INTRODUCTION

- Context and Perspective

The sale of goods legislation in England, Australia and Canada is based on the Sale of Goods Act 1893 (UK).[1] Although this was a codifying measure it did not impinge greatly on party autonomy. With very few exceptions (perhaps none at all) the operation of the legislation could be varied by agreement.[2] In fact, much of the law in relation to sale of goods contracts was left untouched for the very purpose of allowing the parties to reach their own agreement. The parties to commercial contracts were considered to be themselves the best judges of what obligations should be imposed. For the most part the legislation was drafted from the buyer's perspective, and the legislation seems generally to prefer the interests of buyers. However, there was no clear philosophy towards the protection of buyers, and no intention to entrench buyers' rights.[3]

In this environment much is also left to judicial intervention, that is, the courts were left free to determine and apply their own philosophies and prejudices, always in the name of giving effect to the parties' intention. There was considerable scope for judicial creativity. [page 93] However, it must be conceded that the courts, particularly in England and Australia, while showing considerable ingenuity in manipulating the legislation to deal with the more sophisticated transactions of the twentieth century, and in protecting parties against the procrastinations of the legislature, have shown little inclination towards creativity. Hardly surprisingly there has been limited success in promoting good faith.

My concern is with the area of rights and remedies and, in particular, rights of termination and rejection. In that context I want to consider the impact on the regime established by the legislation of the United Nations Convention on Contracts for the International Sale of Goods (1980).[4] Only if the present regime is understood can the impact of the Convention, which is already applicable in Australia, Canada and the United States, be evaluated. Moreover, those who have to decide whether to exclude the operation of the Convention from their contracts will surely regard the regime for rejection and termination as a crucial consideration.

To provide a norm for comparison, I want to test the current law against the Convention and a rule which would, in general, allow termination or rejection irrespective of whether the other party's breach is a serious one. From the buyer's perspective this is a norm of perfect tender, that is, a norm which enables rejection of goods which do not comply with the contract even if the tender is substantially in accordance with the contract. It is, of course, also necessary to have regard to sellers' rights, but a sub-title for the paper might be 'Perfect Tender Under Imperfect Legislation'. In the context, mainly, of English and Australian cases I want also to consider the relation between the termination and rejection regime and the regime governing the exercise of these rights. My reason for setting up this norm is simple. Although there is no express, that is imposed, perfect tender rule in the legislation, it is de facto in operation in England and Australia. This is because it is extremely easy to justify termination of a commercial sale of goods contract for breach of a term, other than for breach of a seller's express obligation in respect of the quality of goods or for breach by the buyer of the obligation to pay the price on time.

The approach to rights of termination and rejection is best considered against the background of the general law of termination of contracts, and rather than begin with explaining the legislation, I should start with a very brief statement of the general law applied in Australia, England and Canada. That will lead into an analysis of the impact of the Convention on Australian, English and Canadian domestic law.[5] [page 94]

TERMINATION UNDER THE GENERAL LAW

The existence of a right of termination under the general law applied in Australia, England and Canada depends on the presence of one of the following:

1. an express right of termination activated by breach, that is, an express termination clause;

2. an implied, that is, common law,[6] right of termination for:

   (a) breach of an express or implied term classified as a condition; or

   (b) the sufficiently serious breach of an intermediate term; and

3. a repudiation of obligation, anticipatory or otherwise.

The express right is introduced by a cancellation clause.[7] These are permitted in the sale of goods context and, where present, govern the rights of the parties. However, generally speaking, such rights are additional to those conferred by the legislation. Although the impression given by the cases is that such clauses are used, usually, to qualify rights under the legislation, it may be that their use to expand parties' rights will in future be more widespread under contracts governed by the Convention. Except in that context I do not consider express termination and rejection rights.

In order to understand the idea of termination for breach of 'condition' it must be understood that whereas a 'condition' is more accurately defined as a contingency, that is, an uncertain event which conditions a contract or a party's obligation to perform, where the occurrence of the contingency is the subject of an express or implied promise the English usage is to treat the term stating the promise as the condition. In other words, where one party's duty to perform is subject to the fulfilment of a contingency which the other has promised will be fulfilled, the term stating the other party's promise is a condition and the breach of such a term gives rise to an immediate right of termination. Where a term is a condition, the other party's breach of the term is accounted a serious matter, even if objectively it is far from serious.[8] It would be fair to say that the idea of termination for breach of condition is the most fundamental aspect of the sale of goods legislation.

Termination for breach of an intermediate term is a recent phenomenon which was introduced to enable courts to construe terms in such a way that the right of termination depends, where the term is capable of being breached in various ways (some minor and, some major) on the gravity of the promisor's breach rather than the nature of the term itself. In relation to breaches of intermediate -- or 'innominate' -- terms a right of termination accrues only if the breach is 'fundamental'. A fundamental breach is a serious one indeed and there are very few cases in which fundamental breach has been established in the Australian and English cases.[9] [page 95]

Although it is no more than a preferred piece of terminology, terms stating the time for performance, when conditions, are called 'essential time stipulations', and where time is not essential, such terms operate as either intermediate terms or warranties.[10]

I do not intend to discuss in any detail the regime for repudiation and anticipatory breach. The sale of goods legislation says virtually nothing on this. The Convention has express provisions which, broadly speaking, follow the common law.[11]

REJECTION AND TERMINATION UNDER THE CONVENTION

- General

The Convention applies [12] to contracts of sale of goods between parties whose places of business are in different States:[13]

1. when the States are Contracting States; or

2. when the rules of private international law lead to the application of the law of a Contracting State.

Neither the nationality of the parties nor the civil or commercial character of the parties or of the contract is taken into consideration in determining the application of the Convention.[14]

The Convention does not apply [15] to sales:

1. of goods bought for personal, family or household use, unless the seller, at any time before or at the conclusion of the contract, neither knew nor ought to have known that the goods were bought for any such use;

2. by auction;

3. on execution or otherwise by authority of law;

4. of stocks, shares, investment securities, negotiable instruments or money; [page 96]

5. of ships, vessels, hovercraft or aircraft;

6. of electricity.

Contracts for the supply of goods to be manufactured or produced are considered sales governed by the Convention unless the party who orders the goods undertakes to supply a substantial part of the materials necessary for such manufacture or production.[16] However, the Convention does not apply to contracts in which the preponderant part of the obligations of the party who furnishes the goods consists in the supply of labour or other services.[17]

The Convention governs only the formation of the contract of sale and the rights and obligations of the seller and the buyer arising from such a contract. In particular, except as otherwise expressly provided in the Convention, it is not concerned with:[18]

1. the validity of the contract or of any of its provisions or of any usage;

2. the effect which the contract may have on the property in the goods sold.

The parties to a contract may exclude the application of the Convention or [19] derogate from or vary the effect of any of its provisions.[20]

Questions concerning matters governed by the Convention which are not expressly settled in the Convention must be settled in conformity with the general principles on which it is based or, in the absence of such principles, in conformity with the law applicable by virtue of the rules of private international law.[21]

Article 35(1) of the Convention states that 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. Article 35(2) sets the standard for conformity by providing that goods do not conform with the contract unless they:[22]

It can be seen that the effect is to amplify the seller's duty to deliver conforming goods. There is no attempt to imply terms into the contract, and no attempt here to indicate the rights of the buyer.

There are two grounds for avoidance under the Convention:

1. a breach amounting to a 'fundamental breach';[23] and

2. failure by a seller to deliver pursuant within an additional period of time fixed under Art 47 or failure by a buyer to pay the price or take delivery of the goods within an additional period of time fixed by the seller under Art 63.[24]

In addition to the regime for avoidance there is also a regime for suspension. Under Art 71 a party may suspend the performance of his or her obligations if it becomes apparent that the other party will not perform a substantial part of his or her obligations as a result of:

1. a serious deficiency in ability to perform or creditworthiness; or

2. conduct in preparing to perform or in performing the contract.

Although the regime for avoidance is similar to the common law and sale of goods legislation, the regime for suspension has no counterpart in the sale of goods legislation.

In the context of sale of goods transactions, there are three concerns ('entitlements') relevant to termination for breach of contract, namely:

1. the entitlement of a party to act, that is to reject performance, where the circumstances show that the agreed return for performance has not been transferred, or the circumstances show that performance will not be accepted;

2. the entitlement of a party to a full opportunity to render the performance which is to be remunerated by the other party's performance;

3. the entitlement of the community to the optimal, that is most efficient, use of resources.

Striking a balance between these entitlements is not easy, and different people would give different answers to the question of what the relative balance should be. From the parties' perspective, buyers will prefer rules which facilitate the rejection of goods and the termination of contracts where the goods are not in accordance with the contract. On the other hand, sellers not unnaturally prefer rules which discourage avoidance and, generally, require buyers to perform subject to compensation rights. [page 98] From a buyer's perspective, avoidance should be the norm, but from a seller's perspective, nothing less than a general right to specific performance is sufficient protection.

However, particularly in the context of international sales, there is a community concern in the level of economic activity and extent of economic efficiency. The rights of individual buyers and sellers are subordinate to community interests. The community, that is, the world economy, favours the movement of economic resources to the highest value user and the conservation of scarce resources. There is also community concern in whether defective or inferior goods, particularly dangerous goods, are circulating and being purchased by consumers.

