II. Case Law and Scholarly Writing on Fundamental Breach

III. The Meaning of the Concept of Fundamental Breach in Light of the Text of Article 25, The Convention’s Legislative History, Context Within the Convention, Underlying Purposes and the Observance of Good Faith

IV. Critique of the Remaining Approaches

V. Introduction of a New Methodology

INTRODUCTION

Judging by the number of states that have adopted it, there is no doubt that the United Nations Convention on Contracts for the International Sale of Goods [1] is one of the most successful examples of unification in the area of international commercial law.[2] The Convention was unanimously adopted in 1980 at a Diplomatic Conference with representatives from 62 states and 8 international organizations. Since then, 54 states from five continents, including almost all of the major trading nations, have approved, ratified, accepted, or acceded to the Convention.[3] [page 182]

While important, the extent of adoption by nations is not the only criteria by which to evaluate the Convention’s success. Of equal importance is the level of acceptance of uniform commercial law by the business world whose interest it is primarily meant to serve.[4] In the business world, however, the Convention lacks the wide acceptance it enjoys in the political arena; this can best be seen by the limited number of published decisions interpreting the Convention.[5] Even if one considers that not all decisions have been published or reported and that arbitration awards are often not published at all, in relation to the actual number of sales transactions since the Convention entered into force in 1988, the number of reported Convention cases nonetheless remains very small. This gives rise to the assumption that the Convention has often been excluded by the parties.[6]

Any attempt to explain this exclusion of the Convention, in the absence of empirical data, remains a rather speculative exercise. From the present writer’s own personal and professional experience as a practicing [page 183] attorney in Germany, however, parties often exclude the Convention for two main reasons: First, simply because the parties, as well as their lawyers, neither know the Convention nor are interested in becoming acquainted with it.[7] It is more convenient for such persons to confine themselves to well-known domestic rules than to learn a completely new set of rules.[8] Second, some very important provisions of the Convention contain vague language and terminology that cause uncertainty and unpredictability.[9] [page 184]

This thesis explores one of those vague provisions, namely, the concept of fundamental breach of contract in Article 25. Fundamental breach plays a crucial role within the remedial system of the Convention because the remedies available to the buyer and the seller depend on the characterization of the breach. Generally speaking, only if one of the party’s failure to perform his contractual obligations amounts to a fundamental breach will the other party be entitled to avoid the contract as of right (de pleno jure).[10] Moreover, fundamental breach is a prerequisite for the right of the buyer to demand substitute delivery if the goods delivered do not conform to the contract.[11] Finally, fundamental breach is important in the transfer of risk.[12]

Article 25 provides that a breach is fundamental if:

Article 25 does not provide any examples of events that constitute such a fundamental breach.[14] Instead, general terms and phrases are used to define fundamental breach, such as “detriment,” “substantial deprivation,”[page 185] and “foreseeability.”[15] These terms hardly allow the parties to a sales contract, in case of dispute, to determine ex ante (before one of the parties deems the contract avoided) whether a breach was fundamental.[16]

In such a situation, there is a need for certainty and predictability since parties must use different measures to effect either a contract avoidance or continuance.[17] For example, in the case of a fundamental breach of a seller’s obligation, once the buyer avoids the contract, the seller must immediately [page 186] take back the goods supplied. This necessarily involves risk of damage or loss and expenses such as transportation and storage.[18]

It is true, however, that the uncertainty created by the definition of fundamental breach can be avoided through a more specific avoidance regime negotiated by the parties [19] or by making use of the “Nachfrist” avoidance mechanism provided for under articles 49(1)(b) and 64(1)(b).[20] These opportunities, however, do not resolve the uncertainty inherent in the definition of fundamental breach. Moreover, the buyer and the seller cannot anticipate every problem that might arise. Thus, the circumstances which give rise to fundamental breach still must be determined.[21] [page 187]

Purpose

This paper attempts to elucidate the concept of fundamental breach. Its purpose is to replace the various approaches previously introduced by the courts and scholars with a methodology that provides more assistance to parties to determine whether a fundamental breach has occurred in a sales transaction governed by the Convention. To that end, the different approaches taken by scholars and the courts in defining fundamental breach will be critically examined. As mentioned above, article 25 was drafted in general terms and must be interpreted. Therefore, before examining the different approaches, it is necessary to identify the methods of interpretation provided by the Convention.

PART I — Rules of Interpretation and Construction under the Convention

When interpreting the meaning of a certain work, term, or phrase under uniform international law, which is subject to various interpretations, it is first necessary to determine whether that term or phrase must be interpreted “autonomously” or as interpreted in domestic law.[22] Within the scope of the Convention and except for those cases where express reference is made to the lex fori, such as under articles 1(1)(b) and 28, it follows from article 7(1), that an “autonomous” interpretation is required. According to the latter provision, “regard is to be had to its international character and to [page 189] the need to promote uniformity in its application and the observance of good faith in international trade.” [23]

Respecting the “international character” of the Convention and “the need to promote uniformity” requires an autonomous interpretation of its terms and concepts in the context of the Convention itself, without reference to any meaning under a particular domestic legal system.[24] The articles and concepts of the Convention cannot be regarded as a species of domestic legislation, even after its incorporation or implementation into domestic law.[25] To do otherwise would not only lead to a breakdown of uniformity but would also promote forum shopping.[26] [page 190]

However, where a term in the Convention has been taken from one or several legal systems, such as the “Nachfrist-type” requirement,[27] an analysis of its domestic meaning does not necessarily diminish the international character of the Convention and its primary aim of promoting uniformity.[28] Nor can one conclude that domestic interpretive techniques are excluded by that reference, provided that their application leads to results [page 191] which are persuasive and conform to the goals of the Convention in general, as well as those of the specific provision.[29] Domestic interpretation is compatible with article 7(1) [30] only if it is critically analyzed before application.

For example, interpretation under the English law “doctrine of fundamental breach” [31] is not permissible, since that concept was developed to enable an aggrieved buyer to escape contractual provisions when goods are defective.[32] It would be equally inconsistent with the Convention’s objectives [page 192] to interpret its provisions according to a common law standard, in which a narrow statutory interpretation is utilized to limit the effect of a particular court decision.[33] Moreover, in contrast to common law legislation,[34] reference to (equitable) rules previously governing matters within the Convention’s scope, whether derived from statute or case law, is also excluded by article 7(1).[35]

Traditional rules of interpretation in civilian legal systems, such as literal, historical, systematical and teleological rules, on the other hand, make allowances for the Convention’s international character and its primary goal of uniform application.[36] If the meaning of a word or term in a statute [page 193] is clear, literal interpretation best serves both requirements.[37] The same is generally true with historical, systematical or teleological interpretation. Such applications require no reference to domestic law, but only to the provisions, legislative history, and goals of the Convention as a whole, and to the particular provision.[38] If the meaning of a statute is ambiguous, article 7(1) requires the application of these methods of interpretation.[39]

In the following section, the suitability of these traditional methods of interpretation of the Convention will be examined in greater detail.[page 194]

B.  The Four Classical Methods of Interpretation

With regard to the Convention’s overriding objective of uniformity, the primary guide to interpretation is the ordinary meaning of the words.[40] If a word’s meaning is evident, either in its ordinary connotation or within a unique context, no further interpretation is required. In the event of ambiguity in one of the several language versions of the Convention, the various versions must be compared to determine whether each presents the same linguistic uncertainty.[41] If, after such comparison the exact meaning cannot be ascertained, or if it reveals disparities between the authentic texts,[42] then the literal interpretation must be supported by other methods of interpretation, since no single language may prevail.[43] [page 195]

Interpretation by way of legislative history seeks to resolve inherent ambiguities by considering the drafters’ motives and deliberations, as evidenced in the officially published travaux préparatoires.[44] At the national level, materials connected with the preparation of the law are parliamentary debates, minutes of meetings of commissions, etc. At the international level, such materials include the records of diplomatic conferences, documents that formed the basis for the work of the conferences, commentaries, drafts proposed by working groups, and comments of governments that participated in the drafting process.[45] Consequently, one should not only refer to the acts and proceedings of the Vienna Conference and the summary records of the previous deliberations within UNCITRAL. One must also examine the Convention’s predecessor, the 1964 Hague Sales Conventions,[46] since the deliberations in UNCITRAL started with an analysis of the 1964 text.[47] [page 196]

The unofficial commentary prepared by the UNCITRAL Secretariat for the 1980 Vienna Diplomatic Conference on the Convention must also be considered.[48] This commentary summarizes relevant conclusions derived from the legislative history of the Convention prior to the Conference and was used extensively by the delegates as a guide to the meaning of certain 1978 Draft Convention provisions. Where the Official Text of a provision is typically close to or identical with the 1978 Draft version of the same provision, it is said that the Secretariat Commentary is nevertheless the most persuasive citation.[49]

The interpretation of an international convention through legislative history presents some difficulties.[50] First, unlike those at the national level, preparatory materials of a diplomatic conference are often neither widely known nor available.[51] This, however, is not true for the Convention, because the deliberations of the Vienna Diplomatic Conference are well documented.[52] [page 197]

Second, it is difficult to determine the opinion of a diplomatic conference.[53] Like other international agreements, the Convention was not established unilaterally but was negotiated. One of the features of negotiation is that the negotiating parties do not always reveal their true intentions.[54] An agreement is typically reached without respect to the individual intentions of the contracting parties, but instead, through compromise. Accordingly, agreement on a text does not necessarily imply agreement as to the intentions of the delegates to a conference.[55] Divergent or even conflicting intentions may well underlie a final text.[56]

