Analyzing Specific Relief Amendment Act, 2018 in the light of UNIDROIT Principles of International Contracts and CISG

International trade is rapidly increasing over in the past 10 years in India. For proper valid contract, there is a need to understand rights and duties of the contracting parties in an international transaction. The researcher firstly explain the recent amendment done in Specific Relief Amendment Act in the year 2018 which changes the provisions related to specific performance of the contract and make specific performance of the contract a general rule instead of limited right. The researcher then explain the principles formulated by International Institute for the Unification of Private Law popularity known as UNIDROIT principles in 1994 which is an intergovernmental organization situated IN Rome. The basic motive behind formulating these principles is to make coordination in private commercial contracts between the states who have accepted to the UNIDROIT statutes.[1]  The researcher then come to the explanation of Convention of Contracts for International Sale of Goods (CISG) which is introduced by United Nation Commission on International Trade law (UNICITRAL). It was signed in Vienna in 1980 and came into force on 1st January 1988 after the ratification by 11 countries. 

1.     Introduction:

With an aim of reviewing the Specific Relief Act, 1963, a 28 member expert committee was set up in January 2016 and this committee recommends various changes intended to be made in Specific Relief Act, 1963. One of the major recommendations given by this committee is to make the Specific Performance of the contract a general rule rather than the limited right. On 1st October 2018, various amendments were done in the old Specific Relief Act and the new amended act came into effect as Specific Relief Amendment Act, 2018[2].

In modern India, International commercial contracts are increasing rapidly with the increase in cross-border trade between India and other countries. In 1994, a Rome based intergovernmental organization named as UUNIDROIT drafted various principles termed as UNIDROIT principles of International commercial contracts whose main purpose is to make coordination between different countries in terms of private commercial contracts. These principles offer an alternative choice of law where parties do not agree on a specific law[3].

In 1980, United Nation Commission on International Trade law (UNICITRAL) developed a convention named as UN convention on Contracts for Sale of Goods (CISG) which was signed in Vienna in 1980. Initially, after the ratification given by 11 countries this convention came into effect on January 1988. Till May 2016, this convention received the ratification by 87 countries. These countries contribute a major part in world trade which makes this convention a most important and successful uniform laws on an international platform.

2.     Salient features of Specific Relief (Amendment) Act, 2018:

2.1  Specific Performance is considered to be General rule rather than the limited right:

This amendment act reduces the power of Judges where the aggrieved party wants a specific performance of contract by other party[4]subject to the provisions of Section 11(2), 14 and 16 of the act. This amendment act gives an option to the aggrieved party for substituted performance of the contract by the third party. This amendment also gives the right to take all the expenses borne by the aggrieved party in form of money spent on that case and loss suffered because of this case merely because third party has breached the contract.[5]

Previously, Section 10 of the amendment Act talks about the discretionary remedy w.r.t the specific performance of the contract with following exceptions:

  1. The actual damage is caused to the aggrieved party by breach of contract.
  2. When compensation in monetary form is not sufficient remedy for the breach of contract.

Now, amendment Act reduces the power of the courts to grant relief to the aggrieved party in case of non performance of the contract. This act grants special relief to the aggrieved party whose deed of contract falls within the list of contracts mentioned in the amended section 14 and types of relief mentioned in amended section 16 of the act. Further, this amendment act gives permission to the aggrieved party for seeking specific performance of the contract.[6]

2.2  No injunction against infrastructure projects:

This amendment act restricts the courts to provide injunction[7] in the cases where contracts are related to infrastructure projects, if such injunction can cause delay in the development of the infrastructural project.[8] The Central Government makes the amendments and categorizes the infrastructure projects under the following heads:

  1. Transport 
  2. Energy
  3. Water and sanitation
  4. Communication especially telecommunication.
  5. Social and commercial infrastructure.[9]

The basic motive behind the implementation of this amendment act to minimize the interference of the courts in cases related to infrastructure projects and also to ensure that interests of public at large is associated with these projects should not be affected by the proceedings of the courts which can make delay in the completion of the project.

2.3  Special Courts and defines timeline for case disposal:

With regards to this amendment in Specific relief Act, some of the civil courts are converted into special courts whose main work is to deal with the cases filed for breach of contract related to infrastructure projects.[10] This amendment act makes a deadline of twelve months from the date on which defendant has received summon for the disposal of all the cases filed under this act. The deadline period can be extended for maximum 6 months by the court after recording valid reasons in writing.[11]

2.4  Engagement of Experts:

The amendment act of 2018 introduces a new section in the Specific Relief Act[12] which deals with the recruitment of technical experts in cases where the court feels to need assistance of a technical expert on a particular subject matter of the suit. Court have right to decide the terms of payment of such expert and the whole payment is made by the parties in a proportion decided by the court.

