Fundamental Breach in Sale of Goods Contracts - Research Proposal Example

Name: Tutor: Course: Date: Fundamental Breach in Sale of Goods Contracts: According to CISG and UNIDROIT Principles Introduction United Nations Convention on the International Sale of Goods (CISG) is a successful international instrument applied in the commercial law fraternity. It was put in place by the United Nations Commission for International Trade Law (UNCITRAL) in the year 1980. Following its creation it has been subsequently witnessed enactment in seventy-six Contracting States including major trading countries like China, USA, Germany, Russia and India. Turkey joined in 2011 followed closely by Portugal1. The convention entails almost 80 percent of all international sales contracts. About three thousand published court decisions as well as arbitral awards backed by scholarly writings and other events points to the prominence in terms of role that CISG plays in legal science, legal practice as well as legal education. CISG has impacted many national and international laws. Other legal instruments internationally like the Principles of European Contract Law (PECL), the UNIDROIT Principles of International Contracts, the OHADA General Commercial Act, and the EC Directive on Certain Aspects of Sale of Consumer Goods have relied heavily on CISG2. Domestically, CISG has served as a model for revisions made within the law of contract of several Eastern European jurisdictions, Baltic States and China. The basic and original concept of German law of obligations’ modernization was also derived from Convention. A big reason for the breakthrough of the Convention is the manner of structuring of its provisions on remedies3. The system applied in the Convention narrows down on the consequences of a breach as opposed to its origin. The beginning point is failure to carry out any individual’s obligations under the Convention or the contract. Fundamental breach is very significant in the sale of goods under the Convention. The expectations of the two parties have to be met without aggravating the problem of meeting each other’s expectations. This study seeks to explore improvement in the definition of fundamental breach in order to expedite the application of remedies. Summary of the topic Sale is the most common commercial transaction as well as sale-of-goods agreements entail majority of concluded contracts, either in daily life or business of people. It is can occur that one of the parties to the contract has not performed his end of the bargain well regardless of the provisions of the contract. In the Convention, Fundamental breach can be interpreted in more than one way. Fundamental breach is described by the parties in majority of the provisions. It is a situation whereby the contract can be avoided due to the breach by the other party or describing an instance where the breach of a term gives the innocent party the right of terminating the contract. It is upon the parties to define fundamental breach hence making it a big challenge in many jurisdictions. There is no standard definition of what constitute fundamental breach in the sale of goods contract according to CISG as well as UNIDROIT Principles4. Many contracts have been avoided by buyers on the basis of fundamental breach despite the fact that there is no clear definition of what constitutes fundamental breach. Therefore, fundamental breach means a lot to international commercial law because it has been the reason of many parties avoiding contracts. Objectives The topic of fundamental breach is very crucial to international commercial law and the objective of this study will be as follows: To establish importance of Fundamental Breach in the sale of goods contracts under CISG and UNIDROIT Principles To determine the significance of uniform interpretation of CISG across different jurisdictions across the world To investigate the importance of clarity of definition of fundamental breach to parties in the contract under the Convention To explain the impact of foreseeability in fundamental breach under the Convention Importance of the study This study is very important since it explores a fundamental issue in the international commercial law that raised controversy over how CISG and UNIDROIT Principles are applied in the sale of goods across national boundaries. The issue of uniformity of the Convention has remained elusive where case laws have not been used as precedents for later arbitration5. Absence of uniformity projected by the philosophy of the Convention has always been a challenge in arbitration of cases although judges are pursued by case laws in many circumstances. The greatest challenge is establishing what really constitute fundamental breach that can lead to remedies. Whereas the remedies are clearly set out, there is still a challenge in telling fundamental breach from non-fundamental breach. A clear definition of fundamental breach is needed to ensure proper application of the stipulated remedies according to the Convention. Avoidance by the buyer has to be a means of last resort as preserved by many European Courts. However, there should be a clear definition of what constitute fundamental breach to avoid chances of unscrupulous buyers frustrating sellers. Fundamental breach constitutes a crucial part of the convention hence making this topic very vital in expanding the understanding of international commercial law for the benefit of all parties6. Choosing UNIDROIT Principles and CISG is very important since they play an important role in international commercial law across the globe. One important reason for escaping a contract under the Convention is Fundamental Breach. This makes fundamental breach to be a very important topic of discussion in international commercial law. Literature review Breach of contract under CISG describes the nonperformance of a party of its obligations as stipulated on the contract. The various available remedies for a buyer are stipulated in part III under the CISG, Articles 45-52. CISG allow several remedies that comprise of right to performance, right to cure, rescission, right to damages, and