1. Mr. ROGNLIEN (Norway) said it was his impression, in the light of the exchange of views at the previous meeting, that most representatives were not in favour of the interpretation of article 60(2) [became CISG article 64(2) ] proposed by his delegation (A/CONF.97/C.1/L.185). He was ready to defer to the majority, but he considered that the existing text of paragraph 2 should be clarified, as its ambiguous wording would enable the seller to speculate on possible price fluctuations. His delegation had therefore prepared a new text, which it would like to submit to the Committee at a later stage. The text could not be sent directly to the Drafting Committee because it took account of only one of the two possible interpretations of paragraph 2; such matters were not for the Drafting Committee to decide.
2. The CHAIRMAN proposed the establishment of a working group to consider the new text prepared by Norway consisting of representatives of the Federal Republic of Germany, Norway, Turkey and the United Kingdom.
3. It was so decided.
(A/CONF.97/C.1/L.110, L.197, L.218)
4. Mr. POPESCU (Romania) supported the Pakistan proposal that article 61 [became CISG article 65 ] should be deleted (A/CONF.97/C.1/L.197). The article gave the seller the right to make his own specification in place of the buyer's, thereby giving him a privilege which was not offset by any recognized right of the buyer. That would be going too far and might even be harmful.
5. Mr. FELTHAM (United Kingdom) was also in favour of deleting article 61 [became CISG article 65 ]. It had emerged from consultations with commercial organizations in his country that the principle behind the article was not in line with international trading practice. Its provisions went too far and were unrealistic. If the buyer failed to supply the desired specification, there would be no point in the seller manufacturing goods without it. In any case the seller was adequately protected by the provisions relating to fundamental breach.
6. Mr. LI Chih-min (China) supported the Pakistan proposal. The specification referred to in article 61 [became CISG article 65 ] was in fact one of the characteristics that had to be defined in the contract of sale, of which it was an integral part. Article 61 [became CISG article 65 ] was therefore superfluous.
7. Mr. HJERNER (Sweden) wanted article 61 [became CISG article 65 ] to be kept as it stood. All the information he had been able to gather led him to draw the opposite conclusion to the United Kingdom representative. The provisions concerning the seller's right to declare the contract avoided or claim damages did not give him enough protection and the remedies open to him might very well not be feasible in practice. A buyer who equivocated and failed to provide specifications on time might very well be doing so with the aim of escaping from the contract. The seller must be able to act fast. A court might be able to intervene in some cases, but was likely to take too long.
8. On the other hand, the right of the buyer was protected under article 61 [became CISG article 65 ], since it specified that if the seller made the specification, he had to take account of any requirement of the buyer that might be known to him and to inform the buyer of the details of the specification. If the buyer failed to follow up the seller's communication, it could be thought that he was not acting in good faith.
9. Mr. WAGNER (German Democratic Republic) considered that article 61 [became CISG article 65 ] was extremely useful and should be kept. In cases in which a delay due to the buyer was liable to cause harm to the seller, it enabled the latter to act, but it also protected the rights of the buyer, who would not have to pay damages if the seller availed himself of the article's provisions.
10. Mr. REISHOFER (Austria) shared the opinions of the representatives of Sweden and the German Democratic Republic. Article 61 [became CISG article 65 ] had a useful role to play and should be kept.
11. Mr. BENNETT (Australia) was for keeping article 61 [became CISG article 65 ], which was reasonable and balanced, since it gave the seller rights whilst protecting the interests of the buyer; the sole object of the article was to prevent the buyer from resorting to delaying tactics.
12. Mr. KRISPIS (Greece) was also in favour of keeping article 61 [became CISG article 65 ], since it gave the seller strictly determined rights. If the seller exercised the rights referred to in paragraph 1, he had to inform the buyer, who still had an opportunity to provide his own specification. If the buyer did not reply, it could be taken that he had given his agreement. Finally, article 61 [became CISG article 65 ] would help to safeguard the contract and avoid such procedures as a declaration of avoidance or a claim for damages by the seller.
