International Commercial Law the Objective

International Commercial Law

The objective of this work in writing is to address the following: 'Under the CISG, avoidance is the one-sided right of a party to terminate the contract by its mere declaration. Such termination of a contract is the hardest sword that a party to a sales contract can draw if the other party has breached the contract. No other remedy -- claim for performance, price reduction, damages -- has the same incisive effect & #8230; Therefore, it is clear that on the one hand the remedy of avoidance should not be granted too easily, but on the other hand there must be a borderline from where the innocent party must be entitled to bring the contract to an end.' This work will explain the concepts of fundamental breach and 'nachfrist' under the CISG and their importance in regulating international sales. In light of the analysis and in reference to the CISG in general, the question of whether the CISG adequately protect the interests of an innocent party where the other party is in breach of contract?

Is the CISG Adequate to Protect the Interests of an Innocent Party Where the Other Party is in Breach of Contract?

The Vienna Convention is of the nature that has influenced two other recent international instruments:

(1) the Principles of International Commercial Contracts drawn up by Unidroit and published in 1994; and (2) the Principles of European Contract Law prepared by the commission on European Contract Law. (Chigbo, 2009)

These instruments are stated to have been the product of "comparative legal discussion" and to have involved "a pooling of ideas from common law countries and civil law countries." (Chigbo, 2009) There is reported to have been confusion in the past over the use of the words 'resile', 'repudiate' and 'rescind' in relation to contracts and there are still variations but a standard usage is stated to have emerged in recent years. (Chigbo, 2009, paraphrased)

Breach of Contract

To resile means to "withdraw from it lawfully, in the exercise of a right to do so, but not in response to a repudiation or breach." (Chigbo, 2009)

It is related that repudiation of a contract is providing a clear indication through words or actions that the contract will not be performed by the repudiator and the repudiator has no right to withhold or refuse performance. Therefore, repudiation is a wrongful rejection or renunciation of the contract. It does not end the contract but gives the other party an option to rescind." (Chigbo, 2009)

To rescind a contract means to bring that contract to an end in view of future performance of primarily obligations, in response to a repudiation or material breach by the other party." (Chigbo, 2009)

Chigbo (2009) state that the reference of the aggrieved party 'treating' the contract as rescinded although this usage is sometimes encountered." (Chigbo, 2009)

It is related that a repudiation with be companied by or retailers. Chigbo states that it would be inaccurate to speak of the party that is aggrieved 'treating the contract as rescinded because the aggrieved party rescinds the contract, rather than treat it as rescinded. The Sale of Goods Act 1979 speaks of the party aggrieved by a material breach and their entitlement to treat the contract as repudiated." (Chigbo, 2009)

A fundamental breach is held as one that has been avoided in CISG Article 72 if:

(1) Prior to the date for performance of the contract it is clear that one of the parties will commit a fundamental breach of contract, the other party may declare the contract avoided;

(2) Time allows, the party intending to declare the contract avoided must give reasonable notice to the other party in order to permit him to provide adequate assurance of his performance; and (3) the other party has declared that he will not perform his obligations then the requirements of the preceding paragraph do not apply. (Guide to Articles 71 and 72 - Comparison with Principles of European Contract Law, 2010)

A breach is that which "deprives an innocent party of the whole benefit of the contract. The case cited is Hong Kong Fir Shipping Co. Ltd. V. Kawasaki Kisen Kaisha Ltd. [1952] 2 QB 26. Breach of a fundamental term is also stated to be a breach and cited as support as the cases of: (1) Yeoman Credit Ltd. v Apps [1962] 2 QB 508 at 517, in which it was decided that it may be a total non-performance of the contract; or (2) a total breach: Farnworth Finance Facilities Ltd. v Attryde [1970] 1 WLR 1053. (Guide to Articles 71 and 72 - Comparison with Principles of European Contract Law, 2010)

When a fundamental breach occurs the innocent party has the choice as to whether to terminate the contract. (Guide to Articles 71 and 72 - Comparison with Principles of European Contract Law, 2010)

