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Article 72. Avoidance Prior to Date for Performance

TEXT OF ARTICLE 72

(1) If prior to the date for performance of the contract it is clear that one of the parties will commit a fundamental breach of contract, the other party may declare the contract avoided.

(2) If time allows, the party intending to declare the contract avoided must give reasonable notice to the other party in order to permit him to provide adequate assurance of his performance.

(3) The requirements of the preceding paragraph do not apply if the other party has declared that he will not perform his obligations.


OUTLINE OF ISSUES

Reproduced with permission of UNCITRAL

72A When clear that party will commit fundamental breach (art. 25)

72A1 Grounds: Repudiation; obvious disability

72A2 Other party may declare avoidance (art. 72(1))

72B Advance notice of intent to avoid (art. 72(2))

72B1 Notice by party intending to declare avoidance

72C Reason: Opportunity for assurance of performance

72D Party has declared it will not perform (art. 72(3))

72D1 No need for advance notice under art. 72(2)


DESCRIPTORS

Anticipatory breach ; Avoidance


CASE ANNOTATIONS: UNCITRAL DIGEST CASES PLUS ADDED CASES

UNCITRAL has identified relevant cases in Digests containing case annotations for each article of the CISG. UNCITRAL cites 14 cases in its Digest of Art. 72 case law:

Australia      1           Germany      6           Switzerland         2          
Austria      1 ICC 2 United States   1
Finland      1 TOTAL:   14

Presented below is a composite list of Art. 72 cases reporting UNCITRAL Digest cases and other Art. 72 cases. All cases are listed in chronological sequence, commencing with the most recent. Asterisks identify the UNCITRAL Digest cases, commencing with the 17 November 2000 citation reported below. Cases are coded to the UNCITRAL Thesaurus.

English texts and full-text English translations of cases are provided as indicated. In most instances researchers can also access UNCITRAL abstracts and link to Unilex abstracts and full-text original-language case texts sourced from Internet websites and other data, including commentaries by scholars to the extent available.

There are scholars who believe that there are circumstances in which the UNIDROIT Principles of International Commercial Contracts may be used to interpret or supplement this Article of the CISG. See match-up of this Article with counterpart provisions of the Principles and commentary on this subject. To the extent this reasoning fits, cases on the counterpart provisions of the UNIDROIT Principles may be relevant. To the extent available, such cases may be found on the Unilex website.
 

United States 29 May 2009 Federal District Court [New York] (Doolim Corp. v. R Doll LLC et al.) 72A
 

Denmark 1 December 2008 Sø-og Handelsrets [Maritime and Commercial Court] (Bonansea S.p.A. v. Bombardier Transportation Denmark A/s)

Brazil 24 April 2008 Appellate Court São Paulo (Mortgage loan case) [translation available]
 

Denmark 17 October 2007 Højesteret [Supreme Court] (Motorcycle case)

China October 2007 CIETAC Arbitration Award [CISG 2007/03] (CD-R and DVD-R production line systems case) 72A [translation available]
 

Russia 13 February 2006 Arbitration Award 102/2005 (Equipment case) [translation available]

Denmark 20 January 2006 Sø-og Handelsrets Domme [Maritime and Commercial Court] Copenhagen (Motorcycle case)
 

China 2005 CIETAC Arbitration Award [CISG 2005/25] (Engine block case) 72A [translation available]
 

Belgium 11 October 2004 Hof van Beroep [Appellate Court] Ghent (NV Frans Bijttebier-Bouckaert v. BV Nooteboom International) 72B [translation available]

Germany 6 October 2004 Oberlandesgericht [Appellate Court] Frankfurt

Germany 22 July 2004 Oberlandesgericht [Appellate Court] Düsseldorf [translation available]

Germany 20 July 2004 Oberlandesgericht [Appellate Court] Karlsruhe (Shoes case) [translation available]
 

China 27 December 2002 CIETAC Arbitration Award [CISG 2002/29] (Medicine manufacturing equipment case) 72A [translation available]

Russia 6 August 2002 Arbitration Court [Appellate Court] for Western Siberia Region (Case No. F04/2712-494/A03-2002) 72A [translation available]
 

United States 17 December 2001 U.S. District Court [Michigan] (Shuttle Packaging Systems v. Tsonakis)

Australia 12 October 2001 Supreme Court of Queensland, Court of Appeal (Downs Investments v. Perwaja Steel) 72A

China 22 March 2001 CIETAC Arbitration Award [CISG/2001/02] (Mung bean case) 72A [translation available]

China February 2001 CIETAC Arbitration Award [CISG/2001/01] (Equipment, material and services case) [translation available]
 

* Australia 17 November 2000 Supreme Court of Queensland (Downs Investments v. Perwaja Steel) 72A
 

* United States 7 December 1999 Federal District Court [Illinois] (Magellan International v. Salzgitter Handel) 72A

Russia 7 June 1999 Arbitration award 238/1998 72A [translation available]
 

* Germany 29 December 1998 Hamburg Arbitration award [translation available]

* Finland 30 June 1998 Helsingin hovioikeus [Appellate Court] Helsinki 72A ; 72B [translation available]
 

China 19 December 1997 CIETAC Arbitration Award [CISG/1997/36] (Steel case) 72A [translation available]

China 16 December 1997 CIETAC Arbitration Award [CISG/1997/35] (Hot-dipped galvanized steel coils case) 72A ; 72D [translation available]

* Austria 10 December 1997 Vienna Arbitration award S 2/97 72A [translation available]

China 30 November 1997 CIETAC Arbitration Award [CISG/1997/33] (Canned oranges case) [translation available]

China 8 October 1997 CIETAC Arbitration Award [CISG/1997/29] (Industrial tallow case) [translation available]

Germany 4 July 1997 Oberlandesgericht [Appellate Court] Hamburg [translation available]

* Switzerland 20 February 1997 Bezirksgericht [District Court] Saane 72A [translation available]

* ICC January 1997 International Court of Arbitration, Case 8786 72A [English text]
 

China 31 December 1996 CIETAC Arbitration Award [CISG/1996/58] (High carbon tool steel case) 72B [translation available]

* ICC September 1996 International Court of Arbitration, Case 8574 72A [English text]

* Switzerland 31 May 1996 Zürich Chamber of Commerce, Arbitration ZHK 273/1995 [English text]

* Germany 3 April 1996 Bundesgerichtshof [Federal Supreme Court] [translation available]

China 29 March 1996 CIETAC Arbitration Award [CISG/1996/15] (Caffeine case) 72D [translation available]

Austria 6 February 1996 Oberster Gerichtshof [Supreme Court] [translation available]

China 5 February 1996 CIETAC Arbitration Award [CISG/1996/07] (Antimony ingot case) 72A [translation available]

China 30 January 1996 CIETAC Arbitration Award [CISG/1996/05] (Compound fertilizer case) 72A ; 72D [translation available]
 

Germany 21 September 1995 Landgericht [District Court] Kassel

Russia 25 April 1995 Arbitration award 161/1994 72A2 [translation available]

* Germany 15 February 1995 Bundesgerichtshof [Federal Supreme Court] [translation available]
 

China 25 October 1994 CIETAC Arbitration Award [CISG/1994/13]

* Germany 14 January 1994 Oberlandesgericht [Appellate Court] Düsseldorf 72A ; 72B [translation available]
 

* Germany 28 April 1993 Landgericht [District Court] Krefeld 72A ; 72B

China 20 January 1993 CIETAC Arbitration Award [CISG/1993/04]
 

* Germany 30 September 1992 Landgericht [District Court] Berlin 72A [translation available]

Germany 9 July 1992 Landgericht [District Court] Düsseldorf
 

China 1989 CIETAC Arbitration Award [CISG/1989/02] (Thai-made emulsion case) 72A ; 72C [translation available]
 


CASE DIGEST AND ANALYSIS
-   UNCITRAL's case law digest; and
-   An analysis of CISG jurisprudence

The UNCITRAL Digest of case law on the United
Nations Convention on the International Sale of Goods
[*]

A/CN.9/SER.C/DIGEST/CISG/72 [8 June 2004]
Reproduced with the permission of UNCITRAL

[Text of Article 72
Digest of Article 72 case law
-    Preconditions for avoidance
-    Notice of intent to avoid
-    Adequate assurance of performance]
ARTICLE 72

     (1) If prior to the date for performance of the contract it is clear that one of the parties will commit a fundamental breach of contract, the other party may declare the contract avoided. 

     (2) If time allows, the party intending to declare the contract avoided must give reasonable notice to the other party in order to permit him to provide adequate assurance of his performance.

