Term Under the United Kingdom Sale of Goods Act 1979 and the United Nations Convention on Contracts for International Sale of Goods (CISG): a Comparative Analysis
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Asian Social Science; Vol. 10, No. 15; 2014 ISSN 1911-2017 E-ISSN 1911-2025 Published by Canadian Center of Science and Education ‘Open Price’ Term under the United Kingdom Sale of Goods Act 1979 and the United Nations Convention on Contracts for International Sale of Goods (CISG): A Comparative Analysis Farzaneh Akrami1, Sakina Shaik Ahmad Yusoff1 & Suzanna Mohamed Isa1 1 Faculty of Law Universiti Kebangsaan Malaysia, Bangi, Selangor, Malaysia Correspondence: Sakina Shaik Ahmad Yusoff, Faculty of Law, Universiti Kebangsaan Malaysia, Bangi, Selangor, Malaysia. Tel: 60-19-273-5798. E-mail: [email protected] Received: May 8, 2014 Accepted: June 3, 2014 Online Published: July 11, 2014 doi:10.5539/ass.v10n15p97 URL: http://dx.doi.org/10.5539/ass.v10n15p97 Abstract Sections 8 and 9 of the Sale of Goods Act of United Kingdom (SGA 1979) and Article 55 of the United Nations Convention on Contracts for International Sale of Goods (CISG) provide the rules on open price term in contracts for the sale of goods. The concept of open price was created following new circumstances in the global trade, necessities and needs of humankind. However, changes in the rules should be compatible with these new needs. Good rules are those that not only have been initially formed and drafted in a wise and precise manner, but also have been amended based on the shortcomings that it may have in practice. Otherwise, it would be a repetition of negligence of legislators each time that a weak, un-amended rule is performed. Since the enactment of the SGA 1979, which is a copy of its preceding provisions in SGA 1893, it has not reviewed or amended. This is the same with the provisions of the CISG. Thus, in this paper, through a doctrinal type of research and a comparative, analytical and critical approach to the issue, a library based study has been performed on SGA 1979 and the CISG. The aim of this paper is to highlight the salient aspects of the open price provisions in SGA 1979 and CISG in order to propose the necessity of their amendment. Keywords: open price term, contract of sale of goods, UK sale of goods act (1979), United Nations convention on Contracts for International Sale of Goods (CISG) 1. Introduction Prosser (1932) noted that the most important function of an open price term in a sale contract is to shift the risk caused by a fluctuating market from one of the parties to the other. The seller may want to avoid any risk and at the same time be assured of a market for his product either immediately or in the future. The buyer may also want to be assured of the supply of goods while there is always the possibility of a decline in price. In cases where the delivery is supposed to be performed at a future date, the parties may be uncertain about what the future price of the goods will be. In view of these conditions, there were attempts to deal with the transfer of risks in a changing and fluctuating market between the parties. Ultimately, this “has led to a variety of business arrangements by which, in a sale contract, the price is left open for future determination.” (Prosser, 1932) Aside from what an open price term economically means, this phrase has also been described by legislations. However, although the task of law is to provide order in society, peace and justice, defective rules can play an opposite role. With regard to open price term, although some rules have accepted this concept, there are, however, shortcomings and defective provisions that may even add to the problems and need to be amended. The two legislations that are studied in this paper are the Sale of Goods Act (SGA) 1979 as a domestic rule and the United Nations Convention on Contracts for the International Sale of Goods (CISG) as an international set of rules. These two codifications have recognized open price term. However, are these codifications are comprehensive and helpful or they consist of certain shortcomings? The next question would be what the negative and positive points of each of them are and do they need to be amended? As such, this paper aims to review and manifest the existing inconsistencies and problems of ‘open price term’ under the SGA 1979 and in the CISG. The CISG, according to Gabuardi (2004), is a tool of private international law that contains relevant rules for the international sale. Although in CLOUT case No. 201, Richteramt Laufen des Kantons Berne, Switzerland, 7 97 www.ccsenet.org/ass Asian Social Science Vol. 10, No. 15; 2014 May 1993, the court stated that the CISG is