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Cite as Will, in Bianca-Bonell Commentary on the International Sales Law, Giuffrè: Milan (1987) 205-221. Reproduced with permission of Dott. A Giuffrè Editore, S.p.A.

Article 25

Michael Will

1. History of the provision
2. Meaning and purpose of the provision

ARTICLE 25

A breach of contract committed by one of the parties is fundamental if it results in such detriment to the other party as substantially to deprive him of what he is entitled to expect under the contract, unless the party in breach did not foresee and a reasonable person of the same kind in the same circumstances would not have foreseen such a result.

1. History of the provision

Article 25 attempts to define «fundamental breach». This concept, though unfamiliar in many parts of the world, is fundamental to the Convention's remedy system. It was taken out of context to be defined separately and now opens, under Part III (the «Sales Part» of the Convention), the first chapter of general provisions. For it appears several times throughout the following chapters with regard to various remedies of buyer and seller (avoidance Articles 49(1)(a), 51(2), 64(1)(a), 72(1), 73(1) and (2); delivery of substitute goods Article 46(2)) as well as to the passing of risk (Article 70).

The definition purports to separate a non-fundamental and a fundamental breach of contract. The distinction is of cardinal importance for the system of remedies, because it can determine the life or death of the contract. Hence the need, and permanent battle for precision. The definition, as it stands, evolved through countless proposals and constant drafting. Fruit of world-wide compromise at an «unlucky moment» (see EÖRSI, The 1980 Vienna Convention, 341), it may not always be easy to apply both for the parties and the judges, and foreseeably may give rise to divergent interpretation and continuous controversy. [page 205]

     1.1. - The history of the definition is marked by two significant movements. First, rather than insisting on a single contractual obligation, this article now views the contract as a whole; second, there is a shift away from so-called subjective criteria to seemingly more objective ones.

          1.1.1. - The early Rome Drafts (1939, 1951) did not yet contain the one and all embracing concept of breach of contract, but used a fragmented approach. The various obligations under the contract formed the point of departure, so that a breach of contract was always conceived as being a breach of a particular contractual obligation -- an obligation expressly provided for, such as the obligation to deliver or to take delivery, or any other obligation such as the obligation to inform. The system resembled that of traditional English common law distinguishing between warranty and condition, for the contract was to be cancelled only in cases where an essential condition on the part of the seller was at stake. «An obligation of the seller is an essential condition of the contract where it appears from the circumstances that the buyer would not have concluded the contract without such an undertaking», said the simple language of Article 55(3). And by saying «would not have concluded the contract», hypothetical will made its first appearance.

          1.1.2. - During the preparatory work for ULIS in the Hague in 1951, the expert from Denmark suggested an entirely different approach, namely to extend the notion of «breach of contract» to any violation of any obligation by any party to the contract and simply to replace «breach of a fundamental obligation» by «fundamental breach of an obligation». His intention was to prevent avoidance and to save the contract, if the breach though affecting a fundamental obligation -- in fact caused comparatively little or insignificant harm. The proposal won support and was included in the Drafts of 1956 and 1963.

The 1964 Hague Conference adopted the system and, after a lengthy debate, produced a definition running up to more than twice the size of that of 25 years before (see EÖRSI, The 1980 Vienna Convention, 338-339):

Article 10

For the purposes of the present Law, a breach of contract shall be regarded as fundamental wherever the party in breach knew, or ought to have [page 206] known, at the time of the conclusion of the contract, that a reasonable person in the same situation as the other party would not have entered into the contract if he had foreseen the breach and its effects.

The shift to seemingly more objective criteria was brought about by introducing a «reasonable person» as standard (in respect to the aggrieved party). And since the expression «knew, or ought to have known» (with regard to the party in breach), according to Article 13 of ULIS, «refers to what should have been known to a reasonable person in the same situation», the «reasonable person» appears at either end of the transaction. Opinions were and are divided, with a good many critical voices. Some severly stigmatized the definition's ex-post-facto speculations as «fanciful» (HONNOLD, Uniform Law, 212) and «agonizingly hypothetical» (ZIEGEL, Remedial Provisions, 9-15). The Courts, interestingly enough, seem rarely to have been called upon to apply Article 10, and, judging from the few decisions published in the Federal Republic of Germany, have not experienced appreciable difficulties in doing so (only two cases involving Italian sellers: LG Dortmund, 23 November 1981, Recht der Internationalen Wirtschaft 1981, 854; OLG Koblenz, 10 May 1985, Recht der Internationalen Wirtschaft 1985, 737).

