INTERNATIONAL TRADE LAW

International Trade Law

International Trade Law

PART I

The remedial provisions of the Convention on the International Sale of Goods (CISG) reflect a deliberate balancing among the remedial approaches of the civil law, the common law, and other various legal systems of the Convention's signatory nations. Much discussion of these provisions, accordingly, has proceeded from the vantage point of comparative law, and has focused on the question of which rules are better or fairer as a matter of overall policy or as an international compromise. This essay takes a different approach; it instead evaluates CISG remedies from the vantage point of the economic analysis of law, in order to determine whether those remedies maximize contractual value for international traders or, conversely, whether such traders would do better to contract out of the Convention's default rules and into their own arrangements.

From the vantage point of a central planner, the economic approach might appear to offer no clear-cut conclusions in this regard, for the main lesson that can be drawn from the law-and-economics literature on contract remedies is that no remedial rule is perfect in the sense of providing efficient incentives along all relevant dimensions of contractual behavior. Rather, there are always economic tradeoffs to be drawn among the various elements of contractual efficiency: efficient ex post performance, efficient mitigation of losses, efficient reliance, efficient risk allocation, and so on. Furthermore, while it is hard enough to generalize about the efficiency of contract rules within a single legal system, it is even more problematic to make such an attempt in the transnational setting, where parties, business settings, and legal transaction costs are highly heterogeneous.

In many cases, especially those in which breach is incomplete or uncertain, the high transaction costs of pursuing ex post legal relief make it a relatively ineffective remedy in practice. Under such circumstances, an aggrieved party may prefer simply to escape from the contract, throwing the resultant losses on the breacher—or less drastically, to suspend its own performance as a means of putting pressure on its counterparty to comply with contractual obligations. This is so for reasons of both compensation in the immediate case, and deterrence in the longer run. With regard to compensation, abandoning the contract may offer early mitigation opportunities that are more valuable than either the net expected damages that could be recovered through litigation or the grudging performance of a counterparty who performs under threat of litigation. With regard to deterrence, conversely, the potential losses resulting from a rescinded bargain (or from the aggrieved party's withholding its own performance) may impose a larger effective penalty on a potential breacher.

Privately administered remedies can be superior to conventional monetary and specific relief in at least three related respects. First, they directly encourage parties to negotiate and exchange information during the period in which performance is pending, since if they wait until litigation to do so their positions may be irrevocably disadvantaged. Second and relatedly, they encourage early mitigation of damages in cases where breach is likely or inevitable; and ...