These concerns, however, may also be raised in the context of national legislation. It is therefore evident that caution is needed in approaching legislative history in general. In this author‘s opinion, where a proposal has been rejected by a clear majority and, provided that official records reveal the prevalent understanding of the delegates, legislative history creates a binding interpretation of the Convention, i.e., those proposals should never be admissible evidence in a dispute.[57] [page 198]

There are two ways of interpreting law systematically.[58] One seeks to discover the meaning of a statutory provision by looking at its context and interpreting it in relation to other provisions of a given instrument.[59] This approach, both at the domestic and the international level, is important to avoid conflicting interpretations of identical or similar terms within a complex legal text, especially where each provision is to be understood as part of a broader analytic system.[60] Even though international conventions sometimes lack the coherent structure that exists in a national code,[61] in general, this variant of systematic interpretation promotes the uniform application of rules within a single statute, such as the Convention.[62] [page 199]

The second approach to systematic interpretation is to look at a certain provision within a legal system as a whole.[63] Unlike at the domestic level, however, at the international level there exists no international legislator and thus no legal order, which requires consideration of one statute’s relationship to other statutes and interpretation of similar provisions in such a way to avoid contradiction.[64] In addition, the purpose of each convention usually differs, as with special statutes for particular issues under domestic law. For these reasons, as long as a general system of uniform laws has not been established, it would be arbitrary and therefore contrary to the purpose of unification to compare international conventions with each other in order to systematically interpret their provisions.[65] Only when a convention expressly refers to another convention should reference to the latter be permissible. Under the Convention, however, there is no such reference and, therefore, other international conventions should not generally act as a source for its systematic interpretation.[66] [page 200]

It has recently been suggested that the UNIDROIT Principles of International Commercial Contracts [67] should be used as a means of interpreting the Convention, provided that the relevant provision of the UNIDROIT Principles serves the same purpose as its corresponding provision in the Convention.[68] The objections to reliance on other international conventions, however, also apply in this context. In addition, there is another argument against the employment of the UNIDROIT Principles, namely the [page 201] very existence of another uniform law project within the framework of the Commission on European Contract Law; the Principles of European Contract Law.[69]

Although the European Principles address basically the same issues of general contract law and are very similar to the UNIDROIT Principles in terms of formal presentation,[70] the existence of competing instruments to interpret the Convention per se contradicts the purpose of the Convention to unify international sales law. More important than this theoretical argument, however, is the fact that the two instruments do not entirely coincide as to their content.[71] Since the territorial scope of the European Principles [page 202] is formally limited to the Member States of the European Union, while the UNIDROIT Principles are universal, it is to be expected that the courts and tribunals outside of Europe or in commercial transactions involving non-Europeans would apply the UNIDROIT Principles to interpret the Convention, while within the European Union or in purely intra-European contracts, the European Principles would be applied.[72]

Such a scenario clearly jeopardizes the objectives of the Convention and, therefore, courts and arbitral tribunals should not apply either instrument as a means of interpreting ambiguous terms.[73] Critical consideration [page 203] of concepts and criteria used in properly interpreting the Convention offered by those instruments, however, should be permissible. In this respect, the same restrictions pertinent to the use of the domestic interpretation of a given Convention term apply to those instruments.[74] In other words, resorting to the principles and criteria under the UNIDROIT Principles or any other uniform law project should only be permissible when their application can be justified by the legislative history and the underlying purposes of a given provision in the context of the Convention itself.

The teleological method of interpretation attempts to resolve uncertainties and bridge lacunae in legislation by looking at the objectives and underlying policies of the text in question.[75] There are two different aspects to teleological interpretation; the object and purpose of the particular provision or terms which require interpretation, and the object and purpose of the statute as a whole.[76] Determining the legislator’s intent requires the use of travaux préparatoires.[77] As far as it concerns the interpretation of a single provision, the teleological approach thus faces the same problems as interpretation by legislative history. In regard to the object of the Convention as a whole, however, the drafting parties’ intent is more easily discernible. That intent is laid out in the Convention’s preamble [78] and reinforced by the directive in Article 7(1) for regard to be had to its “international character” and the need to “promote uniformity.”[79] In practice, this means that [page 204] attention must be given to the way the Convention is interpreted in other countries by the courts, scholars, and practitioners.[80]

Although there is much scholarly writing on the Convention’s interpretive techniques, the problem of which technique prevails in the event of conflicting results has not yet been discussed. As discussed later in this Paper, this question becomes pertinent in determining fundamental breach in the context of the seller’s right to cure a defect under article 48(1) and the buyer’s right to avoid the contract under article 49(1)(a). The point at issue is whether it is permissible to replace the literal, historical, and contextual interpretation by a teleological approach.[81]

In the absence of a supranational tribunal endowed with exclusive jurisdiction to interpret the Convention’s provisions, it seems to be contrary to the principle of uniform application, as embodied in the Convention, to allow national courts to disregard the plain wording in order to give effect to what it deems the overriding purpose of a single provision.[82] Only where the plain meaning of one provision contradicts that of another, as with articles 14 and 55,[83] is recourse to other interpretive methods permissible, [page 205] since such contradictions endanger the Convention’s overall goal to promote uniformity.

C.  Observance of Good Faith in International Trade

Article 7(1) requires that, in the application of the Convention, attention be paid not only to the need to promote uniformity but also to “the observance of good faith in international trade.” The Convention does not provide a definition or the scope that should be given to “good faith” as an aid to interpretation, and there are as yet no published decisions which apply that principle.[84] With regard to its scope, scholars find themselves in disaccord as to whether good faith operates simply as an additional criterion in interpreting the Convention or if it is also governs the conduct of the parties to a contract.[85] There is, however, a general consensus of opinion [page 206] that the use of domestic definitions and concepts is barred by the reference to “international trade,” which reinforces the Convention’s goal “to promote uniformity.”[86]

The controversy over the scope of the concept of “good faith” seems to be of purely academic character. In practice, it appears to be nearly impossible to apply this principle to the interpretation of the Convention without also applying it to the parties’ conduct.[87] Moreover, there are several provisions in the Convention that are directed at the parties’ conduct and which [page 207] undeniably represent a particular application of the good faith principle.[88] Hence, the requirement of good faith can be considered as one of the “general principles” upon which the Convention is based. As such, it is not limited to the interpretation of the Convention itself, but also governs the parties’ conduct.[89] The reference to general principles underlying the Convention [page 208] as a whole best ensures the uniform interpretation of the good faith requirement, since this reference secures an interpretation based on principles found within the Convention, such as the concepts of reasonableness [90] [page 209] and the principle of mitigation.[91] The latter, for example, is contained in article 50. This provision limits the availability of the buyer's remedy of price reduction if he does not permit the seller to remedy any failure of obligations under the contract.[92]

It should be noted, however, that the Convention’s good faith principle does not permit the courts to introduce a general principle of fairness and equity. In other words, a national court may not replace the effects of a statutory provision, contrary to its plain wording and the legislative intent, by an outcome, which it believes to be more fair and equitable.[93] Any other reading of the good faith principle cannot be justified by the legislative history [page 210] and would endanger the uniform application of the Convention.[94] If, and to what extent this principle may take precedence over a contract provision will be discussed later in this Paper.[95]

D.  Filing Gaps in the Provisions of the Convention

It is hardly possible at both the national and international level to draft a lengthy and complicated piece of legislation without any gaps. Paragraph (2) of article 7 thus provides that questions which are not expressly settled in [the Convention] are to be settled in conformity with the general principles on which [the Convention] 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 concept of fundamental breach, however, is expressly settled in article 25 and, consequently, its interpretation is restricted to the rules under paragraph (1) of article 7.[96]

E.  Conclusion (Part I)

The objective of Part I was to identify the rules of interpretation under the Convention. It was shown that the Convention’s rules of interpretation require first and foremost an autonomous interpretation of the terms of the Convention in order to ensure their uniform application. We examined different methods of interpretation and reached the conclusion that the traditional rules of interpretation in civilian legal systems best serves that goal. We argued that in cases where the application of different methods leads to conflicting results, the courts are not allowed to disregard the plain wording or the clear legislative intent in order to give effect to what they deem the overriding [page 211] purpose of a single provision. With regard to the Convention’s principle of good faith, we hold the view that it is not limited to the interpretation of the Convention itself, but also governs the parties’ conduct. Finally, we argued that this principle does not permit the courts to modify or replace the effects of a statutory provision, contrary to its plain wording and the legislative intent, by an outcome that they believe to be more fair and equitable.

PART II — Case Law and Scholarly Writing on Fundamental Breach

Unlike the Members of the European Union, the states participating in the drafting of the Convention were unwilling to transfer any of their sovereignty in order to establish a supranational court, such as the European Court of Justice, to ensure a unified interpretation of the Convention.[97] Furthermore, decisions of foreign courts are not binding on domestic courts,[98] nor are domestic courts required to consider foreign scholarly [page 212] writing.[99] On the other hand, the Convention’s requirement of having regard for “uniformity in its application” calls for courts to consider interpretations of the Convention in other countries.[100] Therefore, we will next canvas scholarly commentary (A) and case law (B) on fundamental breach.[101] [page 213]

B.  Scholarly Writing on Fundamental Breach

According to the statement of the unofficial Secretariat Commentary on the 1978 Draft Convention,[102] scholars from different legal systems debated on standards for determining whether a breach is fundamental. A consensus was reached that the determination must be made in the light of the circumstances of each case.[103] There is no such agreement, however, as [page 214] to which factors are decisive in determining whether an injury is substantial enough to amount to a fundamental breach and the point in time from which foreseeability is measured.

