The concept of faux amis (‘false friends’) has been used in the literature to describe terms used in an international convention which seem familiar to an interpreter but which, in fact, are defined differently in the convention to in the domestic legal system the interpreter is used to. Several instances of faux amis have been identified on the basis of the UN Convention on Contracts for the International Sale of Goods (CISG). One major example can be found in the US case of Delchi Carrier SpA v Rotorex Corp., which required an interpretation of Article 74 CISG. This provision states that ‘damages may not exceed the loss which the party in breach foresaw or ought to have foreseen at the time of the conclusion of the contract.’ The US court understood this rule as a reference to the ‘familiar principle of foreseeability established in Hadley v Baxendale.’ Hadley v Baxendale is the leading English case on remoteness of damage and has also gained recognition in the US. Rather than referring to the preparatory works and other materials examining the specific meaning of the foreseeability rule under the CISG, the court thus reached for an analogy from its own jurisdiction.
Adequate assurance of performance as a faux ami
In my article, I argue that the mechanism of adequate assurance of performance constitutes another example of a faux ami in the CISG. The mechanism of adequate assurance is relevant in cases of an anticipatory breach of contract understood as an expectation of a breach of contract which arises before performance is due. This expectation may be justified if the words or conduct of the promisor make it clear that future performance will not be given (renunciation). Anticipatory breach may also arise in the case of prospective incapacity, namely, a situation in which the promisor is willing to perform but appears to be incapable of effecting the promised performance in the future.
Some jurisdictions allow the promisee to avoid the contract if there are significant doubts as to whether the promisor will perform their side of the bargain. The rationale for the right to avoid the contract prior to the date set for performance focuses primarily on the need to promote economic efficiency. Where it is clear that one party will not perform, it would be a waste of resources for the innocent party to perform their side of the bargain. Furthermore, by exercising the right of avoidance before performance is due, the innocent party gains an opportunity to enter into another transaction at an earlier stage, which can potentially save further costs.
Regardless of its benefits, the doctrine of anticipatory breach exposes the innocent party to significant risk. Avoidance based on anticipatory breach is often predicated on an element of speculation. In many cases, the innocent party cannot be absolutely certain that the breach will occur. The promisor’s conduct may be inconsistent. The promisor may express their willingness to perform while at the same time being unable to do so. As a result, the promisor may convey ambiguous signals to the promisee.
These ambiguities may lead to two different consequences for the promisee. First, in the case of prospective incapacity, where the promisee believes that the contract will not be performed by the promisor and therefore avoids the contract, they may, themselves, be held liable for a breach if their anticipation proves to be unfounded. Second, where the promisee believes that the contract will not be performed by the promisor but nonetheless fails to avoid the contract, they may find themselves in breach of the duty to mitigate when the breach actually occurs. The doctrine of anticipatory breach thus has the potential to create uncertainty and instability in commercial transactions.
The US Uniform Commercial Code (the UCC) addressed the problems of uncertainty and instability raised by the doctrine of anticipatory breach by introducing the right to demand adequate assurance of due performance (Section 2-609 UCC). The right to demand adequate assurance is a form of self-help, a non-judicial mechanism which serves to clarify the blurred situations in which the innocent party may find themselves in the event of anticipatory breach. By using this mechanism, the party whose sense of security is impaired can suspend their own performance and any necessary preparations with a legitimate excuse for the resulting delay and can demand adequate assurance that the other party will perform as agreed. Where adequate assurance is not provided within a reasonable time, the suspending party can exercise the remedies for a breach of contract without running the risk of being held liable for a breach themselves.
Adequate assurance of performance under the CISG
The mechanism of adequate assurance has gained acceptance beyond the UCC. Most notably, it has been introduced in Article 71 CISG. This provision regulates the right to suspend performance where it becomes apparent that the promisor will not perform a substantial part of their obligations. Article 71 CISG states that in such a case, the promisee must give the promisor a chance to provide adequate assurance. Contrary to Section 2-609 UCC, however, Article 71 CISG does not specify the consequences of a failure by the promisor to provide adequate assurance. In particular, the provision does not allow the promisee to avoid the contract where adequate assurance is not provided.
In fact, the CISG adopts a very strict approach with regard to avoidance of a contract. The system of remedies adopted in the Convention is based on the principle of favor contractus. This principle prioritises keeping the contract alive; in case of a breach of contract, the parties are encouraged to maintain their relationship and find a solution. Avoidance should be seen as a last resort. The fact that the promisor fails to provide an adequate assurance in circumstances described in Article 71 CISG does not constitute a sufficient reason for avoidance.
On the other hand, the adequate assurance mechanism regulated in Section 2-609 UCC operates in the shadow of the perfect tender rule adopted in the UCC, which allows the buyer to immediately reject non-conforming goods independent of the seriousness of the non-conformity. The solutions adopted in Article 2 UCC concentrate on the need to provide speedy and convenient remedies to the promisee. Consequently, the adequate assurance procedure regulated in the UCC operates within a very different system of remedies than that adopted in the Convention. Analogously to the right to cure by the seller, the possibility to provide adequate assurance based on Section 2-609 UCC may be seen as an instrument limiting the harsh consequences of the perfect tender rule.
It follows that the adequate assurance procedure cannot provide the same benefits under the CISG as it does under the UCC, simply because the Convention generally adopts a much higher threshold than the UCC for avoidance of a contract.
A general conclusion that can be drawn from this analysis is that an interpretation of a uniform law convention must be based on the assumption that the expressions used by the drafters are intended to be independent and neutral. Concepts employed in an international convention should not be associated with those employed in a domestic legal system, even if they are textually the same.
For a more detailed analysis, see: K. Kryla-Cudna, ‘Adequate Assurance of Performance under the UN Convention on Contracts for the International Sale of Goods and the Uniform Commercial Code’, (2021) 70 International and Comparative Law Quarterly 935.