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Published in Lomnicka / Morse ed., Contemporary Issues in Commercial Law (Essays in honor of Prof. A.G. Guest), Sweet & Maxwell: London (1997) 137-160. Reproduced with permission of the author.

Termination for Breach of Contract in C.I.F. Contracts Under the Vienna Convention [1] and English Law; Is There a Substantial Difference?

Alastair C.L. Mullis [*]

[INTRODUCTION]

The view of the learned editors of Benjamin's Sale of Goods as to the inadvisability of ratifying the Vienna Convention on Contracts for the International Sale of Goods is well known. In the preface to the fourth edition of Benjamin's Sale of Goods, Professor Guest commented that; "... the Convention is not well adapted to sales on c.i.f., f.o.b. and other terms common in overseas sales, and its often vague or open-textured terminology would, if it were to displace the present relatively settled English judge-made rules governing contracts on such terms, be a source of considerable (and regrettable) uncertainty."[2] Professor Treitel was equally dismissive,"... the Convention ... does not specifically deal with standard types of overseas sales (such as c.i.f. or f.o.b. contracts) while at the same time [it lays] down general rules which if applied to such contracts, would produce one of two effects. They would either produce results significantly different from those produced by the present English rules governing such sales, or (because of the lack of precision with which the Convention is drafted) cause considerable uncertainty in areas in which the present rules of English law lead to clear and easily predictable results."[3] Though at least one of the editors of Benjamin has said elsewhere that he would, subject to a number of reservations, be in favour of ratifying the Convention 'as soon as possible',[4] the view of the majority is clear; the Convention is likely to lead to uncertainty, is not well suited to contracts concluded using standard trade terms and, therefore, the United Kingdom should not ratify.

Notwithstanding the respect that such opinions deserve, it is of course the case that the United Kingdom finds itself in the position of odd-man out in not having ratified the Convention. Some 46 countries have now ratified the Convention including most of the member states of the European Union, many of the United Kingdom's important trading partners and several of the world's leading trading nations.[5] Trade between companies on mainland Europe will increasingly be governed by the Convention; as will most sales contracts concluded between companies in Europe and those in the former socialist countries of Eastern Europe. The Convention is also likely to apply, unless excluded, to sales between companies within the E.F.T.A. and E.U. states and the N.A.F.T.A.[6] states.[7] Not only is it likely, given the widespread adoption of the Convention, that United Kingdom companies negotiating sales contracts with foreign companies will be pressed to chose as the applicable law the law of a state that has ratified the Convention, but it is surely also just a matter of time before a dispute involving a United Kingdom company is determined, by the rules of private international law of the forum state, to be governed by the laws of a state which has incorporated the Convention.[8]

It appears therefore that the United Kingdom is out of step with many of her important trading partners. Yet, still some of the leading academics remain implacably opposed to adoption largely on the grounds that it will engender uncertainty and is unsuitable for standard term contracts in common use in international trade.[9] Most concern has been expressed in relation to the remedial provisions of the Convention which are in some respects different to English law. The purpose of this article is to examine, in the context of c.i.f. contracts,[10] one of the most important weapons in the buyer's armoury of remedies, namely the right of a buyer to terminate the contract for breach. The different 'techniques' adopted by the Vienna Convention and English law will be considered in relation to five commonly recurring 'problems' in order to ascertain whether such differences as do exist between the two systems are likely to lead to substantial differences in result. Additionally consideration will be given to the claim that while English law's rules on termination for breach in the context of c.i.f. contracts lead to 'clear and easily predictable results', adoption of the Convention would cause considerable uncertainty. Before the rules on termination for breach are considered some preliminary comments will be made about the need for certainty in international sales of commodities and the general structure of remedies available to the buyer under English law and under the Convention.

COMMODITY SALES AND THE COMMERCIAL NEED FOR CERTAINTY [11]

As Professor Reynolds has pointed out, international sales to a common lawyer does not bring to mind, "disputes concerning consignments of shoes sent from Italy to England or Germany, nor sales of tractors by salesmen from developed countries to Nusquamian peasants nor whether a contract involving supply of heavy plant for construction is or is not a contract of sale."[12] When an English lawyer thinks of international sales he thinks of documentary sales of commodities, carried by sea and sold on c.i.f. or f.o.b. terms. Indeed, it is primarily in relation to the latter type of contract that the English law of international trade has been developed. Trade in commodities involves different considerations and raises fundamentally different concerns for the contracting parties than does trade in machinery and other capital goods. Once the basic differences between the two are understood, the reasons for English law's focus on the need for certainty can, at least so far as the documents are concerned, be understood. While other differences undoubtedly exist, two of particular importance will be mentioned.

First, as Professor Bridge has pointed out, "a striking feature of many areas of international commodity sales is the way that the volume of paper trading greatly exceeds the volume of dealings in the underlying goods."[13] It does not take 100 contracts to get soya bean meal from the United States to Europe yet as was demonstrated by the cases arising out of the Mississippi Floods in 1973 such is often the case. Only the end-buyer will ever intend to take physical delivery of the goods; the intermediate buyers deal in documents.[14] Where such 'string trading'[15] exists, the intermediate parties primary interest in the contract is as a financial speculation. Commodity traders may enter into a wide range of buying and selling obligations and when the time for performance approaches they engage in a "complex managerial process of stitching together their various purchase and resale commitments."[16] This activity may take place in active market conditions where time is frequently of the essence. Where such dealing goes on, actual physical performance is not the traders' (save of course for the end-buyer) primary concern. Such contracts can be contrasted with contracts for the sale of complex machinery. Parties to such contracts are interested primarily in physical performance. The buyer, for example, may need the machinery to build the widgets his factory produces. While documents may be required in such cases, they are of secondary importance. Further, while time of delivery may be important it is unlikely to have the overriding importance attached to it in the 'paper trading' of commodities.

Secondly, notwithstanding the important role that speculators play in avoiding wild fluctuations in the prices of commodities,[17] commodity prices are often subject to rapid fluctuation.[18] While prices of machinery and other related goods may fluctuate, such fluctuations are likely to be more predictable and less dramatic. Further, where the machine delivered is defective any loss is likely to depend far less on fluctuations in the market value than on the individual situation of the buyer. The position is reversed in the case of commodity transactions.[19]

It is against that background that the need for certainty has to be considered. As has been mentioned, sales of commodities are usually concluded on c.i.f. or f.o.b. terms.[20] The c.i.f. contract is a type of sales contract where, although physical delivery is contemplated, the contract is performed by the delivery of documents.[21] Once a seller has agreed to sell on c.i.f. terms he will usually have to "perform in, broadly, two stages. First, the seller will have to supply information concerning the cargo which is being appropriated to the particular contract ... Secondly, the seller will have to tender the corresponding shipping documents."[22] Where, as is commonly the case, the parties are 'in string'[23], these documents will have to be passed down the 'string until they reach the end-buyer. Because commodity markets fluctuate rapidly, the contracts entered into are likely to require that time limits are placed on the tendering and passing on of the notices and documents. If intermediate traders are not to be allowed, "by holding onto notices of appropriation, [to] speculate in the markets at the expense of their buyers by making unduly favourable matches of supply and resale contracts"[24] then these time limits must be strictly complied with. Further, because of the short time within which these documents must be considered and passed on, it is obviously important that a buyer should be able to determine his rights immediately he becomes aware of any discrepancy in the documents. This important commercial decision whether to refuse the tender should not be complicated by asking the buyer to consider what the likely effect of any loss will be.

For the sale of machinery and related goods, it is suggested that rather more lenient rules may be suitable. Where the time of delivery is, unusually, of critical importance this will be because of the individual position of the buyer and not because of the danger of market fluctuations. Unless the buyer draws this to the seller's attention, there will probably be nothing to put the seller on notice. Time will, therefore, only rarely be of the essence in such contracts. Further, unlike the sale of commodities where the same cargo is sold many times over, contracts for the sale of manufactured goods will more usually involve two parties only; the buyer and the seller. As such, even if the sale is on c.i.f. terms, the buyer's main concern will be with the goods. In particular, can he use them for the purpose he had in mind? Exact compliance of the goods may not be necessary. Of course, in this respect the position of the buyer of machinery is arguably no different to the position of the end-buyer of commodities.

