14.01  This chapter draws attention to the interplay between the CISG and the UNIDROIT Principles of International Commercial Contracts (UNIDROIT Principles). In particular, it looks to help the reader to

• •  understand the utility of the UNIDROIT Principles and their current status

• •  become familiar with the development of the UNIDROIT Principles and their relationship to the CISG

• •  become aware of the possibility of including the UNIDROIT Principles as terms into a contract, whether it be international or domestic

• •  understand that it is possible to utilize the Principles to assist in the interpretation of the CISG where the CISG is not clear.

14.02  This book would not be complete without an examination of the UNIDROIT Principles¹ in general, and specifically in the light of determining and resolving a claim for damages in a failed contract.

(p. 270) 14.03  The starting point is the fact that the CISG is a product of a diplomatic conference and hence is subject to ratification. The problem is that any amendments would, in effect, amount to a resubmission of the CISG to ratification by nations. Interestingly in 2012 the Swiss Government did submit a proposal to develop an instrument covering contract law modelled on the UNIDROIT Principles.² The Secretariat commentary concluded that:

As has been shown, there is an urgent need for a global reflection on the further unification of contract law beyond the endeavours already carried out by UNCITRAL. In light of the above, Switzerland proposes that UNCITRAL give a mandate for work to be undertaken in this area.³

The Villanova Conference in 2013 emphatically rejected the notion of an expansion of the CISG through the proposed Swiss initiative at the 45th meeting at UNCITRAL.⁴ Also suggestions that a protocol should be adopted to overcome some of the gaps in the CISG is equally doomed to fail.⁵ Either proposal would require ratifications by States and the problem which could arise is that two ‘versions’ of the CISG are in existence which would certainly not contribute to a global harmonizing of at least sales laws.

14.04  Whether the uptake would be as strong as it has been is not guaranteed. Whether in the future a complete rewrite of the CISG will be attempted has been rejected. UNCITRAL simply does not have the funds to attempt a rewrite of the CISG and hence regional harmonizations have attempted to overcome this problem. However, the question of regional harmonization has not found traction and can arguably be dismissed as not being superior to a simple acceptance of the CISG.⁶

14.05  What is certain, however, is that the CISG has been successfully employed, and there is arguably no urgent need for revision.

14.06  The UNIDOIT Principles,⁷ which were first released in 1994 and underwent their third revision in 2010 and again in 2016, are of great importance as they can assist in the interpretation of the CISG. It has been argued that ‘[t]he UNIDROIT (p. 271) Principles are work in progress and unlike an international treaty are readily amenable to amendments to reflect contemporaneous commercial concerns’.⁸

14.07  These authors went further and argued that ‘[those] Principles which will fail the market place will be cast off and those which are needed but nowhere to be found will be devised’.⁹ This is becoming increasingly important as international business becomes the norm, whereas earlier domestic trade dominated a country’s economy. It must also be said that business needs to adapt to the new legal environment and cannot persist in ignoring international legal development that go hand in hand with international economic developments. Creativity, in essence, must be a partnership between the legal and economic fraternities. The realization that a partnership is important is not new:

The European Community has sensed the conflict between international business needs and the limits of traditional lawmaking … and the proposal [as contained in the Rome I draft] offers an ingenious tool to overcome said conflict and to facilitate the use of … the UNIDROIT Principles.¹⁰

14.08  The problem, of course, is acceptance of the UNIDROIT Principles by the business community and secondly as they are not ‘law’ ‘it is not clear why they should be used’.¹¹

the real question is whether the Principles are in and of themselves, good rules, based on the content of the Principles and not their current usage. For if they become the new international commercial standards, either by custom and usage within commercial transactions or by direct adoption by a jurisdiction, both of these concerns disappears.¹²

Unfortunately, the CISG suffers from exactly the same problem; far too many businesses still have not discovered the utility of uniform laws and opt out of the convention.

