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Reproduced with permission of Revue de droit des affaires internationales / International Business Law Journal (2003) No. 3, 338-349 (Forum Europeén de la Communication) Paris

Case Law on the Concept of "Fundamental Breach" in the Vienna Sales Convention

Leonardo Graffi [*]

Introduction
The theoretical structure of art. 25 CISG
-   Elements relating to the aggrieved party: "substantial detriment" and "contractual expectation"
-   Elements concerning the party in breach: "foreseeability" and "reasonable person of the same kind" standard
Fundamental breach in court and arbitral practice
-   Late performance and fundamental breach
-   Defective goods and fundamental breach:
     --   The economic loss approach
     --   Relevance of seller's offer to cure
Conclusions

Introduction

Fundamental breach is a milestone concept of the United Nations Convention on Contracts for the International Sale of Goods (hereinafter CISG), since it is the necessary precondition for avoiding the contract under articles 49(1)(a) and 64(1)(a)). Fundamental breach of contract by the seller also entitles the buyer to claim delivery of substitute goods (art. 46(2)), and to enact remedies in spite of the risk having passed to him (art. 70). However, a mere non-fundamental breach will be sufficient to entitle the aggrieved party to claim damages (art. 74) and to claim a price reduction (art. 50).

This suggests that the drafters of the CISG had in mind a basic distinction between fundamental breach and non-fundamental breach.[1] Fundamental breach entitles to remedies that leave more rigorous consequences to such as the termination of the contract. Thus, if a breach of contract takes place, one must first establish if it is a fundamental one that entitles a party to declare the avoidance of the contract.

Unfortunately, art. 25 CISG does not provide guidelines for a distinction between fundamental and non fundamental breach; it simply states that "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 have not foreseen such a result". This provision has been criticized,[2] because it does not give a clear definition of fundamental breach.

Such vagueness is due to the differences existing in respect of the definitions of fundamental breach to be found in the various legal systems, which prevented the drafters from finding an agreement on the type of breach that leads to avoidance of contract.[3] The Convention does not even provide an example [4] of what may constitute a fundamental breach for the purpose of its application, it simply provides general interpretive guidelines.

First of all, in defining fundamental breach under the CISG legal scholars[5] repeatedly urged interpreters to avoid recourse to domestic legal concepts, since the CISG itself calls under art. 7 [page 338] for a uniform interpretation and application of its provisions.[6] As often pointed out in legal writing [7] and case law,[8] the CISG should be interpreted autonomously and its interpretation should not depend on domestic legal concepts, neither of civil law nor common law origins. Various efforts have been made, especially in the last few years, towards the achievement of a uniform interpretation of the CISG and different solutions have been proposed.[9] Yet, the CISG cannot rely on the binding interpretation of one court, such as the European Court of Justice case law or the International Court of Justice.[10] Although foreign case law on the CISG is not binding, despite one opinion to the contrary,[11] as recently pointed out in case law,[12] it is still a useful instrument of persuasive nature for the judges and the arbitrators throughout the world, in accordance with the goal of uniform interpretation pointed out by many leading scholars.[13] Under this view, probably the most neutral and effective contribution to a uniform interpretation of the CISG is the creation of free online databases which collect English case abstracts of CISG decisions. Amongst these, reference is to be made to the CLOUT [14] system managed by the UNCITRAL Secretariat, and to the databases of other research centers such as UNILEX,[15] and the databases of Pace Law School [16] and Freiburg University.[17] Considering the large number of decisions on the CISG, it is self-evident that not all of them are bringing a meaningful contribution to the uniform interpretation of the Convention. Indeed, many decisions are often misleading and diverging, since, as correctly pointed out by one scholar, "diverging interpretations by national courts is a problem of all international uniform laws."[18] Thus, it would be unwise to leave judges or arbitrators with the time consuming task of evaluating which published decisions may lead to a uniform interpretation of the CISG. This paper endeavors to filter these decisions and to determine what constitutes a fundamental breach under the CISG. Thus, an attempt will be made to provide guidelines for judges, arbitrators and lawyers facing the issue of fundamental breach in international sales law litigation.

The theoretical structure of art. 25 CISG

The structure of art. 25 is extremely complex. The first part of art. 25 qualifies fundamental breach as the detriment caused by one party to the other party, which substantially deprives him of what he is entitled to expect under the contract. The second part of art. 25 is conditional,[19] and allows the party in breach to prevent avoidance provided that he proves that he did not foresee and a reasonable person of the same kind in the same circumstances would not have foreseen such a result. The content of the provision relies on a distinction between elements relating to the aggrieved party and elements concerning the party in breach. The former elements are "substantial detriment" and "contractual expectation", whereas the latter elements are "foreseeability" and "the reasonable person of the same kind standard". A critical analysis of those elements will follow.

Elements relating to the aggrieved party: "substantial detriment" and "contractual expectation"

Speaking of substantial detriment, it appears that the provision makes a tautology between the adjectives fundamental and substantial, which makes it hard to establish when substantial detriment equals fundamental breach.[20] Substantiality is tied to the aggrieved party's detriment and causes the breach to be fundamental. According to legal scholars [21] and case law [22] the breach is fundamental regardless of whether it occurred in respect of a main obligation or an ancillary obligation (even though this distinction is frequently used in civil law countries to classify the importance of an obligation). Moreover, as correctly pointed out by leading scholars,[23] detriment does not equal damage, since under art. 74 CISG the party has a right to claim damages even if the breach is not fundamental (or substantial). It appears that the notion of detriment is much broader than that of damage,[24] the economic loss suffered by the aggrieved party is not necessarily the only decisive element for establishing if a fundamental [page 339] breach occurred. However, as will be shown below, a different view is expressed in case law, which often deems only relevant the gravity of the seller's breach and the consequent economical loss.