     (3)  The requirements of the preceding paragraph do not apply if the other party has declared that he will not perform his obligations.

DIGEST OF ARTICLE 72 CASE LAW

1. Article 72 entitles a seller or a buyer to avoid the contract if it becomes clear before the date for performance that the other party will commit a fundamental breach. Article 49 rather than article 72 applies if, at or after the date for performance, a party's failure to perform or nonconforming performance amounts to a fundamental breach. Thus, a buyer who has not declared the contract avoided before the date for performance may not avoid the contract under article 72 but must act instead under articles 45 and 49.[1]

2. The right of an aggrieved party to avoid the contract under article 72 is to be distinguished from the right to suspend its obligations under article 71.[2] Both articles are concerned with predicting whether there will be a breach but the preconditions for the more drastic remedy of avoidance are more stringent than those for suspension, both as to the seriousness of the predicted breach and the probability that the breach will occur. The notification requirements also differ. Article 72 requires "reasonable" prior notice only if time allows and excuses the notice if the other party has declared that it will not perform, while article 71 requires immediate notice of suspension with no exceptions.[3]

3. Article 72 entitles an aggrieved party to avoid a contract before the date for performance if the contract is for a single sale, while article 73 provides special rules on avoidance of future instalments if the contract is an instalment contract. Several decisions recognize that where the parties have on-going relations the aggrieved party might act under either article as to future instalments or contracts.[4]

Preconditions for avoidance

4. Paragraph (1) sets out the principal precondition for a rightful avoidance: it must be clear prior to the date for performance that the party required to perform will commit a fundamental breach. A very high probability that there will be a fundamental breach rather than complete certainty is required.[5] One decision has stated that a claim of anticipatory repudiation must allege "(1) that the defendant intended to breach the contract before the contract's performance date and (2) that such breach was fundamental".[6]

5. A party that declares that it will not perform its obligations satisfies this precondition.[7] Allegations, if proved, that the seller stated it would "no longer feel obligated" to perform and would "sell the material elsewhere" would entitle the buyer to avoid the contract.[8] Conditioning delivery on new demands beyond those agreed upon is an anticipatory repudiation of the contract.[9]

6. The preconditions of paragraph (1) were also found to have been satisfied in the following circumstances: the buyer's failure to pay for prior shipments;[10] the buyer's failure to open a letter of credit;[11] the seller's failure to reduce price and to commit to deliver fashion goods on time;[12] the seller's deliberate termination of delivery of goods.[13]

7. The preconditions were found not satisfied in the following circumstances: where the seller had held back the goods;[14] where the seller expressed an interest in stopping deliveries but also agreed to continue negotiations;[15] the buyer's failure to pay one instalment.[16]

Notice of intent to avoid

8. Paragraph (2) of article 72 requires the aggrieved party to give the other party prior notice of the aggrieved party's intent to avoid the contract if time allows.[17] This notice is different from the declaration of avoidance governed by article 26.[18] One decision concluded that if the aggrieved party is relying on article 72 it must declare the contract avoided prior to the date for performance.[19]

Adequate assurance of performance

9. The party intending to avoid the contract must give notice of this intent in order to permit the other party to provide adequate assurance of performance.[20] The Convention does not prescribe the form assurance must take. There is no requirement that the aggrieved party must post a bond.[21]


FOOTNOTES

* The present text was prepared using the full text of the decisions cited in the Case Law on UNCITRAL Texts (CLOUT) abstracts and other citations listed in the footnotes. The abstracts are intended to serve only as summaries of the underlying decisions and may not reflect all the points made in the digest. Readers are advised to consult the full texts of the listed court and arbitral decisions rather than relying solely on the CLOUT abstracts.

[Citations to cisgw3 case presentations have been substituted [in brackets] for the case citations provided in the UNCITRAL Digest. This substitution has been made to facilitate online access to CLOUT abstracts, original texts of court and arbitral decisions, and full text English translations of these texts (available in most but not all cases). For citations UNCITRAL had used, go to <http://www.uncitral.org/english/clout/digest_cisg_e.htm>.]

1. CLOUT case No. 171 [GERMANY Bundesgerichtshof [Supreme Court] 3 April 1996, available online at <http://cisgw3.law.pace.edu/cases/960403g1.html>]; CLOUT case No. 124 [GERMANY Bundesgerichtshof [Supreme Court] 15 February 1995, available online at <http://cisgw3.law.pace.edu/cases/950215g1.html>].

2. [ICC International Court of Arbitration case No. 8786 of January 1997, available online at <http://cisgw3.law.pace.edu/cases/978786i1.html>] (buyer did not suspend obligations but avoided contract under art. 72(1)); [ICC International Court of Arbitration case No. 8574 of September 1996, available online at <http://cisgw3.law.pace.edu/cases/968574i1.html>] (buyer's purchase of substitute goods not a suspension of its obligations).

3. [ICC International Court of Arbitration case No. 8574 of September 1996, available online at <http://cisgw3.law.pace.edu/cases/968574i1.html>] (noting differences as to notice).

4. EP S.A. v. FP Oy [FINLAND Helsingfors hovrätt [Appellate Court] Helsinki 30 June 1998, available online at <http://cisgw3.law.pace.edu/cases/980630f5.html>] (where two separate orders for skincare ointment made from same mixture the aggrieved buyer could avoid second contract under either article 72 or under article 73(2)); [SWITZERLAND Arbitration Award case No. 273/95, Zürich Handelskammer 31 May 1996, available online at <http://cisgw3.law.pace.edu/cases/960531s1.html>] (fundamental breach as to future instalments is covered by both articles 72 and 73).

5. [GERMANY Landgericht [District Court] Berlin 30 September 1992, available online at <http://cisgw3.law.pace.edu/cases/920930g1.html>] (very high probability rather than complete certainty required). See also [AUSTRIA Arbitration Award case No. S2/97, Schiedsgericht der Börse für Landwirtschaftlich Produkte - Wien 10 December 1997, available online at <http://cisgw3.law.pace.edu/cases/971210a3.html>] ("good grounds" under art. 73 means high probability, a less severe test than that found in art. 72(1)).

6. CLOUT case No. 417 [UNITED STATES Magellan International v, Salzgitter Handel, Federal District Court (Northern Dist. Illinois) 7 December 1999, available online at <http://cisgw3.law.pace.edu/cases/991207u1.html>] (citing arts. 25 and 72) (see full text of the decision).

7. See art. 72(3) (excusing the aggrieved party from giving prior noticed "if the other party has declared that he will not perform his obligations").

8. CLOUT case No. 417 [UNITED STATES Magellan International v.Salzgitter Handel, Federal District Court (Northern Dist. Illinois) 7 December 1999, available online at <http://cisgw3.law.pace.edu/cases/991207u1.html>].

9. CLOUT case No. 293 [GERMANY Arbitration Award, Schiedsgericht der Hamburger freundschaftlichen Arbitrage 29 December 1998, available online at [<http://cisgw3.law.pace.edu/cases/981229g1.html>] (see full text of decision).

10. CLOUT case No. 130 [GERMANY Oberlandesgericht [Appellate Court] 14 January 1994, available online at <http://cisgw3.law.pace.edu/cases/940114g1.html>], affirming with modifications, [GERMANY Landgericht [District Court] Krefeld 28 April 1993, available online at <http://cisgw3.law.pace.edu/cases/930428g1.html>]; [GERMANY Landgericht [District Court] Berlin 30 September 1992 , available online at <http://cisgw3.law.pace.edu/cases/920930g1.html>].

11. [AUSTRALIA Downs Investment v. Perwaja Steel, Supreme Court of Queensland 17 November 2000, available online at <http://cisgw3.law.pace.edu/cases/001117a2.html>].

12. [ICC International Court of Arbitration case No. 8786 of January 1997, available online at <http://cisgw3.law.pace.edu/cases/978786i1.html>].

13. [SWITZERLAND Arbitration Award case No. 273/95, Zürich Handelskammer 31 May 1996, available online at <http://cisgw3.law.pace.edu/cases/960531s1.html>].

14. [SWITZERLAND Bezirksgericht [District Court] Sanne 20 February 1997, available online at <http://cisgw3.law.pace.edu/cases/970220s1.html>].

15. [ICC International Court of Arbitration case No. 8574 of September 1996, available online at <http://cisgw3.law.pace.edu/cases/968574i1.html>].

16. [SWITZERLAND Arbitration Award case No. 273/95, Zürich Handelskammer 31 May 1996, available online at <http://cisgw3.law.pace.edu/cases/960531s1.html>].

