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CISG CASE PRESENTATION

Finland 18 February 1997 Turku Court of Appeal (Animal food packages case) [translation available]
[Cite as: http://cisgw3.law.pace.edu/cases/970218f5.html]

Primary source(s) of information for case presentation: Case text

Case Table of Contents


Case identification

DATE OF DECISIONS: 19970218 (18 February 1997)

JURISDICTION: Finland

TRIBUNAL: Turku Court of Appeal (Turin hovioikeus)

JUDGE(S): Unavailable

CASE NUMBER/DOCKET NUMBER: S 95/1023

CASE NAME: Finnish case citations do not generally identify parties to proceedings

CASE HISTORY: 1st instance District Court of Turku (S 94/4988) 16 June 1995 [affirmed]

SELLER'S COUNTRY: Germany (plaintiff)

BUYER'S COUNTRY: Finland (defendant)

GOODS INVOLVED: Packages for animal food


Classification of issues present

APPLICATION OF CISG: Yes [Article 1(1)(a)]

APPLICABLE CISG PROVISIONS AND ISSUES

Key CISG provisions at issues: Articles 25 ; 49(1) and 49(2)

Classification of issues using UNCITRAL classification code numbers:

25A [Definition of fundamental breach];

49A ; 49B1 [Buyer's right to declare the contract avoided; Cases where the buyer loses the right to declare the contract avoided]

Descriptors: Fundamental breach ; Avoidance

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Editorial remarks

EDITOR: Sanna Kuoppala

Excerpt from "The Application and Interpretation of the CISG in Finnish Case Law 1997-2005" (April 2009)

TURKU COURT OF APPEAL, S 95/1023 (18 FEBRUARY 1997)

2.1   Classification of the issues present
2.2   Applicable law
        2.2.1   Facts of the case
        2.2.2   Sphere of Application of the CISG
                    2.2.2.1   Basic rules on applicability
                    2.2.2.2   CISG and the Conflict of Law Rules
                    2.2.2.3   Reservations
        2.2.3   International Sale of Goods and the Finnish Legislation
        2.2.4   CISG and the Nordic Countries
        2.2.5   Decision on the applicable law on the main issue
        2.2.6   Applicable law in relation to issues not covered by the CISG
                    2.2.6.1   Need for discussion?
                    2.2.6.2   Interpretation of the Convention
                    2.2.6.3   Rate of interest according to the CISG
                    2.2.6.4   Decision on the partial payment
                    2.2.6.5   Decision on the rate of interest
2.3   Delivery of the Goods
        2.3.1   Facts of the case
        2.3.2   General obligations of the Seller and the Buyer
        2.3.3   Buyer's obligation to take delivery
        2.3.4   Decision on the delivery obligation
        2.3.5   Time for delivery
        2.3.6   Place of delivery of the goods
        2.3.7   Passing of risk
        2.3.8   Trade terms
        2.3.9   Decision on time and place of the delivery
2.4   Buyer's right to declare the contract avoided
        2.4.1   Facts of the case
        2.4.2   Avoidance of the contract
        2.4.3   Fundamental breach of the contract
                    2.4.3.1   Concept of fundamental breach
                    2.4.3.2   Substantial detriment
                    2.4.3.3 Foreseeability of the breach
                    2.4.3.4   Burden of proof
        2.4.4   Reasonable time for delivery
        2.4.5   Notice of avoidance
        2.4.6   Decision on the avoidance of the contract
                    2.4.6.1   Right to avoid the contract
                    2.4.6.2   Notice of avoidance
                    2.4.6.3   Seller's right to a specific performance

[...]

2.1 Classification of the issues present

The case involved a sale of animal food packages delivered from a German Seller (the plaintiff) to a Finnish Buyer (the defendant). The questions in dispute included:

   -    Whether the delivery of the goods was delayed; and
   -    On what grounds the buyer could declare the contract avoided.

English translation is available by Professor Tuula Ämmälä. See text of this translation, below. The decision of the Court of Appeal affirmed the decision of the District Court of Turku, S 94/4988 (16 June 1995).

2.2 Applicable law

2.2.1 Facts of the case

The Seller argued that the CISG should be applied to the case. The Buyer, on the other hand, argued that the Finnish Sale of Goods Act should be applied. In relation to the rate of interest, the Seller firstly referred to the Finnish Interest Act and secondly, if the Finnish Interest Act could not be applied, asserted that the interest should be awarded according to the interest rate effective in Germany. The alternative rate of interest was referred to in the general conditions of sale printed on the reverse side of the Seller's letterforms and documents used in the Seller's business.

2.2.2 Sphere of Application of the CISG

2.2.2.1 Basic rules on applicability

Article 1(1) lays down the basic rules on applicability of the CISG.

Article 1

(a) The Convention applies to contracts of sale of goods between parties whose places of business are in different States:
(a) when the States are Contracting States; or
(b) when the rules of private international law lead to the application of the law of the Contracting State.

...

The CISG applies directly if the parties to a contract for the sale of goods have their places of business in different Contracting States, independent of different solution provided by the rules of private international law.[14] In addition, the CISG is also applicable if the rules of private international law lead to the application of the CISG. Thus, even if one of the parties to the sale of goods contract has his place of business in a non-Contracting State, the CISG may be applicable if the rules of private international law lead to the application of the law of a Contracting State.[15]

Article 1(2) provides that the fact that the seller and the buyer have their "places of business in different States" must be known to both parties at any time before or at the conclusion of the contract, otherwise the contract is not governed by the CISG. This premise is supported by Article 10(a) according to which the choice between multiple places of business is to be determined with "regard to the circumstances known to or contemplated by the parties at any time before or at the conclusion of the contract."

It should be noted that subparagraphs (a) and (b) provide alternative grounds for the applicability. When the parties to a sales contract have their places of business in different Contracting states, the rules of private international law that point to the law of a non-Contracting State do not bar the applicability of the CISG.[16]

2.2.2.2 CISG and the Conflict of Law Rules

Even though the CISG is a true achievement in unifying the international sales law, it does not render the conflict of law rules irrelevant. It should be stressed that the CISG regulates the sale of goods transaction only in part.

It is evident that the importance of the conflict of law rules has lost its significance as the CISG is more widely adopted throughout the world. In addition, more and more contracts are nowadays more detailed and well drafted. However the CISG is concerned only with the sale of goods; many transactions involve also other aspects. Some issues are expressly left out of the application of the CISG, e.g. certain transactions: CISG Article 2 provides that the Convention does not apply to sales of goods bought for personal use, sales by auction or on execution or otherwise by authority of law; sales of stocks, shares, investment securities, negotiable instruments or money or sales of ships, vessels, hovercraft or aircraft nor sales of electricity.[17] Also, contracts for the supply of goods to be manufactured or produced are excluded from the sphere of application of the CISG if the party who orders the goods undertakes to supply a substantial part of the materials necessary for such manufacture or production (CISG Article 3(1)). In addition, the CISG does not apply to contracts in which the preponderant part of the obligations of the party who furnishes the goods consists in the supply of labour or other services (CISG Article 3(2)).[18] Further, the CISG does not apply to the liability of the seller for death or personal injury caused by the goods to any person (CISG Article 5).[19]

It should also be noted that one of major countries in the European Union, the United Kingdom, has not yet adopted the CISG. In the absence of the choice of law, in sales between an English buyer and a Finnish seller, it is the conflict of law rules that determine whether to apply the law of the United Kingdom or the Finnish Law, in this case the CISG. The special nature of the close connection between the Nordic countries has also influenced the adaptation of the CISG in Nordic Countries and should therefore not be forgotten.[20]

Most importantly it should be noted that, according to CISG Article 4, the CISG governs only the formation of the contract of sale and the rights and obligations of the seller and the buyer arising from such contract. In particular, except as otherwise expressly provided in the Convention, the CISG is not concerned with: a) the validity of the contract or of any of its provisions or of any usage; b) the effect which the contract may have on the property in the goods sold.

Some of the issues left outside the sphere of application of the CISG are governed by international convention such as the transportation conventions [21] but many issues such as payment arrangements fall under the applicable local law. Thus, even in the age of the CISG, the conflict of law rules still play an important role in determining the rights and obligations of the parties.

The principal law in determining the applicable law relating to the sale of goods in Finland is still the Law Applicable to Sale of Goods of International Character (26 June 1964/387) which is based on the Convention on the Law Applicable to International Sales of Goods concluded in Hague on 15 June 1955 (the 1955 Hague Convention). However, the Convention on the Law Applicable to Contractual Obligations, i.e. the 1980 Rome Convention (enforced by a blanket act on 18 December 1998, 398/1999 which came into force by a decree 26 March 1999/399 on 1 April 1999; the protocols on the interpretation came into force by the decree 9 July 2004/662 on 1 August 2004), governs many of the issues relating to the transaction of the international sale of goods. The sphere of application of the 1980 Rome Convention is more extensive than the sphere of application of the Law Applicable to the Sale of Goods of International Character which applies only to the sale of goods.[22] The 1980 Rome Convention applies to contractual obligations in any situation involving a choice between the laws of different countries (Article 1(1)) -- even where the law it designates is that of a non-Contracting State (Article 2). There are however specific restrictions as to application stated in Article 1(2).[23]

2.2.2.3 Reservations

Pursuant to Article 95, the People's Republic of China, Singapore, St.Vincent & Grenadines and the United States have declared that they will not be bound by Article 1(1)(b).[24] Where the forum is that of a State which has made a reservation under Article 95, the CISG is applied only where both parties to a sale of goods contract have their relevant place of business in different Contracting States.[25] Professor Lookofsky stresses that also courts in Contracting States which have not made an Article 95 declaration should not apply Article 1(1)(b) in respect of any Contracting State that has made an Article 95 declaration when the conflict of law rules of the forum point to the law of the declaring State.[26]

2.2.3 International Sale of Goods and the Finnish Legislation

In order to comply with the international obligations, a reference to international contracts was made when the Finnish Sale of Goods Act was drafted. The Finnish Sale of Goods Act (27 March 1987/355) Section 5 states:

5 § Certain international contracts for the sale of goods are governed by separate provisions.

If the international sale of goods contract refers simply to the Finnish law, the above provision ascertains that the applicable law is the CISG instead of the Finnish Sale of Goods Act.[27] If the parties wish to apply the Finnish Sale of Goods Act to an international contract instead of the CISG, a precise reference ought to be made to the Finnish Sale of Goods Act.

2.2.4 CISG and the Nordic countries

Finland has ratified the CISG subject to a declaration under CISG Article 92 not to be bound by Part II of the Convention: Formation of the Contract. Also Denmark, Norway and Sweden have made the same declaration under CISG Article 92. According to Government proposal HE 198/1986, the reason for this reservation was to avoid two sets of rules in force concerning the formation of the contract. Part II of the Convention has rules that differ from the applicable Finnish rules under the Finnish Contracts Act (13 June 1929/228).[28] However, this does not mean that Part II of the Convention would not be applied in Finland in some cases. As far as Part II of the Convention, Finland is not a Contracting State as provided in CISG Article 1(1)(a). However, if the conflict of law rules as provided for in CISG Article 1(1)(b) point to the law of a country which has not made a declaration provided in CISG Article 92, also the Part II of the Convention would apply.[29] In addition, if the parties to a contract have agreed that the CISG is to be applied to a contract, also Part II of the Convention is to be applied.[30] Thus, if a Finnish party wishes to apply the CISG as to the rights and obligations of the seller and the buyer arising from such a contract but not to the formation of the contract, instead of a general reference to the CISG, the parties should make an explicit statement that Part II of the Convention is not to be applied, but instead the law of e.g. Finland will apply to the formation of the contract. Professor Lookofsky has suggested that all of the Scandinavian States should withdraw their reservations to the CISG Part II, as the application of Part II is not always displaced with Scandinavian or other domestic law.[31]

Finland, together with Denmark, Norway, Sweden and Iceland has also made a declaration provided for in CISG Article 94.[32] According to this declaration, two or more Contracting States which have the same or closely related legal rules on matters governed by this Convention may at any time declare that the Convention is not to apply to contracts of sale or to their formation where the parties have their places of business in those States. CISG Article 94(2) allows the reservation to be made also in relation to the non-Contracting State. According to Article 94(3), if a non-Contracting State which was the subject of a declaration by a Contracting State under Article 94(2) subsequently becomes a Contracting State, the new State must make a positive declaration.