In spite of that, it should be noted that the party's special interest in receiving performance is also a key element for establishing whether a breach is substantial. This interest belongs to the subjective sphere of contractual expectation, which largely depends on the agreement between the parties. The parties are free to determine when and under which circumstances a breach of the contractual expectation is fundamental. Thus, it has been argued [25] that the breach is fundamental when the buyer's intended use of the goods becomes impossible, or when the party has lost interest in receiving the performance.[26] Moreover, it is unclear whether negotiations, trade usages, or other facts subsequent to the conclusion of the contract and not mentioned in the contract may also come into play, as suggested by some authors,[27] for determining the party's contractual expectation.

It follows from the above that the objective element of substantial detriment and the subjective element of contractual expectation are two blended concepts, since detriment can lead to fundamental breach if the aggrieved party has lost interest in receiving performance.

Unfortunately, these elements are defined too generically to enable the interpreter to grasp the concept of fundamental breach. This inevitably calls for a case by case analysis,[28] thus confirming the importance of a case law approach for a correct understanding of the issue.

Elements concerning the party in breach: "foreseeability" and the "reasonable person of the same kind" standard

The foreseeability element is a filter,[29] which enables the party in breach to escape from contract avoidance. Lack of foreseeability of the substantial detriment is a ground of excuse, and, if proven, it will prevent the aggrieved party being entitled to declare the contract avoided. The circumstances in which the breaching party may invoke unforeseeability may vary in accordance with the contractual wording. When the contract expressly states that performance of an obligation is of essence, there will be little room for proving that the breach caused an unforeseeable detriment. This may be the case of goods that must be delivered within a fixed term, indicated by the buyer as essential. The transportation insurance for the goods [30] and the payment by means of letter of credit [31] may also constitute essential obligations, respectively for the buyer and for the seller. Conversely, when the contract does not clearly state the importance of an obligation, the conduct of the party in breach may be interpreted with more tolerance. According to some authors, the foreseeability test serves only to exempt the party in breach, and cannot contribute to qualifying breach as fundamental.[32] Thus, under this view, foreseeability is only a conditional element that must be proven to prevent the contract from being avoided, substantial detriment and contractual expectation remain the key elements for establishing fundamental breach.

In the light of these considerations, it should be stressed that the burden of proving unforseeability rests with the breaching party.[33] This only confirms the preferable view held by some authors [34] and by several courts,[35] according to which the issue of the allocation of the burden of proof is an issue implicitly governed by the CISG, in accordance with the latin brocard onus probandi incumbit ei qui dicit.

Further, it must be stressed that the personal qualities of the party in breach are not essential for the foreseeability test, since the test must be conducted on objective grounds.[36] Thus, it will be preferable not only to evaluate whether a reasonable person of the same kind could foresee the event, but also to look if business people of the same trade sector would have foreseen the event.[37] The importance of limiting the analysis to a specific trade sector must be stressed, since [page 340] reasonableness standards may considerably differ from one sector to another.[38] It has also been correctly pointed out[39] that if the party in question does foresee more than average, this will be relevant.

Probably, however, time is the most controversial issue of the foreseeability test.[40] In legal writing different views are expressed as to when the party in breach must have foreseen the aggrieved party's interest in receiving the performance, i.e., of whether circumstances arising after the conclusion of the contract are relevant for determining fundamental breach. While some authors [41] argue that the importance of an obligation must be determined only in light of the circumstances known at the conclusion of the contract, other authors [42] deem equally important any subsequent information that may indicate the parties' interest in receiving performance.

The latter view seems to be preferable under the general principle of good faith which according to case law [43] underlies the Convention, at least to the extent that the party in breach was aware of that subsequent information.

Fundamental breach in court and arbitral practice

Given the complexity of the theoretical structure of art. 25 and given that the Convention does not provide the interpreter with specific interpretive guidelines, it may be useful to take a look at the case law on fundamental breach. As correctly pointed out by a scholar, any abstract definition of fundamental breach must expect criticism.[44] This statement cannot surprise given the various standards for determining fundamental breach in case law. Since the outcome of these decisions largely depends on the circumstances of each case, it would be of little use to simply list all the decisions. Nevertheless, some types of controversies are likely to occur more often than others. Thus, an attempt has been made to classify the most typical controversies into broad categories, which are the expression of court practice trends.

Late performance and fundamental breach

In international sales transactions, late performance occurs rather frequently, due, amongst others, to the distances. Indeed, late performance may be caused either by the seller's late delivery of the goods or by the buyer's late payment or late taking over of the goods.

With respect to late delivery of the goods, both the case law [45] and the legal authors [46] hold that delay does not per se constitute a fundamental breach. Therefore, the seller's breach of the first delivery term should not lead to immediate avoidance and the buyer should grant him an additional period of time. Obviously, this interpretation serves the purpose of preserving contractual bonds, since considerable costs may arise in international trade if the standards of avoidance become too lax.[47] Nevertheless, in case law several restrictions were applied to the general rule by making a distinction between essential and non-essential term for delivery. There is case law that holds that the breach of an essential term can constitute a fundamental breach "if delivery within a specific time is of special interest to the buyer",[48] and therefore even if no additional term for delivery was fixed.

The most obvious way to determine if the term is essential is the existence of a contractual clause stating that delivery must be effected at an exact time.[49] Yet, the term is to be considered essential not only when the parties specified it in the contract,[50] but also in the light of the circumstances, customs, usage or other relevant factors.[51] For instance, the term may be considered essential when the buyer "has informed the seller that he has fixed a date for delivery to his sub-buyers".[52] Further, the term may be considered essential because of the nature of the goods. In case of seasonal goods (spring collection clothes), the Court of Appeals of Milan held that the term for delivery was of essential importance, since these clothes were unlikely to be worn in a different season.[53] However, the delivery of summer clothes one day after the fixed time was not held to constitute a fundamental [page 341] breach.[54] The Hamburg Court of Appeals, seized of an action in respect of a CIF contract, held that in CIF contracts the term is essential "by definition".[55] A term may also be considered essential ipso facto, as in a case decided by the Court of Parma,[56] where a delay of two months in delivering the goods was considered a fundamental breach of contract.

The cases at hand show that the essentiality of a term must be determined according to the circumstances of each case and that many different factors may be relevant.