17. EP S.A. v. FP Oy [FINLAND Helsingfors hovrätt [Appellate Court] Helsinki 30 June 1998, available online at <http://cisgw3.law.pace.edu/cases/980630f5.html>] (timing and content of fax gave prior notice).

18. [ICC International Court of Arbitration case No. 8574 of September 1996, available online at <http://cisgw3.law.pace.edu/cases/968574i1.html>] (noting difference between art. 72 notice and declaration of avoidance and finding that avoidance was not timely); CLOUT case No. 130 [GERMANY Oberlandesgericht [Appellate Court] Düsseldorf 14 January 1994, available online at <http://cisgw3.law.pace.edu/cases/940114g1.html>] (seller gave notice of intent to avoid followed by notice of avoidance when it heard nothing from buyer) (see full text of decision).

19. [GERMANY Bundesgerichtshof [Supreme Court] 15 February 1995, available online at <http://cisgw3.law.pace.edu/cases/950215g1.html>].

20. CLOUT case No. 130 [GERMANY Oberlandesgericht [Appellate Court] Düsseldorf 14 January 1994, available online at <http://cisgw3.law.pace.edu/cases/940114g1.html>] (buyer failed to provide assurance when did not respond) (see full text of decision).

21. [ICC International Court of Arbitration case No. 8786 of January 1997, available online at <http://cisgw3.law.pace.edu/cases/978786i1.html>


ANALYSIS OF CISG CASE LAW

Reprinted by special permission of Northwestern University School of Law. 34 Northwestern Journal of International Law and Business (Winter 2004) 299-440.[*]

excerpt from

The Interpretive Turn in International Sales Law:
An Analysis of Fifteen Years of CISG Jurisprudence

Larry A. DiMatteo, Lucien Dhooge, Stephanie Greene,
Virginia Maurer and Marisa Pagnattaro

[...]

[Articles 71, 72 and 73]

The CISG provisions set a high threshold before a party anticipates a breach and can suspend performance.[687] Anticipatory breach under Articles 71, 72, and 73 can occur in various contexts in the performance of a contract.[688] These Articles aim to provide a remedy while keeping the contract intact. A party may suspend the performance of his obligations if it becomes apparent that the other party will not substantially perform because of a serious deficiency in its ability to perform, such as poor creditworthiness, or in its failure to prepare to perform.[689] If these preconditions exist, a party can suspend performance. Alternatively, if a seller has dispatched the goods, he may prevent the goods from being handed over to the buyer.[690] Article 72 allows the suspending party to terminate the contract by electing the remedy of avoidance.[691]

The narrowness of the preconditions for suspension of performance is designed to prevent abuse of anticipatory breach. Another limitation on suspension of performance is that the party suspending performance must immediately give notice of suspension to the other party.[692] "Reasonable notice" to the other party enables the opportunity to provide adequate assurance of his performance. [693] If a party declares that he will not perform his obligations, notice need not be given. [694] Finally, a party's right to suspend performance is limited by the reciprocal right of the other party to provide adequate assurance that it will perform. If the party provides such assurance, then the party is prohibited from continuing the suspension.[695]

The final context in which the CISG addresses common obligations of [page 411] buyers and sellers for anticipatory breach is Article 73. Article 73 provides the threshold for fundamental breach in the context of installment contracts.[696] If one party's failure to perform any of his obligations constitutes a fundamental breach of contract with respect to that installment, the other party may declare the contract avoided only with respect to that installment.[697] However, if the failure to perform with respect to one installment gives the non-breaching party reasonable grounds to believe that the breaching party will not deliver a future installment, the anticipation of future breaches equates to a fundamental breach allowing the non-breaching party to declare the contract avoided.[698] The issues of fundamental breach as they pertain to installment contracts will be explored more fully below in Part VI.B.2. [page 412]

[...]

2. Anticipatory Breach, Adequate Assurance, and Installment Contracts: Articles 71-73 and the Importance of Notice

The concept of fundamental breach is also a determining factor in the context of anticipatory breach. The CISG affords both buyers and sellers the right to suspend or avoid a contract due to a fundamental breach under Articles 71-73.[717] If a fundamental breach occurs or is likely to occur, the non-breaching party may seek to suspend performance under Article 71 or to avoid the contract under Article 72. Although there is no bright-line standard for determining the degree of certainty needed to anticipate fundamental breach, there should be a very high degree of probability that the breach will occur.[718] [page 415]

The installment contract requires a more complicated analysis. A breach of an installment must be analyzed to determine if the breach is to be considered fundamental within the installment and the contract as a whole. Article 73(1) implies that as a general rule, a breach of an installment performance gives the other party the right to declare the contract avoided only with respect to the installment.[719] If, however, it is determined to be fundamental to the whole, then the non-breaching party may avoid obligations in connection with future deliveries.[720] A stronger case for fundamental breach is made when there are a series of defective installment performances. This occurred in the Spanish case of T. SA v. E.[721] Here, the seller delivered three installments four and eight weeks past the agreed upon dates, causing disruption to the buyer's production process. The court ruled that avoidance was proper and canceled the remaining installments due under the contract.[722]

In addition to fundamental breach, a second issue that often arises in connection with anticipatory breach is the sufficiency of notice. In many instances, notice is improperly made or given too late. It should be noted that consistent with Article 27, if any notice is made by "means appropriate in the circumstances," a delay or error in the transmission of the communication or its failure to arrive does not deprive that party of the right to rely on the communication.[723] Under Article 71, a party suspending performance must "immediately" give notice of the suspension to the other party. [724] Such notice is to be given as soon as the party makes the decision to suspend performance. [725] For example, simply failing to pay the purchase price does not replace the notification that payment of the purchase price is being suspended until the other party properly fulfills the contract or [page 416] provides adequate assurance.

The importance of notice is a general theme found throughout the CISG.[726] It is particularly evident in Article 71(2). Failure to give proper notice under Article 71(2) results in the revocation of an otherwise reasonable suspension of performance. A German court held that reasonable doubts about the buyer's creditworthiness were not sufficient to overcome the seller's failure to give notice pursuant to Article 71(3).[727] The court reasoned that if the seller wanted to exercise his right of suspension, he was obligated to inform the buyer about any doubts regarding her creditworthiness or ability to perform her duties and liabilities under the sales contract. Inasmuch as the seller did not demonstrate that he gave any such notice and information to the buyer, he was not permitted to suspend performance. Hence, notification is an absolutely necessary prerequisite for exercising the right of suspension for anticipatory breach.[728]

Proper notice must also be given for a party to avail itself of the avoidance provisions in Article 72, except that the standard is slightly different.[729] Under Article 72, the party intending to declare the contract avoided must give "reasonable notice" to the other party to allow that party the opportunity to provide adequate assurance of performance.[730] The substance of the notice is just as important as the timing; notice must be given prior to the date of performance.[731] After the parties have performed the contract, neither party is entitled to declare the contract avoided under Article 72. [page 417]

[...]


FOOTNOTES

* For a subsequent text on this subject by these authors, see Larry A. DiMatteo, Lucien Dhooge, Stephanie Greene, Virginia Maurer & Marisa Pagnattaro, "International Sales Law: A Critical Analysis of CISG Jurisprudence", Cambridge University Press (2005) 241 p.

[...]

687. Jelena Vilus, Provisions Common to the Obligations of the Seller and the Buyer, in International Sale of Goods; Dubrovnik Lectures, supra note 512 [available at <http://cisgw3.law.pace.edu/cisg/biblio/vilus.html>].

688. See generally, Seig Eiselen, Remarks on the Manner in Which the UNIDROIT Principles of International Commercial Contracts may be Used to Interpret or Supplement Articles 71 and 72 of the CISG (Sept. 2002) available at <http://cisgw3.law.pace.edu/cisg/principles/uni71,72.html> (using the UNIDROIT principles as an aid to the interpretation of Articles 71-71 of the CISG); Seig Eiselen, Remarks on the Manner In Which The Principles of European Contact Law May Be Used to Interpret or Supplement Articles 71 and 72 of the CISG (Sept. 2002) available at <http://cisgw3.law.pace.edu/cisg/text/peclcomp71,72.html> (using the European Union legal principles as an aid to the interpretation of Articles 71-71 of the CISG).

