CISG Advisory Council Opinion No. 9

Consequences of Avoidance of the Contract

FOOTNOTES

* The CISG-AC is a private initiative supported by the Institute of International Commercial Law at Pace University School of Law and the Centre for Commercial Law Studies, Queen Mary, University of London. The International Sales Convention Advisory Council (CISG-AC) is in place to support understanding of the United Nations Convention on Contracts for the International Sale of Goods (CISG) and the promotion and assistance in the uniform interpretation of the CISG.

At its formative meeting in Paris in June 2001, Prof. Peter Schlechtriem of Freiburg University, Germany, was elected Chair of the CISG-AC for a three-year term. Dr. Loukas A. Mistelis of the Centre for Commercial Law Studies, Queen Mary, University of London, was elected Secretary. The founding members of the CISG-AC were Prof. Emeritus Eric E. Bergsten, Pace University School of Law; Prof. Michael Joachim Bonell, University of Rome La Sapienza; Prof. E. Allan Farnsworth, Columbia University School of Law; Prof. Alejandro M. Garro, Columbia University School of Law; Prof. Sir Roy M. Goode, Oxford, Prof. Sergei N. Lebedev, Maritime Arbitration Commission of the Chamber of Commerce and Industry of the Russian Federation; Prof. Jan Ramberg, University of Stockholm, Faculty of Law; Prof. Peter Schlechtriem, Freiburg University; Prof. Hiroo Sono, Faculty of Law, Hokkaido University; Prof. Claude Witz, Universität des Saarlandes and Strasbourg University. Members of the Council are elected by the Council. At subsequent meetings, the CISG-AC elected as additional members Prof. Pilar Perales Viscasillas, Universidad Carlos III de Madrid; Professor Ingeborg Schwenzer, University of Basel; Prof. John Y. Gotanda, Villanova University; and Prof. Michael G. Bridge, London School of Economics; Prof. Jan Ramberg served for a three-year term as the second Chair of the CISG-AC. At its 11th meeting in Wuhan, People's Republic of China, Prof. Eric E. Bergsten of Pace University School of Law was elected Chair of the CISG-AC and Prof. Sieg Eiselen of the Department of Private Law of the University of South Africa was elected Secretary.

1.  Established at the second session of UNCITRAL.

2. Fifth Session (Geneva 1974), A/CN.9/87, para 143. See also Report of the Secretary-General (1975), A/CN.9/100, annex IV, para 44.

3. Report (1977), A/32/17, Annex 1 para 461.

4. 33rd Meeting (2 April 1980), A/CONF.97/C.1/SR.33, paras 75-84.

5. J Honnold, Uniform Law for International Sales under the 1980 United Nations Convention (3rd ed, 1999), 709-10.

6. Article 79.

7. Oberlandesgericht Frankfurt (Germany), 17 September 1991, Unilex, translated at <http://cisgw3.law.pace.edu/cases/910917g1.html>; Bundesgerichtshof (8th Civil Panel) (Germany), 25 June 1997, translated at <http://cisgw3.law.pace.edu/cases/970625g2.html>; Bezirksgericht Saane (Switzerland), 20 February 1997, translated at http://cisgw3.law.pace.edu/cases/970220s1.html.

8. In a related way, avoidance of the contract of sale has been held to prevent a seller from drawing down a bank letter of credit: Oberster Gerichtshof (Austria), 19 January 1999, translated at <http://cigw3.law.pace.edu/cases/990119a3.html>.

9. Article 30.

10. Article 53.

11. This follows from Articles 75-76.

12. Article 79.

13. Federal District Court New York (United States), 14 April 1992 (Filanto v Chilewich), available at <http://cisgw3.law.pace.edu/cases/920414u1.html>; Tribunal of International Commercial Arbitration at the Russian Federation Chamber of Commerce and Industry, No 280/1999, 13 June 2000, translated at <http://cisgw3.law.pace.edu/cases/000613r1.html>.