The section below first illustrates the different approaches and the relevant factors used for determining fundamental breach and then addresses the relevant point in time. Reference will be made to a very recent approach that involves the UNIDROIT Principles concerning non-performance in order to determine fundamental breach under the Convention.

Because of its practical importance within the Convention’s remedial system and its vagueness, the concept of fundamental breach has generated much commentary by scholars and practitioners. They have employed several factors in determining whether a breach is fundamental; which may be roughly categorized under the following headings: (a) nature of the contractual obligation; (b) gravity of the circumstances of breach; (c) remedy-oriented approach; (d) (in)ability of performance; (e) (un)willingness to perform; (f) lack of reliance on the other party’s future performance; (g) offer to cure; and (h) possible cure.

a.  Nature of the Contractual Obligation

The nature of the contractual obligation is one factor in the determination of fundamental breach. Where the parties have expressly or implicitly agreed that in the case of a breach by one party the other party may [page 215] terminate the contract, strict compliance with the contract is essential and any deviation from the obligation is to be regarded as a fundamental breach.[104] Absent such an express provision, the duty of strict compliance may also be inferred from the language of the contract, the surrounding circumstances, custom, usage, or a course of dealing between the parties.[105]

For example, it has been argued that the time of delivery is of the essence and consequently late performance amounts to a fundamental breach where the parties have stipulated that performance should be effected at an exact time (“Fixgeschäft”) [106] and the importance of timely performance flows from the nature of the goods,[107] the circumstances [page 216] of payment,[108] or from the time the taking of the goods was to be effected.[109]

Where the parties have expressly specified the quality of the goods, e.g., in case of an express warranty, any defect in quality constitutes a fundamental breach. Likewise, where the buyer has insisted that goods be fit for a [page 217] particular purpose,[110] or where he has notified the seller for what purposes he would need the goods (expressing his special interest that the goods be fit for that purpose), then any defect affecting this particular use is to also be regarded as a fundamental breach.[111]

b.  Gravity of the Consequences of Breach

The gravity of the consequences of the breach is another factor in determining fundamental breach. Whether or not the consequences of the breach actually deprive the aggrieved party of the expectation under the contract is discussed under the following headings:[112] the contract‘s overall value plus the monetary loss suffered by the aggrieved party, frustration of the purpose of the contract, and the remedy-oriented approach.[page 218]

There is some debate among scholars as to whether the monetary loss suffered by the injured party is a decisive factor in determining fundamental breach. Based upon the Secretariat Commentary on the fundamental breach governing provision under the 1978 Draft Convention,[113] some authors conclude that the contract’s overall value and the loss suffered by the buyer as a result of the non-performance are to be considered in determining fundamental breach.[114] Most authors, however, take the view that damages are not the decisive factor. Rather, the aggrieved party’s special interest in the performance of the particular obligation as fixed by the terms of the contract is the decisive factor in determining fundamental breach.[115] [page 219]

To determine fundamental breach, many authors focus on whether or not the purpose of the contract has been frustrated by the breach.[116] They argue that the buyer has purchased the goods for some purpose and consider those breaches that make the intended use of the goods impossible as fundamental.[117] In their view, when the goods do not possess the features necessary for the purpose,[118] or when a third party claims a right to possession or prohibits the use by virtue of a patent or other industrial or intellectual property right, a fundamental breach has been committed.[119] For example, the buyer’s interest in reselling the goods is not protected if it was evident that he bought the goods for manufacturing purposes, but his interest in selling the proceeds is protected. Accordingly, only if the sale of the latter is not possible due to the defective delivery is there a fundamental breach.[120]

Where documents are necessary in order to dispose of the goods or take delivery of the goods at their place of destination, e.g., a bill of lading, the delivery of defective and incomplete documents constitutes a fundamental breach.[121] Delivery of short or damaged goods entitles the buyer to [page 220] avoid the contract where complete and/or non-defective delivery was necessary for the use intended by the buyer.[122] Delivery of an aliud constitutes a fundamental breach where the merchandise delivered deviates so substantially from that ordered that the seller must view the buyer’s acceptance as impossible.[123]

Concerning the delivery of non-conforming goods, the case-by-case approach, which looks at whether the purpose of the contract has been frustrated, has been challenged by a more comprehensive one. Inspired by some recent German court rulings [124] on fundamental breach, this new approach asks whether it is reasonable for the buyer to retain the defective goods, make use of them and to then claim for damages for any loss suffered as a result of the breach.[125] In answering this question, the new approach considers the nature of the goods, the extent of the deviation from [page 221] the agreed quality, the purpose for which the buyer purchased the goods, and the size of the buyer’s business.[126]

According to this somewhat remedy-oriented approach, it is generally unreasonable for the buyer to run the risk of engaging in a dispute with the seller as to whether he had sold the goods for a reasonable price and thereby observed his duty to mitigate losses.[127] Consequently, defective delivery generally constitutes a fundamental breach when the goods would not be marketable or a reasonable price could not be realized.[128] Moreover, where the buyer is only a retailer, it is generally unreasonable for him to sell defective goods to his customers.[129]

If the defective goods were not purchased for resale but for other purposes, such as processing, it would also be unreasonable for the buyer to use the goods unless there were a market where the goods could be easily sold.[130] “Aliud” deliveries always constitute a fundamental breach where the goods in question are of a specific character, irrespective of whether they are unique or fungible.[131] Where the goods are generic, “aliud” deliveries are to be considered a fundamental breach when it is unreasonable for the buyer to resell them and to claim damages.[132] In determining unreasonableness, the extent to which the delivered goods deviate from the stipulated description must be considered.[133] [page 222]

c.  (In)ability of Performance

Another consideration in the determination of fundamental breach is the party’s (in)ability to perform at all, that is to say either to deliver the ordered goods or to pay the purchase price and to take delivery. Regardless of whether or not performance is due, non-performance is considered a fundamental breach where performance is objectively impossible, namely where the object of the transaction is unique and has been destroyed.[134] For example, if a party contracts to sell his Kandinsky and it has perished, performance is objectively impossible since no one could deliver the painting.[135] A fundamental breach has also been committed where only the party, which has yet to fulfill its obligation, is unable to perform the contract (subjective impossibility).[136] If, in the foregoing example, the Kandinsky were not destroyed but stolen, the seller would only be subjectively prevented from performing, since the thief or any other person having bought the stolen painting from him would be able to deliver it to the buyer, if only theoretically.[137] [page 223]

d.  (Un)willingness to Perform

The parties’ (un)willingness to perform is another factor in the determination of fundamental breach. For example, one party’s express refusal to perform his obligation, such as to pay for the goods or to take delivery of them, constitutes fundamental breach, except where the promisor is entitled to refuse to perform.[138] Making performance dependent on an unjustified counter-performance or additional guarantees also constitutes fundamental breach.[139]

e.  Lack of Reliance on the Other Party’s Future Performance

In determining fundamental breach, consideration is also given to whether the breach gives the aggrieved party reason to believe that he may not rely on the other party’s future performance. It has been argued, for example, that even where the contractual term broken is minor and the consequences of the breach do not substantially deprive the aggrieved party of his expectations under the contract, he can nonetheless treat the breach as fundamental if it was intentional.[140] In addition, where one party can reasonably [page 224] conclude from the other party’s conduct that he will not perform a substantial part of his obligation, the former may ask the latter for an adequate assurance of performance, and failure to provide an additional guarantee is regarded as a fundamental breach.[141]

f.  Offer to Cure

When one reads academic commentary on the drafting history of the Convention,[142] there is much controversy among scholars as to whether fundamental breach should be determined in the light of an offer to cure. Many authors favor the consideration of such an offer in determining whether or not a fundamental breach has occurred.[143] Their position is that a breach is not fundamental as long as the requirements of article 48(1) are met, namely, that repair is possible within a reasonable time and without causing the aggrieved party unreasonable inconvenience or uncertainty of reimbursement by the seller of expenses advanced by the buyer. Consequently, the seller’s refusal or failure to cure the defect within a reasonable time constitutes [page 225] a fundamental breach.[144] The same is true where timely delivery is an essential term of the contract.[145] Moreover, a fundamental breach has been committed where it is unreasonable for the buyer to keep the repaired merchandise,[146] or where the buyer reasonably cannot rely on the seller’s ability [147] or willingness [148] to cure the defect within a reasonable time.