14.09  The UNIDROIT Principles have the advantage that they are a neutral law and, despite being a soft law, can be included into a contract as the governing terms. The Rome I proposal went one step further and in Article 3(2) noted: ‘The parties may also choose as the applicable law the principles and rules of the substantive law of contract recognized internationally or in the Community’.¹³

(p. 272) 14.10  In the explanatory memorandum, the European Commission specifically mentioned the UNIDROIT Principles as fitting into the description of Article 3(2).¹⁴ This move appeared too bold, and the Council of the European Union, in its 12 December 2006, proposal deleted Article 3(2), which means that currently the CISG is the only viable international black-letter law alternative.

14.11  In the context of this book, the question, therefore, is how much and how far the UNIDROIT Principles can be applied in conjunction with and within the permissible legislative framework of the CISG. The fact that the UNIDROIT Principles are considered to be of assistance is further strengthened by the realization that no global commercial code will be introduced in the foreseeable future, despite some academic writing. Ole Lando noted:

The need for a Global Commercial Code … will grow with the globalization of communication and commerce. When the world becomes one market, that market will require one law, and that law must include general principles of contract law. The UNIDROIT Principles will have to be raised from their present status to that of rules of law binding on the courts … they should be incorporated in the Code, thus making their many mandatory and non-mandatory provisions part of the Code.¹⁵

If a global law did eventuate, it is reasonable to suggest that the UNIDROIT Principles would play an important role. From a historical and developmental point of view, the UNIDROIT Principles are well suited for consideration. The drafting institution, the International Institute for the Unification of Private Law (UNIDROIT) in Rome, was founded in 1926 as an intergovernmental organization.¹⁶ Currently in 2018, sixty-three countries are member states.¹⁷ In this respect, the convention and the UNIDROIT Principles share a similar parentage, as both instruments were devised by academics and government representatives from all major legal systems. The UNIDROIT Principles are not a private document lacking any governmental input. The only essential difference is the fact that the UNIDROIT Principles are considered to be soft law and hence are not part of any domestic system. However, this fact in itself does not diminish the utility of the UNIDROIT Principles. They stand alongside the INCOTERMS and the Uniform Customs and Practice for Documentary Credits, both instruments of fundamental importance in their area of applicability.

14.12  It is universally recognized that freedom of contract allows parties to draft their own contracts and therefore exclude or vary domestic law, with the exception of mandatory laws. The UNIDROIT Principles, therefore, can be included into (p. 273) any contract. Indeed, their application is not restricted to international contracts; it can extend to domestic ones, too.¹⁸ It should be obvious, therefore, that the UNIDROIT Principles can stand on their own, subject to the mandatory laws of any country, or can be used in conjunction with the CISG as a gap-filling instrument. Before we look at the relationship between the UNIDROIT Principles and the CISG, an investigation must be undertaken into how the UNIDROIT Principles are viewed by courts in general in situations where the matter is domestic or international in character.

14.13  Of interest are two English domestic decisions, both struggling with the interpretation of a contract. In the first case, ProForce Recruit Ltd v Rugby Group Ltd,¹⁹ an employment agency entered into a contract to supply personnel. The contract contained a clause stating that during the running of the contract the agency would have ‘preferred supplier status’. This term was never defined in the contract and was the cause of the litigation. The problem was that using the parol evidence rule, not much could be made from the term in question and suggestions were raised that precontractual negotiations should be taken into consideration.

14.14  Mummery LJ stated that the meaning of the term ‘could only be properly determined in the context of the agreement read as a whole and of all the surrounding circumstances’.²⁰ This statement clearly indicated that the textual approach had been abandoned in favour of the contextual one. Arden J stated what Mummery LJ implied, namely that international instruments (the UNIDROIT Principles and the CISG) had implemented the contextual approach into their respective regimes. She stated that ‘it may be appropriate to consider a number of international instruments applying to contracts’, such as the UNIDROIT Principles, which ‘give primacy to the common intention of the parties and on questions of interpretation require that regard shall be had to all the circumstances, including the pre-contractual negotiations of the parties (Article 4.3)’, and the CISG, which ‘provides that a party’s intention is in certain circumstances relevant, and in determining that intention regard is to be had to all relevant circumstances, including preliminary negotiations’.

