only nominal damages in respect of the onsold goods. There are at least two
major criticisms of the Court of Appeal's decision. First, the market rule can
usefully provide compensation to a buyer who is unable, as often will be the
case, to prove the loss of reputation and of repeat orders from these disap-
pointed sub-buyers. The buyer gets something at least for a real but unprovable
loss. Secondly, at a time when the House of Lords was coming to terms with
the notion of a performance interest in a building contract case," the Court
of Appeal was abandoning this same approach, despite its statutory basis, in a
sale of goods case. Put simply, the buyer of the defective goods paid too much
for them and should have received more than nominal damages. Had they

83 Sale of Goods Act 1979, s 53.

84 Bence Graphics International Ltd v Fasson UK Ltd [1998] QB 87.
85 Alfred Macalpine ConstructionLtd v PanatownLtd (No 1) [2001] 1 AC 518.
Vol 37 Part 1I A Law for International Sale of Goods 37

been sold in their defective condition, the seller would have been able to
command only a substantially inferior price.
In calculating damages for non-delivery or non-acceptance, a tribunal under
the CISG will take the same approach as an American counterpart applying
the rules in Article 2 of the Uniform Commercial Code. It will look first at
any substitute transaction and only when no such transaction is concluded
will it turn to the current (or market) price of the goods."6 Although the
approach in the Sale of Goods Act might appear better to suit the commod-
ities markets, it is interesting to see that the standard form commodities
contracts sponsored by organisations like the Grain and Feed Trade Asso-
ciation take a similar approach and start with the substitute transaction."
The CISG approach has the merit of being more transparent and truer to the
commercial purpose of very many contracts, especially those involving
manufactured goods. The Sale of Goods Act approach, however, may be the
easier to apply. But what of the buyer, referred to above, who sells on sub-
standard goods? The CISG has a general damages rule, similar to the common
law remoteness rule for breach of contract, in addition to the rules referring
to substitute transactions and to the current price."8 There is no reason to
deny a separate damages claim, or better still a price reduction action, to a
buyer whose complaint is that the price surplus over and above the value of
the non-conforming goods represents a loss caused by the seller's breach.
Although the case law reported under these various rules of the CISG pro-
vides little intellectual nourishment, those rules may prove in the end to
be at least as commercially and forensically useful as those in the Sale of
Goods Act.

Risk

Although the CISG declines to deal with the passing of property, it has to
take a stance on risk.89 This is because risk, though sometimes thought of as a
property notion, is in fact a contractual one. Its purpose is to decide whether
the buyer must pay despite the seller's inability to deliver undamaged goods
or even to deliver the goods at all. The important point is not so much the
idea of risk but rather the idea of the transfer of risk.90 The transfer of risk has

86 Articles 75-76.
87 GAFTA 100, cl 23.
" Article 74.
89 Articles 66-70.
90 If the risk has passed to the buyer, the buyer has to pay and is not protected by the doctrine of
frustration. If the risk remains on the seller, the seller may, depending on the circumstances, be
protected by frustration.
38 Michael Bridge (2007) HKLJ

the effect that the seller in defined circumstances is exonerated from the duty
of delivery and the duty to deliver conforming goods.
The transfer of risk in international sales is intimately connected with the
shorthand delivery terms employed by the parties. Under the Incoterms rules
published by the International Chamber of Commerce, the transfer of risk
will depend very much on the precise shipping term adopted. For an FOB
contract, the risk will pass as the goods cross the ship's rail. For a delivery at
destination on CPD terms, the risk will pass at destination. These rules will
be applied no matter how many inland carriers are used or how much marine
transhipment takes place.
Consider now the basic CISG rule. It states that the risk passes to the
buyer when the goods are handed over to the first carrier." By way of excep-
tion, if the goods are to be handed over to a carrier at a "particular place", the
risk will pass when they are handed over to the carrier at that place.9 2 As far
as this exception embraces the case of FOB, it falls foul of the Incoterms rule
because it does not require the goods to cross the ship's rail. Furthermore, it
does not comfortably fit the case of CIF because CIF contracts do not neces-
sarily require the seller to ship from a particular port and, in addition, a seller
with a wide choice of load ports (such as Gulf of Mexico ports) may not be
under an obligation to hand over the goods at a particularplace. A reversion
in such cases to the general rule of handing over to the first carrier would
disastrously undermine the commercial expectations of the parties.
There is of course a problem with embedding shipping terms like Incoterms
into the text of an international Convention like the CISG. Commercial
practice evolves and Incoterms, unlike a Convention, can be updated at regular
intervals. The argument has been advanced that parties, when using shipping
terms, are thereby evincing an intention to opt out of the dispositive provi-
sions of the CISG, as the Convention itself permits them to do." Nevertheless,
this argument has at least two major deficiencies. First, it is probably too el-
liptical a way to exclude the CISG. Most authorities would sanction an implied
exclusion of the CISG but a contractual reference to FOB or CIF surely is not
clear enough to carry conviction with a tribunal. Secondly, since shipping
terms are employed in the great majority of cases, it makes the extensive
treatment of risk in the CISG in five articles a rather pointless business if the
rules in question are to be applied only in a small minority of cases. The
architects of the CISG could not have intended their labours to be so futile.
The Sale of Goods Act says little about the transfer of risk and the pre-
sumptive rules it lays down 94 have no application in practice to FOB and CIF