     1.2. - When UNCITRAL reopened the debate a few years later it became clear very quickly that anything like a hypothetical will would have to be eliminated. Instead a material test had to be developed by the Commission and, eventually, by the Diplomatic Conference.

          1.2.1. - While renowned writers maintain that the definition of 1964 had a clear meaning despite its complicated wording (HUBER in DÖLLE, Einheitliches Kaufrecht, Article 10 Nos. 11 et seq.; TUNC, La notion de contravention essentielle, 329 et seq.; VAN DER VELDEN, Law of International Sales, 63 et seq.), States' replies submitted to UNCITRAL were unfavorable to the reasonable person standard and the lack of precision generally (see Yearbook, I (1968-1970), 169; II (1971), 47,58-59; III (1972), 46-48).

During the following decade of the seventies (1969-1979) the meandering debates within the Commission generated two major innovations: [page 207]

the «substantial detriment» phrase, inspired by a Mexican proposal, was the first innovation (see Yearbook, VI (1975), 53, 64, 77-78, 94-95) and led to:

Article 9

A breach committed by one of the parties to the contract is fundamental if it results in substantial detriment to the other party and the party in breach foresaw or had reason to foresee such a result (Yearbook, VII (1976), 90, 101).

The second innovation was the «unless» clause, brought up by the Philippines in order to reverse the burden of proof relating to foreseeability (see Yearbook, VIII (1977), 16, 31, 127, 149; MICHIDA, Cancellation of Contract, 284-286). In the end, after difficult negotiations, the UNCITRAL Draft Convention arrived at:

Article 23

A breach committed by one of the parties is fundamental if it results in substantial detriment to the other party unless the party in breach did not foresee and had no reason to foresee such a result (Secretariat's Commentaty, Official Records, I, 26; for subsequent suggestions see I, 76).

          1.2.2. - The Vienna Conference, faced by a text that differed considerably from ULIS, continued the quest for even more objective principles and for more precision -- under more pressure of time. Again, as in the Hague in 1964, the length of the definition almost doubled when each of its two elements underwent last minute revisions (see EÖRSI, The 1980 Vienna Convention, 340-341).

Substantial detriment, now criticized as being not objective and far too vague a criterion, should not -- it was argued -- narrow the vision to a specific harm done, but rather widen it to all detrimental effects in the particular context of the other party's situation -- such detriment «as will substantially impair his expectations under the contract» (see Official Records, I, 99 and II, 295-303, 329-330, but see II, 425). This argument prevailed and led to the final wording reached in the Drafting Committee: such detriment «as substantially to deprive him of what he is entitled to expect under the contract» (Official Records, II, 425; and then I, 157 and II, 206).

Within the foreseeability element, on the other hand, came back the reasonable person standard, side by side with the party [page 208] in breach; not just a reasonable person «in the same situation» (as under Article 10 of ULIS), but one «in the same circumstances» and, moreover, «of the same kind».

In order to complete the picture, it may be noted that accepting the compromise was as difficult as reaching it: the present provision was the first one to be adopted with negative votes by the Plenary Session (Official Records, II, 206).

2. Meaning and purpose of the provision

Meditation over terms as pregnant with connotations as «fundamental», «substantial» or «foreseeable» never ends, nor does controversy about their meaning. But while philosophers have time to muse, lawyers usually have not; and merchants even less. Those who do not want to be bothered or who distrust esoteric phraseology, quickly find ways round Article 25: the parties may choose to exclude the application of the Convention altogether, or to derogate from or vary the effects of that provision only (see commentary on Article 6, supra). Another way out would be for them to redefine, in so many words, which instances in their contractual relations are to be considered a fundamental breach.