Prior to examining the different approaches to termination for breach under English law and under the Convention, an outline will be given of the remedies available to the buyer under English law and under the Convention.

AN OUTLINE OF REMEDIES AVAILABLE TO THE BUYER UNDER ENGLISH LAW AND UNDER THE CONVENTION

The two primary remedies for breach of contract in English law are a right to treat the contract as terminated and damages. The right of a buyer to treat the contract as terminated can be exercised in two situations. First, where the term broken by the seller is a condition of the contract. In such a case, the buyer is entitled to treat the contract as discharged even where the breach of term is only slight [25] (subject to s15A Sale of Goods Act 1979 [26]). Thus, the buyer will be entitled to terminate the contract where, for example, the goods are shipped outside the shipment period [27] or where the shipping documents are tendered late [28] even where the shipment or tender is only one day late. Secondly, the innocent party will be entitled to treat the contract as discharged if the other party's breach of an intermediate term deprives him 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 these undertakings."[29] The right to treat the contract as discharged may be lost either by election, waiver [30] or by acceptance.[31] In the case of any breach of contract, the innocent party is entitled to claim damages.

In theory at least, the buyer may be entitled to an award of specific performance. In a typical sale of commodities, however, the buyer will almost never be awarded, or for that matter want, specific performance. Specific performance tends to be available to the buyer only where the goods are unique [32] and in any event are only available at the discretion of the court.[33]

It has been asserted that [34] the rules of English law in relation to breach are generally clear and lead, in most cases, to relatively predictable results. In some respects this is true. There is, as one might expect, a considerable body of case law classifying express terms in the standard form commodity contracts as either conditions, warranties or intermediate terms. Because such contracts have not changed very much over the last 100 years, the law relating to most of the common provisions is relatively well settled. Thus, it is true to say that a businessman would in respect of the breach of many terms know immediately what his rights were. However, how much of this certainty is due to the fact that there is over 100 years of case law on the meaning and classification of terms in c.i.f. contracts and how much to the intrinsic excellence and clarity of the approach adopted by the courts for distinguishing between the different types of terms is unclear. A businessman and his advisers are not faced with an easy task when asked to predict how an English court will classify an 'unclassified' term.[35] Further, the possibility that a court may classify a term as 'intermediate, even in the international trade context, does nothing to make the businessman's task easier.[36]Nor will it be easy, where a term is classified as intermediate, to say when one party has been deprived of substantially the whole benefit which it was intended he would receive. Yet, if the law relating to the classification of terms is by no means clear, the law relating to election and waiver is even less so. It is beyond the scope of this article to look at the difficulties presented by, in particular waiver, but as Professor Reynolds has pointed out, it is difficult to believe that adoption of the rule under the Convention that a contract may be modified merely by agreement [37] would do other than, "assist in the development of the law, which has long been moving in that direction anyway."[38]

The approach adopted by the Convention to remedies is rather different approach to that of the common law. The first remedy mentioned is that of compelling performance [39] and to that extent the Convention adopts the general civil law principle that an injured party is entitled to require performance.[40] However, article 28 provides a let out which is likely to be of considerable importance in practice, particularly in sales of commodities or other 'fungible' goods. If, in respect of breach of particular contracts of sale, a court would not under its own law be bound to enter a judgment for specific performance then it will not in respect of similar contracts be bound to enter a judgment for specific performance under the Convention.

Under the Convention the buyer can declare the contract avoided (treat the contract as discharged) either, where the seller's failure to perform amounts to a 'fundamental breach of contract'[41] or, where the breach is one of non-performance and the seller fails to perform within the additional period of time provided for in article 47(1).[42] So far as the latter right is concerned, article 47(1) is designed to overcome the difficulty that late delivery may not be sufficiently late to allow the buyer to treat it as a fundamental breach. By fixing an additional period of time, as provided for in those provisions, the buyer can make 'time of the essence' so that a failure to perform within the additional period allows him to avoid the contract.

More controversial to English lawyers is the concept of 'fundamental breach'. A breach is fundamental if "it results in such detriment to the other party as substantially to deprive him of what he is entitled to expect under the contract, unless the party in breach did not foresee and a reasonable person of the same kind in the same circumstances would not have foreseen such a result."[43] How the concept might work in the context of c.i.f. contracts will be considered later. At this stage, a couple of general comments will be made. First, it undoubtedly does not have the predictability and certainty that the English 'condition' technique has. As Professor Treitel has commented, "It is open to criticism on the ground that it is likely to lead to uncertainty since the open-textured nature of the definition in article 25 makes it hard to predict just when a breach will be regarded as 'fundamental'."[44] Secondly, it is also less favourable to the buyer than the automatic right of rejection that English law gives in the case of a breach of express terms classified as conditions.[45] But, like the intermediate term 'technique', it does at least have the advantage that it seeks to achieve a just result between the parties by restricting the right of avoidance to cases of fundamental breach. By enacting s15A of the Sale of Goods Act 1979, Parliament has conceded that the automatic right to reject for breach of condition does not always achieve a just result. Thus, at least in respect of some breaches, the demands of 'justice' trump the demands of commercial certainty even in English law. But, as has been mentioned, in the context of international sales if one party is not to be allowed to speculate at another's expense, then 'justice' can only be promoted by very strict termination rights. While it is almost undoubtedly the case that English law will, notwithstanding s15A, continue to allow automatic termination at least where defects in the documents are concerned, more doubt must be expressed about whether the Convention is sufficiently flexible to cope with such problems. This will be considered below.

The Convention also lays considerable emphasis on the prompt exercise of rights.[46] Failure by the buyer to give notice specifying the nature of the lack of conformity within a reasonable time after he has discovered it or ought to have discovered it,[47] means that he loses his right to rely on the lack of conformity.[48] In any event, the buyer loses his right to rely on lack of conformity if he fails to give notice within two years from the date on which the goods were handed over to to the buyer.[49] Though these provisions are subject to exceptions,[50] their effect is dramatic. While acceptance [51] of the goods (or documents) in English law only causes the buyer to lose his right to reject them, failure to give notice of lack of conformity under the Convention causes the buyer to lose his right to any claim.[52] Early cases on the Convention,[53] and many of the cases on ULIS and ULFIS suggest that this is likely to cause traders some considerable trouble.[54] However, there is much to be said for the strictness of the requirements and it is difficult to see it causing those who trade on documentary terms much problem. If time really is so important in such transactions, then the parties can have little excuse for sleeping on their rights. In any event, it cannot be said that the common law rules on loss of the right to reject are much clearer.

While it is suggested that avoidance and damages [55] are likely to be the remedies most commonly resorted to by buyers, the Convention also makes provision, in addition to specific performance, for several other remedies. Some of these, such as the right to reduce the price [56] and, in the case of any disconformity, to require repair [57] are not known to English law and are not likely to be of much importance in relation to international sales on documentary terms. In respect of other remedies, the approach adopted by the Convention is almost identical to that adopted by English law. Thus, the right to declare the contract avoided where it is clear that the other party will commit a fundamental breach is almost identical in scope to the English doctrine of anticipatory breach.[58] Some remedies, "represent the adoption of rules which have been considered and in some cases adopted, as reforms to the existing common law sales regime."[59] Thus, the approach adopted by the Convention to partial and excessive performance [60] is broadly similar to the rights of partial rejection available to the buyer by virtue of sections 30(1), 30(2) and 35A of the Sale of Goods Act 1979.[61] The right to suspend performance is one response to the perennial problem faced by buyers when doubtful about the seller's ability to perform. Although no general right to suspend performance is recognised by English law,[62] a similar right does exist under the Uniform Commercial Code.[63] This provision was the subject of much debate at Vienna [64] and will undoubtedly give rise to difficulties in interpretation.[65] Finally, there are provisions dealing with the effect of avoidance [66] and the preservation of goods.[67] The provisions on preservation of goods are unknown to English law but such omission is surely a defect. So far as the provisions on the effects of avoidance these achieve broadly the same effect as would be achieved in English law except that article 81(2) makes generous provision for restitution where the contract has been performed wholly or in part.