The purpose of this reservation is to enable States which have largely harmonized their sale of goods laws to exclude the application of the CISG in their relations with each other.[33] According to the Government proposal HE 198/1986, the solution that the CISG would be applied in the Nordic market and Finnish Sale of Goods Act in the domestic trade was against the efforts of establishing the Nordic market as a domestic market area. It was stressed that the main purpose of the harmonization of the Nordic laws was to facilitate the sales of goods between the Nordic countries. The uniform legal rules diminished the buyer's need to become acquainted with the foreign law. This was important, among others, to small businesses, whose first experiences with the foreign trade took place in a Nordic market. Small businesses do not usually have the legal expertise available that is needed to become acquainted with the foreign law.[34] Also, this reservation has raised criticism and it has been suggested that it ought to be withdrawn.[35]

2.2.5 Decision on the applicable law on the main issue

The District Court simply briefly referred to the Finnish Sale of Goods, Section 5 and the Law Applicable to the Sale of Goods of International Character when stating that the CISG should be applied. The District Court made no reference to the issues that were not governed by the CISG or to the applicable law on those issues. In relation to the issues not governed by the CISG, the Finnish law was however applied throughout the case.

The Appeal Court analysed in a more detailed way why the CISG should be applied by referring to CISG Article 1(1)(a). In Finland, the CISG came into force on 1 January 1989 and in Germany on 1 January 1991. The approach adopted by the Appeal Court is more acceptable. Even though the CISG Article 1(1)(a) seems to be straight forwarded as such, it is necessary to refer specifically to the issue. There are not so many cases published in Finland concerning the CISG and therefore it is useful to the legal praxis that the relevant issues are stated clearly.

2.2.6 Applicable law in relation to issues not covered by the CISG

2.2.6.1 Need for discussion?

Also, the Finnish conflict of law rules were referred to when discussing the applicable law on the issues not governed by the CISG. As noted above, not all aspects are covered by the CISG.[36] The Appeal Court stated that the issue whether a partial payment ought to be credited primarily as a payment of the capital or the interest is not governed by the CISG. In relation to the interest, neither the District Court nor Court of Appeal discussed the issue. Firstly, the problematic of the issues not covered by the CISG is discussed briefly in relation to the rate of interest.

2.2.6.2 Interpretation of the Convention

Some of the provisions of the CISG are vague and lack precise definition. The most evident example is the CISG Article 78.

Article 78

If a party fails to pay the price or any other sum that is in arrears, the other party is entitled to interest on it, without prejudice to any claim for damages recoverable under article 74.

Thus, Article 78 provides that the CISG awards interest on sums in arrears but does not state the amount or percentage of the interest to be applied, nor does it provide a specific formula for calculating the interest.

As CISG Article 78 does not provide the definite rate of interest, if the parties have not agreed on the rate of interest to be applied, one must look at the Convention to find an answer to the question.

Article 7

(1) In the interpretation of this Convention, regard is to be had to its international character and to the need to promote uniformity in its application and the observance of good faith in international trade.
(2) Questions concerning matters governed by this Convention which are not expressly settled in it are to be settled in conformity with the general principles on which it is based or, in the absence of such principles, in conformity with the law applicable by virtue of the rules of private international law.

The first paragraph of Article 7 requires that the Convention be interpreted in the light of its international character. Regard is also to be had to the need to promote uniformity in Convention's application. The preparatory works of the Convention are of course essential. However, the international scholarly writings and case law are now readily available and play an ever important role. The Convention also stresses the need to promote the observance of good faith in international trade. During the preliminary works of the Convention it was decided that the requirement of good faith should be restricted only to a principle for interpreting the provisions of the Convention.[37] The most important thing in the interpretation of the Convention is to avoid reading and applying the Convention in the light of domestic legal traditions and giving meaning to the Convention through meanings of domestic legal terms.

The second paragraph of Article 7 provides that unsolved questions concerning matters governed by the Convention are to be settled, in the first hand, in conformity with general principles on which the Convention is based. In the absence of such general principles, the answers must be sought from the applicable law by virtue of the rules of private international law. It is important to value the restraints Article 7 sets for the gap-filling. The reference to the applicable domestic law should not be used too hastily. If the Convention lacks specific provisions on an issue it governs, the question should be solved by analogical application of the general principles when possible. The uniformity of the Convention's application is endangered if tribunals invoke domestic law too easily.[38] The possible application of the general principles may be tested against applicable trade usages and against contract practices and modern rules of law specially designed for international transactions.[39]

2.2.6.3 Rate of interest according to the CISG

The rate of interest was one of the issues not successfully agreed upon when drafting the Convention.[40] The solutions offered by the scholars to solve the issue on the rate of interest vary from a restitutionary approach to applying the applicable national law by virtue of the rules of private international law.

In relation to the rate of interest, Professor Honnold suggests that the solution should be derived by analogy to the Convention's rules on compensation for breach of contract (CISG Article 74, 75 and 76), in accordance with CISG Article 7(2). Questions concerning matters governed by the Convention but not expressly settled in it are to be settled in conformity with the general principles on which the Convention is based. Only if such general principles cannot be identified, can one turn to the applicable national law. CISG Article 74 provides that "damages ... consist of a sum equal to the loss ... suffered ... as a consequence of the breach." If the aggrieved party has made a reasonable substitute transaction that can be identified, CISG Article 75 provides that "the party claiming damages may recover the difference between the contract price and the price in the substitute transaction." If a substitute transaction cannot be identified or such transaction has not been made, under CISG Article 76, the aggrieved party can base the damages on the current price: "the party claiming damages may ... recover the difference between the price fixed by the contract and the current price/" If the other party fails to pay the price or any other sum that is in arrears, the aggrieved party can replace those funds by borrowing. If the "substitute transaction" can be identified, the loss suffered by the aggrieved party could be measured as the cost of this substitute transaction. If a substitute loan cannot be pinpointed, the aggrieved party's loss could be measured by the "current price" of credit. The rate of interest is based on the aggrieved party's cost of borrowing.[41]

This discussion on the rate of interest applies also in relations to CISG Article 84(1).

Article 84

(1) If the seller is bound to refund the price, he must also pay interest on it, form the date on which the price was paid.
...

This Article relates to obligations of each party to return what it has received in case of avoidance of the contract.[42] Professor Honnold states that, in these cases where the seller is obliged to refund the price because of its breach of contract, it is appropriate to base the interest on the loss suffered by the aggrieved buyer rather that on a restitutionary approach to prevent unjust enrichment by the seller.[43]

Professor Bacher in the Schlechtriem & Schwenzer Commentary is more sceptical in reaching an international, uniform rule in relation to the rate of interest by a reference to general principles. The main concern opposing the adoption of the uniform rule is that the Diplomatic Conference was not able to reach a solution on the issue. The different solutions proposed by legal writers and courts should also be looked at with caution. Professor Bacher points out further that even if the uniform approach is accepted instead of the approach to applying domestic laws, in both cases there is no agreement on the rate of interest. Professor Bacher suggests that the solution is to connect the rate of interest with the currency in which the sum is to be paid and further, to the prime rate of the currency involved.[44]

There is considerable case law on the issue of the rate of interest. Francesco Mazzotta has in his article surveyed an extensive amount of cases relating to the rate of interest.[45] He concludes that the majority of authors and courts have clearly stated that interest is to be governed by the law of the country as determined by the rules of conflict of laws of the forum state. Mazzotta is of the opinion that the interest rate is within the sphere of the application of the CISG as the CISG does establish a general entitlement to interest, although the actual figure is not to be determined through the Convention or its general principles, but by resorting to the applicable domestic law. Mazzotta stresses that even if the general principles may give some guidance in determining the actual interest rate, they are not helpful in terms of assuring either certainty or uniformity. During the life of the CISG, neither the commentators nor the courts have been able to settle the issue. Mazzotta recognises that resorting to domestic rules of private international law is not the best solution, but it is still better than resorting to any other method that is expressly outside the scheme of the Convention. He, however, stresses that the domestic rules of private international law should be subject to the good faith and international character requirements set forth by Article 7(1) of the Convention. Excessive unforeseeable interest resulting in an unreasonable enrichment of one party over the other may not be awarded.[46]

Mazzotta also notes that interest as described under Article 78 is different from interest under Article 84(1). Under Article 84(1), interest is intended to compensate the creditor (buyer) for the fruits (interest) of not having benefited from the money owed by the debtor (seller) due to the avoidance of the contract. In other words, interest under Article 84(1) is based on the principle that money produces fruits, but is owed only when, as a result of the avoidance of the contract, the price must be refunded to the buyer. Moreover, interest under Article 84(1), as opposed to Article 78, must be paid from the date on which the price was paid and there is no reference to any "arrears" requirement.[47]

The parties can naturally agree on the rate of interest even prior to the conflict. The primacy of the parties' contract is the dominant theme of the Convention (CISG Article 6).

2.2.6.4 Decision on the partial payment

In Finland, the Act on the Law Applicable to the Sale of Goods of International Character determines the applicable law in relation to the international sale of goods.[48] According to Section 3, the parties may agree upon the applicable law. The agreement on the choice of law can be made expressly or impliedly. In the absence of a choice of law under Section 3, the sale shall be governed by the law of the State where the seller's business is situated (Section 4, subsection 1). However, if the buyer placed the order in the State where the buyer owns a business and the seller or his agent received the order in that State, the sale shall be governed by the law of the buyer's State (Section 4, subsection 2).

In relation to whether a partial payment refunded by Customs officials ought to be credited primarily as a payment of the capital or the interest, the Court of Appeal held that it had been proven that the Seller's agent received the order in Finland where the Buyer had his habitual residence. Therefore, the law applicable in this question is, according to the Finnish Act on the Law Applicable to the Sale of Goods of International Character, paragraph 4(2), the Finnish law, i.e. the Finnish Commercial Code.

According to the Finnish Commercial Code Chapter 9, Section 5, no payment can be credited before the interest has been paid. Chapter 9, Section 12 governs the issue on the rate of interest. Section 12 provides that if a party fails to pay any sum that is in arrears, the other party is entitled to interest on it according the Interest Act (20 August 1982/633), Section 4.[49]

2.2.6.5 Decision on the rate of interest

Neither he Court of Appeal nor the District Court discussed the rate of interest, even though the Seller did make an alternative reference to the German credit interest rate in its claim by referring to the general conditions of sale printed on the reverse side of the Seller's letterforms and documents used in the Seller's business. It can be inferred from this that the parties agreed to apply the Finnish rate of interest. Had the parties not agreed on the rate of interest, the issue whether a reference in the Seller's letterforms and other documents had become part of the contract would have to have been resolved first. The question relating to standard forms and freedom of contract under the Finnish law is discussed in more detail later in relation to the decision by the Turku Court of Appeal, S 97/324 (12 April 2002).[50]

2.3 Delivery of the Goods

2.3.1 Facts of the case

The Buyer had ordered packages for animal food from the agent of the Seller's company. The Seller argued that the goods had been delivered according to the agreed delivery time. The delivery had been delayed because of the reasons attributable to the Buyer. The Buyer had not accepted the proofs of the labels until six weeks after the request. Because of the time of the delivery was during the holiday season, the printing of the labels took six weeks and thus the delivery that took place in February 1993 had been on time.

The Buyer argued that it had expected to receive the goods some time during August or September. The Buyer had also provided the final layout for the labels far earlier than on 12 November 1992. Nevertheless, the delivery had been delayed even if it is held that the delivery could have taken place only after the 12 November 1992. The goods had been transferred to the carrier in Germany on 18 February 1993 (14 weeks after the approval of the labels) and the goods arrived in Finland on 25 February 1993 (15 weeks after the approval of the labels). In international foodstuff trade, the delivery time 'as soon as possible' means 5 to 6 weeks from the order; in trade within Europe, a maximum of 2 to 3 weeks. These delivery times include any possible printing, packaging and other related measures. Thus, the delivery had taken more than double the time that could be held acceptable in international trade. Despite this, the Seller had not requested from the Buyer whether the Buyer would still want the goods.

