Ch.11 Penalty Clauses and the CISG

Subject(s):

Contract — Penalty clauses and damages — UN Sales Convention and damages

This chapter explores whether the issue of penalty clauses is within the mandate of the United Nations Convention on Contracts for the International Sale of Goods (CISG) or falls under the exception of article 4. Whether penalty clauses are governed by the CISG is still a controversial issue and hence unresolved. The issue is that in civil law, the court has discretion to either enforce a penalty clause or moderate it, when in common law, a penalty clause is unenforceable. The added difficulty of the CISG is the fact that it was constructed as a compromise between the civil and common law systems. As a result, differences between the two systems will, in some cases, present different solutions. As far as the CISG is concerned the main argument either for or against an inclusion of penalty clauses revolves around the interpretation of articles 4 and 74.