Some authors, on the other hand, believe that an offer to cure should not be considered in determining fundamental breach.[149] They are of the opinion that taking into account an offer to cure and the curability of a defect contradicts the opening words of article 48(1), according to which the seller’s right to cure is “subject to article 49.”[150] They conclude from that wording that the buyer’s right to avoid the contract always prevails over the seller’s right to cure and, thus, the question of whether the breach was fundamental [page 226] for the purpose of avoidance cannot be answered in the light of an offer to cure.[151] Another argument advanced is that such an approach is incompatible with article 46(2), according to which the buyer can request substitute delivery if the lack of conformity constitutes a fundamental breach.[152] Defining fundamental breach in light of a feasible repair would practically bar the buyer from requiring substitute performance whenever the seller offers a cure.[153] The buyer’s right to require substitute goods would be limited to those situations where repair is impossible.[154] Moreover, it has been argued, that consideration of a possible repair contributes to the further weakening of the concept of fundamental breach since it is not clear under what circumstances the buyer’s right to cure would prevail.[155]

Those authors favoring consideration of an offer to cure in determining fundamental breach, with reference to the legislative history of article 48(1), defend their position on the ground that the opening words of that article do not clarify the exact relationship between the seller’s right to cure and the buyer’s right to avoid.[156] It could not, therefore, be answered with certainty whether avoidance or cure should prevail.[157] Furthermore, they argue that the purpose of article 48(1) would be frustrated if the buyer were [page 227] allowed to avoid the contract before giving the seller an opportunity to cure the defect.[158] As to the compatibility with article 46(2), they argue that the term fundamental breach must be interpreted differently, depending on whether the avoidance or the substitute delivery remedy is sought,[159] or if, for policy reasons, the seller’s right to cure should prevail over the buyer’s right to request substitute delivery.[160]

g.  Possible Cure

In an attempt to overcome some of the doctrinal concerns about the approach focusing on the existence of an offer to cure, some legal writers look exclusively at the curability of a given breach.[161] They determine fundamental breach not in the light of an offer to cure by the seller, but by looking at whether cure is possible at all. In their view, there is no fundamental breach when the breach is curable.[162]

Most authors conclude from the wording and legislative history of article 25 that there is a presumption that the party in breach foresaw the far-reaching consequences of the breach for the other party.[163] Consequently, they take the view that whether a breach is fundamental depends not only on its consequences but also on the foreseeability of those consequences to the other party.[164] For them, the foreseeability element has two functions: [page 228] first, a substantive function, i.e., the breaching party’s knowledge or foreseeability of the harsh consequences of the breach;[165] secondly, a procedural function, since the element of foreseeability shifts the burden of proof to the party in breach when that party claims that neither he nor any reasonable person of a similar class [166] and in the same circumstances [167] could have foreseen the result.[168]

The actual foreseeability of a substantial detriment caused by the breach depends on all relevant circumstances of the case, including the negotiations and any practices, established between the parties.[169] Where the parties, for instance, expressly or implicitly agreed that strict compliance with the contract terms is essential and any deviation from those terms is to be regarded as fundamental, the party in breach cannot invoke non-foreseeability. Under such circumstances, substantial detriment is foreseeable to a reasonable person of the same kind and in the same circumstances.[170] The same is true where the importance of the obligation breached follows from [page 229] the terms of contract or from the negotiations between the parties, which preceded the formation of the contract.[171] For example, where the parties stipulated that performance should be effected at an exact time, or where the buyer had made known to the seller that he needed the goods by a certain date in order to fulfill his own obligations vis-à-vis third parties, the seller cannot argue in defense that he was unaware of the fact that his failure to deliver on time would result in substantial detriment to the seller.[172] Only when the particular importance of the violated duty has neither been established in the contract itself nor discussed during the contract negotiations, can foreseeability be relevant.[173]

With regard to the relevant point at which foreseeability is measured there are basically two different positions.[174] Relying on the fact that the definition of fundamental breach is focused on the injured party’s expectations under the contract, some authors take the view that the time of the conclusion of the contract is relevant.[175] In their view, a contract in which the delivery time is not binding cannot be turned into a transaction where time is of the essence merely because the seller subsequently learns that the buyer needs the goods at a particular time.[176]

Furthermore, they argue that the relevant point at which foreseeability is measured must be evaluated in conjunction with article 74, which deals with monetary damages for breach of contract and limits the recovery of damages to cases where the breach is foreseeable “at the time of the conclusion of the contract.”[177] They point out that it would be anomalous if a [page 230] buyer were allowed to avoid the contract because of the seller’s breach while the grounds justifying avoidance were regarded as being too remote for the recovery of damages.[178]

This approach is opposed by those authors who want more protection for the aggrieved party. While some of them favor the time of the breach [179] or the period “before the time of the breach” [180] approach, most of them consider these interpretations as too far-reaching. They generally hold the time of the conclusion of the contract as the decisive point and will permit consideration of subsequent knowledge only in exceptional cases, e.g., in cases where preparations in view of performance have not yet started so that the other party can still adapt itself to the new situation.[181]

As mentioned above, some renowned scholars advocate making use of the UNIDROIT Principles as a means of interpreting ambiguous terms of the Convention.[182] They suggest employing them in the determination of [page 231] fundamental breach of contract, arguing that both the UNIDROIT Principles and the Convention follow the same policy, namely to preserve the enforceability of the contract whenever feasible.[183] This approach would be reflected by offering the breaching party the possibility to cure,[184] requiring the non-breaching party to provide an additional period of performance,[185] and most importantly, by allowing the termination of the contract only when the breach or non-performance qualifies as “fundamental.”[186]

The UNIDROIT Principles provide a more express guideline than does the Convention as to which factors are relevant in determining fundamental non-performance, the counterpart of the Convention’s fundamental breach.[187] In determining fundamental non-performance, the UNIDROIT Principles state that regard shall be had to whether the non-performance substantially deprives the aggrieved party of what it was entitled to expect under the contract.[188] Other factors to be taken into account in each case are: whether strict compliance with the unfulfilled obligation is of [page 232] essence under the contract;[189] whether the aggrieved party has reason to believe that it cannot rely on the other’s party’s future performance;[190] whether the non-performance is intentional or reckless;[191] and finally, whether the non-performing party would suffer a disproportionate loss as a result of the preparation or performance if the contract is terminated.[192]

With the exception of the last two enumerated factors, those applied by the UNIDROIT Principles in determining fundamental non-performance do not differ substantially from those employed by scholars and practitioners in defining fundamental breach under the Convention.[193] There is, however, a significant difference. Unlike under the Convention, the relationship between the seller’s right to cure and the buyer’s right to terminate is clear under the UNIDROIT Principles. The buyer’s right to terminate is suspended provided that the seller’s offer to cure is appropriate and the buyer has no “legitimate interest” in refusing an offer to cure.[194] Moreover, the seller’s right to cure is not precluded by notice of termination.[195] In other words, the buyer cannot exercise his right of termination for the purpose of denying the seller an opportunity to cure. Under the UNIDROIT Principles, therefore, curability is, de facto, a relevant factor in determining whether or not non-performance is fundamental.[page 233]

C.  Case Law on Fundamental Breach

As of April 1999, there have been 54 reported decisions dealing with fundamental breach in its various settings.[196] As discussed in greater depth below, in most cases the courts and tribunals do not provide a detailed analysis as to the definition of fundamental breach.[197] Their reasoning, however, gives some insight as to why the courts considered a given non-performance as being fundamental or not. The factors enumerated by the courts in determining fundamental breach are similar to those employed by the scholars and practitioners as mentioned above. There are two principal reasons that account for this convergence.

First, all but three of the reported decisions dealing with fundamental breach [198] were rendered by courts in civil law jurisdictions, where the influence of legal writing on the interpretation and development of law is traditionally [page 234] much greater than in most common law countries.[199] Second, many articles and some of the standard commentaries on the Convention were published before the Convention entered into force and thus were the only source of interpretation for the courts in the absence of any case law on the Convention.[200]

Scholars and practitioners, however, could not anticipate all of the problems arising out of the application of the Convention. It is necessary, therefore, to more closely examine the reported decisions on fundamental breach.

The courts often looked at the nature of the contractual obligation in considering whether strict performance is of the essence of the contract. In the absence of express terms stipulating that any failure to perform strictly in compliance with the contractual obligations is considered a fundamental breach, the courts have tried to infer from the language of the contract, whether there was a duty of strict compliance, and if so, its nature and the surrounding circumstances.

a.  Quality of the Goods

In two cases, buyers invoked fundamental breach, claiming that the quality of the goods did not meet the stipulated requirements. In the first case, the Innsbruck Court of Appeals heard a dispute between a Danish exporter and an Austrian buyer. The buyer refused to pay the price and argued that the seller committed a fundamental breach of the contract because the flowers he purchased did not bloom throughout the entire summer. The Court denied that there was a fundamental breach on the grounds that the [page 235] buyer failed to prove that the seller had guaranteed that the flowers would bloom through the entire summer.[201]

The second case involved litigation between German and Spanish parties over the delivery of a shipment of pepper. The pepper contained approximately 150% of the maximum concentration of ethyl oxide admissible under German food and drug law. Here the buyer was more successful, proving it had an express agreement with the seller that the goods must be fit for human consumption in Germany. Consequently, the Ellwangen District Court held the seller was in a fundamental breach.[202]

b.  Timely Delivery

In many cases where the seller has effected late delivery, the buyer, alleging that the time of the delivery was an essential term of the contract, declared the contract avoided and refused payment. To date, however, in only one reported case did a court hold that timely delivery was essential. In a dispute between a British seller and a German buyer over the non-delivery of iron-molybdenum (“CIF Rotterdam”), the Hamburg Court of Appeals held that in CIF contracts timely delivery is per definitionem an essential term of the contract.[203] In all other cases, however, the buyer failed to show [page 236] that time was significant for the buyer in the sense that the contract stands or falls with timely delivery.[204]

The Oldenburg District Court, for example, denied fundamental breach in a dispute between a German buyer and an Italian seller, where the seller had dispatched summer clothes one day later than the stipulated time.[205] The Court concluded from the fact that the buyer took delivery of the goods instead of rejecting them that time was not of the essence of the contract.

In another case involving the sale of women’s wear, where the French seller dispatched the goods two days after the stipulated time, the Ludwigsburg Petty District Court held that the inconvenience caused by the delay was only of minor importance to the German buyer and thus did not amount to fundamental breach.[206]

c.  Disregard of the Seller’s Distribution System

In a French case, the Grenoble Court of Appeals held that a buyer breached by reselling goods to an unexpected third party. The seller expected [page 237] the buyer to resell in South America or Africa but the buyer instead resold in Spain, where the seller also resold.[207] The Court found that the parties clearly understood that resale was to be in South America or Africa and that seller’s expectations under the contract were substantially impaired, because sale of its products in Spain had been seriously hampered by the parallel distribution caused when the buyer resold the goods in Spain.

