BIBLIOGRAPHY

Introduction

The contracting parties expect that their contract be performed as they contemplate when making the contract. However, when the circumstances change, it is not infrequent that one of the contracting parties seeks to evade performance of his own part in order to flee from a bad bargain. A crucial challenge is therefore to identify the circumstances in which a buyer may be entitled to refuse to perform his contractual obligations and to put an end to the contract where the seller has failed to perform his obligations in accordance with the contract terms.[1] Sometimes, the refusal to perform will be merely a part of, or a step towards, putting an end to the contract, but a failure to perform may also have the less drastic effect of entitling the buyer simply to withhold performance of his reciprocal obligations at least for so long as the seller's failure continues, irrespective of whether or not he is entitled to bring the contract to an end. Termination of contract also raises some further questions.

As will be shown in detail, the question of termination seems somewhat complicated in English law since, for reasons which will be made clear below, English sale of goods law has not clearly distinguished between these two courses of action; the seller's right to cure his non-conforming delivery after the buyer's lawful rejection becomes obscured in this system. Part One of this essay will try first to examine the question whether in English sale of goods law the buyer has two separate rights: the right to withhold performance of his obligations, and the right to terminate the contract.[2] Then, it will discuss the circumstances in which the buyer may be entitled to resort to either or both of these remedies. At the end, an effort will be made to provide a general picture of the response the English sale of goods law provides to questions raised by termination.

The Convention on Contracts for the International Sale of Goods (hereinafter, the Convention) also contains provisions which can be said to allow the buyer to withhold performance of his contractual obligations. Relying on these provisions, some commentators have suggested that a through reading of the remedial provisions of the Convention shows that the buyer is given a general right to "refuse to take delivery" where the seller fails to perform his delivery obligations in accordance with the contract and the Convention.[3] This, as will be seen later, is controversial. However, it seems that, theoretically, there must be a distinction between (a) the remedy under which the buyer is simply given a right to withhold performance as long as the seller has not fulfilled his contractual obligations, and (b) the remedy under which he is entitled to terminate [4] the contract. There can also be found some provisions in the Convention under which the buyer is only given a right to withhold performance of his obligations without being entitled to terminate the contract.Termination in such cases will be justified where certain requirements are satisfied. The second part of this essay will first determine when an injured buyer is entitled simply to refuse to perform his obligations and then ascertain when he is entitled to terminate the contract if the seller fails to perform his delivery obligations in accordance with the contract and the Convention.

Likewise, Iranian Civil Code and Shi'ah jurisprudence have addressed these questions, although in an inadequate way. A general look at the remedial provisions of the Iranian Civil Code [5] and, particularly, what Shi'ah jurists have addressed when dealing with the seller's duty to deliver mabi' (subject-matter of sale) shows that it is a well-accepted rule that the buyer, under certain circumstances, is entitled to withhold payment of the price as long as the seller's refusal continues. The expression haqq-e-habs is used in Iranian civil law [6] and the jurists' terminology to refer to this concept.[7] The Civil Code [8] and Shi'ah jurists have also accepted the view that, in some cases, the buyer may be entitled to reject the seller's non-conforming delivery [9] and, in some other cases, he is free to reject it and bring the contract to an end.[10] The expression haqq-e-radd refers to the first right, [11] and the term haqq-e-faskh [12] is used to describe the second right. However, Iranian Civil Code and Shi'ah jurists have not considered withholding performance as a general remedy separate from termination. They have also not addressed the relationship between this remedy and haqq-e-faskh. This causes the position of the right to cure by the seller to be blurred in the Iranian Civil Code and in Shi'ah jurisprudence. Similarly, the Iranian Civil Code and Shi'ah jurisprudence have not addressed the case where the seller has breached his obligations to hand over the documents in accordance with the requirements of documentary sale contracts. There is also no reported case in which the Iranian courts have considered these issues. The third part of this essay aims to show, where the buyer may be entitled to resort to one or both of these two remedies, how the consequences of the seller's failure to fulfil his duties to tender documents could be analysed under Iranian civil law and Shi'ah jurisprudence, and how one can reconcile the seller's right to cure with the general principles of Iranian and Shi'ah contract law.

Finally, the fourth part will compare Iranian and Shi'ah law with English sale of goods law and the Convention in order to assess Iranian-Shi'ah law, as it stands, and with that which is suggested in this study, and finally to show how much similarity and dissimilarity exists between Iranian-Shi'ah law and the two other systems under consideration.

Although such an evaluation may be carried out by way of a mixed study raising a problem and analysing any particular solution prescribed in a relevant legal system, it seems that the best way for the present study is to first show the approach taken under the developed systems, case by case, and then examine the issue under the undeveloped system, and at the end use these materials as a basis for a comparative assessment. This would help the writer first to show the vacuums in an undeveloped system, and then to consider how the existing gaps can be filled by interpretation of the existing law and giving new suggestions.

For this purpose, in the case of English law, the study will focus on the law regulating the buyer's remedies in light of the Sale of Goods Act 1979 as interpreted and applied in relevant judicial precedents and general principles of contract law, as a primary source, and the commentaries of academic writers in the field of the sale of goods law, as a secondary tool. In performing the English part of the study, much emphasis is placed on the well-established law applicable to the issues in question without getting into much detail, though reference is made to different approaches taken by English commentators in respect of a particular issue where there is no settled law.

Similarly, in respect of the Convention, primary emphasis is placed on the rules prescribed by the Convention with respect to the issues under consideration by way of interpretation of the text of the Convention. However, the history of legislation of any particular provision is not disregarded. Efforts are also made to interpret the text of the Convention in light of its legislative history in order to read the intention of the Convention drafters. In addition, an effort has been made to refer to the courts' and arbitrators' attitudes towards the Convention provisions which are susceptible to different constructions through the Internet (UNCITRAL and Pace University School of Law Home Pages).

A somewhat more complex method is used in the Iranian and Islamic part of the essay. As far as Iranian law is concerned, the primary source is the Iranian Civil Code. However, its relevant provisions are not cited and discussed in the text. They are only referred to in the footnotes. This is because almost all of the relevant provisions of this Code are derived from judgements of Shi'ah jurists'. Accordingly, where there is a relevant provision, it is referred to in the footnote, and, in the case of vagueness or lack of any provision, the case is dealt with on the basis of Shi'ah law, or, as the Iranian Constitution prescribes, on the basis of authoritative Islamic sources and authentic fatawa.[13]

Great efforts are made to access what is law under Shi'ah jurisprudence.[14] Initially, an attempt is made to answer the relevant questions in accordance with the existing law, that is, Shi'ah jurists' judgements.[15] In the absence of express statements of law, an attempt is made to answer the question by interpreting the judgements of the jurists in similar situations and analysing the original authorities upon which the jurists have based their judgements in those cases. When the legal vacuums could not be filled by the foregoing methods, the author has tried to suggest the appropriate law by way of interpretation of the well-accepted general principles.

1. Introduction

In English law, the question whether a party has a right to withhold performance of his obligation and to terminate the contract for the other party's non-conforming performance is analysed in the context of classification of contract terms as either:

• "conditions," breach of which enables the innocent party to refuse to accept the non-conforming performance and terminate the contract;

• "intermediate terms," breach of which entitles him to do so only when it results in serious consequences which will deprive him of substantially the whole benefit which it was the intention of the contracting parties that he should obtain from the contract; or

• "warranties," breach of which enables him to only claim damages for losses arising out of the breach.

The emergence of the new category of "intermediate" terms appears likely to have reduced the number of occasions when a term will be classified as a "warranty" in its Sale of Goods Act sense, so that it has been said that, since the decision of Court of Appeal in the HongKong Fir case, few cases can be found in which the courts have construed a contract term as a warranty.[23]

As regards conditions, although their continued separate existence has been acknowledged by the courts,[24] the courts, before the decision of the House of Lords in the case of Bunge Corp v. Tradax Export,[25] showed a great tendency to regard contract terms as intermediate rather than as conditions.[26] And even in Reardon Smith Line v. Yngvar Hansen-Tangen, Lord Wilberforce suggested that a number of the old cases are "excessively technical" and ought to be re-examined by the House of Lords.[27] The above statements show clearly that the courts during that period showed more of a tendency in favour of the HongKong Fir doctrine.

It seems that this was probably the result of applying the strict test of Diplock LJ in HongKong Fir Shipping Co. Ltd. v. Kawasaki Kisen Kaisha Ltd.[28] However, in Bunge Corp v. Tradax Export S. A. [29] Megaw L.J., in the Court of Appeal, observed that he did not think that the statement of Diplock L.J. in the HongKong Fir case was intended to be a "literal, definitive and comprehensive statement of the requirements of a condition." The House of Lords, approving the judgement of Megaw LJ, held that the "wait and see" method, or, the "gravity of the breach" approach, is not the way to identify a condition in a contract. This is done by construing the contract in the light of surrounding circumstances.[30] By this criterion, the House of Lords did open indeed a path to treat some kinds of contractual terms more easily as conditions.

Under the present law, a term of a contract will generally be regarded as a condition if it has previously been recognised as such by statute,[31] precedent,[32] or if it appears that it was the intention of the parties that a particular term is to be a condition.[33] However, the mere fact that the parties labelled a particular stipulation as a "condition" does not necessarily mean that it is used in its strict sense. The court will usually be disinclined to treat a term as a condition if the result of such a construction would be unreasonable.[34]

The important issue is, therefore, whether a previously unclassified term is to be classified as a "condition" or as an "intermediate" term. This issue is a difficult one, influenced by two competing policies: fairness and certainty. The first policy favours the classification of terms as intermediate, illustrated by HongKong Fir Shipping Co. Ltd. v. Kawasaki Kisen Kaisha Ltd.,[35] whereas, the second policy, emphasising the requirement of commercial certainty and predictability, favours the classification of terms as conditions.[36] Both policies have been supported by judicial decisions.[37] As a matter of policy, English courts are, as will be seen later, more inclined to treat as conditions time stipulations in commercial contracts than other contract terms.[38] However, the court may be reluctant to conclude that a term has been treated as a condition by the parties where that might result in termination for a relatively minor breach.