Sales of Goods Act 1979

The Sale of Goods Act 1979 speaks of the party that is aggrieved and Chigbo (2009) states that a repudiation provides the other party with the option to rescind the contract, and if this option is exercised, the repudiation is treated as if it were a breach" and damages claimed according to the breach. A repudiation is stated by Chigbo to be of the nature that can be regarded as a sort of inchoate breach. And additionally stated is that a material breach is not necessarily a repudiation." (Chigbo, 2009)

Warranties of quality are contained in the CISG and when these quality warranties are breached the buyer is given the right to a remedy as follows:

(1) the seller must deliver goods which are of the quantity, quality and description required by the contract and which are contained or packaged in the manner required by the contract;

(2) Except where the parties have agreed otherwise, the goods do not conform with the contract unless they: (a) are fit for the purposes for which goods of the same description would ordinarily be used; (b) are fit for any particular purpose expressly or impliedly made known to the seller at the time of the conclusion of the contract, except where the circumstances show that the buyer did not rely, or that it was unreasonable for him to rely, on the seller's skill and judgment; (c) possess the qualities of goods which the seller has held out to the buyer as a sample or model; (d) are contained or packaged in the manner usual for such goods or, where there is no such manner, in a manner adequate to preserve and protect the goods.

(3) the seller is not liable under subparagraphs (a) to (d) of the preceding paragraph for any lack of conformity of the goods if at the time of the conclusion of the contract the buyer knew or could not have been unaware of such lack of conformity." (Guide to Articles 71 and 72 - Comparison with Principles of European Contract Law, 2010)

To summarize the goods are not considered as conforming to the provisions and warranties of the contract unless those goods are:

(1) fit for the purposes for which the goods (of the same description) are ordinarily used: Art 35(2)(a);

(2) fit for a particular purpose made known to the seller: Art 35(2)(b);

(3) the same quality as a sample or model: Art 35(2)(c); and (4) packed in the usual manner for such goods: Art 35(2)(d). (Guide to Articles 71 and 72 - Comparison with Principles of European Contract Law, 2010)

Avoidance of contract is stated to be a "remedy of last resort" and one that enables the buyer to avoid the contract "for fundamental breach" and is found in Article 49 stated to be the sole Article that provides a legal basis for contract avoidance.

The work of Zamir (2007) entitled: "The Missing Interest: Restoration of the Contractual Equivalence" states that Article 25 contains the general provisions that address the sale of goods and that is includes a provision "that a breach of contract is fundamental if it results in such detriment to the other party as substantially to deprive him of what he is entitled to expect under the contract, unless the party in breach did not foresee and a reasonable person of the same kind in the same circumstances would not have foreseen such a result." (Zamir, 2007)

According to Zamir (2007) "The articles of the convention are focused rather upon the detriment suffered by the innocent party as a result of the guilty party's breach of the term rather than the nature of the term itself and have been criticized as "open textured" making it hard to predict just when a breach will be regarded as fundamental. Where breach involves failure to deliver goods by a prescribed date the right to declare the contract avoided arises only in cases of "fundamental breach" and has been said to be much less favorable to the buyer than the automatic right of rejection given to him or her under the common law."

Zamir (2007) states "is one of the most litigated sections of the convention. Under it the buyer loses the right to rely on a lack of conformity of the goods if he does not give notice to the seller specifying the nature of the lack of conformity within a reasonable time after he has discovered it or ought to have discovered it. In practice the requirement for a reasonable time has been read narrowly and inspections of the goods should be made in a very timely fashion. The buyer may also fix an additional period of time of reasonable length for performance under article 47 but, unless he has received notice from the seller that he will not perform within the period so fixed, he may not resort to any remedy for breach of contract during that period, although he is not deprived of a right to claim damages for delay in performance; article 47(2)."