14. UNCITRAL Model Law on International Commercial Arbitration 1985 (amended in 2006) (Article 16(1); UNCITRAL Arbitration Rules (Article 21(2)) ('an agreement independent of the other terms of the contract'); Tribunal of International Commercial Arbitration at the Russian Federation Chamber of Commerce and Industry, No 161/1994, 25 April 1995, translated at <http://cisgw3.law.pace.edu/cases/950425r3.html>.

15. ICC Court of Arbitration, Award No 9978, March 1999, Unilex, CISG On-line; ICC Court of Arbitration, Award No 9887, August 1999, Unilex; Tribunal of International Commercial Arbitration at the Russian Federation Chamber of Commerce and Industry, No 280/1999, 13 June 2000, translated at <http://cisgw3.law.pace.edu/cases/000613r1.html>; Tribunal of International Commercial Arbitration at the Russian Federation Chamber of Commerce and Industry, No 160/1997, 5 March 1998, translated at <http://cisgw3.law.pace.edu/cases/980305r2.html>; Tribunal of International Commercial Arbitration at the Russian Federation Chamber of Commerce and Industry, No 95/2004, 27 May 2005, translated at <http://cisgw3.law.pace.edu/cases/050527r1.html>.

16. Tribunal of International Commercial Arbitration at the Russian Federation Chamber of Commerce and Industry, No 280/1999, 13 June 2000, translated at <http://cisgw3.law.pace.edu/cases/000613r1.html>

17. Oberster Gerichtshof (Austria), 29 June 1999, Unilex, translated at <http://cisgw3.law.pace.edu/cases/990629a3.html>.

18. Articles 71 (as extended with the aid of Article 7(2)) and 72.

19. Tribunal of International Commercial Arbitration at the Russian Federation Chamber of Commerce and Industry, Case no 82/1996 of 3 March 1997, Unilex, translated at <http://cisgw3.law.pace.edu/cases/970303r1.html>; Oberster Gerichtshof (Austria), 29 June 1999, Unilex, translated at <http://cisgw3.law.pace.edu/cases/990629a3.html>.

20. Article 29(1) (which refers to termination rather than avoidance).

21. Article 6.

22. Oberlandesgericht Düsseldorf (Germany), 28 May 2004, translated at <http://cisgw3.law.pace.edu/cases/040528g1.html>; Oberlandesgericht München (Germany), 19 October 2006, translated at <http://cisgw3.law.pace.edu/cases/061019g1.html>. Aliter, Tribunal of International Commercial Arbitration at the Russian Federation Chamber of Commerce and Industry, Case no 82/1996 of 3 March 1997, Unilex, translated at <http://cisgw3.law.pace.edu/cases/970303r1.html>.

23. Article 4(b).

24. See Article 7(2).

25. Federal District Court Illinois (United States), 28 March 2002 (Usinor Industeel v Leeco Steel Products), available at <http://cisgw3.law.pace.edu/cases/020328u1.html> .

26. See Articles 30 and 41, which should be brought into play in line with Article 7(2).

27. Landgericht Düsseldorf (Germany), 11 October 1995, translated at <http://cisgw3.law.pace.edu/cases/951011g1.html>; Handelsgericht St Gallen (Switzerland), 3 December 2002, translated at <http://cisgw3.law.pace.edu/cases/021203s1.html>. See also P Schlechtriem and I Schwenzer, Commentary on the UN Convention on the International Sale of Goods (2nd (English) edn, 2005), 855-56.

28. The Austrian Supreme Court appears in one case concerning jurisdiction to have ruled that the restitution of advance payments made by the buyer is not governed by the Convention: Oberster Gerichtshof, 10 March 1998, translated at <http://cisgw3.law.pace.edu/cases/980310a3.html>. There is no good reason to distinguish advance payments made by the buyer to the seller from other payments made by the buyer.

29. See Secretariat Commentary on Article 66 (which was later renumbered Article 81), para 9.

30. ICC Court of Arbitration, Award No 9978, March 1999, Unilex, CISG-online.ch no. 708. But note that the Convention does not apply in the case where a seller mistakenly restores to the buyer a price that the buyer in fact has not paid and now seeks reimbursement from the buyer: Oberlandesgericht München (Germany), 28 January 1998, translated at <http://cisgw3.law.pace.edu/cases/980128g1.html>. Restitution of this money is governed by the relevant applicable law.