2. Rejection and Termination

By the express language of the Sale of Goods Act 1979, the buyer is neither entitled to terminate the contract nor even has a right to reject the non-conforming goods where the lack of conformity is caused by breach of "warranty."[39] The same is true where breach of an "intermediate term" does not result in serious consequences. Accordingly, breach of warranty and that of an intermediate term in the above-prescribed form does not cause much difficulty in respect of the issue in question. The controversial issue is the case in which the seller's non-conforming delivery results in breach of a "condition" or an "intermediate term" which causes serious results.

Where the seller's non-conforming delivery is caused by breach of condition, it is commonly said that the buyer is entitled to reject it and treat the contract as repudiated. However, the position of these two rights and their relationship is not quite clear. In the absence of a clear statement of law, the following significant questions arise:

The answer to the latter question throws light on the significant question whether or not the seller, after the buyer's lawful rejection, has a right to "cure" his non-conforming delivery.

Since most arguments arise from the language of the Sale of Goods Act and case law which do not apply to breach of an innominate term, the following discussion will first answer these questions where the seller has committed a breach of a condition. After that, it will examine the question when the buyer will be entitled to reject the seller's non-conforming delivery and terminate the contract if the seller has breached an innominate term. Finally, it will examine some special cases which arise in respect of the question under consideration.

2.1. Breach of Condition

2.1.1. Rejection and Termination, One Remedy or Two?

In spite of the fact that the Sale of Goods Act talks of the right to reject the goods and to treat the contract as repudiated for breach of condition (s. 11(4), which signifies the existence of two possibly distinct rights, the phrase has not been clearly interpreted in English sale of goods law. In this connection, the language of the section, as will be seen below, is unclear. Nowhere else does the Act define these two concepts in precise words. It also fails to state the effect of their exercise on the rights and duties of the parties. Neither the Sale and Supply of Goods Act 1994 nor the Law Commission's Reports which preceded it [40] makes any mention of the buyer's right to terminate the contract. In making their proposals, the Law Commission has never taken into consideration the nature of the buyer's right to reject and its relationship with the right to treat the contract as repudiated. Nor has the question been clearly worked out in the case law. Academic writers, as will be seen below, are of different opinions. Accordingly, the first question is whether breach of condition gives the buyer a right separate from his right to treat the contract as repudiated and to terminate it. The question will be examined in the light of the Sale of Goods Act, case law and academic writings.

2.1.1.1. Sale of Goods Act

Although the Act has made plain that the buyer has neither the right to reject the goods nor to treat the contract as repudiated for breach of a "warranty,"[41] when dealing with the remedies available for breach of a "condition," it merely says that .".. breach ... may give rise to a right to treat the contract as repudiated,"[42] without mentioning the existence of a right to reject. There are similar statements in the sections dealing with the possibility of the buyer's right to "waive the condition," or his election to "treat the breach of condition as a breach of warranty."[43]

On the other hand, ss. 15A and 30 of the Sale of Goods Act, when dealing with the remedies for breach of implied conditions (ss. 13-15) and remedies for delivery of wrong quantity, simply talk of the buyer's entitlement to reject, without referring to the right to treat the contract as repudiated at all. Even s. 53(1) in the same situation in which s. 11(2) mentions the right to treat the contract as repudiated, mentions the right to reject. Likewise, the Act recites the circumstances where the buyer loses the right of rejection, but it does not state the precise meaning of rejection, but only, when it provides that the buyer is under no obligation to return the rejected goods to the seller, refers to the right to refuse to accept delivery of non-conforming goods.[44] The only provision which contains both the buyer's alleged rights, i.e., to reject the goods and treat the contract as repudiated, is s. 11(4). This sub-section provides:

.".. where the contract is not severable and the buyer has accepted the goods or part of them, the breach of a condition to be fulfilled by the seller can only be treated as a breach of warranty and not as a ground for rejecting the goods and treating the contract as repudiated unless there is an express or implied term to that effect." (italics added)[45]

It might be argued that this sub-section by using the conjunction "and" intends to give the aggrieved party two separate rights for breach of condition. However, this interpretation is arguable. "And" is conjunctive, so that one reading of this would be that the two rights are actually one; i.e., the buyer who rejects is automatically treating the contract as repudiated.[46] Alternatively, "and" could be read disjunctively as indicating that there are two rights which may be exercised separately. Thus, "and" is ambiguous.

2.1.1.2. Case Law

Similarly, the question has not been clearly answered by case law. On the one hand, there are several judicial dicta which use one instead of another.[47] A general review of these cases reveals the fact that case law does not clearly show that breach of condition gives the innocent buyer two separate rights: rejection of non-conforming goods and termination of the contract. Even assuming that they regard them conceptually as two distinct rights, it is hard to find a clear statement elucidating the question whether the buyer can reject the goods without having to terminate the contract. In contrast, there can be found some cases in which the buyer is given the right to reject the defective goods without being required to terminate the contract.[48]

2.1.1.3. Academic Writers

The unclear status of the sale of goods legislation and the failure of case law to clarify the language used in the Act has caused academic writers to take two opposing approaches. On the first approach, the remedy of rejection is equated with termination or, it is a component of a single right. Apparently, according to this construction, by the buyer's rejection of the non-conforming goods, the contract would automatically be terminated. The buyer will not have an option to reject the goods without being required to terminate the contract.[49] The opposite approach is that the right of rejection is distinct from the right of termination, although the advocates of the second approach, as will be seen later, differ in permitting the victim of breach to terminate the contract.[50] The latter approach is based on the fact that the term "condition," in the sense accepted in the Act, is used to describe an important term whose full performance is a condition precedent to the buyer's duty to accept the goods the seller delivers in performing the contract.[51] On this interpretation, the seller's delivery of the goods in accordance with the terms of the contract (s. 27 of the Act) is the pre-condition of the buyer's duty to accept and pay in exchange for them. The buyer is deemed liable to the seller for non-acceptance, provided that the seller's delivery has been in accordance with the terms of the contract, express or implied, including the implied conditions. Thus he is required to accept (not to reject) such a delivery. Accordingly, as long as the seller's delivery is not in conformity with the terms of the contract, the buyer is not under any duty to accept it. Under this approach, the right to terminate the contract is a separate right which must be justified on another ground.

2.1.2. Relationship Between the Two Remedies

Assuming that a buyer who is aggrieved by the seller's breach of condition may have two rights -- to reject the non-conforming goods and to treat the contract as repudiated and to terminate it -- a further question is to determine the relationship between these two remedies. Is a buyer who is given a right to refuse to accept the non-conforming goods entitled to terminate the contract immediately after he has rejected the goods?

The Sale of Goods Act fails to determine the relationship between rejection and termination. It only states that breach of condition "may give rise to a right to treat the contract as repudiated" (s. 11(3)). It does not precisely determine the time when a breach of condition would occur, whether it will be when the seller's non-conforming delivery takes place, or when the time for performance has expired, provided that it is of the essence of the contract. Similarly, case law has not made the issue quite clear. On the one hand, there are numerous judicial dicta which say that breach of condition automatically entitles the innocent party to reject the non-conforming goods and treat the contract as repudiated and terminate the contract, without distinguishing clearly between cases of curable and incurable breach, and, between cases in which the time for performance expired and those allowing the breaching seller to remedy his breach within the contract time. Reference can be made to the general statement made by Lord Roskill in Bunge Corpn. v. Tradax Export S.A. In this case, he observed that where an obligation is held to be a condition, any breach of it "will entitle the innocent party to rescind" the contract.[52] Reference can also be made to the f.o.b. case of Compagnie Commerciale Sucres Et Denrees v. C. Czarnikow Ltd. (The Naxos). In this case, Butler Sloss L.J. remarked:

"But if this is a condition, any breach, however trivial, would entitle the party aggrieved to bring the contract to an end."[53]

On the other hand, there are some other cases in which the buyer's termination was not regarded as lawful termination and in which it was held that the seller was entitled to make a second tender. The latter cases are, however, disputable and they will be examined in detail when discussing the seller's right to cure. Equally, some authors have questioned the authority of the former statements in that many of them are obiter, or have been rendered in situations in which the breach was incurable because of its nature or the time for performance had expired.[54]

Because of the unclear status of the issue in sale of goods law, the English commentators are of two different approaches. Some writers took the view that any non-compliance with a condition by the seller would place him in breach of condition and give the buyer a right to reject the non-conforming goods, and treat the contract as repudiated, and terminate the contract immediately.[55] Unlike the language of s. 11(3) which provides that the innocent party, say buyer, may treat the seller's breach of condition as repudiation of the contract, the proponents of this approach argue that not much significance should be attached to the particular word "may" where the contract is non-severable.[56] On this approach, it is argued that it is assumed by the law that non-compliance with a condition always amounts to a repudiation of the contract. That is to say, because of the actual or presumed importance of "condition," delivery of goods which do not comply with it always leads to such a consequence. As a result, the buyer has an option to accept the seller's repudiation and terminate the contract immediately, or to reject the defective delivery and give the seller an opportunity to perform his obligations in compliance with the "condition."[57]

In contrast, some others argue that the mere delivery of goods which do not comply with a condition will not place the seller in breach of condition, so there is no reason to justify the buyer's termination. The seller will only be in breach if defective performance remains incurred at the time when performance is due. There is no breach because the duty of the seller is to tender a correct performance by the contract date.[58] On this view, the buyer's immediate remedy for seller's non-conforming delivery is simply to refuse to accept it. The buyer would be entitled to terminate the contract on account of seller's defective delivery only where:

2.1.3. Seller's Right to Cure

A further question is whether the seller should be given a right to cure his defective performance, and if so, to what extent is such a right defensible in English sale of goods law. The Sale of Goods Act provides no express provision regulating the issue. Case law has also failed to make the issue clear. Academic writers are currently of different opinions. In this respect, while a number of authors are doubtful,[59] some others take the view that the seller, after the buyer's lawful rejection of non-conforming goods, has a general right to cure.[60] Professor Goode is one of the authors who confidently observes that where the buyer lawfully rejects the non-conforming goods, the seller has a general right to cure, provided that it is not too late for him to do so. In justifying the view, he argues that not only is it confirmed in a number of cases,[61] but it is also in accord with legal principle and commercial practice. The consequence of this approach is that, where the seller makes a non-conforming delivery and the buyer refuses to accept it, the seller, in the case of a contract for unascertained goods, can cure by tendering replacement goods. Where the contract is for specific goods, the seller could not, without the buyer's consent, tender substitute goods, since the contract itself identifies and thereby restricts the goods to those named therein.[62] Thus he can only cure by repairing the goods to make them conform to the contract. Although Professor Goode does not say so expressly, it appears that he regards this right as being available even in cases where the seller's breach consists of a breach of the statutory implied conditions.[63] On this view, the buyer can reject a re-tender if, but only if, time for performance is of the essence or, though not originally of the essence, has been made so as the result of notice procedure, or if more than a reasonable period of time has elapsed since the contract date delivery.[64]

Some others,[65] in contrast, have disagreed with this view and suggested that delivery of goods which do not comply with a condition would be a breach of contract and would always entitle the innocent buyer to reject the non-conforming goods, and, in the case of a non-severable contract, it, in itself, amounts to a repudiation of the contract by the seller, entitling the buyer to accept it and terminate the contract. This would be so regardless of whether the buyer could or could not terminate for the failure of the seller to deliver within the contract time. On this view, the seller is not entitled to cure the breach, but if the buyer chooses to reject without terminating, the seller will be entitled to attempt to cure his breach by a fresh delivery.[66]

As regards the cases cited to support the existence of a right to cure by the seller, the advocates of the second view have argued that these cases cannot be authorities to establish a general right to cure.[67] A number of these cases, they argue, can be explained as cases where the sellers had not effectively appropriated goods to the contract. On their view, the case most often cited as authority on the issue, Borrowman Phillips & Co. v. Free & Hollis,[68] does not prove the existence of a general right to cure. This case, they suggest, can only be an authority where the seller has not committed himself as to the appropriation. In such a case, where the goods offered do not correspond with the contract, he has an option to withdraw his tender and to make a fresh offer.[69] It does not apply to a case where the seller has made a binding appropriation, or has actually delivered goods in performance of his delivery obligation, and it turns on the proposition that they are not in conformity with the contract.[70] On this interpretation, a number of cases cited in support of the existence of the right to cure for the seller become doubtful, since the authority cited in these cases is Borrowman.[71] The proponents of the second approach also argue that the cases of Ashmore & Sone v. C.S. Cox & Co.,[72] Brian Smith v. Wheatsheaf Mills [73] and McDougall v Aeromarine of Emsworth [74] can be explained on the same way as Borrowman. Cases such as Agricultores Federados Argentinos v Ampro S.A [75] have also been explained as concerned with the buyer's right to make replacement nominations of vessels under f.o.b. contracts. Such cases can only, they argue, support the right to cure for the seller by way of inference.[76] Similarly, cases such as Longbottom v. Bass Walker [77] have been explained as cases involving instalment deliveries in which different rules may be applicable.[78]

On the second approach, a seller who has made a delivery which does not comply with a "condition" may, however, be entitled to cure his default under the following circumstances.[79] First is where the buyer rejects the non-conforming goods and allows the seller to make a new tender. He may be able to do so where the buyer has lost his right to terminate after rejection. In some cases, the seller may be able to do so under the principle of mitigation. Although the buyer is not required under the general law to accept the seller's offer to make conforming delivery after rejection, the principle of mitigation may require him to accept the seller's offer to cure in order to mitigate his loss.[80] Similarly, the seller of unascertained goods may be entitled to cure as long as his offer to appropriate a particular cargo for the contract has not been unconditionally accepted by the buyer.[81] In this way, one may explain the cases in which a seller was given a right to re-tender correct documents within the contract period when the buyer refused to accept them on the ground that they are not corresponding with the contract.[82]

2.2. Breach of "Intermediate" Term

As indicated before, where breach of a term classified as an intermediate term does not result in serious consequences, the only remedy available for it is to claim damages. Rejection and termination can be justified only when a breach has attained a certain degree of seriousness. As explained in Section 1., supra, the introductory remarks of this part of the text, this is a circumstance which was first recognised in HongKong Fir Shipping Co. Ltd. v. Kawasaki Kisen Kaisha Ltd [83] and its application to sale contracts was confirmed by the Court of Appeal in the Hansa Nord case in 1976.[84]

According to the doctrine of serious breach, the court's duty is, at the first stage, to decide whether or not the broken term, on its true construction, was a condition. If the term broken is held not to be a condition, the court then should look at the breach itself and examine whether it is sufficiently serious to justify termination of the contract on the common law principles.[85] If so, the buyer will be entitled to reject the non-conforming goods and terminate the contract; if not, there will be only a right to claim for damages.

2.2.1. Description of the Doctrine

Notwithstanding that justifying termination on account of the theory of serious breach is a well-accepted rule now, there is no generally accepted terminology to describe the breach satisfying the requirements of the doctrine. Various expressions are used to refer to this doctrine. For instance, in the leading case of HongKong Fir itself, Upjohn L.J. described the breach satisfying the requirement of the doctrine as one which goes "so much to the root of the contract that it makes further commercial performance of the contract impossible, or in other words where the whole contract is frustrated."[86] Diplock L.J., on the other hand, described it as a breach which results in an event which deprives an innocent party "of substantially the whole benefit which it was the intention of the parties as expressed in the contract that he should obtain as the consideration for performing" the contract.[87] In subsequent application or affirmation of the doctrine, the courts have described the breach giving rise to a right of termination under this doctrine in various terms.[88] It has sometimes been described as a breach which "goes to the root" of the contract,[89] or as being "fundamental,"[90] or which "destroys the consideration which he gave."[91]

However, what is certain is that these are not really different tests but are different ways of saying the same thing. Thus a breach which "goes to the root of the contract" is "fundamental" (going to the root); a breach which deprives a party of the whole benefit destroys the consideration he gave (by depriving him of the consideration he was to receive) and, from the innocent party's point of view, frustrates the commercial purpose by affecting the substance of the contract.

2.2.2. Operation of the Doctrine

Before the HongKong Fir doctrine comes into operation, it must be proved that the broken term is a term which does not fall into the category of condition or warranty. If so, although every breach of such a term may give rise to a right to claim damages, the right to reject and terminate will arise only where it is proved that the breach attains a certain degree of seriousness. The difficult step for the operation of the doctrine is to establish that the breach is sufficiently serious. Three factors have been considered by the courts for this purpose the nature of the breach, its foreseeable consequences,[92] and the nature of event resulting from the breach.[93]

2.2.2.1. Actual and Foreseeable Consequences

In order to establish that the breach is sufficiently serious as to justify the buyer's termination, the injured buyer may rely, not only on the actual events caused by the breach, but also on the foreseeable consequences of the breach. He may also be entitled to rely on the doctrine when the addition of foreseeable consequences to the actual consequences satisfies the requirement of the doctrine, even if neither, when considered alone, would be sufficient. However, since termination of the contract may have prevented the foreseeable consequences from actually occurring, the buyer in such a situation may need to rely on the consequences which would have occurred but for termination.

No clear authority can be found to explain what actual or foreseeable effects of breach can be relied upon to show that the breach is sufficiently serious. However, some authors have suggested that a distinction should be made between actual and foreseeable consequences.[94] When the actual consequences of the breach are relied on, what is required is that the injured buyer has to prove that those consequences are caused by the seller's breach even though they were not foreseeable at the time of breach. Beyond causation, there is no further requirement in this respect. But in the case of foreseeable consequences, he cannot invoke them unless they were foreseeable at the time of termination. The same author continues to suggest that the fact that an injured buyer had foreseen that the breach would be sufficiently serious cannot be conclusive. The effects of breach should be foreseeable by a reasonable person. The injured party's view may be relevant to what a reasonable person in his position would have foreseen.[95]

However, this suggestion does not explain whether those consequences should be foreseeable by the seller in breach. And if so, at what time should they be foreseeable? Can the buyer rely on those consequences which were not reasonably foreseeable by the seller when the contract was made? As will be seen in a separate comparative study of damages, the buyer can only recover damages for those results which were foreseeable by the seller at time of the contract. Hence, one may argue that how can a buyer terminate the contract on account of results for which he cannot claim damages?

The question has not expressly been addressed by the courts. However, Professor Carter suggests that applying a very strict test and requiring substantial deprivation from the contract as the most likely consequences of the breach is more doubtful.[97] As regards the other test, i.e., being the likely consequences of the breach, Carter also argues that the position is not quite clear. In HongKong Fir, although the Court of Appeal did not expressly refer to the issue, when considering whether the delay which was likely to occur as a consequence of the shipowner's default, their Lordships observed that the delay would not have been sufficiently serious since the vessel's engine crew had been replaced. It might be therefore argued, Carter says, that a foreseeable consequence of the shipowner's breach was serious delay, but this was not a likely consequence of the breach because in all likelihood the replacement engine crew would be competent.[98]

In contrast, Lord Devlin has suggested that physical injury should be distinguished from economic loss.[99] Where physical injury is a foreseeable consequence of the seller's breach, this should give rise to a right to terminate the contract notwithstanding that the chances of physical injury are fairly remote. On the other hand, where, as in the HongKong Fir case, the foreseeable consequences of the default are economic loss, it is appropriate to apply a stricter criterion, that is, the injured buyer has to prove that those consequences would be likely to occur as a result of seller's default.[100]

2.2.2.2. Degree of Seriousness

As indicated above, the remedy of termination on the basis of the HongKong Fir doctrine is only available if the breach attains a certain degree of seriousness. The most significant stage in applying the doctrine is, therefore, to determine what degree of seriousness the breach must attain so that the doctrine could operate and give rise to a right to terminate the contract.