Those who drafted the Convention sought to give effect to these concerns and entitlements. The Convention was not, however, drafted from a common lawyer's perspective. Thus, although there is some similarity between the Convention and the common law and sale of goods legislation as applied to international transactions in the first of the two grounds for avoidance under the Convention, a civil law influence is felt in the second of the two grounds for avoidance. In its operation the Convention gives effect to a philosophy which is quite different from that of the common law.

As well as the common law and civil law influences, the Convention had to give effect to the differing requirements of developed and developing countries. The basic philosophy of the Convention towards termination of contracts for breach is for the normal remedy for breach of an international sale transaction to be damages not avoidance.[25] One justification for this approach is indeed the requirements of developing countries, where sale of goods transactions are entered into by sellers.[26] By restricting avoidance the Convention assists in securing the guarantee of a fair return for a community's products.[27] Against the background of this philosophy, what might appear to be differences of detail between the Convention and the sale of goods legislation are in fact matters of considerable substance.

It is also assumed that restricting avoidance promotes good faith and efficiency in commercial dealings. The notice procedure is there to put a party on notice that avoidance will occur unless performance takes place. For less than substantial deviations from the contract, notice must precede avoidance. The regime for suspension is there to lessen the risks inherent in matters such as creditworthiness. There is a fair degree of uniformity of treatment, in that there is no obvious preference for the rights of buyers over sellers. Thus, the creditworthiness of both buyers and sellers is referred to, whereas the emphasis of the common law is on the creditworthiness of insolvent buyers. [page 99] However, the absence of a general good faith provision means that whether good faith is promoted and secured will depend on the interpretation of the Convention. What remains to be seen is how the objects of the Convention will be affected by the decision not to subject the principle of freedom of contract to any general restriction.

- Avoidance for Fundamental Breach

So far as buyers are concerned, Art 49(1)(a) provides that a buyer may declare the contract avoided:[28] if the failure by the seller to perform any of his obligations under the contract or this Convention amounts to a fundamental breach of contract ...'.

Article 46(1) states that a buyer may require performance by the seller unless the buyer has resorted to an inconsistent remedy. Article 46(2) provides:

Article 46(3) states that if the goods do not conform with the contract, the buyer may require the seller to remedy the lack of conformity by repair, unless this is unreasonable having regard to all the circumstances.[29]

Article 51(1) states if the seller delivers only a part of the goods or if only a part of the goods delivered is in conformity with the contract, Arts 46 to 50 apply in respect of the part which is missing or which does not conform. Article 51(2) then provides:[30]

So far as sellers are concerned, Art 64(1)(a) provides that a seller may declare the contract avoided: 'if the failure by the buyer to perform any of his obligations under the contract or this Convention amounts to a fundamental breach of contract ...'. [page 100]

'Fundamental breach' is defined by Art 25 in the following terms:

Any common lawyer will recognise immediately both the expression 'fundamental breach' and the criterion of substantial deprivation of benefit. As indicated below [31] the description of a sufficiently serious breach of an intermediate term as a fundamental breach is fairly common. The test for fundamental breach most frequently used is that of Diplock LJ in Hongkong Fir Shipping Co Ltd v Kawasaki Kisen Kaisha Ltd [32] which was indeed couched in terms of substantial deprivation of benefit. It is also true that the words 'fundamental breach' were used in the 1950s and 1960s in another context, namely, to describe the type of breach the liability for which could not be excluded.[33] However, this use of fundamental breach has since been abandoned in England [34] and in fact never took hold in Australia.[35]

The concept of fundamental breach is central both to avoidance (by either party) and to rejection. It has been rightly pointed out that the Convention does not employ the words 'fundamental breach' to deal with exclusion clauses.[36] Moreover, the reference to foresight of the consequences, based on a provision in ULIS, is expressed somewhat differently to the common law, since it appears to be no defence to a promisor under the common law to say that the consequences of the breach are more fundamental than anticipated.[37] [page 101]

Two further points must, however, be kept firmly in mind when considering the impact of the Convention on domestic law. First, if courts were to treat the common law concept of fundamental breach as being adopted in the Convention, avoidance for fundamental breach would hardly ever be an available remedy. No American court would take this view. How will courts in Australia and Canada interpret the concept? It must surely have been the intention to introduce a concept which would allow avoidance in a wider range of circumstances than exist under the sale of goods legislation in relation to intermediate terms.[38] Secondly, the concept of fundamental breach does not rely on a prior classification of the term breached as being an intermediate term. It therefore also applies to terms which would, under the sale of goods legislation, be conditions.[39] This means that, subject to what is said below about 'intention', the right of termination for 'minor' breach of a term classified as a condition has been removed from international sale of goods transactions governed by the Convention. For example, where there is a breach of the duty under Art 35(1) of the Convention, to supply 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', the buyer's right of avoidance depends on proof of fundamental breach. Failure of the seller to deliver goods which are as 'fit for the purposes for which goods of the same description would ordinarily be used',[40] does not of itself confer a right of avoidance.

In one sense the only problem with the use of fundamental breach is the danger inherent in any legislation which takes words having an established usage and uses them in a different sense. Had some other form of words been used, such as 'material breach' the common lawyers (at least this common lawyer) might have been happier, but just about every metaphor of this kind has a history of interpretation.[41] However, it might have been helpful, as in other areas of the Convention, to give some illustrations.[42] There is, also, a more substantive point since, assuming that the Convention is interpreted as allowing avoidance for what might be termed 'material' or 'significant' breaches, the effect is, subject to what is said below about avoidance following notice, to reduce substantially the rights of buyers.[43] [page 102] Any legal adviser representing a buyer and in a position to exclude the operation of the Convention would need to give the matter very serious thought.

Under Art 6:[44] 'The parties may exclude the application of this Convention or ... derogate from or vary the effect of any of its provisions'.

It appears that no one has as yet considered the relation between this provision and the common law approach to the classification of terms. As will be explained,[45] the familiar treatment of terms in sale contracts as conditions is invariably justified on the basis of actual or presumed intention. In fact, the reality is that most cases are justifiable only on the basis of presumed intention. This is certainly the rationale for the leading cases such as Bowes v Chaleyer, [46] and Bunge Corp New York v Tradax Export SA Panama. [47] Now it would clearly throw the whole scheme of the Convention provisions on avoidance into total confusion if courts in, say, Australia, were to treat an implied agreement that a term is to be a condition as sufficient to exclude the operation of the fundamental breach requirement. There was, however a conscious choice by those who drafted the Convention not to restrict the operation of Art 6 to cases of express agreement. So we must allow for implied agreement in any analysis of contrary intention.

Moreover, Art 4 states that the Convention is not concerned with 'the validity of the contract or of any of its provisions or of any usage'. Would it be going too far to say that in the treatment of terms in some standard form contracts, such as the GAFTA contracts which have occupied so much of the English courts' time, there has been such a consistent course of interpretation that construction of the terms as conditions has become a matter of usage in the particular trades? [48] In any event, problems must inevitably arise in respect of standard form contracts containing terms which have previously been interpreted as conditions.[49] The better view is that failure to exclude the Convention means that there is an implied intention to adopt the avoidance regime there prescribed in preference to the regime which would operate as a consequence of a choice of law clause. If this is correct, and there was an opportunity to exclude the Convention, this may have important implications for legal advisers. [page 103] Thus, a missed opportunity to adopt English law as the proper law might prejudice a party's rights and attract unwelcome legal consequences for the adviser.

An alternative approach would be to include express rights of termination, since these will be regarded as sufficient to exclude the operation of fundamental breach. Indeed, such provisions are the most obvious way to combine the operation of the Convention with the advantages which buyers enjoy under the common law in respect of objectively minor breaches.

- Avoidance Following Notice

Common lawyers are familiar with termination following service of a notice to perform. The object in the common law is usually described as being to make time of the essence where it was not originally essential or its essentiality has been 'waived'.[50] Strictly, however, the object of the notice is to provide evidence of repudiation or fundamental breach.[51] The object of the notice procedure under the Convention is different since the right of avoidance is not predicated on either the nature of the breach or the evidential value of the other party's conduct. Simply expressed, the right of avoidance follows from the failure to comply.

Article 47(1) permits a buyer to fix an additional period of time of reasonable length for performance by the seller. Similarly, Art 63(1) permits a seller to fix an additional period of time of reasonable length for performance by the buyer.

Article 49(1)(b) provides the buyer's right of avoidance, by stating that the buyer may declare the contract avoided:

Article 64(1)(b) provides the seller's right of avoidance, by stating that the seller may declare the contract avoided:

It should also be noticed that these provisions allow for avoidance based on a statement that the other party will not comply with the notice. This is analogous to anticipatory breach.[52] [page 104] The Convention does not require an anticipatory fundamental breach.[53] However, a party may not anticipate a failure to comply with the notice, by resorting to remedies for breach during the currency of the notice, where there is no express declaration.[54] There is no scope for avoidance, independently of fundamental breach, where no notice has been served, in reliance on proof that a party was so placed that he or she would be unable to comply with a notice requiring performance within a reasonable time.[55]

The reaction of lawyers brought up on the sale of goods legislation to the notice procedure is difficult to predict. One of the justifications for the approach to conditions, that is, the idea that a term may be a condition on the basis of an implied agreement irrespective of the objective seriousness of breach, is the inappropriateness of a notice procedure to many international sales. Thus, in Bunge Corp New York v Tradax Export SA Panama [56] Lord Lowry said 'the sellers could have made time of the essence, if it were not so already, this would require reasonable notice, which might well not be practical either in a string contract or at all'. And Lord Wilberforce had 'string contracts' in mind when he said [57] that one party's performance 'may well be totally dependent on punctual performance' by the other. In other words, although the notice procedure may work well in all sale of goods transactions, it seems more suited to cases between immediate buyer and seller than intermediate parties in a chain of transactions.