The existence of so many remedies under the Convention undoubtedly complicates the picture [68] and it is certainly the case that the exact relationship between several of the remedies (for example, that between articles 71 and 72) will have to be worked out through litigation. Two points can, however, be made. First, many of the difficulties which might arise in respect to particular remedies and the inter-relationship between others are simply unlikely to arise in the context of the international sale of commodities. Those buying commodities are very unlikely to want repair or specific performance in the event of breach. Secondly, the existence of so many remedies can be justified because of the different types of goods that are traded internationally. The remedies appropriate, and the circumstances in which they are available, for the sale of complex, custom-made machinery are unlikely to appropriate for the sale of commodities. As Hellner has pointed out, "The avoidance of [a contract for complex machinery] will hurt the seller very badly and often will not be very advantageous to the buyer either, who may then have to wait a long time for the delivery of another machine. For this reason, avoidance is not a suitable remedy except in extreme cases."[69] By way of contrast, where the subject matter of the sale is commodities the seller, in the case of avoidance by the buyer, can usually sell elsewhere without great difficulty. The pressure not to allow avoidance is, therefore, rather less. Yet, in sales of complex machinery the remedies of repair [70] and the extensive rights of cure allowed for by article 48 may be wholly appropriate.[71] In the case of the sale of such goods the most important remedy is undoubtedly the duty of the seller to remedy the defect.

Even if the Convention's battery of remedies makes it suitable for sales of machinery and such like, its ability to cope with international sales on standard trade terms might still be questioned. In the final part of this article the buyer's rights to terminate a c.i.f. contract, where either the goods or the documents or both do not conform, will be considered under both the Convention and English law. In particular, consideration will be given to two questions. First, whether the results reached by English law and the Convention to certain commonly recurring questions are likely to be different and, secondly, whether the approach of the Convention is substantially less certain than that of English law.

TERMINATION FOR BREACH UNDER ENGLISH LAW AND THE CONVENTION

As has already been mentioned much of the English law on the international sale of goods was developed in relation to the 'documentary sales' of commodities. In particular there is considerable case law on two common forms of international trade term, namely the c.i.f. and the f.o.b. contract. Although, the f.o.b. term is rather more flexible than the c.i.f. term,[72] both terms have well recognised meanings in English law.[73] The essential feature of the c.i.f. contract is that the seller, once he has shipped goods or bought goods afloat, performs the contract by tendering conforming documents to the buyer. It is thus a contract for the sale of goods performed by the delivery of documents.[74] Unlike a domestic sales contract, therefore, a c.i.f. seller has a duality of obligations imposed on him.[75] In addition to 'delivering' the contract goods, he must also 'deliver' the documents. His obligations are thus both physical and documentary. There is no statutory definition of c.i.f. in English law; its terms have been worked out judicially.[76]

The Vienna Convention does not define either c.i.f. or f.o.b. contract and this is, it is suggested, not surprising. Both c.i.f. and f.o.b. terms are "outgrowth[s] of custom and usages of merchants."[77] They are not immutable, fixed for all time in meaning, but are subject to change in light of changes in commercial practices. Further, the c.i.f. and the f.o.b. trade term are not the only 'standard trade terms' but are merely two, admittedly very commonly used, of many.[78] To attempt to have fixed the meaning of such terms in a document such as the Convention which is not easily changeable would have been an error. Having said that, if these trade terms are not defined in the Convention how is a court applying the Convention to interpret these standard trade terms? Should it, for example, treat the Convention as applicable to contracts which use the term c.i.f. even so far as those questions which would under the common law be governed by the obligations indicated in c.i.f.[79] or should it treat the use of the term c.i.f. as impliedly excluding the Convention?[80] The question is one of some considerable difficulty but for the purposes of exposition, the former approach will be adopted here.[81]

As was mentioned earlier, the seller in a c.i.f. contract has a duality of obligations; the 'physical' obligations and the 'documentary' obligations. In broad terms, the physical obligations require the seller to deliver the contractual goods 'on board' in accordance with the terms of the contract or to buy goods afloat which match the contractual description. The documentary obligations require the seller to procure and tender to the buyer the documents stipulated for in the contract. In the absence of a provision in the contract to the contrary, these should include a bill of lading, an insurance policy and an invoice.[82] These documents are required to be tendered in the proper form as a condition to obtaining payment. The seller may fail to perform one or both of these obligations and under English law a buyer may have a right to reject in respect of any such failure. Thus, if the seller tenders defective documents, the buyer can reject them. So too, if the goods on arrival are not in accordance with the contract, the buyer may be able to reject them.

The fact that the buyer has accepted documents, even if those documents are in fact defective, does not thereafter preclude him from rejecting the goods. Where there are breaches of both the physical and the documentary obligations, this gives rise to two distinct [83] right to reject. As Devlin J. said in Kwei Tek Chao v. British Traders and Shippers Ltd.,[84] "[The physical and documentary obligations] are distinct obligations and the right to reject the documents arises when the documents are tendered, and the right to reject the goods arises when they are landed and when after examination they are found not to be in conformity with the contract."[85] Thus, subject to waiver,[86] the acceptance of defective documents will not preclude the right to reject non-conforming goods.

The position of the buyer under the Vienna Convention is, it is suggested, broadly similar. Article 30 requires the seller to "deliver the goods [and] hand over any documents relating to them" and thus recognises that the contract may impose separate obligations in relation to documents and goods on the seller. Article 49(1)(a) entitles the buyer to avoid the contract if the failure by the seller to perform "any of his obligations under the contract amounts to a fundamental breach of contract". Failure by the seller to perform either the physical or documentary duties or both would, therefore, subject to the breach being fundamental, entitle the buyer to avoid the contract. Even if the goods are in accordance with the contract, the buyer may still be entitled to reject the documents if they do not comply with the contract.[87] Thus, a buyer may be able to avoid the contract where the bill of lading is dated outside the shipment period even if the goods were in fact shipped within that period. Such a document is not 'in the form' required by the contract.[88] Subject to waiver,[89] a buyer who accepts defective documents can, it is suggested, still avoid the contract where the seller has also committed a fundamental breach in respect of the goods. Thus, late shipment by the seller if concealed by misdating of the bill of lading may give rise to a right to avoid the contract either on the ground that the documents are non-genuine [90] or non-conformity of the goods.[91]

The right to reject goods

C.i.f. buyers are usually required to pay against the tender of documents before they have had an opportunity to inspect the goods. A buyer cannot under English law refuse to pay until he has seen and inspected goods [92] and if he does so the seller can treat his refusal to pay as a repudiatory breach.[93] However, even where a buyer has paid against conforming documents he does not thereby lose his right to reject the goods for non-conformity.[94] Thus, where, for example, the documents tendered by the seller stated that the goods were shipped in 'apparent good order and condition' but the goods on arrival were discovered to be defective, having deteriorated en route because they were unfit to endure a normal transit the buyer would still be entitled to reject the goods.[95]

Under the Convention the duty to pay arises, "when the seller places either the goods or documents controlling their disposition at the buyer's disposal.[96] In the case of a c.i.f. contract that would mean that the buyer should, subject to contrary agreement, pay against the documents. However, under the Convention [97] the buyer does not have to pay the price until he has had an opportunity to examine the goods, "unless the procedures for delivery or payment agreed upon by the parties are inconsistent with his having such an opportunity."[98] It is argued that this rule will be displaced in a c.i.f. contract because in such a case it is usual (though this is not invariably the case) for the documents to be tendered before the vessel arrives. As such, the usual procedures for payment in a c.i.f. contract are inconsistent with the buyer having a right of examination before payment. However, where the buyer accepts 'defective' documents, he does not lose his right to avoid the contract in respect of any defects in the goods. The buyer's rights of avoidance with regard to the documents and the goods are separate and, subject to waiver, the loss of one right does not preclude loss of the other.