Whether the breach of an intermediate term is sufficiently serious to give rise to a right to terminate the contract is a complex question. Thus, the innocent buyer who is seeking to rely on the doctrine so as to justify his termination has a difficult task to satisfy the court that the seller's breach has attained, or will be likely to attain, the sufficient degree of seriousness. In order to determine whether the breach of an intermediate term is sufficiently serious, some criterion is required. When dealing with the expressions used to describe the doctrine, we saw that the courts have referred to the requisite criterion by using various phrases such as, breach resulting in a "substantial deprivation" of the party not in breach from the whole benefit of the contract, or in such a result which "frustrates his purpose in making the contract," and a breach going to "the root of the contract."

However, these phrases are not particularly helpful in analysing the law or in predicting the course of the courts' decisions. Description of the test by some vague phrases does not give a useful guideline to the judge to assess whether the breach resulted in serious consequences. It is also very difficult for the injured buyer or his legal adviser to predict at what degree the breach will be regarded as sufficiently serious and will satisfy the court to treat the buyer's termination as a justified termination. This is perhaps the main reason why the doctrine has been the subject of strong criticisms in that it places the innocent party in an uncertain position and promotes inefficiency by rewarding the incompetent promisor.[101]

It seems that these various expressions, as pointed out above, are all metaphors which mean much the same. What they indicate is that a breach of an intermediate term must be particularly serious before an aggrieved party is entitled to terminate the contract in accordance with the HongKong Fir doctrine. However, for the particular nature of the test of such a kind, the judges are indeed seeking to retain a degree of discretionary control over the issue. The question of what degree of breach will be regarded as sufficiently serious to justify termination is therefore left to the court to decide on the basis of the circumstances of each particular case.

     (I) Seriousness as a Question of Fact. Accordingly, although the question whether an injured buyer was entitled to terminate the contract on account of the seller's breach of an intermediate term is a question of law, the question whether a particular breach is sufficiently serious to justify termination of the contract is a matter of fact which is to be decided on the basis of the circumstances of each case. Thus it is not an issue that can be determined in advance by fixed rules. When applying the general requirement of "sufficiently serious breach," the courts classify a failure in performance with an eye to the nature of the breach and its actual and foreseeable consequences, considering all the circumstances surrounding the contract, the subject-matter, the position of the party in breach and other relevant factors.

     (II) Relevant Factors. In order to determine whether the breach committed by the seller attains a "sufficient degree of seriousness" to give rise to the right of termination, regard can obviously be had to any factor shown to have relevance to the circumstances of the case. However, case law shows that there are certain factors which are more likely to be relevant. These include factors [102] such as loss or detriment suffered or likely to be suffered by the buyer as a result of the seller's breach, loss of benefits which were expected from the performance of the contract,[103] the adequacy of damages,[104] any offer to remedy,[105] and motives for termination.[106]

In this regard, they also look at the express, implied terms of the contract and relevant customs in order to determine what the buyer was legitimately entitled to obtain from the contract. A particular expectation of the aggrieved buyer would be taken into account if it is indicated by the contract. The court would then compare the consequences caused by the breach with the contractual expectation of the injured buyer and decide whether the breach has deprived (or will deprive) him substantially of that contract entitlement. In this connection, the courts are usually influenced by the parties' conflict of interests in terminating the contract. For this reason, they consider, on the one hand, whether termination is necessary to protect the injured buyer and, on the other, the prejudice which termination will cause the defaulting seller. If, on balancing the above-mentioned factors, they conclude that the injured buyer should be allowed to terminate, they will classify the failure in performance as "substantial" in order to produce the desired result; and conversely.[107]

2.3. Special Cases

Although the general rules described above are applicable to the cases discussed below, for the reasons which will be made clear it seems appropriate to address them separately to assess how these rule are applied to these cases.

2.3.1. Breach of Severable Contracts

English sale of goods law makes a distinction between severable and non-severable contracts.[108] Where the contract is construed as severable, the seller's breach of condition or an intermediate term, even satisfying the requirement of seriousness in respect of one or more instalment deliveries, does not necessarily entitle the buyer to terminate the contract as a whole. In such a situation, the buyer may terminate the contract as a whole only where the seller's defective performance in respect of one or more instalments amounts to a repudiation of the whole contract. Accordingly, the crucial issue is to determine whether or not the seller's non-conforming delivery in respect of one or more instalments has amounted to a repudiation of the contract as a whole.

The seller under a severable contract will certainly be guilty of repudiation of the whole contract when his non-conforming delivery with respect to one or more instalments is associated with an express refusal to perform or refusal to perform except in a manner which is substantially different from that bargained for.[109] The difficult case is, however, where repudiation has to be inferred from the present or past defective performance of a seller who is not expressing his intention in this way. Is the buyer entitled in such circumstances to reject the non-conforming deliveries and treat the whole contract as repudiated or is he entitled only to reject that part in respect of which there is a breach, or is he confined to a claim for damages? The question is addressed by s. 31(2) of the Sale of Goods Act but it does not answer the question: When does the seller's making defective deliveries in respect of one or more instalments amount to a repudiation of the contract as a whole? It refers the case to the court to decide on the basis of "the terms of the contract and the circumstances of the case."[110]

2.3.1.1. Terms of the Contract

The first factor referred to in section 31(2) of the Act is a consideration of the terms of the contract. Thus the court, in deciding whether the seller's making non-conforming delivery in respect of one or more instalments amounts to a repudiation of the entire contract, is to look first at the terms of the contract itself and determine whether or not non-compliance with those terms is such as to amount to a repudiation of the contract as a whole. The parties may contemplate particular provisions dealing with the circumstances under which one of the parties is entitled to terminate the contract for the other party's non-conforming deliveries. However, discussion of this issue is beyond the scope of the present research which deals with the position of general law of remedies for breach of contractual terms.

2.3.1.2. Circumstances of the Case

The second factor referred to in s. 31(2) is a consideration of the circumstances of the case. Under this provision, for a seller to be treated as repudiating the contract as a whole it is not necessary to prove that he has intimated to the buyer his intention no longer to be bound by the contract. He will be guilty of repudiation if his default goes to the root of the contract. In deciding whether the default has such an effect, the court must consider "first, the ratio quantitatively which the breach bears to the contract as a whole, and secondly, the degree of probability and improbability that such a breach will be repeated."[111] Relying on these criteria, in Maple Flock Co. Ltd. v. Universal Furniture Products (Wembley) Ltd,[112] the seller was held not repudiating the contract as a whole where, under a contract to be performed by some 66 deliveries, one out of the first 19 was defective. On the other hand, in Robert A. Munro & Co. Ltd. v. Meyer,[113] where the buyer agreed to purchase from the seller 1,500 tons of meat and bone meal to be delivered at the rate of 125 tons per month and, after about half of the total contract quantity had been delivered by the seller, the buyer realised that those were seriously defective and purported to treat the contract as repudiated, the court held that the buyer was entitled to do so.[114]

On the basis of what has been said above, it can be said that whereas under a non-severable contract the Sale of Goods Act, as most English writers suggest, seems to give an innocent buyer an option to treat the seller's breach of a condition as a repudiation of the contract, in the case of a severable contract it does not recognise such a presumption. Accordingly, where the seller is, for example, late in tendering one instalment, or tenders an instalment which does not correspond with a condition, it will not normally constitute a repudiation of the contract as a whole, but will do so only if it is made in such circumstances as to lead a reasonable person to conclude either an intention to repudiate or an inability to perform the contract as a whole,[115] or its effect is so serious as to go to the root of the contract.[116] Individual terms qualifying the seller's delivery obligation will therefore not be conditions in the sense that the seller's failure to comply with them in tendering an instalment amounts to a repudiation of the whole contract. The seller's compliance with them is a condition precedent to the buyer's liability in respect of that particular instalment. Thus, where time is of the essence, the seller's late delivery as regards one instalment will only affect the innocent buyer's liability in respect of that particular instalment. The same is true where the seller tenders an instalment which is not in accordance with the other terms of the contract.

2.3.1.3. Effects of Repudiatory Breach

Where the seller's non-conforming delivery in respect of some instalments amounts to a repudiation of the contract as a whole, the buyer will be entitled to accept it and terminate the contract. If the seller's repudiatory breach is accepted by the buyer, it would entitle him to reject the present defective tender and treat himself as discharged from liability in respect of all further performance. He can do so even where he has previously accepted some instalments. However, the question arises here whether the buyer is entitled to reject the prior instalments. The language of s. 31(2) is not quite clear. But some academic authors suggest that the language of the section is concerned with the future performance, so that the buyer can refuse to perform outstanding obligations. In addition, the buyer's severable obligations to accept previous conforming instalments have already been fulfilled and can be no longer be undone.[117] However, it has been suggested [118] that where the instalments already accepted constitute parts of an indivisible whole, e.g., individual volumes of a set of books, parts of a machine, or a suit of clothes, the buyer will be entitled to reject the previously accepted instalments. Of course, in such cases the contract is ab initio rescinded by returning the instalments already delivered, and he will be entitled to recover the whole, or any part, of the price paid.[119]

2.3.1.4. Effects of Non-Repudiatory Breach

Where the lack of conformity of some instalments has not constituted a repudiation of the contract as a whole, the buyer is not allowed to terminate the contract as a whole.[120] Under such circumstances, the seller is entitled to require the buyer to accept and pay for each instalment tendered or which will be tendered in conformity to the contract. The buyer will not be entitled to refuse to accept and pay for an instalment because of a defect in or a short or late delivery of an earlier instalment; nor is he allowed to insist on waiting to see whether the seller will make proper delivery of subsequent instalments before he accepts and pays for an instalment.[121]