689. CISG, supra note 4, at arts. 71(1)(a) and (b).

690. Id. at art. 71(2).

691. Id. at art. 72.

692. Id. at art. 71(3).

693. Id. at art. 72(2).

694. Id. at art. 71(3).

695. Id.

696. Id. at art. 73.

697. Id. at art. 73(1).

698. Id. at art. 73(2). As is the case in other instances of avoidance, however, notice must be provided to the other party within a reasonable time. Id. Note that a buyer who declares the contract avoided in respect to any delivery may, at the same time, declare it avoided in respect to deliveries already made or of future deliveries if, by reason of interdependence, those deliveries could not be used for the purpose contemplated by the parties at the time of the conclusion of the contract. Id. at art. 73(3).

[...]

717. CISG supra note 4, at arts. 71-73. See Shuttle Packaging Sys., LLC, 2001 WL 34046276.

718. LG Berlin 99 O 123/92, Sept. 30, 1992 (F.R.G.), available at <http://cisgw3.law.pace.edu/cases/920930g1.html>. The chance of a breach should be "clear" or obvious to anyone. In German, the standard is defined by the words "it is clear" or offensichtlich. Id. For example, in a German case, a seller delivered the goods to a third-party's warehouse; after the third-party declared bankruptcy and the goods disappeared, the seller attempted to collect the alleged outstanding purchase price from the buyer. The court held that the buyer was not obligated to pay the purchase price, because the seller did not prove that the goods were lost after the risk passed to the buyer. OLG Hamm 19 U 127/97, Jun. 23, 1998, supra note 544. Parties are generally allowed to avoid a contract under similar circumstances under Article 72. For example, a buyer was entitled to terminate a contract concerning non-delivered goods where the seller only made a partial delivery after the price of the goods rose significantly. Arbitration Court attached to the Hungarian Chamber of Commerce and Industry, Vb/97142, May 25, 1999 (Hung.), CLOUT Case No. 265, available at [<http://cisgw3.law.pace.edu/cases/990525h1.html>]. In another case, a seller was entitled to avoid a contract after the buyer failed to settle other bills with the seller. The buyer ordered 140 pairs of winter shoes from the seller; after the shoes were manufactured, seller demanded security for the sales price as the buyer still had other unsettled bills with the seller. Because the buyer did not pay and did not furnish security, the court held that the seller had the right to avoid the contract. OLG Düsseldorf 17 U 146/93, Jan. 14, 1994 (F.R.G.), available at <http://cisgw3.law.pace.edu/cases/940114g1.html> [English translation by Ruth M. Janal, translation edited by Camilla Baasch Andersen].

719. CISG, supra note 4, at art. 73(1). See, e.g., Schiedsgericht der Hamburger freundschaftlichen Arbitrage [Arbitral Award], Dec. 29, 1998 (F.R.G.), CLOUT Case No. 293, available at [<http://cisgw3.law.pace.edu/cases/981229g1.html>] [English translation by Todd Fox, translation edited by Dr. Loukas Mistelis].

720. S.A.R.L. Bri Production "Bonaventure" v. Société Pan Africa Export, supra note 713.

721. T. SA v. E., Audiencia Provincial [Appellate Court] de Barcelona, sección 16a, Nov. 3, 1997 (Spain), CLOUT Case No. 246, available at [<http://cisgw3.law.pace.edu/cases/971103s4.html>].

722. Id. In order to protect the right of avoidance, the avoiding party must give "reasonable notice" that a fundamental breach will occur with respect to future installments. CISG, supra note 4, at art. 73(2). See generally HG Zürich, HG 930634, Nov. 30, 1998, supra note 339.

723. CISG, supra note 4, at art. 27; See LG Stendal 22 S 234/94, Oct. 12, 2000 (F.R.G.), available at <http://cisgw3.law.pace.edu/cases/001012g1.html> [English translation by Ruth M. Janal, translation edited by Camilla Baasch Andersen].

724. CISG, supra note 4, at art. 71(3).

725. This was particularly true in a case in which the parties agreed upon a modification of the contract by reducing the purchase price. LG Stendal 22 S 234/94, Oct. 12, 2000, supra note 723.

726. See, e.g., CISG, supra note 4, at arts. 18(3), 19(2), 21, 26, 27, 39, 43(1), 46(2), 47(1), 48, 63(2), 65(2), 71(3), 72(2), 73(2), 79(4), and 88(1).

727. AG Frankfurt 32 C 1074/90-41, Jan. 31, 1991, supra note 618.

728. Id. See generally Hof van Beroep Gent, 1997/AR/2235, Apr. 26, 2000 (Belg.), available at <http://cisgw3.law.pace.edu/cases/000426b1.html> [English translation by Benoit Samyn, translation edited by Sieg Eiselen]; Netherlands Arbitration Institute 2319, Oct. 15, 2002.

729. CISG, supra note 4, at art. 72.

730. Id. at art. 72(2). The plain language of Article 72 reveals that a party needs to "simply allege (1) that the defendant intended to breach the contract before the contract's performance date and (2) that such breach was fundamental." Magellan Int'l Corp. v. Salzgitter Handel GmbH, 76 F.Supp.2d 919, 925-26 (N.D. Ill. 1999).

731. See generally BGH VIII ZR 18/94, Feb. 15, 1995, supra note 654. One way that reasonable notice is given is when goods are examined upon receipt and a message is promptly faxed noting the non-conformity. See generally HO Helsinki, S 96/1215, Jun. 30, 1998 (Fin.), available at <http://cisgw3.law.pace.edu/cases/980630f5.html> [English translation by Jarno Vanto].

[...]

Go to complete text of Analysis of Fifteen Years of CISG Jurisprudence


CASE ANNOTATED COMPARATIVES
-  UNIDROIT Principles
-  
PECL comparative

Remarks on the manner in which the UNIDROIT
Principles of International Commercial Contracts may be
used to interpret or supplement Articles 71 and 72 of the CISG

Sieg Eiselen [*]
September 2002

a. Article 71, 72 and 73 of the CISG deal with the situation where it becomes apparent or clear that one of the parties to an agreement will or may not perform a substantial part of its obligations in terms of the agreement.[1] The object of Article 72 is to provide the innocent party with a remedy in cases where it is clear that the other party will not perform at all or will commit another fundamental breach.[2] This remedy based on the Anglo-American doctrine of anticipatory breach allows the innocent party to avoid the contract when the breach occurs without having to wait until performance becomes due.[3] Whereas Art 72 is aimed at the phenomenon of anticipatory breach of contract, i.e. a breach of contract that takes place before the performance is due by the party in breach, Article 71 has a wider scope in that it deals with anticipatory breach as well as incomplete performance.[4] The remedies in Article 71 is aimed at keeping the contract intact, whereas the remedies in Article 72 is aimed at avoiding the contract.[5] Article 73 provides for anticipatory breach installment contracts. It is for that reason that these articles contain different requirements for the exercising of the respective remedies.[6]

b. The UNIDROIT Principles is similarly structured in Articles 7.3.3 and 7.3.4. Article 7.3.3 makes provision for a party to terminate the agreement where it is clear that there will be a fundamental non-performance by the other party. There is no requirement to give notice as is the case with Article 72 of the CISG. If a party is uncertain as to whether there will be a fundamental breach or not, but has a reasonable suspicion that it may occur, that party is, in terms of Article 7.3.4, entitled to demand an adequate assurance from the other party that the latter will perform. Failure to provide an adequate assurance is a ground in terms of Article 7.3.4 to terminate the agreement. There is therefore, quite a close connection between the provisions of Article 7.3.3 and 7.3.4. As will be shown below, this is not necessarily the case with the very similar Article 72 and Article 71 of the CISG.

c. There are a number of interpretational issues in respect of Article 72 on which there is a divergence of opinion. Commentators differ on the exact interpretation and meaning of the meaning of the words "it is clear" (Article 72(1)) and "it becomes apparent" (Article 71(1))[7] and whether there is any difference in the meaning or the standards to be applied.[8] They also differ on whether the giving of notice of termination is an essential requirement to become entitled to the remedy or whether it is only necessary in circumstances where objectively speaking the other party would have been able to give an adequate assurance.[9] Lastly there is also a difference of opinion on whether a failure to give an adequate assurance on demand under Article 71(1) automatically entitles a party to avoid the contract under Article 72.[10] The construction and provisions of Article 7.3.3 and 7.3.4 of the UNIDROIT Principles may be helpful in solving these issues.

