The Uncertainty of CISG’s article 25.

Introduction

The United Nations Convention on Contracts for the International Sale of Goods (hereinafter, CISG) came into force on January 1, 1988 with a widespread ratification as an outcome to the previous failure in 1964 of its predecessors[1]. The CISG harmonizes the formation of contracts and the rights and obligations of the parties, in order to resolve the problems arisen from international transactions. Moreover, the CISG also sets out a broad range of remedies in case of infringement. Notwithstanding, CIGS’s article 25 establishes the possibility to avoid a contract, operating as a ‘ultima ratio’ in cases of breach[2].

Dutch breach vs CISG’s fundamental breach

The Dutch system enables one party to terminate a contract when the other party has not complied with its certain obligations. Therefore in The Netherlands, regardless the nature and weight of this breach parties are entitled to avoid a contract. Conversely, CIGS’s article 25 is based upon the idea of “fundamental breach”, hence not any type of breach may permit the party’s avoidance.

It is important to bear in mind that international transactions without a concrete applicable law agreed into the contract are set to be under the rules of the CISG by default. A vast majority of traders are not aware of its application by default, therefore avoiding contracts even when a simple breach is made by the counterpart. Ergo, risking the termination to be nullified by the courts due to CIGS’s controversial concept of fundamental breach. When can we, however, say that there has been a fundamental breach?

It has been asserted that the concept ‘fundamental’ should refer to the seriousness of the breach and its consequences, those essentially being the depreciation of the aggrieved party expectations[3]. Therefore, it is a pivotal point to expressly determine the party’s specific and main prospects in the contract. If not done, the fundamental breach might also depend on customary usages or on the CISG’s provisions. To sum up, the convention establishes that a breach is set to be considered as fundamental if “it results in such detriment to the other party as substantially to deprive him of what he is entitled to expect under the contract”, as long as it is not foreseeable. What’s more, the legal literature has described it as a breach that “goes to the root of the contract”[4].

Case law: a lack of harmonization

Nevertheless, case law has taken an important role in elucidating article’s 25 uncertainty. For instance, through jurisprudence it has been asserted that even the breach of a collateral duty can give rise to a fundamental breach[5]. Furthermore, courts have already established what should be considered a fundamental breach in situations of late delivery. Courts have even set the possibility to offer an extension of the performance period in cases of fundamental breach as the Judgment of Arnhem Appellate Court (The Netherlands) of October 7, 2008 (Arens Sondermaschinen GmbH v. Smit Draad / Draad Nijmegen B.V.) did.

Albeit the broad range of jurisprudence, hereinafter this article is going to focus in the conformity of goods and whether a non-conformity can amount to a fundamental breach. According to the article 35, the delivered goods must comply with the requirements described in the contract and should fit the purposes for which they would be ordinarily used[6], if not, that may lead into a party being entitled to avoid the contract. Nonetheless, despite this statement, German Courts[7] have proclaimed that non-conformity concerning quality does not result in any substantial detriment of expectations if the goods may be used for another purpose, or can be resold without reasonable troubles. As a case in point, the sentence: Netherlands 18 July 2007 Rechtbank [District Court] Utrecht (Prodema S.A. v. Michon B.V.), impeded a buyer to terminate a contract for the reason that the sold scooters shipment was still merchantable despite not having the arranged stickers and with less maximum load than the demanded. Thus the scooters could still be sold, not being the breach fundamental.

Conversely, courts have considered a breach to be fundamental without reference to other uses or resale by the buyer when the goods had essential defects[8] as happened in the case: Netherlands 28 June 2006 District Court Arnhem (Silicon Biomedical Instruments B.V. v. Erich Jaeger GmbH) regarding a delivered software with major faults.

Moreover, courts have also pointed out as a fundamental breach the non-conformity of the goods resulted from added illegal substances. For instance, the sentence Netherlands 23 April 2003 Appellate Court 's-Gravenhage (Rynpoort Trading v. Meneba Meel) concerning wheat-flour transactions containing potassium bromate, a prohibited additive both in The Netherlands and the European Union. However, on the other hand, there have been cases such as the Apple Juice Concentrate Case in the Appellate Court of Stuttgart, Germany (12 March 2001), that have ruled in favor of maintaining a transaction concerning apple juice with added syrup, when the buyer had ordered specifically unsweetened apple juice. Hence, not being the added substance considered to be a fundamental breach, conversely to the Dutch Court decision.

Conclusion

All in all, CISG’s article 25 does not provide full certainty. Furthermore, the concept of fundamental breach relies upon another undetermined concept, the ‘substantial deprivation’. Also, case law has interpreted with different approaches a vast array of situations.

Consequently, the situation since the CISG was passed, has been of incertitude due to the article 25 drafters, whom have created this legal loophole that needs to be amended. The state of affairs should not be left as it is, traders and lobbies should put some pressure into the international institutions to elucidate the article. If not done, traders are set to keep avoiding contracts when they are not entitled to do so. And courts, will continue to annul this terminations that would not take place under a clarified concept of fundamental breach.

[1] The Uniform Law on the International Sale of Goods and the Uniform Law on the Formation of Contracts for the International Sale of Goods.

[2] Ignacio Corbera Dale “Fundamental Breach of Contract under the CISG” Ljubljana seminar Friday, June 28 & Saturday, June 29, 2013

[3] L. Graffi, ‘Case Law on the Concept of “Fundamental Breach” in the Vienna Sales Convention’, (2003), International Business Law Journal 338.

[4] “Remedies for Breach of Contract (Courses of Action Open to a Party Aggrived)”, by Trietel, G.H., Vol. VII., chapter 16 of the International Encyclopedia of Comparative Law, Tübingen. París, The Hague, 1976.

[5] 2012 UNCITRAL Digest of case law on the United Nations Convention on the International Sale of Goods. Digest of Article 25 case law.

[6] Ibid n. 3

[7] Appeal Court in Frankfurt a.M., January 18, 1994 and Federal Court of Justice of Germany, BGH‐ Urteil‐VII ZR 51/95, April 3, 1996

[8] Ibid n. 5