«Fundamental breach» in the Convention, to begin with, calls for a warning: it has nothing to do with the English doctrine of «fundamental breach», which certain common law jurisdictions used to apply in a different context, namely in order to determine whether disclaimer clauses survived a particular breach of contract. The doctrine, however, died relatively young in the House of Lords in the year of 1980, accompanied at the burial by remarkably divergent definitions of precisely the concept of fundamental breach. Yet: might not the magic of words lead to reviving the application of that test and transplanting it into the present context? Unlike 1964 in the Hague, in Vienna there was no British proposal in that sense, and rightly so. Context and function being so different, it could have only contributed more confusion and, incidentally, added to the burdens on the buyer (see HUBER in DÖLLE, Einheitliches Kaufrecht, Article 10 No. 31; ZIEGEL, Remedial Provisions, 9-14).

Apart from this false predecessor the legal expression «fundamental breach», as a prerequisite for cancelling a contract, seems to [page 209] have no familiar parentage in other jurisdictions. Coined by the ULIS Draft of 1956 as fundamental breach and contravention essentielle, it has entered the legal language of countries adhering to ULIS as infrazione essenziale, wesentliche Vertragsverletzung, wezenlijke tekortkoming, etc.; it has also entered purely domestic codification influenced by the preparatory work for ULIS, such as Article 236 of the Czechoslovakian International Trade Code of 1963, and Section 6 of the Israel Contracts (Remedies for Breach of Contract) Law, 5731-1970. And it exists now officially in Spanish, Russian, Arabic and Chinese.

In sum, «fundamental breach» is not fraught with history. It is a fresh legal concept, born from compromise and -- for better or worse -- open to interpretation, when it comes to applying the two tests: substantial detriment and unforeseeability.

     2.1. - On the part of the aggrieved party, be it buyer or seller, there must be substantial detriment. The substantial detriment test is one of the innovations of the Convention as compared with ULIS. What then is detriment? And what detriment is substantial?

          2.1.1. - «Detriment», in this context, appears to be a newcomer in the field. The term will not be spotted frequently in international legal documents. It is unfamiliar as a technical term anywhere in the common law world. But the same does not hold true with regard to the French, Spanish or Russian version. In fact, préjudice, perjuicio, bpeg -- each in its domestic setting -- represents common legal terminology indicating injury, damage, loss, and always in a rather large and vague sense. Confronted with such diverging language one might well be tempted to resort for more illumination to BLACK'S Law Dictionary or to the Corpus Juris Secundum. And they do seem to offer some guidance in that «the detriment need not be real and need not involve actual loss, nor does it necessarily refer to material disadvantage to the party suffering it, but means a legal detriment as distinguished from a detriment in fact and has been defined as giving up something which one had the right to keep, or doing something which one had the right not to do» (as quoted by VAN DER VELDEN, Law of International Sales, 64-65). But can this definition be accepted? Doubts as to the method arise immediately, not only because of [page 210] the difference of context (i.e., the doctrine of consideration), but also and foremost from the need for autonomous and uniform interpretation (see commentary on Article 7, supra, § 2.2.2.).

Detriment, for these reasons, must be interpreted in the light of the Convention's legislative history as well as its intended purpose.

               2.1.1.1. - The history of the term detriment is short. It emerged within the Commission early in 1975 (Yearbook, VI (1975), 53, 64) and was retained in the Draft proposal (Yearbook, VII (1976), 90). In the Secretariat's repeated Commentaries (see Yearbook, VII (1976), 101 and Official Records, II, 26) «detriment» not only alternates indistinctively with «injury», «harm», and «result», but is also exemplified by «monetary harm» and «interference with other activities». During the Vienna Conference it was labeled anything between «vague», «subjective» and «objective»; at some point the Working Group report is quoted as having stressed that the term detriment «had to be interpreted in a broader sense» (Official Records, II, 330). That is not really conclusive by itself but does indicate a direction. The testimony is corroborated by a lack of concern for that term in several concurring proposals. In short, the nature of detriment was never at issue, only its effectiveness.

               2.1.1.2. - The term is further classified by considering its purpose. The purpose simply is, in exceptional cases, to allow avoidance, to allow delivery of substitute goods or to prevent the risk of loss from passing to the buyer. This evidently aims beyond the realm of compensation for damages and therefore beyond Article 74 of this Convention (contra an observation by the Brazilian delegate, Official Records, II, 296).

