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Published in Andreas & Jarborg eds., Anglo-Swedish Studies in Law, Lustus Forlag (1998) 326-355. Reproduced with permission of the author.

Avoidance for Breach under the Vienna Convention;
A Critical Analysis of Some of the Early Cases

Alastair Mullis [*]

(1) Introduction
(2) Commercial Background
(3) An Outline of Remedies Available Under English Law and Under the Convention
(4) Avoidance for Breach
     (a) Defects in the goods
     (b) Defects in documents
     (c) Late performance and non-performance
(5) Conclusion

(1) Introduction

As is well known, the United Kingdom has not as yet ratified the Vienna Convention. Consultation exercises carried out by the Department of Trade and Industry in 1980 and 1989 attracted little enthusiasm among British trading and professional bodies for ratification.[1] As Nicholas has pointed out 'Their attitude might have been different if it had been possible, as it had been in the case of ULIS, for the UK to accede to the Convention on terms that it should apply only to contracts in which the parties had chosen it as the law of the contract, but there was never the remotest likelihood that such an option would be conceded.'[2] As well as professional disinterest, most leading commercial law scholars were, and remain, opposed to ratification. The thrust of their objections is well put by Professor Treitel as follows: '[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 [page 326] easily predictable results."[3] The Convention does have its supporters,[4] but in the opinion of most English academics it should not be incorporated because it is not well suited to documentary sales contracts and, if incorporated, would engender uncertainty in an area where English law is clear and well settled.

Yet, it is of course the case that the United Kingdom finds itself in the position of odd-man out in not having incorporated the Convention. Some 51 states have now ratified the Convention including all 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. 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.[7] [page 327]

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 (at least for documentary sales). Most concern has been expressed in relation to the remedial provisions of the Convention which are in certain important respects different to English law. The purpose of this paper is to test the claim that the Convention will engender uncertainty and is unsuitable for sales on documentary terms by considering how courts have applied the Convention in relation to an important aspects of the remedial provisions, namely the right to terminate/avoid the contract for breach and in particular to examine how courts applying the Convention have interpreted the fundamental breach provision.[8] In order better to understand the concerns of the English academics opposed to the incorporation of Vienna, a few brief comments will first be made about the commercial background to international sales and also the general structure of remedies available under English law and under the Convention.

(2) Commercial Background [9]

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."[10] 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 concerns of English lawyers about the need for certainty can be understood. While other differences [page 328] undoubtedly exist, two of particular importance will be mentioned.

First, "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."[11] It does not take 100 contracts to get soyabean meal from the United States to Europe yet as was demonstrated by the cases arising out of the Mississipi 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.[12] Where such 'string trading'[13] 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."[14] 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, for example, 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,[15] commodity [page 329] prices are often subject to rapid fluctuation.[16] 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.[17]

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.[18] 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.[19] 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."[20] Where, as is commonly the case, the parties are 'in string',[21] 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"[22] 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 [page 330] 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 other 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.

(3) An Outline of the Remedies Available 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 party to treat the contract as terminated can be exercised in three situations. First, where the term broken is a condition of the contract. In such a case, the innocent party is entitled to treat the contract as discharged even where the breach of term is only slight [23] (subject to s15A Sale of Goods Act 1979.[24]) Thus, a buyer will be entitled to terminate the contract where, for example, the goods are shipped outside the shipment period [25] or where the shipping documents are tendered late [26] even where [page 331] 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."[27] Finally, a party may terminate the contract if the other party refuses, or is unable, to perform. The right to treat the contract as discharged may be lost either by election, waiver [28] or by acceptance.[29] In the case of any breach of contract, the innocent party is entitled to claim damages.

In theory at least, both parties may be entitled to an award of specific performance. In a typical sale of commodities, however, a 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 [30] and in any event is only available at the discretion of the court.[31] A seller may rather more readily be entitled to specific performance in the sense that if the buyer fails to pay, the seller may be entitled to sue for the price. Although the action is restricted,[32] it is still fairly readily available.

It has been asserted that [33] 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 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 [page 332] 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.[34] 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.[35] 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.

The approach adopted by the Convention to remedies is rather different to that of the common law. The first remedy mentioned is that of compelling performance[36] and to that extent the Convention adopts the general civil law principle that an injured party is entitled to require performance.[37] However, article 28 provides a let out that 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 party not in breach can declare the contract avoided (treat the contract as discharged) either, where the other party's failure to perform amounts to a 'fundamental breach of contract'[38] or, where the breach is one of non-performance and the party in beach fails to perform within the additional period of time provided for in articles 47(1) or 63(1).[39] So far as the latter right is concerned, articles 47(1) and 63(1) are designed to overcome the difficulty that late performance may not be sufficiently late to allow the innocent party to treat it as a fundamental [page 333] breach. By fixing an additional period of time, as provided for in those provisions, the innocent party can make 'time of the essence' so that a failure to perform within the additional period allows him to avoid the contract.