13. Mr. HONNOLD (United States of America) agreed with the proposal by Pakistan to delete the article, which was based on ULIS but had not been examined in depth by UNCITRAL. First, the buyer might have good reason for not being able to provide a specification and might be acting in good faith. Secondly, goods produced by the seller in accordance with a specification made by himself might well be unusable by anybody and thus represent a considerable waste. Finally, it was difficult to reconcile article 61 [became CISG article 65 ] in its present wording with the provisions of article 73 [became CISG article 77 ] on the mitigation of damages.
14. Mr. KIM (Republic of Korea) thought that it would be better to delete article 61 [became CISG article 65 ]. Specification was an important element of the contract, as was evident from article 33(1)(a) [became CISG article 35(1)(a) ] on conformity of the goods.
15. Mr. VINDING KRUSE (Denmark) considered that as a whole, article 61 [became CISG article 65 ] was satisfactory and well balanced and should not be deleted. If it were, the buyer would have an easy way out of his obligations. If the buyer wished to be released from the contract, he should inform the seller, who would be able to try to cut his losses.
16. The CHAIRMAN put the Pakistan proposal (A/CONF.97/C.1/L.197) to the vote.
17. The proposal by Pakistan was rejected by 22 votes to 9.
18. Mr. SAMI (Iraq) said that since article 61 [became CISG article 65 ] was to be kept, the seller's right to declare the contract avoided, which was stated in article 60 [became CISG article 64 ], should be referred to in paragraph 1; he therefore proposed adding, after the words "any other rights he may have", the words "declare the contract void or" (A/CONF.97/C.1/L.110).
19. The CHAIRMAN noted that the words "without prejudice to any other rights he may have" in article 61(1) [became CISG article 65(1) ] included the right to declare the contract avoided if the conditions for avoidance obtained.
20. Mr. LANDFERMANN (Federal Republic of Germany) supported the Iraqi proposal (A/CONF.97/C.1/L.110). The Chairman had been right in saying that the words "without prejudice to any other rights he may have" applied to the right to declare the contract avoided. But as he had also said, the conditions for avoidance of the contract had to be met. At the same time, it was nowhere stated that the buyer's failure to make specification constituted a fundamental breach and, in any case, the Nachfrist system did not apply to specifications. There was therefore good reason to state that where the buyer had not made a specification, the seller had the right to declare the contract avoided.
21. Mr. VINDING KRUSE (Denmark) felt that the Iraqi proposal was not necessary, since the right to declare the contract avoided was implicitly granted to the seller by the very wording of article 61 [became CISG article 65 ]. Moreover, the principle underlying the Convention as a whole was that avoidance of the contract should be exceptional. If it was stated in article 61 [became CISG article 65 ] that where the buyer did not make the specification, the seller was more or less automatically entitled to declare the contract avoided, failure to make specification would automatically become a fundamental breach by the buyer, whereas it could very often be of a minor nature. He therefore opposed proposal by Iraq.
22. Mr. KRISPIS (Greece) noted that if article 61 [became CISG article 65 ] had not been kept in the Convention and if the buyer did not make the specification, the seller would have had to decide himself whether the absence of specification entitled him to declare the contract avoided. It should be clearly understood that article 61 [became CISG article 65 ] gave the seller a right, not an obligation. Acceptance of the Iraqi proposal would probably lead the seller to avoid the contract automatically where the buyer failed to make specification. It would be better to state that the buyer's failure to make specification came under the general provisions of article 60 [became CISG article 64 ], i.e., it was linked to the buyer's right to declare the contract avoided.
23. Mr. REISHOFER (Austria) was against the proposal by Iraq since it would be too drastic in its effects. A failure on the part of the buyer to make specification was often of no great importance and should not automatically result in avoidance of contract.
24. Mr. DATE-BAH (Ghana) considered for the same reasons that the Iraqi proposal was dangerous: the slightest delay in the transmittal of the specification would be enough to entitle the seller to declare the contract avoided. He hoped that the representative of Iraq would withdraw his proposal.
