1. Prof. Giorgio F. COLOMBO

2. Lesson n. 11

3.  The Convention contains special rules for the situation in which, prior to the date on which performance is due, it becomes apparent that one of the parties will not perform a substantial part of his obligations or will commit a fundamental breach of contract.  A distinction is drawn between those cases in which the other party may suspend his own performance of the contract but the contract remains in existence awaiting future events and those cases in which he may declare the contract avoided

4.  In international trade it is inevitable that from time to time circumstances will arise which will give rise to problems in the performance by a party of his contractual obligations.  While it is undesirable that the emergence of such problems should lead precipitately to the contract being avoided when it might be possible, given time, to find ways of overcoming the problems, it is also undesirable that the contract should have to remain in force when it is clear that a fundamental breach is going to occur

5.  Art. 71 allows for the suspension of the performance in case of temporary problems  Art. 72 allows for the termination/avoidance of the contract when the problems are structural  Art. 73 specifically refers to the case of a contract for delivery of goods by instalments

6.  Under Art. 71, it does not matter if the inability to perform is intentional, unintentional or due to external factors  It may be subjective... ◦ Insolvency ◦ Expiry of licence, etc.  or objective ◦ Embargo ◦ Strike

7.  Art. 71 CISG  «[...] after the conclusion of the contract, it becomes apparent […]  What happens if ◦ the circumstances exist before the conclusion of the contract, but they become apparent only after? ◦ the circumstances are apparent before the conclusion of the contract?

8.  Art. 71 ◦ «It becomes apparent» ◦ «likelihood of the apprehended non-performance amount to a virtual certainty by normal business standards » ◦ Absolute certainty is not required  Art. 72 ◦ «It is clear» ◦ Does it imply «absolute certainty»? ◦ Importance of party’s declarations

9.  Art. 71 allows Seller to prevent the «handing over of the goods to the Buyer»  However, Art. 71 is applicable only to the relationship between Buyer and Seller  It does not have any effect on rights of third parties who have acquired in good faith title over the goods  The relationship between the carrier is a matter not covered by the CISG

10.  The co-existence of two remedies for anticipatory breaches - suspension of performance under Article 71 and avoidance of the contract under Article 72 - will mean that in practice a party wishing to take some action in respect of such a breach may need to consider whether he should invoke one of the provisions, the other or both

11.  In many cases it is likely that both provisions will be applicable, for example, where the anticipated breach is of a fundamental character.  Suspension of performance is the less drastic remedy and it has the advantage that it can be effected without delay because prior notification of intention to the other party is not required

12.  However, a notice to the other party is required immediately after performance has been suspended, and if both the articles are applicable, it might be desirable that the notice comply with the requirements of both – by informing the other party that performance by the party giving the notice has been suspended and that he intends to declare the contract avoided.

13.  If the other party responds by providing adequate assurance of performance, the party giving the notice will, of course, have to continue his performance and refrain from declaring the contract avoided.

14.  Art. 49 CISG ◦ Remedies granted to the Buyer  Art. 64 CISG ◦ Remedies granted to the Seller  What is the difference?

15.  A Russian Buyer and a Portuguese Seller in entered into a contract for the supply of certain equipment.  Three machineries were to be supplied in January, February and March  The machineries were to operate interdependently, and they are custom-made and not compatible with machineries from other suppliers

16.  Under the contract the Buyer made an advance payment  The delivery in January was completed with no problems and the machinery was functioning  However, the delivery in February was defective and the machinery could not operate properly

17.  Seller recognized the problem, and expressed its intention to fix it. Parties agreed, however, that it would be “extremely difficult” to fix the problem  Seller suggested that the parties should wait until the delivery in March before taking any decision

18.  In response, Buyer declared the contract avoided due to the fact that the equipment designed in accordance with the design suggested by Seller was of low technological level and could not be joined with the equipment installed at customer's enterprise  Seller claimed that the avoidance of the contract was unreasonable and, thus, in his opinion, he could retain the advance payment  Buyer brought legal action against Seller for the recovery of the advance payment

19.  Buyer, a German company, ordered 140 pairs of winter shoes from Seller, an Italian shoe manufacturer  After having manufactured the ordered shoes, Seller demanded security for the sales price as Buyer still had other bills to settle with Seller

20.  The Buyer did not provide any bank guarantee or other form of security, but it said that it will settle its bills «soon»  The Seller, unsatisfied with the reply, declares the contract avoided  The Buyer brings legal action against the seller to obtain performance