With regards to late payment, it is generally acknowledged [57] that late payment does not amount by itself to a fundamental breach. With regards to the issue of securities for payment, some decisions dealt with the issue of failure to open a letter of credit in due time. The Supreme Court of Queensland [58] ruled that the buyer's failure to open a letter of credit in the time fixed in the contract does not constitute a fundamental breach and that the seller may declare the contract avoided only after the expiry of the additional term for performance granted to the buyer. Two ICC arbitral awards[59] held that the buyer's delay in opening a documentary credit did not necessarily amount to a fundamental breach, unless the additional term fixed by the seller has expired.

A special case of delay is the late taking over of the goods by the buyer. A French court held that a delay of a few days only [60] will not constitute a fundamental breach. In case of longer delay, which results in considerable costs of storage, the seller should still not be entitled to declare the contract avoided, but simply to claim damages.

A different conclusion may be reached when the buyer refused to take over the goods, since several courts [61] held that final refusal by the buyer to take over the goods constitutes fundamental breach.

The aforementioned decisions show that that two different standards apply in case of late performance. In case of late delivery by the seller, the general rule that delay does not amount to a fundamental breach is not settled, since there are many exceptions to the rule. In case of late payment by the buyer, a different standard applies and more tolerance seems to be admissible. As stated by a scholar, "only in an exceptional case should a delay in payment by itself be a fundamental breach of contract".[62] Yet, since in case of late performance it is often hard to determine when delay may amount to fundamental breach, it is always advisable[63] that the parties fix an additional term for performance (the so called Nachfrist). At the expiration of this term, the aggrieved party will always be entitled to avoid the contract pursuant to articles 49(1)(b) or 64(1)(b), regardless of whether a fundamental breach occurred.

Defective goods and fundamental breach: the economic loss approach

The delivery of defective goods is certainly the most recurrent situation in international sales litigation. The number of decisions dealing with this issue is remarkably high, but often it is rather problematic to establish which kind of deficiencies in the goods may amount to a fundamental breach. In the CISG, the notion of lack of conformity is to be evinced from art. 35(1), which states that "the seller must deliver goods which are of the quantity, quality and description required by the contract and which are contained or packaged in the manner required by the contract". Art. 35(2) lists specific standards, which represent a condicio sine qua non for the conformity of the goods.[64] In summary, except when the parties have agreed otherwise, the goods do not conform with the contract, as pointed out in case law:[65] unless they are fit for the purposes for which goods of the description would ordinarily be used; unless they possess the qualities of goods which the seller has held out to the buyer as a model or sample; and unless the goods are packed in the usual and necessary manner (art. 35(2) CISG).[66] Under the CISG, the delivery of an aliud is also treated as delivery of a non-conforming good (and not as non delivery), as pointed out by the German Supreme Court[67] and by the Austrian Supreme Court.[68] In any event, the buyer loses [page 342] the right to avail himself of the remedies for non-conformity, if he fails to give notice to the seller within a reasonable time after discovering the defects pursuant to art. 39 CISG.

In determining what type of deficiency may lead to a fundamental breach, although without expressly saying so, case law seems to favour an economically oriented approach, based on the actual loss suffered by the aggrieved party.

Some courts decisions looked merely at the percentage of defective goods, or at the estimated cost of repair on the total value of the goods. Other court decisions, however, gave relevance to a criterion based on the merchantability of the defective goods. With regards to the first type of decisions, in the case of Delchi v. Rotorex first decided by the District Court of New York and later upheld by the Court of Appeals of the Second Circuit, both courts [69] stated that the buyer had a right to avoid the contract because 93% of the goods did not conform with the contracted samples and did not satisfy the quality controls standards (the air condition compressors had low cooling capacity). In another case, the Landshut District Court [70] held that the buyer had suffered substantial detriment because the entire lump of sportswear delivered had shrunk about 10 to 15% after being washed. However, in a case decided by the Hamm Court of Appeals,[71] the percentage of defective goods was considered too small to justify the buyer's declaration of avoidance (420 kilograms of defective goods out of 22 tons). It appears that only a very high percentage of defective goods (close to the full amount) may entitle the buyer to declare the contract avoided. In this kind of situation fundamental breach is easy to assess, since virtually all the goods are defective and they are useless for the buyer.

The estimated cost of repair is another criterion used by the courts. In an Austrian-Chinese dispute over unfit scaffoldings non-conforming to the sample, an ICC arbitral tribunal[72] held that the buyer had a right to declare the contract avoided, since the costs for sorting out the defects would have compared to one third of the total purchase price.

Probably, however, the most interesting solution is that based on the merchantability of defective goods. This interpretive approach was first used by the Frankfurt Court of Appeals and later confirmed (albeit in a different case) by the German Supreme Court. The first case [73] dealt with a delivery of shoes by an Italian seller to a German buyer. The German buyer stated that the contract was avoided due to late delivery and lack of conformity of the shoes. The court noted that the buyer did not specify whether the shoes were just below standards or totally unfit for resale. According to the Court, only in the latter case the buyer would have been entitled to declare the contract avoided. This concept is even more clearly defined in a decision by the German Supreme Court [74] dealing with the sale by a Dutch company of four different quantities of cobalt sulphate to a German buyer. The parties agreed that the goods should be of British origin and that the seller should supply certificates of origin and of quality. After the receipt of the documents, the German buyer declared the contracts to be avoided, since the cobalt sulphate was made in South Africa and the certificate of origin was wrong. In determining if a fundamental breach exists, the German Supreme Court held that one must consider whether it can be expected for the buyer to put the goods to another reasonable use. Since the buyer had failed to show that the goods could not be resold in Germany or abroad, it was not entitled to avoid the contract under art. 49.[75] Further, the Court held that the buyer failed to show that the breach by the seller amounted to a substantial deprivation of its contractual rights.