25. Mr. ZIEGEL (Canada) was opposed to the Iraqi amendment for slightly different reasons. The principle applied throughout the Convention was to refrain from defining what type of breach constituted a fundamental breach; articles 45 and 60 [became CISG article 49 and CISG article 64 ] merely gave the general framework within which buyer and seller could declare the contract avoided. If an explicit provision were to be inserted in article 61 [became CISG article 65 ] whereby the buyer's failure to make specification was grounds for the seller to avoid the contract, it would be in conflict with the basic principle underlying the Convention and would pave the way for all kinds of exceptions to that principle.
26. Mr. SAMI (Iraq) said that he had hoped through his amendment to protect the seller in cases where, if the buyer failed to make specification, he was not able to do so himself. In such a case, was the seller still bound by the contract, how could he get out of it, was he solely entitled to claim damages? But since most of the members of the Committee were opposed to his proposal, he would withdraw it.
27. The CHAIRMAN, in the absence of the representative of Kenya, the sponsor of the proposals in document A/CONF.97/C.1/L.219, stated that the amendment to article 61(1) [became CISG article 65(1) ] concerned only the form of the English text and did not apply to the French. He therefore proposed that the Committee should adopt the amendment without referring it to the Drafting Committee.28. It was so decided.
29. The CHAIRMAN stated that while the two amendments to article 61(2) [became CISG article 65(2) ] would not alter it radically, they would still affect its substance. He felt that the first amendment was unnecessary, as it was difficult to imagine that the seller would not, in fixing a reasonable time for the buyer to make a different specification, take "into account the nature and circumstances of the case". The Committee would also have to express its views on the second amendment, which would modify the second sentence in paragraph 2 by adding the phrase "within a reasonable time" after the words "if the buyer failed to do so".
30. Mr. DATE-BAH (Ghana) also considered that the first amendment to paragraph 2 was superfluous, since the idea was self-evident.
31. Mr. FELTHAM (United Kingdom) believed the second amendment to be justified, since article 61 [became CISG article 65 ] did not determine the point in time at which the specification made by the seller would become binding on the buyer.
32. Mr. KRISPIS (Greece) was not opposed to the second amendment, but pointed out that the clarification it provided was already to be found in the article as drafted, according to which the seller must "fix a reasonable time within which the buyer may make a different specification". On the other hand, he firmly supported the first amendment, which further clarified the conditions under which the seller could make a specification himself.
33. Mr. BONNELL (Italy) was very hesitant about the first amendment. The second seemed undesirable, since the phrase "within a reasonable time" occurred frequently in the draft Convention and could lead to different interpretations. He would prefer article 61(2) [became CISG article 65(2) ] to remain unchanged.
34. Mr. KHOO (Singapore) supported the second amendment. In order that the second sentence in the paragraph should follow on logically from the first, however, the proposed insertion should be reworded to read "within the time so fixed".
35. Mr. LANDFERMANN (Federal Republic of Germany) was against the first amendment. The second seemed unnecessary; if it were adopted, however, it should be in the wording suggested by the representative of Singapore.
36. Mr. FELTHAM (United Kingdom) also supported the proposal by Singapore with regard to the wording of the second amendment.
37. Mr. KUCHIBHOTLA (India) was not in favour of the second amendment, which would contradict the provisions of article 59 [became CISG article 63 ]. The buyer should be able to fix the period of time and to benefit from a certain extension after receipt of the seller's communication.
38. The first amendment proposed by Kenya to article 61(2) [became CISG article 65(2) ] was rejected.
39. On a proposal by Mr. LEBEDEV (Union of Soviet Socialist Republics), the second amendment, together with the proposal by Singapore concerning its wording, was referred to the Drafting Committee.
The meeting was suspended at 4.15 p.m. and resumed at 4.40 p.m.
40. The CHAIRMAN invited the members of the Committee to consider the amendment to article 62(1) [became CISG article 71(1) ] submitted by the Federal Republic of Germany (A/CONF.97/C.1/L.187).
41. Mr. KLINGSPORN (Federal Republic of Germany) said that according to article 62(1) [became CISG article 71(1) ], as originally drafted, a party might suspend the performance of his obligations only when, after the conclusion of the contract, there occurred a deterioration in the ability to perform or in the creditworthiness of the other party. During the UNCITRAL meetings, however, it had been decided that the article would be applicable if at the time of conclusion of the contract one party was unable to perform its obligations and the other party did not know. It therefore seemed advisable to amend the original text.
