Research Paper on "International Commercial Law"

Research Paper 13 pages (3353 words) Sources: 1+

[EXCERPT] . . . .

International Commercial Law

The objective of this work in writing is to address the following: 'Under the CISG, avoidance is the one-sided right of a party to terminate the contract by its mere declaration. Such termination of a contract is the hardest sword that a party to a sales contract can draw if the other party has breached the contract. No other remedy -- claim for performance, price reduction, damages -- has the same incisive effect & #8230; Therefore, it is clear that on the one hand the remedy of avoidance should not be granted too easily, but on the other hand there must be a borderline from where the innocent party must be entitled to bring the contract to an end.' This work will explain the concepts of fundamental breach and 'nachfrist' under the CISG and their importance in regulating international sales. In light of the analysis and in reference to the CISG in general, the question of whether the CISG adequately protect the interests of an innocent party where the other party is in breach of contract?

Is the CISG Adequate to Protect the Interests of an Innocent Party Where the Other Party is in Breach of Contract?

The Vienna Convention is of the nature that has influenced two other recent international instruments:

(1) the Principles of International Commercial Contracts drawn up by Unidroit and published in 1994; and (2) the Principles of European Contract Law prepared by the commission on European Contract Law. (Chigbo, 2009)

These instruments are stated to have been the product of "comparative legal discussion" and to have involved "a pooling of ideas from common law countries and civil law countries." (Chigbo, 2009) There is reported to have been confusion in the past over the use of the words 'resile', 'repudiate' and 'rescind' in relation to contracts and there are still variations but a standard usage is stated to have emerged in recent years. (Chigbo, 2009, paraphrased)

Breach of Contract

To resile means to "withdraw from it lawfully, in the exercise of a right to do so, but not in response to a repudiation or breach." (Chigbo, 2009)

It is related that repudiation of a contract is providing a clear indication through words or actions that the contract will not be performed by the repudiator and the repudiator has no right to withhold or refuse performance. Therefore, repudiation is a wrongful rejection or renunciation of the contract. It does not end the contract but gives the other party an option to rescind." (Chigbo, 2009)

To rescind a contract means to bring that contract to an end in view of future performance of primarily obligations, in response to a repudiation or material breach by the other party." (Chigbo, 2009)

Chigbo (2009) state that the reference of the aggrieved party 'treating' the contract as rescinded although this usage is sometimes encountered." (Chigbo, 2009)

It is related that a repudiation with be companied by or retailers. Chigbo states that it would be inaccurate to speak of the party that is aggrieved 'treating the contract as rescinded because the aggrieved party rescinds the contract, rather than treat it as rescinded. The Sale of Goods Act 1979 speaks of the party aggrieved by a material breach and their entitlement to treat the contract as repudiated." (Chigbo, 2009)

A fundamental breach is held as one that has been avoided in CISG Article 72 if:

(1) Prior to the date for performance of the contract it is clear that one of the parties will commit a fundamental breach of contract, the other party may declare the contract avoided;

(2) Time allows, the party intending to declare the contract avoided must give reasonable notice to the other party in order to permit him to provide adequate assurance of his performance; and (3) the other party has declared that he will not perform his obligations then the requirements of the preceding paragraph do not apply. (Guide to Articles 71 and 72 - Comparison with Principles of European Contract Law, 2010)

A breach is that which "deprives an innocent party of the whole benefit of the contract. The case cited is Hong Kong Fir Shipping Co. Ltd. V. Kawasaki Kisen Kaisha Ltd. [1952] 2 QB 26. Breach of a fundamental term is also stated to be a breach and cited as support as the cases of: (1) Yeoman Credit Ltd. v Apps [1962] 2 QB 508 at 517, in which it was decided that it may be a total non-performance of the contract; or (2) a total breach: Farnworth Finance Facilities Ltd. v Attryde [1970] 1 WLR 1053. (Guide to Articles 71 and 72 - Comparison with Principles of European Contract Law, 2010)

When a fundamental breach occurs the innocent party has the choice as to whether to terminate the contract. (Guide to Articles 71 and 72 - Comparison with Principles of European Contract Law, 2010)

Sales of Goods Act 1979

The Sale of Goods Act 1979 speaks of the party that is aggrieved and Chigbo (2009) states that a repudiation provides the other party with the option to rescind the contract, and if this option is exercised, the repudiation is treated as if it were a breach" and damages claimed according to the breach. A repudiation is stated by Chigbo to be of the nature that can be regarded as a sort of inchoate breach. And additionally stated is that a material breach is not necessarily a repudiation." (Chigbo, 2009)

Warranties of quality are contained in the CISG and when these quality warranties are breached the buyer is given the right to a remedy as follows:

(1) the seller must deliver goods which are of the quantity, quality and description required by the contract and which are contained or packaged in the manner required by the contract;

(2) Except where the parties have agreed otherwise, the goods do not conform with the contract unless they: (a) are fit for the purposes for which goods of the same description would ordinarily be used; (b) are fit for any particular purpose expressly or impliedly made known to the seller at the time of the conclusion of the contract, except where the circumstances show that the buyer did not rely, or that it was unreasonable for him to rely, on the seller's skill and judgment; (c) possess the qualities of goods which the seller has held out to the buyer as a sample or model; (d) are contained or packaged in the manner usual for such goods or, where there is no such manner, in a manner adequate to preserve and protect the goods.

(3) the seller is not liable under subparagraphs (a) to (d) of the preceding paragraph for any lack of conformity of the goods if at the time of the conclusion of the contract the buyer knew or could not have been unaware of such lack of conformity." (Guide to Articles 71 and 72 - Comparison with Principles of European Contract Law, 2010)

To summarize the goods are not considered as conforming to the provisions and warranties of the contract unless those goods are:

(1) fit for the purposes for which the goods (of the same description) are ordinarily used: Art 35(2)(a);

(2) fit for a particular purpose made known to the seller: Art 35(2)(b);

(3) the same quality as a sample or model: Art 35(2)(c); and (4) packed in the usual manner for such goods: Art 35(2)(d). (Guide to Articles 71 and 72 - Comparison with Principles of European Contract Law, 2010)

Avoidance of contract is stated to be a "remedy of last resort" and one that enables the buyer to avoid the contract "for fundamental breach" and is found in Article 49 stated to be the sole Article that provides a legal basis for contract avoidance.

The work of Zamir (2007) entitled: "The Missing Interest: Restoration of the Contractual Equivalence" states that Article 25 contains the general provisions that address the sale of goods and that is includes a provision "that a breach of contract 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 foreseen such a result." (Zamir, 2007)

According to Zamir (2007) "The articles of the convention are focused rather upon the detriment suffered by the innocent party as a result of the guilty party's breach of the term rather than the nature of the term itself and have been criticized as "open textured" making it hard to predict just when a breach will be regarded as fundamental. Where breach involves failure to deliver goods by a prescribed date the right to declare the contract avoided arises only in cases of "fundamental breach" and has been said to be much less favorable to the buyer than the automatic right of rejection given to him or her under the… READ MORE

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