In some cases, courts determining fundamental breach have in particular looked at the gravity of the consequences of the breach in the light of: (a) the contract’s overall value and the monetary loss suffered by the aggrieved party; (b) the fitness of the goods for the intended purpose and (c) whether or not an award of damages would adequately protect the aggrieved party.

a.  Contract’s Overall Value and the Monetary Loss Suffered by the Aggrieved Party

In none of the following cases, has a court expressly held that there was a fundamental breach due to the monetary loss suffered by the aggrieved party as a consequence of the breach. Nor have the courts denied the occurrence of such a breach on the grounds that the breach did not cause the aggrieved party any damages. The ratio decendi of these cases, however, leads one to believe that the courts were focusing on the monetary loss suffered [page 238] by the aggrieved party in relation to the contract’s overall value for the determination of fundamental breach.

For example, in Delchi v. Rotorex, a U.S. District Court admitted fundamental breach where 93% of the air condition compressors delivered were rejected in quality control checks because they had lower cooling capacity and consumed more energy than the sample model and specifications.[208] The U.S. Court of Appeals for the Second Circuit affirmed the District Court’s conclusion “because the cooling power and energy consumption of an air conditioner compressor are important determinants of the product’s value.”[209]

In a dispute between a German seller and a Swiss buyer where fundamental breach was alleged, the Landshut District Court emphasized that the buyer would suffer considerable detriment because all of the sportswear delivered had shrunk about 10 to 15% after being washed.[210] The Court held that there was a fundamental breach since the buyer’s customers would have either returned the merchandise or would not have bought any more from the buyer.[211]

The delivery of 80,000 scaffolding fittings, which did not entirely conform to the sample, was the subject of an arbitration award in a Chinese-Austrian [page 239] dispute. Stating that the estimated costs of sorting out the bad fittings from the good would have amounted to more than one third of the purchase price, the tribunal found a fundamental breach on the grounds that “an important part” of 80,000 scaffold fittings did not conform to the sample.[212]

The Hamm Court of Appeals found fundamental breach in a German case where the German buyer refused to take delivery of more than half of the ordered bacon.[213] In this case, the Italian seller had contracted with the buyer to deliver 200 tons of bacon in 10 installments. The seller delivered 4 installments, totaling 83.4 tons. Due to the way the bacon was packaged and claiming that 420 kilograms out of 22.4 tons of the fourth installment were dirty, the buyer refused to take delivery of the remaining installments. The Court found that even if 420 kg of the bacon were contaminated, the buyer would not have been entitled to refuse to take delivery according to article 71(1),[214] since such an amount could not be considered a “substantial part” as required under this provision.

In two other cases, the courts have denied fundamental breach since the aggrieved parties did not suffer any loss due to the alleged breach by the other party. In a Russian case, a Russian buyer failed to pay for the delivered goods and objected to the seller’s claim for the stipulated price, arguing, inter alia, that the seller had breached the contract by dispatching the goods before the buyer had transmitted the bank’s guarantee. Emphasizing that [page 240] the buyer did not suffer any damage, the Russian tribunal held that such a violation by the seller of the terms specified for dispatch of the goods (delivery in the absence of a banker’s guarantee) could not be termed a fundamental breach of contract.[215]

In another case, the plaintiff, a Swedish seller of coke delivered to a company in the former Yugoslavia, sued a German buyer for the purchase price. The defendant [buyer] objected that the coke was of inferior quality and that the seller had sold the coke in his own name directly to the buyer’s client in Yugoslavia. The Munich Court of Appeals held that, if proven, such interference might be regarded as a violation by the seller of his “post-contractual” obligations. The court, however, found that such a breach of contract would not result in any objectively significant detriment to the buyer since he would not have lost his claim under the Convention to be paid the price.[216]

b.  Frustration of the Purpose of the Contract

In two cases the buyer has invoked fundamental breach on the grounds that the goods delivered could not be used for their intended purpose and were therefore not merchantable. In the first case, the German Supreme Court held that, as a general rule, the merchantability of the goods (New Zealand mussels) in the importer’s country was not an essential term of the contract.[217] According to the court, in the absence of an agreement as [page 241] to the merchantability of the goods, unmerchantability arising from the failure to observe special statutory provisions of the importer’s country only constitutes a fundamental breach if one of the following conditions are met: (i) the same provision existed in the seller’s State; (ii) the buyer had informed the seller and relied on the latter’s expert knowledge; or (iii) the seller had or could have had knowledge of such provisions due to the particular circumstances of the case.[218]

In another case, the French Supreme Court reached what at first glance appears to be a somewhat different conclusion in a French-Italian controversy over the delivery of Italian wine that did not conform to the French wine law due to the addition of sugar by the Italian seller.[219] The French Supreme Court found a fundamental breach on the ground that the wine was not merchantable in France.[220] Unlike in the New Zealand mussels case, here the unmerchantability was the result of manipulations by the seller. For that reason it seems justifiable to impose on the seller the duty to verify whether such manipulations affect the merchantability of the goods sold, thereby shifting the risk of unmerchantability to the seller, and to treat his failure to do so as fundamental breach.[221] [page 242]

c.  Remedy-Oriented Approach

Recently, a new approach to determine fundamental breach has been introduced by the Frankfurt Court of Appeals and the German Supreme Court. Both the Frankfurt Court of Appeals [222] and the German Supreme Court [223] focused on whether it was reasonable for the aggrieved party to make use of the goods delivered, in particular to resell them, and to claim damages to compensate for the loss.[224]

In the case decided by the Frankfurt Court of Appeals, the plaintiff, an Italian shoe manufacturer, had delivered shoes to the defendant, located in [page 243] Germany, and issued invoices for the purchase price. The defendant paid only a portion of the price and denied any further obligation to pay the balance by asserting that the contract was avoided due to the late delivery and non-conformity of the shoes. The court held that the defendant was not entitled to declare the contract avoided because it had not set a time limit within which the seller had to deliver and had failed to establish that a fundamental breach of contract was committed.[225] The court noted that the evidence produced by the defendant proved neither specific defects nor the unfeasibility of further use of the goods and was therefore insufficient to determine whether or not the buyer could be reasonably expected to make use of the shoes.

In the case decided by the German Supreme Court, a Dutch company had entered into four separate sales agreements for the delivery of cobalt sulfate with the buyer, a German company. It was agreed that the goods should be of British origin and that the seller should supply certificates of origin and quality. After the receipt of the documents, the buyer discovered that the sulfate came from South Africa, that the certificate of origin was wrong, and that the quality fell short of the description in the contract. The buyer several times declared the contract avoided. Both the Hamburg District Court and the Hamburg Court of Appeals held that there were no grounds for contract avoidance.[226]

Affirming the lower courts’ holdings, the German Supreme Court held that there was no fundamental breach justifying contract avoidance since the buyer could not show that the sale of the South African cobalt sulfate in Germany or abroad was not reasonably possible.[227] The defendant therefore failed to demonstrate that it was substantially deprived of what it was entitled to expect under the contract. The Supreme Court expressly rejected [page 244] the buyer’s argument on appeal that the feasibility to cure a defect is the only decisive factor in determining fundamental breach and held that unfeasibility to cure does not necessarily constitute a fundamental breach.[228]

In the absence of express terms in the contract, the Supreme Court argued that in determining fundamental breach, the remedial system of the Convention and its underlying purposes, namely to preserve the enforceability of the contract and to restrain avoidance in favor of the damage or price reduction remedies, must be taken into account. The avoidance remedy, therefore, should only be allowed as a last resort in response to a breach so serious that the non-breaching party would have lost his interest in performing the contract.[229] Finally, the Court held that the delivery of wrong certificates of origin and of quality did not amount to a fundamental breach of contract since the defendant could have obtained correct documents from other sources.[230]

The Düsseldorf Court of Appeals, in a German-Swiss dispute, held that the inability to perform constituted a fundamental breach. A Swiss buyer declared avoided a contract with a German seller to deliver a machine designed to press keys after having been informed by the manufacturer of the ordered machine that the manufacturer had terminated the distribution agreement with the seller and would not carry out delivery of the machine in question unless payments were made directly to him. The buyer then made payments directly to the manufacturer. When the seller sued the buyer for the purchase price, the buyer objected that the seller was not able to deliver the machine and therefore he — the buyer — was entitled to declare the contract avoided. The Düsseldorf Court of Appeals rejected the buyer’s arguments and held that mere non- or late delivery does not constitute a fundamental breach under article 25 provided that delivery is objectively possible and the seller was willing to deliver.[231] The Court continued that where delivery was objectively possible, but where it was obvious that [page 245] the seller for idiosyncratic reasons would not be able to deliver the goods in question (subjective impossibility), the buyer would be entitled to avoid the contract. Since none of the requirements were pertinent, the Court denied that any fundamental breach had been committed by seller.[232]

The insolvency of the buyer and the subsequent appointment of an administrator were found to have been a fundamental breach in an Australian case.[233] A German company sold tent hall structures to an Australian firm specializing in major events, such as the Australian Grand Prix and other large festivals. The buyer agreed to pay for the goods according to a set schedule but fell behind in its payments and, having encountered other financial difficulties, was placed under administration. The seller demanded that the administrator deliver up possession of the goods on the grounds that the contract of sales contained a retention of title clause, whereby title to the goods did not pass to the purchaser until the purchase price had been paid in full.[234] The administrator denied the existence of such a clause and refused to return the goods. The Court held that the fact that the company was insolvent or was likely to become so and the placement of the company [page 246] under administration resulted in such a detriment to the seller so as to substantially to deprive it of what it was entitled to expect under the contract. The denial by the administrator of a retention of title term in the contract also amounted to fundamental breach within the meaning of article 25.[235]

