UNCITRAL Digest of Article 71 case law

SECTION I. ANTICIPATORY BREACH AND INSTALMENT CONTRACTS

1. Section 1 includes three articles. Under the first two articles, an aggrieved party may suspend its obligations (art. 71) or avoid the contract (art. 72) before the time for performance is due if the conditions of these articles are satisfied. Where the parties have entered into a contract by which the goods are to be delivered in instalments, an aggrieved party may avoid the contract with respect to a single instalment, future instalments, or the contract as a whole as provided in the third article (art.73).

DIGEST OF ARTICLE 71 CASE LAW

1. Article 71 authorizes a seller or a buyer to suspend performance of its obligations under the sales contract if it is unlikely to receive the substantial benefit of the counter-performance promised by the other party. The suspending party does not breach the contract if the suspension is rightful.[1] If, however, the suspension is not authorized by article 71, the suspending party will breach the contract when it fails to perform its obligations.[2] The right to suspend exists until the time for performance is due but once the date for performance has passed the aggrieved party must look to other remedies under the Convention.[3] The right continues until the conditions for suspension no longer exist, there is a right to avoid the contract, or the other party gives adequate assurance of performance in accordance with article 71(3).[4] The Convention rules on the right to suspend displace domestic sales law rules that permit the suspension of a party's obligation.[5]

2. The right to suspend under article 71 is to be distinguished from the right to avoid the contract under article 72.[6] Unlike the avoidance of a contract, which terminates the obligations of the parties (see article 81), the suspension of contractual obligations recognizes that the contract continues but encourages mutual reassurance that both parties will perform. The preconditions for exercise of the right to suspend and the right to avoid differ, as do the obligations with respect to communications between the two parties.

3. The right to suspend under article 71 applies both to contracts of sale for a single performance and to instalment contracts governed by article 73. When the preconditions of both articles are satisfied, the aggrieved party may choose between suspending performance and avoiding the contract with respect to future instalments under article 73(2).[7] If a party chooses to suspend performance with respect to future instalments it must give a notice in accordance with article 71(3).[8]

4. The parties may agree, pursuant to article 6, to exclude application of article 71 or to derogate from its provisions. One decision found that by agreeing to take back equipment, repair it and then redeliver it promptly, the seller had implicitly agreed to derogate from article 71 and therefore could not suspend its obligation to redeliver the equipment because of the buyer's failure to pay past debts.[9]

Preconditions of suspension

5. A party is entitled to suspend its obligations under paragraph (1) of article 71[10] if it becomes apparent that the other party will not perform a substantial part of its obligations[11] and if the nonperformance is the result of either of the causes set out in subparagraphs (a)[12] and (b).[13] It is not necessary that the failure amount to a fundamental breach.[14]

6. A party was found to be entitled to suspend its obligations in the following circumstances: seller's refusal to perform with respect to certain items;[15] seller's inability to deliver goods free of restriction imposed by seller's supplier;[16] buyer's failure to pay for the goods;[17] buyer's nonpayment or delayed payment of the price under one or more earlier sales contracts;[18] buyer's failure to open an effective bank guarantee.[19] A buyer's failure to open a letter of credit gives rise to the right to avoid the contract under article 64 and the buyer is not limited to the remedies of articles 71 and 72.[20]

7. A buyer was found not entitled to suspend its obligations in the following circumstances: seller's nonconforming delivery of only 420 kg. out of 22,400 kg.;[21] buyer had received partial delivery;[22] buyer had received the goods invoiced and the nonconformity related to goods delivered under a different contract.[23] Several decisions observe that buyer's submissions to the court failed to indicate that the seller would not perform a substantial part of its obligations.[24]

8. A seller was found not entitled to suspend its obligations in the following circumstances: the buyer had not paid the purchase price for two deliveries and that the buyer had cancelled a bank payment order;[25] the seller had not established that the buyer would be unable to take delivery or to pay for the goods notwithstanding that the goods might not conform with health standards issued by the government in the buyer's place of business.[26]

Stoppage in transit

9. Paragraph (2) of article 71 authorizes a seller that has already dispatched the goods to stop the handing over of the goods to the buyer. There are no reported cases applying this paragraph.[27]

