LAWW4128: International Sale of Goods

“The demanding test of fundamental breach under Article 25 of the United Nations

Convention on Contracts for the International Sale of Goods (CISG) may deprive the

injured party of the right to avoid a contract.” Discuss.

By Student ID: 20398468

Introduction

The United Nations Convention on Contracts for the International Sale of Goods

(CISG) has undergo a rather long way which started in the 1920s and was initially guided

by the International Institute for the Unification of Private Law (UNIDROIT) and the

Hague Conference for Private International Law, then by the United Nations Commission

on International Trade Law (UNCITRAL). 1 At the time of writing, 94 countries have

ratified the CISG. Although there are a few major trading states that has not ratified this

convention yet, but the impressive amount of countries that recognized and ratified this

convention shows its success. The aim to create uniformity is clearly presented in the

preamble, where it is apparent that the drafters intended the Convention to be an

adaptation of uniform rules governing contracts for the international sale of goods in

order to remove “legal barriers in international trade” and promoting “the development”

of international trade.2 Subsequently, this principle of uniformity of application 3 supports

the notions that interpretations based on domestic law should be avoided and that the

CISG’s legislative history can be used as guidance to assure uniformity of application. 4

One of the most important, yet controversial, provisions under the CISG are its

remedy provisions.5 There are several cross-references to the concept of fundamental

breach in the CISG: articles 46(2), 49(1)(a), 51(2), 64(1)(a), 72(1), 73(1) and (2). 6

Except for article 46(2) which is concerned about substitute delivery, all of the other

provisions regulates the right of parties to avoid the contract in each specified situations. 7

This paper will further discuss about the effect of its challenging test to determine a

fundamental breach towards the aggrieved party.

1
Alastair Mullis and Peter Huber, the CISG: A New Textbook for Students and Practitioners (Sellier European
Law Publishers 2007) 2
2
Camilla Baasch Andersen, ‘Furthering the uniform application of the CISG: sources of law on the internet’
(1998) 10 Pace Intl’l L Rev. 403; CISG preamble
3
CISG article 7(1)
4
Andrew Babiak, ‘Defining “Fundamental Breach” under the United Nations Convention on Contracts for the
International Sale of Goods’ (1992) 6 Temple International and Comparative Law Journal 113
5
Ibid
6
Robert Koch, ‘The Concept of Fundamental Breach of Contract under the United Nations Convention on
Contracts for the International Sale of Goods’ (1998) 105
7
Ibid

1
An Overview of Article 25 CISG

As provided in article 25 of the CISG, “A breach of contract committed by one of the

parties 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”

Article 25 defines a “fundamental breach” as a prerequisite for avoidance of

contract.8 It stipulates conditions in which the aggrieved party can utilize this remedy. 9 It

is even regarded that the concept of “fundamental” breach is a “central concept in the

Convention’s system of remedies”.10 It is true considering it’s particularly drastic and

strong in effect, as it liberates the party from their rights and obligations as well as ends

the maxim pacta sunt servanda for the individual contract.11 For that reason, courts have

described avoidance as a remedy of last resort (ultima ratio) where the contract should

only be terminated when the aggrieved party can no longer have taken other alternative

measures.12 The function of this concept was to avoid a result of considerable economic

detriment,13 therefore this rationale is purely economic.

In view of the fact that it is impossible to determine precisely cases-by-cases what

could be constituted as fundamental breach, the CISG only provides general guiding

principle; substantial deprivation and foreseeability. There is a significant body of case