A party’s unwillingness to perform was the subject of an Italian-German dispute over the delivery of textiles, some of which were of a different color from that specified in the contract. After being informed by the Italian seller that he could not at that time deliver the remaining textiles of the ordered color, the German buyer declared the contract avoided. The Düsseldorf Court of Appeals held that a fundamental breach occurs if the seller declares seriously and definitely that he will not deliver substitute goods, but does not occur if he only declares that he cannot deliver at the moment.[236]

Where a party has legitimately lost his faith and confidence in the other party’s future performance and cannot be reasonably expected to continue the contractual relationship, courts have frequently found for fundamental breach. The reasons for the courts’ findings can be best classified under the following headings:

a.  Violation of Exclusive Rights By the Seller or the Buyer

The buyer’s exclusive right to market and sell shoes under a certain brand name through an Italian manufacturer was the subject of a decision [page 247] by the Frankfurt Court of Appeals.[237] The seller contracted to manufacture shoes with a trademark (“Marlboro”) to be used as a basis for further orders. The manufacturer produced the shoes and subsequently displayed them with the trademark at a fair without the buyer’s prior consent. Despite the buyer’s urgent requests, the seller refused to remove the shoes from the exhibit. The buyer, after the fair, advised the manufacturer that he was severing the relationship and would not pay for the sample shoes, which were no longer of any value to the buyer. The court found for fundamental breach on the grounds that the seller exhibited the shoes without the buyer’s consent and under circumstances indicating that they could also be ordered directly from the manufacturer. It held that, in particular, the seller’s refusal to remove the shoes at the buyer’s request gave rise to the conclusion that the seller would breach the agreement again in the future. Therefore, the buyer could not reasonably be expected to further cooperate with the manufacturer.

In three cases fundamental breach was invoked by the buyer due to an alleged violation on the part of the seller of an exclusive distribution system. The first case was decided by the Frankfurt District Court and involved another German-Italian shoe dispute where a German retailer had ordered from an Italian manufacturer through a commercial agent 120 pairs of shoes “Exclusiva su B.”[238] After delivery was effected and 20 pairs were resold, the buyer learned that identical shoes supplied by the Italian manufacturer were offered for sale by a competing retailer at a considerably lower price, in violation of his exclusive right of distribution in his home district. The buyer then returned the unsold 100 pairs. The Frankfurt District Court did [page 248] not have to decide the issue of fundamental breach since it held that there was no express declaration of avoidance of the contract. Nevertheless, the District Court noted in obiter dictum that even if the buyer was substantially deprived of what he was entitled to expect under the contract, the seller could not have foreseen such result.[239]

An alleged violation of an exclusive distribution agreement was also the subject of a recent decision rendered by the Koblenz Court of Appeals in a German-Dutch dispute over the delivery of acrylic blankets where the buyer refused any payment, inter alia, on the grounds that the seller had breached an exclusive distribution agreement.[240] The court held that the buyer lost his right to declare the contract avoided under article 49(2)(b)(i) [241] and that in fact, the buyer had never declared the contract avoided for the alleged violation. Nevertheless, the court stated in obiter that, if proven, such a violation could constitute a fundamental breach.[242]

In the above mentioned “Bonaventure” jeans case where the U.S. buyer disregarded the seller’s exclusive distribution system, the Grenoble Court of Appeals held with reference to article 73(2) [243] that the buyer’s fundamental [page 249] breach of the particular contract in question gave the seller sufficient grounds to conclude that the buyer would also fundamentally breach the contract in respect to further deliveries.[244]

b.  Uncertainty as to the Seller’s Future Performance

In two reported cases, uncertainty as to the seller’s future performance seems to have been the decisive factor in finding fundamental breach. The Hamburg Court of Appeals, in the above mentioned Chinese iron-molybdenum case, found a fundamental breach was indeed committed where the seller, after not having been able to deliver the goods within the stipulated time, asked for more time due to ongoing negotiations with his supplier either for delivery of the goods or indemnification. Such a declaration, the court held, constituted a fundamental breach since it remained uncertain for the buyer if and when seller would fulfil his obligation to deliver the goods.[245] [page 250]

In the second case, a Swiss buyer had placed an order with an Italian seller requesting that the goods be delivered within the next 10 to 15 days. Almost two months later, the seller, after asking the buyer to confirm its order, specified the purchase price and assured the buyer that all the goods would be dispatched within a week. Two months after that, the buyer had not yet received the goods. The buyer then sent the seller a notice canceling the order and demanding a refund of the price. After receiving this notice the seller delivered part of the goods. The buyer refused to accept the late and short delivery and, as the seller did not refund the purchase price, commenced legal action, claiming avoidance of the contract for breach by the seller and asked for a refund of the purchase price with interest and damages. The Italian court found that there was a fundamental breach on the grounds that, two months after ordering and paying the price, the buyer was still waiting for two thirds of the goods.[246] [page 251]

c.  Failure to Provide Security for the Purchase Price

In one of the many German-Italian disputes regarding the delivery of shoes, the Italian manufacturer demanded security for the sales price because the German buyer had still not paid the manufacturer for a previous delivery. After the buyer failed to furnish security, the seller declared the contract avoided and resold the shoes to other retailers. The seller demanded compensation for various damages caused by the breach. The Düsseldorf Court of Appeals held that the Italian seller was entitled to avoid the contract under article 72 [247] due to the German buyer’s failure to furnish security for the sales price.[248]

Similarly, and again in a German-Italian shoe dispute, the Berlin District Court found the Italian seller to be entitled to avoid the contract.[249] Here the Italian seller had already manufactured the 212 pairs of shoes ordered by a German buyer. Shortly before handing them over to the carrier, however, the seller noticed that two out of three checks concerning an earlier sale had not been honored and payment had been made only after the courts rendered respectively judgments of consent and default. The seller requested security for the payment, but the buyer refused to honor this request. Highlighting the buyer’s previous experience with the seller’s unwillingness to pay, the Court held that, prior to the date fixed for the delivery of the shoes, it was “clear” [250] that the buyer would not pay the price The court [page 252] defined “clear,” in the sense of article 72, in terms of probability. “Clear” requires that a fact be obvious to anyone. Probability close to certainty, however, is not required.[251]

d.  Making Delivery Dependent on an Unjustified Condition

A dispute between a German buyer and a Hong Kong seller was the subject of a decision by the Hamburg Chamber of Commerce Arbitration Tribunal.[252] The Hong Kong claimant and the German defendant concluded a general agreement for the exclusive delivery and distribution of Chinese goods, under which the claimant was responsible for business relations with Chinese manufacturers while the defendant was responsible for distribution of the goods in Europe. On this basis, the parties regularly concluded successive contracts of sale. In 1993, the German buyer ordered goods from the Hong Kong seller. Following prepayment and confirmation by the Hong Kong seller, the latter, owing to financial difficulties of his Chinese supplier, made delivery dependent on the payment of unpaid invoices from previous sales contracts. The tribunal found that both parties had committed a fundamental breach. It held that making delivery dependent on payment of arrears from previous sales contracts, where the parties had agreed upon prepayment of a specific order and the total sum for that had been paid, entitled the German company to avoid that order. On the other hand, the tribunal also held that the Hong Kong seller was entitled to avoid the general agreement due to the unpaid invoices, which had been due for many months.

Whether or not a breach is curable without causing the buyer unreasonable inconvenience appears to be the decisive factor in a number of decisions rendered by German, French, and Swiss courts.

The Koblenz Court of Appeals, in the above mentioned dispute over the delivery of acrylic blankets, expressly held that there is no fundamental [page 253] breach if there is a serious offer to cure the defect.[253] In that case, the buyer refused payment of the purchase price not only on the grounds that the seller had broken an exclusive distribution agreement, but also because the goods delivered were defective and 5 acrylic blankets’ rolls were missing. Attempts to settle the dispute in the presence of the Spanish manufacturer of the goods, who had offered to make a substitute delivery against payment of the purchase price, were unsuccessful. The Koblenz District Court [254] found for the seller and the appellate court affirmed the decision.[255]

With regard to the alleged non-conformity of the goods, the court held that, even if proven, such a breach of contract would not be fundamental, since the seller’s supplier had offered substitute delivery. The appellate court stated that, according to article 49(1)(a), the buyer’s right to avoid the contract generally prevailed over the seller’s right to cure under article 48(1).[256] However, referring to its underlying purposes, the court held that article 49(1)(a) only prevails if the delivery of non-conforming goods amounted to a fundamental breach. In determining fundamental breach, the court stated that regard must be had not only to the gravity of the breach, but also to the willingness of the seller to cure the defect. Where the seller is willing to make substitute delivery and such delivery would not cause the buyer unreasonable inconvenience even non-conformity of major significance does not constitute a fundamental breach.[257]

The existence of a fundamental breach was denied by the Grenoble Court of Appeals in a Franco-Portuguese dispute as to whether the Portuguese buyer was entitled to refuse partial payment of the purchase [page 254] price.[258] A French company had sold a second hand metallic hangar to a Portuguese buyer, the purchase price including the cost of dismantling and delivery. Following the buyer’s refusal to pay the last installment of the price on the grounds that the dismantled metal elements were defective, the court found that a certain quantity of the goods were not fit to be exactly reassembled, a fact expressly made known to the seller. Since that defect related to only part of the hangar and concerned metal elements which could be repaired, the court held, however, that it did not constitute a fundamental breach justifying avoidance of the contract pursuant to article 49(1)(a).[259]

The possibility of repair was also taken into account by the Munich Court of Appeals in the above mentioned case of Polish coke sold from Sweden to Germany to be shipped to Yugoslavia, which was found to be of inferior quality.[260] The court denied fundamental breach on the ground that the deviation from the description was objectively of minor significance and could be compensated for by adapting the firing process.