14.15  In The Square Mile Partnership Ltd v Fitzmaurice McCall Ltd,²¹ the problem again hinged on the interpretation of a contractual term—in this case ‘accumulated net worth’. Arden J again sat on the bench and repeated what she said in ProForce. She noted that the decision was the subject of academic discussion and that she read the material. In the end, she ruled that ‘the admission of evidence (p. 274) of pre-contractual negotiations for the purpose of interpretation … would not be permitted under the law as it stands’.²²

14.16  It should be mentioned that a similar conclusion was reached by the Appeals Court in New Zealand in Hideo Yoshimoto v Canterbury Golf International Ltd.²³ The court noted: ‘It would, of course, be open to this Court to seek to depart from the law as applied in England’.²⁴

The court arguably understood the mandate of the UNIDROIT Principles and the CISG but in the end noted:

The inevitable conclusion is that, at least in the common law, the abandonment of a domestic ‘sacred cow’, namely the parol evidence rule, in favor of ‘best international practices’ has still not found approval. The feet are still firmly planted in the domestic paddock.

14.17  It would have been interesting had the parties to the above contracts included the UNIDROIT Principles, specifically Article 4.1 to 3, into the contracts as the governing terms. The point is that any court needs to look at contractual terms first and implement the terms unless they are in breach of a mandatory law. The parol evidence rule is not a mandatory law, and therefore arguably UNIDROIT (p. 275) Principles Articles 4.1 to 3 would have ‘trumped’ the parol evidence rule.²⁷ The question therefore is whether the UNIDROIT Principles can advance a push towards a global contract law as any further harmonization of contract law will not be driven by international bodies. In 2009, the Secretary General of UNIDROIT argued:

International originations active in the field of legal harmonization seem to have recognized that international conventions should be reserved for special cases that require uniformity. This trend should continue. If a greater degree of flexibility is desired and is appropriate to the subject matter under consideration, a different unification technique would, in most cases be preferable.²⁸

The real issue is the fact that soft laws such as the UNIDROIT Principles take on the role of mandatory rule only if they are included as terms into a contract. This unfortunately has not happened very often. However, it must be stated that the UNIDROIT Principles have been chosen as the governing law in arbitrations, but only in situations where the contract allowed the arbitrators flexibility. Hence the Principles and the CISG could form a partnership which will answer the call to harmonization of international contract law.

14.18  The Secretariat Commentary to the CISG strongly suggests that the CISG achieved as much as it could, given the political nature of the negotiations. UNIDROIT recognized that there were shortcomings in the CISG and decided to abandon the idea of a binding instrument in favour of a soft law.²⁹ The UNIDROIT Principles address in essence the same issues as the CISG and more and either refine some of the uncertain provisions by adding more detail or add topics that were not covered by the CISG. In addition

The Unidroit Principles are work in progress and unlike an international treaty are readily amenable to amendment to reflect contemporaneous commercial concerns … Principles that may fail the test of the marketplace will be cast off, and those that are needed but nowhere found will be … devised.³⁰

The advantage of the UNIDROIT Principles is the underpinning idea of the drafters that

(p. 276)

while as a rule preference was given to solutions generally accepted at international level (common core approach), exceptionally solutions best suited to the special needs of international trade were preferred even though they represented a minority view at domestic law level (better rule approach).³¹

In addition, the Member of the working group—unlike members of working groups at UNCITRAL—are not defending or supporting their respective domestic laws.³²

14.19  Given the above it is not surprising to see that a number of national legislatures have adopted the UNIDROIT Principles in their modernization efforts. The real issue is the nature of the relationship between the UNIDROIT Principles and domestic law, which includes the CISG. The starting point is the fact that the UNIDROIT Principles are a soft law; hence, they do not form part of a domestic law. However, nothing stops a party from including the UNIDROIT Principles as contractual terms into an international contract pursuant to the principle of party autonomy. This chapter will investigate how the UNIDROIT Principles can be applied in conjunction with the CISG.

14.20  It is obvious that a contract cannot exist in a legal vacuum; it requires a legal system for support, and hence a system of law will be applicable. Indeed, some municipal systems of law specifically address this point, as does Germany in Article 27(2) of the BGB. A system of law must be either expressly stated or determined by a relevant choice of law rule. If, say, the law of Germany or Australia is chosen, the obvious solution is that it includes the CISG. The contract now rests on, first, the contractual terms; secondly, the CISG as the governing law; and finally, the domestic law as the fall-back position to fill any gaps left in either the contract or the CISG.