31. Articles 86-88.

32. Landgericht Krefeld (Germany), 24 November 1992, Unilex, translated at <http://cisgw3.law.pace.edu/cases/921124g1.html>. In this case, there was an agreement on the avoidance of the contract.

33. So far as the avoiding buyer is excusably unable to do this, the buyer must account for the benefits instead of the goods that cannot be redelivered: Article 84(2)(b).

34. This was the result in a case dealing with interest: China International Economic and Trade Arbitration Commission, 10 March 1995, translated at <http://cisgw3.law.pace.edu/cases/950310c2.html>.

35. Where the contract fails to state the currency of payment, the Unidroit Principles of International Commercial Contracts (Article 6.1.10) prescribe the currency of the place where payment is due. This rule is not appropriate for a restitutionary obligation to repay money.

36. Tribunal of International Commercial Arbitration at the Russian Federation Chamber of Commerce and Industry, No 2/1997, 11 May 1995, translated at <http://cisgw3.law.pace.edu/cases/970511r1.html>.

37. Article 82(2).

38. For example, the goods may have perished and the seller may have committed a fundamental breach: see Article 70.

39. Under Article 38.

40. Kantonsgericht Schaffhausen (Switzerland), 27 January 2004, <http://cisgw3.law.pace.edu/cases/040127s1.html> ('reciprocally and simultaneously').

41. Landgericht Freiburg (Germany), 22 August 2002, <http://cisgw3.law.pace.edu/cases/020822g1.html>. For the operation of the concurrency rule in this case, see below.

42. See Secretariat Commentary on Article 66 (which was later renumbered Article 81), para 10.

43. Oberster Gerichtshof (Austria), 29 June 1999, Unilex, translated at <http://cisgw3.law.pace.edu/cases/990629a3.html>. Cf Cour d'appel de Paris (France), 14 January 1998, Unilex, translated at <http://cisgw3.law.pace.edu/cases/980114f1.html> (applying rules of private international law under Article 7(2) so that the place of repayment was the debtor's (i.e., the seller's) residence).

44. See Articles 25 (the rule of fundamental breach does not lightly permit avoidance) and 77.

45. Landgericht Krefeld (Germany), 24 November 1992, Unilex, translated at <http://cisgw3.law.pace.edu/cases/921124g1.html>; Kantonsgericht Valais (Switzerland), 21 February 2005, translated at <http://cisgw3.law.pace.edu/cases/050221s1.html>. But see P Schlechtriem and I Schwenzer, Commentary on the UN Convention on the International Sale of Goods (2nd (English) edn, 2005), 860-61, for the view that the place of redelivery should be an exact reversal of the place of delivery. This would mean that goods delivered carriage paid to the buyer's premises should be redelivered carriage paid to the seller's premises.

46. Article 31.

47. With the assistance of the Austrian Civil Code, this was the result in Oberlandesgericht Wien, 1 June 2004, detailed abstract available at <http://cisgw3.law.pace.edu/cases/040601a3.html>.

48. Article 57(1)(a); Landgericht Giessen (Germany), 17 December 2002, translated at <http://cisgw3.law.pace.edu/cases/021217g1.html> (departing from the contrary decision under the ULIS of the Bundesgerichtshof, BGHZ 78, 257). See also P Schlechtriem and I Schwenzer, Commentary on the UN Convention on the International Sale of Goods (2nd (English) edn, 2005), 860, for apparent support for this rule, treating the buyer restoring the goods as the seller and relying on Oberlandesgericht Düsseldorf (Germany), 2 July 1993, translated at <http://cisgw3.law.pace.edu/cases/930702g1.html>, which asserts the existence of a general rule in the Convention that payment in all cases takes place at the seller's premises.

49. See Secretariat Commentary on Article 66 (which was later renumbered Article 81), para 11; CM Bianca and MJ Bonell, Commentary on the International Sales Law (1987), 605 (Tallon).

