Fundamental Breach and Nachfrist and its Importance

Under Convention, Fundamental breach can be understood in two ways, Fundamental Breach is defined by the parties in most provisions. It is defined as a situation in which a contract can be avoided as a results of the of the other party’s breach, or defining a situation in which the breach of a term will give the innocent party the right to terminate the contract.

Article 25 of the Convention applies if parties do not define Fundamental Breach. The operation of Article 49 and 64 would be determined, which allows the innocent party to avoid contract on the ground of Fundamental Breach.

Case law has not shown great deal of consistency in the use, but the common law is aware of this term. Fundamental Breach is also known as Fundamental Term under common law in general. Terms of Fundamental significance are Fundamental Terms to the validity of a contract and obligation of the parties. A breach of such term will give the innocent party the right to terminate the contract. On the other hand fundamental breach may be given a totally different meaning by a person trained in the civil law tradition.

Article 25 of the Convention defines Fundamental Breach as follows, A breach of contract committed by one of the parties is 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, unless the party in breach did not foresee and a reasonable person of the same kind in the same circumstances would not have foresee such a result. (John Mo, International Commercial Law)

The meaning of the Fundamental Breach tells us three things:

Fundamental breach is determined by looking at the results of the breach rather than the nature of the term breached.

The definition of fundamental breach under the article 25 is qualified by the requirement that the detrimental effect of the breach must be foreseeable by the breaching party.

Article 25 appears to require an ability to foresee the extent of the detriment following from the breach. [1]

What is Naschfrist?

One of the two reasons for escaping a contract under the Convention by Article 49 and 64 is Fundamental Breach, second reason being the concept similar to German policy Nachfrist, which states no escape within an extra period of time granted, (Articles 47 and 63). Logical time given by the other party to do his part when one party evades, with a declaration that he will decline to admit the routine work after the end of the period stated, and in the due time if the party is not able to perform, the party who gave this notice will withdraw from the contract. However, Article 48 of the Vienna Convention, (subject to Article 49) permits the vendor, even after the date or delivery is passed, to cure his failure to deliver, at his own expense, ‘if he can do so without difficult setback, and without causing the buyer difficult inconvenience or uncertainty or reimbursement by the seller or everyday expenditure advanced by the buyer’. In the event of non-delivery of goods the purchaser, if he is not sure that this in itself is a fundamental breach, may fix an supplementary period for the delivery of the goods under Article 47 (and Article 63 – the seller). Under this Convention, time is not the essence of the performance of a contract, which leads to problem whether the delay in performing a contract constitutes fundamental breach, thus allowing the other party to evade contract. Unreasonable inconvenience is aggrieved by the other party in case of avoidance of a contract under the Fundamental Breach. Offending party is never sure of the breach is fundamental or not which makes the Avoidance complex and thorny problem. Type of goods and goods handling facilities available to the party should take into account in an international context in the issue of a delay. In many cases it would be very punitive if goods have to be returned around the world. It could be more reasonable to repair goods in situ that to re-ship them. [2]

Specific Performance:

One of the main remedy under the Convention is Specific Performance, is provided for by Article 46(1) (buyer) and Article 62(seller). Non- delivery or under delivery of goods are some of the situation for which Specific Performance remedy is designed for, but Article 46(2) extends its use to include the delivery of substitute goods, and Article 46(3) to the specific performance of repairing obligation of defective goods. Period of Naschfrist under Article 47(1) and Article 63(1) is supplemented by this remedy. Damages or Reduction of Price are the only remedies which not excluded as the remedy of Avoidance. The application of Specific Performance is limited under the Convention under Article 28 to situation where it is otherwise available under the law of the forum state.1

Damages:

Damages are a non exclusive remedy and can be used on its own, or with either Specific Performance or Avoidance. . Failure to comply with contractual obligations is sufficient for it to apply, with fault not being relevant. Article 74 (residual) of the Convention, or Articles 75 (substitute sale) and 76 (when the contract is avoided), but is subject to the ‘force majeure’ provisions in Article 79, evaluates the Damages. Issues such as interest and period for payment have been left to be resolved by national law. The costs, however, of preserving the goods, in the event that the buyer, for whatever reason, does not pay the price, does not fall within the ambit of damages, but is independently recoverable, as far as they are reasonable, under Articles 85 and 88(3). The issue of liquidated damages clause is not dealt with by the Convention, and would appear to require the interpretation of such clauses by the underlying domestic law, to be determined by applying choice of law principles.1 (John Mo, International Commercial Law)