It might also be said that the interpretation of express notice provisions has often, under the common law applied to sale of goods transactions, been less than satisfactory. A good, or rather infamous, example is cl 21 of GAFTA form 100. Although superficially a contractual frustration clause, the decisions have treated the clause as promissory.[58] And the cases interpreting the requirement of, notice have been hopelessly technical in their approach.[59] [page 105]

- Suspension of Performance

A party seeking to suspend performance must give notice of this fact.[60] If an adequate assurance of performance is provided by the other party, the party who gave the notice must continue with performance.[61] The requirement that it merely be 'apparent' is intended to be less onerous than the requirement that it be 'clear', a criterion which applies in cases of avoidance for anticipatory breach.[62] This has the result, in theory at least, that suspension is more generally available than avoidance.[63]

Surprisingly, there is no statement of the consequences of an inadequate assurance, and it should not be presumed that the failure to provide an assurance (or an adequate assurance) is enough to make it 'clear' that the other party will commit a fundamental breach. A failure to provide an adequate assurance does not automatically provide a right of avoidance and there is therefore no mechanism by which a party may demand an assurance of performance and treat a failure to respond with an adequate assurance as a fundamental breach.

- Qualifications on Avoidance

Article 48(1) permits a seller (subject to Art 49) even after the date for delivery, to remedy any failure to perform, if the seller 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.[64] [page 106] Under Art 48(2), if the seller requests the buyer to make known whether he or she will accept performance and the buyer does not comply with the request within a reasonable time, the seller may perform within the time indicated in the request.[65] And, by virtue of Art 48(3), a notice by the seller that the seller will perform within a specified period of time is assumed to include a request that the buyer make known his or her decision.[66]

The Convention follows the common law [67] in not treating avoidance as automatic: there must be a 'declaration' of avoidance.[68] The declaration is effective only if made by notice to the other party.[69] There is no formal procedure for avoidance. Again following the common law,[70] no particular content is required in the notice: it is sufficient to inform the other party that the contract is being avoided.[71] By way of contrast with the approach of some civil law jurisdictions, there is no requirement that the party avoiding the contract obtain judicial approval or confirmation.[72] The common law does not, in most situations at least,[73] require the promisor to be given an opportunity to perform. Under the Convention, notice must be given 'if time allows', but only in cases of anticipatory breach.[74] [page 107]

Article 49(2)(a) provides, in cases where the seller has delivered the goods, that the buyer loses the right to declare the contract avoided in respect of late delivery, unless the buyer does so within a reasonable time after becoming aware that delivery has been made. In respect of any breach other than late delivery, under Art 49(2)(b) the buyer loses the right to declare the contract avoided unless the buyer does so within a reasonable time:

1. after the buyer knew or ought to have known of the breach;

2. after the expiration of any additional period of time fixed by the buyer in accordance with para (1) of Art 47, or after the seller has declared that he or she will not perform his obligations within such an additional period; or

3. after the expiration of any additional period of time indicated by the seller in accordance with para (2) of Art 48, or after the buyer has declared that he or she will not accept performance.

Article 64(2) deals with loss of a seller's right of avoidance. It provides, in cases where the buyer has paid the price, that the seller loses the right to declare the contract avoided unless the seller does so:

1. in respect of late performance by the buyer, before the seller has become aware that performance has been rendered; or

2. in respect of any breach other than late performance by the buyer, within a reasonable time:

   (a) after the seller knew or ought to have known of the breach; or

   (b) after the expiration of any additional period of time fixed by the seller in accordance with para (1) of Art 63, or after the buyer has declared that he or she will not perform within such an additional period.

No solution is provided to the common law problem [75] that even if a ground for termination is specified, the promisee is not tied to that ground. This seems therefore still to depend on domestic law. The problem is most complex in international sales because of the distinct rights in relation to documents and goods.[76] There is no good faith duty in the Convention. The closest that the Convention comes to such a duty is in Art 7 which states:

REJECTION AND TERMINATION UNDER SALE OF GOODS LEGISLATION

- Introduction

Central to the legislative regime is the distinction between conditions and warranties. Although the distinction has frequently been criticised,[77] it has proved to be an enduring one. The word 'warranty' is defined as 'an agreement with reference to goods which are the subject of a contract of sale, but collateral to the main purpose of such contract, the breach of which gives rise to a claim for damages, but not to a right to reject the goods and treat the contract as repudiated'.[78] There is no express definition of 'condition', although the inference may be drawn that it is a term more important than a warranty, since the implied term provisions allow for termination in the event of breach of an implied condition but not an implied warranty. The words which express this ability to terminate are peculiar. The buyer (or seller) is entitled to treat the contract as repudiated for breach of condition by the seller (or buyer).[79]

I am not concerned with the history of the distinction, a story which has in any event been told many times over.[80] However, it may be of some interest to point out that the origin of the legislative distinction is in fact a charterparty case, Behn v Burness. [81] Moreover, the draftsman of the Sale of Goods Act 1893 (UK), Chalmers, was far from happy with this aspect of the legislation. His original draft allowed rejection of goods for breach of warranty, as the common law had done.[82] This may explain why the Act is not very clear on the relation between termination of the performance of a sale of goods contract for breach by a seller, and a buyer's rejection of the goods. [page 109] It may also explain why the word condition is used in the Act in various senses. Two illustrations of this may be given.

First, whereas all the implied terms provisions are drafted as conditions or warranties, the obligation to deliver the contract quantity, and also the obligation not to deliver goods mixed with those of another description, are couched in terms of the buyer's rights of rejection. There is, it seems, a contrast between implied terms and implied duties.[83]

Second, the legislation tells us [84] that 'unless otherwise agreed, delivery of the goods and payment of the price are concurrent conditions' and here the legislation uses the word 'conditions' in a different sense than the implied terms provisions. Therefore, although it might, similarly, have been said to be a 'condition' of the buyer's duty to accept goods that the seller tender goods of merchantable quality, the concept of a condition as a contingency is not generally employed and the word is used in the implied terms provisions to describe a particular type of term rather than the event which conditions the buyer's duty.[85] It is hardly surprising that, under the influence of the sale of goods legislation, the distinction between the right of termination and the right to refuse to perform for failure of condition, that is contingency, is seldom drawn in sale of goods law or elsewhere.[86]

The next step is to summarise, in a series of propositions, the regime of the sale of goods legislation in relation to rejection and termination. The summary is based not only on the express provisions of the legislation but also the cases which have established supplementary principles.

1. The stipulations as to time in relation to a seller's obligations are generally essential, that is conditions, unless the parties have agreed to the contrary.[87] At least in respect of commercial contracts, a perfect tender norm therefore operates in relation to the time of tender.[88]

2. By virtue of the provisions of the legislation, a buyer may reject a tender of the wrong quantity, or a tender of goods mixed with other goods not of the contract description.[89] Again, a perfect tender norm operates, subject only to a de minimis rule.[90] [page 110]

3. Since it is an implied condition that the seller has (or will have) a right to sell the goods, a perfect tender norm applies in relation to title.[91]

4. Where goods are sold by description, a condition is implied obliging the seller to deliver goods of the contract description.[92] There is thus a requirement of perfect tender in relation to description.[93]

5. In contracts where the implied condition of merchantable quality (or the implied condition of fitness for purpose) is present, a right of termination for breach of condition exists if the goods are not merchantable (or not fit for the buyer's purpose).[94] To this extent there is a perfect tender norm in relation to the quality of goods. However, express obligations in relation to quality are not conditions, but are usually 'intermediate' in nature.[95]

6. In the case of contract for sale by sample, the requirements that the bulk correspond to the sample in quality, and that the buyer have a reasonable opportunity of comparing the bulk with the sample, and also that the goods be free from any defect rendering them unmerchantable which would not be apparent on reasonable examination of the sample, are all expressed as implied conditions.[96] Therefore, save to the extent that these requirements have been altered by the contract, a perfect tender norm operates.

   For completeness I should mention the position of a seller in respect of a buyer's breach of obligation.

7. Time for payment is not essential, that is, not a condition.[97] It is therefore usually a warranty.[98]

8. The stipulations in relation to a buyer's other obligations, such as to accept the goods or to take up shipping documents under a CIF sale, are generally essential, that is, conditions.[99]

   With respect to instalment contracts:

9. In relation to each delivery the above propositions apply. Again, to a large extent, we find a requirement of perfect tender.