The advent of the newly coined element in the definition of fundamental breach constituted neither feat nor danger (the latter feared by BEINERT, Wesentliche Vertragsverletzung, 90 and 57 n. 12). Keeping in mind both its history and purpose, any narrow construction must be excluded. Detriment does not equal damage nor does it equal loss or any similar international or national term of art. By the same token, the corresponding translation into any other language, authentic or not, into a term which may domestically be familiar or unfamiliar, cannot be tied to any [page 211] restrictive domestic tradition. Detriment, wihout qualifying language, fills the modest function of filtering out certain cases, as for example where breach of a fundamental obligation has occured but not caused injury: the seller disregarded his duty to package or insure the goods, but they arrived safely nevertheless; if, however, the buyer would loose a resale possibility or a customer, there would be detriment (see SCHECHTRIEM, UN-Kaufrecht, 48; Uniform Sales Law, 60).

          2.1.2. - While the nature of detriment was ever at issue, its degree was and still is -- the debate over substantiality. Defining fundamental by substantial, to begin with, leaves an impression of playful tautology. Replacing the adjective by an adverb does not substantially change matters, except for the modifications added that way: «such detriment ... as will substantially impair his expectations under the contract», or, in the final version, « ... as substantially to deprive him of what he is entitled to expect under the contract ... ». But do the additional words of those two formulae bring about any change at all?

               2.1.2.1. - Since time did not allow ample Committee, let alone Plenary, debate of the final version, recourse is to be had first to the previous, rather similar version -- neither one, incidentally, is an innovation.

The previous version recalls somewhat the United States Uniform Commercial Code, when it confers upon the buyer a right to revoke acceptance of merchandise «whose non-conformity substantially impairs its value to him» (§ 2-608(1)) or applies a stricter, less subjective standard to instalment contracts (§ 2-612(2) and (3)) (without: «to him»). Several delegates thought the test as stated was not any clearer than the original two-word-formula, and by one as «identical meaning» (Official Records, II, 329 No. 19). The majority apparently did see differences but was divided as to their meaning and usefulness. Supporters of the amendment submitted that «the original vagueness ... had been eliminated and an element of objectivity had been introduced» (Official Records, II, 33 Nos. 24, 25, 31, 32), the reference to the expectations under the contract representing a great improvement (Nos. 35, 36, 37). No, said the opponents, this was less flexible and «introduced an element of [page 212] subjectivity» suggesting «an absence of consensus» (Official Records, II, 329 Nos. 21, 26, 29).

These, of course, are all arguments from the battlefield, prior to a preliminary vote of 22 to 18, during one single afternoon -- that of March 21.

The history of the last minute compromise voted on April 4, and which prevailed, may shed some more light on the matter. It so happened that «impair his expectations» proved unacceptable to the representatives of civil law countries; their preference was for «interests» which, in turn, common law attorneys would not accept (Official Records, II, 425, No. 13). The final formula seems to have been inspired by Lord DIPLOCK's famous test: «does the occurrence of the event deprive the party ... substantially the whole benefit which it was the intention of the parties as expressed in the contract that he should obtain ... ?» Hong Kong Fir Shipping Co. Ltd. v. Kawasaki Kisen Kaisha, Ltd. [1962] 2 Queen's Bench 26; [1962] All England Reports 474 - applied to contracts for the sale of goods in Cehave N.V. v. Bremer Handelsgesellschaft m.b.H. [1976] Queen's Bench 44; [1975] All England Reports 739 at 747, 755-757, 765).

Closer comparison reveals only shades of variation. In the present Article 25 the criterion to be applied is not exact the historical, subjective intention relating to benefit as expressed by both parties (in the plural). The expectation is that of the injured party alone. But rather than very personal hopes, veiled perhaps and certainly difficult to prove, is it an expectation which may and can be ascertained and assessed by advising lawyer, arbitrators, judges, more objectively so than under the previous formula «impair his expectations»? Not what he once, or every now and then, or more and more, happened to expect matters here, but what he is «entitled to expect under the contract». «Under the contract» -- referring in Hong Kong Fir as well as in the present article, to all the terms of the contract whether express or implied -- seeks to exclude surprises by going back to the source, the intentions of the parties, their agreement, party autonomy. This does not exclude, as may be inferred from «entitled», the taking into account of any other circumstances of the case.