right to avoid the contract owing to breach of contract that is fundamental7. The preservation of a contract is very fundamental under the CSIG and as a direct consequence the remedy of avoidance or rescission of contract is allowed on establishing a material breach or fundamental breach. Where the breach cannot be defined as fundamental, a buyer is able to avoid the contract as long as he gives notice to the seller requesting the seller to substantiate or repair the goods and sets out an additional time limit for the seller performance. The notice can be together with the notice by the buyer of nonconformity under article 39, or it can be sent separately as long as the buyer sends it in reasonable time period8. If the seller will deliver the goods beyond the stipulated time period, the buyer can avoid the contract as long as a notice is issued in reasonable time period. A buyer withholding the right to cure of the seller can forfeit his right to price reduction. The remedy stated by the buyer will determine damages at the disposal of the buyer. CISG also offers remedies for excess delivery after the setting of additional time period and any other circumstances described within the chapter. Avoidance is the right of the buyer to avoid the contract if he feels that the seller has committed a fundamental breach. Many European Courts have often stuck to the perspective that the remedy of avoidance has to serve as a means of last resort a party carrying out contractual obligations. When the other party failed to perform in the additional time of reasonable length, or when the supplied goods persisted to be useless for the buyer hence preserving the contract conformity according to the CISG philosophy9. No court in the United States has denied the remedy with regard to strict adherence as illustrated by European courts. A breach has to result into a detriment which significantly deprives the party that is aggrieved what he is entitled to expect as stipulated in the contract for it to be fundamental. Reference to expectations under the contract state that the measure for breach of contract is found in the implied and express terms found in the contract. This kind of reference does not make it clear whether other circumstances surrounding the case such as trade practices enacted by the parties, negotiations; usages and other subsequent conduct of parties have to be considered. Furthermore, it is not very clear when does a breach significantly deprives the party that his aggrieved of his expectations10. For instance, Can a party significantly be deprived when he has absolutely lost any interest in the performance? Or does significant deprivation mean that the purpose of the aggrieved party getting into the contract be ‘frustrated’ the gain of the bargain be lost owing to the breach? Any literal interpretation does not offer answers to such kind of questions. According to the wording within the conditional clause “unless the party within the breach did not foresee as well as a reasonable individual of the same kind within the same conditions would not have foreseen such outcome”11. One can infer a condition for foreseeability of the breach’s consequences. This confirms the perspective of various law scholars that foreseeability is apart from being a burden of proof rule, it is also needs taking into consideration the breaching party’s foreseeability or knowledge of the adverse consequences of the breach in determination if it is fundamental or not. The foreseeability requirement in Article 25 CISG carries a similar effect as that of foreseeability requirement in the general rule used for determining damages under Article 74 CISG because it constrains the rights of the party aggrieved in case the other party did not foresee the adverse consequences and assists in determining the breach’s severity. Fundamental breach is an important concept under CISG because it is a precondition for avoidance of contract under articles 49(1) (a) as well as 64(1) (a). The fundamental breach of contract empowers the buyer reclaiming deliver of substitute goods and come up with remedies despite the risk having passed to him12. Nevertheless, only non-fundamental breach is sufficient to give the aggrieved party entitlement of claiming damages as well as claiming price reduction. This fact points to the fact that the enactors of CISG considered the basic distinction between non-fundamental breach and fundamental breach. Fundamental breach gives entitlement to remedies that provide rigorous consequences even contract termination. If a breach of contract happens, one has to first establish if it fundamental which entitles a party declaring the avoidance of contract. However, article 25 CISG does not offer guidelines for the distinction between non-fundamental breach and fundamental breach. It only state that breach of contract committed by any of the parties is fundamental if it occasions detriment to the other party hence depriving him of what he is entitled to under the contract, unless the party within the breach did not foresee as well as a reasonable person in the same kind of conditions would have foreseen such an outcome13. This has led to criticism on the provision since it does not provide clarity in the fundamental breach definition. Such obscurity or vagueness is owing to differences in regard to the definitions of fundamental breach that is to be found within various legal systems which prevented drafters from reaching at an agreement on the kind of breach leading to avoidance of contract. CISG does not offer an illustration of what can constitute a fundamental breach for application purposes and simply offers interpretive guidelines that are general. In definition of fundamental breach under the Convention, legal scholars urged repeatedly to avoid the recourse to domestic concepts for the reason that CISG under article 7 calls for a uniform interpretation as well as application of its provisions14. As severally emphasized in case law and legal writing, CISG must be interpreted autonomously whereby its interpretation does not have to depend on legal concepts domestically, neither