10. There is no right to terminate an instalment contract unless there is a breach by the other party amounting to a repudiation of the whole contract.[100] [page 111]

It is also worth pointing out that to the extent that these propositions illustrate that buyers are extremely well served by the legislation, one of the few amendments to the legislation has increased that protection. Originally, emphasising the distinction between sale and agreement to sell,[101] the legislation forced buyers of specific goods to treat conditions as warranties where property had passed.[102] The amendment, which has occurred in several jurisdictions,[103] allows a buyer of specific goods to whom property has passed to terminate for any breach of condition unless the goods have been 'accepted'.[104]

It would be naive not to admit that the operation of the rules and principles expressed in the propositions have been qualified somewhat in their interpretation by the courts. Thus, the merchantable quality requirement has been watered down by the broad definition given under the common law to that concept.[105] Again, in more recent times the courts have shown an inclination to narrow the content of the requirement of correspondence with description by restricting the description concept to elements which constitute a substantial ingredient in the 'identity' of the thing sold.[106]

Five features of the sale of goods legislation's treatment of termination rights stand out as important in any analysis of party autonomy.

Finally, although it is not something on which I intend to say a great deal, it goes without saying that the legislation treats specific performance as of marginal interest in sale of goods transactions.[116]

- Classification of Express Terms

Introduction

All contract lawyers trained in countries like England, Australia and Canada have grown up with the understanding that breach of condition, even a 'minor' breach, necessarily gives rise to a right of termination. Moreover, this familiarity does not arise because we all did sale of goods courses in our undergraduate days, although this is obviously the case with many of us. Rather it is because the distinction enshrined in the legislation was adopted as part of the general law of contract. The textbooks follow this approach and the condition/warranty analysis is still a basic tool for common lawyers outside the United States of America. Nevertheless, the general approach to the construction of terms is one of policy. [page 113] The readiness of courts to treat terms as conditions has a direct impact on the relative rights of the parties, and the ease with which a party may put forward an objectively minor breach as a basis for termination.

Notwithstanding the object of the sale of goods legislation to codify the law on sale of goods, the failure to explain when express terms should be construed as conditions has led the courts to apply general rules of contract to sale of goods transactions. This helps to explain the otherwise remarkable circumstance that in English law the two most influential cases, Bowes v Shand [117] and Bentsen v Taylor Sons & Co (No 2),[118] were both decided prior to the legislation coming into force. It must be even more remarkable that one of these (Bentsen v Taylor Sons & Co (No 2)) was a charterparty case! And in Australia, the leading case is Bowes v Chaleyer, [119] a decision on appeal from the Supreme Court of New South Wales in relation to a sale of goods contract agreed prior to the passing of the Sale of Goods Act 1923 (NSW).

Preference for conditions

To have a choice between, on the one hand, a classification which ensures that breach gives rise to a right of termination irrespective of the objective seriousness of the breach, and, on the other, a classification which means that, no matter how serious the breach, there is no right of termination, is an invidious one. It implies that whenever a significant term is being construed, particularly one in a standard form contract, the court must construe it as a condition so as to ensure that protection exists in relation to breaches which are in fact serious. That there is under such a bipartite classification no scope for any concept of substantial performance is shown by the infamous English cases on compliance with description.[120] The application of the intermediate term concept to sale of goods transactions,[121] itself a controversial step,[122] was therefore a significant development for the law on express terms.[123]

For a time it seemed that the intermediate term concept might have the effect of making substantial breach the normal requirement for termination, the view being taken that rejection is a consumer remedy,[124] and commercial people prefer acceptance subject to allowance for defects. [page 114] Thus, in a number of cases (some involving sales of goods) in the 1970s [125] the courts extolled the virtues of the intermediate term concept and the analysis in Hongkong Fir Shipping Co Ltd v Kawasaki Kisen Kaisha Ltd. [126] In one of the sale cases [127] Lord Wilberforce, in justifying the treatment of the prohibition clause in GAFTA as an intermediate term, said that automatic construction of the clause as a condition would have run counter to the 'approach, which modern authorities recognise, of treating such a provision as having the force of a condition ... or of a contractual term ... according to the nature and gravity of the breach'.

Substantial performance and substantial breach

The reason why the intermediate term approach did not supplant the traditional preference for conditions in the sale of goods contract is that the concept took the law too far in the other direction. The absence of 'substantial (fundamental) breach' is not synonymous with the presence of 'substantial performance'.[128] In relation to breaches of such intermediate terms, a fight of termination accrues only if the breach is a 'fundamental' breach.[129] The breach must deprive the promisee of substantially the whole benefit which it was the intention of the parties that the promisee should obtain as the consideration for performance.[130] Apart from occasional suggestions that the test is not as strict as this formulation suggests,[131] this type of criterion has been confirmed on many occasions.[132] [page 115] Cases interpreting terms as intermediate are rarer today than in the 1970s.[133]

Had the law merely required performance to be less than substantial, for example, to treat the tender norm as requiring performance substantially in accordance with the contract, the position might well have been different.[134] That the criterion is of a fundamental breach,[135] rather than a performance which is less than substantial, is shown by The Hansa Nord. [136] A term requiring that goods be shipped 'in good condition' was breached by the seller. The contract price for the goods was about £100,000, and following their rejection by the sellers they were sold for only £33,700. Even allowing for the fall in market prices, and certain suspicions surrounding the resale in which the original buyers purchased the goods, it would be difficult to say that the sellers had substantially performed the contract. Yet the court held the breach not to be so substantial as to justify the buyers' rejection. This explains why there have been very few cases in which a fundamental breach of an intermediate term has been established.[137] [page 116]

Evaluation

We have, of course, very little empirical evidence on what standard the parties to commercial contracts favour. It is, as has been explained, always open in sale of goods contracts to agree to a requirement of substantial performance. The real debate in the sale of goods context is what inference should be drawn from the failure of the parties to adopt such a criterion expressly. The Australian and English courts have treated certainty and predictability as important and regarded the failure to agree to a substantial performance criterion as implying that the approach, which began early in the nineteenth century, is still applicable.[138] Thus, the buyers in Bunge Corp New York v Tradax Export SA Panama [139] argued that cl 7 of GAFTA form 119, requiring them to give at least 15 days' notice of the probable readiness of the vessel which was to receive the goods, was not a condition because breach of the term would not necessarily deprive the sellers of substantially the whole benefit which it was intended they should obtain from the contract. This was an attempt to make satisfaction of Diplock LJ's test in Hongkong Fir Shipping Co Ltd v Kawasaki Kisen Kaisha Ltd [140] an essential requirement for a term to be a condition. The House of Lords rejected the argument and held the term to be a condition on grounds of commercial convenience even though the parties had not said it was a condition. Therefore, particularly in relation to time stipulations, the words of Starke J in Bowes v Chaleyer, [141] that 'it is far safer ... to treat as conditions substantial and important provisions in a mercantile contract relating to the time, place or mode of shipment goods the subject matter of the contract unless the contrary intention is manifest' are as valid today as in 1923.[142] Accordingly, although the courts might have restricted the traditional approach (preferring construction of terms in sale contracts as conditions) to intrinsically significant terms such as those relating to letters of credit and other documents securing payment,[143] the quest for certainty has been used to justify retention of the traditional approach.[144] [page 117]

We might well criticise this English approach as being unsophisticated, or out of touch with modern conditions or as producing injustice, but the plain fact is that many contracting parties who have no contact with English law other than the choice of law clause in their contract prefer to have English law applied.[145] Cardozo J once said, in a very famous case:[146]

"Those who think more of symmetry and logic in the development of legal rules than of practical adaptation to the attainment of a just result will be troubled by a classification where the lines of division are so wavering and blurred. Something, doubtless, may be said on the score of consistency and certainty in favor of a stricter standard. The courts have balanced such considerations against those of equity and fairness, and found the latter to be the weightier. The decisions in this State commit us to the liberal view, which is making its way, nowadays, in jurisdictions slow to welcome it."

He referred to Dakin & Co v Lee [147] a substantial performance case in the context of a building contract, which has had no impact at all on sale of goods transactions. I have explained that the courts have in the sale of goods context been 'troubled' by classification of terms as intermediate. But in so far as the courts have seen the contrast as between 'certainty' on the one hand and 'justice' on the other they have chosen the former. This has, however, created considerable tension in the context of the exercise of rights.

- Exercise of Rights

The sale of goods regime

The sale of goods legislation is remarkably silent on the exercise of rights. The most detailed provisions are in relation to a seller's exercise of rights against goods. These do not concern us. Unless otherwise agreed, where goods are delivered to the buyer and the buyer refuses to accept them, having the right so to do, it is sufficient if the buyer intimates the refusal to accept to the seller. The buyer is not bound to return the goods to the seller.[148] [page 118] In substance, the only statutory qualification is in the concept of acceptance, since both termination and rejection cease to be available where goods are accepted.[149]

Under the legislation an intimation of acceptance precludes rejection, the right of rejection must be exercised within a reasonable time, since retention of goods beyond this period amounts to acceptance, and rejection must occur before the buyer has done any act in relation to the goods inconsistent with the seller's ownership, since such an act is deemed to amount to acceptance.[150] There is no provision dealing with termination by a seller for breach by a buyer. And amendment to the original formulation of acceptance and the relation with the buyer's right to examine the goods [151] has served to confirm that acceptance is narrowly confined.[152]

Operation of the common law

It follows that where goods are rejected there is neither a requirement that the buyer specify the basis for rejection nor any obligation to allow the seller an opportunity to cure. As in the context of express terms, much is left to the common law. This means, at least in theory, not only that a buyer may rely on unstated grounds for rejection [153] but also that an opportunity to cute arises only where a defective tender is not expressed to be final, and provided there is time to make a fresh tender of conforming goods.[154]

Although the common law provides a variety of safeguards against unjust rejection and termination, there is no recognition of a general requirement of good faith. [155] At best overt recognition is guarded and qualified.[156] [page 119] Thus, in Panchaud Freres SA v Etablissements General Grain Co,[157] ' Winn LJ said:

"[W]hat one has here is something perhaps in our law not yet wholly developed as a separate doctrine -- which is more in the nature of a requirement of fair conduct -- a criterion of what is fair conduct between the parties. There may be an inchoate doctrine stemming from the manifest convenience of consistency in pragmatic affairs, negativing any liberty to blow hot and cold in commercial conduct."