The merchantability of the goods was used as a criterion for determining fundamental breach also by the French Supreme Court. In a case dealing with a delivery of wine by an Italian seller to a French buyer, the French Supreme Court held that fundamental breach occurred as a result of the non merchantability of the wine on the French market.[76] In the case at hand, the Italian buyer manipulated the wine by adding sugar to it in breach of French wine regulations. The seller's manipulation was said to affect the quality of the wine to the extent [page 343] that its breach was considered a fundamental one. Eventually, the seller's conduct had affected irreparably the merchantability of the goods. However, in the case at hand, the French Supreme Court did not address the issue of whether the wine could be resold abroad (as the German Supreme Court did). In a German decision, however, the breach of German federal health department regulations was not considered to irreparably affect the merchantability of the goods. The case involved a Swiss seller and a German buyer, who concluded a contract for the sale of mussels from New Zealand. The mussels contained a quantity of cadmium exceeding the maximum level recommended by the German Health authority, but the German Supreme Court [77] denied fundamental breach holding that the excessive quantity of cadmium could not affect the conformity of the goods. According to the German Supreme Court, "the standard for cadmium content in fish, in contrast to the standard for meat, does not have a legally binding character but only an administratively guiding character. Even if the standard is exceeded by more than 100%, one cannot assume that the food is no longer suitable for consumption, because mussels, contrary to basic food, are usually not consumed in large quantities within a short period of time and, therefore, even "peaks of contamination" are not harmful to one's health".[78] Basically, the Court arguably held that the mussels were perfectly merchantable and edible, even though potentially toxic. The different approaches taken by the French and the German case law may serve as an example of the confusion that reigns on the interpretation of fundamental breach.

Defective goods and fundamental breach: relevance of seller's offer to cure

Much controversy exists on whether defects can be cured by the seller before the buyer can declare the contract avoided. In other words, it must be established if the offer by the seller to replace or repair the defective goods may halt the effects of the buyer's declaration of avoidance. The relationship between the seller's right to cure and the buyer's right to avoid is still unclear and is subject to diverging interpretations.

Several commentators [79] suggest that in case of delivery of defective goods there is no fundamental breach if the seller has made a serious offer to cure the defect. Another commentator [80] even suggests that there is no fundamental breach also in the absence of an offer to cure, as long as the breach remains curable. These authors base their conclusions on the wording of art. 48 CISG, which provides that the seller may, even after the date of delivery, remedy at his expense any failure to perform his obligations, provided that remedy takes place within a reasonable time and without causing unreasonable inconvenience to the buyer. They argue that a different interpretation would make art. 48 meaningless.

However, as correctly pointed out different authors,[81] art. 48 CISG is subject to the art. 49 reservation, and thus, the seller's offer to cure cannot prevent the buyer from declaring the contract avoided. According to this stricter interpretation, the buyer has a right to declare the contract avoided if the lack of conformity amounts to a fundamental breach, regardless of whether the seller has made an offer to cure. In case of defective goods, the buyer's interest to avoid the contract should prevail on the seller's offer to cure. The subjective element of contractual expectation is essential for this type of analysis, since the seller committed the breach and the buyer must be entitled to decide whether to accept the offer to cure or not. The buyer cannot be barred from avoiding the contract pursuant to art. 49 only because the seller has made an offer to cure,[82] but he must decide on his own if it is more convenient for him to accept the offer or to declare the contract avoided. Especially when the term for delivery is of essence, the buyer may have lost its interest in receiving the performance even if the defect may be cured swiftly and he must be free to decide whether the seller may still remedy the defect. Pursuant to this view, the [page 344] buyer may also decide not to avoid the contract if he is satisfied with the seller's offer to cure. Eventually, in case of defective goods it is the buyer's interest that must prevail. Obviously, the buyer may accept the seller's offer to cure the defects, and this will be intended as a waiver of his right of avoidance, as stated by one court.[83]

This interpretation is criticized by those authors who believe that the seller should not be deprived of its right to cure the defects and that, if this were the case, the right to cure would lose any practical meaning. In Germany, the Court of Appeals of Koblenz [84] held that fundamental breach does not occur if there is a serious offer to cure by the seller. In a dispute over the delivery of acrylic blankets, the Court held that the seller's offer to cure the defect prevented the breach from being fundamental, even though the buyer had refused the offer. The Commercial Court of Zurich took a similar position, although only obiter.[85]

It must be noted, however, that courts [86] repeatedly affirmed that the buyer's right to avoid the contract should not be restricted by the seller's offer to cure. An ICC arbitral award,[87] for instance, found that the buyer was entitled to rely on art. 49(1)(a) CISG for declaring the contract avoided, and that the seller was not entitled to supply substitute items after the delivery date specified in the contract without consent of the buyer. This arbitral award recognizes the principle that the buyer should have the last word on the avoidance of contract.

Conclusions

Although legal commentators argued [88] that under the Convention the remedy of avoidance should be intended as the last resort (ultima ratio), to be applied only when it is no longer possible to continue the contractual relationship, case law seems, albeit with some exceptions [89], to use a less restrictive approach. Economic loss plays an important role in determining the relevance of breach, and, often, the case law pays little consideration to other factors such as contractual expectation or foreseeability. Such elements seem to be more relevant in scholarly writings, than in court practice. Further, due to the general definition of art. 25, evidence of the substantial detriment suffered seems often to play a more important role than statutory interpretation. Further, proof of the loss suffered, proof of the merchantability of the goods, proof of the seriousness of the offer to cure defects are often decisive elements for the interpreter and this causes the analysis of fundamental breach to be extremely fact based [90] and linked to the circumstances of each case.[91] This is the conclusion that can be drawn by looking at the aforementioned conflicting decisions rendered by the Supreme Courts of France and Germany. It follows that a uniform notion of fundamental breach is hardly achievable at least on a general base.

This does not mean, however, that uniformity cannot be achieved at all. This author suggests that uniformity may be reached on specific issues, where trends in case law exist, and not on the general notion of fundamental breach. As shown above, case law is starting to adopt a more uniform approach on some specific issues, such as late payment or the buyer's right to avoid the contract in spite of the seller's offer to cure. Thus, it seems preferable to break the broad notion of fundamental breach into smaller categories of breach and to strive for a uniform interpretation of these cases. This task could hardly be possible without a collection of English case abstracts on the CISG accessible online. As stated in the beginning of this paper, a constant analysis of case law trends is the only way to achieve uniformity in the interpretation of the CISG and, as pointed out by a distinguished legal scholar,[92] judges and arbitrators should be encouraged to consider prior decisions in other States as persuasive. [page 345]


FOOTNOTES

* Fellow Researcher, Verona University School of Law.