               2.1.2.2. - The analysis of legislative history, here as so often, appears to yield more in terms of what the drafters meant to [page 213] exclude than it assists in finding substantial definitions. Owing to this «negative-rule» approach (for the present Convention see Official Records, II, 200- No. 4) the question remains: what exactly did the words change?

One answer comes from the Canadian delegate who had rejected the final compromise in the Plenary Meeting as placing an unduly heavy burden on the injured party (Official Records, II, 206 No. 12) and later, in a comment, called it «seemingly stricter» -- a «quasi-fundamental breach test» (ZIEGEL, Remedial Provisions; 9-15 et seq.). Arguing about quantity to be delivered, he feels that a deficit of 10 per cent almost always amounts to substantial detriment, but not always to «substantially depriving» the other party of his legitimate expectations. Therefore, he fears that under the new formula a deficit of up to 50 per cent or more could be required before reaching the threshold of fundamental breach, which «is not justified etymologically and would lead to startling results that could not have been intended». Influenced as it may have been by the experience of Canadian courts with the interpretation of the domestic concept of fundamental breach, the «quasi»-label arises from the simple assumption that a qualitative meaning has been added to the quantitative meaning contained in the UNCITRAL Draft Convention's version. But was the former «substantial detriment» reduced to a mere «quantitative meaning»? And if not: was it, in cases where the breach consisted in delivering less than promised, indicative of a threshold of 8 or 9 or 9.5 per cent? Neither one, as the Secretariat's Commentaries and the purpose clearly revealed. This weakens the whole assumption in the first place, and the conclusions drawn from it.

Another commentator remarks that the meaning of substantial, as clarified, related now only to the rights of the other party in the contract (VAN DER VELDEN, Law of International Sales, 64). Here it could be argued the other way around: the adverb «only» makes the test stricter thereby placing an unduly heavy burden on the party in breach. Assuming, a crucial delivery date had been written into the contract but late delivery, unexpectedly, caused no particular grievance: would a court really have to stick to the contract terms, to examining only the rights of the injured party, and to ignoring other circumstances altogether? (for the opposite constellation: date mentioned beforehand, but not in [page 214] the contract, see Official Records, II, 300 No. 70 and 301 No. 77). The German delegation fairly insisted on elucidating that the wording was definitely not intended to restrict the definition of substantial detriment so as to exclude the circumstances of the case. (see Official Records, I, 99; II, 300 No. 68 and 301 No. 78; and later SCHLECHTRIEM, UN-Kaufrecht, 47 et seq.; Uniform Sales Law, 59 et seq.). Thus, it is suggested to improve the comment above by simply replacing the word «only» by «primarily».

It appears that, after all, there was a change toward a stricter test, but stricter both ways. To determine the degree of a given detriment, to draw the line between substantial and insubstantial, is no longer left to the judges' sole and sovereign appreciation, but tied to the expectations of the injured party, while those expectations, in turn, are not left to a party's inner feelings but instead tied to the terms of the existing contract. Still, while the terms of that contract are fixed, commercial life pursues its never predictable course. Regard must therefore be had to the ever changing circumstances which may, in exceptional cases, convert an apparently substantial detriment into a trivial one and vice versa.

     2.2. - Where substantial detriment comes as a surprise, the party in breach, be it seller or buyer, may escape the verdict of fundamental breach and its consequences by showing either that he did not foresee the negative result, or that a reasonable person could not have foreseen it.

The unforeseeability test in the final conditional clause of the article constitutes a further innovation of the Convention. There have always been opponents to such an additional filter for fear that it would only encourage a breaching party to claim ignorance and thus tie the hands of the other. How could I the injured party possibly prove the contrary? Yet the majority never disputed the principle that in abnormal situations the interests of both parties should be balanced on grounds of equity. Would not a reasonable merchant who anticipated that ill performance on his side may have serious consequences on the side of his business partner, abstain from contracting in the first place or else take extraordinary precautions? Such had already been the rationale underlying the foreseeability test of Article 10 of ULIS. Unlike its precedessor, however, Article 25 of the [page 215] Convention, while shifting the burden of proof to the party in breach, expressly applies to that party a reasonable person standard; however, a reference to the time of conclusion of the contract is missing.