d. In certain circumstances, a party may be entitled to rely on either Article 71 or 72.[11] If an anticipatory breach occurs, the innocent party may want to enforce specific performance in which case it would make use of its right to suspend performance under Article 71 rather than to avoid the contract under Article 72 even if it is entitled to do so. However, in the case of part performance a party may apparently only rely on Article 51 in conjunction with Article 45 where Article 51 applies or on Article 71 (if it wants to enforce full performance) or Article 49 (if wants to avoid the contract), but not on Article 72. Article 72 is therefore a remedy that is only to be used in true circumstances of anticipatory breach and not where an actual breach has already taken place.[12] However where the contract consists of a series of performances (installments, for instance, delivery of a certain number of goods on a monthly basis), a serious deficiency in quality of the first installment, entitles the innocent party to exercise its rights under section 73 and avoid the contract.[13]

e. At first blush there seems to be a slight difference between the provisions of Article 72(1) of the CISG and Article 7.3.3 of the UNIDROIT Principles. In Article 72(1), it is required that it must be clear that the counter party will commit a fundamental breach. Article 7.3.3 of the UNIDROIT Principles is apparently more widely formulated in that it only requires that it must be clear that a fundamental non-performance will take place. This difference is more apparent than real. Under the CISG, any fundamental non-performance is regarded as a breach of contract, whether the performance was possible or not.[14] Thus where substantial performance becomes impossible, even if such impossibility results from circumstances beyond the control of the obligor, non-performance or mal-performance is still regarded as a breach.[15] This is also the approach followed in the UNIDROIT Principles.

f. The most difficult aspect of interpreting Article 72 (and Article 71 for that matter), is to establish what measure of certainty is required that a fundamental breach will occur.[16] Article 7.3.3 of the UNIDROIT Principles is, unfortunately, of no assistance in this regard as it uses exactly the same terminology as Article 72. In a 1992 German decision, the Landgericht [District Court] Berlin [17] has given the best judicial exposition of the standards required under Article 72. It defined the words "it is clear" ("offensichtlich") in terms of the probabilities that a fundamental breach will be committed. It stated that a very high degree of probability is required,[18] but that this did not mean a probability almost reaching certainty.[19]

g. Both the CISG and the UNIDROIT Principles require a clear indication of a fundamental non-performance, i.e. that it must be clear that there will be a fundamental non-performance.[20] The terminology used is very similar and the UNIDROIT Principles therefore sheds little light on what measure should be used to determine whether "it is clear". Under commentators there is a difference of opinion on whether "it is clear" (in Article 72) has the same meaning as "it becomes apparent" (in Article 71).[21] The majority opinion seems to be that Article 72 requires a higher standard of prospective certainty than Article 71 mainly due to the more drastic nature of the remedy under Article 72, namely avoidance.[22] Suspension as provided for in Article 71 is less drastic in that it is only a temporary remedy, especially if the contract is to be avoided without giving notice to the counter party.[23]

h. This approach also seems to be supported by the case law.[24] This approach is also supported by the provisions of Articles 7.3.3 and 7.3.4 of the UNIDROIT Principles , where there is a clearly formulated difference in the requirements. In terms of Article 7.3.3 it is required that it must be clear that there will be a fundamental non-performance, whereas in terms of Article 7.3.4 there need only be a reasonable belief on the part of the innocent party that there will be a fundamental non-performance.

i. If there is any doubt on whether, due to the conduct of the other party or the prevailing circumstances, there is an anticipatory breach objectively speaking, a party should rather exercise the right to suspend performance under Article 71 CISG and require an adequate assurance from the other party than issue a notice of avoidance under Article 72(2).[25] It is the safer option because the giving of a notice of avoidance in terms of Article 72(2) under circumstances where it is not warranted may in itself constitute an anticipatory breach entitling the other party to avoid the contract.[26]

j. There is a difference of opinion between commentators on whether a failure or a refusal to produce adequate security where it has been demanded is in itself a fundamental breach or whether it may only be a clear indication that the other party will commit a fundamental breach.[27] Article 7.3.4 UNIDROIT Principles may be of assistance in interpreting the interplay between Articles 72 and 71 as Article 7.3.4 UNIDROIT Principles makes express provision for the innocent party to demand an adequate assurance where it reasonably suspects that there will be a fundamental non-performance. In terms of Article 7.3.4 it is clearly stipulated that a failure to provide this assurance within a reasonable period of time, entitles the other party to terminate (avoid) the agreement. Whether this is possible in the light of the drafting history of the CISG, is debatable.[28]

k. The CISG takes a more lenient approach to anticipatory breach than the UNIDROIT Principles in that it obliges the innocent party, when time allows, to notify the other party if it intends avoiding the contract, except where the other party has clearly declared its intention not to perform.[29] The object of the notification is to enable the other party to provide adequate assurance that it will perform. There are different opinions on whether the obligation to give notice is a condition precedent for the valid exercising of the right to avoid.[30] It is submitted that in interpreting the duty to inform, a Court should follow a stricter approach towards the necessity to inform if regard is had to the approach followed under the UNIDROIT Principles.[31] If there is doubt on whether the innocent party should have informed or not, the Court ought to rule in favour of the innocent party, i.e. that there was no duty to inform. In terms of Article 7.3.3 of the UNIDROIT Principles, a party is not obliged to inform the other party, but may as a precaution require an adequate assurance of due performance, failing which that party is entitled to terminate the agreement.

l. Where it is apparent that notice will be totally ineffective in that it is impossible for the obligor to prevent the eventual breach, is there still a formal obligation to notify? It is submitted that this is a situation where the innocent party is not required to notify the other party.[32] The object of the notice requirement is to enable the other party to provide adequate assurance of his performance. If that has become impossible, then the necessity to give notice must surely fall away. There is, however, also a strong contrary view on this issue.[33]

m. In the literature there is a controversy on whether the requirement of "reasonableness" only refers to the notice or whether it also has a reference to the duty to give notice. The controversy, however, is mainly amongst German writers due to an inaccurate translation into the (unofficial) German text.[34]


FOOTNOTES

* Professor of Private Law, Faculty of Law, University of South Africa; Advocate of the High Court of South Africa

A match-ups of CISG Articles 71 and 72 with Articles 7.3.3 [Anticipatory non-performance] and 7.3.4 [Adequate assurance of due performance] of the UNIDROIT Principles of International Commercial Contracts are available: <http://cisgw3.law.pace.edu/cisg/principles/uni71,72.html>. The match-ups are accompanied by Official UNIDROIT Comments on these provisions describing and illustrating the manner in which they are to be applied.

1. 1 Leser HG & Hornung R in Schlechtriem PH & Bacher K Kommentar zum Einheitlichen UN Kaufrecht 3rd ed (2000 München) Art 71 Rn 1; Art 72 Rn 1, Art 73 Rn 1; Magnus U in Martinek M (ed) J von Staudingers Kommentar zum Bürgerlichen Gesetzbuch mit Einführungsgesetz und Nebengesetze: Wiener UN-Kaufrecht (1999 Berlin) Art 71 Rn 1, Art 72 Rn 1, Art 73 Rn 1; Burkhart F Interpretatives Zusammenwirken von CISG und UNIDROIT Principles (2000 Baden-Baden) 194; Schnyder AK and Straub RM in Honsell H Kommentar zum UN Kaufrecht (1997 Berlin) Art 71 Rn 1, Art 72 Rn 1, Art 73 Rn 1; Witz W, Salger HC & Lorenz M Internationales Einheitliches Kaufrecht (2000 Heidelberg) Art 71 Rn 1, Art 72 Rn 1 & 2, Art 73 Rn 1; Kritzer AH Guide to the Practical Applications of the United Nations Convention on Contracts for the International Sale of Goods (1989 Deventer) 465-467; Honnold JO Uniform Law for International Sales 3rd ed (1999 The Hague) para 395 at p 437.

2. Enderlein F & Maskow D International Sales Law - United Nations Conven;tion on Contracts for the International Sale of Goods (1992 New York) <http://cisgw3.law.pace.edu/cisg/biblio/enderlein.html> para 1 at p 291.

3. Witz/Salger/Lorenz Art 72 Rn 2.

4. Staudinger/Magnus Art 71 Rn 34.

5. Staudinger/Magnus Art 71 Rn 1; Art 72 Rn 1.

6. See Schlechtriem Uniform Sales Law - The UN-Convention on Contracts for the International Sale of Goods (Vienna 1986) 389 et seq. (http://cisgw3.law.pace.edu/cisg/biblio/schlechtriem-72.html); Staudinger/Magnus Art 72 Rn 8 & 9; Flechtner HM 8 Journal of Law and Commerce (1988) 53-108 at <http://cisgw3.law.pace.edu/cisg/text/flecht71,72.html>. Initial efforts to combine the articles during the drafting process was intentionally rejected. See Enderlein/Maskow p 284 Note 1 & 2, p 291 N 1; Honsell/Schnyder/Straub Art 72 Rn 10. See also Kee C. Comparative Editorial Remarks to Articles 51 & 73 at <http://cisgw3.law.pace.edu/cisg/text/peclcomp51.html>.