Reduction of the Purchase Price:

Under Article 50, the reduction of purchase price is another remedy referred by the Convention. Difference in value of the goods actually delivered and those that should have been delivered should be the reduction. The date of assessment of the difference in price is the date of delivery of the relevant goods. This remedy can be in addition to damages, though one set of figures would be reflected in the calculation of the other. This remedy is not affected by the ‘force majeure’ provisions in Article 79, and can apply even when the remedy of damages may not. The buyer may not, however, use this remedy if the seller is able to cure the non-conformity without causing the buyer unreasonable delay or inconvenience. Damages in this latter situation may remain payable.1

Other Remedies – Penalty Clauses, and Interest:

Other remedies not referred to, or inadequately dealt with in the Convention, in the absence of express prohibition, may be applicable under the underlying domestic law, to be decided by the conflict of law rules of the forum state, e.g. Penalty clauses, which is a recognized remedy in Civil law jurisdictions only. Another issue that has to be resolved is Interest. This can be payable (in the event of delay in payment of the price) without prejudice to any claim for damages.28 As with the remedy of reduction of price, it is not affected by the ‘force major’ provisions in Article 79. It would appear from Kritzer’s paper29 in the absence of a specific provision in the Convention, that the interest rate to be applied is that current at the time at the seller’s place of business.1

Performance of Contract:

Performance of contract for domestic sale involves the same issues as the Performance of a contract for the international sales of goods. They have to deal with the duties and rights of the buyer and seller, the delivery of goods and of passing of the property and risk, among other issues. The contract between the buyers and the sellers from two different countries are with CISG. The provision concerning performance of contract under the Convention deals only with the performance of contract by the buyer or the seller. 1 (John Mo, International Commercial Law)

Sellers Obligation:

Under the Convention, the seller has two obligations:

To deliver the goods and documents in accordance with the contract: article 30-4.

To guarantee the conformity of the goods with the contract: article 35 – 44.1

Buyers Obligation:

Under the Convention, the buyer has two obligations:

To pay the price of the goods

To take the delivery of goods1

Remedies

Remedies are based on the concepts of common law as the sales of goods legislation in many law jurisdictions. Remedies are divided under two categories under the sales of goods legislation: the one relating to a breach of condition; and other relating to the breach of warranty. Bearing in mind that any categories of this nature will inevitably be artificial creations, seller’s remedies are divided under the conventions in the following categories:

Requesting the buyer to perform his or her contractual obligation under Article 62

Fixing an additional period of time for the buyer to perform under Article 63

Requesting ‘specific performance’ under Article 28 and 62

Declaring the contract avoided under Article 64

Suspending the performance of the contract under Article 71

Avoiding the contract on the ground of an anticipatory breach under Article 72

Claiming damages under Article 74 – 781 (John Mo, International Commercial Law)

Seller’s right and the proviso of no fault

Breach caused by the party’s own act or omission is a proviso which says that the seller may not reply on the other’s breach. Proportion of the impact of the seller’s act or omission upon buyer’s breach is restricted on the buyer’s breach under this provision.1

Seller’s right to request performance

Sellers require the buyer to pay the price, take delivery or perform their obligation, unless the seller has resorted to a remedy under Article 62. It is also compatible with the Article 46(1), where the buyer requests the seller to perform his or her contractual obligation. Seller is permitted to demand the buyer to carry out his or her obligation if the seller chooses to make such request is declared by Article 62. But Article 62 does not lay itself lay down any specific penalty if the buyer refuses the seller’s request. In this case the seller can resort to either an arbitration tribunal or a court of law to enforce the rights provided in Article 62 – if the seller still prefers to use the remedies provided in Article 62.1

Seller’s right to fix an additional period of performance (Nachfrist)