          2.2.1. - The burden of proving unforeseeability rests with the party in breach. Unfortunately, quite the opposite has been suggested («it is the burden of the innocent party to prove ... ») and the formula criticized (« ... is unjust and may result in inequities. It favors the party which does not perform ... »: BARRERA GRAF, Vienna Convention, 122, 150 - in English; La Convencíon de Viena II, 925, 945 - La Convencíon de Viena II, 313, 331 - La Convencíon de Viena III, 141, 158 - in Spanish; see also, HONNOLD, Uniform Law, 213 footnote 3; but contra GARRO, La Convencíon de las Naciones Unidas, 3 June 1985, footnote 5), while as early as 1977 at the Tenth Session in Vienna -- with the critic as Committee I Rapporteur -- after some vain attempts to eliminate the foreseeability clause altogether, the Philippines succeeded in introducing the word «unless» into the then Article 9 (see supra § 1.2.1.) with the precise purpose of relieving the aggrieved party from the unfair burden of a most difficult proof (see Yearbook, VIII (1977), 31-32; MICHIDA, Cancellation of Contract, 284-286 with reference to Summary Record, A/CN.9(X)/C.1/SR.4, at 6, para. 29). At the Vienna Conference, Egypt felt the further need to emphasize change by suggesting the addition of three words to that effect (« ... unless the party in breach proves that he did not foresee ... »; -- see Official Records, I, 99 and II, 295 No. 3 with misleading final sentence); if subsequently that suggestion was withdrawn due to numerous opposing voices (see Official Records, II, 296-298 Nos. 10, 12, 13, 17, 21, 26, 33, 35 and then 41), this deletion from the amendment should not be misunderstood. The term «unless», which had remained unquestioned all along, is a term of art as unequivocal as the French «à moins que» or the Spanish «salvo que». It clearly shifts the burden of proof to the party in breach, when that party invokes unforeseeability.

          2.2.2. - In order to successfully invoke unforeseeability, the party in breach must prove two points at a time: first, that he himself in no way anticipated the substantial detriment caused; [page 216] and second, that not reasonable person in his place would have done so (to retain as a third point: «and had no reason to foresee», as does BARRERA GRAF, loc. cit., supra, § 2.2.1. all four citations, makes no sense and must have slipped in from the old Article 23 of the UNCITRAL Draft Convention). Only where arbitrators or judges can be convinced on both points will the breach remain below the threshold of fundamental breach.

               2.2.2.1. - Anyone who has committed a breach of contract giving rise to major problems will hardly admit that he foresaw those problems, but most likely will insist that unfortunately he did not foresee, as the article puts it, «such a result»; i.e., such detriment has substantially to deprive the other party of the benefit that he was entitled to expect from the transaction. Whether or not the breaching party actually failed to foresee that result will have to be evaluated like in the context of Article 74 of the Convention, «in the light of the facts and matters of which he then knew». Thus, unforeseeability depends on his knowledge of relevant circumstances. His knowledge of those circumstances may have been deficient for various reasons. He himself may have been ignorant, lacking perception, experience or talent, and there may have been other personal or organizational shortcomings within his sphere of influence and responsibility. On the other hand the aggrieved party may, willingly or not, have omitted to communicate his expectations or any other sensitive piece of information. Third persons may have neglected to observe and transmit crucial occurrences: information dispatched may not have arrived as in the case of a message lost in the mails. Or even, if all the necessary information had been furnished, he may have been unable to assemble the pieces, interpret and evaluate them correctly and may thus have failed to draw the proper conclusions. Whatever the reason, whoever the culprit -- he simply did not know, he did not foresee!