7. Enderlein/Maskow p 286 Note 2; Honsell/Schnyder/Straub Art 71 Rn 24-26, Art 72 Rn 25; Staudinger/Magnus Art 71 Rn 18. Honnold p 429 para 388 remarks that these provisions were consciously so drafted and that this difference in terminology is also found in the French and Spanish versions of the CISG.

8. Enderlein p 286 Note 2; Honnold para 388 at p 429.

9. Enderlein p 293 Note 6; Honsell/Schnyder/Straub Art 72 Rn 35 & 36.

10. Enderlein/Maskow p 290 Note 1.

11. Enderlein/Maskow p 286 Note 3; Schlechtriem Art 72 Rn 9.

12. Honsell/Schnyder/Straub Art 72 Rn 15; Germany 18 November 1993 Oberlandesgericht [Appellate Court] Düsseldorf <http://cisgw3.law.pace.edu/cases/931118g1.html>; Germany 15 February 1995 Bundesgerichtshof [Federal Supreme Court] <http://cisgw3.law.pace.edu/cases/950215g1.html]>.

13. This is to be distinguished from the situation where only 1,000 pairs of shoes have been delivered instead of 2,000 on the date of performance. In this instance, the correct remedies are either Article 51 and Article 45 or Article 71 and not Article 72. See Witz/Salger/Lorenz Art 71 Rn 1; Art 73 Rn 1; Honsell/Schnyder/Straub Art 72 Rn 15; Austria 10 December 1997 Vienna Arbitration proceeding S 2/97 <http://cisgw3.law.pace.edu/cases/971210a3.html>; Germany 18 November 1993 Oberlandesgericht [Appellate Court] Düsseldorf <http://cisgw3.law.pace.edu/cases/931118g1.html>; Germany 15 February 1995 Bundesgerichtshof [Federal Supreme Court] <http://cisgw3.law.pace.edu/cases/950215g1.html>.

14. Schlechtriem/Stoll Art 79 Rn 6; Honsell/Schnyder/Straub Art 71 Rn 29, Art 72 Rn 19.

15. Honsell/Schnyder/Straub Art 72 Rn 18.

16. Staudinger/Magnus Art 72 Rn 7; Honnold p 439 para 397; Honsell/Schnyder/Straub Art 72 Rn 26-28; Australia 17 November 2000 Supreme Court of Queensland (Downs Investments v. Perwaja Steel) <http://cisgw3.law.pace.edu/cases/001117a2.html>.

17. Germany 30 September 1992 Landgericht [District Court] Berlin at <http://cisgw3.law.pace.edu/cases/920930g1.html>.

18. In the words of the court, "einer sehr hohen naheliegender Wahrscheinlichkeit".

19. In the words of the court, "eine an Sicherheit grenzende Wahrscheinlichkeit". See also Germany 18 November 1993 Oberlandesgericht [Appellate Court] Düsseldorf <http://cisgw3.law.pace.edu/cases/931118g1.html>; Germany 28 April 1993 Landgericht [District Court] Krefeld <http://cisgw3.law.pace.edu/cases/930428g1.html>; Australia 17 November 2000 Supreme Court of Queensland (Downs Investments v. Perwaja Steel) <http://cisgw3.law.pace.edu/cases/001117a2.html>.

20. See Schlechtriem Uniform Sales Law - The UN-Convention on Contracts for the International Sale of Goods (Vienna 1986) 389 et seq. (http://www.cisg.law.pace.edu/cisg/biblio/schlechtriem-72.html); Staudinger/Magnus Art 72 Rn 8, 9 & 18; Flechtner HM 8 Journal of Law and Commerce (1988) 53-108 at http://www.cisg.law.pace.edu/cisg/text/flecht71,72.html.

21. Enderlein/Maskow p 291 Note 1; Honsell/Schnyder/Straub Art 72 Rn 20-24; Witz/Salger/Lorenz Art 72 Rn 7; Staudinger/Magnus Art 72 Rn 8 & 9.

22. Honsell/Schnyder/Straub Art 72 Rn 23-25 indicates that this is the proper interpretation when due regard is had to the history and drafting of these articles. See also Staudinger/Magnus Art 72 Rn 9; Salger 7 Lorenz Art 72 Rn 8.

23. Staudinger/Magnus Art 72 Rn 9-11.

24. The clearest example where this has been applied has been ICC Arbitration Case No. 8786 of January 1997 <http://cisgw3.law.pace.edu/cases/978786i1.html> where one party declared that it would not perform by the date agreed due to a delay. Under the circumstances the delay was a fundamental breach and it was held that it was not necessary to give notice to the other party. See also Austria 10 December 1997 Vienna Arbitration proceeding S 2/97 <http://cisgw3.law.pace.edu/cases/971210a3.html>. In Switzerland 20 February 1997 Zivilgericht [District Court] Saane <http://cisgw3.law.pace.edu/cases/970220s1.html> and Switzerland 31 May 1996 Zürich Arbitration proceeding <http://cisgw3.law.pace.edu/cases/960531s1.html> reliance on Article 72 was rejected due to a lack of evidence that there was an intention to repudiate; it was not clear.

25. Enderlein/Maskow p 292 Note 3.

26. Commentary of the Secretariat Comment 2, Document A/CONF.975 p 53 as reprinted in Honnold J, Documentary History of the Uniform Law for International Sales (Deventer 1989) and at <http://cisgw3.law.pace.edu/cisg/text/secomm/secomm-72.html>; Enderlein/Maskow p 291 Note 1; Germany 21 September 1995 Landgericht [District Court] Kassel <http://cisgw3.law.pace.edu/cases/950921g1.html>.

27. Secretariat Commentary 2 p 53; Enderlein/Maskow p 290 Note 10; Honsell/Schnyder/Straub Art 71 Rn 51; Staudinger/Magnus Art 71 Rn 52; Honnold Art 71 Rn 394.

28. See the Secretariat Commentary 2 p 53.

29. Honsell/Schnyder/Straub Art 72 Rn 34 & 35.

30. Honsell/Schnyder/Straub Art 72 Rn 35 & 36. Witz/Salger/Lorenz is of the opinion that the failure to give notice does not affect the effectiveness of the avoidance. However, see the decision to the contrary in ICC Arbitration Case No. 8574 of September 1996 <http://cisgw3.law.pace.edu/cases/968574i1.html>.

31. For a contrary opinion, see Honsell/Schnyder/Straub Art 72 Rn 41 & 42.

32. Enderlein/Maskow p 293 Note 6; Witz/Salger/Lorenz Art 72 Rn 15; Staudinger/Magnus Art 72 Rn 22; Schlechtriem Art 72 Rn 16 & 17; Honsell/Schnyder/Straub Art 72 Rn 45; ICC Arbitration Case No. 8574 of September 1996 <http://cisgw3.law.pace.edu/cases/968574i1.html>.

33. See Honsell/Schnyder/Straub Art 72 Rn 36; Schlechtriem /Leser/Hornung Art 72 Rn 13 et seq.; Germany 9 July 1992 Landgericht [District Court] Düsseldorf <http://cisgw3.law.pace.edu/cases/920709g1.html>.

