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

Digest of Article 80 case law [reproduced with permission of UNCITRAL] [*]

[Text of article
Introduction
Purposes for which article 80 has been applied
Requirements
   -    That the other party's failure to perform by due to an "act or omission" of the first party
   -    That the other party's failure to perform be "caused by" the first party
Consequences if article 80 Applies
Decisions that appear to apply the principle underlying article 80]

Article 80

A party may not rely on a failure of the other party to perform, to the extent that such failure was caused by the first party's act or omission.

INTRODUCTION

1. Article 80 strips a party of its right to rely on the other side's failure to perform to the extent that the second party's failure was caused by "an act or omission" of the first party. Thus article 80 may relieve a party of at least some of the legal consequences of a failure to perform. The broad equitable rule of article 80 that a party cannot claim legal redress for the other party's breach to the extent its own actions caused the breach has been cited as evidence that principles of good faith apply under the CISG.[1]

Purposes for which Article 80 has been applied

2. Article 80 has frequently been used as a tool for sorting out the parties' rights when both sides have allegedly failed to perform their obligations. Several decisions have involved attempts by the seller to cure non-conforming goods. In one such case, the seller had not fulfilled a promise to cure a delivery of non-conforming goods, and the buyer had set-off the costs of remedying the defects from the price. The seller argued that article 80 should block the buyer's right to claim (and then set off) damages for the non-conformity because the buyer's own failure to ship the goods back to the seller prevented the seller from curing. The court rejected this argument, however, ruling that the failure to cure was attributable to the carrier designated to return the goods to the seller, and that the seller was responsible for the carriers performance.[2] In another case, however, a seller successfully argued that the buyer had forfeited its rights to a remedy for a lack of conformity because it had unjustifiably rejected the seller's offer of cure.[3] Another decision involving a seller's agreement to take back and cure delivered goods illustrates the use of article 80 to determine the effect of a buyer's non-payment of debts that arose from other dealings with the seller. The buyer returned machinery to the seller, who promised to adjust the equipment and ship it back to the buyer in a short time. Thereafter, however, the seller refused to return the goods to the buyer until the buyer paid some other debts that the buyer owed. The trial court held that article 80 prevented the buyer from claiming damages for the late re-delivery because the buyer's own action of failing to pay the past debts caused the seller to withhold the goods. An appeals court reversed, holding that the seller had no right to insist on payment of the other debts before returning the goods as no such condition had been included in the re-delivery agreement.[4] Similarly, a court rejected a seller's article 80 defence that the buyer's failure to pay prior debts disabled the seller from financially supporting a troubled supplier, leading to the seller's inability to deliver the goods: the court found that an agreement under which the buyer prepaid for the delivery in question meant that the seller had assumed all risks relating to the supply of the goods.[5]

3. In a significant number of decisions article 80 has been applied to deny a remedy to a party whose own breach caused the other side to refuse to perform.[6] For example, a seller involved in a long-term contract to supply aluminium ore announced that it would make no future deliveries. The seller's defence in the resulting lawsuit was that, after it announced it was stopping future deliveries, the buyer withheld payment for deliveries that had already been made. An arbitral panel rejected seller's defence on the basis of article 80, holding that the buyer's non-payment was caused by the seller's repudiation of its future delivery obligations.[7] Decisions applying article 80 to determine which party should be deemed in breach of contract can involve unusual or complex facts. In one such case, a seller contracted to sell a machine produced by a manufacturer with whom the seller had a distribution agreement, with title to the goods to be transferred to the buyer after payment of the final instalment of the purchase price (which was due upon buyer's acceptance of the machine). Before the machine was delivered, however, the manufacturer terminated its distribution agreement with the seller and refused to ship the seller any more machines. Instead, the manufacturer shipped the goods directly to the buyer, who made no further payments to the seller (paying the manufacturer instead) and who tried to avoid the contract with the seller on the grounds that the seller could not fulfil its obligation to convey title to the machine. The trial court denied the buyer's right to avoid on the basis of article 80, ruling that the buyer's action of accepting the goods while it was still bound to a contract with the seller led the seller to believe that it had fulfilled its obligations; thus, the trial court reasoned, any subsequent non-performance by the seller was caused by the buyer's actions.[8] An intermediate appeals court affirmed this part of the decision, holding that the seller was not obliged to transfer title until the buyer had paid the price; thus article 80 prevented the buyer from avoiding because the seller's non-performance was caused by the buyer's own actions of withholding payment and failing to set an additional period of time under article 47(1) for the seller to transfer title after the price had been paid.[9] A higher appeals court affirmed the denial of the buyer's right to avoid on grounds that did not involve article 80.[10]