The importance of this area of the law should not be underestimated. What characterises English law, and Australian law as well in the sale of goods context, is the application of a variety of overlapping and difficult concepts of which the main examples are election between inconsistent rights, estoppel and waiver. It is in fact not at all difficult to give a number of examples even amongst the older decisions in the sale of goods context where the unjust exercise of rights [158] has been controlled by the use of these concepts which operate, almost invariably, where there is an obvious tension between the exercise of rights where the market has moved adversely to the promisee and basic considerations of fairness.

This tension not infrequently arises under English law due to the combined operation of two rules in particular. The first is the ability to rely on unstated grounds for termination or rejection and the second is the absence of any requirement, where termination or rejection is based on breach of condition, for the promisee to have suffered loss or damage.[159] Thus, the familiar problem of buyers rejecting goods on a falling market may be dealt with by a refusal to construe the term as a condition,[160] and the buyer who seeks to set up an unstated defect in the seller's tender can be vanquished by application of the rules on election, estoppel and waiver.[161] The last, in particular, is often a factually questionable response to the buyer who has not given any ground but is content to take its chance of finding a basis for rejection in the course of dispute resolution.

Evaluation

The application of fact intensive concepts of election, estoppel and waiver is itself a source of much uncertainty. They add considerably to the cost of dispute resolution and are easily manipulated by the judges to produce what is perceived as being a 'just' result. [page 120] I have elsewhere [162] put forward the view that English law is no further advanced on the path of good faith today than in 1969 when Panchaud Freres was decided. Australian law comes much closer to the recognition of some such duty, but the cases have all concerned either good faith in formation or performance, rather than in the exercise of rights, or the application of principles governing relief against forfeiture in land contracts. In fact, the High Court of Australia has expressly left open the question of whether Panchaud Freres should be taken as illustrating a general doctrine of good faith -- or unconscionability -- in the exercise of contractual rights.[163] The indications are that English law is unlikely, at least in the short term, to adopt a requirement of good faith.[164]

The solution to the sale of goods problems would be made much easier by the introduction of a basic requirement that a buyer specify the basis for rejection. No one could regard this as controversial. Introduction of a right of cure following expiry of the time for performance would be regarded as more controversial because it is inconsistent with the approach to time stipulations. But, of course, the requirement of specification is of less significance if the seller is not given the opportunity to put itself right.

An alternative (at least slightly different) approach would be to allow sellers to request a statement of the ground for rejection (or termination). Logically, this would be part of a detailed regime of seller's rights. However, there seems little support for such a regime in the cases. No impetus can come from the general law of contract since there is no obligation to specify a basis for termination and no right to an assurance of performance.[165] In relation to sale of goods contracts the impetus may come from the Convention, and proposals for reform in some jurisdictions.[166]

CONCLUSIONS

In summary form the conclusions which follow from the analysis above are:

1. The domestic law applicable to sale of goods transactions derived from the English common law and legislation offer generous rules for rejection and termination.

2. The position is, again under the domestic law, that it is not at all difficult to establish a right of termination in respect of technical breaches. [page 121]

3. The position under the Convention is markedly different since, apart from the ability to rely on a notice to perform in a reasonable time, fundamental breach is the basis for avoidance.

4. The expression 'fundamental breach', as used in the Convention, gives rise to nice questions of interpretation in jurisdictions in which the English approach to termination and rejection has been applied.

5. The relation between the Convention and the intention of parties to commercial sale of goods contracts is unclear, particularly in the extent to which an intention to exclude the requirement of fundamental breach will be implied in standard form contracts.

6. There are no specific provisions in relation to termination (avoidance) and rejection under either the common law or the Convention which impose a requirement that termination or rejection be in good faith.

7. The scheme of the Convention in relation to suspension of performance has no analogy in either the sale of goods legislation or the domestic common law. There is an analogy with the Uniform Commercial Code, but no direct relation between a failure to provide an adequate assurance and the concept of fundamental breach.

8. Whether the Convention should be totally excluded from an international contract for sale of goods admits of no easy answer, although generally it seems in the interests of buyers to exclude the Convention. [page 122]

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FOOTNOTES

* A paper delivered at the Third Annual Journal of Contract Law Conference, Toronto, 20 October, 1992, on Commercial Contract Law sponsored by Freehill Hollingdale and Page, Solicitors and Tory Tory DesLauriers & Binnington, Barristers and Solicitors, Toronto.

1. In England see now Sale of Goods Act 1979 (UK). In Australia see ACT: Sale of Goods Act 1954; NSW: Sale of Goods Act 1923; NT: Sale of Goods Act 1912; Qld: Sale of Goods Act 1896; SA: Sale of Goods Act 1895; Tas: Sale of Goods Act 1896; Vic: Goods Act 1958; WA: Sale of Goods Act 1895. In Canada see M G Bridge, Sale of Goods, 1988, p 4. As it was the basis for all the other legislation, reference will be given to the English legislation, as re-enacted in 1979. For comparative tables see K C T Sutton, Sales and Consumer Law in Australia and New Zealand, 3rd ed, 1983, p lxiii; M G Bridge, Sale of Goods, 1988, p cxviii.

2. One possible exception is Sale of Goods Act 1979 (UK), s 16 (where there is a contract for the sale of unascertained goods, no property in the goods is transferred to the buyer unless and until the goods arc ascertained).

3. See Sale of Goods Act 1979 (UK), s 55(1) (where any right, duty, or liability would arise under a contract of sale by implication of law, it may be negatived or varied by express agreement, or by the course of dealing between the parties, or by usage, if the usage be such as to bind both parties to the contract). This is a commercial perspective. As I am concerned solely with commercial transactions I do not deal with the inadequacies of the legislation from a consumer's perspective. The need for entrenchment of consumer rights has led to legislation such as the Trade Practices Act 1974 (Cth), ss 68, 68A. And the English provision is subject to the operation of the Unfair Contract Terms Act 1977 (UK).

4. Hereafter the 'Convention'.

5. A brief statement of the scheme of the Uniform Commercial Code (1990 Official Text), included in the Conference Paper has been deleted. This material is now covered in the commentary of Professor Speidel. See Richard E Speidel, 'Buyer's Remedies of Rejection and Cancellation Under the UCC and the Convention' (1993) 6 JCL 131.

6. I put statutory rights outside the sale context to one side as of no importance in the present discussion.

7. See generally J W Carter, 'Termination Clauses' (1990) 3 JCL 90.

8. See generally J W Carter, Breach of Contract, 2nd ed, 1991, Ch 4.

9. See generally J W Carter, Breach of Contract, 2nd ed, 1991, Ch 6 and further below, text at nn 135ff.

10. See generally J W Carter, Breach of Contract, 2nd ed, 1991, §§ 538ff, 608, 663-70.

11. See J W Carter, 'Anticipatory Breach', a paper delivered at 'Current Developments in International Transfers of Goods and Services', Singapore, September 1992.

12. See Art 1(1).

13. The fact that the parties have their places of business in different States is to be disregarded whenever this fact does not appear either from the contract or from any dealings between, or from information disclosed by, the parties at any time before or at the conclusion of the contract: Art 1(2). If a contracting party has more than one place of business, the place of business is that which has the closest relationship to the contract and its performance, having regard to the circumstances known to or contemplated by the parties at any time before or at the conclusion of the contract: Art 10(1). If a party does not have a place of business, reference is to be made to his or her habitual residence: Art 10(2).

14. See Art 1(3).

15. See Art 2.

16. See Art 3(1).

17. See Art 3(2).

18. See Art 4. The Convention does not apply to the liability of the seller for death or personal injury caused by the goods to any person. See Art 5.

19. Subject to Art 12, which relates to requirements of form where a Contracting State has made a declaration under Art 96.

20. See Art 6 and further below, text at nn 44ff.

21. See Art 7(2) and further below, text at n 166.

22. The seller is not liable 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: Art 35(3).

23. See Arts 49(1)(a), 51(2) and 64(1)(a). See also Art 72 (avoidance for 'anticipatory breach').

24. See Arts 49(1)(b) and 64(1)(b). Both include declarations of non-performance within the period fixed.

25. See eg E Allan Farnsworth, 'Damages and Specific Relief' (1979) 27 Am J of Comparative Law 247 at 251-2; Shinichiro Michida, 'Cancellation of Contract' (1979) 27 Am J of Comparative Law 279 at 280.

