CISG Advisory Council

CISG Advisory Council Opinion No. 5 ^[1]

The buyer’s right to avoid the contract in case of non-conforming goods or documents^[2]

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Opinion [black letter text]

Comments

1. Introduction

2. Domestic Legal Systems

3. Drafting History

4. Interpretation

a) General Remarks

aa) Terms of the Contract

bb) Purpose for Which Goods Are Bought

cc) Possibility of Repair or Replacement

dd) Additional Costs or Inconvenience Resulting from Avoidance

b) Non-Conforming Documents

aa) Accompanying Documents

bb) Documentary Sales

c) Commodity Trade

d) Buyer's Right to Withhold Performance

Annex: Case Overview

To be cited as: CISG-AC Opinion no 5, The buyer's right to avoid the contract in case of non-conforming goods or documents 7 May 2005, Badenweiler (Germany). Rapporteur: Professor Dr. Ingeborg Schwenzer, LL.M., Professor of Private Law, University of Basel.

Adopted by the CISG-AC on the 9^th meeting held in Philadelphia with no dissent. Reproduction of this opinion is authorized.

JAN RAMBERG, Chair

ERIC E. BERGSTEN, MICHAEL JOACHIM BONELL, ALEJANDRO M. GARRO, ROY M. GOODE, SERGEI N. LEBEDEV, PILAR PERALES VISCASILLAS, PETER SCHLECHTRIEM, INGEBORG SCHWENZER, HIROO SONO, CLAUDE WITZ, Members

LOUKAS A. MISTELIS, Secretary

Article 49 CISG

(1) The buyer may declare the contract avoided: (a) if the failure by the seller to perform any of his obligations under the contract or this Convention amounts to a fundamental breach of contract; or (b) [...]

1. In determining whether there is a fundamental breach in case of non-conformity of the goods giving the buyer the right to avoid the contract according to Art 49(1)(a) CISG, regard is to be given to the terms of the contract.

2. If the contract does not make clear what amounts to a fundamental breach, regard is to be given in particular to the purpose for which the goods are bought.

3. There is no fundamental breach where the non-conformity can be remedied either by the seller or the buyer without unreasonable inconvenience to the buyer or delay inconsistent with the weight accorded to the time of performance.

4. Additional costs or inconvenience resulting from avoidance do not influence per se whether there is a fundamental breach.

5. The issue of avoidance in case of non-conforming accompanying documents such as insurance policies, certificates etc., must be decided by resorting to the criteria set forth in 1. to 4.

6. In the case of documentary sales, there is no fundamental breach if the seller can remedy the non-conformity of the documents consistently with the weight accorded to the time of performance.

7. In the commodity trade, in general, there is a fundamental breach if there is no timely delivery of conforming documents.

8. If the non-conformity does not amount to a fundamental breach, the buyer still has a right to withhold payment and to refuse to take delivery if reasonable under the circumstances.

Comments ^[3]

1. Introduction

1.1. Interpretation and Evidence under the CISG

1.1 Rules on avoidance of contract in case of non-conforming goods have to take into account three different interests:[4] The buyer is interested in a low threshold for avoidance, while the seller's interest is in a high threshold for avoidance. Economic reasons such as costs and risk of transportation or storage may also play a role. These conflicting interests have to be balanced.

1.2 There have been great differences of opinion among domestic legal systems concerning the question of under which circumstances the buyer may avoid the contract in case of non-conforming goods or documents. Art 49(1)(a) CISG provides that avoidance is possible "if the failure by the seller to perform any of his obligations under the contract or this Convention amounts to a fundamental breach of contract." According to Art 25 CISG, a breach is fundamental "if it results in such detriment to the [buyer] as substantially to deprive him of what he is entitled to expect under the contract, unless the [seller] did not foresee and a reasonable person of the same kind in the same circumstances would not have foreseen such a result."

1.3 Reference to case law shows that the interpretation of the notion of fundamental breach in cases of non-conforming goods by national courts and arbitration tribunals differs considerably even within one single legal system.

1.4 Special problems arise with respect to non-conforming documents and the commodity trade in particular. Special rules have been established by the International Chamber of Commerce. Thus, the Incoterms 2000 [5] contain detailed rules governing the obligations of the seller to provide for documents,[6] and the buyer to accept them,[7] respectively. Such rules are widely incorporated into international contracts.[8]

2 Domestic legal systems

2.1 Civil law systems were originally based upon the Roman sales law rule that, in the case of defects in the quality of the goods, the buyer had the right either to demand reduction of the purchase price (actio quanti minoris) or to avoid [9] the contract (actio redhibitoria).[10] However, modern statutes, such as the German Statute on Modernization of the Law of Obligations,[11] the Scandinavian Sales Laws [12] or the Netherlands Civil Code,[13] are oriented towards the CISG and apply the notion of fundamental breach or similar key concepts for the avoidance of the contract. The same is true for other international uniform law instruments, such as the UNIDROIT Principles [14] and the Principles of European Contract Law.[15]

2.2 In contrast to this, common law sales law was based upon the idea that the buyer could only avoid (terminate) the contract if the non-conformity is sufficiently serious.[16] This restriction, however, only applies to accepted goods,[17] thus making "acceptance" or its revocation key notions. Before there has been acceptance, the so-called "perfect tender rule"[18] applies, giving the buyer the right to reject the goods if they do not conform to the contract in any respect. However, during the past decades the perfect tender rule itself has been subject to several restrictive modifications. Thus, s. 15A Sale of Goods Act, inserted by the Sale and Supply of Goods Act 1994, states that if the buyer does not deal as a consumer, the breach may not be treated as a breach of condition if the breach was so slight that it would be unreasonable for the buyer to reject the goods. Similarly, some US courts have limited the perfect tender rule by applying the good faith principle,[19] especially in cases of a rightful and effective cure [20] by the seller in accordance with § 2-508 UCC.[21]

3. Drafting History

3.1 The basic concept of fundamental breach was already present in Art 10 ULIS [22] and was not questioned during the preparatory work for the CISG. The function of this concept in the case of tender or delivery of non-conforming goods was to avoid causing these goods to be returned, which would result in considerable economic detriment.

3.2 Although the concept of fundamental breach itself was unquestioned, the preconditions for the breach being fundamental and the necessity to declare the contract avoided remained in dispute until the Vienna Conference. Ultimately, it was decided that the seriousness of the breach should be determined by reference to the interests of the promisee as actually laid down and circumscribed by the contract.[23] Concerning the avoidance of the contract, the CISG clearly deviates from ULIS. Under Art 44(2) ULIS, the buyer could fix an additional time to remedy any breach in cases, where the non-conformity of the goods or the delay in delivering conforming goods did not yet amount to a fundamental breach under Art 43 ULIS. The fruitless elapse of such a "Nachfrist" always enabled the buyer to avoid the contract, regardless of the fundamentality of the original defect in performance. Art 49(1)(b) CISG, in contrast, limits the possibility for the buyer to fix an additional period of time to cases of non-delivery, thus excluding this possibility for non-conforming goods.[24]

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