However, the Sale of Goods Act has not made clear what remedy the buyer will have where the lack of conformity in respect of some instalments has not amounted to a repudiatory breach. S. 31(2) of the Act speaks only of "a severable breach giving rise to a claim for compensation." It does not say whether the buyer may be entitled to reject the non-conforming instalments in circumstances where he is not able to terminate the contract as a whole. The language of s. 31 of the Act is not quite clear. It appears that the section assumes that where the seller's making non-conforming delivery as regards one or more instalments does not amount to a repudiation of the entire contract, the buyer has only one option, i.e., to claim for damages. The sub-section, as Professor Atiyah suggests,[122] does not seem to contemplate the possibility of permitting the buyer to reject that particular delivery while keeping the contract on foot. Under such a language, it might be said that the Act treats compliance of an instalment with the terms of contract as a warranty breach of which, under the Act, may only give rise to a right to claim damages. On the other hand, compliance of substantial parts of all instalments with the contract terms is a condition precedent for the buyer's duty to accept and pay for them. Despite the imprecision of s. 31(2), some authors have suggested that "there is a considerable case law support for the buyer's right to reject non-conforming instalments, even if the buyer has lost the right to terminate the contract or has not yet acquired it."[123] In addition, s. 35A(2) of the Sale of Goods Act, which permits the buyer to accept the conforming instalments and reject the non-conforming instalments, would support severable rejection rights.[124]

Likewise, the Act provides no clear provisions regulating the circumstances where the buyer will be entitled to reject some instalments which do not conform with the contract terms. The question, therefore, arises: Under what circumstances may the seller's breach of contractual obligations as regards one instalment entitle the buyer to refuse to accept a non-conforming instalment? In the absence of a clear law statement, some authors have suggested that the general principles applicable to non-severable contract should apply to each instalment.[125] That is to say, for remedial purposes, each instalment is to be regarded as the subject of a distinct contract, although within a main contract, and the principles applied to a contract containing a single delivery obligation should be applied to such a subsidiary contract. As a result, the different approaches rendered in relation to breach of a condition under a non-severable contract arise in this connection. That is, where the broken term is classified as a warranty or an intermediate term whose breach has not resulted in serious consequences with respect to that particular instalment, the buyer's remedy is only to claim for damages. Whereas, if the broken term is treated as a condition, any breach by the seller in respect of a particular instalment will (subject to s. 15A) entitle the buyer to reject that particular part. After the buyer has lawfully rejected the non-conforming instalment, if one accepts that the seller has a general right to cure, he is entitled to cure the default by delivering a substitute instalment in conformity with the contract, provided that he does so within the time limited for delivery of that instalment.[126] According to the other view previously analysed, the seller's defective delivery (assuming that it does not amount to a repudiation of the whole contract) entitles the buyer to reject it and give the defaulting seller the opportunity to make a fresh tender, or to immediately terminate that subsidiary contract. Under this approach, breach of a condition or an intermediate term satisfying the requirement of seriousness in respect of a particular instalment would strike that subsidiary contract out of the main contract, which is pro tanto terminated.[127] This is true according to the former view where the time fixed for delivery of an instalment has expired and has been of the essence. Where the buyer has exercised his severable rejection right in this way, the seller will not be entitled afterwards to claim to deliver, nor will the buyer be entitled to have the instalment in respect of which the seller has made defective delivery. The sole remedy of the buyer will lie in damages.[128]

2.3.2. Breach of Time Stipulation

2.3.2.1. Sketch of Discussion

Failure to perform a stipulation as to time for performance of an obligation does not differ intrinsically from any other failure to perform. As with the terms concerning the goods themselves, it is not breach of any stipulation as to time for performance, but only of some which may give rise to a right to terminate the contract. However, time provisions have a history and terminology of their own in English law; and for this reason, perhaps, are usually considered separately.[129]

2.3.2.2. Classification and Terminology

Notwithstanding that the Sale of Goods Act contains a particular provision for stipulations about time of performance, it fails to make clear what consequences will follow if a time provision is broken. The only thing which it provides is that the court should decide whether or not the infringed stipulation was of the "essence of the contract."[130] In this respect, s. 10(2) provides that whether any stipulation as to time other than that of payment [131] is or is not "of the essence of the contract" depends on the terms of the contract.[132] The Act also fails to make clear the position of the case where a particular time provision is not fixed by the contract. Accordingly, as regards the time for performance of a particular obligation, two general possibilities may arise: first, where the time for performance is fixed by the contract; and second, where no particular time provision is specified in the contract. In both cases, this question may arise whether or not time for performance is of the essence of the contract.

     (I) Time Is of the Essence. The question whether a stipulation as to time is of the essence may be resolved first by the terms of the contract itself.[133] A time stipulation will be regarded as the essence of contract where the parties have expressly provided that strict compliance is essential.[134] In the absence of such an express provision, the question whether time is of the essence of the contract is one of construction, that is, it is the court's duty to determine whether the nature of the subject-matter of the contract or other surrounding circumstances indicate that the parties should have intended time to be essential.[135] The court may also reach the same result by another way, that is, whether even a brief postponement of the performance at the stipulated time would deprive the claimant of "substantially the whole benefit that it was intended that he should obtain from the contract."[136]

Notwithstanding that the Sale of Goods Act remits the question whether a time stipulation in a sale contract is of the essence to the discretion of the court to decide, on the basis of construction of the contract, English courts have made efforts to formulate some general principles governing the legal classification of stipulations as to time. In this way it has been said, on the one hand, that "in modern English law time is prima facie not of the essence of a contract;"[137] and, on the other hand, that "broadly speaking time will be considered of the essence in 'mercantile' contracts."[138] Nevertheless, in the case of contracts for the sale of goods, the courts have taken a more specific view as to the seller's delivery obligation, and, in the words of McCardie J.,[139] "In ordinary commercial contracts for the sale of goods the rule is clearly that time is prima facie of the essence with respect to delivery."[140]

It is commonly said that the question whether the time specified for performance of a particular obligation is essential is to be based on consideration of commercial convenience and certainty applicable in the particular context, rather than on any general principle or presumption as to time being, or not being, of the essence.[141] For this reason, it is said that general statements such as those quoted in preceding paragraphs do not prove that this is a presumption or rule of law, but there is apparently a presumption of fact about the intention of the parties in the paramount interests of commercial certainty,[142] or in the language of Lord Lowry "treatment of time limits as conditions in mercantile contracts does not appear ... to be justifiable by any presumption of fact or rule of law, but rather to be a practical expedient founded on and dictated by the experience of businessmen ..."[143] On this basis, the mere fact that the contract can be labelled "mercantile" or "commercial" does not, in itself, determine the issue.[144] To find the commercial significance of the term, therefore, the court must look "at the contract in the light of surrounding circumstances, and then make up its mind about the intention of the parties, as gathered from the instrument itself."[145] Alternatively, if the exercise has already been gone through by arbitrators, their finding about the commercial significance of the term will be adopted by the court.[146]

By way of summary, in three cases a stipulation as to time for performance is commonly regarded as of the essence of the contracts.[147] First, where the courts have held it to be so.[148] Secondly, when a term has to be performed by one party as a condition precedent to the ability of the other party to perform another term.[149] Thirdly, where the contract says so. Beyond these, it is all a matter of substantial deprivation and the circumstances of the case which are to be relied on in this connection.

Time provisions are important to the argument that in the case of a non-conforming delivery, the seller has a right to make a fresh tender. On this view, the seller must do so within the contract period if time is of the essence; making cure beyond that period would discharge the buyer from his primary obligations under the contract at that point and entitle him to terminate the contract. As a result, the seller is deprived of the right to cure, in the sense that the seller cannot insist that the buyer accept a substitute performance at the moment when the time for performance has expired.

     (II) Time Is Not of the Essence. Where the time is not of the essence, the seller's failure to perform by the specified date will not entitle the buyer to terminate the contract at that date,[152] although he will be entitled to damages for delay beyond the specified date. The question arisen here is: How long does the seller have to perform his obligation before the buyer is entitled to terminate the contract on account of late performance? Does the seller have only a "reasonable time period" after the expiration of the specified date within which he was required to perform his obligation,[153] or can he do so until such a time as the delay goes to the root of the contract and frustrates the commercial purpose of the contract?[154]

At first sight, the distinction between a "reasonable time" and a "frustrating time" period may seem semantic. However, there is a considerable difference between these two time periods: it is quite possible that the seller may perform his obligation within a time which is regarded as unreasonable, having regard to relevant factors, yet such an unreasonable delay may not frustrate the purpose of the contract.[155] In addition, these two periods involve different factors. "Reasonable time" is governed by what remains to be done by the seller in breach, how hard he has been pressed by the buyer previously, and other such factors, whereas "frustrating time" is determined by the effect on the innocent party: Does the delay deprive him of substantially the whole benefit of the contract?[156]

It has been thought [157] that McDougall v. Aeromarine of Emsworth Ltd.[158] could be the strongest authority for the former time period. Under a clause in a contract to build and supply [159] a yacht, the suppliers undertook to use their "best endeavours" to complete the construction and fitting out by a certain date but, owing to the effect of delays and shortages, such delivery date could not be guaranteed. Diplock, J., held that a clause in this form placed on the sellers a duty to deliver within a reasonable time of the specified date, and the obligation to deliver within a reasonable time after the certain period of date was a condition.[160] Thus, the seller had a reasonable time within which to perform his obligation, because the buyer could terminate after a reasonable time had expired.

However, it could be argued that the case was not basically concerned with the issue in question. In that case, there was effectively no contractually delivery date; Diplock J. was therefore not concerned with the right to terminate but with the prior question, when the boat should have been delivered. He did not need to decide whether time was of the essence until he had decided what the delivery date was, which in this case he held was "within a reasonable time." At the second stage, Diplock J. held that this period was a condition and, since the seller did not deliver within that period, the buyer was entitled to terminate the contract.