The Seller answered that the Buyer had agreed to accept the delivery as the parties had had negotiations in relation to the transportation of the goods. The goods were to be delivered Ex Works, which provides that the goods are delivered when placed at the buyer's disposal at the seller's premises, e.g. factory.

2.3.2 General obligations of the Seller and the Buyer

Article 30 introduces the summary of basic obligations of the seller. Article 53 introduces the parallel obligations of the buyer.

Article 30

The seller must deliver the goods, hand over any documents relating to them and transfer the property in the goods, as required by the contract and this Convention.

Article 53

The buyer must pay the price for the goods and take delivery of them as required by the contract and this Convention.

Both Articles emphasize the role of the contract in identifying the parties' obligations, a notion of freedom of contract confirmed in CISG Article 6.[51]

2.3.3 Buyer's obligation to take delivery

The buyer's obligation to take delivery consists of two separate elements. Firstly, the buyer must do all acts which can reasonably be expected of him in order to enable the seller to make delivery. Secondly, the buyer must take over the goods, i.e. physically accept them.[52]

Article 60

The buyer's obligation to take delivery consists:
(a) in doing all the acts which could be reasonably be expected of him in order to enable the seller to make delivery; and
(b) in taking over the goods.

Cooperation of the parties to an international sales transaction is essential. The first paragraph of Article 60 recognizes and enforces this requirement for successful international trade. The acts the buyer could reasonably be expected to take to enable the seller to make delivery are usually specified in the sales contract, in which case recourse to Article 60 is unnecessary.[53] However, it should be noted that these acts may also include acts to be taken by the buyer in accordance with normal commercial conduct and which are customary even though they are not specifically mentioned in the contract or the Convention nor are established practices or usages.[54]

What is part of the cooperation required from the buyer? The issue is important because it determines what remedies are available for the seller in case of the buyer's failure to perform his obligations. If the buyer has breached his obligation to take delivery, the seller may exercise the rights conferred to him in the Convention, such as to require specific performance or claim damages. Most importantly, however, according to Article 64(1)(b), the seller may declare the contract avoided without proving the fundamentality of the breach of contract if the buyer fails to take delivery within an additional time fixed by the seller in accordance with Article 63(1).

According to Article 64, the seller may declare the contract avoided if the failure by the buyer to perform any of his obligations under the contract or the Convention amounts to a fundamental breach of contract (Article 64(1)(b)). The seller is however advised to be cautious in declaring the contract avoided because of the fundamental breach of the contract. The seller may also fix an additional period of time under Article 63(1) for the buyer to perform his obligations to take delivery of the goods (Article 64(1)(b)). If the buyer has already paid the price, the seller has to declare the contract avoided in respect of late performance by the buyer, before the seller has become aware that performance has been rendered (Article 64(2)(a)) and in respect of any breach other than late performance, such as failure to take delivery, within a reasonable time after the seller knew or ought to have known of the breach or the expiration of any additional period of time fixed by the seller or after the buyer has declared that he will not perform within such an additional period (Article 64(2)(b)(i) and (ii)).

Professor Hager states that preparatory measures for the manufacture of the goods are part of the cooperation required by the buyer, since ultimately they serve to enable the seller to make delivery.[55] Also Professor Honnold recognizes that Article 60 gives the seller a right to fix an additional period under Article 63(1) for the buyer to provide the missing specifications. If the buyer fails to take action during this additional period, the seller may declare the contract avoided without proving the fundamentality of the buyer's breach.[56] Also Professor Hager concurs with the above opinion. The duty to make a specification is part of the duty to take delivery; therefore the seller has a right to declare the contract avoided under Article 64(1)(b) if the buyer fails to take action during the additional period fixed by the seller.[57]

Professor Honnold states that the refusal by the buyer to comply with this requirement of the contract would seem sufficiently serious to authorize the seller to avoid the contract even on the basis of fundamental breach of contract (Article 64(1)(a)).[58] There are however risks, as it is often hard to judge whether a breach of contract amounts to a fundamental breach. If it is unclear whether the buyer's failure to provide specifications amounts to a fundamental breach, the seller can choose a safer course and fix an additional period under Article 63 for the buyer to fulfil his obligations. According to Article 64(1)(b), the seller can declare the contract avoided without proving the fundamentality of the buyer's breach, provided that the buyer has not acted during the additional period fixed by the seller.

It should be noted that the U.N. Secretariat in its Commentary on the 1978 Draft Convention states that if the buyer fails to make specifications required by the contract, the seller has a right to fix an additional period under Article 63 for the buyer to fulfil his obligations. If the buyer fails to fulfil his obligations during the additional period, the seller has a right to declare the contract avoided without considering whether or not the breach committed by the buyer is fundamental.[59] In effect, the Secretariat acknowledges that providing specifications to the seller is part of the buyer's obligation to take delivery, as Article 64(1)(b) limits the use of avoidance of the contract because of the failure to act during the additional period only to the buyer's obligations to pay the price or take delivery of the goods.

Leif Sevón is also of the opinion that the obligation to take action reasonably expected to enable the seller to make delivery covers not only the obligations relating to transmission of the goods from the seller to the buyer but also the duty to provide information relevant to the production of the goods.[60] If the buyer is obliged to provide information relating to the production and fails to do so, the seller has a right under Article 64(1) to avoid the contract either because the breach of contract is fundamental and/or the buyer has failed to perform within the additional time fixed by the seller.[61] Sevón stresses that the extent of the obligation conferred on the buyer in Article 60 depends on the contract and further, Article 60 must be read in conjunction with Article 65.[62]

The purpose of Article 65 is to avoid a situation where the buyer could claim that there is no contract because the specifications of the goods are missing, even though it has been agreed in the contract that the specifications will be provided at a later stage.[63]

Article 65

(1) In under the contract the buyer is to specify the form, measurement or other features of the goods and he fails to make such specifications either on the date agreed upon or within a reasonable time after receipt of a request from the seller, the seller may, without prejudice to any other right he may have, make the specifications himself in accordance with the requirements of the buyer that may be known to him.
(2) If the seller makes the specifications himself, he must inform the buyer of the details thereof and must fix a reasonable time within which the buyer may make a different specification. If, after receipt of such a communication, the buyer fails to do so within the time so fixed, the specification made by the seller is binding.

Article 65 gives the seller a right to act for the buyer but does not oblige the seller to act. When the contract calls for the manufacture of goods that are unique, the seller should be cautious especially if the buyer has informed the seller that he does not want the goods. According to Article 77, a party who relies on a breach of contract must take such measures as are reasonable in the circumstances to mitigate the loss. A wasteful production might collide with this obligation.[64] It has also been argued that the obligation for the seller to make the specifications himself can exceptionally follow from the obligation of the seller to mitigate losses under Article 77.[65] In these cases, the seller would not have a right to choose whether to act or not.

Professor Maskow and Professor Enderlein do not share that view. They conclude that the obligation to take delivery does not comprise the obligation to participate in the manufacture of the goods.[66] Professor Maskow stresses that Article 60(a) -- the buyer's obligation to take the delivery consists in doing all the acts which could reasonably be expected of him in order to enable the seller to make delivery -- refers only to those acts which have an influence on the delivery itself. Accordingly, obligations of the buyer whose purpose is to enable production by the seller are not covered.[67] The buyer's obligation to provide specifications to the seller is covered by Article 65. Professor Maskow acknowledges that even though fulfilment of the obligation to provide specifications is important for the manufacture or production of the goods, it can also be decisive for delivery. He also acknowledges that when the buyer is obliged to deliver packing materials or labels, it is not clear whether the issue is covered by obligation to enable delivery or the obligation to ensure the seller's production, since the packaging may be part of the production process.[68] However, the buyer's failure to provide specifications may amount to a fundamental breach. The seller, however, has no right to avoid the contract if the buyer fails to act during the additional period of time fixed by the seller, as the obligation for specifications is not part of the obligation to take delivery of the goods. The seller can only avoid the contract if the breach of the obligation for specifications is fundamental at the moment the additional period has elapsed.[69]

Professor Knapp reaches the same conclusion, the buyer's failure solely to perform his obligation to make the specification within the additional period of time so fixed by the seller or the buyer's notification to the seller that he will not make the requested specification within this period of time will not justify avoidance of the contract by the seller. But, on the other hand, he states that providing specifications is part of the buyer's obligation to take delivery and thus a late specification constitutes a breach of contract by the buyer. If such a breach of contract is fundamental, the seller is authorized to resort to the appropriate remedies available to him.[70] However, the prominent view of the scholars seems to be that part of the buyer's obligation to take delivery covers also the preparatory measures of the production such as to make a specification.

2.3.4 Decision on the delivery obligation

The District Court held that it had been agreed on the confirmation of the order that the goods were to be delivered as soon as the labels had been printed. The printing of the labels had been subject to the Buyer's approval. Any other time for delivery had not been shown to have been agreed. The Court of Appeal confirmed the decision of the District Court. Before the proofs had been approved on 12 November 1992, the Seller had no obligation to deliver the goods.

As the Secretariat Commentary is the closest counterpart to an Official Commentary and further it seems to me that drawing the distinction between the measures relating to the production and delivery is at least in some cases artificial and theoretical, I agree with the overwhelming majority of the scholars: the enabling steps in relation to the delivery include also the obligation to provide specification agreed upon in the contract. In this particular case, the enabling steps to be performed by the Buyer included providing information relating to the printing of the labels. Thus in principal the Seller would have had a right to declare the contract avoided. Whether the Buyer's failure to provide the specifications for the labels amounted a fundamental breach would have been irrelevant had the Seller in requesting the specifications referred to an additional period authorized by CISG Article 64(1)(b) and Article 63.

2.3.5 Time for delivery

Article 33 reinforces the general rule of the Convention, the primacy of the contract. If the time for delivery is not fixed or determinable from the contract, and thus not covered by paragraphs (a) or (b), the seller must deliver within a reasonable time after the conclusion of the contract.

Article 33

The seller must deliver the goods:
(a) if a date is fixed by or determinable from the contract, on that date;
(b) if a period of time is fixed by or determinable from the contract, at any time within that period unless circumstances indicate that the buyer is to choose a date; or
(c) in any other case, within a reasonable time after the conclusion of the contract.

What is a reasonable time after the conclusion of the contract naturally depends upon the circumstances of the case.[71] Paragraph (c) is also applied if an undetermined time for delivery has been agreed upon in the contract, such as "soon as possible". This does not necessarily mean "as soon as possible" after the conclusion of the contract, but all the relevant circumstances of the case have to be taken into consideration.

The function of the rules in Article 33 is to determine the date when a buyer who has not received the goods is entitled to exercise his remedies under the Convention.[72] The notion of 'reasonable time' will be further discussed in relation to the buyer's right to avoid the contract.[73]

2.3.6 Place of delivery of the goods

Had the parties not agreed on the delivery term, the issue would have been covered by CISG Article 31.

Article 31

If the seller is not bound to deliver the goods at any other particular place, his obligation to deliver consists:
(a) if the contract of sale involves carriage of the goods - in handing the goods over to the first carrier for the transmission to the buyer;
(b) if, in cases not within the preceding paragraph, the contract relates to specific goods, or unidentified goods to be drawn from a specific stock or to be manufactured or produced, and at the time of the conclusion of the contract the parties knew that the goods were at, or were to be manufactured or produced at, a particular place - in placing the goods at the buyer's disposal at that place;
(c) in other cases - in placing the goods at the buyer's disposal at the place where the seller had his place of business at the time of the conclusion of the contract.