Perhaps most 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."[40] The way in which that concept has been applied by the courts in the early cases on the Convention 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'."[41] 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.[42] 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 serious breach. By enacting s15A of the Sale of Goods Act 1979,[43] 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 [page 334] 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.[44] 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,[45] means that he loses his right to rely on the lack of conformity.[46] 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 the buyer.[47] Though these provisions are subject to exceptions,[48] their effect is dramatic. While 'acceptance'[49] 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.[50] Early cases on the Convention,[51] and many of the cases on ULIS and ULFIS suggest that these provisions are being strictly [page 335] applied [52] and that this is likely to cause traders some considerable trouble.[53] 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 is really 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 the loss of the right to reject are any clearer.

While it is suggested that avoidance and damages [54] 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 [55] and, in the case of any non-conformity, to require repair [56] 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.[57] 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."[58] Thus, the approach adopted by the Convention to partial and excessive performance [59] 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.[60] The right to suspend performance [page 336] 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,[61] a similar right does exist under the Uniform Commercial Code.[62] This provision was the subject of much debate at Vienna [63] and will undoubtedly give rise to difficulties in interpretation.[64] Finally, there are provisions dealing with the effect of avoidance [65] and the preservation of goods.[66] 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 [67] 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 [page 337] 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."[68] 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 [69] and the extensive rights of cure allowed for by article 48 may be wholly appropriate.[70] 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 other similar goods, its ability to cope with international sales on documentary terms might still be questioned. In the final part of this paper some of the early cases on avoidance for breach will be examined. In particular, consideration will be given to two questions. First, whether the results reached by courts applying the Convention to certain commonly occurring situations are productive of commercial certainty and, secondly, whether the Convention is appropriate for sales on documentary terms.

(4) Avoidance for Breach

In any international sales contract, whether a sale on documentary terms or otherwise, the seller will undertake various obligations in relation to the goods to be supplied. Some of these obligations will be express, while others will, unless excluded, be implied.[71] Additionally, in the case of many international sales contracts, the contract will impose certain documentary obligations on the parties. For example, in a typical contract concluded on c.i.f. terms, the seller must, by the last date for performance, ship conforming goods and tender to the buyer certain documents.[72] [page 338] A failure to perform in respect of either the documents or the goods will amount to a breach of contract which may entitle the innocent party to treat the contract as at an end. For the sake of clarity, the approach of courts applying the Convention to the question when avoidance is justified will be considered in relation to three broad types of breach: namely, defects in the goods; defects in the documents; and, late performance and non-performance.

(a) Defects in the goods

Article 35(1) of the Convention imposes on the seller an obligation 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.'[73] Additionally terms as to fitness for the usual purpose(s), fitness for particular purpose(s), compliance with sample and usual packaging are implied into all contracts, 'except where the parties have agreed otherwise'.[74] Although breach of any of the express or implied terms gives rise to a right to certain remedies,[75] the right to avoid the contract for defects in the goods is conditional upon the buyer establishing that the seller's failure to perform any of his obligations amounts to a fundamental breach of contract.[76] As we have seen, a breach is only 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 ...'[77] Thus, only if there is a 'serious' breach of contract is the innocent party entitled to avoid the contract.

Immediately, for English lawyers, the Convention 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. That good reasons exist for such an open textured test, not least that avoidance on trivial grounds after expensive shipment has occurred might needlessly lead to [page 339] wasteful reshipment or re-disposition of goods in a foreign country, is not in doubt. However the difficulty for a buyer and his advisers is in determining how high a hurdle will be set in any particular case. The starting point adopted by, particularly German, courts appears to be that the remedy of avoidance should be seen as one of last resort; in other words, a high hurdle will have to be surmounted before avoidance will be allowed. Thus, the fundamental breach test has been said on more than one occasion to require that buyers 'accept to a considerable extent even non-conforming goods and to invoke different remedies (reduction of price, damages) to compensate for the defects. For example, it is possible that there is no fundamental breach in cases in which the buyer can make some use of the defective goods.'[78] As was said in another case, 'A breach of contract is fundamental when the purpose of the contract is endangered so seriously that, for the concerned party to the contract, the interest in the fulfilment of the contract ceases to exist as a consequence of the breach of contract.'[79] Exactly when the 'concerned party' will have no further interest in the performance of the contract is, however, a question of some difficulty. From the decided cases, it appears that in deciding this issue the courts are likely to have regard to at least three factors which are discussed below. Unfortunately, the exact inter-relationship between these factors remains a question of some difficulty.