14.21  Courts and tribunals have used the UNIDROIT Principles under several circumstances. Parties have selected the UNIDROIT Principles to supplement the CISG, and the UNIDROIT Principles have also been used as gap fillers for the CISG.³³ Most obvious is the use of the UNIDROIT Principles to assist in the understanding of the CISG where the CISG is not clear.

14.22  Thus, two situations can arise where the UNIDROIT Principles can be of assistance: first, as an express term in the contract and, secondly, to inform courts and tribunals in their interpretation of the CISG. It is perfectly admissible for a party to include the UNIDROIT Principles as contractual clauses. After all, contractual obligations are negotiated by both parties and find expression in the contractual (p. 277) terms insofar as they regulate the risk and rights and obligations of the parties. It is the expression of the wishes of the parties that is protected by the courts; whether the parties write up their own terms and conditions or rely on a template such as the UNIDROIT Principles is irrelevant.

14.23  Including the UNIDROIT Principles as clauses within a contract stipulates exactly what the intention of the parties is. The question is whether a clause incorporating the UNIDROIT Principles, in effect, negates the CISG, as the UNIDROIT Principles address the same issues as the CISG either literally or at least in substance. Are there any mandatory rules in the CISG that would ‘trump’ the contract? The answer is found in Article 6 of the CISG, which states that parties ‘may exclude the application of this Convention or … derogate from or vary the effects of any of its provisions’.³⁴ The answer is that a court can suggest that the contract is a derogation from or variation of the clauses of the CISG and will take precedence over the legislation. This view finds support in the fact that the interpretation ladder suggests that the contract is looked at first and the domestic law, which includes the CISG, is the fall-back position where there are gaps in the contract, except, of course, in cases where a mandatory domestic law is applicable. The answer arguably is that in these circumstances, the UNIDROIT Principles have taken on the primary role in shaping the contractual duties and rights of the parties. Certainly, this situation has occurred in arbitration, as many rules allow arbitrators—absent an express agreement by the parties—to select the law that is most appropriate for the situation. On many occasions, the UNIDROIT Principles have been chosen.³⁵ In litigation the outcome would have been quite different if there had not been an express clause in the contract. The UNIDROIT Principles cannot take on the mantle of a domestic black-letter law.

14.24  If the contractual clause states that the CISG will apply and the UNIDROIT Principles are to be used to fill the gaps, the question is different. What needs to be determined is whether the provisions in the CISG pointing to gaps mandate reference to the domestic law. It appears clear that only gaps that are expressly noted in the convention could possibly be taken as being mandatory. This stands to reason because a general principle is merely a legal dogma expressed in a general sense. It takes on life only in specific declarations, namely in a law. Furthermore, these dogmas are not unlimited in character. For example, freedom of contract is limited by mandatory laws such as consumer protection laws.

(p. 278) 14.25  Article 4, for example, stipulates areas that are excluded from the CISG, such as questions of validity and the effect the contract may have on the property in the goods sold. A reading of this Article makes it clear that the only mandatory part is that matters are excluded from the sphere of the CISG; the provisions do not explain how these matters are to be resolved. It is left to a particular domestic law to resolve these issues; in other words, the gaps need to be filled by anything other than provisions of the CISG. As pointed out above, freedom of contract suggests that contractual parties can determine which laws and contract-specific ‘regulations’ will govern their contract. In this case, therefore, if the UNIDROIT Principles are envisaged to fill the gaps, a court would need to adhere to the wishes of the contractual parties, with the exception of mandatory laws. UNIDROIT suggests the following clause to be included into the contract:

This contract shall be governed by the United Nations Convention on Contracts for the International Sale of Goods (CISG) interpreted and supplemented by the UNIDROIT Principles of International Commercial Contracts (2010).³⁶

14.26  Unfortunately, it is doubtful that legal practitioners would advise their clients to include a clause into a contract to apply the CISG and to fill gaps where possible with the UNIDROIT Principles. Anecdotal evidence suggests that the CISG is still routinely excluded by major players in international trade. For example, in Australia the Defence Department routinely excludes the CISG despite the fact that another arm of the government ratified the convention and is actively involved in the unification of laws process.