Article 31 states how and where the seller's obligation to deliver is fulfilled. According to subparagraph (a), where the contract of sales involves carriage of goods, the general rule is that the seller's obligation to deliver the goods consists of handing them over to the first carrier for the transmission to the buyer. If the contract explicitly or by the use of a trade term specifies the place at which the goods are to be delivered, the seller's obligation to deliver does not consist of handing the goods over the first carrier but in doing the act specified in the contract.[74]

According to subparagraph (b), if, at the time of the conclusion of the contract, the parties knew that the goods were at, or were to be manufactured or produced at, a particular place and the contract does not require or authorize the shipment of the goods, the seller's obligation to deliver the goods consists of placing the goods at the buyer's disposal at the place at which the goods were located or at the place at which they were to be manufactured or produced. Paragraph (b) covers also sales of specific goods and unidentified goods to be drawn from a specific stock. Both parties must have knowledge of the location of the specific goods, of the location of the specific stock from which the goods to be delivered are to be drawn, or of the place at which the goods are to be manufactured or to be produced. They must have actual knowledge; it does not suffice if one or the other party ought to have such knowledge but did not. Moreover, they must have this knowledge at the time of the conclusion of the contract.[75]

The Secretariat Commentary takes a view that if the goods are already in transit at the time of the conclusion of the contract, the contract of sale is not one which "involves" the carriage of goods under subparagraph (a) but is one which involves goods which are at a particular place and which are therefore subject to subparagraph (b). If the goods are already in transit, the seller cannot fulfil its obligation to deliver, i.e. hand the goods over to the first carrier.[76] Nevertheless, the seller must place the goods at the disposal of the buyer, e.g. by endorsing the bill of lading to the buyer or by informing the carrier of the assignment of the cargo.[77] Professor Huber and Professor Widmer argue that when the goods are sold in transit, that constitutes a special agreement on the place of delivery and the content of the delivery, thus the situation is not covered by paragraphs (a) to (c). However, in line with the reasoning approved by Secretariat Commentary, the seller fulfils its obligation to deliver by putting the buyer in a position whereby he can take over the goods at the place of destination.[78]

If the situation is not covered by subparagraphs (a) or (b), subparagraph (c) provides that the seller fulfils his obligation to deliver the goods in placing the goods at the buyer's disposal at the place where the seller had his place of business at the time of the conclusion of the contract. If the seller has more than one place of business, Article 10 provides that the place of business is that which has the closest relationship to the contract and its performance, having regard to the circumstances known to or contemplated by the parties at any time before or at the conclusion of the contract. The meaning of "place of business" refers to a place for the continuing conduct of business, the term excludes a temporary place such as a place rented for negotiations.[79] If a party does not have a place of business, subparagraph (b) of Article 10 provides that reference is made to his habitual residence. Subparagraph (c) of Article 31 does not override the basic rule stated in the opening phrase of Article 31. If the contract provides for delivery to be made at some particular place other than where the seller had his place of business at the time of the conclusion of the contract, the delivery is affected by handing over the goods or by placing them at the buyer's disposal at this particular place provided in the contract.[80]

2.3.7 Passing of risk

The place of delivery is especially important in relation to the passing of risk. If the parties have not agreed on the point at which risk passes from the seller to the buyer, e.g. by referring to a specified trade term such as Ex Works, CISG Articles 67 to 69 govern the issue. The general rule provided for in Article 67 provides that the risk passes to the buyer when the goods are handed over to the first carrier. Article 68 governs the sale of goods in transit. In brief, when the goods are sold in transit, the risk passes to the buyer from the time of the conclusion of the contract unless the circumstances indicate that risk is assumed by the buyer from the time the goods were handed over to the carrier. If the buyer is to come for the goods or if the seller transports the goods to the buyer in the seller's own vehicles, Article 69 provides that the risk passes to the buyer when he takes over the goods or, if he does not do so in due time, from the time when the good are placed at his disposal.

2.3.8 Trade terms

Article 31 and hence Articles 66 to 70 relating to passing of risk apply relatively seldom, as customarily the place of the delivery is agreed upon in the contract of sales. The parties frequently agree that the obligation to deliver and the place of delivery are to be governed by delivery clauses such as the Incoterms Ex Works- term. Incoterms, i.e. International Commercial Terms, are published by the International Chamber of Commerce. Incoterms are standard trade definitions most commonly used in international sales contracts. The latest edition of the Incoterms came into force on 1 January 2000. The correct reference to this latest edition is "Incoterms 2000". Also the earlier versions of Incoterms, such as Incoterms 1990, can still be incorporated into future contracts if the parties so agree. However, this course is not recommended because the latest version is designed to bring Incoterms into line with the latest developments in commercial practice.[81]

In order to have binding effect, the Incoterms must be referred to in the contract. Even where there is no express reference to the Incoterms in the contract, the parties may have impliedly made Incoterms to be part of their contract by virtue of Article 9(2).[82] Incoterms reflect generally recognized principles and practices.[83] Thus, not only are Incoterms widely known and regularly observed but also the parties engaging regularly in international trade are aware of them or at least ought to be aware of them. However, in order to avoid confusion, the parties should clearly refer to a specific edition of the Incoterms.

In majority of the trade terms, the risk passes to the buyer when the goods are at the buyer's disposal or are handed over to the first carrier, regardless that the seller may be responsible for transportation costs. This is due to practical considerations. Damage in transit is usually discovered only when the goods arrive and are unpacked. The buyer is in the better position to salvage the goods and to file a claim against the carrier or insurer.[84]

With E-terms, i.e. EXW (Ex Works), the seller's duty to deliver includes only a duty to place the goods at the disposal of the buyer at the named place, the seller's premises or another named place, such as factory or warehouse. The risk passes to the buyer immediately when the goods are at the disposal of the buyer. Under the F-terms, the seller has to arrange any necessary pre-carriage in the country of export to reach the agreed point for handing over the goods to the carrier. The seller must deliver the goods to the carrier or another person nominated by the buyer at the named place (FCA, Free CArrier) or the seller must place the goods alongside the ship (FAS, Free Alongside Ship). Under FOB, Free On Board, the risk passes to the buyer when the goods pass the ship's rail. With C-terms, the seller arranges and pays for the main carriage but does not assume the risk of the main carriage. The risk passes to the buyer when the goods pass the ship's rail (CFR, Cost and FReight; CIF, Cost, Insurance and Freight) or when the goods have been delivered to the carrier (CPT, Carriage Paid To; CIP, Cost and Insurance Paid). Only with D-terms does the seller bear the risk of the main carriage. Under D-terms the seller must make the goods available upon arrival at the agreed destination. The risk passes to the buyer when the goods have been delivered at the frontier (DAF, Delivered At Frontier), when the goods are placed at the disposal of the buyer on board the ship (DES, Delivered Ex Ship), when the goods are placed at the disposal of the buyer on the quay (DEQ, Delivered Ex Quay) or when the goods are placed at the disposal of the buyer (DDU, Delivered Duty Unpaid; DDP Delivered Duty Paid).[85]

In addition to determining the place for delivery, Incoterms also determine who is responsible for providing export and import licences and who is responsible for possible export or import taxes; issues relating directly to the seller's obligation to deliver and the buyer's obligation to take delivery. Other issues, such as transfer of property rights, exemptions and consequences of various breaches of contract, are not dealt in Incoterms.[86]

2.3.9 Decision on time and place of the delivery

Both the District Court and Court of Appeal concluded that on the basis of the evidence presented, it had been approved that the delivery of the goods should be as soon as the labels for the goods were ready. In the confirmation of order signed by the parties on 9 September 1992, the parties had agreed that the goods were to be delivered after the labels had been printed. The Buyer had approved the labels on 12 November 1992.

The District Court held that the printing of the labels and their attachment to the products had been possible to perform at the same time as the manufacture of the goods. As the printing did not considerably influence the time of the delivery (maximum effect would have been two weeks), it had no decisive influence on the evaluation of the time of delivery. The goods had arrived to Turku on 25 February 1993. The average time for delivery in cases relating to the goods in question was 3 to 4 weeks, thus the delivery was delayed.

The Court of Appeal rightfully referred to the correct interpretation of the Ex Works- trade term. Contrary to the District Court's decision, the delivery did not take place when the goods arrived in Finland but the goods were delivered by placing the goods at the buyer's disposal at the Seller's factory on 18 February 1993.Thus, the delivery of the goods took 14 weeks. Taking into consideration the delivery time observed regularly in the trade concerned, the appropriate time for delivery -- taking into account the time needed for printing the labels -- would have been a maximum of 8 weeks. Thus the Court of Appeal held that the delivery was delayed.

The Court of Appeals reference to the Ex-works terms is appropriate. As the time of delivery is one of the essential issues relating to the buyer's right to declare the contract avoided, it is important that precise and accurate interpretations are always followed, regardless whether the issue has especial significance in the given case. The reasonable time for delivery is discussed next in relation to the Buyer's right to declare the contract avoided.

2.4 Buyer's right to declare the contract avoided

2.4.1 Facts of the case

The Buyer claimed that it had a right to declare the contract avoided and in fact it had done so already in autumn 1992. The Seller argued that the Buyer had not asserted avoidance of the contract until the proceedings have been started.

2.4.2 Avoidance of the contract

Article 49 provides the general basic rule on avoidance of the contract because of the seller's breach.

Article 49

(1) the buyer may declare the contract avoided:

(a) if the failure by the seller to perform any of his obligations under the contract or this Convention amounts to a fundamental breach of contract; or
(b) in case of non-delivery, if the seller does not deliver the goods within the additional period of time fixed by the buyer in accordance with paragraph (1) of article 47 or declares that he will not deliver within the period so fixed.
(2) However, in cases where the seller has delivered the goods, the buyer loses the right to declare the contract avoided unless he does so:
(a) in respect of late delivery, within a reasonable time after he has become aware that delivery has been made;
(b) in respect of any breach other that late delivery, within a reasonable time:
(i) after he knew or ought to have known of the breach;
(ii) after the expiration of any additional period of time fixed by the buyer in accordance with paragraph (1) of article 47, or after the seller has declared that he will not perform his obligations within such an additional period; or
(iii) after the expiration of any additional period of time indicated by the seller in accordance with paragraph (2) of article 48, or after the buyer has declared that he will not accept performance.

In case of late delivery, the buyer has two choices. According to paragraph (1) of Article 49 the buyer can estimate what constitutes a fundamental breach in case of late delivery even before the goods have been delivered; if late delivery constitutes a fundamental breach, the buyer can declare the contract avoided. Under paragraph 2(a), the buyer can also wait for the delivery and after he becomes aware the delivery was made, declare the contract avoided, provided of course that the delay is a fundamental breach. If the buyer is uncertain whether a delay in delivery constitutes a fundamental breach, he can fix an additional period of time for performance by the seller of his obligations under Article 47(1). If the seller fails to perform within a reasonable period of time fixed by the buyer, the buyer may declare the contract avoided under paragraph (1)(b)(ii) of Article 49 without proof of fundamental breach.[87]

2.4.3 Fundamental breach of the contract

2.4.3.1 Concept of fundamental breach

Article 49(1)(a) provides that the general precondition of the buyer's right to avoid the contract in the event of the seller's breach is that the seller's breach of contract is fundamental within the meaning of Article 25. The seller's right to avoid the contract is similarly linked to the fundamentality of the breach (Article 64).[88] Also the buyer's right to require substitute goods under Article 46 is linked to the fundamental breach. The requirement of specific performances by way of replacement presupposes that the non-conformity of the delivered goods constitutes a fundamental breach.

Article 25

A breach of contract committed by one of the parties 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.

The basic criterion for a breach to be fundamental is that "it results in substantial detriment to the injured party." In addition, the relevant detriment is limited to what the party in breach foresaw or should have foreseen.[89]

2.4.3.2 Substantial detriment

The Secretariat Commentary states that the determination whether the injury is substantial in the reference of Article 25 must be made in the light of the circumstances of each case, e.g., the monetary value of the contract, the monetary harm caused by the breach, or the extent to which the breach interferes with other activities of the injured party.[90] Professor Magnus stresses that the benefit of the contract depends in the first place on the terms of the contract. It is not the objective weight of the breach as such that automatically counts as fundamental breach but the weight the parties have given it. For a breach to be considered a fundamental breach, it must nullify or essentially depreciate the aggrieved party's justified contract expectations. In order for an expectation to be justified, it must be supported by specific contract, eventual usages and the additional provisions of the Convention.[91] If nothing specific has been agreed upon, then the fundamentality of the breach is assessed against the standard of a reasonable person. If the aggrieved party is deprived of what a reasonable person in the same situation would have expected to be the normal benefit of the contract, there is a fundamental breach of the contract.[92]

Also Professor Schlechtriem stresses that the determination of whether the injured party has no further interest in the performance of the contract after the particular breach depends entirely on the individual terms of the contract. The amount of damages caused by a breach is not decisive, but the terms of the contract relating to the obligation breached.[93] As Professor Honnold states, temporal or physical deviations have no significance apart from the extent of the loss or detriment they cause to the other party.[94] The possibility to avoid the contract even in case of minor and unsubstantial breach would create uncertainty and risks not acceptable in the international trade.[95] It is therefore acceptable and necessary that the fundamental breach of the contract is not defined in strict and easily measurable terms but rather determined case-by-case. If a party to an international trade contract wishes to have a right to avoid the contract for a certain specific reason without worrying whether the breach of this specific obligation amounts to a fundamental breach, he ought to include a specific statement in the contract stating that the fulfilment of the specific obligation is of the essence of the contract.[96]

Professor Honnold also suggests further that the fundamentality of the breach must be determined in conjunction with the seller's rightful offer to cure. As long as the cure is feasible and can be expected, a breach cannot be considered fundamental in the sense of Article 25.[97] Professor Schlechtriem concurs with this opinion.[98]As long as the seller can deliver substitute goods, repair or remove the defects within a reasonable time in the light of the buyer's expectations, there is no fundamental breach of the contract. Under Article 25, the fundamentality of the breach must be decided in the light of all of the circumstances.