Article 48 while subject to Article 49 states that the seller may "…even after the date of delivery remedy at his own expense any failure to perform his obligations if he can do so without unreasonable delay and without causing the buyer unreasonable inconvenience or uncertainty of reimbursement by the seller of expenses advanced by the buyer." (Zamir, 2007) the provision contained in Article 49 is that the buyer may "declare the contract avoided if the failure by the seller to perform any of his obligations amounts to a fundamental breach of contract or, in the case of non-delivery, if the seller does not deliver the goods within the additional period of time fixed under article 47(1) or declares that he will not deliver within the period so fixed." (Zamir, 2007) Finally the buyer may declare the contract avoided entirely only in the instance that the failure to make delivery "completely or in conformity with the contract" occurs which is stated as equivalent to a fundamental breach of the contract. (Zamir, 2007)

Repudiatory Breach

Chigbo states that the contrast is of the nature that either party may be given the right to resile "if the consent of a third party to some step is not forthcoming when such consent is a condition precedent in such a contract." (Chigbo, 2009)

The term 'repudiatory breach' is used sometimes and is a term that is useful in some contexts however not precise enough for generalities in the area of breach of contract. A breach is stated to potentially have all the effects of a material breach and, in particular "…can justify rescission, even although it would be straining language to say that it indicated an intention to repudiate." (Chigbo, 2009)

Reasons for Declaring Contract Null and Void

It is related that contracts would be declared null and void at one time and of not effect 'ab initio' due to a material breach including such as failure to pay purchase price for land which had been bought, want of due execution or improper execution of a deed or failure to comply with a statutory requirement for the contract and lack of contractual capacity or failure to obtain the consent of a party to a contract where such consent is necessary etc." (Chigbo, 2009) Generally speaking 'breach' as it relates to a contract means a failure, without justification legally to perform an obligation under the contract as required by the contract." (Chigbo, 2009)

Contract law is specifically addressed in Articles 71 and 72 of the Principles of European Contract Law (PECL) which states as follows:

CISG Article 71

(1) a party may suspend the performance of his obligations if, after the conclusion of the contract, it becomes apparent that the other party will not perform a substantial part of his obligations as a result of: (a) a serious deficiency in his ability to perform or in his creditworthiness; or (b) his conduct in preparing to perform or in performing the contract.

(2) if the seller has already dispatched the goods before the grounds described in the preceding paragraph become evident, he may prevent the handing over of the goods to the buyer even though the buyer holds a document which entitles him to obtain them. The present paragraph relates only to the rights in the goods as between the buyer and the seller. (3) a party suspending performance, whether before or after dispatch of the goods, must immediately give notice of the suspension to the other party and must continue with performance if the other party provides adequate assurance of his performance. (Chigbo, 2009)

CISG Article 72

(1) if prior to the date for performance of the contract it is clear that one of the parties will commit a fundamental breach of contract, the other party may declare the contract avoided;

(2) if time allows, the party intending to declare the contract avoided must give reasonable notice to the other party in order to permit him to provide adequate assurance of his performance;

(3) the requirements of the preceding paragraph do not apply if the other party has declared that he will not perform his obligations. (Chigbo, 2009)

Within this framework the following the contract's conclusion it becomes clear that the other party will not perform a substantial part of his obligations due to either serious deficiency in the ability to perform or due to his lack of creditworthiness or due to his conduct in preparing to perform or in performing. If the seller has already sent the goods to the buyer then that seller may serve to prevent the goods being handed over to the buyer although the buyer might hold a document of sort entitling him to obtain the same goods. It is important to note that when a party suspends performance that party must give notice immediately of the suspension to the other party of the agreement and is required to continue in performing his obligations if the other party gives assurance that is adequate as to his performance of contractual duties. (Chigbo, 2009)

CISG Article 72

CISG Article 72 states that in the period leading up to the date for the contractual performance should it become obvious that one of the parties will effectively breach the contract fundamentally the other party has the right to declare the contract avoided. Should enough time be allotted the party that intends to declare the contract avoided must provide time that is reasonable in serving notices to other parties. The requirements set out in CISG Article 2 are stated to be non-applicable if the other party has declared that they will not conduct their statements.