Requirement that the oher party's failure to perform by due to an "act or omission" of the first party

4. Article 80 requires that a party's act or omission cause the other sides failure to perform. In cases involving the following acts or omissions, tribunals have found that the requirements of article 80 were satisfied: a buyer's breach of its obligation to pay the price and its failure to set a deadline for seller to perform under article 47(1);[11] a buyer's failure to pay the price for delivered goods;[12] a buyer's failure to take delivery;[13] a seller's failure to perform its obligation to designate the port from which the goods would be shipped;[14] a seller's repudiation of future delivery obligations;[15] a buyer's unjustified refusal to accept the seller's offer to cure a lack of conformity in the goods.[16] In cases involving the following acts or omissions, tribunals have refused to apply article 80, although not necessarily because the act or omission requirement was not satisfied: a buyer's failure to ship goods back to the seller to permit cure (where the failure to ship was attributable to the carrier);[17] a buyer's failure to pay debts arising from other dealings with the seller (where such payment had not been made a condition to the seller's duty to redeliver the goods to the buyer);[18] a buyer's failure to pay for prior deliveries of goods (where the buyer had prepaid for the delivery in question and the seller bore all risks relating to the supply of the goods).[19]

Requirement that the other party's failure to perform be "caused by" the first party

5. Article 80 requires that a party's failure to perform be caused by the other side's act or omission. In one case, application of article 80 focused on whether it was the actions of the buyer or a third party that caused the seller not to fulfil its obligations. The seller had agreed to take back non-conforming chemicals and reprocess them in order to remedy their defects, and it told the buyer which carrier should be used to return the goods. When the buyer discovered that the carrier had delayed forwarding the goods to the seller, the buyer arranged for the chemicals to be reprocessed in its own country in order to meet the time demands of its customers. The buyer set off the costs of the reprocessing against the purchase price. The seller complained that it could have performed the remedial work much more cheaply itself, and that article 80 should prevent the buyer from recovering its higher reprocessing expenses because the buyer's own failure to ship the goods back to the seller prevented the seller from curing the defects. The court disagreed, holding that the delay of the carrier ultimately caused the buyer's higher reprocessing costs, and that on these facts the carriers performance was the seller's responsibility.[20] In other decisions involving allegations of the following causal sequences, tribunals have refused to apply article 80, although this result was not necessarily due to failure to satisfy the causation requirement: a buyer's failure to pay debts arising from other dealings with the seller, causing the seller to refuse to redeliver the goods to the buyer;[21] a buyer's failure to pay for prior deliveries of goods, causing the seller to be unable to deliver because it could not financially support a distressed supplier.[22]

6. In cases involving allegations of the following causal sequences, tribunals have found that the requirements of article 80 were satisfied: a buyer's breach of its obligation to pay the price and its failure to set a deadline for seller to perform under article 47(1), causing the seller to be unable to arrange for the buyer to receive title to the goods;[23] a buyer's failure to pay the price for delivered goods, causing the seller to fail to deliver other goods;[24] a buyer's failure to take delivery of the goods, causing the seller's failure to make delivery;[25] a seller's failure to perform its obligation to designate the port from which the goods would be shipped, causing the buyer's failure to open a letter of credit;[26] a seller's repudiation of future delivery obligations, causing the buyer's failure to pay for some prior deliveries;[27] a buyer's unjustified refusal to accept the seller's offer to cure a non-conformity, causing the seller's failure to cure.[28]