1. For this statement, see Pauly, The Concept of Fundamental Breach as an International Principle to Create Uniformity of Commercial Law, in J. L. & Com., 2000, p. 225.

2. See, e.g., Bonell, The UNIDROIT Principles of International Commercial Contracts and the Vienna Sales Convention (CISG) - Alternatives of Complementary Instruments?, in Uniform L. Rev., 1996, p. 28, stating that the language of art. 25 is "vague and ambiguous"; Heuzé, La vente internationale des merchandises. Droit uniforme, Paris, 1992, p. 294, "redaction très défectueuse"; for similar statements, see Pauly, supra note 1, p. 221.

3. See Kritzer, Guide to Practical Applications of the United Nations Convention on Contracts for the International Sale of Goods, Deventer-Boston, 1989, p. 200 ff.

4. For this kind of statement, see Babiak, Defining "Fundamental Breach" Under the United Nations Convention on Contracts for the International Sale of Goods, in Temp. Int'l. & Comp. L.J., 1992, p. 113.

5. Above all, see Ferrari, Uniform Interpretation of the 1980 Uniform Sales Law, in Ga. J. Int'l. & Comp. L., 1994, p. 183. See also, Cook, The U.N. Convention of Contracts for the International Sale of Goods. A Mandate to Abandon Legal Ethnocentricity, in J. L. & Com., 1997, p. 257; Koneru, The International Interpretation of the UN Convention on Contracts for the International Sale of Goods: An Approach Based on General Principles, in Minn. J. Global Trade, 1997, p. 105 ff.

6. See Flechtner, The Several Texts of the CISG in a Decentralized System: Observations on Translations, Reservations and Other Challenges to the Uniformity Principle in Article 7(1), in Journ. L. & Comm., 1998, pp. 187-217; Diedrich, Maintaining Uniformity in International Uniform Law via Autonomous Interpretation: Software Contracts and the CISG, in Pace Int. L. Rev., 1996, pp. 303-338;

7. Ferrari, Specific Topics of the CISG in the Light of Judicial Application and Scholarly Writing, in J. L. & Com., 1995, p. 9.

8. See U.S. Court of Appeals, 4th. Circ., 21 June 2002, at <http://cisgw3.law.pace.edu/cases/020621u1.html>; U.S. Court of Appeals, 2d Circ., 29 June 1998, in WL 343335; District Court, S.D.N.Y., 6 April 1998, in WL 164824; OLG Karlsruhe, 25 June 1997, in RIW, 1998, p. 235; BGH, 3 April 1996, in NJW, 1996, p. 2364, also in UNILEX; Richteramt Laufen Kantons Berne, 7 May 1993, in Dir. comm. int., 1995, p. 451; HG Kantons Aargau, 11 June 1999, CLOUT case no. 333; BGH, 24 March 1999, in RIW, 1999, p. 617; HG Kantons Aargau, 26 September 1997, CLOUT case no. 217.

9. See Herber, CLOUT, Unilex and andere Veröffentlichungen zum internationalen Kaufrecht, in RIW, 1995, pp. 502-504.

10. For this kind of observation, see Koch, in Review of the Convention on Contracts for the International Sale of Goods (CISG) 1998, The Hague, 1999, p. 211.

11. See DiMatteo, An International Contract Law Formula: The Informality of International Business Transactions Plus the Internationalization of International Contract Law Equals Unexpected Contractual Liability, in Syracuse Journal of International Law and Commerce, 1997, p. 93.

12. See, among others, Tribunale di Vigevano, 12 July 2000, in Giur. it., 2000, p. 280 ff., also in UNILEX; Tribunale di Pavia, 29 December 1999, in Corr. giur., 2000, p. 932.

13. For the persuasive role of case law in CISG interpretation, see Ferrari, supra note 5, p. 12; see also, Enderlein, Maskow, International Sales Law. United Nations Convention on Contracts for the International Sale of Goods-Convention on the Limitation Period in the International Sale of Goods. Commentary, New York/ London/Rome, 1992, p. 348.

14. The CLOUT (Case Law On UNCITRAL Texts) is a collection system created by UNCITRAL which selects "national correspondents" in the Contracting States for the purpose of gathering court and arbitral decisions which are forwarded to UNCITRAL Secretariat, see U.N. Doc. A/43/17, at <www.uncitral.org/commission>. The CLOUT system is freely accessible on UNCITRAL web site at <www.uncitral.org/clout>.

15. See <www.unilex.info>.

16. See <www.cisg.law.pace.edu>.

17. See <www.jura.uni-freiburg.de/ipr1/cisg>.>.

18. Tallon, Civil Law and Commercial Law, in VIII International Encyclopedia of Comparative Law, 1993, p. 10.

19. For this kind of statement, see Will, sub. Art. 25, in Commentary on the International Sales Law. The 1980 Vienna Sales Convention, Bianca, Bonell eds., Milan, 1987, p. 215, stating that: "the unforseeability test in the final conditional clause of the article constitutes a further innovation of the Convention"; Pauly, supra note 1, p. 225; contra, however, Heuzé, supra note 2, p. 295, who holds that the unforseeability test cumulates with substantial detriment; Fusaro, sub. Arb. 25, in Convenzione di Vienna sui contratti di vendita internazionale di beni mobili, Bianca ed., Padua, 1992, p. 114.

20. For this kind of statement, see Enderlein, Maskow, supra note 13, p. 113; Will, supra note 19, p. 212; Audit, La vente internationale des marchandises. Convention des Nations-Unies du 11 avril 1980, Paris, 1990, p. 119.

