UNCITRAL Digest of Article 64 case law

DIGEST OF ARTICLE 64 CASE LAW

Introduction

1. This provision deals with cases in which the seller may declare the contract avoided when the buyer has been in breach of one of its obligations. The rules mirror those of article 49 governing the buyer's right to declare the contract avoided owing to a failure by the seller to perform its obligations under the contract. The effects of avoidance are governed by articles 81 to 84. In all cases avoidance requires a declaration by the seller as specified in article 26.

Requirements for the right to declare the contract avoided (paragraph (1))

2. Article 64(1) specifies two cases in which the seller has the right to declare the contract avoided.

The case of fundamental breach of contract (Article 64(1)(a))

3. The first case envisaged in article 64(1) is that of fundamental breach of contract as defined in article 25.[1] For this provision to apply, it is necessary that the breach of contract caused such damage to the seller that the seller was substantially deprived of what it was entitled to expect under the contract. One arbitral award found that, "according to both the general framework of the Convention and its interpretation in case law, the notion of fundamental breach is usually construed narrowly in order to prevent an excessive use of the avoidance of the contract."[2] A number of illustrations in case law can be cited with regard to the three conceivable types of contract violation, namely failure to pay the purchase price, failure to take delivery of the goods and failure to perform other obligations specified under the contract.

4. Thus it has been decided that definitive failure to pay the price constitutes a fundamental breach of contract.[3] According to another decision, the delay in opening a letter of credit does not in itself constitute a fundamental breach of contract;[4] yet another decision stated that the refusal on the part of the buyer to open the letter of credit does constitute a breach of contract.[5]

5. Final refusal to take delivery, or return of the goods in the absence of a fundamental breach of contract by the seller, have been judged as constituting fundamental breaches of contract.[6] Generally, a mere delay of a few days in the delivery of the goods will not be considered a fundamental breach.[7]

6. Non-performance of obligations arising from the contract -- that are not imposed upon the parties by the Convention may also constitute a fundamental breach, as in the case where the buyer violated a re-export prohibition [8] or of an exclusive rights clause.[9]

Fixing of an additional period of time without result (Article 64(1)(b))

7. If the buyer does not perform its obligation to pay the price or to take delivery of the goods within the additional period of time fixed by the seller under article 63(1), or if the buyer declares that it will not do so within the period so fixed, the seller may declare the contract avoided.[10]

8. The obligation to pay the price includes that of taking the necessary steps for that purpose under article 54. Thus it has been decided that the buyer's failure to take the necessary steps within the additional period of time granted to him by the seller by itself justifies the seller's right to declare the contract avoided.[11]

Timing of the declaration of avoidance of the contract (Article 64(2))

9. It is apparent from article 64(2) that the seller may declare the contract avoided as long as the buyer has not paid the price. Once the price has been paid, the declaration of avoidance is subject to certain rules of timing. When the buyer performs its obligations, albeit belatedly, the seller loses the right to declare the contract avoided unless the seller does so before it has become aware of the performance having been rendered (art. 64(2)(a)). In other cases, the right is lost after the expiration of a reasonable period of time starting from the moment when the seller knew or ought to have known of the breach (art. 64(2)(b)(i)) or, where an additional period of time was fixed in accordance with article 63(1), following the expiration of that additional period. There are not yet any court decisions which have addressed this issue.

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. See Digest Article 25.

2. [ICC International Court of Arbitration, case No. 9887 of August 1999, available online at <http://cisgw3.law.pace.edu/cases/999887i1.html>].

3. Id.; see also CLOUT case No. 130 [GERMANY Oberlandesgericht [Appellate Court] Düsseldorf 14 January 1994, available online at <http://cisgw3.law.pace.edu/cases/940114g1.html>]. Similarly, [SWITZERLAND Tribunal [Appellate Court] Valais 2 December 2002, available online at <http://cisgw3.law.pace.edu/cases/021202s1.html>]; [UNITED STATES Shuttle Packaging Systems v. Tsonakis et al. Federal District Court [Michigan] 17 December 2001, available online at <http://cisgw3.law.pace.edu/cases/011217u1.html>].

4. [GERMANY Landgericht [District Court] Kassel 21 September 1995, available online at <http://cisgw3.law.pace.edu/cases/950921g1.html>].

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

6. See [SWITZERLAND Kantonsgericht [Appellate Court] Zug 12 December 2002, available online at <http://cisgw3.law.pace.edu/cases/021212s1.html>]; CLOUT case No. 217 [SWITZERLAND Handelsgericht [Commercial Court] Aargau 26 September 1997, available online at <http://cisgw3.law.pace.edu/cases/970926s1.html>], in connection with non-performance of the obligation to take delivery (see full text of the decision); CLOUT case No. 227 [GERMANY Oberlandesgericht [Appellate Court] Hamm 22 September 1992, available online at <http://cisgw3.law.pace.edu/cases/920922g1.html>], in connection with a buyer's refusal to take delivery of more than half of the goods.

7. CLOUT case No. 243 [FRANCE Cour d'appel [Appellate Court] Grenoble 4 February 1999, available online at <http://cisgw3.law.pace.edu/cases/990204f1.html>].

8. CLOUT case No. 154 [FRANCE Cour d'appel [Appellate Court] Grenoble 22 February 1995, available online at <http://cisgw3.law.pace.edu/cases/950222f1.html>].

9. Compare CLOUT case No. 217 [SWITZERLAND Handelsgericht [Commercial Court] Aargau 26 September 1997, available online at <http://cisgw3.law.pace.edu/cases/970926s1.html>] (seller's violation of exclusive rights clause).

10. See above the cases under Article 63, footnotes 3 and 4. See also [SWITZERLAND Handelsgericht [Commercial Court] St. Gallen 3 December 2002, available online at <http://cisgw3.law.pace.edu/cases/021203s1.html>]; [AUSTRIA Oberlandesgericht [Appellate Court] Graz 24 January 2002, available online at <http://cisgw3.law.pace.edu/cases/020124a3.html>].

11. CLOUT case No. 261 [SWITZERLAND Berzirksgericht [District Court] Sanne 20 February 1997, available online at <http://cisgw3.law.pace.edu/cases/970220s1.html>], in connection with failure to open a letter of credit following expiry of the additional period of time fixed by the seller.