An important decision illustrating the difficulties that a buyer must overcome if he wishes to avoid the contract for defects in the goods was handed down recently by the Bundesgerichtshof.[80] In that case, the seller sold four different quantities of cobalt sulphate to the buyer, a German company. It was agreed that the goods should be of British origin and that the seller should supply certificates of origin and of quality. After the seller had tendered the documents, the buyer purported to avoid the contract on the ground, inter alia, that the cobalt sulphate was made in South Africa and the quality was inferior to that required by the terms of the contract. The court held, however, that there had been no fundamental breach. This was held to be so notwithstanding evidence from the buyer to the effect that he would have found it impossible to sell goods from South Africa to his usual clients in India and South East Asia because of an embargo on South African products. In the court's [page 340] opinion the goods could have been marketed by the buyer in Germany under a different description in the ordinary course of business without disproportionate effort albeit at a reduced price. To put it differently, because the buyer could still make some use of the goods his interest in the fulfilment of the contract had not completely disappeared. The court also considered it important that the parties had not explicitly stated in the contract which obligations they considered to be fundamental. In particular, there were no express provisions making it clear that the parties regarded breach in respect of either the origin or the quality of the goods as fundamental. Where that was the case avoidance should only be at the buyer's disposal 'as the last means to react to the other party's breach of contract which is so drastic that it leads the buyer's interest in the complete satisfaction of the obligations to cease.' A similar approach can be seen in another German decision,[81] in which it was held that a sale of coke of lower quality than that required by the contract did not amount to a fundamental breach. Although the judgment did not report the difference in value of the coke delivered from the value the coke should have had if conforming, the court was clearly influenced by the fact that the coke could be used for the purpose originally intended.

While, in perhaps the majority of cases, courts have insisted that there will be no fundamental breach if the buyer can make some use of the defective goods, there are cases where little emphasis appears to have been placed on this factor. Thus, in an American case,[82] the buyer of compressors was held to have validly avoided the contract where the compressors had lower cooling capacity and consumed more energy than the sample model and accompanying written specifications The United States Circuit Court of Appeals for the Second Circuit held that the buyer had not received substantially that which they were entitled to receive because 'the cooling power and energy consumption of an air conditioner compressor are important determinants of the product's value. That the compressors fell below the required contractual standard was not in doubt, but was it really the case that the buyer could not have resold (albeit at a lower price) the contract goods? The court did [page 341] not consider it necessary to consider that question, so we are unable to tell. What appears to have been decisive for the court in this case was that the contract made clear that compliance with the requirements as to cooling power and energy consumption was, if not of the essence of the contract, nevertheless of considerable importance. Thus, the seller's failure to comply with those terms entitled the buyer to avoid the contract notwithstanding that he may have been able to make use of the goods actually delivered.[83] In the sense that the American court appeared to have been willing to have regard to all the surrounding circumstances in order to decide how important the term broken was to the buyer, the court appears to have been markedly less strict than the Bundesgerichtshof.[84] As will be recalled, one of the reasons given by the Bundesgerichtshof for refusing to treat breach of the terms as to origin and quality as fundamental was that the parties had not explicitly made clear which obligations they viewed as fundamental. Such an approach is undoubtedly less favourable to avoidance.

A further important consideration taking which has been taken into account by courts in a number of cases is that of willingness by the seller to cure. There is, as Professor Michida has pointed out, 'an intimate relationship between the cure provisions of the Convention and the provision on fundamental breach.'[85] However, the exact relationship between the two is by no means clear. Could, for example, a buyer, by a quick declaration of avoidance, block any subsequent cure by the seller even if no serious delay would occur? Undoubtedly the drafters of the Convention were aware of the problem but an American proposal to amend the fundamental breach provision under which it would have read 'A breach committed by one of the parties to the contract is fundamental if, under all the circumstances, including a reasonable offer to cure it results in substantial detriment to the other party ...' was rejected. Notwithstanding the rejection of this proposed amendment, the inter-relationship of the cure provisions and the principle of fundamental breach has been considered on a number of occasions. [page 342]

In a recent decision of the OLG Koblenz,[86] the seller delivered goods which were of non-conforming quality. After the buyers objected, the sellers offered to cure any non-conformity. However, despite meetings between the two parties they were unable to reach a solution to the problem and the buyers sought to avoid the contract. The court held that they were not entitled to do so. While it acknowledged that the buyer's right to avoid the contract was predominant over the seller's right to cure under article 48, the court held that an offer to cure, provided it does not cause the buyer unreasonable inconvenience, may mean that even a grave defect does not amount to a fundamental breach. As the court put it, 'According to the ratio legis of the provision, the [notice of avoidance] is effective only if the delivery of non-conforming goods amounts to a fundamental breach ... In determining this, not only the gravity of the defect is of importance, but also the willingness of the seller to cure the defect without unreasonable delay and without causing the buyer unreasonable inconvenience. Even a grave defect does not amount to a fundamental breach within this provision if the seller is ready to remedy without causing the buyer unreasonable inconvenience.'[87] The effect of the decisions is undoubtedly to confirm the view of most writers on the Convention that in considering whether a breach is fundamental, any offer to cure must be considered. Where the time for performance has not passed, this is undoubtedly a sensible approach and is one which would probably be recognised by English law. If the time for performance has not passed, then unless the first tender can properly be classified as a repudiatory breach, any offer to cure must surely be relevant to the question whether there is a fundamental breach. Where, however, the offer to cure is made under art 48 (offer made after time for performance has passed) the position is rather more difficult. Consider the situation where S tenders delivery of seriously defective goods on the last day for performance. B after examining the goods considers that the defect is so serious that S has committed a fundamental breach and accordingly he gives an immediate notice of non-conformity and avoidance. S then offers to cure. If the approach taken by the courts is [page 343] followed, then the effect of an offer to cure is to change the nature of the breach from a fundamental one to a non-fundamental one. What then happens if a few days later it becomes clear that S cannot cure? Does the breach convert back to a fundamental one? This is hardly a recipe for commercial certainty and would be particularly deplorable if applied in the context of documentary sales. The better view, it is suggested, would be that where B has given notice of non-conformity and avoidance, any offer to cure should not be taken into account in assessing whether the breach was fundamental. This would promote certainty, but it would not prevent B from accepting such an offer.