It is beyond the scope of this article to consider in any detail the grounds on which a buyer can reject goods in English law. However, two general issues of particular importance in international sales will be considered. First, English courts apparent strict insistence that the goods match their contractual description and, secondly, the impact, if any that s15A of the Sale of Goods 1979 may have in this area. Prior to the enactment of s15A Sale of Goods Act 1979, English courts interpreted the requirement that the goods must correspond with the contractual description[99] strictly and also construed 'description' widely.[100] The fact that the failure of the goods to correspond with the contractual description causes the buyer no significant, or indeed any, loss has generally been treated as irrelevant to the buyer's right to reject.[101] The demands of commercial certainty have been said to demand such an approach.[102] Although Lord Wilberforce in Reardon-Smith Line Ltd. v. Hansen Tangen [103] suggested that some of the case law was "excessively technical and due for fresh examination in this House",[104] he conceded that there may still be room for a strict approach to be taken in respect of international sales of unascertained goods.

While some room undoubtedly existed for argument as to whether particular descriptive words relating to the physical characteristics of the goods formed part of the description of the goods for the purposes of s13 [105], less room for manoeuvre existed in relation to time stipulations relating to the shipment of the goods. Since Bowes v. Shand,[106] it has been clear that stipulations as to the time and place of shipment form part of the description of the goods and failure to comply with such terms entitles the buyer to reject even where, as was the case in Bowes v. Shand itself, the late shipment caused the buyer no loss.

Against that background, is section 15A Sale of Goods Act 1979 [107] likely to have any impact on this area of law? Section 15A was added to the 1979 Sale of Goods Act by the Sale and Supply of Goods Act 1994 which in turn was intended to give effect to the proposals of the Law Commission.[108] In broad terms, the section prevents a buyer who does not deal as a consumer from rejecting for breach of the terms implied by sections 13, 14 and 15 of the 1979 Act, "if the breach is so slight that it would be unreasonable to allow him to do so."[109] The provision is intended to give effect to the Law Commission's view that rejection for trivial discrepancies should not as a matter of justice be allowed.[110] The section by its terms applies only to breaches of the terms implied by the Sale of Goods Act and it therefore leaves the law relating to breach of any express terms untouched. Further, it does not apply where a contrary intention "appears in, or is to be implied from, the contract."[111]

The impact section 15A of the Sale of Goods Act 1979 is likely to have in the context of c.i.f. sales is difficult to assess. Undoubtedly, it will do little to assist certainty and will probably do little to achieve justice. However, in an attempt to shed some light on the problem, its effect on the buyer's right to reject in four situations which commonly arise in international trade will be considered. Two of these problems will be considered in this section with the remaining two postponed until the right to reject the documents is considered. In relation to each problem the solution most likely under the Convention will also be considered to seek to determine whether the criticisms mentioned earlier are justified.

Defects in the physical characteristics of the goods; No documentary breach

Assume that S and B entered into a contract for the sale of wheat on c.i.f. terms. In performance of that contract the seller shipped goods which although shipped in apparent good order arrived in a deteriorated state. This was due to their being insufficiently durable to endure a normal transit.[112] The bill of lading issued to the seller and tendered to the buyer genuinely evidences that the goods were shipped in apparent good order and condition. On the assumption that the buyer accepted the documents, as he was obliged to, would section 15A apply if the breach was only slight? It is suggested that it would. On the assumption that the buyer was a non-consumer this is a case which falls clearly within s15A. The buyer would, apart from section 15A have had a right to reject the goods on the ground of a breach of s14(2). If the seller can show [113] that the breach was so slight that it was unreasonable for the buyer to be allowed to reject, then S15A provides that the breach is to be treated as a breach of warranty only. Where, as in this hypothetical, the only breach is in relation to the physical characteristics of the goods (there is no separate documentary breach) it is suggested that there is no reason in principle to allow the buyer to reject for a trivial defect. There is, it is suggested, no basis for treating all breaches of international sales contracts as 'subject to a contrary intention'. As has been mentioned, the purpose behind S15A was to "prevent rejection in bad faith, where the breach was really so insignificant that, as a matter of justice, rejection should not be permitted."[114] Such a policy applies with equal force whether the contract is a domestic commercial sales contract or an international one. If anything the economic efficiency argument against rejection is surely stronger in the case of overseas sales than it is in domestic sales.[115] Further, there can surely be no argument that refusing to allow rejection in such a case would in any way inconvenience international trade.[116] Of course, if the term broken is an express one relating to quality or condition rather than one implied by sections 13, 14 or 15 of the Sale of Goods Act 1979, then the buyer will continue to be justified in rejecting even for trivial breaches. It is not easy to see either the rationale or justice in such a distinction.

So far as the position under the Vienna Convention is concerned, the seller is under a duty to deliver goods which are of, "the quantity, quality and description required by the contract and which are contained or packaged in the manner required by the contract".[117] Where the goods do not conform the buyer will only be entitled to avoid the contract when the seller's failure to perform amounts to a fundamental breach of contract. In this situation,[118] it is suggested that application of the fundamental breach test is unlikely to produce an answer very different to that produced by English law. Once it is conceded that, in respect to the breach of certain terms, neither English law nor the Convention entitles the buyer to treat the contract as terminated for every breach then neither can be clamed to lead to greater certainty than the other. Undoubtedly English law is still more favourable to termination for slight breaches than the Convention, where substantial deprivation of that which the buyer was entitled to expect must be shown. But neither approach is intrisically more certain. Further, it is arguable that the Convention approach is more conducive of a just result than that of English law. As Professor Treitel has pointed out, at least the Convention has the merit of promoting justice in the sense that it restricts the right to avoid the contract to serious breaches.[119] English law does not even do that as it only excludes the right to reject in cases where the breach is 'so slight'.

Late shipment of goods; Misdated bill of lading

The second situation is somewhat more troublesome than the first. As in the first, S and B contract on c.i.f. terms for the sale of wheat. This time, however, the contract provides, inter alia, that the goods are to be shipped during March. In fact the goods are not shipped until April 1st but a bill of lading is issued dated March 31st. Unfortunately, the buyer does not become aware of this until just before the goods arrive and in the meantime he has taken up and paid for the documents. Can the buyer reject the goods in such a case?

Prior to the enactment of s15A, the answer to this question was clearly, 'Yes'. It was established in Bowes v. Shand [120] that stipulations as to the time of shipment form part of the description of the goods and that breach of such a stipulation entitled the buyer to reject even where the breach caused no loss. Does the enactment of s15A make any difference? It is probably the case that the Law Commission intended that section 15A should not apply to this situation and thus the law should remain unchanged. The Law Commission was clearly concerned about, what it perceived, to be the possibility of introducing uncertainty into this area of law and therefore indicated that, "any breach, however, slight, of [such a time clause] would give rise to a right to reject the goods and terminate of the contract."[121] However, it is not clear that the provision actually achieves that effect.

On the assumption that breach of a stipulation as to the time of shipment is a breach of section 13 of the Sale of Goods Act,[122] it is, at least prima facie, within s15A. Further, notwithstanding the views of the Law Commission, there may be good reasons for applying s15A to this situation. Once the buyer has taken up and paid for the documents, even if he did so in ignorance of his right to reject them, he has under English law lost his right to reject them. Arguments of commercial certainty may have great force in relation to the documents but do they still apply once the buyer has lost his right to reject the documents? It is suggested that while the right to reject the documents for trivial discrepancies may be justified [123] because of short time limits,[124] the interposition of banks in the process,[125] the undesirability of making the buyer accept documents which may be difficult to sell, and the market conditions under which the parties are dealing, it is difficult to see why those arguments should apply with equal force, or at all, where the issue of the right to reject the goods arises. When the right to reject the goods is being considered banks are no longer involved [126] and the time pressures are less. If the policy behind s15A of preventing rejection on unmeritorious grounds is to be supported it should surely apply just as much in this case as it did in the first. Rarely will there be any difference between the value of goods shipped on the last day of a month and the value of goods shipped a day or two later. If the seller can establish that that breach, objectively speaking, is so slight that the buyer should not be allowed to reject, then there are it is argued no good grounds for allowing the buyer to reject. Further, as was the case in the first example, applying section 15A to this situation [127] is unlikely to lead to uncertainty.[128] The effect of interpreting section 15A in the way suggested should reduce the cases where a buyer seeks to reject goods on trivial grounds. The real reason why buyers seek to escape from their contract in this situation is that the market is falling. It does little credit to English law that until the enactment of section 15A it has allowed a buyer to do so.