common law origins nor civil law. There have been efforts to achieve uniform interpretation of CISG and several solutions have been fronted15. CISG cannot solely rely on the interpretation of one court that is binding like the International Court of Justice. Whereas foreign case law under CISG is not binding as recently witnessed in case law, it is still a significant persuasive instrument for judges as well as arbitrators across the world according to the purpose of uniform interpretation emphasized by many leading scholars. The huge number of decisions concerning CISG shows that not all of them are contributing to the uniform interpretation goal of the Convention16. In some circumstances the decisions are diverging and misleading since diverging interpretations by national courts is a challenge of all international uniform laws as pointed out by scholars. Consequently, it is ridiculous to leave arbitrators and judges with the difficult task of determining which published decisions can lead to a uniform interpretation of CISG. It is important to keenly evaluate the decision in an effort to define what is meant by fundamental breach under the CISG. Obviously there are gaps in the existing literature concerning progressive application and implementation of CISG and UNIDROIT Principles. This calls for further research to help in the application of the convention and proper application of remedies. It is important to have a clear definition in fundamental breach for ease of sale of goods contract understand CISG and UNIDROIT Principles17. Cases of avoidance of contracts require a quick review of the Convention to assist its application in commercial law. It is important to have case laws that can be used as precedents for further judgment and progressive improvement of international commercial law18. Further research has to improve the implementation and application of the Convention in international commercial law. Methodology The mythology defines the research design that will be followed in the collection, analysis and interpretation of data. Primary research will involve seeking opinions of international commercial law scholars on the issue of Fundamental Breach. Secondary literature will be majorly used in this research comparative analysis will be used to evaluate the application of the Conventions in different jurisdictions. The research will follow case laws to evaluate the decisions that have been made by judges and arbitrators in various jurisdictions with regard to CISG Convention. Courts have used protection mechanisms stipulated in otherwise applicable law thus rendering unenforceable limitation or exemption of liability clauses. Consequently the research will evaluate the impact of various court decisions in case laws that have rendered impossible the need to streamline CISG application across jurisdiction. The research will compare such instruments like black letter law with national law to establish how other jurisdictions propose a solution. The information gathered will be analyzed, interpreted and a comprehensive report written discussing the findings and implications of the study. Conclusion CISG and UNIDROIT Principles play an important role in international commercial law. There have been cases where parties to a contract have avoided the construct on the account of Fundamental Breach and hence research to improve interpretation of Fundamental breach is needed. Absence of uniform application of the Convention has delayed ratification of the Convention in other countries. Proper interpretation of fundamental breach will enhance uniformity philosophy as envisioned in the Convention. It is important to simplify the legal environment in order to enhance trade among trading partners and international cohesion amidst diversity. A review of fundamental breach is very significant to the progressive implementation of the Convention across the globe. Many players will come on board if there is uniformity in the application of the Convention and interpretation of Fundamental breach. References Agrò, Eleonora Finazzi. "The Impact of the UNIDROIT Principles in International Dispute Resolution in Figures." Unif. L. Rev. 16 (2011): 719. BONELL, Michael Joachim. "The UNIDROIT Principles and CISG." An International. 2010 Chengwei, Liu. "Remedies for Non-performance-Perspectives from CISG, UNIDROIT Principles and PECL." (2014). Dennis, Michael J. "Modernizing and harmonizing international contract law: the CISG and the Unidroit Principles continue to provide the best way forward." Uniform Law Review-Revue de droit uniforme (2014): unu003. Gabriel, Henry Deeb. "Unidroit Principles as a Source for Global Sales Law." Vill. L. Rev. 58 (2013): 661. Hofmann, Nathalie. "Interpretation Rules and Good Faith as Obstacles to the UK's Ratification of the CISG and to the Harmonization of Contract Law in Europe." Pace Int'l L. Rev. 22 (2010): 145. Kornet, Nicole. "The common European sales law and the CISG-complicating or simplifying the legal environment?." (2012). Lando, Ole. "Comments and Questions Relating to the European Commission's Proposal for a Regulation on a Common European Sales Law." Eur. Rev. Private L. 19 (2011): 717. Magnus, Ulrich. "Interpretation and gap-filling in the CISG and in the CESL." Journal of International Trade Law and Policy 11.3 (2012): 266-280. Manjiao, Chi. "Application of the UNIDROIT principles in China: successes, shortcomings and implications." Uniform Law Review-Revue de droit uniforme 15.1 (2010): 5-36. Michaels, Ralf. "The Unidroit Principles as global background law." Uniform Law Review-Revue de droit uniforme 19.4 (2014): 643-668. Schwenzer, Ingeborg. Commentary on the UN Convention on the International Sale of Goods (CISG). Oxford University Press, 2010. Veneziano, Anna. "UNIDROIT Principles and CISG: Change of Circumstances and Duty to Renegotiate according to the Belgian Supreme Court." Unif. L. Rev. 15 (2010): 137. Vogenauer, Stefan. "Common frame of reference and UNIDROIT Principles of International Commercial Contracts: coexistence, competition, or overkill of soft law?." European Review of Contract Law 6.2 (2010): 143-183. Read More