What do the above cases enable us to say about the principle of fundamental breach as developed by the courts in relation to defective goods? It is undoubtedly the case that judges applying the Convention have had in the forefront of their minds the undesirability of allowing avoidance of the contract unless the breach achieves at least a minimum degree of seriousness. In assessing the seriousness of the breach at least three factors appear to be relevant, namely: whether the buyer can make some use of the goods without undue difficulty for the purpose for which he purchased the goods; how important in the circumstances of the individual case to the buyer was the term broken; and, thirdly, the relevance of any offer to cure. The exact inter-relationship between these factors and the likely weight to be attached by courts to each remains a question of some difficult and something which may not be particularly productive of certainty. Inevitably each case will depend upon its own facts but in the absence of express provisions in the contract making it absolutely clear what the parties value as fundamental for their respective expectations, the tendency of courts has been to refuse to allow avoidance unless the goods are so defective that the buyer cannot use them for his original purpose. While there is much to be said for the approach of the courts in relation to contracts for the sale of machinery and consumer goods (which is what most of the cases so far decided have been about), the application of such an approach to contracts for the sale of commodities on documentary terms will undoubtedly engender uncertainty in an area of commercial activity where certainty is of paramount importance.

Even if it is the case that the Convention test of fundamental breach is likely to engender uncertainty, it might be argued that this is a price worth paying as a way of promoting justice, in the sense that it restricts [page 344] the right to avoid contract to cases of serious breaches. Certainly there is much to be said for this policy, at least in respect of contracts for the sale of goods other than commodities. Indeed it should be noted that even English law, which has traditionally allowed the innocent party to avoid contracts on somewhat insubstantial grounds,[88] has recently recognised the injustice of allowing the 'innocent party' to terminate the contract for trivial breaches: a new section, s15A, has been inserted into the Sale of Goods Act 1979, to prevent the buyer from rejecting where breach of the terms implied by ss. 13, 14 and 15 of the Sale of Goods Act is 'so slight that it would be unreasonable for him to reject.' Contracts are after all made to be performed and, particularly in the case of some international sales contracts, to allow avoidance after expensive shipment would be wasteful of resources. However, while there is much to be said for this policy in relation to most types of international sales, the same cannot be said, for the reasons mentioned above, for sales of commodities on documentary terms. Interestingly most of the cases decided under the Convention do not involve sales of commodities on documentary terms but instead involve sales of machinery or consumer goods. Provided courts applying the Convention have regard to the commercial background when considering whether to allow avoidance for breach, the fundamental breach test could work adequately enough. Unfortunately, cases such as the recent decision of the Bundesgerichtshof [89] raise doubts as to whether the commercial background is given sufficient weight in all cases.

(b) Defects in documents

Article 34 of the CISG provides in part 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.' As is the case with defective goods, failure to tender conforming documents amounts to a breach of contract but the right to avoid the contract is conditional upon the buyer establishing that the breach was fundamental.

It is perhaps in relation to the tender of documents that the concept of fundamental breach is likely to cause most problems. In English law a c.i.f. buyer is entitled to reject a tender of the shipping documents either [page 345] where they are 'defective'[90] or where they are tendered late.[91] 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,[92] as has a bill of lading which fails to provide the buyer with 'continuous documentary cover'[93].[94] 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.' Three reasons have been given for the strictness of this rule: certainty of application (which has already been discussed); consistency between the law of sale and the law relating to letters of credit; and the balance of convenience between the parties. So far as the second of these reasons is concerned, where payment is by documentary credit (and much international trade is financed in this way) banks will reject documents which fail to comply in any respect with the terms of the credit. It is suggested that it would be strange if the same was not the case as between buyer and seller where no letter of credit was in place. As Megaw LJ said in SIAT di dal Ferro v. Tradax Overseas,[95] even if there were authority for differentiating between tender in the two cases, 'the question would arise whether it is a desirable or defensible distinction; or whether it would lead to anomalies and uncertainties in an area of the law where such degree of certainty as can fairly be achieved is obviously commercially desirable.'[96] So far as the third argument is concerned, the rigour of a rule allowing the buyer to reject for even small discrepancies is said to cause little harm to the seller, because 'the law in the absence of a contractual term to the contrary, allows a seller who has presented defective documents [page 346] to re-present tendering correct documents, so long as he does so before the last permissible date provided by the terms of the contract.'

