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2008 UNCITRAL Digest of case law on the United Nations Convention on the International Sale of Goods

Digest of Article 71 case law [reproduced with permission of UNCITRAL] [*]

[Text of article
Introduction
Preconditions of suspension
Stoppage in transit
Notice of suspension
Adequate assurance of performance]

Article 71

(1) A party may suspend the performance of his obligations if, after the conclusion of the contract, it becomes apparent that the other party will not perform a substantial part of his obligations as a result of:
(a) a serious deficiency in his ability to perform or in his creditworthiness; or
(b) his conduct in preparing to perform or in performing the contract.
(2) If the seller has already dispatched the goods before the grounds described in the preceding paragraph become evident, he may prevent the handing over of the goods to the buyer even though the buyer holds a document which entitles him to obtain them. The present paragraph relates only to the rights in the goods as between the buyer and the seller.
(3) A party suspending performance, whether before or after dispatch of the goods, must immediately give notice of the suspension to the other party and must continue with performance if the other party provides adequate assurance of his performance.

INTRODUCTION

1. Article 71 authorizes a seller or a buyer to suspend performance of its obligations under the sales contract if the party is unlikely to receive a substantial part 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's 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 avoidance of the contract, which terminates the obligations of the parties (see article 81), the suspension of contractual obligations recognizes that the contract continues and 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 calling for a single delivery and to instalment contracts governed by article 73. When the preconditions of both articles are satisfied, the aggrieved party may choose between suspending performance under article 71 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 non-performance is the result of the causes set out in subparagraphs (a) [12] or (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 when confronted with the following circumstances: seller's refusal to perform with respect to certain items;[15] seller's inability to deliver goods free of restrictions imposed by seller's supplier;[16] buyer's failure to pay for the goods;[17] buyer's non-payment 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 to be entitled to suspend its obligations in the face of the following circumstances: seller's non-conforming delivery of only 420 kg out of 22,400 kg;[21] partial delivery by the seller;[22] prior non-conforming deliveries where buyer sought to suspend payment for current conforming deliveries.[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 where the buyer had not paid the purchase price for two deliveries and the buyer had cancelled a bank payment order.[25] Suspension was also found unjustified where 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 a 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 non-conforming items and offered to return them.[31] The following circumstances have been found not to constitute sufficient notice: buyer's failure to pay the price;[32] a letter from the buyer complaining of defective goods delivered under different contracts than the one as to which it claimed to be suspending performance.[33]

11. Paragraph (3) does not expressly state 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 held further 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 resume performance 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]


NOTES

* This presentation of the UNCITRAL Digest is a slightly modified version of the original UNCITRAL text at <http://www.UNCITRAL.org/pdf/english/clout/CISG_second_edition.pdf>. The following modifications were made by the Institute of International Commercial Law of the Pace University School of Law:

   -    To enhance access to contents by computer search engines, we present in html rather than pdf;
 
   -    To facilitate direct focus on aspects of the Digests of most immediate interest, we inserted linked tables of contents at the outset of most presentations;
 
   -    To support UNCITRAL's recommendation to read more on the cases reported in the Digests, we provide mouse-click access to (i) CLOUT abstracts published by UNCITRAL (and to UNILEX case abstracts and other case abstracts); and also (ii) to full-text English translations of cases with links to original texts of cases, where available, in [bracketed citations] that we have added to UNCITRAL's footnotes; and
 
   -    To enable researchers to themselves keep the case citations provided in the Digests constantly current, we have created a series of tandem documents, UNCITRAL Digest Cases + Added Cases. The new cases and other cases that are cited in these updates are coded in accordance with UNCITRAL's Thesaurus.

In addition, this presentation introduces each section of the UNCITRAL Digest with a Google search button. This is to help you access doctrine (relevant material from the over 1,200 commentaries, monographs and books on the CISG and related subjects that we present on this database) as well as the texts of the cases that UNCITRAL cites in its Digests and that we present in our updates to UNCITRAL's Digests.