26. See M Gilbey Strub, 'The Convention on the International Sale of Goods: Anticipatory Repudiation Provisions and Developing Countries' (1989) 38 ICLQ 475.

27. Cf Kazuaki Sono, 'UNCITRAL and the Vienna Sales Convention' (1984) 18 International Lawyer 7 at 8.

28. Art 70 states that if the seller has committed a fundamental breach of contract, Arts 67, 68 and 69, relating to the exercise of rights against goods, do not impair the remedies available to the buyer on account of the breach.

29. A request for repair must be made either in conjunction with notice given under Art 39, relating to the specification of defects, or within a reasonable time thereafter.

30. There is also, under Art 52, a right to refuse to take delivery if the seller delivers the goods before the date fixed, and, if the seller delivers a quantity of goods greater than that provided for in the contract, a right to refuse to take delivery of the excess quantity.

31. See below, text at n 132.

32. [1962] 2 QB 26 at 66.

33. See eg Lord Devlin, 'The Treatment of breach of Contract' [1966] CLJ 192; D E Allan, 'The Scope of the Contract' (1967) 41 ALJ 274; Dafydd Jenkins, 'The Essence of the Contract' [1969] CLJ 251; Francis Dawson, 'Fundamental Breach of Contract' (1975) 91 LQR 380. Cf John Livermore, 'Deviation, Deck Cargo and Fundamental Breach' (1990) 2 JCL 241.

34. See Photo Production Ltd v Securicor Transport Ltd [1980] AC 827. See Brian Coote, 'The Second Rise and Fall of Fundamental Breach' (1981) 55 ALJ 788.

35. See Sydney Corp v West (1965) 114 CLR 481; Thomas National Transport (Melbourne) Pty Ltd v May & Baker (Australia) Pty Ltd (1966) 115 CLR 353; J W Carter and D J Harland, Contract Law in Australia, 2d ed, 1991, § 754. For the position in Canada see Hunter Engineering Co Inc v Syncrude Canada Ltd [1989] 1 SCR 426 (see E J Hayek (1991) 4 JCL 51). In the style typical of casebook authors, John Swan and B J Reiter, Contracts: Cases, Notes and Materials, 4th ed, 1991, p 663 ask 'Is the doctrine of fundamental breach alive or dead in Canada now?'

36. See J O Honnold, Uniform Law for International Sales Under the 1980 United Nations Convention, 2nd ed, 1991, p 254.

37. See J W Carter, Breach of Contract, 2nd ed, 1991 § 652.

38. Cf K C Sutton, 'The Draft Convention on the International Sale of Goods -- Part I' (1976) 4 ABLR 269 at 287-8; Barry Nicholas, 'The Vienna Convention on International Sales Law' (1989) LQR 201 at 218.

39. See below, text at nn 120ff.

40. See Art 35(2)(a).

41. Cf G H Treitel, Remedies for Breach of Contract, 1988, p 352.

42. Cf Art 19(3) ('additional or different terms relating, among other things, to the price, payment, quality and quantity of the goods, place and time of delivery, extent of one party's liability to the other or the settlement of disputes are considered to alter the terms of the offer materially').

43. The NSW Law Reform Commission, in its Working Paper on the Sale of Goods, 1975, para 3.21, recommended that the right to reject be restricted to cases of 'material' breach of warranty. This was never adopted; and subsequent work of the commission favours retention of the current approach for commercial transactions. See NSW Law Reform Commission, Issues Paper on Sale of Goods, IP 5, 1988. Cf Restatement 2d Contracts (1979), § 241.

44. See also above, n 20.

45. See below, text at nn 120ff.

46. (1923) 32 CLR 159.

47. [1981] 1 WLR 711.

48. Cf Scandinavian Trading Co A/B v Zodiac Petroleum SA (The Al Hofuf) [1981] 1 Lloyd's Rep 81 at 84 (concession on the basis of prior decisions).

49. Cf State Trading Corp of India Ltd v M Golodetz Ltd [1989] 2 Lloyd's Rep 277 at 282.

50. See eg Charles Rickards Ltd v Oppenhaim [1950] 1 KB 616; Etablissements Chainbaux SARL v Harbormaster Ltd [1955] 1 Lloyd's Rep 303; Toprak Mahsulleri Ofisi v Finagrain Compagnie Commerciale Agricole et Financiere SA [1979] 2 Lloyd's Rep 98 at 115.

51. See eg Neeta (Epping) Pty Ltd v Phillips (1974) 131 CLR 286 at 299; Louinder v Leis (1982) 149 CLR 509; Ciavarella v Balmer (1983) 153 CLR 438 at 446.

52. See J W Carter, 'Anticipatory Breach', a paper delivered at 'Current Developments in International Transfers of Goods and Services', Singapore, September 1992.

53. Cf Afovos Shipping Co SA v Pagnan [1983] 1 WLR 195.

54. Art 47(2) states that unless the buyer has received notice from the seller that the seller will not perform within the period so fixed, the buyer may not, during that period, resort to any remedy for breach of contract. Similarly, Art 63(2) states that unless the seller has received notice that the buyer will not perform within the period so fixed, the seller may not, during that period, resort to any remedy for breach of contract. However, the buyer (or seller) is not deprived thereby of any right to claim damages for delay in performance.

55. Cf Etablissements Chainbaux SARL v Harbormaster Ltd [1955] 1 Lloyd's Rep 303.

56. [1981) 1 WLR 711 at 720.

57. [1981] 1 WLR 711 at 716. See also at 727.

58. See Bremer Handelsgesellschaft mbH v Vanden Avenne-Izegem PVBA [1978] 2 Lloyd's Rep 109.

59. See eg Bremer Handelsgesellschaft mbH v Mackprang [1979] 1 Lloyd's Rep 221; Andre & Cie SA v Ets Michel Blanc & Fils [1979] 2 Lloyd's Rep 427; Bunge SA v Deutsche Conti Handelsgesellschaft mbH [1979] 2 Lloyd's Rep 435; Bremer Handelsgesellschaft mbH v Mackprang (No 2) [1981] 1 Lloyd's Rep 292; Toepfer v Schwarze [1980] 1 Lloyd's Rep 385; Bunge SA v Kruse [1980] 2 Lloyd's Rep 142; Tradax Export SA v Cook Industries Inc [1982] 1 Lloyd's Rep 385.

60. See Art 71(3).

61. See Art 71(3).

62. See Art 72.

63. See Barry Nicholas, 'The Vienna Convention on International Sales Law' (1989) LQR 201 at 233. See also the account of the legislative history in M Gilbey Strub, 'The Convention on the International Sale of Goods: Anticipatory Repudiation Provisions and Developing Countries' (1989) 38 ICLQ 475 at 491-2; J O Honnold, Uniform Law for International Sales Under the 1980 United Nations Convention, 2nd ed, 1991, pp 486-8.

64. However, the buyer retains any right to claim damages as provided for in the Convention.

65. The buyer may not, during that period of time, resort to any remedy which is inconsistent with performance by the seller.

66. A request or notice by the seller under Art 48(2) or (3) is not effective unless received by the buyer; see Art 48(4).

67. See J W Carter, Breach of Contract, 2nd ed, 1991, §§ 1001-2, 1009.

68. Contrast the position under ULIS, Art 26, 27. See K C Sutton, 'The Draft Convention on the International Sale of Goods -- Part III' (1977) 5 ABLR 92 at 93; John Honnold, 'The Draft Convention on Contracts for the International Sale of Goods' (1979) 27 Am J of Comparative Law 223 at 228; J D Feltham, 'The United Nations Convention on Contracts for the International Sale of Goods' [1981] JBL 346 at 347.

69. Art 26. In cases where there is merely a suspension of performance, although the promisee must give notice of suspension, the promisee is required to continue with performance if the other party provides adequate assurance of performance. See Art 71(3). See also Art 73 (contract for delivery of goods by instalments).

70. See J W Carter, Breach of Contract, 2nd ed, 1991, §§ 1015-18.

71. See Art 27 ('Unless otherwise expressly provided in this Part of the Convention, if any notice, request or other communication is given or made by a party in accordance with this Part and any means appropriate in the circumstances, a delay or error in the transmission of the communication or its failure to arrive does not deprive that party of the right to rely on the communication').

72. See G H Treitel, Remedies for Breach of Contract, 1988, p338; M Gilbey Strub, 'The Convention on the International Sale of Goods: Anticipatory Repudiation Provisions and Developing Countries' (1989) 38 JCLQ 475 at 487.

73. Cf below, n 158.

74. See Art 72(2).

75. See below, text at n 159.

76. See eg Kwei Tek Chao v British Traders and Shippers Ltd [1954] 2 QB 459; Proctor & Gamble Philippine Manufacturing Corp v Kurt A Becher GmbH & Co KG [1988] 2 Lloyd's Rep 21.

77. See eg Clive M Schmitthoff, Commercial Law in A Changing Economic Climate, 1977, p 7 (conceptual foundation has become 'antiquated').