Moreover, there are a number of authorities which support the view that the buyer can only terminate when the delay becomes so long as to frustrate the commercial purpose of the contract. For instance, in Universal Cargo Carriers Corp. v. Citati,[161] the charterer's obligation to complete loading within the lay times (the time permitted for loading) was held not to be of the essence of the contract, so that its breach did not entitle the owner to terminate, but gave rise to a claim for damages only. In this case, Devlin, J., held that the owners could terminate the contract only if the delay went to the root of the contract. What yardstick should be used to determine whether it went to the root of the contract? The arbitrator had held that the delay must have been for a reasonable time. Devlin J., however, rejected this criterion and held that the proper test in order to decide whether delay in fulfilling obligations under a contract amounts to a right of termination is that the given delay was so grave as to frustrate the commercial purpose of the contract.

On this authority, a "reasonable time" is something less than the period required for the delay to "frustrate the charterparty," and therefore does not amount to a delay long enough to justify termination.[162] It could only be accepted as the test where the period regarded as reasonable time was the same as the period necessary to frustrate.[163] Accordingly, in such cases the victim of breach can only terminate the contract if the seller's delay would deprive him of substantially the whole benefit of the contract. It is consistent with the Hong Kong Fir test; where the time has not been regarded as the essence of the contract, it would be an innominate term the breach of which amounts to a right of termination provided that the delay is so grave as to frustrate the commercial purpose of the contract.[164]

     (III) No Time Is Specified. Where the contract is silent as to the time for performance, the court will imply a term that performance must be made within a reasonable time.[165] In such a case, the seller's failure to deliver the goods or to cure the defect in them (assuming he has such a right) within a reasonable time will amount to a breach of contract, entitling the buyer to claim for damages. The question arises here whether such an implied time is a condition so that the seller's failure to perform his obligation within the period gives rise to a right of termination. In this respect, it has been submitted that where there is no time limit for delivery, the contract continues until its purpose is frustrated.[166]

The suggested view seems sound. This is because the rationale for the general rule that time is of the essence is the need for certainty, while where no time for performance has been fixed, there is no certainty. Accordingly, where no time is specified in the contract, time is not normally of the essence in the first instance. In such cases, in the absence of special circumstances indicating otherwise, the buyer should only be entitled to terminate the contract if the delay is such as to frustrate the commercial purpose of the contract. This is because, although there may well be cases where special circumstances indicate that a failure to perform within a reasonable time is to be regarded as a breach of condition entitling the buyer to terminate,[167] in the absence of such special circumstances, it is difficult to accept that, where no time is specified under the contract, the parties would have intended that time would be of the essence.

2.3.3. Breach of Quantity Stipulation

A particular provision is set out by s. 30 of the Sale of Goods Act where the seller delivers the wrong quantity of goods. Under this section, where the seller delivers to the buyer a quantity of goods less than he contracted to sell, the buyer may reject them. The same right is given to the buyer where the seller delivers to the buyer a quantity of goods larger than he contracted to sell. In the latter case, the buyer may accept the goods included in the contract and reject the rest, or he may reject the whole.

However, the Act does not make clear whether delivery of the wrong quantity is breach of a "condition" which, as already discussed, gives the buyer two separate rights: to reject the goods and to terminate the contract. Although the new sub-section (2A) inserted by the Sale and Supply of Goods Act 1994 has restricted the buyer's right to reject the whole of the goods delivered,[168] it does not say whether he has a separate right to terminate the contract. Similarly, it does not make clear whether the buyer is entitled to refuse to perform his obligation as to the missing part and terminate the contract in respect of that part, as the Convention seems to suggest (Art. 51). As far as the first question is concerned, some authors have suggested that giving the buyer a right "to reject the whole of the goods delivered in the circumstances dealt with by s. 30 means that, in substance, the seller in such cases is treated as though he commits a breach of condition by delivering the wrong quantity."[169]

2.3.4. Documentary Sales: Breach of the Duty to Tender Shipping Documents

A further question is the application of the general rules explained above to the case where the seller has to perform his delivery obligations by tendering to the buyer (or to his bank) some documents representing the purchased goods. In contracts of such type (such as c.i.f. and sometimes in f.o.b.) the seller is obliged to tender shipping documents, consisting essentially of a bill of lading, insurance policy and sale invoice [170] in accordance with the requirements stated in the contract of sale.

As a general rule, where the documents accord with the contract, the buyer or his bank must accept and pay the price in accordance with the contract.[171] However, as in the case of the goods themselves, the seller may tender the shipping documents in a way which does not conform to the contract requirements. Where the tendered documents do not correspond with the contract, it is the settled law that the buyer (and in the case of payment through documentary credit, his bank) is entitled to reject and refuse to pay for them.[172] The rule has been justified on the general principles already explained, that, as in the case of the buyer's obligation to accept the goods delivered to him by the seller, his duty to accept the relevant documents is subject to the condition that the seller's delivery has been in conformity with the terms of the contract. Therefore, where the documents tendered are not in accordance with the requirements stated in the contract, the buyer (or his bank) is entitled to refuse to accept them and to refuse to pay the price. For instance, in the case of James Finlay and Co. Ltd. v. N. V. Kwik Hoo Tong Handel Maatschappij [173] where goods were shipped out of time under a bill of lading incorrectly dated to show the timely shipment, the seller was regarded as guilty of breach of contract entitling the buyer to reject them.

In a documentary sale contract, in addition to the right to reject the non-conforming documents, the buyer is given a further right to reject the goods substituting the subject of the documents on arrival where he learns that goods do not conform to the contract. The existence of two rights, -- the right of rejecting the documents and the right of rejecting the goods -- is based on the fact that, under a documentary sale contract, the seller's duty to deliver includes a duty to ship goods (or to appropriate to the contract goods already afloat, which the seller may have shipped himself or bought directly or indirectly from the shipper), and a duty to tender proper shipping documents in accordance with the terms of the contract. In such cases, the seller may fail to perform one or both of these duties, and the buyer may be entitled to reject in respect of any such failure.

The authority which clearly recognised two separate duties for a c.i.f. seller, i.e., the duty to ship conforming goods, and to tender conforming documents, as well as two separate rights to reject non-conforming goods and documents, is Kwei Tek Chao v. British Traders & Shippers Ltd.[174] In that case, Devlin J. was of the view that the right to reject non-conforming goods is distinct from the right to reject non-conforming documents; the former arises when the goods have been taken up and found after examination to be not in conformity with the contract, and the latter on tender of the documents.[175] Accordingly, the documents may be rejected if they are defective on their face, for instance, by being wrongly dated or by indicating that the goods were not in good order and condition. The goods may also be rejected, even though the documents are in order and have been taken up and paid for, if they themselves are defective, for example, by being of unsatisfactory quality, provided that the defect was not apparent on the face of the documents.

On this view, where the seller fails to tender the shipping documents in accordance with the requirements stated in the contract, the buyer may be entitled to reject them even though the goods themselves are perfectly in accordance with the contract. Thus, if the contract provides that the goods are to be shipped, and the bill of lading is to be dated in January, the buyer can reject a bill dated in February, even though the goods were actually shipped in January.[176] Similarly, he can reject a bill of lading for a quantity of goods in excess of the contractual limits, even though the goods actually shipped are within these limits.[177] He may also be entitled to reject the documents even though the defect on its face would not, of itself, have justified rejection of the goods.[178]

Another consequence of the separation of documents and goods is that the right to reject the non-conforming goods is not necessarily impaired by the acceptance of the documents.[179] Thus, where the buyer accepts the bill of lading and later it turns out that the goods constituting its subject are not in accordance with the contract conditions, he will not be prevented from refusing to accept the goods on discharge from the ship on arrival, although he may lose his right to reject the bill of lading on the doctrine of "waiver."[180] Furthermore, if the documents reveal that the goods are not in conformity with the contract and the buyer nevertheless accepts the documents, he cannot then reject the goods themselves on the basis of that non-conformity, but he can still reject the goods if a different defect, or non-conformity, not revealed by the documents, becomes apparent on delivery.[181] However, if the defect giving rise to both rights of rejection is a single breach, for example, the goods are shipped late and this fact appears from the documents, acceptance of the documents may well be treated as waiver [182] of the buyer's right to reject the documents as well as the goods constituting their subject, so that the buyer is bound to accept the goods on arrival.[183]

From the above discussion, it has been made clear that a buyer may be entitled to refuse to accept the documents tendered to him by the seller where they are not in conformity with the contract requirements. In other words, contractual terms requiring the seller to provide and tender documents conforming with the contract are "conditions," breach of which gives the buyer an immediate right to reject them. The buyer's right to terminate the contract on account of a tender of non-conforming documents is subject to the seller's right to cure discussed above. As has been seen before, there are certain judicial authorities which clearly state that following the buyer's lawful rejection, the seller under certain circumstances has a right to make a sound tender, provided that he can do so within the contract time. Beyond that limited right to cure, the buyer will be entitled to terminate the contract immediately without being required to wait for the goods to be landed.

3. Mechanism of Termination

3.1. No Automatic Termination

As a general rule, under English law termination of contract for breach of contract is regarded as a matter of "election." That is, a discharging breach does not automatically bring the contract to an end,[184] but gives the aggrieved party an option either to terminate the contract or to continue performance [185] if he wishes, and to claim damages for losses suffered as a result of the breach.[186] This principle is of a general nature in the sense that it applies to all contracts including the contract of sale.[187]

The principle has been justified on the basis that the law should not allow the defaulting party to rely on his own default to obtain a benefit under the contract, to excuse his own failure of further performance, or in some other way to prejudice the injured party's legal position under the contract.[188] On the basis of this principle, it has been said that the defaulting party should not be allowed to rely on his breach so as to prevent the injured party from enforcing provisions in the contract [189] or the chance of claiming specific relief,[190] since the contract may contain provisions highly favourable to the aggrieved party, and it would be unjust to allow the other party by breaching the contract to bring about an automatic termination and so to deprive the aggrieved party of the benefits of those provisions.