A situation in which the innocent party sends a final notice to the breaching party requesting him or her to carry out the contractual obligation with a specified period of time is known as Nachfrist a German term describing the situation. Article 63 serves the same purpose. It gives second opportunity to the buyer for the purpose of ensuring the routine of the contract by the parties themselves. Article 63 (1) provides that the seller may fix an additional period time of reasonable length of routine by the buyer of his obligation’s. It also gives seller an alternative, which means that the seller does not have to give an extra time for routine to the buyer if the seller does not opt to do so under the Article 63(1). Article 63 (2) restrains the seller from resorting to the other remedies during the additional time, if the seller has opted to give an additional period of time to the buyer. 1 (John Mo, International Commercial Law)

Seller’s right to suspend the Contract:

The seller can suspend the performance of the contract if the buyer appears to be unable to performance substantial part of his or her obligation. However the inability to perform must be supported by one of the following grounds:

Deficiency in his or her ability to perform.

Deficiency in his or her creditworthiness.

Conduct of the buyer to perform.

Conduct of the buyer in performing the contract.

A notice of suspension should be given to the other party immediately after the suspension under Article 71(3). Article 71 (3) also restricts the right of the seller to suspend a contract by requiring him or her to stop suspensions if the other party provides adequate assurance of his performance. 1

Seller’s remedy of specific performance:

Right to request specific performance is given to seller under Article 62 and 63. Under Article 62, seller may do so if buyer refuses to cooperate. However, if the seller seeks assistance from the court of law for specific performance pursuant to Article 28, then the enforcement of his or her right will be subject to the relevant domestic law.1

Seller’s right to avoid contract in general:

If the buyer perform on of the acts described in the Article 64 the seller can avoid the contract. However it is different from saying that the seller can avoid the contract on the grounds of fundamental breach or a breach of fundamental term as understood at common law. There are two sets of rules avoiding the contract under Article 64. The only difference between the set of rules are whether the buyer has paid the price of the contract. Article 64 (1) deals with a situation in which the buyer has failed to pay the price of the contract. 1 (John Mo, International Commercial Law)

Seller’s right to supply specification:

Seller does not have the right to supply his or her requirement for the reason of facilitating contract performance when the buyer fails to do so in accordance with the contract or Convention under Article 65. But the seller is entitled to do something which should ne performed by the buyer. Article 65 (1) provides, if under the contract the buyer is to specify the form, measurement or other features of the goods and he fails to make with the specification either on the date agreed upon or within a reasonable times after receipt of the request from the seller, the seller may, without prejudice to any other rights he may have, make the specification himself in accordance with the requirement of the buyer that may be known to the seller.1

Seller’s right to avoid a contract on the ground of anticipated ‘fundamental breach’:

Article 72 provides an alternative to Article 64, enabling the seller to avoid a contract. It allows the seller to avoid a contract on the ground of an anticipated fundamental breach. 1

Seller’s right to stop delivery after suspension:

The seller does not have the right of stoppage in case of non payment of the dues, in the same way as the sale of goods legislation. Seller can delay the contract to avoid the goods from being delivered to the buyer, even if the buyer holds a document title over the goods. It means that a seller who has suspended the performance of the contract is entitled to stop the delivery of the goods to the buyer, provided that it is still possible. 1 (John Mo, International Commercial Law)

Seller’s right to avoid a contract on the ground of anticipated fundamental breach:

An alternative to Article 64 is Article 72, which enables the seller to avoid contract. It allows the seller to avoid a contract on the ground of anticipated fundamental breach. For effecting the avoidance the following rules are set:

The ground of avoidance under Article 72 is an anticipated fundamental breach only.

The anticipated fundamental breach must be certain in the sense that the buyer will definitely commit it.

The seller is obliged to notify the other party of the avoidance only when time allows.

If the buyer provides an adequate assurance, the other party will not be able to rely on the Article 72 (1).

The requirement for notice does not apply if the buyer has declared that he will not perform his obligation.1

Remedies for the Buyer

Under the Convention, remedies available to the buyer are divided in the following categories:

Requesting the seller to perform his or her contractual obligation under the Article 46.

Fixing an additional period of time for the seller to perform under Article 47.