But the assertion alone does not suffice. Proof is required, and it is obviously not always easy to establish conclusive evidence for a very personal point of view of the matter. But even if such proof succeeds, a merely subjective test hardly satisfies the necessities of international trade. The less he knew, the less he foresaw, is it better for the party in breach? An additional, more objective test imposed itself. [page 217]

               2.2.2.2. - If not he, could anyone else have foreseen the course of events? Could the pater familias, le bon père de famille, the man on the Clapham omnibus have foreseen the mischievous consequences? None of those models of sound judgment and fair conduct was adopted. The choice rather fell upon a relative of the «reasonable person in the same situation» (Articles 10 and 13 of ULIS), who had long been neglected by the drafters, namely, «a reasonable person of the same kind in the same circumstances»; he was rediscovered only at the Vienna Conference, introduced with the Egyptian amendment mentioned above (see Official Records, I, 99 and II, 295, 299). The formula corresponds word for word to that contained in Article 8 paragraph (2) and was similarly criticized. Some would have dropped the adjective «reasonable» altogether, many resented redundancy, others feared diverging interpretations in different countries: The delegates sought to avoid the extremes, namely the prior subjective approach in the UNCITRAL Draft Convention on the one hand, and on the other, an objective approach in the haze of abstraction. Thus, hoping to narrow the scope of speculation and to approximate the fictitious reasonable person to the real position of the party in breach, the formula uses two distinctive elements: first, «of the same kind», and second, «in the same circumstances».

                    2.2.2.2.1. - Of the same kind, intended to be the first element of precision, appears to be again no term of art and not quite as precise as might be desirable. More appropriate seems the French de même qualité (identical, by the way, to Articles 10 and 13 of ULIS, where interestingly enough it had not been rendered in English or German at all -- severely criticized in Yearbook, I (1968-1970), 169 No. 85; VIII (1977), 111 No. 2; see also Yearbook II (1971), 60 Nos. 100-110; later attempts to find an equivalent demonstrate the embarassment: acting in the same capacity, see Official Records, I, 88, No. 3 (v) and II, 261 No. 30, 296 No. 9, 298 No. 42). While the Russian text is in accordance with the French one, the Spanish version again differs: de la misma condición. And for the non-authentic German version, systematically, Switzerland preferred language other than that chosen by Germany and Austria (in gleicher Stellung/der gleichen Art). [page 218]

Where terms are so delicate to handle, meaning has to be inferred from the purpose of the clause, which is to tailor a reasonable person to the likeness of the party in breach. But how far is one to carry that likeness? -- a thorny question of interpretation. «Le bon père de famille devenu commerçant international» (LOUSSOUARN-BREDIN, Droit du commerce international, Paris (Sirey) 1969, 682) and «a merchant engaged in international commerce» -- precision once suggested by the USSR (see Yearbook, II (1971), 47 No. 66 and 59 No. 86; III (1972), 47 No. 37) -- would probably not be close enough. The hypothetical merchant ought to be engaged in the same line of trade, exercising the same function. And not only must business practices be taken into account, but the whole socio-economic background as well, including religion, language, average professional standard (see commentary on Article 8 supra, § 2.4.; Official Records, II, 261 No. 30; REINHART in DÖLLE, Einheitliches Kaufrecht, Article 13, Nos. 36 et seq.; BEINERT, Wesentliche Vertragsverletzung, 76). It has been justly observed that the more of those criteria that are assembled, the higher the degree of individualisation (REINHART in DÖLLE, Einheitliches Kaufrecht, Article 13, No. 36; MASKOW, in ENDERLEIN-MASKOW-STARGARDT, Kommentar, 52 No. 5). This observation also applies to the following element as it does to the combination of both.

                    2.2.2.2.2. - In the same circumstances, the second objective element, taking into account ever varying situations, refers to the conditions on world and regional markets, to legislation, politics and climate, also to prior contacts and dealings and to other factors, in short: to a whole spectrum of facts and events at the relevant time. As under Article 8 paragraph (3) of the Convention; «due consideration is to be given to all relevant circumstances of the case» (see also MASKOW, loco cit.).

                    2.2.2.2.3. - What it all boils down to is not so complicated. The reasonable person test simply serves to eliminate unreasonable persons; i.e., those who are to be considered intellectually, professionally or morally sub-standard in international trade. By proving that the fictitious merchant, too, would not have foreseen the detrimental result of the breach in question, the party in breach removes possible doubts that his own foresight [page 219] might have been beclouded -- a risk which the aggrieved party need not bear under the Convention.