2.5  Recognition to Limited Liability Partnerships:

With the introduction of Section 15 (fa) in the Specific Relief Act[13], that adds limited liability partnership to the list of parties who can seek specific performance of the contract.

2.6  Substituted Performance:

Section 20 of Specific Relief Act amended by the Amendment Act of 2018 which provides form the substituted performance of a contract which makes an option available to the aggrieved party to obtain substituted performance by the third party. There is a notice period of 30 days to exercise the right of substituted performance. This notice period is necessary for the unfair use of this right.

3.     Analysis of UNIDROIT Principles of International Contracts:

An intergovernmental organization named as International Institute for the Unification of Private Law popularity known as UNIDROIT whose headquarter is in Rome has formulated certain principles known as UNIDROIT Principles with an aim to harmonize and make coordination between the different states regarding the Private commercial contracts.

3.1  Applicability and Interpretation of the Principles:

These principles are applicable to those contracts where parties are not ready to choose any governing law. Such contracts must have some international element for the application of these principles.

CJSC Obolon v. Dania Handel A/S[14]:

In this case both aggrieved party and the defaulter party are citizens of Ukraine. Hence, the commercial court of Appeal Ukraine held that contract between these two parties cannot be consider as an International Contract and UNIDROIT principles of international contracts shall not apply in this case.

3.2  General Provisions and Mandatory Rules:

These principles introduce general principles of “freedom of contract” which is limited to the conditions where there is less competition between the parties. These principles further make certain mandatory rules regarding trade customs and practices. These rules are mandatory in the enforceability of any international contract and parties cannot make any derogation with these rules.

i)               Goof faith and Fair dealing:

Good faith and fair dealing is basic necessity of any contract. Its necessity cannot be ignored.

ii)             Fraud, Threat, Gross Disparity and Illegality contract:

The aggrieved party has right to avoid the contract only when following factors are there:

  1. In case of fraud by the other party.
  2. The aggrieved party enter into the contract due to threat given by the other party.
  3. In case of gross disparity.
  4. In case the contract is of illegal things and if there is some illegality in the contract then aggrieved party can avoid such contracts. This avoidance become effective after the time period of giving notice.

iii)           Price determination and payment for Non performance:

When one party fixed the price, the principles provide that such price must be reasonable in respect of any contrary terms mentioned in the contract. Further payment to an aggrieved party must be of a reasonable amount w.r.t harm caused due to non performance of contract by the other party. 

iv)            Limitation Period:

These principles provide that general limitation period for international commercial contract is 3 years and maximum limitation period is ten years. This time period is subject to modification by the parties provided that such modification should not reduce the general limitation period to less than 1 year and maximum limitation period to less than 4 years and should also not increase the maximum limitation period to 15 years.

4.     UN convention on Contracts for the Sales of Goods (CISG):

United Nation introduced a treaty named as Un Convention on Contracts for the International sale of Goodsfor bringing the uniformity in the International sales law. This treaty was ratified by 889 states. This treaty was developed by UNICITRAL. This treaty is also known as Vienna Convention. This treaty came into force on 1st January 1988.

4.1  Application of CISG:

  1. This convention is applicable to the contract relating to the sales of goods between the privately owned businesses.
  2. This convention is also applicable to the contract related to the sales of goods where both parties have different business locations.
  3. This treaty can also be made applicable by the choice of the contracting parties.
  4. This convention is only applicable to international transactions.

4.2  Relevance of CISG:

  1. This convention is viewed as one of the major reform in international trade law.
  2. With the adoption of this convention, we can see uniformity in the legislations related to International sales of goods.
  3. CISG shall apply to those contracts where there is applicability of private international law of a contracting state.
  4.  CISG shall also apply by the choice of contracting parties irrespective of their business location.

4.3  Obligation of the seller:

  1. Article 30 of the convention puts obligation upon the seller for the proper delivery of goods and handling of documents.
  2. Article 33 of the convention states that the seller must deliver the goods in a fixed and reasonable time as mentioned in the deed of the contract.
  3.  Article 35 of the convention deals with the agreement of the contract.
  4. Article 42 of the convention put forward the claim of the third party in disputes related to industrial and intellectual property.