Under the Convention late shipment by the seller may be a breach of either Article 35(1)[129] or 33.[130] In either case, article 49(1)(a) gives the buyer the right to declare the contract avoided only if the breach is fundamental. It is suggested that the points made in relation to the first hypothetical in relation to the Convention would apply with equal force here. Thus, the buyer would only be able to reject where the late shipment was sufficiently late to deprive him of substantially that which he was entitled to expect under the contract. For the reasons given above, therefore, a court applying the Vienna Convention is unlikely to reach a radically different solution to a court applying English law.

Right to reject the documents

In English law a c.i.f. buyer is entitled to reject a tender of the shipping documents either where they are 'defective' or where they are tendered late.[132] Documents may be defective for a number of reasons. For example, a non-genuine bill of lading has been held to be a defective document,[132] as has a bill of lading which fails to provide the buyer with 'continuous documentary cover.[133] [134] In general, the seller's obligations with regard to the documents have been held to be strict. As Roskill L.J. said in The Hansa Nord, "The seller's obligation regarding documentation has long been made sacrosanct by the highest authority and ... the express or implied provisions in a c.i.f. contract in those respects [are] of the class ... any breach of which justified rejection."[135] The sacrosanct nature of the documentary obligations can be demonstrated by the fact that a c.i.f. buyer can reject documents which disclose a defect in the goods even where that defect in the goods would not itself justify rejection of the goods.[136] Notwithstanding this apparently clear statement of principle is there any room for allowing documents which are 'nearly alright' in any case? Two possibilities will be considered. First, whether the common law admits of any exception to the general rule and, secondly, whether s15A applies to documentary breaches and if so to what effect.

So far as the common law is concerned, it appears that there may be an exception to the requirement that the documents must be in all respects perfect. The exact scope of that exception is, however, far from clear. In Tradax Internacional S.A. v. Goldschmidt S.A. [137] sellers sold to the buyers 8,000 tonnes 5% more or less of White Syrian Barley on f.o.b. terms. The contract provided, inter alia, that the goods should contain no more than 4% foreign matters and that a certificate of quality had to be tendered with the other shipping documents. The sellers tendered the shipping documents to the buyers who rejected them on the ground that the certificate of quality showed 4.1% of foreign matters. It was conceded by the buyer that the provision as to impurities was not part of the description of the goods. Further, no condition implied by section 14 was relied on.[138] Slynn L.J. held that the buyer was not entitled to reject the documents on this ground. In his opinion, the certificate was not a defective document; "But here the certificate is a good certificate in that it does state what is the quality, what is the percentage of impurities. It shows that there was not a full compliance with the contractual term as to quality and it does what it was intended to do. It is a valid document ... capable of being transferred as part of a subsequent sale."[139]

The case is by no means an easy one and it is suggested that, particularly as a result of the enactment of s15A, it gives rise to a number of significant difficulties. Professor Treitel has explained the case in Benjamin as one where the certificate tendered was not a defective document.[140] A document, he argues, is not defective merely because it states that the goods contain a higher percentage of impurities than the contract allows for. It follows from this that the buyer cannot reject the documents merely because they disclose any defective condition of the goods. However, if the documents disclose a defect in the goods which amounts to a breach of condition (or a serious breach of an intermediate term) then the buyer can reject the documents for a defect in the goods; "the buyer is entitled to reject the documents, not because they are in themselves defective, but because they reveal a defect in the goods which justifies rejection of the goods."[141] As it was conceded in the Tradax Internacional S.A. v. Goldschmidt S.A. [142] case that the buyer could not reject the goods because no breach of a condition was alleged, the buyer clearly had no right to reject the documents. By way of contrast, in Vargas Pena Apeztieguia y Cia v. Peter Cremer G.m.b.H. [1987] 1 Lloyd's Rep 394 the buyer was entitled to reject documents which included a certificate of quality stating that the goods had a fat content in excess 15%. In that case, it was expressly provided in the contract that if a fat content of 15% was exceeded then the goods were 'rejectable at buyer's option'. The documents therefore disclosed a breach in the goods justifying their (i.e., the goods) rejection and therefore the buyer was entitled to reject the documents.

Prior to the enactment of s15A the approach taken in Tradax was unlikely to give rise to any particular difficulty. The enactment of s15A may, however, cause considerable difficulty. In order to see how, two further hypotheticals will be considered:

Defects in physical characteristics of the goods disclosed in the documents

S and B entered into a c.i.f. contract on terms that the goods shall contain no more than 4% impurities. The contract further provided for a certificate of quality to be tendered but made no provision that the certificate was to be final as to the quality of the goods. The seller tendered a certificate of quality which stated that the goods contained 4.1% impurities. Is the buyer entitled to reject the documents? Prior to the enactment of s15A, if the provision as to impurities had been classified as part of the description of the goods,[143] and therefore a condition of the contract, the buyer would have been entitled, on the basis of the principle in Tradax Internacional S.A. v. Goldschmidt S.A,[144] to reject the documents. Where the documents disclose a defect in the goods which would justify rejection of the goods then according to Tradax Internacional S.A. v. Goldschmidt S.A.[145] the buyer can reject the documents.

The position after the enactment of s15A may, however, be different. It is difficult to believe that a court would not reach the conclusion that a discrepancy of 0.1% in the impurity level of the goods is 'so slight', so that it would be unreasonable to allow the buyer to reject. If that is the case, then while the documents reveal a breach of condition, they also reveal that the breach is so slight that it would not be reasonable for the buyer to be allowed to reject. The conclusion should, therefore, be that the buyer could not in this case reject documents on account of the defects in the goods because there was no right to reject the goods. If this conclusion is correct, it is troubling indeed. If there is a need for certainty anywhere in international trade it is surely, for the reasons discussed above, in relation to the documents. It is, of course, likely that an English court, mindful of the commercial background, would conclude that the limitation on the right to reject is impliedly excluded in respect to documentary breaches. But, the wording of section 15A does not automatically lead to that conclusion.

Even if it is conceded that s15A may effect a change in the law in relation to the above hypothetical, greater doubt must be felt in relation to the final problem:

Late shipment disclosed in the documents

In this case, S and buyer entered into a contract which provided that the goods were to be shipped during March 1997. The contract contained no express provision as to the dating of the bill of lading. The goods were in fact shipped on April 1st and S tendered a bill of lading dated April 1st to B. Can B reject such a tender? The position prior to the enactment of s15A was, it is suggested, relatively clear. While the bill of lading may not,[146] per se, have been a defective document, in that it accurately recorded the date on which the goods were shipped, the buyer would have been entitled to reject the documents.[147] The bill of lading would in such a case disclose a late shipment of goods which, as we have seen, has been held to be breach of s13 of the Sale of Goods Act 1979. Thus, prior to the enactment of s15A the buyer could have rejected the documents because they disclosed a breach in respect of the goods which justified rejection.

Whether since the enactment of s15A, the buyer will always be entitled to reject the documents where the bill of lading discloses a late shipment is, it is suggested, less clear. If it is accepted that s15A may apply in respect of late shipments,[148] then on the basis of the analysis suggested in relation to third hypothetical, the buyer may not be entitled to reject the documents. If a bill of lading correctly dated outside the shipment period is not a defective document, then the buyer's right to reject the documents will depend upon whether he could reject the goods. Again, it is difficult to believe that a court could conclude other than that where the goods are shipped one day late, such a breach is 'so slight' that the buyer should not be entitled to reject the goods. For the reasons mentioned in relation to third hypothetical, however, such a solution would be highly unsatisfactory. Further, it is difficult to believe that a court would reach the conclusion that the buyer could not reject the documents

So far as the position under the Convention is concerned, it says little about the documents. The most important reference to documents is to be found in article 34 which provides that, "If the seller is bound to hand over documents relating to the goods, he must hand them over at the time and place and in the form required by the contract." Thus, the seller is bound to hand over documents which conform to the contract. As is the case with defects in the goods, the buyer's right to avoid the contract for defective performance depends upon whether the seller's failure to perform amounts to a fundamental breach of contract. While the Convention's approach is not only defensible but, it is argued, more satisfactory than English law in relation to defects in the goods, sensitive interpretation of article 25 will be required if the Convention is to be made to work where 'trivial' documentary breaches are concerned. It is, of course, difficult to predict how a court applying the Convention would treat a trivial documentary breach. However, it is suggested that a number of provisions of the Convention could be utilised if it wanted to adopt a strict approach.

