The applicability of CISG to commodity trade contracts
Commodity markets are important elements of national economies as well as international wealth. Participants in commodity markets interact through contracts which define their rights and obligations. Contracts can be subject to different legal regimes. A legal regime affects how the rights and obligations of contractors are treated. The purpose of the current paper is to compare how the regime established by the United Nations Convention on Contracts for the International Sale of Goods (CISG) and English law treat the right to avoid the contract. The paper first explains the specificity of contracts concluded at commodity markets and reveals why the issue of avoidance is particularly important in the context of such markets. Next, it explores how the CISG treats the right to avoid the contract. Furthermore, it discusses how English law treats the right to avoid the contract.
Finally, the paper concludes which of the regimes is more advantageous to buyers and sellers at commodity markets. Specificity of commodity sale contracts Commodity trading involves trading at a commodity exchange, an open market place which provides a range of services to buyers and sellers (La Bella, 2011). Among such services there are regulation of the trading practices, collection and distribution of price information, inspection and monitoring of the commodities traded and supervision of warehouses where the commodities are stored (La Bella, 2011). As well as traditional trading, commodity trading suggests the actual physical exchange of goods (La Bella, 2011). Another common feature between traditional trading and commodity trading is that the seller transfers actual ownership to the buyer (La Bella, 2011). Commodity sale generally involves such goods as cotton, oil, grains and other bulk products (Winsor, 2014). Commodities can be traded at spot markets, where delivery can be performed immediately or within a short period of time. However, since commodity contracts typically presupposes sale of goods in large quantities, the buyer does not buy and receive the goods directly. Instead, such commodities are often traded within futures trading schemes: participants of commodity trading markets buy and sell commodities at a certain price on a particular date, with the buyer receiving the goods received at a later specified date (La Bella, 2011).
Such manner of trading is typically takes place at derivative markets, e.g . markets which are designed for the exchange of derivative instruments (Black’s Law Dictionary, 2009). Unlike traditional trading, trading at derivative markets involves an agreement between buyer and seller in which it is specified how much the buyer will pay for the goods in future (La Bella, 2011). In commodity markets, a derivative is a financial instrument, whose value depends on or derives from the performance of commodity (Black’s Law Dictionary, 2009). Depending on the type of the instrument, commodity contracts in derivative trading can be categorized as forward contracts and futures contracts. Forward contracts are agreements to sell a nonstandardized asset at a fixed price on a future date (Black’s Law Dictionary, 2009). Futures contracts are agreement to sell a …