The Commercial Court of Zürich did not need to decide whether or not a fundamental breach occurred, since the buyer failed to notify the seller about the lack of conformity of the goods within a reasonable time.[261] The Swiss plaintiff had sold a “floating centre,” a container filled with salt water for weightless floating, to the German defendant. The buyer alleged that the container leaked, declared the contract avoided and refused to pay the outstanding balance. The seller then sued to recover the outstanding balance and the court ruled in favor of the plaintiff. After stating that the buyer had [page 255] lost its right to declare the contract avoided under article 39, the court held in obiter dictum that there would not have been a fundamental breach because the non-conformity could have been easily cured.[262]

Fundamental breach was found in a case based on how a seller tried to cure a defect and also in a case of an unsuccessful cure. In the first case, the plaintiff, an Italian tile manufacturer, had supplied the defendant, a German company, with basic tiles and corresponding decorative tiles. After it was discovered that the basic tiles were defective, the manufacturer made a second delivery, of both basic and decorative tiles, in a larger number than had been ordered, to ensure that there would be enough tiles for the buyer to complete its work. When the seller demanded payment, the buyer declared the contract avoided. The Baden-Baden District Court held that the buyer cannot reasonably be expected to open all the packages, to sort out the tiles, to examine them and see whether a sufficient number of one kind were supplied, and then to repackage them.[263] It further held that the buyer had the right to avoid the contract in its entirety because the decorative tiles were of no interest for him without the basic tiles.[264]

In the second case, the Oldenburg Court of Appeals viewed the unsuccessful attempt of an Austrian seller to repair furniture, which did not conform to the contract, as a fundamental breach, and thus held that the German buyer was entitled to avoid the contract.[265] [page 256]

D.  Conclusion (Part II)

The principle objective of this Part has been to identify the various factors employed by scholars and the courts in determining when a breach of contract is fundamental. We have seen that both employ, with some minor variations, the following criteria in determining fundamental breach:

[(a)] While factors (2) through (4) basically concern situations where non-conforming goods were delivered, factors (5) and (6) respectively apply to non-delivery and non-payment or failure to take delivery situations. The scope of factors (1) and (7) is wider and applies to all forms of breach. The latter even covers situations where no breach has occurred at all but is to be expected.

[(b)] As for the remedy-oriented approach, at first glance it appears as if the courts are more concerned with whether the goods are reasonably (re)salable, while scholars also take into account other forms of making use of the goods, such as processing, and the buyer’s risk of getting involved in a dispute over whether he observed his duty to mitigate. Since scholars, however, deny a fundamental breach when the goods, even if they cannot be used for processing, are reasonably resalable, it seems that there is, in fact, no material difference from the jurisprudence.

[(c)] With regard to the approaches, which look at the existence of an offer to cure or a possible cure, it should be noted that only in one of the reported cases, in which the courts denied the occurrence of a fundamental breach, was an offer to cure made. In all other cases, the courts denied fundamental breach on the grounds that the breach was curable without stating whether an offer to cure was made and the reported facts did not reveal such an offer. On the other hand, courts never found for fundamental breach on the grounds that the non-conformity could not be cured, and it [page 258] should be noted that the German Supreme Court, in the above mentioned South African cobalt sulfate case, held that unfeasibility to cure does not necessarily constitute a fundamental breach.[267] It seems therefore possible to conclude from the case law that while the possibility to cure usually means that the non-conformity does not constitute fundamental breach, the contrary situation, namely that the non-conformity cannot be cured, does not in itself indicate a fundamental breach.

[(d)] Courts never made express reference to the UNIDROIT Principles in any of the reported cases. Nor did the courts discuss whether the fact that the breaching party would suffer disproportionate loss as a result of the avoidance, or that the breach was intentional or reckless, as relevant in determining fundamental breach.

[(e)] In no case did the breaching party successfully invoke unforeseeability of the consequences of the breach and, consequently, the courts did not need to decide the relevant point in time at which foreseeability is measured.[268] In other words, whenever the courts concluded that the injured party was substantially deprived of what he was entitled to expect under the contract and the notice requirements according to articles 38 and 39 were met, they found that a fundamental breach had been committed.

This is hardly surprising since unforeseeability can be successfully invoked only when the aggrieved party’s special interest in the performance of the violated duty does not follow from the terms of the contract or from the negotiations between the parties prior to the conclusion. In most of the reported cases in which the courts found for fundamental breach, however, the aggrieved party’s special interest was obvious from the terms of the contract, or the aggrieved party was able to prove that it had made clear its special interest during the contract negotiations.[269] [page 259]

PART III — The Meaning of the Concept of Fundamental Breach in Light of the Text of Article 25, the Convention’s Legislative History, Context within the Convention, Underlying Purposes and the Observance of Good Faith

The success of any uniform law depends on its uniform application and, consequently, article 7(1) calls for consideration of interpretations by judges, arbitrators, and scholars in all Contracting States. Uniform application, however, is not an end in itself. Consideration of foreign decisions or scholarly writing is only permissible to the extent the foreign courts or scholars arrived at their conclusions by following the Convention’s interpretation guidelines outlined above.[270] Part III examines whether the various factors employed by scholars and the courts in determining fundamental breach can be justified by means of the Convention’s interpretive techniques. The question of whether the criteria of the UNIDROIT Principles regarding the determination of fundamental non-performance can be involved in determining fundamental breach, insofar as they deviate from the approaches employed under the Convention, is also addressed

A.  Elements Constituting “Fundamental Breach”

The primary guide to interpretation is the ordinary meaning of the words used in the Convention. Therefore, this section examines the definition of fundamental breach under article 25. Subsection 1 determines the term “breach of contract” and the elements which transforms a “simple breach of contract” into a fundamental breach. Subsection 2 focuses on the detriment suffered by one of the parties. Subsection 3 defines substantial deprivation; and subsection 4 determines the meaning of foreseeability.[page 260]

Breach of a contractual obligation, as a precondition to a finding of fundamental breach of contract, is not defined in article 25 for the purpose of the Convention. However, one can conclude from the Convention’s remedial regime [271] and article 79(1) [272] that “breach of contract” includes all forms of defective performance, as well as a complete failure to perform. It also includes both excusable and inexcusable non-performance. The contractual obligation may either be one expressly defined in the Convention (e.g., delivery at the right time,[273] at the right place [274] and of the correct goods, [275] etc.) or one created and defined by the parties as a sui generis obligation.[276] Where a transaction cannot be considered a “contract of sale,” domestic law governs the legal consequences of the breach, unless the parties have agreed that the transaction is subject to the Convention’s rules.[277] Finally, [page 261] there is no breach of contract if the promisor’s refusal to perform [278] is authorized by the Convention.

The CISG does not contain any definitions for the term "detriment." It also does not give any examples of a detriment that rises to the level of a fundamental breach.[279] It is unclear whether the detriment requires actual injury, damage or loss, and whether it refers only to material losses or to intangible losses as well. It is also unclear whether a legal detriment, as distinguished from a detriment in fact, is required.[280] Neither the French, Spanish or Russian versions of detriment,[281] nor the Secretariat Commentary on the 1978 Draft Convention, provides any greater assistance in this respect. The latter states that: The determination whether the injury is substantial 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.[282] [page 262]

Confronted with such vagueness, it is tempting to resort to domestic interpretation of detriment. However, that would not shed any greater light on the matter, putting aside the fact that any uncritical reference would contradict the Convention’s need for an autonomous and uniform interpretation.[283] Detriment is unfamiliar as a technical term anywhere in the common law world.[284] The same is not true with regard to the French, Spanish or Russian version. Préjudice, perjuicio, bpeg — each of these words in its domestic setting represents a common legal terminology indicating injury, damage and loss.[285] Unfortunately, these terms are obscure and offer no help in determining the elements of detriment.[286] The most persuasive approach is to view the detriment element as a mere filter for those cases in which breach of a fundamental obligation occurred but has caused no injury. For example, where the seller fails in his duty to package or insure the goods but they arrive safely, there is no detriment. If on the other hand the buyer lost a customer or the opportunity to resell the goods, there would be a detriment.[287]

A breach must cause a detriment that “substantially deprives” the aggrieved party of what he is “entitled to expect under the contract” in order for it to be fundamental.[288] The reference to the expectation under the contract [page 263] makes clear that the yardstick for breach of contract is first and foremost to be found in the express and implied terms of the contract itself. This reference leaves open the question of whether other circumstances of the case, including the negotiations, trade practices established between the parties, usages, and any subsequent conduct of the parties should also be taken into account. Moreover, it is unclear when a breach substantially deprives the aggrieved party of his expectations. Is a party, for instance, substantially deprived when he has completely lost his interest in the performance? Or does substantial deprivation require that the aggrieved party’s purpose in entering the contract be “frustrated” or the benefit of the bargain be lost due to the breach? Is the monetary injury or harm suffered by the non-breaching party decisive? Literal interpretation does not provide answers to any of these questions.