14.27  If no such clause is stipulated in the contract, the question can still be raised whether the UNIDROIT Principles can be used to fill gaps within the CISG. Some tribunals have indeed applied UNIDROIT Principles to fill gaps, for example approaching the determination of the rate of interest pursuant to Article 78 CISG using Article 7.4.9 of the UNIDROIT Principles. This use has so far been controversial and has been held to be improper.³⁷

14.28  Nevertheless, an investigation of its utility is warranted, as the UNIDROIT Principles are gaining in importance and acceptability. The starting point for an interpretation of the CISG is Article 7.

14.29  Article 7(1) mandates that regard be had to the international character of the transactions and to promoting uniformity of the application of the CISG. By applying the UNIDROIT Principles, the international character is guaranteed and uniformity can be achieved if the UNIDROIT Principles are universally applied (p. 279) as gap fillers. The result would arguably be superior to using domestic laws. First, the courts and tribunals would not be ‘blinded’ by the use of domestic laws, and hence ethnocentric interpretation of the CISG would be minimized. Secondly, uniformity would be increased, as typical domestic solutions to international contract problems would be further reduced.

14.30  However, Article 7(2), which addresses specifically the filling of gaps, would need to be satisfied. Article 7(2) contains three criteria that need to be fulfilled in order to apply this article correctly.

14.31  First, all questions that are not expressly settled (that is, ‘hidden’ gaps) are to be ‘settled in conformity with the general principles on which it is based’.³⁸ As the UNIDROIT Principles have a similar parentage to the CISG and are based on general principles, the UNIDROIT Principles can be used to instruct the courts and tribunals to settle hidden gaps. However, this solution is not always appropriate because the UNIDROIT Principles on many occasions track the CISG; for example, Article 1.9(1) of the Principles tracks Article 9(1) of the CISG. In such cases the UNIDROIT Principles would not assist at all in the filling of gaps. Only in cases where the UNIDROIT Principles are either different or specifically improved on the CISG provisions would they be useful in filling of gap and no doubt superior to any recourse to domestic law.

14.32  Secondly—and following from the above—the utility of the application of the UNIDROIT Principles is restricted to situations where there is similarity between the two instruments. In these cases, the UNIDROIT Principles provide the ‘meat on the bare bones’.³⁹ This approach makes good sense, but again it only partially resolves the problem of uniformity. Some problems could not be resolved, and recourse to domestic law would be the only solution.

14.33  Thirdly, even if the general principles cannot be derived from the CISG, the UNIDROIT Principles still can fill the gaps. It is this option that is problematic, as Article 7(2) points to the solution, namely to use ‘the rules of private international law’.

14.34  The UNIDROIT Principles can be applied to assist in the understanding of general principles of the CISG and to ‘guide courts and tribunals in resolving matters not expressly dealt with in the convention. In addition, they provide support for solutions to open issues through an analysis of the Convention itself’.⁴⁰

(p. 280) 14.35  It can be argued that in cases of assisting in the interpretation of the CISG, the filling of gaps is not an issue. The UNIDROIT Principles are used to point to a solution where the CISG potentially has more than one interpretation. In other words, legal concepts and cultures that are embedded in the CISG on occasion need to be translated into a clear and concise meaning. Article 7(2) provides the method by which matters that are governed by the CISG but are not expressly settled ‘are to be settled in conformity with the general principles on which is based’.⁴¹ As general principles are overarching maxims regulating behaviour, they cannot stand on their own, and—to repeat the point made above—a principle takes on life only within given facts or specific provisions. The reverse is also true: specific provisions need principles to be able to be given true meaning. Therefore, it is sometimes necessary to translate general principles into a workable understanding of the rights and obligations of the contractual parties. As stated above, the UNIDROIT Principles and the CISG have the same parentage, and therefore the UNIDROIT Principles can be used as a source of general principles and should be used by courts and tribunals to assist in defining general principles in preference to a domestic legal system.⁴² This approach is a pragmatic use of the CISG and, as pointed out above, would be superior to any other interpretations of the CISG in cases of uncertainty.