50. See P Schlechtriem and I Schwenzer, Commentary on the UN Convention on the International Sale of Goods (2nd (English) edn, 2005), 861.

51. The alternative approach, where this is done at the request of the seller, is to treat the seller's liability as a matter of express or implied contract between the parties consequent upon the avoidance of the contract. This would seem to be a matter for the law applicable to the contract.

52. Article 77.

53. No practical purpose would be served by inferring a separate rule with the aid of Article 7(2) that these costs should in the first instance be paid by the non-performing party.

54. Article 79 is likely to be applied infrequently to cases where goods have been delivered.

55. Paragraph (5). See also CM Bianca and MJ Bonell, Commentary on the International Sales Law (1987), 605 (Tallon).

56. Deriving from Article 33(c).

57. Article 70 in substance would leave the risk with the seller where the seller commits a fundamental breach of the contract.

58. It is assumed that the buyer in possession will have an insurable interest under the relevant law.

59. Bezirksgericht Saane (Switzerland), 20 February 1997, translated at <http://cisgw3.law.pace.edu/cases/970220s1.html>. Where non-performance, due to the inexact description of the goods, was held to be the fault of neither party, a Chinese tribunal incorrectly halved the rate of interest that the seller had to pay when repaying the buyer: China International Economic and Trade Arbitration Commission, 23 April 1997, translated at <http://cisgw3.law.pace.edu/cases/970423c2.html>.

60. Because it is simpler, this solution is preferable to the alternative of requiring such a buyer to account for the benefits received from the missing goods at the time of concurrent restitution under Article 81. These benefits may take time to calculate, which would delay the Article 81 restitution process if this approach were adopted.

61. Article 7(2). See also Article 58(1).

62. For example, Bundesgerichtshof (Switzerland), 20 December 2006, translated at <http://cigw3.law.pace.edu/cases/061220s1.html>; Landgericht München (Germany), 20 March 1995, translated at <http://cisgw3.law.pace.edu/cases/950320g1.html>.

63. In favour of set-off, further to Article 7(2), where there are two reciprocal claims arising under the Convention, see Oberlandesgericht Hamburg (Germany), 26 November 1999, translated at <http://cisgw3.law.pace.edu/cases/991126g1.html>; Landgericht Mönchengladbach (Germany), 15 July 2003, translated at <http://cisgw3.law.pace.edu/cases/030715g1.html>. A deduction for the cost of goods disposed of by the buyer against the buyer's claim for the return of the price was allowed in Oberlandesgericht Köln (Germany), 14 October 2002, translated at <http://cisgw3.law.pace.edu/cases/021014.html>.

64. Tribunal of International Commercial Arbitration at the Russian Federation Chamber of Commerce and Industry, No 135/2002, 16 June 2003, translated at <http://cisgw3.law.pace.edu/cases/030616r1.html>.

65. Cour d'appel Aix-en-Provence (France), 21 November 1996, translated at <http://cisgw3.law.pace.edu/cases/961121f1.html>; Cour de cassation (France) 26 May 1999, translated at <http://cisgw3.law.pace.edu/cases/990526f1.html>.

66. ICC Court of Arbitration, No 6653 of 25 March 1993, translated at <http://cisgw3.law.pace.edu/cases/936653i1.html>; Handelsgericht Zürich, 5 February 1997, translated at <http://cisgw3.law.pace.edu/cases/970205s1.html>.

67. There is an argument that a seller in receipt of revolving credit may have benefited more from payment of the price than the amount recoverable according to the commercial investment rate. The benefit would be the commensurate avoidance of the higher borrowing rate that the seller would otherwise have had to pay its bank under the revolving credit facility. An inquiry into the amount of such benefit would be time-consuming and expensive, and would unduly complicate the process of effecting restitution.