Notice of suspension

10. Paragraph (3) of article 71 requires the suspending party to give notice of the suspension immediately[28] to the other party.[29] The paragraph does not specify what constitutes notice. The following statements or acts have been found to be sufficient notice: buyer's refusal to pay the costs of warehousing furniture when it had earlier agreed to contribute to these costs;[30] a letter in which the buyer refused to accept nonconforming items and offered to return them.[31] However, there was insufficient notice in the following circumstances: buyer's failure to pay the price;[32] a letter with respect to defects under other contracts.[33]

11. Paragraph (3) does not state expressly the sanction for failing to give immediate notice of suspension. Decisions uniformly conclude that in the absence of due notice the aggrieved party may not rely on its right to suspend performance[34]. One decision concluded that the seller breached the contract by suspending delivery without immediately giving notice of the suspension to the buyer and that the buyer was therefore entitled to damages.[35]

Adequate assurance of performance

12. Paragraph (3) requires a party that has suspended its performance to end its suspension and continue to perform if the other party gives adequate assurance that it will perform. The paragraph does not elaborate on the form and manner of this assurance and does not state when the assurance must be given. There are no reported cases addressing adequate assurance under this paragraph.[36]

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. [GERMANY Landgericht [District Court] Stendal 12 October 2000, available online at <http://cisgw3.law.pace.edu/cases/001012g1.html>] (suspension not breach but a unilateral right to modify time for performance); [ICC Court of Arbitration case No. 8786 of January 1997, available online at <http://cisgw3.law.pace.edu/cases/988786i1.html>] (buyer would not breach if it had exercised right to suspend).

2. CLOUT case No. 51 [GERMANY Amtsgericht [Lower Court] Frankfurt 31 January 1991, available online at <http://cisgw3.law.pace.edu/cases/910131g1.html>] (buyer entitled to damages because seller failed to give immediate notice that it was suspending delivery).

3. [ICC Court of Arbitration case No. 9448 of July 1999, available online at <http://cisgw3.law.pace.edu/cases/999448i1.html>] (buyer not entitled to suspend obligation to pay after it had taken delivery of goods even though less goods were delivered than contracted for).

4. [GERMANY Landgericht [District Court] Stendal 12 October 2000, available online at <http://cisgw3.law.pace.edu/cases/001012g1.html>] (suspension not breach but a unilateral right to modify time for performance).

5. CLOUT case No. 238 [AUSTRIA Oberster Gerichtshof [Supreme Court] 12 February 1998, available online at <http://cisgw3.law.pace.edu/cases/980212a3.html>] (see full text of decision).

6. [ICC 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 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).

7. CLOUT case No. 238 [AUSTRIA Oberster Gerichtshof [Supreme Court] 12 February 1998, available online at <http://cisgw3.law.pace.edu/cases/980212a3.html>].

8. [RUSSIA Arbitration Award 302/1996 of 17 July 1999, available online at <http://cisgw3.law.pace.edu/cases/990717r1.html>].

9. CLOUT case No. 311 [GERMANY Oberlandesgericht [Appellate Court] Köln 8 January 1997, available online at <http://cisgw3.law.pace.edu/cases/970108g1.html>] (see full text of the decision).

10. The following decisions recognize the applicability of the Convention and the right to suspend but fail to cite art.71; Maglificio Dalmine v. Coveres [BELGIUM Tribunal Commercial [Commercial Court] Bruxelles 13 November 1992, available online at <http://cisgw3.law.pace.edu/cases/921113b1.html>] (seller entitled to suspend delivery because buyer failed to pay price under prior contract).

11. [GERMANY Oberlandesgericht [Appellate Court] Dresden 27 December 1999, available online at <http://cisgw3.law.pace.edu/cases/991227g1.html>] (noting that there must be a mutual, reciprocal relationship between the obligation suspended and the counter-performance).

12. The following cases cite subparagraph (a): CLOUT case No. 338 [GERMANY Oberlandesgericht [Appellate Court] Hamm 23 June 1998, available online at <http://cisgw3.law.pace.edu/cases/980323g1.html>]; CLOUT case No. 238 [AUSTRIA Oberster Gerichtshof [Supreme Court] 12 February 1998, available online at <http://cisgw3.law.pace.edu/cases/980212a3.html>; [SWITZERLAND Arbitration Award No. 273/95, Zürich Handelskammer 31 May 1996, available online at <http://cisgw3.law.pace.edu/cases/960551s1.html>].