42. The CHAIRMAN noted that in the amendment the word "deterioration" had been replaced by the word "deficiency" and wondered whether that was appropriate. He suggested that the amendment should be referred to the Drafting Committee.
43. The matter covered by article 62 [became CISG article 71 ], which would be familiar to all those who had taken part in the UNCITRAL Working Group, could be looked at in two ways: on the one hand, the deterioration in a party's ability to perform could occur after the conclusion of the contract: on the other hand, the deterioration could have existed before the conclusion of the contract but only have become known afterwards. The amendment proposed by the Federal Republic of Germany envisaged a case where one party was in such financial straits at the time of conclusion of the contract that performance of his obligations was objectively impossible but where that deterioration only became evident after conclusion of the contract.
44. Mr. FOKKEMA (Netherlands) supported the amendment, since it protected the interests of a party who, after the conclusion of the contract, discovered a deterioration in the other party's ability to perform.
45. Mr. KRISPIS (Greece) believed the proposal by the Federal Republic of Germany to be a useful one, but suggested that the phrase "after the conclusion of the contract" should be deleted, since the deterioration would have occurred before the conclusion of the contract.
46. Mr. BONELL (Italy) considered that the phrase in question should be kept, since it introduced an essential element of timing. He was, moreover, unable to support the amendment proposed by the Federal Republic of Germany, believing that each party had an opportunity, and indeed a duty, to determine the situation of the other before concluding the contract. If a party considered that the contract could be concluded nevertheless, he should not be permitted to go back on that decision because of facts which he should have known. The amendment by the the Federal Republic of Germany recalled article 73 of the Uniform Law on the International Sale of Goods (ULIS), but laid more stress on the discovery of deterioration after the conclusion of the contract.
47. Mr. ROGNLIEN (Norway) was in favour of the amendment (A/CONF.97/C.1/L.187), because it was often difficult in practice to determine just what was the financial situation of an individual or a company at the time of contracting. It was conceivable that the ability to perform or the creditworthiness of one party could -- unknown to the other party -- have already deteriorated before the conclusion of the contract. The amendment by the Federal Republic of Germany was more explicit than the UNCITRAL text.
48. Mr. BOGGIANO (Argentina) considered that if the security of contractual relationships was to be preserved, the situation should be made clear. The amendment submitted by the Federal Republic of Germany was a step in that direction.
49. Mr. TARKO (Austria) believed that the text submitted by the Federal Republic of Germany was clearer and more objective than the original draft.
50. Mr. FOKKEMA (Netherlands) noted that the amendment by the Federal Republic of Germany was in keeping with the spirit of article 73 of ULIS. It should be remembered that the party in default had nothing to gain by revealing the deterioration in his ability to perform or creditworthiness. The other party should certainly have taken steps to inform himself, but might have been deceived by false information.
51. Mr. HONNOLD (United States of America) observed that the amendment would actually involve a question of substance. The term "deterioration" implied a change in relation to a given point of reference, namely, the situation when the contract was concluded. Inability to perform the contract could, however, have been evident before the conclusion of the contract.
52. Mr. MASKOW (German Democratic Republic) said that as a general rule, a party whose ability to perform or whose creditworthiness had deteriorated would seek to conceal that state of affairs. It would be difficult for the other party to determine, before the conclusion of the contract, whether or not the first party was in a position to meet his obligations.
53. Mr. DATE-BAH (Ghana) considered that the words "it becomes apparent" in the amendment were vague. He therefore suggested that it should be referred to the Drafting Committee.
54. Mr. MANTILLA-MOLINA (Mexico) reserved his delegation's position concerning the amendment, the wording of which needed to be made clearer. A deterioration in the ability to perform might not become evident before the conclusion of the contract. Furthermore, as the Netherlands representative had pointed out, a party who concluded a contract while aware that he could not meet the attendant obligations was committing a fraud. But how could it be proved that the other party had been unaware of the first party's situation at the time when the contract was concluded? Furthermore, a company of modest size which was expecting an advance of funds might well believe that it would be fully able to honour its obligations.