                    2.2.2.2.4. - It may not be superfluous to mention the conjunction and, which replaced the former «or» at the Vienna Working Group Session in 1977 (Summary Record, A/CN.9(X)/C.1./SR.4, at 6, para. 30 as referred to by MICHIDA, Cancellation of Contract, 285, note 19) and survived an attempt to switch back to «or» at the Vienna Conference (see Official Records, II, 296 No. 13 and 298 No. 41). Just as the subjective test alone is not enough, the objective test alone would not suffice either. For it may well happen that an overly astute merchant in fact knew and foresaw more than his peers would have known and foreseen. In such a case the real person should not be allowed to hide behind the reasonable person of the same kind in the same circumstances (erroneous therefore HERBER, Einführung, 21). The objective test cannot replace the subjective test, but complements it. In other words, the burden of proof, for the party in breach, is a double one.

                    2.2.2.2.5. - As a final item, because it matters on the levels of the real person as well as of the reasonable person, the time element remains to be considered: unforeseeability at what moment? Article 10 of ULIS answered «at the time of the conclusion of the contract». But the UNCITRAL Draft Convention, after some discussion, preferred not to specify that point leaving the decision to the tribunals (see Yearbook, VIII (1977), 31 No. 90, 11 No. 3, 148 No. 2, 148-149; Official Records, I, 26). Despite some more discussion at the Vienna Conference and a frustrated attempt to reintroduce «at the time when the contract was concluded» (Official Records, I, 99; II, 297-298, 302), the question remained unsettled.

While the Commentary under Article 23 of the UNCITRAL Draft Convention seems to admit only the alternative: «time of conclusion» or «time of breach», and the post-Vienna legal literature seems to favour the former criterion, it is suggested that a less rigid approach could contribute to the arbitrators' and judges' finding a more balanced solution in a particular case.

The time of the conclusion is favoured by those who take the moment, when the parties define the scope of their contract, [page 220] as decisive for the foresight clause. It is «at that point that the parties should determine, in their mutual interest, what would constitute substantial. detriment» (see FELTHAM, in Official Records, II, 302 No. 1). The opponents, it is claimed, still had in mind Article 23 of the UNCITRAL Draft Convention where the sole criterion was an objective one, the extent of the detriment. A seller, for example, having agreed to deliver but without a binding date, should not find himself nailed down to a «time-of-the-essence» transaction by subsequently learning that the buyer resold the goods to be delivered at a fixed date (SCHLECHTRIEM, UN-Kaufrecht, 49; Uniform Sales Law, 60; approvingly VON CAEMMERER, Die Wesentliche Vertragsverletzung, 50; formerly HUBER, in DÖLLE, Einheitliches Kaufrecht, 463 and BEINERT, Wesentliche Vertragsverletzung, 90. See also HARTLEY, Study, 5/26; STALEV, in Official Records, II, 297, No. 20; LESSIAK, in DORALT, Das UNCITRAL Kaufrecht, 144).

Recent opponents, however, disagree. Taking, as some of them do, the time of the breach (BENTO SOARES-MOURA RAMOS, De Contrato de Compra e Venda internacional, 128, note 83 in fine) or the period «before the time of the breach» (FELTHAM, The United Nations Convention, 346, 353) might be affording too little protection to the party in breach.

A more prudent approach limits itself to the «time after the conclusion» when additional information could modify the situation (see Official Records, II, 302 No. 2) and «serious consequences of the breach ... become evident subsequent to the making of the contract» (HONNOLD, Uniform Law, 213).

An even more prudent and convincing approach is to allow the taking into account of subsequent knowledge -- but only as an exception and only up to the time when preparations in view of performance actually did start or should have started. Supposing a sale of consumer goods yet to be wrapped, where shortly after signing the contract the seller learns that specific labelling is of the essence for the resale in the buyer's country; non-compliance in such a case, it seems, would normally have to be considered a fundamental breach and not call for any particular protection under the unforeseeability excuse (MASKOW, in ENDERLEIN-MASKOW-STARGARDT, Kommentar, 75). [page 221]


Pace Law School Institute of International Commercial Law - Last updated January 31, 2005
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