8
UNCITRAL, ‘Digest of Case Law on the United Nations Convention on Contracts for the International Sale of
Goods’ (2016) Art. 25 para. 1
9
Alexander Lorenz, ‘Fundamental Breach under the CISG’ (1998)
<https://iicl.law.pace.edu/cisg/bibliography/fundamental-breach-under-cisg> accessed 6 November 2021
10
Barry Nicholas, ‘The Vienna Convention on International Sales Law’ (1989) 105 L. Q. Rev. 201
11
Ulrich Magnus, ‘Remedies: Damages, Price Reduction, Avoidance, Mitigation, an Preservation’ in Larry A.
Dimatteo (ed), International Sales Law: A Global Challenge (CUP 2014) 268
12
BGH, April 3, 1996, BGHZ 132, 290; OGH, September 7, 2000, IHR 2001, 42; see also Tribunale di Busto
Arsizio, Italy, December 13, 2001, Rivista di Diritto Internazionale Privato e Processuale, 2003, 150–5; OLG
Hamburg, January 25, 2008, IHR 2008, 98; in the same sense also Ca m ́ ara Nacional de Apelaciones en lo
Comercial de Buenos Aires (Sala A), May 31, 2007, CISG-online No. 1517 (referring to the principle of
performance and conservation of the contract) (as cited in Magnus (n 12) 269); Alternative remedies under
CISG are: Damages, Price Reduction, Mitigation and Preservation
13
CISG-AC Opinion No 5, para. 3.1, The buyer’s right to avoid the contract in case of non-conforming goods or
documents (2005) < http://www.cisgac.com/cisgac-opinion-no-5/> accessed 7 November 2021

2
law expressing that fundamental breach should be defined in a more restrictive

standard.14 However, since the case law is so fact-specific, there is barely advantage by

listing circumstances in which a breach has been held in the case law to be fundamental,

as necessarily it must be given the test laid down in article 25. 15 So in principle, even if

there are various judicial precedents that could be utilised as a guidelines to determine

what constitutes as fundamental breach, these demanding tests must still be performed

and it is for courts to decide. The main point is that the threshold for establishing a

fundamental breach is high, which reflects the general desire of the drafters of the CISG

to focus on the performance of the contract.16

Burden of Proof

Before explaining the demanding test to determine fundamental breach, it seems

essential to address the burden of proof. The issue of whether the Convention governs it

has long been subject to dispute.17 Today, however, the vast majority in State court and

arbitration practice as well as in scholarly writings considers that burden of proof is a

matter that was governed by the Convention. 18 Therefore, although not explicitly written,

the CISG includes general principles providing that the party who claims a right based on

a rule has the burden to prove that the rule’s conditions are met, and the other party has

14
Tribunal Cantonal du Jura (Switzerland) 26 July 2007; Tribunal Cantonal Valais (Switzerland) 27 April 2007;
OLG Ko ̈ln (Switzerland) 14 October 2002.
15
Michael Bridge, ‘Avoidance for Fundamental Breach of Contract Under the UN Convention on the International
Sale of Goods’ (2010) 59 ICLQ 911, 921
16
Christian Twigg-Flessner and Rick Canavan, Atiyah and Adams’ Sale of Goods (14th edn, Pearsons Education
Limited 2021) 358
17
Ulrich G Schroeter, ‘United Nations Convention on Contracts for the International Sale of Goods (1980)—Full
Text, Part III Sale of Goods, Ch.I General Provisions, Article 25’ in Ingeborg Schwenzer (ed), Schlechtriem &
Schwenzer: Commentary on the UN Convention on the International Sale of Goods (4th edn, ICML 2016)
18
Holding burden of proof to be a matter covered by the CISG OGH, 12 September 2006, CISG-online 1364;
BGer, 7 July 2004, CISG-online 848; BGer, 13 November 2003, CISG- online 840, note 5.2, IHR 2004, 215 with
a note by Mohs; BGH, 9 January 2002, CISG-online 651; Chicago Prime Packers, Inc v Northam Food Trading
Co, 7th Cir, 23 May 2005, CISG- online 1026; Trib Padova, 25 February 2004, CISG-online 819; Trib Rimini, 26
November 2002, CISG-online 737; Trib Vigevano, 12 July 2000, CISG-online 493; Schwenzer, Art 35, para 52
below; CISG-AC, Op 6 Gotanda, Comment 2; Schlechtriem, 2nd edition of this work, Art 4, para 22; Ferrari,
6th German edition of this work, Art 4, para 49; Staudinger/Magnus, Art 4, para 64; Kröll et al/Djordjevic, Art
4, para 35 et seq; W Witz/Salger/Lorenz/Lorenz, Art 4, para 11; Brunner/Murmann/Stucki, Art 4, para 56;
Schlechtriem/Schroeter, para 211; Schwenzer/Hachem, (2009) Am J Comp L 470 et seq; T M Müller, IHR 2005,
16. More guardedly Audiencia Provincial de Valencia, 7 June 2003, CISG-online 948 referring to HGer Zürich, 26
April 1995, CISG-online 248: issues related to burden of proof are not governed by the Convention but, taking
into account its systematic structure, some principles can be inferred. (as cited in Ingeborg Schwenzer and
Pascal Hachem, ‘United Nations Convention on Contracts for the International Sale of Goods (1980)—Full Text,
Part I Sphere of Application and General Provisions, Ch.I Sphere of Application, Article 4’ in Ingeborg
Schwenzer (ed), Schlechtriem & Schwenzer: Commentary on the UN Convention on the International Sale of
Goods (4th edn, ICML 2016))