34. See Honsell/Schnyder/Straub Art 72 Rn 45; Staudinger/Magnus Art 72 Rn 21.


PECL COMPARATIVES

Case annotated remarks on the manner in which the
Principles of European Contract Law may be used to
interpret or supplement Articles 71 and 72 of the CISG

Sieg Eiselen [*]
September 2002

a. Article 71, 72 and 73 of the CISG deal with the situation where it becomes apparent or clear that one of the parties to an agreement will or may not perform a substantial part of its obligations in terms of the agreement.[1] The object of Article 72 is to provide the innocent party with a remedy in cases where it is clear that the other party will not perform at all or will commit another fundamental breach.[2] This remedy based on the Anglo-American doctrine of anticipatory breach allows the innocent party to avoid the contract when the breach occurs without having to wait until performance becomes due.[3] Whereas Article 72 is aimed at the phenomenon of anticipatory breach of contract, i.e. a breach of contract that takes place before the performance is due by the party in breach, Article 71 has a wider scope in that it deals with anticipatory breach as well as incomplete performance.[4] The remedies in Article 71 are aimed at keeping the contract in tact, whereas the remedies in Article 72 is aimed at avoiding the contract.[5] Article 73 provides for anticipatory breach in instalment contracts. It is for that reason that these articles contain different requirements for the exercising of the respective remedies.[6]

b. The PECL is similarly structured in Articles 9:304 and 8:105. Article 9:304 makes provision for a party to terminate the agreement where it is clear that there will be a fundamental non-performance by the other party. There is no requirement to give notice as is the case with Article 72 of the CISG. If a party is uncertain as to whether there will be a fundamental breach or not, but has a reasonable belief that it may occur, that party is, in terms of Article 8:105, entitled to demand an adequate assurance from the other party that the latter will perform and it may withhold its own performance as long as such reasonable belief continues. Failure to provide an adequate assurance is a ground in terms of Article 8:105 to terminate the agreement. There is therefore, quite a close connection between the provisions of Articles 9:304 and 8:105. As will be shown below, this is not necessarily the case with the very similar Article 72 and Article 71 of the CISG.

c. There are a number of interpretational issues in respect of Article 72 on which there is a divergence of opinion. Commentators differ on the exact interpretation and meaning of the meaning of the words "it is clear" (Article 72(1)) and "it becomes apparent" (Article 71(1))[7]

and whether there is any difference in the meaning or the standards to be applied.[8] They also differ on whether the giving of notice of termination is an essential requirement to become entitled to the remedy or whether it is only necessary in circumstances where objectively speaking the other party would have been able to give an adequate assurance.[9] Lastly there is also a difference of opinion on whether a failure to give an adequate assurance on demand under Article 71(1) automatically entitles a party to avoid the contract under Article 72.[10] The construction and provisions of Articles 9:304 and 8:105 of the PECL may be helpful in solving these issues.

d. In certain circumstances, a party may be entitled to rely on either Article 71 or 72.[11] If an anticipatory breach occurs, the innocent party may want to enforce specific performance in which case it would make use of its right to suspend performance under Article 71 rather than to avoid the contract under Article 72 even if it is entitled to do so. However, in the case of part performance a party may apparently only rely on Article 51 in conjunction with Article 45 where Article 51 applies or on Article 71 (if it wants to enforce full performance) or Article 49 (if wants to avoid the contract), but not on Article 72. Article 72 is therefore a remedy that is only to be used in true circumstances of anticipatory breach and not where an actual breach has already taken place.[12] However where the contract consists of a series of performances (installments, for instance, delivery of a certain number of goods on a monthly basis), a serious deficiency in quality of the first consignment, entitles the innocent party to exercise its rights under Article 73 and avoid the contract.[13]

e. The most difficult aspect of interpreting Article 72 (and Article 71 for that matter), is to establish what measure of certainty is required that a fundamental breach will occur.[14] Article 9:304 of the PECL is, unfortunately, of no assistance in this regard as it uses exactly the same terminology as Article 72. The court in the 1992 German case Landgericht [District Court] Berlin [15] has given the best judicial exposition of the standards required under Article 72. It defined the words "it is clear" ("offensichtlich") in terms of the probabilities that a fundamental breach will be committed. It stated that a very high degree of probability is required,[16] but that this did not mean a probability almost reaching certainty.[17]

f. Both the CISG and the PECL require a clear indication of a fundamental non-performance, i.e., that it must be clear that there will be a fundamental non-performance.[18] The terminology used is very similar and the PECL therefore sheds little light on what measure should be used to determine whether "it is clear". Under commentators there is a difference of opinion on whether "it is clear" (in Article 72) has the same meaning as 'it becomes apparent' (in Article 71).[19] The majority opinion seems to be that Article 72 requires a higher standard of prospective certainty than Article 71 mainly due to the more drastic nature of the remedy under Article 72, namely avoidance.[20] Suspension as provided for in Article 71 is less drastic in that it is only a temporary remedy, especially if the contract is to be avoided without giving notice to the counter party.[21]

g. This approach also seems to be supported by the case law.[22] This approach is also supported by the provisions of Article 9:304 and 8:105 of the PECL, where there is a clearly formulated difference in the requirements. In terms of Article 9:304, it is required that it must be clear that there will be a fundamental non-performance, whereas in terms of Article 8:105 there need only be a reasonable belief on the part of the innocent party that there will be a fundamental non-performance.

h. If there is any doubt on whether, due to the conduct of the other party or the prevailing circumstances, there is an anticipatory breach objectively speaking, a party should rather exercise the right to suspend performance under Article 71 CISG and require an adequate assurance from the other party than issue a notice of avoidance under Article 72(2).[23] It is the safer option because the giving of a notice of avoidance in terms of Article 72(2) under circumstances where it is not warranted may in itself constitute an anticipatory breach entitling the other party to avoid the contract.[24]

i. There is a difference of opinion between commentators on whether a failure or a refusal to produce adequate security where it has been demanded is in itself a fundamental breach or whether it may only be a clear indication that the other party will commit a fundamental breach.[25] Article 8:105 PECL may be of assistance in interpreting the interplay between Article 72 and 71 as Article 8:105 PECL makes express provision for the innocent party to demand an adequate assurance where it reasonably suspects that there will be a fundamental non-performance. In terms of Article 8:105, it is clearly stipulated that a failure to provide this assurance within a reasonable period of time, entitles the other party to terminate (avoid) the agreement. Whether this is possible in the light of the drafting history of the CISG, is debatable.[26]

j.. The CISG takes a more lenient approach to anticipatory breach than the PECL in that it obliges the innocent party, when time allows, to notify the other party if it intends avoiding the contract, except where the other party has clearly declared its intention not to perform.[27] The object of the notification is to enable the other party to provide adequate assurance that it will perform. There are different opinions on whether the obligation to give notice is a condition precedent for the valid exercising of the right to avoid.[28] It is submitted that in interpreting the duty to inform, a court should follow a stricter approach towards the necessity to inform if regard is had to the approach followed under the PECL.[29] If there is doubt on whether the innocent party should have informed or not, the court ought to rule in favor of the innocent party, i.e., that there was no duty to inform. In terms of Article 9:304 of the PECL a party is not obliged to inform the other party, but may as a precaution require an adequate assurance of due performance, failing which that party is entitled to terminate the agreement.

k. Where it is apparent that notice will be totally ineffective in that it is impossible for the obligor to prevent the eventual breach, is there still a formal obligation to notify? It is submitted that this is a situation where the innocent party is not required to notify the other party.[30] The object of the notice requirement is to enable the other party to provide adequate assurance of his performance. If that has become impossible, then the necessity to give notice must surely fall away. There is however also a strong contrary view on this issue.[31]

l. In the literature there is a controversy on whether the requirement of "reasonableness" only refers to the notice or whether it also has a reference to the duty to give notice.[32] The controversy, however, is mainly amongst German writers due to an inaccurate translation into the (unofficial) German text.


FOOTNOTES

* Professor of Private Law, Faculty of Law, University of South Africa; Advocate of the High Court of South Africa.

A match-ups of CISG Articles 71 and 72 with Articles 8:105 [Assurance of performance] and 9:304 [Anticipatory non-performance] of the Principles of European Contract Law are available: <http://cisgw3.law.pace.edu/cisg/text/peclcomp71,72.html>. The match-ups are accompanied by:

-   Comments on these provisions authored by the European Commission describing and illustrating the manner in which provisions are to be applied; and
-   Notes that compare these PECL provisions with continental and common law domestic rules, doctrine and jurisprudence.

1. Leser HG & Hornung R in Schlechtriem PH & Bacher K Kommentar zum Einheitlichen UN Kaufrecht 3rd ed (2000 München) Art 71 Rn 1; Art 72 Rn 1, Art 73 Rn 1; Magnus U in Martinek M (ed) J von Staudingers Kommentar zum Bürgerlichen Gesetzbuch mit Einführungsgesetz und Nebengesetze: Wiener UN-Kaufrecht (1999 Berlin) Art 71 Rn 1, Art 72 Rn 1, Art 73 Rn 1; Burkhart F Interpretatives Zusammenwirken von CISG und UNIDROIT Principles (2000 Baden-Baden) 194; Schnyder AK and Straub RM in Honsell H Kommentar zum UN Kaufrecht (1997 Berlin) Art 71 Rn 1, Art 72 Rn 1, Art 73 Rn 1; Witz W, Salger HC & Lorenz M Internationales Einheitliches Kaufrecht (2000 Heidelberg) Art 71 Rn 1, Art 72 Rn 1 & 2, Art 73 Rn 1; Kritzer AH Guide to the Practical Applications of the United Nations Convention on Contracts for the International Sale of Goods (1989 Deventer) 465-467; Honnold JO Uniform Law for International Sales 3rd ed (1999 The Hague) para 395 at p 437.