21. See, Schlechtriem, in Commentary on the UN Convention on the International Sale of Goods (CISG), Schlechtriem ed., Munich, 1998, p. 177, who believes that the said distinction is often unhelpful. For a different approach, and in the sense that a distinction between main obligation and ancillary obligation should be made, see Neumayer, Ming, Convention de Vienne sur le contrats de vente internationale de marchandises, Paris, 1993, pp. 211-212, stating that: "a defaut d'un accord particulier à ce sujet, la violation d'une obligation accessoire ne constitue une contravention essentielle au sens de l'article 25 que si elle a des répercussions sur l'exécution des obligations principales."; Enderlein, Maskow, supra note 13, p. 112.

22. See OLG Frankfurt, Germany, 17 September 1991, in Unif. L. Rev., 1991, p. 381; see also HG Aargau, 26 September 1997, supra note 8.

23. See, Schlechtriem, supra note 21, p. 177; Will, supra note 19, p. 211 stating that "detriment does not equal damage nor does it equal loss or any similar international or national term of art"; Ziegel, The Remedial Provisions in the Vienna Sales Convention: Some Common Law Perspectives, in International Sales, Galston, Smit eds., New York, 1984, p. 16; Enderlein, Maskow, supra note 13, p. 113. For the contrary view, in the sense that the loss suffered by the buyer should be a decisive element for determining fundamental breach, see Babiak, supra note 4, p. 118.

24. See Will, supra note 19, p. 211.

25. For this view, see Enderlein, Maskow, supra note 13, p. 114; Neuymayer, Ming, supra note 21, p. 209 ff.

26. See Schlechtriem, supra note 21, p. 177, who states that what determines fundamental breach is "whether the risk of the particular non conformity [of the goods] was considered so serious by the parties that its existence would eliminate the buyer's interest in the performance of the contract concerning these goods".

27. See Honnold, Uniform Law for International Sales, 3d. ed., The Hague, 1999, p. 183; Enderlein, Maskow, supra note 13, p. 116, who believe that subsequent information may become relevant (although in exceptional cases); Will, supra note 19, p. 221; contra, however, Neumayer, Ming, supra note 21, p. 215; Schlechtriem, supra note 21, p. 177.

28. It has been suggested that the notion of fundamental breach should be understood in the light of the circumstances of each case, see Honnold, supra note 27, p. 206; Audit, supra note 20, p. 119; for a case by case approach, see also Pauly, supra note 1, p. 229.

29. For this, see Will, supra note 19, p. 215.

30. For this view, see Schlechtriem, supra note 21, p. 179.

31. See, e.g., Papandréou-Deterville, Refus d'ouvrir une lettre de credit et contravention essentielle au contract, in Recueil Dalloz, 2002, p. 399.

32. See Babiak, supra note 4, p. 118; see also Koch, supra note 10, p. 264.

33. For this view, see Will, supra note 19, p. 216 "the burden of proving unforeseeability rests with the party in breach".

34. For the issue of the burden of proof as an issue implicitly governed by the CISG, see above all Ferrari, Burden of Proof Under the United Nations Convention on Contracts for International Sale of Goods (CISG), in this Review, 2000, p. 665; Giovannucci Orlandi, Procedural Law Issues in Uniform Law Conventions, in Uniform L. Rev., 2000, p. 23.

35. See above all, Tribunale di Vigevano, supra note 12; Appello Lugano, 15 January 1998, in UNILEX; HG Zurich, 30 November 1998, in UNILEX. For a comment on the Tribunale di Vigevano leading decision, see Ferrari, Problematiche tipiche della Convenzione di Vienna sui contratti di vendita internazionale di beni mobili risolte in una prospettiva uniforme, in Giurisprudenza italiana, p. 281 ff.; Graffi, Overview of Recent Italian Court Decisions on the CISG, in The European Legal Forum, 2001, pp. 240-244; Veneziano, Mancanza di conformità delle merci ed onere della prova nella vendita internazionale: un esempio di interpretazione autonoma del diritto uniforme alla luce dei precedenti stranieri, in Diritto del commercio internazionale, 2001, p. 509 ff.

36. See Enderlein, Maskow, supra note 13, p. 116 stating that "an objectivation is, therefore, made here".

37. See Schlechtriem, supra note 21, p. 179.

38. For similar statements, see Neuymayer, Ming, supra note 21, p. 216.

39. See Enderlein, Maskow, supra note 13, p. 116; Will, supra note 19, p. 220.

40. For a general overview of the relevance of the point of time at which the foreseability test is to be applied, see Kritzer, supra note 3, p. 205.

41. For this view, see Schlechtriem, supra note 21, p. 178; Neuymayer, Ming, supra note 21, p. 218; Heuzé, supra note 2, p. 295.

42. For this view, see Honnold, supra note 27, p. 116, who believes that subsequent information is relevant provided that such information is not received too late; Will, supra note 19, p. 221; Enderlein, Maskow, supra note 13, p. 113; Flechtner, Remedies Under the New International Sales Convention: The Perspective from Article 2 of the U.C.C., in J. L. & Com., 1988, p. 53 ff.

43. See BGH, 31 October 2001, in Internationales Handelsrecht, 2002, p. 14 ff.; OLG Karlsruhe, 25 June 1997, in UNILEX; OLG Köln, 21 May 1996, in UNILEX; LG Saarbrücken, 26 March 1996, in UNILEX; Court of Appeal, New South Wales, Australia, 12 March 1992, in UNILEX.

44. For this statement, see Schlechtriem, supra note 21, p. 176.

45. See OLG München, 8 February 1995, in UNILEX, holding that since the parties had not agreed on the precise date of delivery, the seller's readiness to deliver in August and October was no breach of contract, let alone a fundamental one. Thus, the right to declare the contract avoided because of the non-delivery of the cars was lost by the buyer; ICC award no. 7585, 1992, in UNILEX (late payment); Arbitration Court of the Budapest Chamber of Commerce and Industry, 5 December 1995, CLOUT case no. 164, where the arbitral court held that buyer was not entitled to the declare the contract avoided since term for delivery was not fixed.

46. For this type of position, see Schlechtriem, supra note 21, p. 417, stating that "the mere failure to observe a delivery date, with delivery as such still being possible, is not generally to be regarded as a fundamental breach of contract." Heuzé, supra note 2, p. 303; Neuymayer, Ming, supra note 21, p. 349.