3
to prove the facts that exclude or are opposed to the application of the rule. 19 In the

context of Article 25, it is not much of a difference as far as the occurrence of a breach of

contract is concerned: This fact has to be proved by the party relying on the alleged

fundamental breach of contract.20

As a result, the burden with regard to substantial detriment as an element of article

25 lies on the injured party. On the contrary, foreseeability element must be proven by

the party in breach, where the buyer however asserts that the seller should have known

specificities of the production procedure for which the buyer intended to use the goods,

the buyer must at least substantiate those circumstances. 21

Substantial Detriment Test for Fundamental Breach

Substantial detriment under Article 25 indicates the criterion is not the degree of

damage but the importance of the underlying interests, the obligations under the

contract, and the resulting consequences for the injured party. 22 “Substantial Detriment”

is not narrowed to any specific situation. Since it is impossible to give a closer definition

of the term “substantially” but to decide on it by court or arbitration according to the

circumstances of each particular cases, different interpretations in the application of the

fundamental breach of contract might cause issues as well as uncertainties.23

In essence, the term detriment fulfils a mere filtering function, as it suffers from the

problem of all general principles. 24 It takes on substance within a particular context only;

19
UNCITRAL, ‘Digest of Case Law on the United Nations Convention on Contracts for the International Sale of
Goods’ (2016) 111; For references to this principle, see Tribunal cantonal du Valais, Switzerland, 28 January
2009, English translation available on the Internet at www.iicl.law.pace.edu; CLOUT case No. 885
[Kantonsgericht Schaffhausen, Switzerland, 13 November 2003]; Bundesgerichtshof, Germany, 9 January
2002, English translation available at www.iicl.law.pace.edu; CLOUT case No. 378 [Tribunale di Vigevano, Italy,
12 July 2000]; Landgericht Frankfurt, 6 July 1994,Unilex; CLOUT case No. 107 [Oberlandesgericht Innsbruck,
Austria, 1 July 1994] (see full text of the decision); CLOUT case No. 608 [Tribunale di Rimini, Italy, 26
November 2002], also in Guirisprudenza italiana, 2003, 896 ff.
20
Schroeter (n 22)
21
CLOUT case No. 171 [Bundesgerichtshof, Germany, 3 April 1996]
22
Aneta Spaic, ‘Interpreting Fundamental Breach’ in Larry A. Dimatteo (ed), International Sales Law: A Global
Challenge (CUP 2014) 242
23
Katrina Jovičić, ‘The Concept of Fundamental Breach of Contract in the CISG’ (2018) Strani Pravni Zivot 39,
43
24
Bruno Zeller, Damages Under the Convention (Oceania Publications 2005) 201

4
that is within a contract.25 Therefore, in order to draw a line between retaining and

avoiding the contract, one needs to know whether there has been a serious infringement

of the injured party’s contractual interests. These are mainly defined subjectively by the

party itself. But the seriousness of the infringement, the fundamentality of the breach, is

26
determined objectively. Consequently, it is not personal and subjective interest of the

injured party that matters but the expectation that can be assessed by looking at the

contract itself.27

In the case of Italdecor S.a.s. v. Yiu’s Industries (H.K.) Ltd., for instance, the court

considered time of delivery as an essential term of the contract because of an express

stipulation in the contract that delivery was an essential part of the contract. 28 Therefore,

the failure to deliver at the date fixed by contract resulted to a fundamental breach by

the seller 29

The Foreseeability of the Damages for Fundamental Breach

The drafting history of Article 25 buttresses its interpretation as an article

determined by culpability.30 In UNCITRAL’s 1977 Session, a delegate of the Philippines,

criticizing the draft, stated:

Under the provisions of the article as it stood, it would be necessary for the
party in breach to foresee the result before a breach committed became a
“fundamental breach”. That was something that would be extremely difficult to
prove in court and it seemed most unfair that the guilty party should be able to
throw the burden of proof on the aggrieved party.31

25
Ibid
26
Ulrich Magnus, ‘The Remedy of Avoidance of Contract Under CISG-General Remarks and Special Cases’
(2006) 25 JLC 423, 436
27
Lorenz (n 10); Heinrich Honzell ‘kommentar zum UN-Kaufrecht’ Article 25-16
28
Spaic (n 23); Italdecor S.a.s. v. Yiu’s Industries (H.K.) Ltd., Case No. 790, Corte di Appello di Milano of Italy,
March 20, 1998, available at http://cisgw3.law.pace.edu/cases/980320i3.html
29
Ibid
30
Yasutoshi Ishida, ‘Identifying Fundamental Breach of Article 25 and 49 of the CISG: The Good Faith Duty of
Collaborative Efforts to Cure Defects – Make the Parties Draw a Line in the Sand of Substantially’ (2020) Mich.
J. Int’l L. 63, 68
31
Ibid; Shinichiro Michida, ‘Cancellation of Contracts’ (1979) 27 AM. J. COMP. L. 285; UNCITRAL, Yearbook
Volume VIII: 1977, U.N. Doc. A/CN.9/SER.A/1977, art. 9 (1978).

5
The underlying issue arise with the “unless” clause within the Article 25 which

connect un-foreseeability with unavoidability based on the notion of culpability. 32 Even

when comparing otherwise identical substantial detriments arising from serious breach,

the breaching party is not liable and hence the breach is not fundamental, if the

breaching party did not foresee, or a reasonable person would not have foreseen such a

result.33 If he foresaw or a reasonable person would have foreseen such a result, the

same breach can be regarded as fundamental.34

However, the provision does not mention the time at which the consequences of the

breach must have been foreseeable.35 It has been expressly stated that the time of the

conclusion of contract is the relevant time.36

Consequently, this provision may protects seller from liability under condition that he

did not foresee, and in a certain special circumstances, a reasonable person did not

foresee either.

Conclusion

The convention’s provision on fundamental breach was drafted in such a vague term

which raises uncertainty as well as strict restriction for the contracting parties to avoid

contract as the result of fundamental breach. The premise in CISG lenient to generally

have courts rule towards other remedies. Its performance-oriented provisions favours the

preservation of the enforceability of the contract that it might cause disadvantage

32
There is another argument against avoidance in unforeseeable situations: It would be anomalous for article
49 to grant the remedy of avoidance for the unforeseeable consequences of a breach, while damages are not
granted for them by article 74, which provides that “damages may not exceed the loss which the party in
breach foresaw or ought to have foreseen at the time of the conclusion of the contract.” In other words, it
would be incongruous “if a party could take the radical step of avoiding the contract on the basis of
consequences for which it could not even recover damages.” Robert Koch, The Concept of Fundamental Breach
of Contract Under the U.N. Convention on Contracts for the Int’l Sale of Goods (CISG), in 1998 REVIEW OF THE
CONVENTION ON CONTRACTS FOR THE INTERNATIONAL SALE OF GOODS 177, 322 (Pace International Law
Review ed. 1999). The unavailability of damage claims for unforeseeable loss has more affinity with avoidance
than maintenance of contract, because the unavailability of damage claims and avoidance commonly treat
unforeseeable situations as belonging to the exterritorial sphere of contract where the parties are released from
their contractual obligations. (as cited in Ishida (n 30))
33
Ibid
34
Ibid
35
UNCITRAL (n 20) Art. 25 para 4
36
CLOUT case No. 275 [Oberlandesgericht Düsseldorf, Germany, 24 April 1997] (see full text of the decision);
CLOUT case No. 681 [China International Economic and Trade Arbitration Commission, People’s Republic of
China, 18 August 1997].