91 Article 67(1).
92 Ibid.
9 Article 6.
9 Sale of Goods Act 1979, s 20.
Vol 37 Part 1I A Law for International Sale of Goods 39

contracts." This is due solely to case law development. Merchants in the

business of buying and selling goods across international frontiers have every
reason to fear the risk transfer provisions in the CISG. And it is not just the
basic rule and its exception that gives rise to concern. The retrospective transfer
of risk that is sanctioned by English law in the case of CIF contracts is also
permitted under the CISG, but the Convention refers to goods sold in transit
and transfers risk, either from the contract date or from the handing over of
the goods to the carrier issuing the transport document. 96 In the commodities
trade, CIF contracts are often concluded before shipment and the goods are
later shipped but are not identified to a particular contract until some time
after shipment. Furthermore, even if the rule of retrospective transfer does
apply in such a case, it suffers from the same flaw as arises in the case of FOB
contracts, when referring not to shipment but to a handing over of the goods
to the carrier.
A further difficulty with the CISG rules, particularly apparent in CIF cases
and, more particularly, retrospective CIF cases, is that risk under the CISG
can only be transferred if the goods are "clearly identified to the contract", 97
which may be done in the shipping documents themselves. It is far from clear
that this rule will assist a seller who is selling a part cargo under the terms of
a bill of lading that does not, and often cannot, identify the exact part of the
cargo to which it refers.
All told, the risk rules in the CISG are poorly equipped to deal with the
commodities trade. They may be better suited to the sale of manufactured
goods but, even here, problems might arise where goods handed over to the
carrier are damaged during the process of shipment.

Conclusion

It is easy enough to mark up a balance sheet of advantages and disadvantages

when conducting an exercise of comparing the Sale of Goods Act and the
CISG. Certain rules in the CISG may give rise to real concerns in the com-
modities markets, particularly the rule on fundamental breach, cure and the
transfer of risk. Much of the rest of the Convention can be adapted to the
purpose of commodities traders with little real difficulty. The really interest-
ing thing about the commodities trade, however, is the routine way that
standard form contracts, whether published by trading associations or by the

95 Pyrene Co Ltd v ScindiaNavigationCo Ltd [1954] 2 QB 402; Comptoir d'Achat et de Vente du Boerenbond
Belge S/A v Luis de Ridder (The Julia) [1949] AC 283.
96 Article 68.
97 Article 67(2).
40 Michael Bridge (2007) HKLJ

hoil majors, invariably exclude the CISG. It may be that the deficiencies
mentioned above have struck with equal force those who draft these standard
forms. It is possible, nevertheless, that the reason for rejection is more basic.
The introduction of a new sales instrument constitutes major legal change
and change involves commercial risk. A body of law like English law has
functioned symbiotically with standard trading forms for well over a century
so as to produce a substantial measure of legal certainty in a commercially
volatile world. No matter what the merits or the drawbacks of the CISG, it
cannot instantly create the same measure of legal certainty and is therefore
condemned to exclusion so long as English law, or rather courts and arbit-
rators applying English law, do their work well.
The same demand for legal certainty and the same sense of legal continu-
ity are not so evident in the trade in manufactured goods. Moreover, in this
case legal activity is not nearly so heavily concentrated within the four
corners of English law and there may often be a battle over the selection of
the applicable law. In such a case, the CISG has a great deal to commend it.
It is neutral and does not require either seller or buyer to give ground. It is
in many cases an improvement on the sometimes archaic solutions of the
national law that would otherwise apply. Although the CISG strives to cre-
ate uniformity of interpretation of its provisions, it is inevitable, in the absence
of an international commercial court, that the significance of jurisdiction
and arbitration clauses identifying particular fora will be of profound
importance. As the body of case law under the CISG develops, with the aid
of the United Nations Commission on International Trade Law as well as the
efforts of private individuals and organisations, and with much of this case
law being translated into the linguafranca of international commercial activ-
ity, namely, the English language, one can expect the CISG to play an ever
greater role in its application to international sale contracts. One can also
expect the rules it espouses to be increasingly influential when it comes to
future efforts to promote international legal harmonisation in contractual
matters.