First, it should be noted that the question whether there has been a fundamental breach can only be answered by asking whether the breach results in "such detriment to the other party as substantially to deprive him of that which he is entitled to expect under the contract."[149] The expectation is that of the injured party under that particular contract. As Will has pointed out, it is not the injured parties personal hopes which are considered,[150] instead, the injured parties expectations are judged objectively taking account of the type of contract concluded, the commercial background, and all the terms of the contract. The concept, therefore, allows for and even requires that the commercial background be taken into account in assessing what it is that the injured party was entitled to expect. This is crucial if the Vienna Convention is to work successfully in the context of international sales on standard terms. Whether there has been a fundamental breach of contract when the documents do not conform to the contract, can only be answered by asking what it is that a buyer is entitled to expect in a typical commodities contract. The answer to that must be that he is entitled to expect documents which he can 'deal with' without any difficulty. Documents which are 'nearly right' are effectively not marketable either because a bank will refuse them if tendered in performance of the seller's obligations under a documentary credit, or even where no banks are involved because a sub-buyer will refuse them on the ground that he should not have to purchase a litigation. In the third and fourth hypotheticals, therefore, it is at least arguable that a court applying the Convention might allow the buyer to avoid the contract.

In addition to the focus in the definition of fundamental breach on the innocent party's expectations in the particular commercial context, it should be noted that the Convention as a whole is based on the idea of 'freedom of contract'. The Convention is not intended to "interfere with the freedom of sellers and buyers to shape the terms of their transactions".[151] Instead the Convention gives express recognition [152] to the primacy of the parties intentions. Further, it accepts that international sales contracts are not concluded in a commercial vacuum but against a background of trade understandings and practices which may become part of the contract.[153] The text of the Secretariat Commentary to article 49, for example, reads; "The rule that the buyer can normally avoid the contract only if there has been a fundamental breach of contract is not in accord with the typical practice under c.i.f. and other documentary sales. Since there is a general rule that the documents presented by the seller in a documentary transaction must be in strict compliance with the contract, buyers have often been able to refuse the documents if there has been some discrepancy in them even if that discrepancy was of little practical significance." It is suggested, therefore, that while the draftsmen of the Convention undoubtedly intended as a general principle to restrict avoidance to serious breaches they also recognised that parties should be able to derogate from that. Where, therefore, commercial circumstances require a right of avoidance for trivial breaches recourse to articles 6 and 9 may enable a court to interpret fundamental breach to achieve that result.

Finally, as has been mentioned, the Convention allows the parties to "exclude the application of the Convention or, ... , derogate from or vary the effect of any of its provisions."[154] Where the parties make clear that breach of a particular obligation should be treated as a fundamental breach, effect should be given to that intention.[155] In that regard it is suggested that English law and the Convention are no different.

CONCLUSION

It will be recalled that the main objections made to the adoption of the Convention were that it would, "either produce results significantly different from those produced by the present English rules governing [documentary sales], or (because of the lack of precision with which the Convention is drafted) cause considerable uncertainty in areas in which the present rules of English law lead to clear and easily predictable results."[156] In a number of respects it has been suggested that the claim that the present rules of English law, particularly after the enactment of s15A Sale of Goods Act 1979, lead to relatively clear and settled results is over-exaggerated. Not only does the existence of the intermediate term technique undermine that claim, but it is further undermined by the enactment of s15A. The claim that the Convention will lead to different results is also, it is suggested, by no means necessarily true. Undoubtedly, the technique of fundamental breach is not particularly conducive, of itself, to commercial certainty but with sensitive interpretation against the background of a Convention which makes the parties' intentions paramount it may be that similar results to English law could be achieved.

Notwithstanding the above, even if the Convention were to be ratified (and as others have argued there are good reasons for ratification[158]), one very significant practical issue makes it likely that the Convention will continue to be excluded in commodity sales. Notwithstanding some of the comments made above, the English law in relation to international sales is, at least, well-developed and well understood. There is now over 100 years of case law on the type of contracts discussed in this article. To incorporate the Convention now would involve starting over again. All the issues which are well settled would have to be re-litigated. The cost alone is likely to make those involved in commodity trading pause long before concluding that the Vienna Convention should govern such contracts.


FOOTNOTES

1. The Vienna Convention on Contracts for the International Sale of Goods 1980.

* Lecturer in law, King's College London. The author wishes to thank Professor John Phillips who read and commented on an earlier draft of this article. The usual disclaimer applies.

2. Benjamin's Sale of Goods, (Sweet & Maxwell, 4th edition), at [ix].

3. Ibid, at 18-004.

4. Cf. F.M.B. Reynolds Q.C., A Note of Caution, The Frontiers of Liability, Vol 2, ed P. Birks (O.U.P., 1994). Professor Reynolds after expressing a number of concerns about aspects of the Convention concluded that the United Kingdom should ratify the Convention 'as soon as possible' (at 27).

5. In addition to the other member states of the E.U., several E.F.T.A. countries have incorporated the Convention as has the United States, Canada, New Zealand, Australia, the Russian Federation, China, Several South American countries and Singapore.

6. The North American Free Trade Association. Canada, the United States and Mexico have all ratified the Convention.

7. See Schlechtriem, Vienna Sales Convention 1980 - Developed Countries' Perspectives, in Current Developments in International Transfers of Goods and Services, Singapore Conference on International Business Law 103, at 105-7.

8. The Convention (article 1) provides it own rules as to applicability. However, the parties may (unless prohibited by the terms of the Convention from so doing; see, in particular article 4) chose Vienna to govern their contract even if it is not applicable on the basis of article 1. For the effect that would be given to an express choice of the Vienna Convention by an English court see Bianca & Bonell, Commentary on the International Sales Law, (Guiffrè, 1987) at para 3.5.2. For the contrary view see Honnold, Uniform Law for International Sales under the 1980 United nations Convention (Kluwer, 2nd edn, 1991) at 134.

9. Professor Guest informs me that he has not changed his mind in time for the fifth edition of Benjamin.

10. The c.i.f. contract has been chosen on the ground that it is the contract most commonly used in international commodity sales.

11. I have found two articles particularly helpful for this section both by Professor Bridge of Nottingham University: Bridge: International Private Commodity Sales (1991) 19 Canadian Business Law Journal 485, and Bridge, The Evolution of Modern Sales Law [1991] L.M.C.L.Q. 52.

12. Reynolds, op cit, at 24.

13. Bridge, International Private Commodity Sales (1991) 19 Canadian Business Law Journal 485, at 485.

14. For a helpful and clear explanation of the reasons for 'paper' trading see Bridge, supra, n.13, at 486.

15. By 'string trading' is meant "the linking of two or more contracts which not only covers the same quantity of goods of the same contract description but which are also on substantially the same terms or have essential terms which overlap or are in common save as to the amount of the price." Havelock-Allen, String and Circle Commodity Contracts, unpublished paper given at the Lloyds of London conference on International Commodity Sales 1992.

16. Bridge, n.13, at 488.

17. Ibid at 486.

18. By way of example, the restriction placed by the United States Government on the export of soya bean meal in 1973 had the effect of pushing the market price for a metric tonne from U.S.$338 to U.S.$650 within two months.

19. Hellner, Standard Form Contracts, International Sale of Goods, Dubrovnik Lectures, 335, at 338.

20. It will also usually be on the basis of one of the standard term contracts drafted by one of the trade associations such as the Grain and Feed Trade Association (GAFTA) or the Federation of Oil Seeds and Fats Association (FOSFA).

21. The f.o.b. contract is more like a domestic sale except that delivery is to be made on board a vessel. However, f.o.b. contracts frequently make provision for the seller to tender shipping documents as a condition of payment and where that is the case the seller's obligations under the f.o.b. contract are very similar to those of a c.i.f. seller.