6
towards the aggrieved party. Although, it is understandable that these view might

departed from the observance of good faith in international trade, but these elements

contained in Article 25 might prevent the injured party from terminating the contract

even in the situations where they were substantially deprived of their legitimate

expectation, in which, as long as one of the requirement (such as foreseeability) within

the article is not met, then the contract cannot be avoided.

It is therefore concluded, it is hardly possible to set a standard for fundamental

breach. A court may decide whether the breach was not substantial enough or could not

have been reasonably foreseen as to allow avoidance. 37 However, these uncertainties

could be avoided by including specific provisions in their contracts 38

Bibliography

37
Magnus (n 12) 270
38
Lorenz (n 10)

7
Andersen C B, ‘Furthering the uniform application of the CISG: sources of law on the

internet’ (1998) 10 Pace Intl’l L Rev. 403

Babiak A, ‘Defining “Fundamental Breach” under the United Nations Convention on

Contracts for the International Sale of Goods’ (1992) 6 Temple International and

Comparative Law Journal 113

Bridge M, ‘Avoidance for Fundamental Breach of Contract Under the UN Convention on

the International Sale of Goods’ (2010) 59 ICLQ 911

CISG-AC Opinion No 5, The buyer’s right to avoid the contract in case of non-conforming

goods or documents (2005) < http://www.cisgac.com/cisgac-opinion-no-5/>

Ishida Y, ‘Identifying Fundamental Breach of Article 25 and 49 of the CISG: The Good

Faith Duty of Collaborative Efforts to Cure Defects – Make the Parties Draw a Line

in the Sand of Substantially’ (2020) Mich. J. Int’l L. 63

Jovičić K, ‘The Concept of Fundamental Breach of Contract in the CISG’ (2018) Strani

Pravni Zivot 39

Koch R, ‘The Concept of Fundamental Breach of Contract under the United Nations

Convention on Contracts for the International Sale of Goods’ (1998)

Lorenz A, ‘Fundamental Breach under the CISG’ (1998)

<https://iicl.law.pace.edu/cisg/bibliography/fundamental-breach-under-cisg>

Magnus U, ‘Remedies: Damages, Price Reduction, Avoidance, Mitigation, an Preservation’

in Dimatteo L A (ed), International Sales Law: A Global Challenge (CUP 2014) 268

—— ‘The Remedy of Avoidance of Contract Under CISG-General Remarks and Special

Cases’ (2006) 25 JLC

Michida S, ‘Cancellation of Contracts’ (1979) 27 AM. J. COMP. L. 285

Mullis A and Huber P, the CISG: A New Textbook for Students and Practitioners (Sellier

European Law Publishers 2007)

Nicholas B, ‘The Vienna Convention on International Sales Law’ (1989) 105 L. Q. Rev.

201

8
Schroeter U G, ‘United Nations Convention on Contracts for the International Sale of

Goods (1980)—Full Text, Part III Sale of Goods, Ch.I General Provisions, Article 25’

in Schwenzer I (ed), Schlechtriem & Schwenzer: Commentary on the UN

Convention on the International Sale of Goods (4th edn, ICML 2016)

Schwenzer I and Hachem P, ‘United Nations Convention on Contracts for the

International Sale of Goods (1980)—Full Text, Part I Sphere of Application and

General Provisions, Ch.I Sphere of Application, Article 4’ in Schwenzer I (ed),

Schlechtriem & Schwenzer: Commentary on the UN Convention on the

International Sale of Goods (4th edn, ICML 2016)

Spaic A, ‘Interpreting Fundamental Breach’ in Dimatteo L A (ed), International Sales

Law: A Global Challenge (CUP 2014)

Twigg-Flessner C and Canavan R, Atiyah and Adams’ Sale of Goods (14th edn, Pearsons

Education Limited 2021)

UNCITRAL, ‘Digest of Case Law on the United Nations Convention on Contracts for the

International Sale of Goods’ (2016)

Zeller B, Damages Under the Convention (Oceania Publications 2005)