14.36  However, this pragmatic view has not found universal approval. It is true to say that the UNIDROIT Principles are perceived as being the best solutions, even if they are not yet generally accepted.⁴³ From this point of view, the UNIDROIT Principles do not express general principles on which the CISG is based. It should be noted that most domestic and international instruments contain elements that are not universally accepted either, such as the principle of fundamental breach in the CISG.

14.37  A more serious problem is that Article 7(2) requires that a ‘particular general principle must be moored to premises that underlie specific provisions of the convention’.⁴⁴ This view is based on the wording of Article 7(2), specifically the instruction that uncertainties must be settled ‘in conformity with the general principles on which the [provision] is based’, which are not the same as the principles of international commercial contract law as implemented in the UNIDROIT Principles. Arguments have been advanced that it is not appropriate to reach a result through a strained reading of the CISG.⁴⁵

(p. 281) 14.38  How useful are the UNIDROIT Principles in interpreting the CISG? The starting point logically is again Article 7(2), which describes the interpretation ladder. As we are attempting to interpret Article 7(2), recourse must be had to the Vienna Convention on the Law of Treaties. It must be noted that this convention is applicable only to the interpretation of Article 7. The remainder of the CISG is interpreted by Article 7 itself. Article 31 of the Law of Treaties states that a treaty must be interpreted ‘according to the ordinary meaning … in the light of its object and purpose’. This is not difficult, because the CISG in general uses common words that must be interpreted without recourse to domestic connotations. In other words, a strained interpretation should be avoided, and words must be given their ordinary, plain meaning.

14.39  The mandate of Article 7(2) is plain, as only matters governed by this convention that are not clear can be settled using general principles. It is, therefore, settled law that matters specifically excluded from the sphere of application of the CISG, for example in Article 4, must be resolved by recourse to domestic law. It is also clear from Article 7(2) that only when there are no general principles capable of settling matters that are not expressly resolved in the CISG is recourse to domestic law possible. In all other circumstances, the question must be resolved by recourse to provisions and general principles found within the four corners of the CISG.

14.40  It is, therefore, possible to argue that using the UNIDROIT Principles to fill gaps is not permitted. However, there is another view, namely that because the UNIDROIT Principles and the CISG have the same parentage, although individual provisions may show differences the underlying general principles are the same. If that view is taken, the UNIDROIT Principles can certainly be used to assist in the interpretation of the CISG and are a useful tool for filling gaps. The important points are that the CISG must be read within its four corners and that the UNIDROIT Principles can only inform or assist the interpretation process. The solution cannot be based on the UNIDROIT Principles; it must be based on the general principles found within the CISG, assisted by the UNIDROIT Principles. It is argued that the UNIDROIT Principles are, therefore, an important source for the interpretation of the CISG. Gaps are only uncertain because there are several possible solutions. If there were one solution, then the original drafters would have included that solution into the original text. Because there is more than one possible interpretation or solution to any problem, the UNIDROIT Principles are an invaluable source to at least inform the interpreter that there is a solution. It is then up to the interpreter to determine whether the solution offered by the UNIDROIT Principles is compatible with the general principles of the CISG.

14.41  It is, therefore, of value to investigate the most important provisions of the CISG against the solutions offered by the UNIDROIT Principles.

14.42  The comparative discussion will first focus on Article 74. This article is applicable in most circumstances whether a contract is avoided or not and hence deserves to be investigated first. The remainder of this section is divided into provisions dealing with avoidance and situations where the contract is still in force and damages or other remedies are sought. This discussion is not a complete comparative analysis of all relevant articles. This chapter focuses on the key provisions within the broad area of damages.