13. The following cases cite subparagraph (b): Malaysia Dairy Industries v. Dairex Holland [NETHERLANDS Rechtbank [District Court] 's-Hertogenbosch 2 October 1998, available online at <http://cisgw3.law.pace.edu/cases/981002n1.html>]; CLOUT case No. 164 [HUNGARY Budapest Arbitration Award case Vb 94124 of 5 December 1995, available online at <http://cisgw3.law.pace.edu/cases/951205h1.html>] (see full text of decision); [GERMANY Landgericht [District Court] Berlin 15 September 1994, available online at <http://cisgw3.law.pace.edu/cases/940915.html>].

14. [GERMANY Landgericht [District Court] Berlin 15 September 1994, available online at <http://cisgw3.law.pace.edu/cases/940915.html>]. But see Shuttle Packaging Systems v. Tsonakis, [Federal] Western District of Michigan, USA, 17 December 2001, available online at <http://cisgw3.law.pace.edu/cases/011217u1.html>] (aggrieved party must show fundamental breach to be entitled to suspend, seller entitled to suspend non-competition clause because buyer's failure to pay was a fundamental breach).

15. [GERMANY Landgericht [District Court] Berlin 15 September 1994, available online at <http://cisgw3.law.pace.edu/cases/940915.html>].

16. CLOUT case No. 338 [GERMANY Oberlandesgericht [Appellate Court] Hamm 23 June 1998, available online at <http://cisgw3.law.pace.edu/cases/980623g1.html>] (citing art. 71(1)(a)); [AUSTRIA Oberlandesgericht [Appellate Court] Linz 23 May 1995, available online at <http://cisgw3.law.pace.edu/cases/950523a3.html>], affirmed on other grounds, CLOUT case No. 176 [AUSTRIA Oberster Gerichtshof [Supreme Court] 6 February 1996, available online at <http://cisgw3.law.pace.edu/cases/960206a3.html>].

17. CLOUT case No. 164 [HUNGARY Budapest Arbitration Award case Vb 94131 of 5 December 1995, available online at <http://cisgw3.law.pace.edu/cases/951205h1.html>] (citing art. 71(1)(b), court found seller justified in suspending its obligation to repair non-conforming goods (see full text of the decision. See also [ICC case No. 8611 of 23 January 1997, available online at <http://cisgw3.law.pace.edu/cases/978611i1.html>] (noting that seller's failure occurred before it would have been entitled to suspend performance under art, 71(1)(b) because of buyer's non-payment).

18. J.P.S. BVBA v. Kabri Mode BV, BELGIUM Rechtbank van Koophandel [Commercial Court] Hasselt 1 March 1995, available online at <http://cisgw3.law.pace.edu/cases/950301b1.html>] (seven month delay in payment); Maglificio Dalmine v. Coveres, BELGIUM Tribunal Commercial [Commercial Court] Bruxelles 13 November 1992, available online at <http://cisgw3.law.pace.edu/cases/921113b1.html>].

19. [HUNGARY Budapest Arbitration Award case Vb/94124 of 17 November 1995, available online at <http://cisgw3.law.pace.edu/cases/951117h1.html>] (bank guarantee opened with a date that had already expired).

20. CLOUT case No. 176 [AUSTRIA Oberster Gerichtshof [Supreme Court] 6 February 1996, available online at <http://cisgw3.law.pace.edu/cases/960206a3.html>] (see full text of the decision); but see [HUNGARY Budapest Arbitration Award case No. Vb 94124 of 17 November 1995, available on line at <http://cisgw3.law.pace.edu/cases/951117h1.html>] (right to suspend under art. 71 when ineffective bank guarantee opened)

21. CLOUT case No. 227 [GERMANY Oberlandesgericht [Appellate Court] Hamm 22 September 1992, available online at <http://cisgw3.law.pace.edu/cases/920922g1.html>] (see full text of the decision).