2. Enderlein F & Maskow D International Sales Law - United Nations Convention on Contractsfor the International Sale of Goods (1992 New York) <http://cisgw3.law.pace.edu/cisg/biblio/enderlein.html> para 1 at p 291.

3. Witz/Salger/Lorenz Art 72 Rn 2.

4. Staudinger/Magnus Art 71 Rn 34.

5. Staudinger/Magnus Art 71 Rn 1; Art 72 Rn 1.

6. See Schlechtriem Uniform Sales Law - The UN-Convention on Contracts for the International Sale of Goods (Vienna 1986) 389 et seq. <http://cisgw3.law.pace.edu/cisg/biblio/schlechtriem-72.html>; Staudinger/Magnus Art 72 Rn 8 & 9; Flechtner HM 8 Journal of Law and Commerce (1988) 53-108 at <http://cisgw3.law.pace.edu/cisg/text/flecht71,72.html>. Initial efforts to combine the articles during the drafting process were intentionally rejected. See Enderlein/Maskow p 284 Note 1 & 2, p 291 N 1; Honsell/Schnyder/Straub Art 72 Rn 10.

7. Enderlein/Maskow p 286 Note 2; Honsell/Schnyder/Straub Art 71 Rn 24-26, Art 72 Rn 25; Staudinger/Magnus Art 71 Rn 18. Honnold p 429 para 388 remarks that these provisions were consciously so drafted and that this difference in terminology is also found in the French and Spanish versions of the CISG. See also Kee C Comparative Editorial Remarks to Articles 51 & 73 at <http://cisgw3.law.pace.edu/cisg/text/peclcomp51.html>.

8. Enderlein p 286 Note 2; Honnold para 388 at p 429.

9. Enderlein p 293 Note 6; Honsell/Schnyder/Straub Art 72 Rn 35 & 36.

10. Enderlein/Maskow p 290 Note 1.

11. Enderlein/Maskow p 286 Note 3; Schlechtriem Art 72 Rn 9.

12. Honsell/Schnyder/Straub Art 72 Rn 15; Germany 18 November 1993 Oberlandesgericht [Appellate Court] Düsseldorf <http://cisgw3.law.pace.edu/cases/931118g1.html>; Germany 15 February 1995 Bundesgerichtshof [Federal Supreme Court] <http://cisgw3.law.pace.edu/cases/950215g1.html]>.

13. This is to be distinguished from the situation where only 1,000 pairs of shoes have been delivered instead of 2,000 on the date of performance. In this instance the correct remedies are either Article 51 and Article 45 or Article 71 and not Article 72. See Witz/Salger/Lorenz Art 71 Rn 1; Art 73 Rn 1; Honsell/Schnyder/Straub Art 72 Rn 15; Austria 10 December 1997 Vienna Arbitration proceeding S 2/97 <http://cisgw3.law.pace.edu/cases/971210a3.html>; Germany 18 November 1993 Oberlandesgericht [Appellate Court] Düsseldorf. <http://cisgw3.law.pace.edu/cases/931118g1.html>; Germany 15 February 1995 Bundesgerichtshof [Federal Supreme Court] <http://cisgw3.law.pace.edu/cases/950215g1.html]>.

15. 14. Staudinger/Magnus Art 72 Rn 7; Honnold p 439 para 397; Honsell/Schnyder/Straub Art 72 Rn 26-28; Australia 17 November 2000 Supreme Court of Queensland (Downs Investments v. Perwaja Steel) <http://cisgw3.law.pace.edu/cases/001117a2.html>.

15. Germany 30 September 1992 Landgericht [District Court] Berlin <http://cisgw3.law.pace.edu/cases/920930g1.html>.

16. In the words of the court, "einer sehr hohen naheliegender Wahrscheinlichkeit."

17. In the words of the court, "eine an Sicherheit grenzende Wahrscheinlichkeit." See also Germany 18 November 1993 Oberlandesgericht [Appellate Court] Düsseldorf <http://cisgw3.law.pace.edu/cases/931118g1.html>; Germany 28 April 1993 Landgericht [District Court] Krefeld <http://cisgw3.law.pace.edu/cases/930428g1.html>; Australia 17 November 2000 Supreme Court of Queensland (Downs Investments v. Perwaja Steel) <http://cisgw3.law.pace.edu/cases/001117a2.html>.

18. See Schlechtriem Uniform Sales Law - The UN-Convention on Contracts for the International Sale of Goods (Vienna 1986) 389 et seq. <http://www.cisg.law.pace.edu/cisg/biblio/schlechtriem-72.html>; Staudinger/Magnus Art 72 Rn 8, 9 & 18; Flechtner HM 8 Journal of Law and Commerce (1988) 53-108 at <http://cisgw3.law.pace.edu/cisg/text/flecht71,72.html>.

19. Enderlein/Maskow p 291 Note 1; Honsell/Schnyder/Straub Art 72 Rn 20-24; Witz/Salger/Lorenz Art 72 Rn 7; Staudinger/Magnus Art 72 Rn 8 & 9.

20. Honsell/Schnyder/Straub Art 72 Rn 23-25 indicates that this is the proper interpretation when due regard is had to the history and drafting of these articles. See also Staudinger/Magnus Art 72 Rn 9; Salger 7 Lorenz Art 72 Rn 8.

21. Staudinger/Magnus Art 72 Rn 9-11.

22. The clearest example where this has been applied has been ICC Arbitration Case No. 8786 of January 1997 <http://cisgw3.law.pace.edu/cases/978786i1.html> where one party declared that it would not perform by the date agreed due to a delay. Under the circumstances the delay was a fundamental breach and it was held that it was not necessary to give notice to the other party. See also Austria 10 December 1997 Vienna Arbitration proceeding S 2/97 <http://cisgw3.law.pace.edu/cases/971210a3.html>. In Switzerland 20 February 1997 Zivilgericht [District Court] Saane <http://cisgw3.law.pace.edu/cases/970220s1.html> and Switzerland 31 May 1996 Zürich Arbitration proceeding http://cisgw3.law.pace.edu/cases/960531s1.html reliance on Article 72 was rejected due to a lack of evidence that there was an intention to repudiate; it was not clear.

23. Enderlein/Maskow p 292 Note 3.

24. Commentary of the Secretariat, Comment 2, Document A/CONF.975 p 53 as reported in Honnold Documentary History of the Uniform Law for International Sales (Deventer 1989) and at <http://cisgw3.law.pace.edu/cisg/text/secomm/secomm-72.html>; Enderlein/Maskow p 291 Note 1; Germany 21 September 1995 Landgericht [District Court] Kassel <http://cisgw3.law.pace.edu/cases/950921g1.html>.

25. Secretariat Commentary 2 p 53; Enderlein/Maskow p 290 Note 10; Honsell/Schnyder/Straub Art 71 Rn 51; Staudinger/Magnus Art 71 Rn 52; Honnold Art 71 Rn 394.

26. See Secretariat Commentary 2 p 53.

27. Honsell/Schnyder/Straub Art 72 Rn 34 & 35.

28. Honsell/Schnyder/Straub Art 72 Rn 35 & 36. Witz/Salger/Lorenz is of the opinion that the failure to give notice does not affect the effectiveness of the avoidance. However, see the decision to the contrary in ICC Arbitration Case No. 8574 of September 1996 <http://cisgw3.law.pace.edu/cases/968574i1.html>.

29. For a contrary opinion, see Honsell/Schnyder/Straub Art 72 Rn 41 & 42.

30. Enderlein/Maskow p 293 Note 6; Witz/Salger/Lorenz Art 72 Rn 15; Staudinger/Magnus Art 72 Rn 22; Schlechtriem Art 72 Rn 16 & 17; Honsell/Schnyder/Straub Art 72 Rn 45; ICC Arbitration Case No. 8574 of September 1996 <http://cisgw3.law.pace.edu/cases/968574i1.html>.

31. See Honsell/Schnyder/Straub Art 72 Rn 36; Schlechtriem /Leser/Hornung Art 72 Rn 13 et seq; Germany 9 July 1992 Landgericht [District Court] Düsseldorf <http://cisgw3.law.pace.edu/cases/920709g1.html>.

32. The controversy is mainly amongst German writers due to an inaccurate translation into the (unofficial) German text. See Honsell/Schnyder/Straub Art 72 Rn 45; Staudinger/Magnus Art 72 Rn 21.


Pace Law School Institute of International Commercial Law - Last updated September 1, 2009
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