Professor Will is, however, slightly of a different opinion.[99] The general precondition of the buyer's right to avoid the contract in the event of the seller's breach is that the seller's breach of contract is fundamental. But also the buyer's right to require substitute goods under Article 46 is linked to the fundamentality of the breach. Provided that there is a possibility of rightful offer to cure, the buyer could not avoid the contract nor require substitute goods. Thus the right to require substitute goods would be limited to only those cases where the cure is impossible.[100] Professor Will points out that the seller's right to cure is protected when the fundamental breach is determined by lack of conformity only (without having regard to cure), and the existing right to avoid the contract or require substitute goods is merely suspended when a rightful offer to cure arrives.[101]

2.4.3.3 Foreseeability of the breach

Article 25 does not specify at what moment the party in breach should have foreseen the consequences of the breach, whether at the time the contract was concluded or at the time of the breach. The Secretariat Commentary leaves the issue to be resolved by the tribunal.[102] Professor Magnus is of the opinion that the relevant time must be the time of the conclusion the contract. Statements made and information given by the other party after that time cannot change the allocation of the risk as originally agreed upon.[103] Professor Schlechtriem shares this opinion. The conclusion of the contract is the relevant time for knowledge or foreseeability.[104]

Professor Honnold applies the provision more eloquently. If e.g. the seller receives information about essential factors to the other party subsequent to the contract but before his performance, he must take that information into account when evaluating whether he ought to have foreseen that the breach of contract would substantially deprive the buyer of what he was entitled to expect under the contract. However, information received too late to affect the performance seems to be outside the scope of Article 25, because the party must have an opportunity to give special attention to minor details of performance the importance of which he could not otherwise have anticipated.[105] Professor Enderlein and Professor Maskow also recognise that in exceptional cases subsequent information should be taken into account. The only prerequisite is that such information be given before the actual commencement of the preparation in view of performance so that the other party can still adapt itself to it.[106] Their view is also valued by Professor Will.[107]

Article 7 provides that in the interpretation of the Convention, regard is to be had among the other things to the observance of good faith in international trade. Literally, the requirement of the observance of good faith relates only to the interpretation of the Convention. However, if the other party would receive essential information relating to the contract and would not act upon it, even if that would be possible and would not add any cost or inconvenience to that party, it would certainly be against the notion of good faith in international trade. Of course, it is hard to imagine why a prudent business man would engage in possible wasteful production. In these cases, however, the only reasonable solution seems to be concluding that even subsequent information after the conclusion of the contract is relevant when determining whether a subsequent breach of the contract is fundamental in the scope of Article 25.

2.4.3.4 Burden of proof

The burden of proof that the other party's breach of contract was fundamental and did substantially deprive the aggrieved party of what he was entitled to expect under the contract lies on the aggrieved party.[108] For the fact that the effect of a breach was unforeseeable, the burden of proof is not expressly addressed, but the wording and the legislative history indicate that burden of proof lies on the party in breach.[109]

Even though the burden of proof is not specifically settled in the CISG, it is a matter governed by the CISG. This is supported by scholarly writings and by international case law.[110] Any party who wants to derive beneficial legal consequences from a legal provision has to prove the existence of the factual prerequisites of that provision, e.g. the party wishing to avoid the contract must prove that there indeed has been a fundamental breach of the contract.[111] On the other hand, any party claiming an exception has to prove the existence of the factual prerequisites of that exception, e.g. the party in breach does not escape liability merely by proving that he did not in fact foresee the result. He must also prove that he had no reason to foresee it.[112] Those facts that are exclusively in a party's sphere of responsibility and which therefore are, at least theoretically, better known to that party, have to be proven by that party since it is that party who exercises the control over that sphere.[113]

2.4.4 Reasonable time for delivery

A buyer claiming a remedy under the Convention, such as avoidance of the contract on the account of the seller's failure to deliver on time, generally bears the burden of proving that the seller has exceeded the fixed time for the delivery or a reasonable time for the delivery if no fixed time had been agreed. In the latter cases, the buyer must also prove the facts upon which his calculation of that time is based.[114]

The current case law indicates that as a rule, late performance does not constitute in itself a fundamental breach of the contract. Only when the time for performance is of essential importance, either if it is so contracted or if it is due to evident circumstances, e.g. in case of seasonal goods, the delay as such can amount to a fundamental breach.[115]

When the contract stipulates that time is of the essence or uses such customary terms as "fixed", "absolutely", "precisely", "at the latest", it could be considered as an agreement, where non-fulfilment of this condition will have to be regarded as a fundamental breach of contract. Professor Enderlein and Professor Maskow stress that proof that the legal prerequisites of such breach are not fulfilled is then inadmissible.[116] Professor Schlechtriem sees that if the aggrieved party, usually the buyer, has proved the existence of the circumstances that show the importance of the obligation breached, can the burden of proof lie on the party relying on the excuse, though the excuse is rarely available in those circumstances.[117] Professor Schlechtriem points out that if the parties make clear that a particular obligation is of essential importance or a party can prove that the importance of the said obligation has been discussed and brought to the other party's attention, the party in breach cannot argue that he did not foresee any detriment to the aggrieved party. Only if the importance of the particular obligation is not clear the issue whether the party in breach foresaw or should have, as a reasonable person, foresaw the detriment to the aggrieved party, is important. In these cases, the detriment must be objectively unforeseeable in order to provide an excuse for the party in breach; the lack of skills of the party in breach is not relevant. If the detriment is unforeseeable for a reasonable person in the same trade concerned, it has to be considered whether in a particular circumstances the party in breach still knew the circumstances that made a certain obligation of the essence of the contract, i.e. that the other party would suffer extensive losses if a certain obligation, though not generally so understood, would be breached.[118]

Graffi also refers to the fact that the delivery term is considered essential not only when the parties specified it in the contract, but also in the light of the circumstances, customs, usage or other relevant factors. In addition, the nature of the goods may indicate that the delivery term is essential, such as when the sale of goods involves seasonal goods.[119] A German Provincial Court of Appeal has held that Incoterm CIF by definition determines the contract to be a transaction for delivery by a fixed date (the contract provided "CIF Rotterdam, delivery in October 1994").[120] The delivery term has also been considered essential ipso facto. The Court of First Instance of Parma has held that a partial delivery two months after the conclusion of the contract was a fundamental breach. The order contained a request that the goods be delivered within the following 10 to 15 days.[121]

As Graffi points out, the essentiality of a term must be determined according to the circumstances of each case and that many different factors may be relevant.[122] Liu sums up the answer to a question in the following terms. Even if the date for delivery is of the essence, a special interest in punctual delivery must exist with the aggrieved buyer. In addition, the foreseeability must be satisfied, the seller must have known or should have known the consequences of the breach.[123] Liu's call for a special interest in every situation seems strict but it concurs with the requirements of Article 25 as to whether a breach can be considered fundamental. As Professor Schlechtriem points out, in case of delay, i.e. when the performance is still possible and the seller has not refused to deliver, the importance of the agreed delivery date depends on the circumstances of the case.[124] In situations like these, a special interest in punctual delivery must exist as in case of seasonal or perishable goods.

However, by fixing an additional time for the seller to perform his obligation to deliver under Article 47(1), the buyer can turn a non-fundamental breach of the contract into a fundamental one and avoid the contract (Article 49(1)(b)). As the burden of proof of the fundamentality of the breach lies on the aggrieved party, the buyer is advised in general to allow the seller the additional period to perform his obligations, as after the time elapses there is no need to prove the fundamentality of the delay.[125]

2.4.5 Notice of avoidance

Successful avoidance of the contract is dependant not only on the existence of a fundamental breach but also on the proper form of the notice. Because of the serious consequences of the avoidance of the contract, the CISG provides that a notice of avoidance must be communicated to the other party.

Article 26

A declaration of avoidance of the contract is effective only if made by notice to the other party.

A buyer's declaration of avoidance, to be effective under Article 26, must inform the seller that the buyer will not accept or keep the goods.[126] The notice of avoidance is effective if it is properly dispatched pursuant to Article 27. According to Article 27, "unless otherwise expressly provided ... if any notice ... is given or made by a party ... by means appropriate in the circumstances, a delay or error in the transmissions of the communications or its failure to arrive does not deprive that party of the right to rely on the communications." The transmission risk falls on the party in breach.[127]

2.4.6 Decision on the avoidance of the contract

2.4.6.1 Right to avoid the contract

In the light of the evidence, the Court of Appeal held that the delivery of the goods to the Buyer was late 6 weeks. A reasonable time for delivery, taking into account the need to print the labels, was held to be a maximum of 8 weeks after all the necessary requirements for delivery were met. The Buyer had approved the labels on 12 November 1992 and the subsequent delivery took place when the goods were delivered by placing the goods at the buyer's disposal at the Seller's factory on 18 February 1993.Thus, the delivery of the goods took 14 weeks. As noted above in relation to the delivery obligation, the decision of the Court of Appeal was more precise than the that of the District Court, but in essence the Court of Appeal confirmed in more precise terms the decision of the District Court.

The District Court and the Court of Appeal took a different approach when analyzing the fundamentality of the Seller's breach. By referring to the foreseeability of the devaluation of the Finnish mark and all the circumstances of the case, the District Court concluded that the Seller's delay could not be regarded as fundamental.

In the beginning of the 1990's, Finland was struggling in very deep depression. Among other things, the Finnish mark was devaluated in order to promote economic growth and sales. In the reasoning of its decision, the District Court stated that the devaluation of the Finnish mark was not a fact of such nature that the Seller, or a reasonable person of the same kind in the same circumstances, should have seen foreseen when making the delivery. The reasoning underlying the District Court's decision seems to be that if the Seller had foreseen or a reasonable person of the same kind in the same circumstances would have foreseen the devaluation of the Finnish mark (contrary to the Finnish banks and thousands of the Finnish entrepreneurs), the delay in delivery may have amounted to a fundamental breach because in that case the Seller would have also seen the substantial detriment the Seller's delay in delivery would have caused to the Buyer. The determination whether the breach is of such nature that is substantially deprives the other party of what he is entitled expect under the contract is made in the light of the circumstances of the case.

The Court of Appeal did not comment on the issue, as the devaluation of the Finnish mark took place before the Seller was delayed and thus had no relevance in evaluating the fundamentality of the delay.[128] Because the depression was that serious and unforeseen, it is hard to imagine how a foreign business partner should have foreseen the coming events. The Court of Appeal analyzed the fundamentality of the delay using a well accepted method. The Court of Appeal held that, taking into consideration the quality of the goods and the fact that the Buyer was a company engaged in wholesale business of daily goods, it could not be determined only on the basis of the time of the delay that the late delivery amounted to a fundamental breach. The delay had not substantially deprived the Buyer of the benefits of the contract reasonably expected by him. Nor had the Buyer provided proof that the delay had actually caused this kind of detriment to him. Thus the Buyer had no right to avoid the contract. The reasoning, though very short and simple, is well supported by the thoughts of international scholars and the current case law.