14.43  It has been suggested that Article 74 has left many practical issues open or unresolved, including “the time at which damages are to be calculated, the liability and calculation of future damages, contributory conduct of the claimant that increases the amount of damages, saved expenses, loss of an opportunity or chance, penalty clauses and proof of damages.”⁴⁶

14.44  If we compare the relevant articles of the UNIDROIT Principles with the CISG, two important principles are shared by these instruments: first, full compensation is envisaged; that is, the aggrieved party should be put in the same position he would have been in had the contract been performed; secondly, irrespective of any remedy described in CISG Article 45, the aggrieved party never loses the right to claim further damages pursuant to Article 74, up to the limit of full compensation. Furthermore, the foreseeability principle as embodied in Article 74 is also contained in Article 7.4.4 of the UNIDROIT Principles. However, there is a difference between the two articles: the term ‘possible consequence’ in the former and the word ‘likely’ in the latter. Some authors have noted that the CISG uses a broader term. The UNIDROIT Principles note that

Arguably, the test is not significantly different from the test in the CISG; hence, in both instruments the subjective and objective tests are applied.

(p. 283) 14.45  From this point of view, it can be argued that the UNIDROIT Principles have the same underlying general principles as the CISG regarding compensation for losses in relation to a breach in contract. It follows that the UNIDROIT Principles can assist in clarifying uncertainties within the CISG.

14.46  However, there is a difference between the remedial schemes of the CISG and of UNIDROIT Principles Article 7.4.2. The CISG endeavours to grant full compensation to the aggrieved party pursuant to Article 74, which is limited only by the exceptions to be found within the four corners of the CISG. The most notable limitations are the mitigation factor and Article 5, which excludes compensation for death and personal injury ‘caused by the goods to any person’. The UNIDROIT Principles define full compensation much more broadly.

14.47  Article 7.4.2 of the UNIDROIT Principles notes that the aggrieved party is ‘entitled to full compensation for harm sustained’. It can be argued that ‘harm’ is a much broader term than simple ‘loss’ or ‘lost profits’. This view is enforced by subparagraph (2), which specifically includes that ‘such harm may be non-pecuniary and includes, for instance, physical suffering or emotional stress’.⁴⁸ In the 2004 edition of the UNIDROIT Principles, the non-pecuniary rule is explained as being primarily applicable to artists, outstanding sportsmen or women, and consultants.⁴⁹ Not surprisingly, the examples do not include the sale of goods, and hence it can be safely assumed that this particular rule in the UNIDROIT Principles would not be applicable to the CISG. However, it has been argued that the provisions in the UNIDROIT Principles can be applied in circumstances where Article 5 CISG has to be interpreted. The argument is that Article 5 should not be interpreted restrictively; hence, personal damage, such as damage to reputation, should be included within the sphere of the CISG.⁵⁰

14.48  It has been argued that the CISG contains an apparent gap, namely that it does not deal with future damages.⁵¹ The UNIDROIT Principles specifically mention that ‘[c]ompensation is due only for harm, including future harm that is established with a reasonable degree of certainty’.⁵² The issue is that any harm must be established with a reasonable degree of certainty; hence, speculative assertions are to be discarded by courts and tribunals. Arguably, the CISG does by implication deal with future harm in the form of loss of profits. To establish with a reasonable degree of certainty that a profit is possible and that a loss of that profit will occur owing to the breach of the contract contains in itself an element of uncertainty, as not all business ventures end up with profits. For example, if goods are not delivered and the intention was to sell the goods on, the profit is easily determinable (p. 284) by taking the invoices into account. If, on the other hand, goods are bought and put into stock, the only matter that is certain is that an attempt will be made to sell the goods; any loss of profit as a result of market fluctuations is a future harm and hence can and must be established with a reasonable degree of certainty. The UNIDROIT Principles can assist in the interpretation of the CISG, and in this case all uncertainties can be removed.

14.49  Both instruments in essence describe avoidance of contract. The UNIDROIT Principles use the terminology ‘terminated’ and not ‘avoidance’, as in the CISG. Reading the counterpart of CISG Article 25, namely Article 7.3.1 of the UNIDROIT Principles, makes it clear that although the word is different, the effect is the same. As seen above, the UNIDROIT Principles can assist in the interpretation of Article 74; however, there is another way to look at and be guided by the UNIDROIT Principles in cases of internal gap filling. The drafters of the UNIDROIT Principles had the benefit of looking at the CISG and hence could see or anticipate problems in the application of the CISG. In this case, Article 7.3.1 of the UNIDROIT Principles is not markedly different from Article 25 CISG; hence, it can be argued that the UNIDROIT Principles can be consulted by courts and tribunals as ‘a first-glance opportunity’ to find out whether there are problems with the CISG. If there are not, then the answer is simple: Either the solution is found within the four corners of the CISG or, if no solution is found, domestic law is needed to fill the gap.