22. Bridge, supra, n.13, at 488-9.

23. Supra, n.15.

24. Supra, n.13, at 490.

25. See, for example, Arcos Ltd. v. E.A. Ronaasen & Son [1933] A.C. 470

26. The effect of s15A Sale of Goods Act 1979 in the context of international sales will be considered in the next section.

27. Bowes v. Shand (1877) 2 App. Cas. 455. The law has probably not been changed by s15A but see below.

28. Toepfer v. Lenersan-Poortman [1981] 1 Lloyd's Rep. 143.

29. Hong Kong Fir Shipping Co. Ltd. v. Kawasaki Kisen Kaisha Ltd [1962] 2 Q.B. 26, at 66 (per Diplock L.J.).

30. For a helpful explanation of the difference between election and waiver see, The Kanchenjunga [1990] 1 Lloyd's Rep. 391, at 397-9, per Lord Goff.

31. Section 35 Sale of Goods Act 1979.

32. Phillips v. Lamdin [1949] 2 K.B. 33, (ornamental door designed by Adam).

33. See Benjamin 17-087 - 17-091.

34. See, for example, Benjamin 18-004.

35. For an explanation of the considerations a court may take into account in ascertainig the intention of the parties, see Treitel, The Law of Contract (Sweet & Maxwell, 9th edn) at 703-716. On the difficulty faced by a court in classifying a term even in the international trade sphere, see State Trading Corporation of India v. M. Golodetz Ltd. [1989] 2 Lloyd's Rep. 277.

36. See, for example; The Hinam Jade [1991] 1 Lloyd's Rep. 38 State Trading Corporation of India v. M. Golodetz Ltd. [1989] 2 Lloyd's Rep. 277 and The Hansa Nord [1976] Q.B. 44.

37. Article 29(1).

38. Reynolds, op cit, at 22.

39. Arts 46 (buyer's right to require performance) and 62 (seller's right to require buyer to pay the price, take delivery or perform his other obligations).

40. Treitel, Remedies for Breach of Contract (Oxford University Press, 1988), at 73.

41. Article 49(1)(a). 'Fundamental breach' is defined in article 25.

42. Article 49(1)(b).

43. Article 25.

44. Benjamin, 18-116.

45. This automatic right of rejection is, of course, now subject to s15A Sale of Goods Act. The likely effect of the provision in the context of international trade is considered below.

46. Articles 38, 39, 40, 43, 44, 49(2), 64(2) 71(3), 72(2) and 73(2). On the position under English law see, Hwang, Time for Rejection of Defective Goods [1992] L.M.C.L.Q. 334.

47. Article 39(1). Article 38 provides that the buyer "must examine the goods ... within as short a period as is practicable in the circumstances." If the examination undertaken, or the examination which ought to have been undertaken, ought to have disclosed the defect the buyer loses his right to rely on lack of conformity if he fails to give notice within a reasonable time thereafter.

48. The buyer will lose his right to avoid the contract if he fails to give notice of avoidance within the times specified in article 49(2).

49. Article 39(2)

50. Articles 40, 43(2) and 44. Article 44 allows the buyer to reduce the price or claim damages (except for loss of profit) where he 'has a reasonable excuse for his failure to give the required notice." See Date-Bah, op cit at 91-94.

51. Section 35 Sale of Goods Act 1979.

52. Waiver, in English law, may have the same effect.

53. See, for example, Oberlandesgericht München; 7 U 4419/93 and Fallini Stefano & Co. S.N.C. v. Fordic B.V. [1995] UNILEX, D.91-14

54. Schlechtriem, Vienna Sales Convention 1980 - Developing Countries Perspectives Current Developments in International Transfer of Goods and Services (Singapore Conferences on International Business Law) pp 103-137, at 133-134.

55. Article 45(2) provides, "The buyer is not deprived of any right he may have to claim damages by exercising his right to other remedies", which are Articles 74-77.

56. Article 50.

57. Article 46(3)

58. Carter, Anticipatory Breach Current Developments in International Transfer of Goods and Services (Singapore Conferences on International Business Law) pp 227-266.

59. Reynolds, op cit, at 23.

60. Articles 51 and 52.

61. Section 35A was inserted by the Sale and Supply of Goods Act 1994 and in large part adopted the recommendations of the Law Commission

62. By s44 Sale of Goods Act 1979 the seller has a very limited right to stoppage in transit. Also the common law permits the seller to refuse to deliver, except in return for cash, after a buyer has become insolvent (Ex p. Chalmers (1873) 8 Ch App 289; Morgan v. Bain (1874) LR 10 CP 15 at 21, 27 and see Carter, Anticipatory Breach Current Developments in International Transfer of Goods and Services (Singapore Conferences on International Business Law) pp 227-266, at 253.

63. U.C.C., 2-609.

64. S.K. Date-Bah, Sale of Goods Act 1979 Vienna Sales Convention 1980 - Developing Countries' Perspectives Developments in International Transfer of Goods and Services (Singapore Conferences on International Business Law) pp 87-102, at

65. See, for example, Honnold, op cit at 484-494

66. Articles 81-84.

67. Articles 85-88.

68. For some of the problems that might arisae in applying these to futures contracts see, S. Fisher and M. Hains, Futures Market Law and Practice and the Vienna Sales Convedntion [1994] L.M.C.L.Q. 531.

69. Hellner, The Vienna Convention and Standard Form Contracts International Sale of Goods; The Dubrovnik Lectures, 335-363, at 338.

70. Article 46(3).

71. Article 48.

72. Benjamin, 20-001

73. For a definition of the c.i.f. contract, see Benjamin, 19-001 and Sassoon, C.I.F. and F.O.B. Contracts (Sweet & Maxwell, 4th edn), at 3-11. For a definition of the f.o.b. contract, see Benjamin, 20-001.

74. Hindley v. E. India Produce Co. Ltd [1973] 2 Lloyd's Rep 515.

75. Ibid.

76. The f.o.b. contract is a rather simpler contract to the c.i.f. contract in that it need not involve the seller having to tender any shipping documents. However, it is common for the contract to require the f.o.b. seller to procure shipping documents and these may be required to be tendered as a condition of payment. Where that is the case the f.o.b. and c.i.f. contract share many of the same characteristics, in particular the duality of obligations.

77. Sassoon, op cit, at 350.

78. See Incoterms 1990 which gives a set of international rules for the interpretation of 13 of the most commonly used standard trade terms. The advent of containerisation has lead to greater use of contracts where the seller's physical delivery obligation is concluded by delivery to the 'first carrier' as opposed to delivery 'on board'. See, in particular cl A.4 of the c.i.p. and the c.p.t standard trade terms.

79. Maskow, commentary to articles 53 and 60, in Bianca & Bonnell, op cit, at ?

80. Feltham, op cit, at 416.

81. The better view, it is suggested, is the view taken by Feltham.

82. The Julia [1949] A.C. 293, per Lord Porter, at 309.

83. [1954] 2 Q.B. 459, at 480.

84. Ibid.

85. Ibid, at 480.

86. See, for example, Panchaud Freres SA v. Etablissements General Grain Co. [1970] 1 Lloyd's rep 53

87. Articles 34 and 49(1)(a). Article 34 requires the seller to hand over the documents "relating to the goods ... at the time and place and in the form required".

88. Professor Treitel suggests in Benjamin that the Convention does not deal with this situation (18-116 at n. 37). Article 34 is said to deal only with the time of handing over the documents and with the seller's right in limited circumstances to cure. Yet, surely, the reference to 'in the form' in article 35 imposes an obligation on the seller to 'hand over' documents which actually conform to the contract.

89. It is suggested that under the Convention a buyer who failed to 'reject' documents which were, on their face, defective would be precluded from subsequently rejecting the goods on that ground. Thus, if the documents stated that the goods were shipped late the buyer could not, if he accepted the documents later avoid the contract because the goods were shipped late. Such an argument could be justified either on the ground that the original contract was modified by agreement such that the buyer agreed to accept late shipped goods (by article 29(1) such a modification can be made merely by agreement). Alternatively, the buyer might be held to be 'estopped' from relying on his strict legal rights. Honnold, inter alia, has argued that one of the "general principles on which [the Convention] is based" (article 7(2)) is that a party may be precluded by his conduct from asserting his strict legal rights to the extent that the other party has releied on that conduct. (Honnold, op cit, at 152-154). It was also accepted in Internationales Schiedsgericht der Bundeskammer der gewerblichen Wirtschaft Wien SCH-4318 [1995] UNILEX, D.94-11 that while estoppel was not expressly settled by the Convention, it formed a general principle underlying the Convention.