So far as I am aware, the decision of the Bundesgerichtshof discussed above [97] is the only case in which the question whether tender of defective documents amounts to a fundamental breach under the Convention has been considered. As will be recalled, in addition to the failure to deliver conforming goods the seller tendered documents that were defective because the certificates of origin and quality were wrong. So far as the certificate of quality was concerned, only one copy was tendered while the contract required four copies. The certificate of origin stated that the goods were of EEC origin (they were in fact of South African origin) while the contract required a certificate of origin stating that the goods were of UK origin. Notwithstanding these defects, the court held that there was no fundamental breach. In the court's opinion, a defect in the documents will only be fundamental where the buyer is essentially deprived of what he was entitled to expect under the contract. This could not be determined by looking at the documents exclusively, nor at whether the goods together with the documents could be traded. It had also to be considered whether the buyer could easily remedy the defects by obtaining correct documents such that he could then sell the goods. Because there was evidence that the buyer could easily obtain correct documents elsewhere and also because it 'might be that the certificates of origin were irrelevant for further sale or processing of the goods, the buyer's interest in the contract had not ceased to exist.

To an English lawyer, the decision appears unsatisfactory for at least three reasons. First, it is suggested that the court was wrong in concluding that the question whether a defect in the documents was fundamental could not be answered by looking exclusively at the documents. Where the contract of sale imposes both documentary and physical obligations on the seller then the seller must perform both. 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 goods and documents. Article 49(1)(a) entitles the buyer to avoid the contract if the failure of the seller to perform 'any of his obligations under the contract amounts to a fundamental breach of contract.' Thus the seller's obligations in respect of goods and [page 347] documents are separate, and breach in respect of either, if fundamental, should entitle the buyer to avoid the contract. It is suggested, therefore that the court was wrong in concluding that the question whether there was a fundamental breach could not be answered by looking exclusively at the documents.

Secondly, in deciding that not all defects in documents amount to fundamental breach the court inevitably raised the possibility that different rules will be applied according to whether payment is by documentary credit or not. Such a conclusion appears to this writer to be unsatisfactory because the fact that payment is by documentary credit need not change the essential nature of the sales contract. Under a sales contract where payment by documentary credit is provided for, the documents may be relatively unimportant (as they apparently were in the Bundergerichtshof case); they may, for example, not be needed for an intended resale of the goods. Yet, if they are defective (in the sense that they do not conform with the credit) in even a trivial way, the bank will justifiably reject them. Where this happens and the seller cannot get paid by the banks, it is clear law that he cannot look to the buyer for payment instead. Thus, the effect of the decision may be that different rules exist depending upon whether payment is by documentary credit or not. Such a conclusion is unfortunate.

Thirdly, and this is an issue which has arisen in other cases, the court refused to treat the tender of defective documents as defective because the buyer could easily have obtained conforming documents himself.[98] This, it is suggested, unjustifiably imposes a burden on the buyer which has no basis in the Convention. Of course, the seller does have a fairly extensive right to cure [99] but to refuse to allow the buyer to avoid a contract on the ground that he (i.e., the buyer) could, in effect, cure the defect is surely not justified. It should be noted that such a conclusion has been resisted in other cases and courts have allowed a buyer to avoid [page 348] even where he could have remedied any defects.[100] The extensive rights of cure given to the seller are enough to prevent buyers from avoiding where easily remediable defects are present. To go further and refuse to allow the buyer to avoid where he does not cure is not justified.

If, as it is argued, the decision of the Bundesgerichtshof was unfortunate, could a court applying the Vienna Convention nevertheless treat even trivial documentary breaches in sales on documentary terms as fundamental or does the concept of fundamental breach preclude such a solution? It is suggested for the following reasons that a court applying Vienna could, and should for the reasons mentioned above, treat all such breaches as fundamental. 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."[101] 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,[102] 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 documentary 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 such a sales contract. The answer to that must be that he is entitled to expect [page 349] 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 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".[103] Instead the Convention gives express recognition [104] 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.[105] 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."[106] Where the parties make clear that breach of a particular obligation should be treated as a fundamental [page 350] breach, effect should be given to that intention.[107] In that regard it is suggested that English law and the Convention are no different.

(c) Late performance and non-performance

In most sales contracts there will be express provisions as to the time of performance. Thus, a c.i.f. sale will commonly contain provisions as to the date, or period, of shipment, the time by which documents must be tendered, and the time by which payment must be made or a documentary credit put in place. In the absence of express provision as to these matters in the contract, the Vienna Convention contains a number of fall back provisions.[108] As is the case with the goods or documents, failure to deliver the goods or documents or to comply with the terms of the contract or Convention as to the time of performance amounts to a breach of contract entitling the innocent party to certain remedies. Avoidance of the contract in the case of non-delivery or late delivery, however, requires additionally either a fundamental breach or a failure by the obligor to perform within an additional period of time set by the obligee for performance. This additional period of time for performance, which was influenced by a provision in the German Civil Code (s326 BGB) effectively gives the obligor a second chance to perform. Failure to perform within this additional period of time will qualify the breach as fundamental even if it was not fundamental before or there were doubts as to the seriousness of the breach.