1. [GERMANY Landgericht Stendal 12 October 2000 (Granite rock case)] (stating that suspension under art. 71 is not a breach but exercise of a unilateral right to modify time for performance) (see full text of the decision).

2. [GERMANY Amtsgericht Frankfurt a.M. 31 January 1991 (Shoes case)] (buyer entitled to damages because seller failed to give immediate notice that it was suspending delivery).

3. [ICC International Court of Arbitration, Award 9448 of July 1999 (Roller bearings case)] (buyer not entitled to suspend obligation to pay after it had taken delivery of goods even though lower quantity of goods were delivered than contracted for).

4. [GERMANY Landgericht Stendal 12 October 2000 (Granite rock case)] (suspension not breach but exercise of a right to modify time for performance).

5. [AUSTRIA Oberster Gerichtshof 12 February 1998 (Umbrella case)] (see full text of the decision).

6. [ICC International Court of Arbitration, Award 8786 of January 1997 (Clothing case)] (buyer did not suspend obligations but avoided contract under art. 72(1)); [ICC International Court of Arbitration, Award 8574 of September 1996 (Metal concentrate case)] (buyer's purchase of substitute goods not a suspension of its obligations).

7. [AUSTRIA Oberster Gerichtshof 12 February 1998 (Umbrella case)].

8. [RUSSIA Tribunal of International Commercial Arbitration at the Russian Federation Chamber of Commerce and Industry, Award 302/1996 of 27 July 1999 (Goods case)].

9. [GERMANY Oberlandesgericht Köln 8 January 1997 (Tannery machines case)] (see full text of the decision).

10. The following decision recognizes the applicability of the Convention and the right to suspend but fails to cite art. 71: [BELGIUM Tribunal Commercial de Bruxelles 13 November 1992 (Magnificio Dalmine v. Coveres) (Clothes case)] (seller entitled to suspend delivery because buyer failed to pay price under prior contract).

11. [GERMANY Oberlandesgericht Dresden 27 December 1999 (Chemical products case)] (noting that there must be a mutual, reciprocal relationship between the obligation suspended and the counter-performance).

12. The following cases cite subparagraph (a): [GERMANY Oberlandesgericht Hamm 23 June 1998 (Furniture case)]; [AUSTRIA Oberster Gerichtshof 12 February 1998 (Umbrella case)] (remand to consider further allegation of uncreditworthiness); [SWITZERLAND Arbitration Award 273/95, Zürich Handelskammer 31 May 1996 (Aluminum case)].

13. The following cases cite subparagraph (b): [NETHERLANDS Rechtbank 's-Hertogenbosch 2 October 1998 (Malaysia Dairy Industries v. Dairex Holland) (Powdered milk case)]; [HUNGARY Arbitration Court attached to the Hungarian Chamber of Commerce and Industry 5 December 1995 (Waste containers case)] (see full text of the decision); [GERMANY Landgericht Berlin 15 September 1994 (Shoes case)].

14. [GERMANY Landgericht Berlin 15 September 1994 (Shoes case)]. But see [UNITED STATES Federal District Court, Western District of Michigan, 17 December 2001 (Shuttle Packaging Systems v. Tsonakis)] (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 Berlin 15 September 1994 (Shoes case)] (citing art. 71(1)(b)).

16. [GERMANY Oberlandesgericht Hamm 23 June 1998 (Furniture case)] (citing art. 71(1)(a)); [AUSTRIA Oberlandesgericht Linz 23 May 1995 (Propane case)], affirmed on other grounds, [AUSTRIA Oberster Gerichtshof 6 February 1996 (Propane case)].

17. [HUNGARY Arbitration Court attached to the Hungarian Chamber of Commerce and Industry 5 December 1995 (Waste containers case)] (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 International Court of Arbitration, Award 8611 of 23 January 1997 (Industrial equipment case)] (noting that seller's failure to perform occurred before it would have been entitled to suspend performance under art. 71(1)(b) because of buyer's non-payment).