2.4.6.2 Notice of avoidance

The Buyer claimed that it had avoided the contract already before the delivery was made and confirmed the avoidance immediately after the delivery. The District Court stated in its summary of decision that the Buyer had not proven that it had given a notice of avoidance within a reasonable time after the Buyer became aware that the delivery had been made. This remark was made immediately after the Court had concluded that the delay in question could not be regarded as constituting a fundamental breach of the contract. The question arises whether the District Court was trying to tie up loose ends or did it wrongfully conclude that in case of late delivery, the buyer has a right to declare the contract avoided after the delivery as long as he does within a reasonable time after he became aware the delivery had been made? However, even in case of late delivery, Article 49(2)(a) requires that the delay amounts to a fundamental breach. The benefit for the buyer who is awaiting a delayed delivery is that he need not try to estimate when the delay is sufficient to constitute a fundamental breach, but he can estimate that when the delivery is made. If the delay amounts to a fundamental breach, the buyer needs to act within a reasonable time after he has become aware that the delivery has been made.[129]

Whether the buyer declares the contract avoided before or after the delivery, in both cases the notice of avoidance requires that there is a fundamental breach of the contract that justifies the avoidance. Accordingly, the Court of Appeal did not discuss the issue of the notice of avoidance or the timeliness of the avoidance as the Buyer had no right to declare the contract avoided. The notice of avoidance had only relevance in relation to the alleged acceptance of the notice of avoidance.

The CISG does not require the notice of avoidance to be accepted as such to be effective, it only requires that a notice is despatched by means appropriate in the circumstances. The aggrieved party need not show that the notice has in effect reached the party in breach but he needs to prove that the notice is despatched by appropriate means. In this case, there was neither written evidence to support a notice of avoidance nor reliable evidence of oral notice of avoidance. Further, Professor Schlechtriem is of opinion that in any case the dispatch rule provided for in Article 27 does not cover oral conversations made on the telephone. The direct communications which takes place in telephone declarations enables the maker of the declaration to monitor the audibility of his declaration, or at least to check it by querying whether his declaration was heard or understood. If the case involves a declaration made orally or by telephone, it is necessary for the addressee to hear a declaration and -- in the event of a dispute -- that must be proved by the party who made the declaration.[130] The burden of proof is of course hard to meet in case of telephone conversation provided that there is no recording advice in operation. Taking into account the seriousness of the avoidance of the contract, it is reasonable to expect that a prudent business person would confirm the notice of avoidance in written after the telephone conversation. In this case -- as the District Court concluded -- the avoidance was not supported by any written evidence even thought it was clear that the parties used a written form, e.g. telex, readily and frequently in their communication. Further, the CISG does not protect attempts to avoid the contract if the avoidance is not authorized by the Convention.[131] Therefore, even if the Buyer had been able to prove that it had given a notice of avoidance of the contract but -- as the Appeal Court concluded - the Buyer had no right under the Convention to declare the contract avoided; the other party could have relied on the contract.

The parties are of course free to terminate their contract by their agreement if they wish to do so.

Article 29

(1) A contract may be modified or terminated by the mere agreement of the parties
....

If the parties do not agree on the consequences of the termination of the contract, the answers must be looked at from CISG Article 81.[132]

Article 81

(1) Avoidance of the contract releases both parties from their obligations under it, subject to any damages which may be due. Avoidance does not affect any provision of the contract for the settlement of disputes or any other provision of the contract governing the rights and obligations of the parties consequent upon the avoidance of the contract.
...

Does this mean that the Seller -- by accepting the notice of avoidance without reservation - had subjected himself to a claim for damages because of non-delivery or late delivery? This supports further the conclusion of the Court of Appeal. The Court of Appeal concluded that no evidence supported the Buyer's claim that the Seller had accepted the alleged notice. It was held that the evidence presented only supported the Seller's argument that the parties tried to reach an amicable solution. Negotiations after a breach of contract do not indicate that the other party accepts an unlawful avoidance of the contract. If the Seller had accepted the notice of avoidance, it would have probably demanded assurances that it was not obliged to pay any damages because of its "breach".

Further, if the Seller had been aware of the Buyer's unlawful wish to avoid the contract, the Seller itself could have avoided the contract and demanded damages instead of delivering the goods to a party who is not clearly willing to pay for the goods according to the contract price. Article 72 protects the seller's right in this respect.

Article 72

(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.

Paragraph (3) shows that a party's declaration that he will not perform empowers the aggrieved party to declare the contract avoided, even though such a declaration does not make it absolutely clear that the repudiating party will not change his mind and perform by the due date.[133] If the Seller had been aware of the Buyer's intend not to honour the contract, it is hard to image why it took the risk of delivering to the Buyer.

2.4.6.3 Seller's right to specific performance

At some point during spring 1993 it must have become clear to the Seller that the Buyer had committed a fundamental breach of the contract by failing to pay for the goods delivered. However, as noted above, the avoidance of the contract releases both parties from their obligations under it, subject to any damages of course. At this point, the Seller had already delivered the goods. Provided that the cost of production or other elements influencing the overall cost of performing the seller's obligations have not risen, from the seller point of view the contract has always its best value when executed in full. According to Article 62, the seller may require the buyer to pay the price, take delivery or perform any of his other obligations.

Article 62

The seller may require the buyer to pay the price, take delivery or perform his other obligations, unless the seller has resorted to a remedy which is inconsistent with this requirement.

If the seller has resorted to any remedy which is inconsistent with the requirement for performance, the right to require specific performance expires. For example, it the seller has declared the contract avoided under Article 64, he loses his right to require the buyer to perform, as the obligation ceases to exist after avoidance of the contract.[134]

The seller's right to require specific performance -- and correspondingly the buyer's right to require specific performance under Article 46 -- is restricted by virtue of Article 28.

Article 28

If, in accordance with the provisions of this Convention, one party is entitled to require performance of any obligation by the other party, a court is not bound to enter a judgement for specific performance unless the court would do so under its own law in respect of similar contracts of sale not governed by this Convention.

Article 28 gives the court the power to refuse a decree for specific performance if under its own law it would not render such a decree in respect of similar contracts of sale. However, nothing prevents the court from entering a judgment for specific performance in cases in which formerly it refused to do so.[135]

In the civil law systems, the right to obtain specific performance of goods sold is the natural remedy in case of non-performance by a party; this right can be denied from the aggrieved party only in exceptional cases. In the common law systems, the claim for damages is the primary remedy available to the aggrieved party. Specific performance is granted only exceptionally at the court's discretion as an equitable relief.[136] Article 28 was drafted in order to avoid a situation where those States in which courts are not authorized to order certain forms of specific performance would have to alter fundamental principles of their judicial procedure in order to bring this Convention into force.[137]

In Finland, the seller has a right to require the buyer to pay the price. The seller's right are regulated in Chapter 10 of the Finnish Sale of Goods Act. Section 51 states the remedies available for the seller: If the buyer fails to pay the price when it is due or to cooperate in the seller's performance, and this is not due to an act or omission of the seller or any other reason attributable to the seller, the seller is entitled to require payment or other performance of the contract or to declare the contract avoided as well as to claim damages" (italics added here).[138] Accordingly, the Buyer was ordered to pay the Seller the unpaid purchase price. As noted above, the partial payment refunded by Customs officials was to be credited as payment of the interest.[139]

[...]


FOOTNOTES

[...]

14. Ferrari 1995, p. 13; Honnold 1999, p. 35.

15. Ferrari 1995, p. 14-15.

16. Honnold 1999, p. 79-80.

17. See commentary on Article 2: e.g. Honnold 1999, p. 46-55; Schlechtriem in Schlechtriem & Schwenzer 2005, p. 41-52.

18. See commentary on Article 3: e.g. Honnold 1999, p. 56-62; Schlechtriem in Schlechtriem & Schwenzer 2005, p. 53-62.

19. See commentary on Article 5: e.g. Honnold 1999, p. 71-56; Schlechtriem in Schlechtriem & Schwenzer 2005, p. 76-81.

20. See Chapter 2.2.4 'CISG and the Nordic Countries'.

21. E.g. The Hague-Visby Rules 1968 for sea carriage, the United Nations Convention on the Carriage of Goods by Sea (The Hamburg Rules) 1978; Convention for the Unification of Certain Rules Relating to International Carriage by Air, Warsaw 1929; Convention on the Contract for the International Carriage of Goods by Road (CMR), Geneva 1956.

22. For a brief introduction on the 1980 Rome Convention in Finnish see Buure-Hägglund 1982, p. 9-42.

23. The provisions do not cover the following issues: questions involving the status or legal capacity of natural persons (subject to Article 11, which is intended to protect a party who in good faith believed himself to be contracting with a person of full capacity and who, after the contract has been entered into, is confronted by the incapacity of the other contracting party); contractual obligations relating to wills, matrimonial property rights or other family relationships; obligations arising under negotiable instruments (bills of exchange, cheques, promissory notes, etc.); arbitration agreements and agreements on the choice of court; questions governed by the law of companies and other corporate and unincorporate bodies; the question of whether an agent is able to bind a principal to a third party (or an organ to bind a company or body corporate or unincorporate); the constitution of trusts and questions relating to their organisation; evidence and procedure (without prejudice to Article 14 - Article 14(1) provides for the application of the law of the contract 'to the extent that it contains, in the law of contract, rules which raise presumptions of law or determine the burden of proof'; Article 14(2) deals with the admissibility of modes of proving acts intended to have legal effect; contracts of insurance which cover risks situated in the territories of the Member States (re-insurance contracts are covered, however).

24. United Nations Commission on International Trade Law (UNCITRAL), <http://www.uncitral.org/uncitral/en/index.html> - UNCITRAL Texts & Status - International Sale of Goods (CISG) and Related Transactions - 1980-United Nations Convention on Contracts for the International Sale of Goods (CISG) - Status. The Czechoslovak Socialist Republic had made a similar declaration. For comments on the current status of this declaration see <http://www.cisg.law.pace.edu/> - Identification of Contracting States - Table of Contracting States (http://www.cisg.law.pace.edu/cisg/countries/cntries.html) - Declarations, State interpretations, and variations in implementations - Czech Republic and Slovakia.

25. Ferrari 1995, p. 16.

26. Lookofsky 2000, p. 177.

27. HE 93/1986, p. 51. See also Routamo-Ramberg 1997, p. 48, which suggest that if the contract refers to Finnish law, the CISG is not applicable as such but it is a question of interpretation. In order to be certain of the applicable law, the parties to an international sale of goods ought to pay attention in drafting the contract.

28. On reasons for opting out of Part II of the Convention see further Lookofsky 1999, p. 291.

29. See Example 92A in Honnold 1999, p. 537. See also Illustration 2e in Lookofsky 1996, p. 16. Denmark, Finland, Norway and Sweden have not made a declaration provided in CISG Article 95. According to CISG Article 95, any state can make a reservation, which excludes the application of the Convention in cases to which Article 1(1)(b) applies, thus the courts of a reservation state have to apply the CISG only when the parties to a contract of a sale have their places of business or habitual residence in different States as provided in Article 1(1)(a). See comments on Article 95: Schlechtriem in Schlechtriem & Schwenzer 2005, p. 932-933. See also Lookofsky 1999, p. 293-294.

30. Sisula-Tulokas 1998, p. 56.

31. Lookofsky 1996, p. 128.

32. Upon ratifying the Convention, Denmark, Finland, Norway and Sweden declared, pursuant to article 94(1) and 94(2), that the Convention would not apply to contracts of sale where the parties have their places of business in Denmark, Finland, Sweden, Iceland or Norway. In a notification effected on 12 March 2003, Iceland declared, pursuant to article 94(1), that the Convention would not apply to contracts of sale or to their formation where the parties have their places of business in Denmark, Finland, Iceland, Norway or Sweden. Iceland joined the Convention more than 10 years later than the other Nordic Counties. The Convention came into force in Iceland on 1st of June 2002 (Denmark 1st of March 1990, Finland 1st of January 1989, Norway 1st of August 1989 and Sweden 1st of January 1989).