In the English law of commercial sales, provisions as to the time of performance are usually treated as of the essence of the contract such that failure to perform on time, even if only slightly late, will entitle the innocent party to treat the contract as at an end. Thus, it has been held that failure to ship within a stated shipment period,[109] a failure to open a documentary credit on time,[110] or a failure to tender documents on [page 351] time,[111] amounts to a breach of an essential term of the contract entitling the buyer (or seller) to treat the contract as at an end.[112] A similar approach is taken in commercial sales where the breach of contract involves a failure, or refusal, to deliver all or part of the goods (subject to s30(2A) SGA 1979). Such a breach is usually treated as of the essence entitling the innocent party to treat the contract as at an end. Such an approach has generally been justified on the grounds of commercial certainty.

Unsurprisingly, the position taken by courts applying the Convention has been far less strict. So far as late performance is concerned, such cases as there are suggest that unless the parties have by the terms of the contract expressly made time of the essence, or the concerned party has done so by giving notice under articles 47 or 63, late performance will usually not entitle the innocent party to avoid the contract. In one German case,[113] a contract was concluded in early March for the sale of 11 cars. No delivery date was fixed. In August, the informed the buyer that 5 cars were ready for delivery, with the remaining 6 being stated to be ready in October. A dispute arose between the parties and some 2 years later the buyer sought to claim damages from the seller on the ground of late delivery. The court held, however, that 'Since the parties had not agreed on the precise date for delivery, the seller's readiness to deliver in August and October was no breach of contract, let alone a fundamental one. Thus the right to declare the contract avoided because of non-delivery of the cars was lost by the buyer. To allow the buyer now (i.e., 2 years later) to declare the contract avoided would violate the principle of good faith (art 7 CISG).' The flexibility shown by the court in this case has much to commend it. Here time was clearly not of the essence and to have allowed the buyer to avoid the contract would undoubtedly have been unjust.

So too, in cases involving late payment, late opening of documentary credits and refusal to take delivery of the goods by the buyer courts have not, in the absence of a failure to perform within an additional period of [page 352] time within articles 47 or 63, been prepared to treat breach by late performance or non-performance as fundamental. Thus, it has been said [114] that 'delay in the opening of a documentary credit in itself does not necessarily amount to a fundamental breach.' So too, late delivery has been held in several cases not to amount to a fundamental breach.[115]

A rather more doubtful approach was suggested by the OLG Koln [116] in a case which involved the sale of rare wood. The seller failed to deliver the goods by the contractually specified date. The court held that the buyer's declaration of avoidance could not be justified on this ground because the buyer had failed to fix an additional period of time for performance under article 47. To the extent that the court was suggesting that there is a general rule that late delivery can only be fundamental where the buyer sets an additional period of time within which the seller fails to perform, it conclusion was entirely unjustified and it would have particularly worrying implications for sales on documentary terms. The provisions allowing buyer and seller to set an extra period for performance are, of course, one way in which the concerned party can make time of the essence. They are not, however, the only way.

Such cases as there have been on late delivery do not give much indication as to how a court would treat late performance in documentary sales of commodities. Here for the reasons given above, it is suggested that less flexibility should be shown. However, the indication from other cases on fundamental breach is that courts will, in the absence of express provision in the contract making it clear that time is of the essence, be likely to investigate the seriousness of the breach in terms of its impact on the value of the goods and whether the buyer can still use the goods for the purpose originally intended. In many cases, of course, late delivery (late shipment by a day, for example) will have little effect on the value of the goods and it may be that courts will not, as a result, treat all cases of late performance as amounting to fundamental breach. If this view was taken, the effect would undoubtedly be to engender uncertainty and to increase litigation. The moral of the story, if the CISG is applicable, is for the parties to such transactions to make it clear that [page 353] time is of the essence and that any delay will amount to a fundamental breach.

Finally, some mention should be made of a number of cases in which the seller in which courts have considered whether failure by the seller to deliver the full contract quantity amounts to a fundamental breach. The CISG has a number of provisions which deal with the problem of breaches affecting only part of the goods, e.g. if the seller fails to deliver only part of the goods -- art 51 -- or fails to deliver one or several instalments of an instalment contract -- art 73. The question in these cases is whether the buyer can avoid the whole contract or only part of it. The general rule is that avoidance can only declared in respect of that part of the contract which has been broken but the concerned party can declare the contract avoided in whole if the seller's breach of part of his obligations amounts to a fundamental breach of the whole contract.[117] While the position in relation to instalment contracts is broadly similar under English law to that of the CISG, short delivery will, under English law (subject to s30(2A)), usually entitle the buyer to terminate the contract.

Two cases are of particular interest so far as the application of art 51(2) is concerned.[118] In both cases, one of the reasons given for refusing to allow the buyer to avoid the whole contract because of short delivery was that 'the purpose of the contract could still be fulfilled by the buyer obtaining substitute goods elsewhere'. For the reasons mentioned above, it is suggested that this is an unfortunate conclusion in that it appears to place the responsibility on the buyer to cure. This is something which finds no justification in the Convention.