comprehensive and that it constitutes “an exhaustive body of rules,” similar to other international uniform law conventions, Ferrari (1998) opines it does not cover all the necessary issues that may arise from international contracts. Indeed, some matters are still left unaddressed. As far as the CISG is concerned, this can easily be seen by looking at some of its Articles, one being Article 55. As for the SGA 1979, existence of an open price provision is a perfect sign of an evolution and transformation from traditional rule to a more flexible one. Commentators (Berry, 2007) believe that the concept of open price in modern transactions has marked a significant departure from the common law because in common law, price is a vital feature for all sale contracts. Therefore, under traditional common law, open price term contracts would have been invalidated as ‘agreements to agree’ and held not to be legally binding. Yet, such provisions are likely to be a base for debates and arguments and sections 8 and 9 of the SGA 1979 have been no exception. Thus, the fact that these sections have existed in SGA 1983 to date is a considerable issue. To draft a comprehensive rule that does not cause contradictory interpretations is one of the most important concerns in drafting a provision. Rules that contain ambiguity or are not clear and comprehensive will result in debates and disputes. Hence, in considering Article 55 of the CISG and sections 8 and 9 of the SGA 1979, different aspects and matters that are missing, or are mentioned but may need to be amended will be studied in this paper. Below, the respective provisions in the SGA 1979 and the CISG are iterated. Sections 8 and 9 of the SGA 1979 with the long title of ‘An Act to consolidate the law relating to the sale of goods’ impose the same rules and have the same concept and idea as sections 8 and 9 of the former Sale of Goods Act 1893. Sections 8 and 9 of SGA 1979 stipulates that: 8-Ascertainment of price (1)The price in a contract of sale may be fixed by the contract, or may be left to be fixed in a manner agreed by the contract, or may be determined by the course of dealing between the parties. (2)Where the price is not determined as mentioned in sub-section (1) above the buyer must pay a reasonable price. (3)What is a reasonable price is a question of fact dependent on the circumstances of each particular case. 9-Agreement to sell at valuation (1) Where there is an agreement to sell goods on the terms that the price is to be fixed by the valuation of a third party, and he cannot or does not make the valuation, the agreement is avoided; but if the goods or any part of them have been delivered to and appropriated by the buyer he must pay a reasonable price for them. (2) Where the third party is prevented from making the valuation by the fault of the seller or buyer, the party not at fault may maintain an action for damages against the party at fault. Any legislation and a set of rules may have some negative points in it. SGA 1979 as a domestic rule has some noticeable points to be considered. However, what is less tolerable and acceptable by the needs and necessities of the world’s trade is an international set of rules in which there is apparent conflict and debatable negative and vague points. Among the most important conventions on uniform commercial laws that are currently in force, the 1980 United Nations Convention on Contracts for the International Sale of Goods (CISG) certainly stands out, even if for diverse reasons (Ferrari, 1997). Until 2013, CISG has around eighty member states, with ninety percent of which are leading trade nations. It has been estimated that about seventy to eighty percent of all international sales transactions are potentially governed by the CISG (Schwenzer & Hachem, 2009). CISG represents one of the most important attempts towards the creation of uniform law on international sales, although there have been other attempts as well (Ferrari, 1994). Since the enactment of CISG, there have been different texts written on it. Some criticized while others just praised (Eorsi, 1983). CISG is a tool for private international law that contains related rules for international sale of goods. Article 55 of the CISG in which the provisions on open price term are imposed is an Article that seems to have some shortcomings and what is more is the issue of its apparent conflict with Article 14 (1) of the same Convention in which the formation of the contract is mentioned (Gabuardi, 2004). Article 14 (1) reads: (1) A proposal for concluding a contract addressed to one or more specific persons constitutes an offer if it is sufficiently definite and indicates the intention of the offer or to be bound in case of acceptance.