14.50  The ICC Court of Arbitration in Paris⁵³ took advantage of this possibility and referred to Article 76 CISG and UNIDROIT Principles Article 7.4.6 to assist in their deliberations. In the end, they did not distinguish between the two instruments, which indicated that the two articles are identical in the determination of the current price once a contract is avoided.⁵⁴

14.51  The same conclusion can be reached if Article 75 is compared with Article 7.4.5 of the UNIDROIT Principles. Both instruments allow damages for further harm or damages if the remedies described in Articles 75 or 76 do not adequately cover the losses.

14.52  From this discussion it can be argued that in cases of avoidance and when Articles 75 and 76 CISG are invoked, the UNIDROIT Principles confirm that there is (p. 285) no gap and that either the articles or general principles within the CISG will resolve any possible ambiguities. This argument is based on the premise that the UNIDROIT Principles would have corrected any shortcomings and not repeated any perceived ambiguities within the CISG. This in itself is a help when interpreting the remedial scheme in cases of avoidance.

14.53  CISG Article 77 makes it clear that the party relying on the breach has an obligation to mitigate losses. An ICC arbitral panel noted:

It appears that Article 77 CISG is drafted in favour of the aggrieved party, whereas the UNIDROIT Principles do not favour either party. In effect, the difference between the two is that Article 7.4.8(1) ‘expressly provides that a reduction of damages (harm suffered by the aggrieved party) is automatic if the aggrieved party could have taken reasonable steps to reduce the harm (but fails to do so)’.⁵⁶ The UNIDROIT Principles have reinforced the principle contained in the CISG that the aggrieved party cannot simply sit on his hands and let damages mount up. The aggrieved party has an obligation to minimize losses as far as practicable. The UNIDROIT Principles enlarge the principle and, in contrast to the CISG, make it clear that damages are automatically reduced if the aggrieved party does not mitigate losses.

14.54  This brief discussion has shown that the UNIDROIT Principles are a valuable tool in the interpretation of the CISG and can serve as terms in a contract. The optimum use of these international instruments would be to include the UNIDROIT Principles as terms into a contract, and the CISG would be the substantive law supplementing the contract. However, this would be asking the near-impossible, as far too many legal advisors still prefer to take shelter in domestic laws than to utilize international uniform laws. It would (p. 286) be interesting to speculate how the contractual legal field will develop once the EU finishes its endeavours and introduces a common contract law. Will this be the end of the common law?

14.55  Currently, the UNIDROIT Principles are useful in assisting in the interpretation of the CISG. In this context, it should be noted that the UNIDROIT Principles are already used in arbitral proceedings to resolve substantive issues.

14.56  The UNIDROIT Principles can contribute to four situations. First, as in the case of Article 74 CISG, the UNIDROIT Principles have taken note of the shortcomings of the CISG and remedied the situation. In such cases, the interpreter of the CISG can take note of the UNIDROIT Principles because room is allowed in the CISG for assistance from another source. Article 7 CISG also allows such assistance.

14.57  The second contribution is the UNIDROIT Principles’ confirmation that the CISG has no gaps when the Principles have not improved or changed the mandate of the CISG. The third possibility is the simple case where a ‘clearing up’ of a potential oversight has resulted in a different legal position. In such cases, the UNIDROIT Principles cannot assist in the interpretation of the CISG.

14.58  The most important fourth point is that, if the contractual clause includes both the CISG and the UNIDROIT Principles as suggested above, any disputes will be as close as possible resolved in an international sense that is with limited interference of domestic law.

14.59  In sum, the UNIDROIT Principles are a valuable tool and can under certain circumstances assist the interpreter of the CISG to fill internal gaps.