78. See Sale of Goods Act 1979 (UK), s 61(1).

79. See Sale of Goods Act 1979 (UK), s 11(3).

80. See J L Montrose, 'Conditions, Warranties, and Other Contractual Terms' (1937) 15 Can BR 309; J L Montrose, 'The Operation of Description in a Contract for the Sale of Goods' (1937) 15 Can BR 760; F M B Reynolds, 'Warranty, Condition and Fundamental Term' (1963) 79 LQR 534; D W Greig, 'Condition -- Or Warranty?' (1973) 89 LQR 93; J W Carter and C Hodgekiss, 'Conditions and Warranties: Forebears and Descendants' (1977) 8 Syd LR 31; M G Bridge, 'Discharge for Breach of the Contract of Sale of Goods' (1983) 28 McGill LJ 867.

81. (1863) 3 B & S 751; 122 ER 281. Cf Cehave NV v Bremer Handelsgesellschaft mbH (The Hansa Nord) [1976] QB 44 at 59.

82. See Sale of Goods Bill 1888 (UK), cl 61(1) (right of rejection in respect of the breach of a 'warranty' of the quality, fitness, or condition of goods). Cf M D Chalmers, The Sale of Goods Act, 1893, 1st ed, 1894, pp 168-9. See further below, text at n 172.

83. See J W Carter, Breach of Contract, 2nd ed, 1991, § 232.

84. See Sale of Goods Act 1979 (UK), s 28.

85. Corbin (Corbin on Contracts, Vol 3A, § 629) preferred the phrase 'concurrent conditional duties'.

86. See G H Treitel, '"Conditions" and "Conditions Precedent"' (1990) 106 LQR 185; J W Carter, 'Conditions and Conditions Precedent' (1991) 4 JCL 90.

87. The Sale of Goods Act 1979 (UK), s 10(2) states that the issue 'depends on the terms of the contract'; and is therefore one of construction.

88. < See further below, text at nn 120-147.

89. See Sale of Goods Act 1979 (UK), s 30. When this proposition is combined with proposition (1), the effect is that a buyer is also entitled to terminate.

90. See Benjamin's Sale of Goods, 4th ed, 1992, § 8-045. But note the reforms suggested by the Law Commission, Sale and Supply of Goods, Law Com No 160, 1987.

91. See Sale of Goods Act 1979 (UK), s 12(1). But in relation to matters such as quiet possession and freedom from any charge or encumbrance in favour of any third party the seller's obligations are expressed as warranties. See Sale of Goods Act 1979 (UK), ss 12(4), (5).

92. See Sale of Goods Act 1979 (UK), s 13.

93. See further below, text at n 120.

94. See Sale of Goods Act 1979 (UK), s 14.

95. See further below, text at n 136.

96. See Sale of Goods Act 1979 (UK), s 15.

97. See Sale of Goods Act 1979 (UK), s 10(1) (unless a different intention appears from the terms of the contract, stipulations as to time of payment are not deemed to be of the essence of a contract of sale).

98. See also above, text at n 5.

99. See further below, text at n 56.

100. See Sale of Goods Act 1979 (UK), s 31(2).

101. See Sale of Goods Act 1979 (UK), s 2.

102. See Sale of Goods Act 1893 (UK), s 11(1)(c). The common law origin is in cases such as Street v Blay (1831) 2 B & Ad 456; 109 ER 1212; Mondel v Steel (1841) 8 M & W 858 at 870; 151 ER 1288 at 1293.

103. In England, the Australian Capital Territory, New South Wales and South Australia. For the position in Canada see M G Bridge, Sale of Goods, 1988, p 117.

104. For the definition of 'acceptance' see below, text at n 150.

105. See Ashington Piggeries Ltd v Christopher Hill Ltd [1972] AC 441; Cehave NV v Bremer Handelsgesellschaft mbH (The Hansa Nord) [1976] QB 44. The introduction of a statutory definition has given rise to controversy in England. See M/S Aswan Engineering Establishment Co v Lupdine Ltd [1987] 1 WLR 1; Rogers v Parish (Scarborough) Ltd [1987] QB 933; Harlington and Leinster Enterprises Ltd v Christopher Hull Fine Art Ltd [1991] 1 QB 564. The Law Commission, Sale and Supply of Goods, Law Com No 160, 1987, proposes a new definition. In Australia see Cavalier Marketing (Australia) Pty Ltd v Rasell (1990) 96 ALR 375.

106. See Reardon Smith Line Ltd v Yngvar Hansen-Tangen [1976] 1 WLR 989 at 998 (dicta in charterparty case).

107. See Sale of Goods Act 1979 (UK), s 11(3).

108. See further below, text at nn 117-147.

109. Sale of Goods Act 1979 (UK), s 10 (above n 87).

110. See further below, text at nn 120-147.

111. See further below, text at nn 148-152.

112. See Sale of Goods Act 1979 (UK), s 19.

113. See Sale of Goods Act 1979 (UK), ss 38-48.

114. See N E Palmer, 'Reservation Of Title' (1993) 5 JCL 175.

115. See Benjamin's Sale of Goods, 4th ed, 1992, Ch 15.

116. In contrast to the efficient breach analysis, there have been suggestions for more general use of the remedy. See Alan Schwartz, 'The Case for Specific Performance' (1979) 89 Yale LJ 271; T S Ulen, 'The Efficiency of Specific Performance: Toward a Unified Theory of Contract Remedies' (1984) 83 Michigan LR 341 at 348. Art 28 of the Convention in effect treats specific performance as a matter governed by the domestic law. But cf A H Kastely, 'The Right to Require Performance in International Sales: Towards an International Interpretation of the Vienna Convention' (1988) 63 Washington LR 607.

117. (1877) 2 App Cas 455.

118. [1893] 2 QB 274.

119. (1923) 32 CLR 159.

120. See Re Moore & Co Ltd and Landauer & Co [1921] 2 KB 519; Arcos Ltd v E A Ronaasen & Son [1933] AC 470.

121. See Cehave NV v Bremer Handelsgesellschaft mbH (The Hansa Nord) [1976] QB 44 (approved Reardon Smith Line Ltd v Yngvar Hansen-Tangen [1976] 1 WLR 989).

122. See Weir [1976] CLJ 33; F M B Reynolds (1976) 92 LQR 17; J W Carter and C Hodgekiss, 'Conditions and Warranties: Forebears and Descendants' (1977) 8 Syd LR 31.

123. For an express provision see Sale of Goods Act 1923 (NSW), s 4(5) (nothing in the legislation is to be treated as excluding the concept of the intermediate term). The reform is based on NSW Law Reform Commission, Report on Sale of Goods Law, LRC 51, 1987.

124. See eg G H Treitel, 'Some Problems of Breach of Contract' (1967) 30 MLR 139; NSW Law Reform Commission, Issues Paper on Sale of Goods, IP 5, 1988.

125. See L Schuler AG v Wickman Machine Tool Sales Ltd [1974] AC 235; Cehave NV v Bremer Handelsgesellschaft mbH (The Hansa Nord) [1976] QB 44; Reardon Smith Line Ltd v Yngvar Hansen-Tangen [1976] 1 WLR 989; Tradax Internacional SA v Goldschmidt SA [1977] 2 Lloyd's Rep 604; Bremer Handelsgesellschaft mbH v Vanden Avenne-Izegem PVBA [1978] 2 Lloyd's Rep 109.

126. [1962] 2 QB 26.

127. Bremer Handelsgesellschaft mbH v Vanden Avenne-Izegem PVBA [1978] 2 Lloyd's Rep 109 at 113.

128. The point is thus made in H G Beale, W D Bishop and M P Furmston, Contract Cases and Materials, 2nd ed, 1990, p 436 that 'defects and deficiencies [may] prevent there being substantial performance even though they are not so serious as to deprive the innocent party of substantially the whole benefit of the contract'

129. For use of the expression fundamental breach see eg Direct Acceptance Finance Ltd v Cumberland Furnishing Pty Ltd [1965] NSWR 1504 at 1511; Photo Production Ltd v Securicor Transport Ltd [1980] AC 827 at 849; Pioneer Shipping Ltd v BTP Tioxide Ltd [1982] AC 724 at 744; Shevill v Builders Licensing Board (1982) 149 CLR 620 at 626; Compagnie General Maritime v Diakan Spirit SA (The Ymnos) [1982] 2 Lloyd's, Rep 574 at 584; Afovos Shipping Co SA v Pagnan [1983] 1 WLR 195 at 202; Berger & Co Inc v Gill & Duffus SA [1984] 1 AC 382 at 391; Progressive Mailing House Pty Ltd v Tabali Pty Ltd (1985) 157 CLR 17 at 31, 39. See G C Cheshire, C H S Fifoot and M P Furmston, The Law of Contract, 12th ed, 1991, p 539. For a hint of criticism see J & C Reid Pty Ltd v Abau Holdings Pty Ltd (1988} NSW Conv R 55-416 at 57,804.

130. See Hongkong Fir Shipping Co Ltd v Kawasaki Kisen Kaisha Ltd [1962] 2 QB 26 at 66.

131. Cf Beale, Remedies for Breach of Contract, 1980, p 45.

132. See eg Suisse Atlantique Societe d'Armement Maritime SA v NV Rotterdamsche Kolen Centrale [1967] 1 AC 361 at 397; Cehave NV v Bremer Handelsgesellschaft mbH (The Hansa Nord) [1976] QB 44; Photo Production Ltd v Securicor Transport Ltd [1980] AC 827 at 849; Bremer Vulkan Schiffbau und Maschinenfabrik v South India Shipping Corp Ltd [1981] AC 909 at 982-3; The Commonwealth v Amann Aviation Pty Ltd (1991) 104 ALR 1. For the relevant considerations see J W Carter, Breach of Contract, 2nd ed, 1991, §§ 631ff.