55. Mr. MICHIDA (Japan) believed that the amendment by the Federal Republic of Germany raised a question of substance. He drew the attention of members of the Committee to paragraphs 3, 4 and 5 of the commentary on article 62 [became CISG article 71 ] (A/CONF.97/5), which gave examples of cases in which performance could be suspended: deterioration in one party's creditworthiness, change in general conditions, outbreak of war or imposition of an embargo.
56. Mr. BENNETT (Australia) supported the amendment proposed by the Federal Republic of Germany, because there was no reason to require a party to perform his obligations when it was clear that the other party would be unable to perform his. Nevertheless, the wording of the amendment was too vague: at what time did it become apparent that there was a serious deficiency in the ability of a party to perform, and to whose notice must that deficiency be brought?
57. Mr. GORBANOV (Bulgaria) said that the purpose of article 62 [became CISG article 71 ] was to enable a party to suspend performance if, at the time of performing his obligations, he had serious grounds for believing that the other party would be unable to perform his. Article 63 [became CISG article 72 ], which provided that a party might declare the contract avoided if it was clear that the other party would commit a breach, was based on the same principle. The introduction in the Convention of provisions such as those in article 62 of the UNCITRAL draft [became CISG article 71 ] and those proposed by the Federal Republic of Germany would lead national courts and international arbitral bodies to apply the principle stated and to recognize that a party might suspend performance of his obligations if it was clear that the other party would not perform his.
58. Mr. ZIEGEL (Canada) agreed with the United States representative that replacing the word "deterioration" by the very different word "deficiency" would be a substantive change. If the word "deficiency" meant the diminution of a party's ability to perform, justifying the other party in suspending the performance of his obligations, his delegation could agree to the proposal by the Federal Republic of Germany.
59. He requested some explanation on paragraph 3 of article 62 [became CISG article 71 ]. From the Secretariat's commentary (A/CONF.97/5), it would appear that a party which suspended performance because the other party had not provided adequate assurance of his performance was entitled to claim damages for any loss suffered. He was surprised at that interpretation, which was not justified by anything in article 62 [became CISG article 71 ].
60. Mr. MICHIDA (Japan) explained that article 62 [became CISG article 71 ] referred only to suspension of performance and in no way touched on questions of liability.
61. Mr. PLANTARD (France) thought that the proposal by the Federal Republic of Germany would considerably alter the spirit of article 62 [became CISG article 71 ]. In its present form, the article simply provided that if, after the conclusion of the contract, a party became uncreditworthy, the other party would be able to suspend performance of his obligations. A party which had concluded a contract without previously making sure of the other party's creditworthiness could not get out of his obligations, because he ought to have taken the necessary precautions. Under the terms of the proposal by the Federal Republic of Germany, the seller might conclude a contract without checking the buyer's creditworthiness and then, finding that the latter would be unable to perform his obligations, suspend the performance of his own obligations, in other words go back on his word. That would be very questionable from the point of view of the security of commercial transactions. His delegation was therefore unable to support the proposal by the Federal Republic of Germany.
62. The CHAIRMAN observed that the same rule applied the other way round: if a seller became uncreditworthy and could no longer deliver the goods as agreed, the buyer was released from his commitments.
63. Mr. PLANTARD (France) agreed, but stressed that each party was required to make sure of the other party's creditworthiness before concluding the contract.
64. Mr. VINDING KRUSE (Denmark) said he was in favour of the proposal by the Federal Republic of Germany, which concerned an important issue. In international trade, the partners were very often located at a great distance from each other. It would therefore be excusable if a party did not have any information about the creditworthiness of the other party, especially as it often had only a very short period of time in which to decide whether or not to conclude a contract. He noted that under article 62(3) [became CISG article 71(3) ], a party must continue with performance if the other party provided adequate assurance of his performance, for example, if it provided a bank guarantee.