3.2. Election of the Remedies

In English law, when a buyer is given a right to terminate for breach of contract, it is always at his option. Thus, in terminating the contract, he is not required to apply for a court judgement even though he may sometimes need the court's decision to the effect that he was entitled to terminate the contract.[191] In the latter case, the court simply declares whether termination was justified or not when the party in breach has disputed it. The contract would be effectively terminated from the time when the buyer terminates it, not from the time at which the court confirms termination. Accordingly, where a breach giving rise to a right to elect is committed by one of the contracting parties, the other is faced with two inconsistent rights: either to terminate the contract or to affirm his obligation to perform. He must choose between these two inconsistent rights.[192] When he elects for one option, he loses the other.

However, the questions remain: How must that option be exercised? Is the buyer who wishes to elect termination required to declare his intention of election to terminate the contract? Is the declaration of termination to be communicated to the defaulting party? When is the option of termination lost?

3.2.1. Election of Termination

The Sale of Goods Act does not lay down any procedure for the election to treat the contract as terminated. The Act, in respect of breach of condition, simply provides that it "may give rise to a right to treat the contract as repudiated." Nevertheless, since the Act does no more than codify the common law rules, the process of termination is therefore governed, in the absence of specific contractual terms, by the common law rules on election of remedies.

3.2.1.1. Declaration of Termination

Generally, at common law, there is one clear requirement for exercising the option: there must be "unequivocal words or conduct" on the part of the non-defaulting party showing that he has elected to terminate or to affirm the contract.[193] The use of the term "unequivocal words or conduct" does not, however, mean that there must be express words or conduct.[194] The requirement will be satisfied if, by words or actions, the non-defaulting party makes plain [195] that he intends to terminate the contract. Accordingly, the requirement does not necessarily depend upon the terms of one communication alone. It is necessary to consider the whole of the relevant communications and the buyer's conduct generally.[196] The requirement may also be met by actions such as rejection of the seller's defective performance, or the making of an alternative contract.[197]

No particular form is required.[198] A written or oral statement is therefore sufficient. The buyer is also not required to use the particular term "termination." Accordingly, the use of any word or phrase which clearly shows that the buyer has declared the contract terminated would be sufficient.[199] Although the mere "silence and inactivity" on the part of the non-defaulting party has been said not to suffice;[200] it may be construed, in certain circumstances, as an affirmation of the contract depriving him of the right of termination.[201] In other words, if a buyer who has a right of option unnecessarily delays in taking his decision, he may no longer be entitled to resort to termination.[202]

To put the requirement in a short phrase, a party who wishes to exercise his option to elect his remedies must declare his intention in a proper way by which a reasonable person is able to readily understand what he intends. Accordingly, there must be at least some notice by which the right to terminate is exercised, though it does not have to be in a particular form. The party giving notice need not, as a general rule, even specify in the notice the ground on which the contract is terminated.[203] If the ground stated in the notice does not in law justify termination, the notice may nevertheless be valid so long as a ground which does justify termination actually exists.[204] However, the question remains whether for a termination to be effective, it is essential that the party in breach has received the notice of termination.

3.2.1.2. Communication of Termination to the Defaulting Party

The question has not been clearly answered. There can be found some authorities which suggest that communication is a general requirement of the election.[205] In contrast, there are many cases which do not insist on this requirement.[206] The idea of necessity of communication of election to the party in breach is probably based on the view that the decision of termination is an "acceptance" of the defaulting party's "offer" to put an end to the contract.[207] Accordingly, as in considering the rules of acceptance in the context of formation of the contract, the acceptance on the part of the offeree must be communicated to the offeror;[208] in the case of election of termination, acceptance must also be communicated to the party in breach.[209] On the other hand, it has been argued that election is "an effect which the law annexes to conduct which would be justifiable only if an election had been made one way or the other."[210]

3.2.2. Election of Affirmation

When the seller's non-conforming delivery constitutes a breach giving rise to the right to elect, the injured buyer has also an alternative right to accept the non-conforming delivery if he prefers, and to claim for damages. The significant aspect of the rule is that, under certain circumstances the law recognises a presumed affirmation on the part of the buyer who has an option to elect remedies for breach of contract. Where he elects or is deemed to have affirmed the contract, he will lose his right to reject the non-conforming delivery and terminate the contract.[211] The rule can be justified on the principle that a person cannot take up inconsistent positions: once a choice has been made or deemed to have been made, that party will usually be bound by that election.[212]

Since affirmation usually precludes subsequent termination, a crucial issue is: At what point will the buyer be deemed to have affirmed the contract and as a result have lost his right to reject the non-conforming delivery and to terminate the contract? In general, a buyer may be deemed to have elected to affirm his duty to perform the contract when that intention can be attributed to him. In this connection, the Sale of Goods Act has provided certain rules regulating the circumstances under which the buyer may affirm or is deemed to have affirmed the contract and consequently has lost his right to reject the non-conforming delivery and to terminate the contract.[213]

3.2.2.1. Concept and Terminology

The circumstances under which an aggrieved buyer may affirm or is deemed to have affirmed the contract are comprised under the heading of "acceptance."[214] In this respect, section 11(2), as a general principle, provides that a buyer may waive a condition that has to be fulfilled by the seller, electing instead to treat it as warranty. When this sub-section is read with the provisions under s. 35, and, sub-section 11(4) which provides that the buyer may lose his right to reject the non-conforming delivery and to terminate the contract once he has accepted the seller's non-conforming delivery, acceptance can be explained as behaviour by the buyer that objectively demonstrates an election to seek his remedy only in damages.

3.2.2.2. Methods and Requirements of Acceptance

The Sale of Goods Act provides three general methods under which the buyer may lose his right to reject and terminate the contract. These methods of acceptances are recited in s. 35 as the buyer's (a) intimating to the seller that he has accepted the goods, (b) after the seller's delivery, doing an act inconsistent with the seller's ownership, and (c) retaining the goods beyond a reasonable time without giving the seller a notice of rejection.

     (I) Intimation of Acceptance. The first method by which the buyer may be taken to have accepted the seller's delivery is his intimation to the seller that he has accepted the goods (s. 35(1)(a)). However, any word or conduct made by the buyer will amount to an intimation of acceptance only when he has had a reasonable opportunity to examine them.[215] This method of acceptance includes not only cases of express intimation, but also those where it may be inferred from the buyer's conduct, although such an intimation of acceptance must be clear.[216] For this reason, in Varley v. Whipp,[217] the buyer's "grumbling" letter requesting the seller to arrange a meeting with him in order to discuss the dispute and find a solution was held not to be an acceptance, though there was no express statement of intention to reject.

     (II) Act Inconsistent with Seller's Ownership. The second statutory method by which the buyer may be taken to have accepted the seller's delivery is where after the seller has delivered the goods, he has done an act which is inconsistent with the seller's ownership [218] (s. 35(1)(b)). The buyer will only lose his right under this method where he has had a reasonable opportunity to examine the goods.[219] Case law suggests that acts such as selling the goods or other dispositions of them may be treated as acts inconsistent with the seller's ownership. Similarly, consumption of the goods by the buyer or using them in a way which makes the physical return of the goods impossible could be placed into this category.[220] However, the buyer is not to be taken to have accepted the non-conforming goods:

"merely because (a) he asks for, or agrees to, their repair by or under an arrangement with the seller, or (b) the goods are delivered to another under a sub-sale or other disposition."[221]

But, as the language of this new provision shows, the above provision applies to cases where the buyer has repaired the goods under the arrangement with the seller; it does not apply to cases where the buyer has tried to repair the goods or to have them repaired without making any agreement or arrangement with the seller.

It might at first be argued that since the goods have not actually been delivered to the buyer, the case did not come under the heading of the phrase "acts inconsistent with the seller's ownership." However, the answer seems arguable. It is true that the goods actually have not been delivered, but the documents representing the goods had, and this would often amount to delivery of goods. Moreover, the goods might be regarded as having been delivered by being entrusted to a carrier.[222]

The courts, facing with the problem, answered the question by way of recognising two separate rights of rejection of documents and goods and distinguishing between these two rights.[223] Upon this, it is said that in the case of documentary sales, any disposition of the documents is only a disposition of the conditional property which the buyer had received, and that a pledge or sale of the documents does not amount to an act inconsistent with the seller's ownership within s. 35 of the 1979 Act. On this rule, a dealing with the documents might deprive the buyer of his right to reject the documents, but could not deprive him of the right to reject the goods.[224]

     (III) Lapse of Reasonable Time. The third method by which a buyer may be taken to have accepted the seller's non-conforming delivery is retention of the goods for more than a reasonable time without intimating to the seller that he has rejected them (s. 35(4)). In the absence of a contract time limit for rejection, the buyer will lose his right to reject after the lapse of a reasonable time. The rule has been justified on the grounds that there must come a time when the seller is entitled to regard the transaction as closed and assume that he is safe from a claim for a refund.[225]

What is reasonable is a question of fact depending on the circumstances of any particular case.[226] The court, in determining whether a reasonable time has elapsed will take into account different factors [227] including the nature of the goods, conduct of the parties, the custom of the particular trade, market conditions, and whether the buyer has had a reasonable time to examine the goods.[228]

Unlike the two other methods, this method is not subject to the qualification that the buyer must have an opportunity to examine before he has been taken to have accepted the seller's non-conforming delivery. The Act simply provides that, in assessing whether a reasonable time has elapsed, the court has to take into account whether the buyer has had a reasonable opportunity of examining the goods,[229] but it does not absolutely prevent a finding that the buyer has accepted despite his not having had a reasonable opportunity to examine.[230]

     (IV) Conclusion. As a conclusion, under the first two methods, the buyer is not deemed to have accepted the goods until he has had a reasonable opportunity of examining them at the place contemplated for the examination of the goods for the purpose of ascertaining whether they are in conformity with the contract, or, in the case of a contract for sale by sample, of comparing the bulk with the sample unless the right of examination has been exercised, or waived in accordance with the general principles. However, under the third method, the question whether he has had such an opportunity is material only in determining whether a reasonable time has elapsed. But, in all three cases, it is the opportunity of discovering the defect, rather than its actual discovery, which is the crucial factor, so that a buyer may be deemed as having "accepted" before discovering the truth.[231]

Accordingly, the doctrine of acceptance comes into play even where the buyer has been unaware of his right to reject and the facts giving rise to the right.[232] Similarly, it is not necessary for the seller to know of the buyer's acts or to have detrimentally relied on, or altered his position in consequence of the buyer's behaviour.[233] But it would be sufficient if the buyer's behaviour objectively demonstrates that he wishes to elect his remedy only in damages.