The element of foreseeability sheds no further light on the concept of fundamental breach. First, the function of the foreseeability requirement itself is unclear. From the wording of the conditional clause “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 result,”[289] one may infer that there is a presumption of foreseeability of the consequences of the breach. It thus confirms the opinion of many scholars that foreseeability is not only a burden of proof rule, but also requires taking into account the breaching party’s knowledge or foreseeability of the harsh consequences of the breach in determining whether or not it is fundamental.[290] On the other hand, the foreseeability requirement under article 25 has a similar effect as the foreseeability requirement under the general rule for calculation of damages in article 74, since it limits the rights of the aggrieved party in the event the other party did not foresee the far-reaching consequences and helps determine the severity of the breach.[291] It therefore seems plausible to conclude that only the detriment/substantial deprivation component is what makes a breach “fundamental,” and that the foreseeability element [page 264] serves solely to exempt the breaching party from his liability for breach of the contract.[292]

Another ambiguity results from the phrase “and a reasonable person of the same kind in the same circumstances.”[293] In order to determine “foreseeability,” the subjective and objective perspective of the party in breach must be considered. Additionally, the objective perspective of the reasonable merchant in the breaching party’s position is relevant.[294] In other words, the party in breach is considered to have been able to foresee the consequences of the breach if, when objectively viewed, it is determined that he could or should have known them. But what happens when the breaching party had special knowledge and thus could have foreseen more than the average merchant? The conjunction “and,” makes it possible to conclude that such special knowledge cannot be taken into account, allowing the breaching party to escape a finding of fundamental breach by hiding behind the paradigm of the reasonable person of the same kind in the same circumstances.[295]

Finally, the text of article 25 does not expressly address the point in time at which the foreseeability standard is to be applied. The use of the present tense “[a] breach of contract committed . . . is fundamental if it results” in depriving the other party “of what he is entitled to expect under the contract” makes it possible to conclude that a judge should place himself at the time the breach of contract has occurred.[296] Likewise, where article 25 states “unless the party in breach did not foresee . . . such a result” it would [page 265] appear that one should be placed at the time of the breach.[297] The French, Spanish and Russian text of article 25, however, give rise to a different conclusion.[298] The use of the past tense “était” instead of “est,” “tenia” instead of “tiene,” and “byla” instead of “yest” in the French, Spanish and Russian texts, respectively, conveys the impression that the formation of the contract is the relevant point in time to determine foreseeability.[299] This view is confirmed by the reference to the rights which the aggrieved party was entitled to expect under the contract.[300]

This section illustrates that the meaning of the elements constituting fundamental breach is not evident. The same is true for other official texts of the Convention, namely the French, Spanish and Russian versions. Therefore, the literal method of interpretation does not offer much guidance in answering the question of which of the various factors enumerated [page 266] above can be employed in determining fundamental breach. However, with regard to these factors, the following conclusions seem possible:

(1) Reference to the expectations under the contract support the employment of those factors which focus on the terms of the contract itself in determining fundamental breach; the nature of the contractual obligation.

(2) When one considers that a buyer purchases goods for some purpose, the severity of a breach may be evaluated in the light of whether the purpose of the contract is frustrated or whether the aggrieved party lost his interest due to the fact that the goods do not possess the features necessary for the intended use.

(3) The remedy-oriented approach is not excluded by the wording of article 25. Here one could argue that businessmen generally enter into commercial contracts for purely economic reasons and can therefore be fully compensated by damages for any loss resulting from the breach. They are only substantially deprived of their expectations if they can not be fully compensated with damages. By the same token, employment of an offer to cure or the possibility of cure is not excluded by the wording of article 25. Where the requirements of article 48(1) are met, the repair is possible within a reasonable time without causing the aggrieved party unreasonable inconvenience or uncertainty of reimbursement of expenses, the aggrieved party is not substantially deprived of his expectations.

(4) Demonstration of a monetary loss suffered by the aggrieved party cannot be used to justify the remedy-oriented approach. Employing this factor would impose a heavy burden on the aggrieved party to prove his substantial deprivation. Any determination of fundamental breach by reference to monetary loss would seem to be arbitrary since it is unclear when the loss amounts to a substantial deprivation. Is it required that the loss caused by the breach result in 50% or more of the monetary value of the contract? Or could a lesser percentage suffice? On the other hand, to require that the aggrieved party must have suffered a loss of more than 50% of the monetary value of the contract could not be justified etymologically.[301] [page 267]

(5) The wording of article 25 does not prohibit consideration of the parties’ ability or willingness to perform because total non-performance can be considered a breach which strikes at the root of the contract. A contract of sale is generally concluded for the very purpose of exchanging goods in return for consideration and if such exchange does not take place then the purpose of the contract is frustrated.

(6) The employment of the no-reliance factor also seems permissible where the breach or conduct creates uncertainty as to one party’s future performance and where, as a consequence, the other party loses his interest in the contract. For the same reason, the [UNIDROIT] factor focusing on whether the breach was committed intentionally seems legitimate.[302] The other [UNIDROIT] factor looks to whether the breaching party would suffer disproportionate loss when the breach is treated as fundamental. This factor cannot be supported by the wording of article 25. The concerns expressed in respect to the approach focusing on the monetary loss suffered by the aggrieved party also apply to this approach. It is not clear under which circumstances a breaching party’s loss becomes significant, and therefore any determination of fundamental breach would be arbitrary. In addition, the UNIDROIT factor is aimed at limiting the exercise of the right of avoidance, not at determining fundamental breach. In other words, it limits the availability of the avoidance remedy in spite of the existence of a fundamental breach but it does not prevent a breach from being fundamental. It therefore is inappropriate to use it as a factor in determining fundamental breach [under the Convention].

B.  The Meaning of the Concept of Fundamental Breach in Light of the Convention’s Legislative History

Interpretation by way of legislative history seeks to resolve inherent ambiguities in a provision by considering the drafter’s motives and deliberations as evidenced in the officially published preparatory works. To that end, [page 268] this section looks briefly at the history of the concept of fundamental breach as a principle of uniform sales law. Subsection 1 deals with the deliberations within the UN Commission on International Trade Law (UNCITRAL) based on an analysis of the corresponding concept under the Convention Relating to a Uniform Law on the International Sale of Goods (ULIS).[303] Subsection 2 examines the Official Records of the Vienna Diplomatic Conference proceedings and the preliminary discussions within UNCITRAL and its Working Group, reproduced in the UNCITRAL yearbooks.

The notion of making the parties’ right to terminate a contract dependent on the seriousness of the breach can be traced back to 1930 when the International Institute for the Unification of Private Law in Rome (UNIDROIT) appointed a committee to prepare a uniform law on international sales.[304] The early draft of 1939, however, did not contain a single concept of breach of contract applicable to violation of an obligation by any party to the contract. Instead, breach of contract was conceived as being a breach of a particular contractual obligation, such as the obligation to deliver or to take delivery.[305] Moreover, the remedial system resembled that of traditional English common law in that it gave the aggrieved party the right [page 269] to avoid the contract only in cases where the term violated could be classified as a condition.[306] The notion of fundamental breach of contract as an all-embracing concept was first introduced during the preparatory work for ULIS and was included in the Drafts of 1956 and 1963.[307]

The ULIS text adopted at the 1964 Hague Conference was further developed. ULIS Article 10 provided the following definition of a fundamental breach:[308]

The review of the preparatory works of the Convention is structured as follows. Section “a” looks at the attempts within UNCITRAL and at the Diplomatic Conference to define the concept of fundamental breach. Section “b” focuses on the existence of an offer to cure. This section discusses the relationship between the fundamental nature of a breach and the seller’s right to cure.

a.  Definition of Fundamental Breach

Already at the Hague Conference, the concept of fundamental breach under ULIS Article 10 was criticized on the grounds that it was too subjective, in that it relied on a test that required the breaching party to anticipate whether or not the non-breaching party would have entered into the contract had he foreseen the breach.[309] [page 271]

During the preparatory work for the Convention, ULIS article 10 was once again the object of criticism. States and organizations objected to the ULIS definition on the grounds that it was too complex, and its subjective standards would be difficult to apply.[310] As a result, the UNCITRAL Working Group, based on a Mexican proposal, eliminated the subjective test as well as the related speculative element as to whether a “reasonable person” would have “entered into the contract if he had foreseen the breach and its effects.”[311] Instead, the Working Group proposed a single objective criterion of whether the breach substantially impaired the value of the performance [page 272] required by the contract.[312] This purely objective test was further developed and led to the following definition of fundamental breach:

In its comment on article 9, the Government of the Philippines expressed dissatisfaction with the idea that the breaching party had to foresee the substantial detriment.[314] In case of litigation, the burden of proof would thus be on the non-breaching party. This was not considered a proper solution because it would be extremely difficult for the non-breaching party to prove that the party in breach “foresaw or had reason to foresee such a result.”[315] The United States echoed this criticism, and both the Philippines’ and the United States’ delegates to UNCITRAL suggested that the final phrase of article 9 should be reworded to read “unless the party in breach did not foresee and had no reason to foresee such a result.”[316] This suggestion was approved by a majority of the members of UNCITRAL and the definition of “fundamental breach,” as embodied under article 23 in the 1978 Draft Convention, thus reads:[page 273]

Unlike ULIS article 10, the proposed text did not deal with the issue of the relevant time at which it was possible to foresee the result and UNCITRAL did not consider it necessary to specify at what moment the party in breach should have foreseen or had reason to foresee the consequences of the breach.[318]

At the Vienna Conference, the Federal Republic of Germany,[319] Czechoslovakia,[320] Pakistan,[321] the United Kingdom,[322] Egypt,[323] Turkey,[324] [page 274] and India [325] submitted amendments to Draft article 23. What follows is a summary of those proposed amendments.