47. As correctly pointed out by Honnold, supra note 27, p. 206 "claims that the goods are defective often are made only after expensive transport to the buyer's place of business when avoidance for immaterial defects might needlessly lead to wasteful reshipment or redisposition of the goods in a foreign country".

48. For this statement, see OLG Hamburg, 28 February 1997, in UNILEX.

49. See Enderlein, Maskow, supra note 13, p. 114.

50. See Enderlein, Maskow, supra note 13, p. 114.

51. For the relevance of usages and other circumstances in determining the essential nature of the term, see Koch, supra note 10, p. 216. According to Bernstein, Lookofsky, Understanding the CISG in Europe, The Hague/ London/ Boston, 1997, p. 89, footnote 53 "it is conceivable that in a particular line of business an international trade usage requires strict compliance with time clauses so that failure to deliver on time must ordinarily be regarded as a fundamental breach".

52. For this statement, see Schlechtriem, supra note 21, p. 182.

53. See Corte di Appello di Milano, 20 March 1998, in UNILEX. In that case the buyer had ordered seasonal knitted goods and pointed to the essential importance of delivery at the fixed date (even though after the conclusion of the contract), since the goods had to be sold during the Christmas sales; see also ICC award no. 8786, 1997, in ICC Bulletin 2000, 70.

54. See LG Oldenburg, 27 March 1996, at www.jura.uni-freiburg.de/ipr1/cisg/urteile/text/188.htm, stating that the delay of one day is not a fundamental breach if the parties did not agree on an absolute time limit for delivery.

55. See OLG Hamburg, 28 February 1997, supra note 47. According to one author, Magnus, Wiener UN-Kaufrecht (CISG), in Staudinger, Julius von Staudingers Kommentar zum Bürgerlichen Gesetzbuch mit Einführungsgesetz und Nebengesetzen, 13th ed., Berlin, 1999, p. 466, CIF and FOB contracts give the buyer the right to avoid the contract in case of late delivery.

56. Pretura circondiale di Parma, 24 November 1989, in UNILEX. The court held that the delay by the seller in delivering the goods, together with the fact that two months after the conclusion of the contract the seller had delivered only one third of the goods sold, amounted to a fundamental breach of the contract according to article 49(1)(a) CISG.

57. See Schlechtriem, supra note 21, p. 490 who states that "a failure to make a payment on the due date is not a fundamental breach of contract, because the seller's interest in receiving payment is normally not substantially impaired by the delay in making payment"; Enderlein, Maskow, supra note 13, p. 244, stating that "since the time for performance of the buyer's obligations is in general not conceived in a way that time is of the essence, the mere non-performance at the time for performance will constitute a fundamental breach of contract only in rare instances"; Knapp, sub. Art. 64, in Commentary on the International Sales Law, supra note 19, p. 469.

58. See Supreme Court of Queensland, Australia, 17 November 2000, in UNILEX.

59. See ICC award no. 7585, France, 1992, supra note 45; ICC award no. 7197, France, 1992, in UNILEX.

60. Appèl Grenoble, 4 February 1999, at <http://www.jura.uni-sb.de/FB/LS/Witz/040299.htm>. The judges held that the buyer had not committed a fundamental breach, as defined in article 25 CISG, by refusing to take delivery of the goods in late August. The buyer could not be expected to have understood that a few days' delay in taking delivery would constitute a fundamental breach on its part.

61. HG Aargau, 26 September 1997, supra note 8; OLG Hamm, 22 September 1992, in UNILEX, where the buyer refused to take over more than half of the goods.

62. See Schlechtriem, supra note 21, p. 184. Even under art. 10 of ULIS the mere failure to observe the payment deadline did not amount to a fundamental breach.

63. For this kind of suggestion, see Audit, supra note 20, p. 149.

64. See Bernstein, Lookofsky, supra note 51, p. 59 who define the conditions laid down in art. 35 as "implied obligations of quality".

65. See, amongst others, Tribunale di Vigevano, supra note 12; see also Cassation, 8 January 2002, in <http://Witz.jura.uni-sb.de/CISG/decisions/080102v.htm>; BGH, 24 March 1999, in UNILEX; Cassation, 17 December 1996, in UNILEX; Arbitration Institute of the Stockholm Chamber of Commerce, 5 June 1998, in UNILEX; Court of Appeals of Helsinki, 29 January 1998, in UNILEX; LG München, 8 February 1998, in UNILEX; LG Berlin, 25 May 1999, in UNILEX.

66. For a comment on the lack of conformity in international sales law, see Veneziano, Nonconformity of goods in international sales: a survey of current case law on CISG, in IBLJ, 1997, p. 39 ff.; Schneider, Examen de la marchandise et dénonciation des defauts, in Rec. Dalloz, 2002, p. 314; Babusiaux, Défaut de conformité. Détermination du défaut de conformité selon la réglementation en vigueur dans le pays du vendeur, in Rec. Dalloz, 2002, p. 317; Bin, La non conformità dei beni nella convenzione di Vienna sulla vendita internazionale, in Rivista trimestrale di diritto e procedura civile, 1990, p. 755 ff.

67. See BGH, 3 March 1996, in UNILEX, holding that "the CISG does not differentiate between delivery of different goods and delivery of goods that do not conform to the contract. Under the CISG, an aliud delivery does therefore, at least generally, not constitute a non-delivery, but constitutes a delivery of non-conforming goods".

68. See OGH, Austria, 21 March 2000, in UNILEX.

69. See U.S. District Court, N.D.N.Y., 9 September 1994, WL 495787, and U.S. 2d Circuit, 6 December 1995, in UNILEX.

70. See LG Landshut, 5 April 1995, in UNILEX.

71. See OLG Hamm, 22 September 1992, in <http://www.jura.uni-freiburg.de>. The case dealt with a delivery of 200 tons of bacon in 10 installments. The buyer claimed that 420 kg of the bacon delivered were dirty, due to the defective packaging. The court, however, held that the amount of dirty bacon could not be considered a substantial part of the total amount of goods ordered.

