Dealing with informational asymmetries under the proposed CESL and CISG

• Date: 07 September 2012
• DOI: https://doi.org/10.1108/14770021211267388
• Published date: 07 September 2012
• Pages: 281-299
• Author: Christian Twigg‐Flesner
• Subject Matter: Economics

Dealing with informational

asymmetries under the proposed

CESL and CISG

Christian Twigg-Flesner

Law School, University of Hull, Hull, UK

Abstract

Purpose – This paper aims to explore the way in which informational asymmetries between the two

parties to a contract for the sale of goods are dealt with under two legal regimes designed for

transnational sales contracts: the UN Convention on the International Sale of Goods (CISG) and the

proposed Common European Sales Law (CESL).

Design/methodology/approach – Having considered the different types of informational

asymmetry that can exist in a contract of sale, the paper undertakes a doctrinal legal analysis of

the relevant provisions f‌irst in the CESL and then the CISG to identify what, if anything, has been done

to deal with informational asymmetries. The paper primarily exposes and analyses these rules and

compares the approaches taken under both legal regimes.

Findings – The CESL has a more detailed set of rules which address informational asymmetries.

This might be because the genesis and context of the CESL (being limited to the EU) might make it

easier to agree on more extensive rules. However, the CESL has not yet been adopted.

Practical implications – A seller in a contract of sale governed by CESL will be subject to more

detailed (and onerous) requirements when it comes to the disclosure of information.

Originality/value – This is a f‌irst attempt to compare the treatment of informational asymmetries

under the CISG and CESL, and will be of interest to scholars of both transnational and EU private law.

Keywords Common EuropeanSales Law (CESL),

Conventionon Contracts for the InternationalSale of Goods (CISG), European Unioncross-borders sales,

Consumer protection,Pre-contractual information,Information asymmetry, Information

Paper type Research paper

Introduction

The focus of this article is on the role of informational asymmetries between sellers

and buyers of goods, and the various provisions in the UN Convention on Contracts

for the International Sale of Goods 1980 (CISG) and the proposed Common European

Sales Law (CESL)[1] that deal with such asymmetries. The CISG was adopted in

1980 and is concerned with certain aspects of international sale of goods contracts

(contracts between parties whose places of business are in different states[2]).

It primarily deals with the formation of contracts and the respective duties of the seller

and buyer, as well as the associated remedies for breach of those duties. The focus of the

convention is on commercial contracts; consumer contracts are generally excluded from

the scope of the CISG[3].

The CESL marks the culmination of a project which has been on-going for over

a decade. In 2001, the European Commission launched a consultation exercise on the

need for action by the European Union (EU) in the f‌ield of contract law (Common Market

Law Review, 2002; Twigg-Flesner, 2008)[4]. This eventually resulted in the Draft

Common Frame of Reference (DCFR) (von Bar et al., 2009), which was produced

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Informational

asymmetries

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Journal of International Trade Law

and Policy

Vol. 11 No. 3, 2012

pp. 281-299

qEmerald Group Publishing Limited

1477-0024

DOI 10.1108/14770021211267388

by a network of European legal scholars. The DCFR is a detailed blueprint for legislation

on most aspects of private law. However, as the original focus of the project was

on contract law, a further exercise was undertaken by a group of experts to prepare

a Feasibility Study on EU Contract Law (2010), which then became the basis for

the proposed CESL now under discussion. The CESL is a two-part measure: f‌irst, there is

the so-called “chapeau” part which contains the provisions commonly found in EU

legislation (recitals, def‌initions, scope of application). This part does not contain the

substantive rules on the sale of goods. The second part of the CESL, found in Annex I to

the Regulation, provides the substantive rules. Unlike the CISG, CESL is designed to

apply to contracts between commercial sellers (traders) and consumers (B2C), as well as

commercial transactions between a large business and a small to medium-sized

enterprise (SME)[5]. As such, CESL focuses on different types of contracts (B2 C and

B2SME) with the underlying assumption that one of the parties in both types of

contracts is in a weaker bargaining position than the business or the larger business in

the case of SMEs. The CISG’s scope of application is not limited by considering the

bargaining strength of the buyer, but instead excludes contracts for certain types of

goods (effectively consumer goods) from its scope, with the intention of removing

consumer contracts from the ambit its jurisdiction. This variation in the scope of

application might suggest that the treatment of informational asymmetries will vary

noticeably between the two measures. This article will f‌irst explore the notion of

“informational asymmetries”. This will then be followed by an in-depth analysis of the

relevant provisions in the CESL and the CISG.

Informational asymmetries

In this section[6], the notion of informational asymmetry is explored. The focus is on the

relationship between a seller and buyer of goods. It is well-known assumption about

consumer markets that the information about goods (and services) is distributed

unequally to the detriment of the consumer. This may also be true in many business

transactions. This is a long-recognised problem and is the basis of Akerlof’s (1970)

famous “lemons problem”, which postulates that there is a risk when the buyer does not

possess all relevant information that the buyer might purchase poor-quality goods.

The obvious response to this problem is to require the seller to provide as much

information about the goods as possible, but there are a number of reasons why the seller

might not always be willing to reveal relevant information. Indeed, the issue of

informational asymmetry is not as straightforward as it seems because there are

a number of different forms of informational asymmetries. For present purposes, there

are four types of circumstances:

(1) The seller has information about the goods which the buyer does not have

(“seller-biased asymmetry”).

(2) The buyer has information about the goods which the seller does not have. For

example, the buyer may be aware of particular aspects of the goods through

third-party reports, or through having inspected the goods before deciding to

purchase them (“buyer-biased asymmetry”).

(3) There is information about the goods of which neither the seller nor the buyer

is aware. This is a common situation where there is some sort of latent defect

not apparent on an inspection of the goods (by either party), or when

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