Consequences if Article 80 applies

7. Unlike article 79, which only prevents an aggrieved party from claiming damages for a failure to perform, article 80 by its terms strips an aggrieved party of its right to rely on the other party's non-performance. Thus article 80 has been invoked not only to prevent a party from recovering damages,[29] but also to block a party from avoiding the contract [30] and from using the other sides nonperformance as a defence.[31]

Decisions that appear to apply the principle underlying Article 80

8. Some decisions appear to apply the principle of article 80, although it is not clear if the tribunal actually invoked the provision. For example, where a buyer supplied the design for boots that the seller manufactured for the buyer, and after delivery it was determined that a symbol on the boot violated another companys trademark, the buyer was barred from recovering damages from the seller: as an alternative rationale for this holding, the court found that the buyer itself had caused the infringement by specifying a design that included the offending symbol.[32] This fact, it would appear, should have prevented the buyer from relying on the infringement under article 80, although the court apparently did not cite the provision. In another decision, the parties' agreement included a clause allowing the seller to terminate the contract if there was a substantial change in the management of the buyer. The buyer dismissed its general manager, and the seller invoked this as grounds for terminating the contract. The arbitral tribunal held that seller did not have the right to terminate because it had been involved in the activities that led to the general managers dismissal, and in fact had become an accomplice of the general manager.[33] The tribunal appears to have invoked the principle of article 80 when, in support of its holding that the seller did not have the right to exercise the termination clause, it asserted that [a]s is the case with all sanctions, its application may not be requested by those who are even partially responsible for the modification on which they rely in order to terminate the contract.


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;
 
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   -    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 Oberlandesgericht Karlsruhe 25 June 1997 (Surface protective film case)] (see full text of the decision). This decision was reversed on other grounds in [GERMANY Bundesgerichtshof 25 November 1998 (Surface protective film case)].

2. [GERMANY Amtsgericht München 23 June 1995 (Tetracycline case)].

3. [GERMANY Oberlandesgericht Koblenz 31 January 1997 (Acrylic blankets case)].

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

5. [GERMANY Arbitration-Schiedsgericht der Handelskammer Hamburg, 21 March 1996 and 21 June 1996 (Chinese goods case)].

6. See, in addition to the decisions discussed in the text, [GERMANY Oberlandesgericht München 9 July 1997 (Leather goods case)] (buyer who had unjustifiably withheld payments for certain prior deliveries was denied damages, pursuant to article 80, for seller's refusal to make further deliveries: the court held that the buyer's own failure to pay caused the seller to withhold delivery); [GERMANY Oberlandesgericht München 8 February 1995 (Automobile case)] (buyer denied damages under article 80 because seller's non-delivery was caused by buyer's failure to take delivery) (see full text of the decision); [AUSTRIA Oberster Gerichtshof 6 February 1996 (Propane case)] (buyer's failure to open a letter of credit, which would normally be a breach precluding it from recovering for seller's failure to deliver, was caused in this case by seller's failure to fulfil its obligation to designate a port for shipping the goods; therefore article 80 precluded the seller from invoking buyer's failure as a defence in buyer's suit for damages) (see full text of the decision).

7. [SWITZERLAND Arbitration Award 273/95, Zürich Handelskammer 31 May 1996 (Aluminum case)]

8. [GERMANY Landgericht Düsseldorf 9 July 1992 (Key press case)].

9. [GERMANY Oberlandgericht Düsseldorf 18 November 1993 (Key press case)].

10. [GERMANY Bundesgerichtshof 15 February 1995 (Key press stamping machine case)].