33. Schlechtriem in Schlechtriem & Schwenzer 2005, p. 929.

34. The reasoning of the adopted approach has to be read in the light of the situation in the 1980's. Its relevance has of course diminished after the European Union membership of Finland in 1995 and the dissolution of the Soviet Union. In year 2007 the exports to Russia amounted to 10,9%, to Sweden to 10,7 % and to Germany to 10,2%. In relation to imports, Germany and Russia shared the first place, imports amounting to 14,1% with both countries. In relation to imports the third place to Sweden with 9,9%. See further statistic on the Statistics Finland website, available on the WWW: <http://www.tilastokeskus.fi/tup/suoluk/suoluk_kotimaankauppa_en.html#Foreigntrade>. On the changes in exports and imports see also WWW <http://www.tulli.fi/en/> - Foreign Trade Statistics - Statistics - Country statistics.

35. Routamo-Ramberg 1997, p. 46-47; Lookofsky 2000, p. 176-177.

36. See Chapter 2.2.2.2 CISG and the Conflict of Law Rules.

37. Honnold 1999, p. 99.

38. Honnold 1999, p. 109-110.

39. Honnold 1999, p. 110. See further on Article 9 in Chapter 5.5.3 'Applicable usages' in Helsinki Court of Appeal, S 96/1129 (29 January 1998).

40. On the legislative history briefly, see Bacher in Schlechtriem & Schwenzer 2005, p. 795; Honnold 1999, p. 465-466. Mazzotta gives a more detail but yet a brief history of Article 78 in Mazzotta 2004.

41. Honnold 1999, p. 467-471.

42. CISG Article 81 states the basic consequences of avoidance: (a) avoidance releases both parties form their obligations under the contract - subject to any damages which may be due - , (b) a party who has performed the contract either wholly or in part may claim restitution from the other party. Avoidance does not affect any provisions for the settlement of disputes or any other provisions of the contract governing the rights and obligations of the parties consequent upon the avoidance of the contract.

43. Honnold 1999, p. 516-517.

44. Bacher in Schlechtriem & Schwenzer 2005, p. 800-803.

45. Mazzotta 2004.

46. Mazzotta 2004.

47. Mazzotta 2004.

48. See discussion in Chapter2.2.2.2. CISG and the Conflict of Law Rules.

49. In this respect the Court of Appeal reversed the decision of the District Court. The District Court held the amount returned to the Seller ought to be credited from the capital of the claim rather than from the interest.

50. See Chapter 8 below.

51. Honnold 1999, p. 237, Huber/Widmer in Schlechtriem & Schwenzer 2005, p. 337.

52. Hager in Schlechtriem & Schwenzer 2005, p. 649; Text of the Secretariat Commentary on article 56 of the 1987 Draft (draft counterpart of CISG Article 60).

53. Hager in Schlechtriem & Schwenzer 2005, p. 649-650

54. Enderlein & Maskow 1992, p. 231.

55. Hager in Schlechtriem & Schwenzer 2005, p. 650.

56. Honnold 1999, p. 392, footnote 3.

57. Hager in Schlechtriem & Schwenzer 2005, p. 649, p. 674-675.

58. Honnold 1999, p. 392.

59. Text of the Secretariat Commentary on article 61 of the 1978 Draft (draft counterpart of CISG Article 65).

60. Sévon 1986, p. 231, Sevón 1990, p. 337.

61. Sévon 1986, p. 235.

62. Sévon 1986, p. 230-231.

63. Text of the Secretariat Commentary on article 61 of the 1978 Draft (draft counterpart of CISG Article 65). It should be noted that the features of the goods to be specified by the buyer must be expressly described in the contract. A general clause in the contract that the buyer would specify the goods ordered would be insufficient and would have no legal effects. Knapp in Bianca & Bonell 1987, p. 477.

64 Honnold 1999, p. 392. Professor Honnold stresses that because of the commercial and legal hazards a scenario of wasteful production is unlikely to occur. See also Hager in Schlechtriem & Schwenzer 2005, p. 658. Professor Hager states that the duty to mitigate the loss does not apply to the right to require performance, unless the insistence of the performance would be against the good faith requirement under Article 7 (1).

65. Enderlein & Maskow 1992, p. 251.

66. Enderlein & Maskow 1992, p. 232.

67. Maskow in Bianca & Bonell 1987, p. 436.

68. Maskow in Bianca & Bonell 1987, p. 437.

69. Enderlein & Maskow 1992, p. 251.

70. Knapp in Bianca & Bonell 1987, p. 482.

71. Lando in Bianca & Bonell 1987, p. 263.

72. Huber/Widmer in Schlechtriem & Schwenzer 2005, p. 394.

73. See Chapter 2.4.4. 'Reasonable time for delivery'.

74. Text of the Secretariat Commentary on article 29 of the 1987 Draft (draft counterpart of CISG Article 31).

75. Text of the Secretariat Commentary on article 29 of the 1978 Draft (draft counterpart of CISG Article 31).

76. Text of the Secretariat Commentary on article 29 of the 1978 Draft (draft counterpart of CISG Article 31). See however discussion relating to the passing of risk, Chapter 2.3.7 'Passing of risk'. When the goods are sold in transit, the risk may pass to the buyer retroactively from the moment the goods were handed over to the carrier (Article 68).

77. Lando in Bianca & Bonell 1987, p. 255.

78. Huber/Widmer in Schlechtriem & Schwenzer 2005, p. 357, 369-370.

79. Honnold 1999, p. 32-33, 132.

80. Text of the Secretariat Commentary on article 29 of the 1978 Draft (draft counterpart of CISG Article 31).

81. Ramberg 1999, p. 10. See further Ramberg et al. 2000, p.8-16.

82. Huber/Widmer in Schlechtriem & Schwenzer 2005, p. 338. See further on Article 9 Chapter 5.5.3 'Applicable usages'.

83. Ramberg 1999, p. 10.

84. Honnold 1999, p. 239-240; 400-401.

85. For detailed explanations on Incoterms 2000, see Ramberg 1999.

86. Ramberg 1999, p. 11-13.

87. Honnold 1999, p. 330-331; Müller-Chen in Schlechtriem & Schwenzer 2005, p. 580-581.

88. The fundamental breach is also addressed in following Articles: Article 51(2), avoidance of an entire contract if the breach as to part of the contract amounts to a fundamental breach; Article 72(1), avoidance of the contract prior to the date for performance in case of clear anticipatory breach; Article 73(1), avoidance of the one instalment because of a fundamental breach; Article 73(2), avoidance of the contract in relation to the future instalments because of the fundamental breach. Article 70 provides that the rules on passing of risk does do not impair the remedies to the buyer on account of a fundamental breach.

89. Honnold 1999, p. 207.

90. Text of the Secretariat Commentary on article 23 of the 1978 Draft (draft counterpart of CISG Article 25).

91. Magnus in Ferrari et al. 2004, p. 601.

92. Magnus in Ferrari et al. 2004, p. 322.

93. Schlechtriem 1986, p. 59. Schlechtriem in Schlechtriem & Schwenzer 2005, p. 287-288.

94. Honnold 1999, p. 207.

95. See further Honnold 1999, p. 206.

96. See e.g. Kritzer 1994, p.208; Honnold 1999, p. 206.

97. Honnold 1999, p. 210, 321. Also the text of Secretariat seems to suggest this approach: " In some cases the failure of the goods to operate or to operate in accordance with the contract specifications would constitute a fundamental breach only if that failure was not remedied within an appropriate period of time. Until the passage of that period of time, the buyer could not preclude the seller from remedying the non-conformity by declaring the contract avoided". Text of Secretariat Commentary on article 44 of the 1978 Draft (draft counterpart of CISG article 48).

98. Schlechtriem in Schlechtriem & Schwenzer 2005, p. 295.

99. Will in Bianca & Bonell 1987, p. 356-357.

100. Will in Bianca & Bonell 1987, p. 357. See also Will in Bianca & Bonell 1987, p. 354-356. Professor Will points out the decisive consideration in deciding between the cure and the substitute goods is the costs, provided that the seller can meet the buyer's expectations to the same degree by repairing as well as by delivering substitute goods. In choosing his remedy the buyer must observe the duty to mitigate losses (Article 77). Consequently, as long as the costs, on either side, of disposing of the goods delivered and replacing them are higher than those of repair, the buyer cannot claim substitute goods. He will have to bear the inconvenience of repair, even considerable inconvenience, if it is not unreasonable. If the seller insists on delivering substitute goods while the buyer requires repair, the key lies in Article 46(3). The buyer may require repair until and unless repair proves unreasonable under the circumstances. A serious offer to cure by replacing the non-conforming goods already delivered is a circumstance, which would render the buyer's request unreasonable.

101. Will in Bianca & Bonell 1987, p. 357-358.

102. Text of the Secretariat Commentary on article 23 of the 1978 Draft (draft counterpart of CISG Article 25).

103. Magnus in Ferrari et al. 2004, p. 324.

104. Schlechtriem 1986, p. 60.

105. Honnold 1999, p. 209.

106. Enderlein & Maskow 1992, p. 116.

107. Will in Bianca & Bonell 1987, p. 221.

108. Magnus in Ferrari et al. 2004, p. 718; Kritzer 1994, p.210; Schlechtriem in Schlechtriem & Schwenzer 2005, p. 291-292.

109. Magnus in Ferrari et al. 2004, p. 325; Will in Bianca & Bonell 1987, p.216; Honnold 1999, p. 209; Schlechtriem in Schlechtriem & Schwenzer 2005, p. 291-292.

110. Ferrari 2000-2001, p. 1-8. Saidov 2001, section II, paragraph 7. See also Knapp in Bianca & Bonell 1987, p. 541. In Tribunale di Vigevano, 405 (12 July 2000) the Italian Court examined the question of the burden of proving the lack of conformity of the goods. The Court rejected the opinion that the burden of proof is a question excluded from CISG and governed by the applicable domestic law (Art. 4, first sentence, CISG). On the contrary, it held that the burden of proof is a matter governed but not expressly settled by CISG, and which therefore has to be settled in conformity with the general principles underlying CISG (Art. 7(2) CISG). In the Court's view, it is a general principle underlying the CISG that the plaintiff should bring evidence in favour of its cause of action. Such principle may be derived inter alia from Art. 79(1) CISG which expressly states that the non performing party must prove the circumstances exempting it from liability for its failure to perform, thereby implicitly confirming that it is up to the other party to prove the fact of the failure to perform as such. Therefore, it is up to the buyer to prove the existence of a lack of conformity and the damage ensuing from it. See further Editorial remarks by Charles Sant'Elia in <http://cisgw3.law.pace.edu/cases/000712i3.html>, and Ferrari 2001. Professor Ferrari praises the decision. The Court took into account the foreign case law in a way no court had done before in order to promote uniformity. Ferrari 2001, p. 231-232. In Handelsgericht Zürich, HG 920670 (26 April 1995) a Swiss Court held that the buyer had lost its right to declare the contract avoided under article 49 CISG since the buyer had failed to notify the seller about the lack of conformity of the goods in a timely fashion (articles 39 and 49(2)(b)(i) CISG). The court also mentioned that the seller's failure to perform its obligation was probably not a fundamental breach as the damage concerned was easily repairable. However, since the buyer had lost its right under article 49(2)(b)(i) CISG, the court did not address this question fully. As regards damages, the court found that the buyer had lost its rights for failure to claim damages for the leak of the delivered containers within a reasonable time. Compensation for damages caused by the transport of the container was denied by the court because the buyer failed to prove them sufficiently (article 74 CISG).

111. Ferrari 2000-2001, p. 2. This rule is also specifically embodied in Article 79 according to which the party relying on the impediment must prove its existence and further, that he could not reasonably be expected to have taken the impediment into account at the time of the conclusion of the contract or to have avoided or overcome it or its consequences.

112. Ferrari 2000-2001, p. 2; Text of the Secretariat Commentary on article 23 of the 1978 Draft (draft counterpart of CISG Article 25), Honnold 1999, p. 209.