Requesting the court to order specific performance under Article 28 and 46.

Declaring the contract avoided under Article 49.

Reducing the price of non – conforming goods under Article 50.

Refusing to take delivery under Article 51.

Refusing to take delivery of a greater quantity under Article 52.

Suspending the performance of a contract under Article 71.

Avoiding a contract on the ground of an anticipated fundamental breach under Article 72.

Avoiding a contract in proportion to the defective instalments under Article 73.

Claiming the Damages and interest under Article 74 – 78.1 (John Mo, International Commercial Law)

Buyer’s right to require performance:

A buyer has a right under Article 46, where it requires the seller to perform his or her obligation under the contractor or the Convention. It is different from the Article 28, specific performance, as Article 46 allows the buyer to make a request to the seller directly.1

Buyer’s right to fix an additional period of time for performance:

The right to offer an additional period of time for the seller to perform his or her obligation by the buyer is under Article 47. The buyer has the liberty to do so: the buyer may fix an additional period of time of reasonable length for performance by the seller of his obligation.1

Buyer’s right to request substitute goods and restitution:

The right to request the seller to deliver substitute goods under Article 46 and 47 is given to the buyer. However under Article 82(1), the buyer’s right to do so is subject to his or her ability to make restitution of the goods substantially in the condition in which he received them. It means that the buyer is unable to make restitution of the goods received; he or she will lose the right to request the delivery of substitute goods. However the buyer can still claim damages under Article 74, even though he or she cannot make restitution of goods under Article 83.1

Buyer’s remedy of specific performance:

A request to the seller to perform his or her obligation under the contract or the convention is allowed to the buyer under Article 46 and 47. The buyer has the right to do so under this provision. Under the Convention privileges cannot be translated honestly into a right to demand a court law to order exact routine. This is because Article 28 of the Convention makes precise routine by the order of the court a issue of domestic law. It means that the buyer should discover the possible of Article 46 and 47 fully if he or she prefers to impose the contractual obligation against seller in particular.1 (John Mo, International Commercial Law)

Buyer’s right to avoid contracts in general:

The termination of a contract is the most stern remedy to which a party can way out under the Convention, although it is not the last cure the party can take in relation to the contract. It is optional in the Article 81, which states that escaping of the contract releases both parties from their obligations under it, focus to any damages which may be due. Similarly, Article 51 requires the buyer to keep away from a contract against part delivery or parts of the good, wherever the deliveries and goods severable under the contract.1

Buyer’s right to avoid contract and restitution:

Rules regarding the restitution are set out in Article 82 (2) of the Convention, which states:

A party who has performed the contract either wholly or partly may claim the restitution from the other party of whatever the first party has supplied or paid under the contract. If both the parties are bound to make restitution, they must do so concurrently.1

Buyer’s right to reduce price:

The buyer’s right to reduce the price of the goods in proportion to the degree of non conformity or defects in the goods is a special remedy available to the buyer under Article 50. It is different to damages enforced by a court of law because a buyer is entitled to reduce the price pursuant to Article 50 without the assistance of the court.1

Buyer’s limited right to refuse delivery:

Article 52 (1) allows the buyer to refuse to take the delivery if the goods are delivered before the agreed date. This provision gives the buyer an option either to accept or refuse an early delivery. Article 52 (1) provides only one specific ground to refusing to take the delivery, which is delivery before the fixed date.1 (John Mo, International Commercial Law)

Buyer’s right to suspend contract:

Both the buyer and the seller are allowed, under Article 71, to suspend the performance of a contract on the ground of an anticipatory breach. Although, in principle, a buyer may suspend the performance of his or her obligation if it becomes apparent that the other party will not perform a substantial part of his or her obligations, in practice the buyer must rely on one of the following grounds:

The seller has shown a serious deficiency in his or her ability to perform the contract.

The seller has a serious deficiency in his or her creditworthiness.

The seller’s conduct in preparing to perform the contract suggests that she or she is not able to perform at least substantial part of the contract.

The seller’s act in performing the contract suggests that he or she is not able to perform at least a substantial part of the contract.1 (John Mo, International Commercial Law)