2008 UNCITRAL Digest of case law on the United Nations Convention on the International Sale of Goods
Digest of Article 72 case law [reproduced with permission of UNCITRAL] [*]
[Text of article
Preconditions for avoidance
Notice of intent to avoid
Adequate assurance of performance]
(1) If prior to the date for performance of the contract it is clear that one of the
parties will commit a fundamental breach of contract, the other party may declare
the contract avoided.
(2) If time allows, the party intending to declare the contract avoided must give reasonable notice to the other party in order to permit him to provide adequate assurance of his performance.
(3) The requirements of the preceding paragraph do not apply if the other party has declared that he will not perform his obligations.
1. Article 72 entitles a seller or a buyer to avoid the contract if it becomes clear before the date for performance that the other party will commit a fundamental breach. However, article 49 rather than article 72 applies if, at or after the date for performance, a party's failure to perform or non-conforming performance amounts to a fundamental breach. Thus a buyer who has not declared the contract avoided before the date for performance may not avoid the contract under article 72 but must act instead under articles 45 and 49.
2. The right of an aggrieved party to avoid the contract under article 72 is to be distinguished from the right to suspend its obligations under article 71. Both articles are concerned with predicting whether there will be a breach but the preconditions for the more drastic remedy of avoidance are more stringent than those for suspension, both as to the seriousness of the predicted breach and the probability that the breach will occur. The notification requirements of the two provisions also differ. Article 72 requires reasonable prior notice only if time allows, and excuses the notice if the other party has declared that it will not perform; article 71, in contrast, requires immediate notice of suspension with no exceptions.
3. Article 72 entitles an aggrieved party to avoid a contract before the date for performance if the contract is for (inter alia) a single delivery, while article 73 provides special rules on avoidance with respect to future instalments if the contract is an instalment contract. Several decisions recognize that, in an instalment contract, the aggrieved party might act under either article as to future instalments.
Preconditions for avoidance
4. Paragraph (1) sets out the principal precondition for a rightful avoidance under article 73: it must be clear prior to the date for performance that the party required to perform will commit a fundamental breach. A very high probability that there will be a fundamental breach rather than complete certainty is required. One decision has stated that a claim of anticipatory repudiation must allege (1) that the defendant intended to breach the contract before the contracts performance date and (2) that such breach was fundamental.
5. A party that declares that it will not perform its obligations satisfies this precondition. Allegations, if proved, that the seller stated it would "no longer feel obligated" to perform and would "sell the material elsewhere" would entitle the buyer to avoid the contract. Conditioning delivery on new demands beyond those agreed upon is an anticipatory repudiation of the contract.
6. The preconditions of paragraph (1) were also found to have been satisfied in the following circumstances: the buyer failed to pay for prior shipments; the buyer failed to open a letter of credit; the seller failed to reduce the price and to commit to deliver fashion goods on time; the seller deliberately terminated delivery of goods.
7. The preconditions were found not satisfied in the following circumstances: the seller held back the goods because of a dispute between the parties; the seller expressed an interest in stopping deliveries but also agreed to continue negotiations; the buyer failed to pay one instalment.
Notice of intent to avoid
8. Where the requirements of article 72(1) have been met, paragraph (2) of article 72 requires the aggrieved party to give the other party prior notice that he intends to avoid the contract, in order to permit the other side a chance to provide adequate assurances that he will perform. This notice is required, however, only "if time allows". This notice is different from the declaration of avoidance governed by article 26, which must also be given if the aggrieved party does not receive adequate assurances and decides to proceed to avoidance. One decision concluded that if the aggrieved party is relying on article 72 it must declare the contract avoided prior to the date for performance.
Adequate assurance of performance
9. As was just noted, the purpose of the notice required under article 72(2) is to allow the recipient an opportunity to provide adequate assurance of performance. The Convention does not prescribe the form assurance must take. There is no requirement that the aggrieved party post a bond.
* This presentation of the UNCITRAL Digest is a slightly modified version of the original UNCITRAL text at <http://www.UNCITRAL.org/pdf/english/clout/CISG_second_edition.pdf>. The following modifications were made by the Institute of International Commercial Law of the Pace University School of Law:
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1. [GERMANY Bundesgerichtshof 3 April 1996 (Cobalt sulphate case)]; [GERMANY Bundesgerichtshof 15 February 1995 (Key press stamping machine)].