18. [BELGIUM Rechtbank van Koophandel Hasselt 1 March 1995 (J.P.S. BVBA v. Kabri Mode BV) (Fashion goods / clothing case)] (seven-month delay in payment); [BELGIUM Tribunal Commercial de Bruxelles 13 November 1992 (Magnificio Dalmine v. Coveres) (Clothes case)] (without citing art. 71).

19. [HUNGARY Arbitral award Vb 94124 of 17 November 1995 (Mushrooms case)] (bank guarantee opened with a date that had already expired).

20. [AUSTRIA Oberster Gerichtshof 6 February 1996 (Propane case)] (see full text of the decision); but see [HUNGARY Arbitral award Vb 94124 of 17 November 1995 (Mushrooms case)] (right to suspend under art. 71 when ineffective bank guarantee opened).

21. [GERMANY Oberlandesgericht Hamm 22 September 1992 (Frozen bacon case)] (see full text of the decision).

22. [ICC International Court of Arbitration, Award 9448 of July 1999 (Roller bearings case)] (buyer not entitled to suspend obligation to pay after it had taken delivery of goods even though it did not receive the fully quantity contracted for); [GERMANY Oberlandesgericht Düsseldorf 24 April 1997 (Shoes case)] (buyer not entitled to suspend payment for part of goods not delivered).

23. [BELGIUM Hof van Beroep Gent 26 April 2000 (BV BA J.PP. v. S. Ltd.) (Plastic bags case)].

24. [GERMANY Oberlandesgericht Dresden 27 December 1999 (Chemical products case)]; [SWITZERLAND Arbitration Award 273/95, Zürich Handelskammer 31 May 1996 (Aluminum case)].

25. [AUSTRIA Oberster Gerichtshof 12 February 1998 (Umbrella case)] (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. [NETHERLANDS Rechtbank 's-Hertogenbosch 2 October 1998 (Malaysia Dairy Industries v. Dairex Holland) (Powdered milk case)] (buyer offered to take delivery of the goods in Free Trade zone).

27. [GERMANY Amtsgericht Frankfurt a.M. 31 January 1991 (Shoes case)] (unnecessary to decide whether seller entitled to stop goods in transit because seller failed to give requirred notice).

28. [BELGIUM Hof van Beroep Gent 26 April 2000 (BV BA J.PP. v. S. Ltd.) (Plastic bags case)] (notice not immediate when deliveries to which it related were made seven and 14 months earlier).

29. See [ICC International Court of Arbitration, Award 8611 of 23 January 1997 (Industrial equipment case)] (notice not necessary under circumstances of case).

30. [GERMANY Oberlandesgericht Hamm 23 June 1998 (Furniture case)].

31. [GERMANY Landgericht Berlin 15 September 1994 (Shoes case)].

32. [GERMANY Landgericht Stendal 12 October 2000 (Granite rock case)] (suspension not breach but a unilateral right to modify time for performance).

33. [BELGIUM Hof van Beroep Gent 26 April 2000 (BV BA J.PP. v. S. Ltd.) (Plastic bags case)] (citing art. 73(1) for implicit affirmation of this point).

34. [GERMANY Landgericht Stendal 12 October 2000 (Granite rock case)] (party may not rely on para. (1)); [RUSSIA Tribunal of International Commercial Arbitration at the Russian Federation Chamber of Commerce and Industry, Award 302/1996 of 27 July 1999 (Goods case)]; [GERMANY Amtsgericht Frankfurt a.M. 31 January 1991 (Shoes case)] (seller may not rely on right to stop goods in transit pursuant to para. (2)).

35. [GERMANY Amtsgericht Frankfurt a.M. 31 January 1991 (Shoes case)].

36. A similar reference to adequate assurance is made in article 72(2), and cases construing that phrase under article 72 that may be found relevant under article 71. [ICC International Court of Arbitration, Award 8786 of January 1997 (Clothing case)], [GERMANY Oberlandesgericht Düsseldorf 14 January 1994 (Shoes case)] (see full text of the decision).


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