11. [GERMANY Oberlandgericht Düsseldorf 18 November 1993 (Key press case)]. A lower court decision in this case had found that the buyer's act of accepting delivery of the goods from the manufacturer while still under contract with the seller (thus misleading the seller into thinking that its obligations had been fulfilled) constituted an act or omission that met the requirements of article 80. See [GERMANY Landgericht Düsseldorf 9 July 1992 (Key press case)]. On appeal of the intermediate appellate court decision that is described in the text accompanying this note, the Supreme Court affirmed without invoking article 80. [GERMANY Bundesgerichtshof 15 February 1995 (Key press stamping machine case)].

12. [GERMANY Oberlandesgericht München 9 July 1997 (Leather goods case)].

13. [GERMANY Oberlandesgericht München 8 February 1995 (Automobile case)] (see full text of the decision).

14. [AUSTRIA Oberster Gerichtshof 6 February 1996 (Propane case)] (see full text of the decision).

15. [SWITZERLAND Arbitration Award 273/95, Zürich Handelskammer 31 May 1996 (Aluminum case)].

16. [GERMANY Oberlandesgericht Koblenz 31 January 1997 (Acrylic blankets case)].

17. [GERMANY Amtsgericht München 23 June 1995 (Tetracycline case)].

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

19. [GERMANY Arbitration-Schiedsgericht der Handelskammer Hamburg, 21 March 1996 and 21 June 1996 (Chinese goods case)].

20. [GERMANY Amtsgericht München 23 June 1995 (Tetracycline case)].

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

22. [GERMANY Arbitration-Schiedsgericht der Handelskammer Hamburg, 21 March 1996 and 21 June 1996 (Chinese goods case)].

23. [GERMANY Oberlandgericht Düsseldorf 18 November 1993 (Key press case)]. A lower court decision in this case had found that the buyer's act of accepting delivery of the goods from the manufacturer while still under contract with the seller (thus misleading the seller into thinking that its obligations had been fulfilled) had caused the seller's non-performance. [GERMANY Landgericht Düsseldorf 9 July 1992 (Key press case)]. On appeal of the intermediate appellate court decision described in the text accompanying this note, the Supreme Court affirmed without invoking article 80 [GERMANY Bundesgerichtshof 15 February 1995 (Key press stamping machine case)].

24. [GERMANY Oberlandesgericht München 9 July 1997 (Leather goods case)].

25. [GERMANY Oberlandesgericht München 8 February 1995 (Automobile case)].

26. [AUSTRIA Oberster Gerichtshof 6 February 1996 (Propane case)] (see full text of the decision).

27. [SWITZERLAND Arbitration Award 273/95, Zürich Handelskammer 31 May 1996 (Aluminum case)].

28. [GERMANY Oberlandesgericht Koblen 31 January 1997 (Acrylic blankets case)].

29. [GERMANY Oberlandesgericht München 9 July 1997 (Leather goods case)]; [GERMANY Oberlandesgericht München 8 February 1995 (Automobile case)] (see full text of the decision); [GERMANY Oberlandesgericht Koblenz 31 January 1997 (Acrylic blankets case)].

30. [GERMANY Landgericht Düsseldorf 9 July 1992 (Key press case)], affirmed in relevant part by the [GERMANY Oberlandgericht Düsseldorf 18 November 1993 (Key press case)], affirmed in relevant part without invoking article 80 in [GERMANY Bundesgerichtshof 15 February 1995 (Key press stamping machine case)].

31. [AUSTRIA Oberster Gerichtshof 6 February 1996 (Propane case)] (see full text of the decision); [SWITZERLAND Arbitration Award 273/95, Zürich Handelskammer 31 May 1996 (Aluminum case)].

32. [ISRAEL Supreme Court 22 August 1993 (Jeans boots case)]. In denying the buyer damages the court relied primarily on the fact that the buyer could not have been unaware of the infringement when the contract was concluded, which under article 42(2)(a) barred the buyer's claim. The transaction in this decision was actually governed by the Hague Sales Convention (ULIS), but the court referred to the CISG by analogy.

33. [ICC International Court of Arbitration, Award 8817 of December 1997 (Food products case)].


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