(5) Conclusion

Notwithstanding some of the critical comments made above, my impression of such decisions as there have been on the issue of fundamental breach is that they are in the main, given the types of contract in issue, sensible. They give paramountcy to the policy that contracts are made to be performed and should not be terminated save in cases of serious breach. Such a policy has considerable power in relation to some types [page 354] of international sales where avoidance is likely to be wasteful of resources. Some decisions, I would suggest, go too far in favour of maintaining the contract at all costs. However, I would concede that determining whether there has been a fundamental breach is in the end a question of judgment and it is perhaps inevitable that there will be decisions which one does not like.

On the debit side, however, there is as yet (and may never be) much evidence as to how courts applying the Convention are likely to deal with cases involving sales of commodities (or other goods which have a readily ascertainable market value). Such evidence as we have, which is admittedly not much, suggests a somewhat worrying tendency to ignore the commercial background and to give too much emphasis to the policy of keeping contracts going. For reasons which have been discussed, it is suggested that such policy has little or no force where the goods being sold are commodities.

One final point may be worth making. A number of authors have celebrated the success of the CISG both for the fact that most of the world's leading industrial states have incorporated it and for the fact that the large number of cases on the CISG seems to suggest that parties to international sales are not, as some commentators had expected, routinely excluding its application. Undoubtedly, it has been successful (and deservedly so) but its success has been somewhat limited. A vast amount of world trade is commodity related and all standard term commodity contracts issued by the commodity associations routinely exclude Vienna. If it is to be really successful it will have to be shown that the CISG can safely be applied to such contracts. In my view it could, with sensitive application, be successfully applied. However, as yet the jury is still out as to whether it will be. [page 355]


FOOTNOTES

* Senior Lecturer in Law, King's College London

1. The Department of Trade and Industry is currently considering, yet again, the views of interested parties as to whether the United Kingdom ought to ratify the Convention.

2. Nicholas, The Vienna Convention on International Sales Law, (1989) 105 LQR 201, at 240.

3. Benjamin on Sales (Sweet & Maxwell, 5th edn, 1997), at 18-004 (hereafter Benjamin).

4. For example, B. Nicholas (one of the UK representatives at the Vienna Conference) and F.M.B. Reynolds Q.C. (In A Note of Caution, The Frontiers of Liability, Vol 2, ed P. Birks (O.U.P., 1994), Professor Reynolds expressed a number of concerns about aspects of the Convention but 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. Some estimates suggest that as much as two thirds of world trade is carried on between parties in states which have ratified the Convention.

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

7. 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 ed, 1991) at 134.

8. Article 25.

9. 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.

10. Reynolds, op cit, at 24.

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

12. For a helpful and clear explanation of the reasons for 'paper' trading see Bridge, supra, n.12, at 486.

13. 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.

14. Bridge, n.12, at 488.

15. Ibid at 486.

16. 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.

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

18. 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).

19. 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.

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

21. Supra, n.15.

22. Supra, n.13, at 490.

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

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

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

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

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

28. 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.

29. Section 35 Sale of Goods Act 1979.

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

31. See Benjamin 17-087 - 17-091.

32. Section 49 Sale of Goods Act 1979.

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

34. For an explanation of the considerations a court may take into account in ascertaining 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.

35. See, for example; The Honam 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.

36. 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).

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

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

39. Article 49(1)(b).

40. Article 25.

41. Benjamin, 18-116.

42. 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.

43. S.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 that 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) ...'

44. 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.

45. 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.

46. 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).

47. Article 39(2)

48. 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.

49. Section 35 Sale of Goods Act 1979.

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

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

52. See, Karollus, Judicial Interpretation and Application of the CISG in Germany 1988-1994, (1995) Cornell review of the Convention on Contracts for the International Sale of Goods 51. (For examples of strict application of the provisions by courts, see OLG Frankfurt, 18 Jan 1994; and LG Munchen, 3 July 1989)

53. Schlechtreim, 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.

54. 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.

55. Article 50.

56. Article 46(3).

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

58. Reynolds, op cit, at 23.

59. Articles 51 and 52.

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

61. 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.

62. U.C.C. 2-609.

63. 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 94-99.

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

65. Articles 81-84.

66. Articles 85-88.

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

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

69. Article 46(3).

70. Article 48.

71. Sections 13, 14 and 15 of the Sale of Goods Act 1979 imply various terms relating to quality, fitness for purpose and description into all sales contracts. So too there are provisions in the Sale of Goods Act relating to delivery of the correct quantity (s.30) and to the time of performance (ss.10, 29(3)). Similar terms are implied into international sales contracts by arts 33 (time of delivery) 35 (seller's obligations with regard to conformity of goods) of the Convention.

72. In the absence of any provision in the contract to the contrary, a c.i.f. seller must under English law tender a bill of lading, an insurance policy and an invoice.

73. Article 35(1).

74. Article 35(2).

75. In particular, the right to claim damages (art 45(1)(b)), reduce the price (art 50) and repair (art 46(3)).

76. Article 49(1)(a).

77. Article 25.

78. See, for example, OLG Frankfurt, 18 January 1994.

79. OLG Frankfurt, 17 September 1991; BGH VIII ZR 51/95, 3 April 1996

80. BGH VIII ZR 51/95, 3 April 1996.

81. OLG München, 2 March 1994; see also, OLG Düsseldorf 6 U 119/93, 10 February 1994 in which it was held that delivery of textiles of a different colour to that contracted for was not a fundamental breach since there was no the textiles delivered were not unfit for the purposes for which bought.