113. Ferrari 2000-2001, p. 2-3.

114. Huber/Widmer in Schlechtriem & Schwenzer 2005, p. 400, 402. Schlechtriem in Schlechtriem & Schwenzer 2005, p. 293.

115. Magnus in Ferrari et al. 2004, p. 602; Koch 1999, p. 236-237; Liu 2005, p. 22, chapter 5.2 (a).

116. Enderlein & Maskow 1992, p. 114

117. Schlechtriem in Schlechtriem & Schwenzer 2005, p. 292.

118. Schlechtriem in Schlechtriem & Schwenzer 2005, p. 288-290.

119. Graffi 2003, p. 341.

120. Oberlandesgericht (OLG) Hamburg; 1 U 167/95 (28 February 1997).

121. Pretura circondariale di Parma, sez. di Fidenza, 77/89 (24 November 1989).

122. Graffi 2003, p. 342.

123. Liu 2005, p. 23, chapter 5.2 (a).

124. Schlechtriem in Schlechtriem & Schwenzer 2005, p. 293.

125. See e.g. Kazimierska 2000, p. 111-113.

126. Honnold 1999, p. 214.

127. Honnold 1999, p. 215, 216-217.

128. The Finnish mark was devaluated firstly in November 1991 (the external value of the mark devaluated approximately 12%). Because the trust for the economics and the Finnish mark was not regained, in September 8th, 1992 the Finnish mark was left to float. As a result the value of the Finnish mark devaluated considerably. It took until summer 1995 that the external value of the Finnish mark nearly reached the level it had had before the floating.

129. Honnold 1999, p. 330; Will in Bianca & Bonell 1987, p. 364.

130. Schlechtriem in Schlechtriem & Schwenzer 2005, p. 308-309.

131. Honnold 1999, p. 327.

132. Schlechtriem in Schlechtriem & Schwenzer 2005, p. 331.

133. Honnold 1999, p. 438.

134. Knapp in Bianca & Bonell 1987, p. 448, 454.

135. Lando in Bianca & Bonell 1987, p. 237.

136. See further Lando in Bianca & Bonell 1987, p. 232-237.

137. Text of the Secretariat Commentary on article 26 of the 1978 Draft (draft counterpart of CISG Article 28).

138. In a similar way the buyer can require specific performance. According to Section 23 of the Finnish Sale of Goods Act, in cases of delay in delivery the buyer is entitled to hold to the contract and to require its performance. According to Section 30, in case of non-conforming goods, the buyer is entitled, provided that the defect is not due to any reason attributable to the buyer, (i) to require the seller to remedy the defect or to deliver substitute goods or (ii) to require a reduction in the contract price or (iii) to declare the contract avoided as well as (iv) to claim damages.

139. Chapter 2.2.6.4 Decision on the partial payment.

[...]

See entire text of Sanna Kuoppala, "The Application and Interpretation of the CISG in Finnish Case Law 1997-2005" (April 2009)

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Citations to case abstracts, texts, and commentaries

CITATIONS TO ABSTRACTS OF DECISION

(a) UNCITRAL abstracts: Unavailable

(b) Other abstracts

English: Unilex database <http://www.unilex.info/case.cfm?pid=1&do=case&id=797&step=Abstract>

CITATIONS TO TEXT OF DECISION

Original language (Finnish): CISG Nordic website <"http://www.cisgnordic.net/970218FI.shtml>; See also Unilex database <http://www.unilex.info/case.cfm?pid=1&do=case&id=797&step=FullText>

Translation (English): Text presented below

CITATIONS TO COMMENTS ON DECISION

English: Tuula Ämmälä, 5 Turku Law Journal (1/2003) Section 8.1; Larry A. DiMatteo et al., 34 Northwestern Journal of International Law & Business (Winter 2004) 299-440 at n.647; Spaic, Analysis of Fundamental Breach under the CISG (December 2006) n.279

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Case text (English translation)

District Court of Turku 15 June 1995
Turku Court of Appeal 18 February 1997

Translation by Tuula Ämmälä [*]

DISTRICT COURT OF TURKU

Judgement 1(13)

5990

16 June 1995, S 94/4988

Claimant: Heinsberg, West Germany [seller]

Defendant: Turku, Finland [buyer]

Case Report

1. The [seller] demanded, among other things, that the [buyer] should pay the [seller] 32,741.28 DM as per the invoice, 16 % interest due on 17 November 1994 and expenses. Alternatively, if the Finnish Interest Act could not be applied in this case, the [seller] demanded that the interest ought to be paid according to the German Bank-Debet-Zinsen.

2. The [buyer] had ordered packages for animal food from the agent of the [seller's] company, Sf. The confirmation of the order was signed by the agent on 6 August 1992. The following were delivered: 36,864 packages marked PG, weighing 100 grams, at 0.52 DM per package, totalling 19,169.28 DM; 21,600 packages marked PrG, weighing 150 grams, at 0.62 DM per package, totalling 13,392 DM; and 12 packages marked Ep, at 15.00 DM per package, totalling 180 DM.

3. The [buyer] was sent an invoice for 32,741.28 DM, on 18 February 1993, the date of payment being 20 March 1993. In spite of the [seller's] reminders, the [buyer] did not pay the purchase price.

4. The alternative demand for interest made by the [seller] was mentioned in the general conditions of sale which were printed on the reverse side of the forms the [seller] used in its business.

5. The [buyer] had ordered the goods mentioned in the case. According to the [buyer's] requirements, the delivery was to be made as soon as possible after the labels were printed. The delay in starting the printing was caused by the [buyer]. The [buyer] had sent the proof corrections to the [seller] over six weeks later. This was the reason why the printing had taken so long and the delivery of the goods was made on time. The fact that the [buyer] had arranged for the carriage of the goods from Camurg to Cuxhaven and from Cuxhaven to Turku proves clearly that the [buyer] had accepted the delivery. The [buyer] had not stated that the delivery was delayed until its rejoinder.

6. The [seller] had argued that the CISG should be applied.

7. The [buyer] contested the action and claimed that it should be rejected. The [buyer] argued that because the printing was delayed and the deliverer had difficulties with its new factory in the former Eastern Germany, they declared the contract avoided in autumn 1992. In spite of this the labels were made for future use.

8. However, the delivery was delayed fundamentally because it took about 14 weeks, whereas in the international sale of food stuffs the delivery time is normally 5-6 weeks from the date of the order. Delivery therefore took over twice the time that is usually accepted in international practice. In spite of the delay the seller did not ask the buyer if he was still ready to accept the sale. For this reason the [buyer] argued that the parties were bound by the avoidance of the contract.

9. Immediately after the goods had arrived in Finland, the [buyer] gave notice to the agent of the seller of the former avoidance of the contract and of the fundamental delay. The [buyer] had given notice to the [seller] that the [buyer] would not take over the goods. The seller retained title to the goods.

10. After the reclamation, the parties agreed that they and the agent should try to sell the goods, but because similar cheaper animal food was available, they failed.

11. The [buyer] argued that the Finnish Sale of Goods Act should be applied in this case.

12. The [seller] argued that the [buyer] had not submitted that the contract was avoided until this trial. Furthermore, the [buyer] had not indicated any difficulties with the factory of the deliverer.

13. The goods had been sold under the Ex works term. This term provides necessarily that the buyer takes measures. That is why the buyer has accepted the goods and transported them to Finland in his own name.

14. The [buyer] stated that the fact that they had paid for the carriage of goods was of no relevance in this case.

The Arguments of the Judgement

15. The District Court of Turku decided that the CISG should be applied according to the Finnish Sale of Goods Act, paragraph 5 and the Finnish Act on Law Applicable to Sale of Goods of International Character.

16. The [seller] had sent a telefax to the [buyer] confirming the order on 6 August 1992. Agent N testified as a witness that the goods ought to have been delivered as soon as possible after the printing of the labels. No proof of any other time of delivery was shown.

17. The delivery took over 14 weeks. The District Court considered that the delivery was delayed.

18. The buyer had fulfilled his obligation to deliver the labels to the seller on 14 November 1992.

19. No reliable evidence had been provided regarding the avoidance of the contract in autumn 1992. The fact that the [buyer] delivered the corrected proofs of the labels on 11 November 1992 supports the view that the contract was not avoided in autumn 1992 and that there was no intention to avoid it.

20. The [buyer] failed to prove that they had given notice of the delay or any other matter in autumn 1992 or thereafter.

21. The [seller] had received an acceptance of the carriage from Camburg to Cuxhaven from the [buyer].

22. Summary. According to Article 49 of the CISG, the buyer may declare the contract avoided if the failure by the seller to perform any of his obligations under the contract amounts to a fundamental breach of the contract. According to Article 25 of the CISG, a breach of a contract committed by one of the parties is fundamental if it results in such detriment of 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. The devaluation of the Finnish Mark does not constitute such a fact which the [seller] or a reasonable person of the same kind in the same circumstances could have foreseen. When considering all the relevant circumstances, the delay in question cannot be regarded as fundamental. According to Article 49(2)(a), in cases where the seller has delivered the goods, the buyer loses the right to declare the contract avoided unless he does so in respect of late delivery, within a reasonable time after he has become aware that delivery has been made. The [buyer] failed to prove that they had declared the contract avoided within a reasonable time after they had become aware that the goods had arrived in Turku. The [buyer] had failed to prove that they had given notice of the avoidance of the contract before in this trial.

23. The District Court therefore ruled that the [seller] had proved their case. The [buyer] was obliged to pay the [seller] the amount of the invoice minus the amount the district customs office had already restored to the [seller], 16 % interest due on 20 March 1993, expenses, and the VAT.

THE DECISION OF THE APPEAL COURT

24. According to Article 1(1)(a) of the CISG the Convention applies to contracts of sale of goods between parties whose places of business are in different States, when the States are Contracting States. The place of business of [seller] is in West Germany and of [buyer] in Finland. Both States are Contracting States. The CISG is applicable in this case.

25. There are no provisions in the CISG concerning whether a partial payment ought to be credited primarily as a payment of the capital or the interest. Therefore, the applicable law is the law of the State according to the rules of the Finnish Act on Law Applicable to Sale of Goods of International Character. The Agent of [seller] had received the order in Finland, where [buyer] is domiciled. The applicable law in this question is Finnish law, i.e., the Finnish Commercial Code (The Act on Law Applicable to Sale of Goods of International Character, 4,2).

26. [Buyer] had accepted the proof corrections on 12 November 1992. Before that date, [seller] had an obligation to deliver the goods. The goods had been sold under the Ex works term. According to this, the time of the delivery was the time of their arrival at [seller's] factory, not the time of their arrival in Finland as the District Court had ruled. The goods left the factory on 18 February 1993. The time from the acceptance of the proof corrections to the delivery was 14 weeks. The usual, reasonable time of delivery in the field is a maximum of 8 weeks. The delivery was delayed.

27. According to Article 49(1)(a), the buyer may declare the contract avoided if the failure by the seller to perform any of his obligations under the contract amounts to a fundamental breach of the contract. A fundamental breach is defined in Article 25 of the CISG.

28. When determining the fundamentality of the breach, the appeal court took into consideration the following points: The devaluation of the Finnish Mark had already happened before the delay caused by [seller] and it therefore has no bearing on the right of [buyer] to avoid the contract. The delivery was delayed by about 6 weeks. When taking into consideration the quality of the goods and the fact that [buyer] is a company engaged in wholesale business selling daily goods, it cannot be concluded on the basis of the time of delay alone that the delay would result in such detriment of the company as substantially to deprive them of what they are entitled to expect under the contract. [Buyer] had not shown that the delay had resulted such detriment.

29. The delay caused by [seller] was not regarded as fundamental. [Buyer] had no right to avoid the contract. Therefore whether [buyer] had given notice of the avoidance of the contract or not was of no relevance.

30. The copy of the telefax sent on 24 May 1993 did not indicate that [seller] accepted the avoidance of the contract. It can only be concluded from the contents of the telefax that the parties had tried to make an adjustment at that stage as [buyer] had not paid the price. This does not constitute an acceptance of the avoidance of the contract. [Buyer] had not shown that [seller] would have accepted the avoidance of the contract.

31. No payment can be credited as a capital before the interest has been paid. (The Finnish Commercial Code, chapter 9, 5). The amount the district customs office already paid to [seller] has to be credited as payment of the interest.

32. [Buyer] was obliged to pay [seller] the capital of the invoice 32,741.28 DM, the interest due on 17 November 1994, plus expenses.

The decision has become final.


* All translations should be verified by cross-checking against the original text.

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Pace Law School Institute of International Commercial Law - Last updated January 14, 2014
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