65. Mr. ROGNLIEN (Norway) supported the proposal by the Federal Republic of Germany for the same reasons as the Danish representative. It was also necessary to take into account the nature of the contract. Clearly, if it envisaged a complex transaction involving one party in credit arrangements, that party could be expected to take more precautions than if all that was at stake was a simple transaction for the sale of goods. But the Convention under consideration was aimed at promoting international trade. To require a party to make detailed inquiries about the other party's financial situation would undoubtedly run counter to that objective.
66. Mr. MANTILLA-MOLINA (Mexico) was against the proposal by the Federal Republic of Germany, which seemed to him to be contrary to the Convention. Article 62 [became CISG article 71 ] as it stood referred to an act subsequent to the conclusion of the contract which brought about a change in the situation of the parties. The proposal by the Federal Republic of Germany sought to widen its scope considerably. A party would be able to suspend performance of the contract, i.e., in practice avoid it, if, after the conclusion of the contract, it realized that it had from the beginning been mistaken about the creditworthiness of the other party.
67. The CHAIRMAN asked the representative of the Federal Republic of Germany if he wished to maintain his amendment in its original form.
68. Mr. KLINGSPORN (Federal Republic of Germany) said that he did wish to maintain the wording of his proposal. He gathered that the United States representative considered the word "deficiency" preferable to the word "deterioration". However, he would have no objection to the Drafting Committee trying to improve his text, particularly in the languages other than those in which it had been submitted.
69. The CHAIRMAN put to the vote the amendment to article 62(1) [became CISG article 71(1) ] submitted by the Federal Republic of Germany (A/CONF.97/C.1/L.187).
70. The amendment by the Federal Republic of Germany was adopted by 18 votes to 15.
71. Paragraph 2 of article 62 [became CISG article 71 ] was adopted without change.
72. The CHAIRMAN invited the Committee to consider the amendment to paragraph 3 of article 62 [became CISG article 71 ] submitted by the Federal Republic of Germany (A/CONF.97/C.1/L.187). He drew attention to a mistake in the French text, where the opening words of the second part should read "Modifier comme suit le paragraphe 3 ", not "le paragraphe 2".
73. Mr. KLINGSPORN (Federal Republic of Germany) said that his amendment, which concerned a minor point, was intended to spell out the adequate assurance of performance referred to in that paragraph. The word "assurance" seemed too vague and might give rise to differing interpretations. It would therefore be better to give examples. The working group had, moreover, already considered inserting the words which appeared in the amendment.
74. Mr. HJERNER (Sweden) did not agree that the point at issue was a minor one. It was not without reason that the present text gave no examples. The question had already been considered by the working group, and one of the earlier drafts had, in fact, included examples, but in the end it had been decided to drop them. By placing the emphasis on a guarantee or a documentary credit, the proposal by the Federal Republic of Germany tended to present those methods, which ought to be exceptional, as a normal means of providing adequate assurance of performance. Actually the parties very often confined themselves, in practice, to explaining their circumstances.
75. Furthermore, it should be noted that the cost of providing a guarantee or a documentary credit might represent a substantial share of the profit which a party had hoped to derive from the contract. He was therefore in favour of keeping to the existing text, which was less restrictive than the proposal by the Federal Republic of Germany.
76. Mr. FELTHAM (United Kingdom) agreed with the Swedish representative's arguments. In some legal systems, the fact that that provision contained an enumeration moving from the particular to the general was not without effect on its interpretation.
77. Mr. BONELL (Italy) considered that the amendment by the Federal Republic of Germany was too favourable to the economically stronger party, which could, on the basis of a mere impression of the other party's financial situation, compel that party to provide adequate assurance of his performance, which might involve him in considerable expense. His delegation was therefore unable to support the proposal.
78. Mr. ZIEGEL (Canada) was also against the proposal by the Federal Republic of Germany. He was not quite clear how the word "guarantee" was supposed to be interpreted. Was it a purely financial guarantee or was it a guarantee of the quality of the goods? Also, although it might be appropriate to request a buyer in financial difficulties to provide a documentary credit, the same would not be true when it was the seller who was unable to perform his obligations.
79. The CHAIRMAN, noting that the majority of members did not seem to be in favour of the proposal by the Federal Republic of Germany, said that if there were no objections, he would take it that the proposal was rejected.
80. It was so decided.