133. See eg Kodros Shipping Corp of Monrovia v Empresa Cubana de Fletes (The Evia (No 2)) [1983] 1 AC 736 at 765 ('safe port warranty' an intermediate term); State Trading Corp of India Ltd v M Golodetz Ltd [1989] 2 Lloyd's Rep 277 (obligation of sellers to provide counter-trade guarantee by a specific date was not a condition); Phibro Energy AG v Nissho Iwai Corp (The Honam Jade) [1991] 1 Lloyd's Rep 38 (time stipulation in FOB I contract 'innominate'). See also Alliance Petroleum Australia NL v Australian Gas Light Co (1985) 39 SASR 84 and Kudeweh v T & J Kelleher Builders Pty Ltd [1990] VR 701 at 715-6 (time for appointment of arbitrator not essential).

134. Contrast John Swan and B J Reiter, Contracts: Cases, Notes and Materials, 4th ed, 1991, p 489 who explain that the modern development of the law in the context of sale of goods in Canada is to avoid the test for condition in the legislation and to treat the Hongkong Fir test as the 'governing one'. See also below, n 138.

135. For use of the expression fundamental breach see above, n 132.

136. Cehave NV v Bremer Handelsgesellschaft mbH [1976] GB 44. See also Tradax Intemacional SA v Goldschmidt SA [1977] 2 Lloyd's Rep 604 (quality term in FOB contract); State Trading COlp of India Ltd v M Golodetz Ltd [1989] 2 Lloyd's Rep 277 (obligation of the sellers to provide a 'counter-trade' guarantee).

137. In the sale of goods context see Phibro Energy AG v Nissho Iwai Corp (The Honam Jade) [1991] 1 Lloyd's Rep 38 ('innominate' time stipulation in FOB contract frustrated the commercial purpose of the contract where the trial judge found failure by the sellers to perform their obligation timeously would have a 'fundamental effect' upon the contract unless the delay was only marginal). In other contexts see Federal Commerce and Navigation Co Ltd v Molena Alpha Inc [1979] AC 757 (anticipatory fundamental breach of time charterparty); Progressive Mailing House Pty Ltd v Tabali Pty Ltd (1985) 157 CLR 17 (fundamental breach (or repudiation) of lease of land); Ankar Ply Ltd v National Westminster Finance (Australia) Ltd (1987) 162 CLR 549 (fundamental breach (or breach of condition) of contract of guarantee).

138. Canadian law seems ambivalent, although there appears to be a tendency towards a criterion of substantial performance; see M G Bridge, Sale of Goods, 1988, Chs 7 and 8.

139. [1981] l WLR 711. See F M B Reynolds, (1981) 97 LQR 541; J W Carter, [1981] CLJ 219; A C Hutchinson and J N Wakefield, (1982) 60 Can BR 335.

140. [1962] 2 QB 26 at 69.

141. (1932) 32 CLR 159 at 196. The case concerned the times for shipment of goods. See also Harrington v Browne (1917) 23 CLR 297 (time, for acceptance); Peter Turnbull & Co Pty Ltd v Mundus Trading Co (Australasia) Pty Ltd (1954) 90 CLR 235 (nomination of vessel in FOB contract). In Canada see California Prune & Apricot Growers Inc v Baird & Peters [1926] 1 DLR 314.

142. See J W Carter, 'Two Cases on Time Stipulations in Commercial Contracts' (1992) 5 JCL 60. For the purposes of the present analysis I am content to state the approach without expressing a view on weather it is to formalistic. What is important is the contrast between the English approach and that of the Convention.

143. For illustrations see Pavia & Co SpA v Thurmann-Nielsen [1952] 2 QB 84; Trans Trust SPRL v Danubian Trading Co Ltd [1952] 2 QB 297 at 305; Plasticmoda Societa per Azioni v Davidsons (Manchester) Ltd [1952] 1 Lloyd's Rep 527 at 536, 538; Sinason-Teicher Inter-American Grains Corp v Oilcakes and Oilseeds Trading Co Ltd [1954] 1 WLR 1394; Ian Stach Ltd v Baker Bosley Ltd [1958] 2 QB 130.

144. See eg Toepfer v Lenersan-Poortman NV [1978] 2 Lloyd's Rep 555 (affirmed [1980] 1 Lloyd's Rep 143) (time for presentation of documents against which buyers had to pay); Cerealmangimi SpA v Toepfer (The Eurometal) [1981] 1 Lloyd's Rep 337 (presentation of documents on arrival of vessel); Societe Italo-Belge pour le Commerce et L'Industrie SA v Palm and Vegetable Oils (Malaysia) Sdn Bhd (The Post Chaser) [1981] 2 Lloyd's Rep 695 (shipment clause in a CIF contract); Compagnie Commerciale Sucres et Denrees v C Czamikow Ltd (The Naxos) [1990] 1 WLR 1337 (sale on FOB terms -- requirement that buyers give sellers not less than 14 days' notice of the vessel's expected readiness to load). See Malcolm Clarke, [1991] CLJ 29.

145. See Lord Golf, 'Opening Address' (1992) 5 JCL 1.

146. Jacob & Youngs Inc v Kent 129 NE 889 at 891 (1921).

147. [1916] 1 KB 566 at 579.

148. See Sale of Goods Act 1979 (UK), s 36. See also s 30 dealing with the buyer's options in relation to quantity and mixed goods.

149. See Sale of Goods Act 1979 (UK), s 35.

150. See Sale of Goods Act 1979 (UK), s 35(1).

151. See Sale of Goods Act 1979 (UK), s 35(1) (acceptance by act in relation to the goods inconsistent with the seller's ownership is expressly subject to the buyer's right of examination). Similar provisions exist in New South Wales and South Australia. In the Australian Capital Territory there was a more extensive amendment, applying to all forms of acceptance. Further reforms are suggested in Law Commission, Sale and Supply of Goods, Law Com No 160, 1987, §§ 5.22ff. For the position in Canada see M G Bridge, Sale of Goods, 1988, pp 285ff.

152. But see Bernstein v Pamson Motors (Golders Green) Ltd [1987] 2 All ER 220 (see F M B Reynolds, (1988) 104 LQR 16).

153. See eg British & Beningtons Ltd v North Western Cachar Tea Co Ltd [1923] AC 48 at 71; Bowers v Chaleyer (1923) 32 CLR 159.

154. The common law principle, that a bad tender of goods, prior to expiry of time specified, does not prevent a fresh tender being made of goods which do not conform (see eg Borrowman v Free (1878) 4 QBD 500) still applies today (see eg Motor Oil Hellas (Corinth) Refineries SA v Shipping Corp of India (The Kanchenjunga) [1990] 1 Lloyd's Rep 391 at 399).

155. Cf Law Commission, Sale and Supply of Goods, Law Com No 160, 1987, § 4.18.

156. See H G Beale, W D Bishop and M P Furmston, Contract Cases and Materials, 2nd ed, 1990, p 436 (limits of restrictions on the rule 'unclear').

157. [1970] 1 Lloyd's Rep 53 at 59.

158. See eg Panoutsos v Raymond Hadley Corp of New York [1917] 2 KB 473 (sellers not entitled to exercise right of termination for buyer's failure to provide confirmed bankers' credit when they made shipments of the goods in part fulfilment of the contract and received payment for these shipments under the credit); Charles Rickards Ltd v Oppenhaim [1950] 1 KB 616 (sale of goods case based on estoppel); Plasticmoda Societa per Azioni v Davidsons (Manchester) Ltd [1952] 1 Lloyd's Rep 527 (letter of credit for less than full amount acquiesced in); Heisler v Anglol-Dal Ltd [1954] 1 WLR 1273 (failure to allow opportunity to perform in accordance with the contract).

159. See G H Treitel, Remedies for Breach of Contract, 1988, pp 362-3.

160. See eg Cehave NV v Bremer Handelsgesellschaft mbH (The Hansa Nord) [1976] QB 44.

161. See eg Braithwaite v Foreign Hardwood Co [1905] 2 KB 543; Panchaud Freres SA v Etablissements General Grain Co [1970] 1 Lloyd's Rep 53.

162. See J W Carter, 'Problems in Enforcement', (1992) 5 JCL 199; (1993) 6 JCL 1. Contrast the American law analysed in Professor Hunter's commentary to the paper (1993) 6 JCL 19.

163. See Sunbird Plaza Pty Ltd v Maloney (1988) 166 CLR 245 at 263.

164. See Walford v Miles [1992] 2 WLR 174. Cf G H Treitel, Doctrine and Discretion in the Law of Contract, 1981, p 4.

165. See J W Carter, 'The Embiricos Principle and the Law of Anticipatory Breach' (1984) 47 MLR 422.

166. See Ontario Law Reform Commission, Report on Sale of Goods, 1979; Law Commission, Sale and Supply of Goods, Law Com No 160, 1987; NSW Law Reform Commission, Issues Paper on Sale of Goods, IP 5, 1988.

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Pace Law School Institute of International Commercial Law - Last updated January 30, 2003

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