82. Delchi Carrier S.p.A. v. Rotorex Corp 71 F 3d 1024 (1995).

83. See also, Caiato v. Soc. Française de Factoring International Factor France, Cour d'Appel de Grenoble, 13 September 1995 in which it was held that a failure to package grated parmesan with proper labels was a fundamental breach because, taking account of the intent of the parties as determined from their statements and the terms of the contract, it was clear that they intended breach of such obligation to be fundamental.

84. Supra, n.81.

85. Cancellation of Contract, (1979) American Journal Of Comparative Law 279.

86. OLG Koblenz 2 U 31/96, 31 January 1997.

87. See also Marques Roque Joachim v. S.a.r.l. Holding Manin Riviere, Cour d'Appel de Grenoble Chambre Commerciale, RG 93/4879, 26 April 1995; ICC Court of Arbitration Arbitral Award 7531/1994. For a case where a court held that there was a fundamental breach notwithstanding an attempted cure see, LG Baden Baden 4 O 113/90, 14 August 1991

88. See, for example, Arcos v. Ronaasen [1933] A.C. 470 and Re Moore and Landauer [1929 2 KB 519.

89. Supra, n 80.

90. Documents will be defective where they do not accurately record certain matters they are supposed to be record. For example, a bill of lading evidencing shipment on January 1 would be defective if shipment had not been completed until January 5.

91. See, Toepfer v. Lenersan Poortman [1981] 1 Lloyd's Rep 143.

92. Kwei Tek Chao v. British Traders and Shippers Ltd, [1954] 2 QB 459.

93. Hansson v. Hamel & Horley [1922] AC 36.

94. For a full treatment of a c.i.f. seller's obligations with regard to the documents see, Benjamin 19-022 - 19-056.

95. [1980] 1 Lloyd's Rep 53.

96. Ibid., at 62.

97. Supra, n.80.

98. See also, LG Heidelberg O 42/92, 3 July 1992: and, OLG Dusseldorf 6 U 119/93, 10 February 1994. In the latter case, the seller was under an obligation to deliver textiles with two different patterns. On delivery the buyer claimed to be entitled to avoid the whole contract because one pattern delivered was non-contractual. The seller's claim for the price of the conforming textile was allowed. One of the reasons given by the court for allowing the claim was that, 'The simple fact the buyer had ordered textiles with two different patterns was not in itself sufficient to show the buyer's intention to resell them only together. After all, the buyer could have bought the missing part elsewhere.'

99. Articles 34, 37 and 48.

100. ICC Court of Arbitration, 7531/1994; and, LG Baden Baden, 19910814, 14 August 1991 - In the latter case, buyer had ordered two tile sets ('A' and 'B') each containing both basic tiles and decorative tiles. The basic tiles of set 'A' were non-conforming. The court allowed the buyer's declaration of avoidance as to the entire tile set 'A' because the decorative tiles could not be used without the basic tiles. This was held to be the case, notwithstanding that the seller had delivered more tiles than it was contractually bound to do (many were defective) and there were probably still enough to tile the room intended. In the court's opinion, 'the defect in the tiles is substantial contrary to the position taken by the seller. It is without significance that the seller subsequently delivered a greater number of tiles than had been ordered, so that, probably, enough tiles of one of the two kinds would have been present , such that the room for which they were intended could have been decorated. It cannot be expected or required of the buyer to open all packages to sort out the tiles, to test to see if enough of one sort were delivered and then to pack them again. See also, OLG Oldenburg.

101. Article 25.

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

103. Honnold, op cit, at 48.

104. Article 6.

105. Article 9.

106. Article 6.

107. 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.

108. Articles 33, 34, 54 and 59.

109. Bowes v. Shand (1877) 2 App Cas 455.

110. Stach v. Baker Bosley [1958] 2 Q.B. 130.

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

112. It is to be doubted whether s.15A Sale of Goods Act 1979 makes any difference here. For discussion of this, see Mullis, Termination for Breach of Contract in C.I.F. Contracts under the Vienna Convention and English Law: Is there a Substantial Difference?, Contemporary Issues in Commercial Law; Essays in honour of Professor A.G. Guest, ed Lomnicka and Morse (Sweet & Maxwell, 1997), pp 137-160.

113. OLG München, 7 U 1720/94, 8 February 1995.

114. ICC Court of Arbitration, Arbitral Award 7585/1992.

115. See, for example, OLG Frankfurt 5 U 15/93, 18 January 1994.

116. OLG Köln 22 U 202/93, 22 February 1994; see also for a similar approach, AG Oldenburg, 24 April 1990 and OLG Frankfurt, supra, n.115.

117. Articles 51(2) and 73(2).

118. LG Heidelberg O 42/92, 3 July 1992: OLG Düsseldorf 6 U 119/93, 10 February 1994.


Pace Law School Institute of International Commercial Law - Last updated May 13, 2004
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