90. Articles 34 and 49(1)(a).

91. Late shipment of the goods may be regarded as either, a late shipment and, therefore, a breach of article 33(b) or, as a failure to deliver goods of the contract description and, therefore, a breach of article 35(1). The right to avoid, of course depends on the breach being fundamental.

92. E.Clemens Horst Co. v. Biddell Bros. [1912] A.C. 18

93. Ibid.

94. Ibid.

95. Mash & Murrell Ltd. v. Emmanuel (Joseph I.) Ltd. [1962] 1 W.L.R. 16.

96. Article 58(1).

97. Article 58(3).

98. Ibid.

99. Section 13 Sale of Goods Act 1979.

100. For a criticism of the breadth of the English approach, see Benjamin, at 18-115.

101. See, for example, Arcos v. Ronaasen & Son [1933] A.C. 470.

102. "If a seller wants a margin he must and in my experience does stipulate for it ... In a falling market I find that buyers are often as eager to insist on their legal rights as courts of law are ready to maintain them." Ibid, per Lord Atkin, at 479-80.

103. [1976] 1 W.L.R. 989.

104. Ibid, at 998

105. See, for example, Tradax Internacional S.A. v. Goldschmidt S.A. [1977] 2 Lloyd's Rep 604. See also Benjamin 18-122.

106. (1877) 2 App. Cas. 455.

107. Section 15A Sale of Goods Act 1979 provides:

"(1) Where in the case of a contract of sale --
     (a) the buyer would, apart from this subsection, have the right to reject goods by reason of a breach on the part of the seller of a term implied by section 13, 14 or 15 above, but
     (b) the breach is so slight thar it would be unreasonable for him to reject them, then, if the buyer does not deal as a consumer, the breach is not to be treated as a breach of condition but may be treated as a breach of warranty.
(2) This section applies unless a contrary intention appears in, or is to be implied from, the contract.
(3) It is for the seller to show that a breach fell within subsection 1(b) above.
(4) ... "

108. Law Com. Final Report, Sale and Supply of Goods (Law Com No. 160, Cm. 137, 1987).

109. Section 15A(1)(b) Sale of Goods Act 1979.

110. Supra, n.108, at 4.18.

111. Section 15A(2) Sale of Goods Act 1979.

112. A breach of the term implied by section 14(2B)(e) Sale of Goods Act 1979.

113. Section 15A(3) places the burden of proving that the breach was slight it was unreasonable for the buyer to reject on the seller.

114. Supra, n. 79, at 4.18

115. Honnold, (1949) 97 U.Pa.L.Rev. 457

116. Standard term contracts frequently make provision for a price allowance in the event of the goods not matching the contract description. At the same time the right to reject is excluded.

117. Article 35(1)

118. At least, where in English law the term broken is one implied by sections 13, 14 or 15 of the Sale of Goods Act 1979.

119. Treitel, The Law of Contract, (9th edn, 1995) at 718.

120. (1877) 2 App. Cas. 455.

121. Supra, n.108, at para. 4.25.

122. It might be suggested, to the contrary, that breach of a clause as to the time of shipment is a breach of an express term relating to the goods and is not therefore within s15A. Such a position, it is suggested, is however, hard to reconcile with the judicial interpretation given to 'description' in section 13.

123. See below, at p __.

124. See above at p __.

125. Where payment is to be made by documentary credit, the terms of the credit will specify which documents are to be tendered. Banks will reject documents which are not identical with those required by the terms of the credit. Because of the strict compliance requirement in relation to documentary credits, it has been argued that buyers can also reject for any trivial documentary discrepancy; S.I..A.T. di dal Ferro v. Tradax Overseas S.A. [1980] 1 Lloyd's Rep 53, per Megaw L.J. at 62.

126. Banks are not concerned with the performance of the underlying contract, articles 3 and 4 Uniform Customs and Practice for Documentary Credits.

127. The position may be different where the documents on their face disclose a breach in relation to the goods which is 'so slight' that the buyer should not be entitled to reject. This problem will be considered below.

128. It might be objected that if an intermediate buyer in a string were to discover the documents were defective after he had accepted them but before he was able to sell them on he would effectively be stuck with unsaleable documents in circumstances where he might not be able to reject the goods. However, even if that did occur, the 'buyer' would still be able to resell the goods on arrival, albeit under a different description, and would presumably be able to recover any carrying costs in damages from the seller as well as any market loss caused by his loss of his right to reject the documents; Kwei Tek Chao v. British Traders and Shippers [1954] 2 Q.B. 459.

129. In that the goods delivered do not conform with the contractual description

130. In the sense that the goods were not delivered on the agreed date (article 33(a) or within the agreed period (art 33 (b)).

131. The issue of late tender is by no means straightforward in English law (Benjamin, op cit, at 19-057 - 060). The position under the Convention is also complicated. Reasons of space preclude examination here.

132. Kwei Tek Chao v. British Traders and Shippers Ltd, n.57.

133. Hansson v. Hamel & Horley.

134. For a full treatment of a c.i.f. seller's obligations with regard to the documents see,

135. Cehave v. Bremer Handelsgesellschaft [1976] Q.B. 44, at 70

136. Ibid.

137. [1977] 2 Lloyd's Rep 604. The contract in the case was on f.o.b. terms but the principle is equally applicable to c.i.f. contracts.

138. Ibid, at 612.

139. Ibid, at 612.

140. For a contrary view see Debattista, Sale of Goods Carried by Sea (Butterworths, 1990), at 242

141. Benjamin, 19-127.

142. Supra, n.105.

143. In Tradax Internacional S.A. v. Goldschmidt S.A, it was somewhat surprisingly accepted that the provision as to impurities was not a part of the description of the goods. Further, no other breach of condition was established.

144. Supra, n.105.

145. Ibid.

146. For a contrary view see Debattista, op cit, at

147. In the absence of a term expressly providing that the seller must tender a bill of lading dated within the shipment period (in which case the term is a condition; Re General Trading Co. and Van Stolk's Commissiehandel (1911) 16 Com. Cas. 95), a c.i.f. seller's obligation is simply to tender a correctly dated bill of lading (see Proctor & Gamble Phillipines Manufacturing Corpn. v. Kurt A. Becher G.m.b.H. & Co. K.G. [1988] 2 Lloyd's Rep 21). In other words, the seller's obligation is to tender a 'genuine' bill of lading. There appears to be no authority which requires that he also tender a bill of lading dated within the shipment period. This distinction is important because so long as the bill of lading is correctly dated the seller has not tendered a 'defective' document. A bill of lading dated outside the shipment period simply discloses that the goods were not shipped within the shipment period. Of course, contracts commonly provide that the bill of lading must be dated within the shipment period and where that is the case tender by the seller of a bill of lading dated outside that period will entitle the buyer to reject even if the bill of lading was correctly dated. For a contrary view, see Debattista, op cit, at 232-235.

148. See above.

149. Article 25.

150. Will, commentary on article 25 in Bianca and Bonnell, op cit, at 213.

151. Honnold, op cit, at 48

152. Article 6.

153. Article 9.

154. Article 6.

155. Professor Reynolds argues that such an interpretation is contrary to the assumption of the Convention (Reynolds, op cit, at 25). In one sense this is true because the Convention is premised on the belief that continuation rather than termination should be encouraged. But in the sense that the Convention seeks to provide a framework within which disputes relating to all international sales contracts can be resolved, it has to allow for flexible interpretation. Thus, if it is necessary, in order to give effect to the parties expressed intention, to construe 'fundamental breach' very narrowly the Convention makes clear that a court applying the Convention should do so.

156. Professor Treitel in Benjamin, at 18-004.

158.

157. Reynolds, op cit at 27-28. See also R. Lee, The United Nations Convention on Contracts for the International Sale of Goods: OK for the UK? [1992] J.B.L. 131.


Pace Law School Institute of International Commercial Law - Last updated March 29, 2004
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