72. See ICC case no. 7531, France, 1994, in Dir. comm. int., 1996, p. 636, also in UNILEX. In this case, the costs for repairing the unfit scaffoldings amounted to 17,000 USD on an overall value of 46,000 USD.

73. See OLG Frankfurt, 18 January 1994, CLOUT case no. 79.

74. See BGH, supra note 65. For a comment to this significant decisions, see Koch, supra note 10, p. 230; Pauly, supra note 1, p. 232.

75. The Court stated that the buyer neither named potential customers nor specified its previous export business, nor did he submit that a disposal in Germany or an export to another country was not possible or only possible with unreasonable difficulties.

76. See Cour de Cassation, 23 January 1996, available on the internet at <http://www.unilex.info/case.cfm?pid=1&do=case&id=186&step=Abstract>.

77. See BGH, 8 March, 1995, in UNILEX.

78. See the English version of the decision at <http://cisgw3.law.pace.edu/cases/950308g3.html>.

79. For this view, see Schlechtriem, supra note 21, p. 183, who states that "there is initially no fundamental breach of contract in cases in which it can be expected of the seller to repair the goods, deliver substitute goods or remove a defect in title within a time which is reasonable and takes account of the buyer's plans for the goods"; Schneider, The Seller's Right to Cure under the Uniform Commercial Code and the United Nations Convention on Contracts for the International Sale of Goods, in Ariz. J. Int'l. & Comp. L., 1989, p. 102; Karollus, Un-Kaufrecht: Vertragsaufhebung und Nacherfullungsrecht bei Lieferung mangelhafter Ware, in ZIP, 1993, p. 493; Will, supra note 19, p. 349 ff., holding that when the buyer because of prior experience with the seller is aware that the latter can cure the defect, he is not allowed to avoid the contract even in case of fundamental breach; for a similar view see Honnold, supra note 27, p. 296.

80. See Huber, in Schlechtriem, supra note 21, p. 387 stating that: "defects which can be completely cured by repair and in respect of which the buyer has the right to claim repair, do not, therefore, as such generally constitute a fundamental breach of contract, even if the objective importance of those defects is considerable".

81. See Enderlein, Maskow, supra note 13, p. 187; Enderlein, Rights and Obligations of the Seller Under the U.N. Convention on Contracts for the International Sale of Goods, in Dubrovnik Lectures, Sarcevic, Volken eds., 1986, p. 193; Babiak, supra note 4, p. 127, footnote 92.

82. See Audit, supra note 20, who states that "on ne saurait non plus permettre que la faculté de résolution de l'acheteur soit systématiquement paralysée par une offre d'exécution du contrat sur sa résolution".

83. See Appèl Grenoble, France, 26 April 1995, in UNILEX, where the court held that avoidance had not taken place, since the parties had determined that the seller would repair the damaged metal elements.

84. See OLG Koblenz, 31 January 1997, in UNILEX, holding that: "since the seller had made an offer to deliver new goods, which was refused by the buyer, the lack of quality did not amount to a fundamental breach of contract (article 25 CISG). In considering a breach to be fundamental, account has to be taken not only of the gravity of the defect, but also of the willingness of the party in breach to provide substitute goods without causing unreasonable inconvenience to the other party (article 48(1) CISG)".

85. See HG Zurich, Switzerland, 26 April 1995, CLOUT case no. 191.

86. Pretura circondiale di Parma, supra note 56. The court held that the delay by the seller in delivering the goods, together with the fact that two months after the conclusion of the contract the seller had delivered only one third of the goods sold, amounted to a fundamental breach of the contract according to article 49(1)(a) CISG; OLG Frankfurt, supra note 22; OLG Oldenburg, 1 February 1995, CLOUT case no. 165, BGH, 25 June 1997, in UNILEX.

87. See ICC case no. 7531supra note 72.

88. See Magnus, The General Principles of the CISG, in Int'l Trade & Bus. L.A., 1997, p. 33 ff.; Neuymayer, Ming, supra note 21, p. 207; Audit, supra note 20, p. 150; Kappus, Rechtsvergleichende Aspekte zur Vertragsaufhebung wegen Sachmangels nach UN-Kaufrecht, in NJW, 1994, p. 530.

89. For a restrictive approach towards avoidance see, BGH, 3 April 1996, supra note 10; OGH, Austria, 7 September 2000, in Internationales Handelsrecht 2001, p. 42, also in UNILEX.

90. See Audit, supra note 20, p. 119, stating that "le caractère essentiel d'une contravention est une question de fait".

91. See Heuzé, supra note 2, p. 296, who states that since fundamental breach essentially depends on the circumstances of each case, the parties can safeguard their interests only by providing expressly in the contract which types of obligations are of interest to them.

92. See Farnsworth, The Convention on the International Sale of Goods from the Perspective of the Common Law Countries, in La vendita internazionale. La Convenzione di Vienna dell'11 aprile 1980, Atti del Convegno di Studi di S. Margherita Ligure (26-28 settembre 1980), Milano, 1980, p. 10 who states that "one way to encourage uniformity is to encourage courts to consult and to follow the interpretations of other courts in other jurisdictions"; Honnold, The Sales Convention in Action - Uniform International Words: Uniform Application?, in J.L. & Com., 1988, p. 207 ff.; Ferrari, supra note 5, p. 198; Flechtner, supra note 7, p. 187 ff.; Van Alstine, Dynamic Treaty Interpretation, in Univ. Penn. L. Rev., 1998, pp. 788-789; Andersen, Furthering the Uniform Application of the CISG: Sources of Law on the Internet, in Pace Int. L. Rev., 1998, pp. 403-410. For critical comments on the use of case law to promote uniformity, see Hillman, Applying the United Nations Convention on Contracts for the International Sale of Goods: The Elusive Goal of Uniformity, in Cornell Review of the Convention on Contracts for the International Sale of Goods, 1995, pp. 21 ff, who states that "the call for case law may demonstrate a bias for common law methods, which conflicts with the Convention's mandate to avoid local orientations".


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