4.4  Remedies for breach of contract by the seller:

  1. Article 46 of the convention provides remedy to the aggrieved party for the sprcific performance of the contract by the seller.
  2. Article 53 of the convention give right to the aggrieved party to refuse to accept extra quantity of goods.
  3. Article 74 to Article 77 of the convention talks about the damages claimed by the aggrieved party from the seller in case of non performance of the contract.

4.5  Obligation of the Buyer:

  1. Article 53 talks about the buyer’s liability to take the delivery of goods and pay the amount for the same.
  2. Article 56 says that if the price is fixed w.r.t weight of goods then if any doubt arises then net weight of the goods is taken into consideration.

4.6  Remedies for the breach of contract by the seller:

  1. According to Article 62, the seller may make the buyer liable for the payment of good and to take the delivery.
  2. According to Article 64, the seller may avoid the contract in case of some illegality in the contract.

4.7  Case laws: 

i)               Sunflower Oil case:[15]

In this case, according to  Article 78 of the convention, the court directed the seller for the advance payment and interest to the buyer.

ii)             Steel Bars Case[16]:

In this case, the court held that the rate of interest is not fixed by CISG. Rate of interest in this case is determined by seeing the international trade w.r.t Euro dollars, currency in which payment has to be made.

5.     Conclusion:

Specific Relief Amendment Act 2018 is applied retrospectively which means that that the provisions of this amendment act is applied to all actions after the date of enforcement of this act even if that action is taken before the date on which this act came into force. This act minimizes the power and authority of the courts regarding the specific performance of the contract. 

International trading is considered as the most essential part of humanity such as eating, drinking, etc. UNIDROIT drafted certain principles which reduce the disputes in International commercial laws. These principles never override the mandatory laws of any particular state. 

Article 31 to Article 57 of CISG contains certain default rules which permit the contracting parties to reduce their contracting costs. This convention provides certainty in the contracts related to international sales of gods by making a uniform law in this regard. This convention also provides for the choice of law to the contracting parties on an international platform.

Frequently Asked Questions:

Q.1 what are the main objectives behind the introduction of amendment in the Specific Relief Act?

   Ans: this amendment act improves the India’s Global Ranking on enforceability of contracts and Ease of Doing Business Index.

Q.2 when did the Specific Relief (Amendment) Act, 2018 received the President’s assent?

Ans: This amendment act was passed by both the Houses of the parliament and President finally gives his consent on 1stAugust, 2018.

Q.3 what matters are not covered under UNIDROIT Principles?

Ans: These principles do not cover the contracts whose invalidity arises from:

  1. Lack of capacity
  2. Lack of authority
  3. Immorality or illegality.

Q.4 Does CISG apply to series?

Ans: No, CISG does not apply to series of contracts. CISG does not apply to sales of goods brought for personal and domestic use.

Q.5 How many countries have adopted CISG?

Ans: Till December 2015, CISG have been adopted by 84 countries.

References:

  1. Bangia R.K, “Specific Relief Act”, (2019).
  2. Bonell Joachim Michael, “An International Restraint of Contract Law”, (ed. 3rd, 2004).
  3. https://www.primerus.com/business-law-articles/analysis-of-the-unidroit-principles-of-international-commercial-contracts-2010.htm
  4. https://academic.oup.com/ulr/article/23/1/15/4944890
  5. https://www.mondaq.com/india/contracts-and-commercial-law/736966/the-specific-relief-amendment-act-2018-overview-implications

[1] Currently, only 63 states in the world have accepted UNIDROIT Principles.

[2] https://indiacode.nic.in/acts/10.%20Specific%20Relief%20Act,%201963.pdf

[3] https://www.primerus.com/business-law-articles/analysis-of-the-unidroit-principles-of-international-commercial-contracts-2010.htm

[4] Sections 3 and 4 of the Amendment Act, which amend Sections 10 and 11 of the Act.

[5] Section 10 of the Amendment Act, which amends Section 20(1) of the Act.

[6] Section 11 of the Amendment Act, which amends Section 21 of the Act.

[7] https://www.mondaq.com/india/contracts-and-commercial-law/736966/the-specific-relief-amendment-act-2018-overview-implications

[8] Section 10 of the Amendment Act, which amends Section 20A of the Act.

[9] Section 14 of the Amendment Act, which inserts the Schedule to the Act.

[10] Section 10 of the Amendment Act, which amends Section 20B of the Act.

[11] Section 10 of the Amendment Act, which inserts proviso to Section 20C in the Act.

[12] Section 5 of the Bill, which inserts Section 14A in the Act.

[13] Section 6 of the Amendment Act, which inserts Section 15(fa) in the Act.

[14] C-191/15.

[15] HG 95 0347

[16] 6653 of 1993.

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