3.2.2.3. Effects of Acceptance

By virtue of s. 11(4) of the Sale of Goods Act, where a buyer has expressly accepted, or is taken to have accepted non-conforming goods or part of them he will lose his right to reject them and to terminate the contract. However, this general rule is subject to the overriding provision of s. 35A, which gives the buyer a right of partial rejection. Under this provision, where the buyer who "has the right to reject the goods by reason of a breach on the part of the seller that affects some or all of them"[234] accepts some of them, he will not lose the right to reject the rest (s. 35A(1)). The restriction is, however, subject to the qualification that the goods unaffected by the breach were included in those goods he has accepted. On this provision, where all of the goods delivered by the seller are affected by the breach, the buyer has an option either to choose to reject some or all of them, but in a case where the seller has delivered goods only part of which do not conform to the contract he may (1) reject all of the goods, or (2) reject some or all of defective goods and keep those which conform to the contract.

Similarly, where the contract is severable the buyer will not be prevented from rejecting the goods delivered in one instalment simply because he has accepted a previous instalment. Therefore, the buyer can reject an individual defective instalment, either on general principle prescribed under s. 11(4) or by virtue of the right of partial rejection provided in s. 35A. In addition, the right of partial rejection under s. 35A applies to each instalment of a severable contract and, as a result, the buyer will have the same options he has in respect of non-severable contract. That is, where the whole instalment is affected by the breach, he has the option either to reject all or reject some and accept the remainder. In a case where only some of the goods in an individual instalment are defective, he may reject some or all of those affected by the breach and keep the remainder.

Accordingly, under the current provisions, the question of acceptance will only arise in respect of the very goods accepted. Thus, in a non-severable contract, the buyer who has accepted the goods cannot reject them and the buyer who has accepted a part or an instalment of the goods cannot reject that part or that instalment. In short, the buyer will only lose his right to reject by accepting all of the goods, or by accepting goods included in the same "commercial unit,"[235] or (in the case of the severable contract), by accepting the non-conforming goods which he could otherwise have rejected.

4. Effects of Termination

Sale of goods legislation does not provide particular provisions regulating the effects which follow from termination of the contract. Accordingly, the question is to be answered in accordance with the general law of contract. In general, when election of termination for breach of contract validly takes place, it affects both the contract and relations of the parties from that time.

4.1. Effects on the Contract

One of the general questions which is often discussed in each legal system, in particular in civil law systems, is whether termination has retrospective or prospective effects on the contract. With respect to English law, it is usually said that it is a general rule of the English law of contract that termination of the contract by the innocent party on the footing of the other party's breach operates prospectively and not retrospectively.[236] Retrospective effects are confined to the cases where the contract is rescinded on account of invalidating matters such as mistake and misrepresentation. For this reason, it is said that by termination of the contract on the basis of breach, only future primary obligations are discharged, and that even the aggrieved party remains liable in damages for his own pre-termination breaches.[237]

Illustration of such an effect of termination can be found in a severable contract in the meaning already discussed. Suppose, for example, that the seller breaches the contract in respect of one or more deliveries; in that case, the buyer may be entitled to terminate the contract in relation to the future deliveries without affecting deliveries already made. Thus, it is clear that termination in such a case does not affect the whole contract, but only part of it.[238]

4.2. Effects on Rights and Obligations

Generally speaking, a valid termination of the contract releases not only the victim of breach but also the party in breach from their primary obligations to perform in the future.[239] However, the defaulting party is not totally discharged from any liabilities, but may be liable to pay damages [240] and that liability may relate both to breaches committed before termination and to losses suffered by the injured party as a result of the defaulting party's repudiation of future obligations.[241]

One explanation of the survival of the right to damages draws on a distinction between primary and secondary contractual obligations.[242] The breach of a primary contractual obligation, that is, the failure to perform a duty expressly or impliedly created by the contract, gives rise to a secondary obligation to pay damages. This secondary obligation will arise by operation of law unless the contract itself deals with the matter.[243]

1. Withholding Performance

1.1 Introduction

1.1.1. Concept of the Right

Withholding performance under the Convention, as in English law, means that the buyer is entitled to refuse to perform his obligation without being required or even being entitled to terminate [avoid] the contract. Obviously, if the requisites for the latter remedy are met and the buyer, before fulfilling his obligations, has declared the contract avoided in accordance with Arts. 49, 51, 72 or 73 of the Convention, he is no longer obliged to perform his obligations (Art. 81(1)). But such requisites may not be met or the buyer may not wish to declare the contract terminated, but rather demand goods fully conforming with the contract.

In the provisions regulating the buyer's remedies for seller's breach, although the Convention gives specific rights to withhold performance in certain cases, it does not make a general statement that the buyer is entitled to withhold performance of his obligations.[244] The question is, therefore, whether the buyer has a general right to withhold performance of his obligations under the contract where the seller has performed his delivery obligations in a way which does not correspond with the contract or the Convention.

In this respect, some commentators have tried to infer from the Convention's provisions that the buyer should be given a general right to refuse to take delivery.[245] But it seems that they have failed to distinguish between the buyer's right to refuse to recognise goods the seller delivers as the contract goods and his right to refuse to take delivery and, consequently, they have relied on the provisions which concern the former rather than the latter. It is probably for the reason that the Convention does not expressly impose, as English law does, on the buyer a duty to accept what the seller delivers as the contract goods. It is, however, proposed to examine these two possible rights separately. Although in practice both may often arise at the same time, in some cases, the right to refuse to accept arises where the buyer has already performed his duty to take over the goods as defined in Art. 60.

1.1.2. Importance of the Right

From the buyer's point of view, the existence of the right to refuse to recognise the goods offered as the contract goods seems important, since the buyer will thus be entitled to resort to the remedies provided under Art. 46(2) or (3). But what significance follows from the right to refuse to take delivery? It seems that the existence of the right to refuse to take delivery would also be significant for the buyer, not only in respect of the link between delivery and payment (Art. 58(1), (2)), but also in regard to the passing of the risk (at least where the case falls into the scope of Art. 69). That is to say, as long as the seller does not deliver the goods in accordance with the contract and the Convention, the buyer can refuse to take delivery and thereby return the risk to the seller. The seller would face delay, and in order to avoid the undesirable consequences of delay, he would strengthen his efforts to perform. Since taking delivery and payment of the price generally are linked, the buyer would have the further advantages of paying later and not for non-conforming goods, for the seller who wants to obtain payment must take action against the buyer.

More importantly, the right will be significant where the seller fails to fulfil his obligations with respect to the place of delivery (Art. 31),[246] or to specify the goods by notice (Art. 32(1)).[247] The significance of the right is for the reason that the remedy prescribed under Art. 46(2), (3) does not apply here, since it only relates to the seller's obligation to deliver conforming goods under Art. 35 and probably Arts. 41 and 42. In such cases, if the buyer has such a right he can refuse to take delivery and subsequently require performance according to Art. 46(1), and fix an additional period of time in accordance with Art. 47(1).[248]

The remedy will also be significant for the buyer where the seller partially or fully fails to perform his obligations relating to the quantity, quality and other description required by the contract (Art. 35) or fails to fulfil his duty under Arts. 41 and 42, that is where the goods delivered are not free of the rights or claims of third parties. In such cases, the right to refuse to take delivery would be useful for the buyer where he wishes to require the seller to repair the non-conformity under Art. 46(3). In such situations, the buyer can, if he is entitled, by turning the risk of the goods to the seller persuade him to cure the non-conformity as quickly as possible. Accordingly, in the case of the seller's failure to deliver goods in accordance with Arts. 35, 41 and 42, the buyer is not required to take delivery of them in order to have them cured later, but he can refuse to take delivery until cure is made.

Having considered the concept and importance of the remedy, the following discussion will try first to answer the question whether the Convention has recognised a general right to withhold performance and then to ascertain how the given right will work in different types of failure by the seller to perform his obligations.

1.2. Withholding Performance as a General Right?

A close examination of the Convention provisions clearly shows, it is suggested, that the Convention has recognised the right to withhold performance for an aggrieved buyer in some occasions. However, in some cases the Convention has expressly applied the rule and in others it has impliedly recognised it.

1.2.1. Prospective Non-Performance

The Convention has expressly applied the right to withhold performance in Art. 71(1) under the heading of the right to "suspend the performance of obligations."[249] Under this provision, whenever it is apparent that a party, say the seller, will not be able to deliver goods or documents, the buyer is given a right to suspend the required steps leading to payment, such as the establishment of a letter of credit (Art. 54). However, the provision comes into operation only where it becomes apparent that the seller is about to commit non-performance of a substantial part of his obligations;[250] it does not concern where the seller has performed his delivery obligations in a way which does not correspond with the contract requirements.

For the provision to be applied, certain requirements are to be satisfied.

1.2.2. Actual Non-Performance

The right to withhold performance is also impliedly recognised by Art. 58(1)[251] of the Convention. Under this provision, where the contract is silent as to the time of payment, the buyer is under the duty to pay only when the seller places the goods or the documents controlling their disposition at the disposal of the buyer. Hence, where the seller has failed to place the goods or documents at the buyer's disposal, the latter is entitled to refuse to pay as long as the seller's failure continues.

Similarly, it seems that the Convention has also accepted the right to withhold performance where the seller has delivered non-conforming goods. In that event, the buyer is impliedl