68. See P Schlechtriem and I Schwenzer, Commentary on the UN Convention on the International Sale of Goods (2nd (English) edn, 2005), 885-86. The Unidroit Principles of Commercial Contracts (Article 7.4.9), in the different case of failing to pay a sum of money when it falls due, refer to the "average short-term lending rate to prime borrowers prevailing for the money of payment at the place of payment". Failing the existence of such a rate, they turn to the same rate in the State of the currency of payment or some other rate fixed by the law of that same State. This approach is inappropriate for a restitutionary obligation.

69. Oberlandesgericht Celle (Germany), 24 May 1995, translated at <http://cisgw3.law.pace.edu/cases/950524g1.html>; Landgericht Landshut (Germany), 5 April 1995, translated at <http://cisgw3.law.pace.edu/cases/950405g1.html>; the Oberlandesgericht Karlsruhe (Germany), 19 December 2002, translated at <http://cisgw3.law.pace.edu/cases/021219g1.html>; the ICC Court of Arbitration, Award No 9978, March 1999, Unilex, CISG On-line; Tribunale d'apello Lugano/Ticino (Switzerland), 15 January 1998, translated at <http//cisgw3.law.pace.edu/cases/980115s1.html>; Bezirksgericht Saane (Switzerland), 20 February 1997, translated at <http://cisgw3.law.pace.edu/cases/970220s1.html>; Tribunal of International Commercial Arbitration at the Russian Federation Chamber of Commerce and Industry, No 175/2003, 28 May 2004, translated at <http://cisgw3.law.pace.edu/cases/040528r1.html>; Oberlandesgericht Frankfurt am Main (Germany), 18 January 1994, translated at <http://cisgw3.law.pace.edu/cases/940118g1.html>; Kantonsgericht Schaffhausen (Switzerland), 27 January 2004, <http://cisgw3.law.pace.edu/cases/040127s1.html> Although it conceded that the buyer's entitlement to interest derived from the CISG, the same approach was adopted by the Oberlandesgericht München (Germany), 8 February 1995, translated at <http://cisgw3.law.pace.edu/cases/950208g1.html>. In one case, the rate was determined according to the applicable law, which was neither the law of the seller's nor of the buyer's place of business: ICC Court of Arbitration, No 7660, 23 August 1994, translated at <http://cisgw3.law.pace.edu/cases/947660i1.html>.

70. See Secretariat Commentary on Article 69 (which was later renumbered Article 84), para 2; Handelsgericht Zürich (Switzerland), 5 February 1997, translated at <http://cisgw3.law.pace.edu/cases/970205s1.html>. The view advanced in this Opinion rejects is contrary to the Landgericht Landshut (Germany), 5 April 1995, translated at <http://cisgw3.law.pace.edu/cases/950405g1.html> expressly rejected the drawing of general restitutionary principles by analogy from Articles 31 et seq of the Convention. The source of the rule that the rate at the seller's residence should apply was left open in Oberlandesgericht Düsseldorf (Germany), 28 May 2004, translated at <http://cisgw3.law.pace.edu/cases/040528g1.html>. The seller was Italian and the result would have been the same whether an Italian interest rate was inferred directly from Article 84 or applied by virtue of private international rules, since Italy was the place of business of the characteristic performer (the seller).

71. Tribunal of International Commercial Arbitration at the Russian Federation Chamber of Commerce and Industry, No 99/2002, 16 April 2003, translated at <http://cisgw3.law.pace.edu/cases/030416r1.html>; China International Economic and Trade Arbitration Commission, 30 November 1998, translated at <http://cisgw3.law.pace.edu/cases/981130c1.html>; Tribunal of International Commercial Arbitration at the Russian Federation Chamber of Commerce and Industry, No 133/1994, 19 December 1995, translated at <http://cisgw3.law.pace.edu/cases/951219r1.html> (but rate not proved by the buyer); Tribunal of International Commercial Arbitration at the Russian Federation Chamber of Commerce and Industry, No 1/1993, 15 April 1994, Unilex; Hof van Beroep Gent (Belgium), 11 September 2003, noted at <http://cisgw3.law.pace.edu/cases/030911b1.html>. That same law would also have been applied but for the absence of a Russian rate of interest for Indian rupees in Tribunal of International Commercial Arbitration at the Russian Federation Chamber of Commerce and Industry, No 100/2002, 19 May 2004, translated at <http://cisgw3.law.pace.edu/cases/040519r1.html>. The tribunal applied instead the Unidroit rule (Article 7.4.9(2)), namely, the average short-term lending rate for prime borrowers in the place of payment, failing which, in the place of the currency of repayment. A Hamburg arbitral tribunal has also applied the local law in the case of a German buyer and Czech seller: Schiedsgericht Hamburger Freundschaftliche Arbitrage (Germany), 29 December 1998, translated at <http://cisgw3.law.pace.edu/cases/981229g1.html>.