22. [ICC International Court of Arbitration case No. 9448 of July 1999, available online at <http://cisgw3.law.pace.edu/cases/999448i1.html>] (buyer not entitled to suspend obligation the pay after it had taken delivery of goods even though less goods than contracted for); CLOUT case No. 275 [GERMANY Oberlandestgericht [Appellate Court] Düsseldorf 24 April 1997, available online at <http://cisgw3.law.pace.edu/cases/970424g1.html>]

23. BV BA. J.P. V. S Ltd. [BELGIUM Hof van Beroep [Appellate Court] Gent 26 April 2000, available online at <http://cisgw3.law.pace.edu/cases/000426b1.html>]

24. [GERMANY Oberlandesgericht [Appellate Court] Dresden 27 December 1999, available online at <http://cisgw3.law.pace.edu/cases/991227g1.html>] ; [SWITZERLAND Arbitration Award No. 273/95 Zürich Handelskammer 31 May 1996, available online at <http://cisgw3.law.pace.edu/cases/960531s1.html>].

25. CLOUT case No. 238 [AUSTRIA Oberster Gerichtshof [Supreme Court] 12 February 1998, available online at <http://cisgw3.law.pace.edu/cases/980212a3.html>] (art. 71(1)(a) covers cases where a party is subject to an insolvency proceeding or has completely ceased to pay but not where payment is slow).

26. Malasia Dairy Industries v. Dairex Holland [NETHERLANDS Rechtbank [District Court] 's-Hertogenbosch 2 October 1998, available online at <http://cisgw3.law.pace.edu/cases/981002n1.html>] (buyer offered to take delivery of the goods in Free Trade zone).

27. CLOUT case No. 51 [GERMANY Amtsgericht [Lower Court] Frankfurt 31 January 1991, available online at <http://cisgw3.law.pace.edu/cases/910131g1.html>] (unnecessary to decide whether seller entitled to stop goods in transit because seller failed to give notice).

28. BV BA J.P. v. S Ltd. [BELGIUM Hof van Beroep [Appellate Court] Gent 26 April 2000, available online at <http://cisgw3.law.pace.edu/cases/000426b1.html>] (notice not "immediate" when related to deliveries made seven and fourteen months before).

29. See [ICC Court of Arbitration case No. 8611 of 23 January 1997, available online at <http://cisgw3.law.pace.edu/cases/978611i1.html> ] (notice not necessary under circumstances in case).

30. CLOUT case No. 338 [GERMANY Oberlandesgericht [Appellate Court] Hamm 23 June 1998, available online at <http://cisgw3.law.pace.edu/cases/980623g1.html>]

31. [GERMANY Landgericht [District Court] Berlin 15 September 1994, available online at <http://cisgw3.law.pace.edu/cases/940915g1.html>]

32. [GERMANY Landgericht [District Court] Stendal 12 October 2000, available online at <http://cisgw3.law.pace.edu/cases/001012g1.html>] (suspension not breach but a unilateral right to modify time for performance).

33. BV BA J.P. v. S Ltd. [BELGIUM Hof van Bereop [Appellate Court] Gent 26 April 2000, available online at <http://cisgw3.law.pace.edu/cases/000426b1.html>] (citing art. 73(1) for implicit affirmation of this point).

34. [GERMANY Landgericht [District Court] Stendal 12 October 2000, available online at <http://cisgw3.law.pace.edu/cases/001012g1.html>] (party may not rely on para. (1); [RUSSIA Arbitration Award case No. 302/1996 of 27 July 1999, available online at <http://cisgw3.law.pace.edu/cases/990727r1.html>]; CLOUT case No. 51 [GERMANY Amtsgericht [Lower Court] Frankfurt 31 January 1991, available online at <http://cisgw3.law.pace.edu/cases/910131g1.html>] (seller may not rely on right to stop goods in transit pursuant to para. (2)).

35. CLOUT case No. 51 [GERMANY Amtsgericht [Lower Court] Frankfurt 31 January 1991, available online at <http://cisgw3.law.pace.edu/cases/910131g1.html>].

36. A similar reference to adequate assurance is made in art; 72(2) and cases under that provision may be found relevant. [ICC Court of Arbitration case No. 8786 of January 1997, available online at <http://cisgw3.law.pace.edu/cases/978786i1.html>]; CLOUT case No. 130 [GERMANY Oberlandesgericht [Appellate Court] Düsseldorf 14 January 1994, available online at <http://cisgw3.law.pace.edu/cases/940114g1.html>] (see full text of decision).