2. [ICC International Court of Arbitration, Award 8786 of January 1997 (Clothing case)] (buyer did not suspend obligations but avoided contract under art. 72(1)); [ICC International Court of Arbitration, Award 8574 of September 1996 (Metal concentrate case)] (buyer's purchase of substitute goods not a suspension of its obligations).
3.[ICC International Court of Arbitration, Award 8574 of September 1996 (Metal concentrate case)] (noting differences as to notice).
4. [FINLAND Helsinki Court of Appeal 30 June 1998 (Skin care products case) (EP S.A. v. FP Oy)] (where two separate orders for skincare ointment were to be filled from the same batch of product and there was a fundamental breach with respect to the quality of the first delivery, the aggrieved buyer could avoid as to the second delivery either under either article 72 or, if the two orders constituted instalments of an instalment contract, under article 73(2)); [SWITZERLAND Arbitration Award 273/95, Zürich Handelskammer 31 May 1996 (Aluminum case)] (fundamental breach as to future instalments is covered by both arts. 72 and 73).
5. [GERMANY Landgericht Berlin 30 September 1992 (Shoes case)] (very high probability rather than complete certainty required). See also [AUSTRIA Arbitration Award S2/97, Schiedsgericht der Börse für Landwirtschaftliche Produkte Wien 10 December 1997 (Barley case)] (good grounds under art. 73 means high probability, a less severe test than that found in art. 72(1)).
6. [UNITED STATES Federal District Court, Northern District of Illinois, 7 December 1999 (Magellan International v. Salzgitter Handel)] (citing arts. 25 and 72) (see full text of the decision).
7. See art. 72(3) (excusing the aggrieved party from giving the other side an opportunity to provide adequate assurances of his performance, as normally required under article 72(2), "if the other party has declared that he will not perform his obligations").
8. [UNITED STATES Federal District Court, Northern District of Illinois, 7 December 1999 (Magellan International v. Salzgitter Handel)].
9. [GERMANY Arbitration-Schiedsgericht der Hamburger freundschaftlichen Arbitrage, 29 December 1998 (Cheese case)] (see full text of the decision).
10. [GERMANY Oberlandesgericht Düsseldorf 14 January 1994 (Shoes case)], affirming with modifications [GERMANY Landgericht Krefeld, 28 April 1993 (Shoes case)]; [GERMANY Landgericht Berlin 30 September 1992 (Shoes case)].
11. [AUSTRALIA Supreme Court of Queensland 17 November 2000 (Scrap steel case)].
12. [ICC International Court of Arbitration, Award 8786 of January 1997 (Clothing case)].
13. [SWITZERLAND Arbitration Award 273/95, Zürich Handelskammer 31 May 1996 (Aluminum case)].
14. [SWITZERLAND Bezirksgericht der Sanne 20 February 1997 (Spirits case)].
15. [ICC International Court of Arbitration, Award 8574 of September 1996 (Metal concentrate case)].
16. [SWITZERLAND Arbitration Award 273/95, Zürich Handelskammer 31 May 1996 (Aluminum case)].
17. [FINLAND Helsinki Court of Appeal 30 June 1998 (Skin care products case)] (EP S.A. v FP Oy) (timing and content of fax gave prior notice).
18. [ICC International Court of Arbitration, Award 8574 of September 1996 (Metal concentrate case)] (noting difference between art. 72 notice and declaration of avoidance, and finding that declaration of avoidance was not timely); [GERMANY Oberlandesgericht Düsseldorf 14 January 1994 (Shoes case)] (seller gave notice of intent to avoid followed by notice of avoidance when it heard nothing from buyer) (see full text of the decision).
19. [GERMANY Bundesgerichtshof 15 February 1995 (Key press stamping machine case)].
20. [GERMANY Oberlandesgericht Düsseldorf 14 January 1994 (Shoes case)] (buyer failed to respond to demand for adequate assurance) (see full text of the decision).
21. [ICC International Court of Arbitration, Award 8786 of January 1997 (Clothing case)].