72. ICC Court of Arbitration, No 6653 of 25 March 1993, translated at <http://cisgw3.law.pace.edu/cases/936653i1.html> (basing the award of interest on the London Inter-Bank Offered Rate (LIBOR)). This part of the award was later reversed on the ground that the parties had not been properly heard on the subject of interest: Cour d'appel Paris (France), 6 April 1995, translated at <http://cisgw3.law.pace.edu/cases/950406f1.html>.

73. A case that is hard to classify is ICC Court of Arbitration No 7585 of 1992, translated at <http://cisgw3.law.pace.edu/cases/927585i1.html>, where the tribunal selected the currency most closely related to the financial aspects of the contract of sale.

74. The approach that seems to have been adopted in Tribunal of International Commercial Arbitration at the Russian Federation Chamber of Commerce and Industry, No 53/1997, 25 December 1997, translated at <http://cisgw3.law.pace.edu/cases/971225r1.html>; Tribunal of International Commercial Arbitration at the Russian Federation Chamber of Commerce and Industry, No 439/1995, 29 May 1997, translated at <http://cisgw3.law.pace.edu/cases/970529r1.html>; Tribunal of International Commercial Arbitration at the Russian Federation Chamber of Commerce and Industry, No 72/1995, 25 April 1996, translated at <http://cisgw3.law.pace.edu/cases/960425r1.html>; Tribunal of International Commercial Arbitration at the Russian Federation Chamber of Commerce and Industry, No 22/1995, 1 December 1995, translated at <http://cisgw3.law.pace.edu/cases/951201r2.html>; Juzgado de primera instancia Tudela (Spain), 29 March 2005, translated at <http://cisgw3.law.pace.edu/cases/050329s4.html>. An award of interest, incorrectly, as damages has led also to the buyer's law: Käräjäoikeus Kuopio (Finland), 5 November 1996, translated at <http://cisgw3.law.pace.edu/cases/961105f5.html>

75. This was the result in China International Economic and Trade Arbitration Commission, 10 March 1995, translated at <http://cisgw3.law.pace.edu/cases/950310c2.html>.

76. As decided by Tribunal of International Commercial Arbitration at the Russian Federation Chamber of Commerce and Industry, No 1/1993, 15 April 1994, translated at <http://cisgw3.law.pace.edu/cases/940415r1.html>; Pretura circondariale Parma (Italy), 24 November 1989, translated at <http://cisgw3.law.pace.edu/cases/891124i3.html>.

77. Tribunal of International Commercial Arbitration at the Russian Federation Chamber of Commerce and Industry, No 100/2002, 19 May 2004, translated at <http://cisgw3.law.pace.edu/cases/040519r1.html>.

78. If the seller did incur a loss, it would have a claim for damages against the buyer (Article 74).

79. P Schlechtriem and I Schwenzer, Commentary on the UN Convention on the International Sale of Goods (2nd (English) edn, 2005), 889.

80. Oberlandesgericht Oldenburg (Germany), 1 February 1995, translated at <http://cisgw3.law.pace.edu/cases/950201g1.html>.

81. Landgericht Freiburg (Germany), 22 August 2002, translated at <http://cisgw3.law.pace.edu/cases/020822g1.html>.

82. Ibid. The seller was able to prove a sub-sale by the buyer in Compromex Arbitration (Mexico), 4 May 1993, translated at <http://cisgw3.law.pace.edu/cases/930504m1.html>.

83. Article 84(2)(b).

84. Article 46(2).