Larry_A_DiMatteo_-_International_Sales_Law_A_Global_Challenge-Cambridge_University_Press_2014

to the remedy of specific performance if performance has become temporarily suspended or rendered impossible. Avoidance and price reduction remain applicable despite the exemption.

5. Period of Exemption and Notice

Unlike other excuse doctrines, Article 79 excuse does not last longer than the period of the impediment. Where, for instance, a hurricane impedes timely delivery, the seller remains obliged to deliver as soon as possible after the hurricane. The buyer cannot request damages for the delay due to the hurricane, but may claim damages for any further delay caused by the seller. Article 79(4) obliges the debtor also to inform the creditor of the impediment and its effect on the debtor’s ability to perform so that the creditor can undertake measures to avoid further loss. Failure to give notice is regarded as a breach, which in turn may lead to damages for any loss caused by the lack of notification, unless the failure to give notice is also excused (Article 79(4), sent. 2).

6. Limit of Damages under CISG Article 44

An entirely different limit of damages is encountered in situations covered by Article 44. Where the buyer has disregarded its notice duty under Articles 38, 39, or 43(1), it loses its remedial rights. Yet if the buyer has a reasonable excuse for the failure it remains entitled to damages, except for loss of profits. This provision, which the courts rarely apply, protects the indemnity interest of the buyer but not its expectation interest.

D.Calculation of Damages

1.Full Compensation

The general rule on assessing damages is Article 74. The provision prescribes that damages should provide compensation for the full extent of the nonbreaching party’s losses (full compensation principle).27 The aim of damages under the CISG is to put the aggrieved party, through the payment of damages, at the economic position it would have been in had the contract been correctly performed.28 This also means that damages are not meant to enrich the aggrieved party; eventual benefits caused by the breach must

27Schlechtriem and Butler, UN Law, para. 299.

28UNCITRAL Secretariat Commentary, Article 70, para. 3 (of the draft): “the basic philosophy of the action for damages is to place the injured party in the same economic position he would have been in if the contract had been performed”; Victor Knapp, in Commentary on the International Sales Law (ed. Massimo Bianca and Joachim Michael Bonell) (Milan: Giuffre,´ 1987), Article 74, para. 3.1; John Honnold and Harry Flechtner, Uniform Law for International Sales under the 1980 United Nations Convention, 4th ed. (The Hague: Kluwer, 2009), para. 403; Ulrich Magnus in Festgabe fur¨ Professor Dr. Rolf Herber (Neuwied: Luchterhand 1999) 28; Peter Huber in Kommentar zum Burgerlichen¨ Gesetzbuch, vol. 3, 5th ed. (Munich: Beck, 2008), Article 74, para. 16; Magnus, “Wiener UN-Kaufrecht,” Article 74, para. 16; Peter Mankowski in Munchener¨ Kommentar zum Handelsgesetzbuch, vol. 6, 2nd ed. (Munich: Beck, 2007), Article 74, para. 8; Ingeborg Schwenzer in Commentary on the UN Convention on the International Sale of Goods (CISG), 3rd ed. (ed. P. Schlechtriem and I. Schwenzer) (Oxford: Oxford University Press, 2010), Article 74, para. 3; see also Christoph Brunner, UN-Kaufrecht – CISG (Bern: Stampfli,¨ 2004), Article 74, para. 5.

be offset against the loss.29 Such benefit would be, for instance, saved manufacturing costs where the buyer intended to finalize the nondelivered or nonconforming goods.30 However, the fixed running costs of the creditor’s business are not recoverable because these costs would fall due whether or not the contract was breached.31

2. Causation and Foreseeability

The loss is the negative consequence that the breach caused, however, limited to what the party in breach foresaw or ought to have foreseen when concluding the contract. Both causation and foreseeability attempt to limit damages in a fair and balanced way. However, both elements are not further defined in the CISG. Causation requires merely that the conditio sine qua non-formula is met: the loss would not have occurred but for the breach. If the breach is an omission, there must be a high probability that the loss would not have occurred if the omitted obligation had been fulfilled. The CISG does not recognize other restrictions on finding causation, such as the exclusion of indirect losses.

The primary limit to the payment of compensatory damages is the foreseeability of the loss requirement. Here, the debtor must bear such losses of which it knew, due to special information (generally provided by the creditor) or because it accepted the risk in the contract, as well as the “normal” losses that a reasonable person should have foreseen as the consequence of the breach (“reasonable person standard” found in Article 8, para. 2). For example, a seller contracted for copper who fails to deliver, but knows that copper prices are rising, must foresee and compensate the loss of the buyer who has to buy copper at higher prices from other sources.32 In essence, the element of foreseeability, if properly interpreted, secures a fair allocation of risk between the contract parties.

For practical purposes, it often suffices to state that the loss is the diminution in market value of, or the costs for restoring, the position the aggrieved party would have been in had the contract been performed and the breach not occurred. Articles 75 and 76 CISG provide for special rules, which allow a kind of abstract calculation of damages. After avoidance of the contract the creditor may claim the difference either between the contract price and the price for a reasonable cover transaction or, without cover, between the contract price and the current market price as damages.

3. Proof and Certainty

Even if a loss was foreseeable, the creditor still must prove the extent of the loss. Although the CISG does not expressly say so and although the question of certainty may be regarded as part of procedural law (law of the lex fori), it is a common requirement

29 See also CISG Advisory Council, “Opinion No. 6,” (Reporter John Gotanda), available at CISG- online/cisg-ac.

30See Delchi Carrier SpA v. Rotorex Corporation, 71 F.3d 1024 (2d Cir., 1995) (Delchi Carrier); OLG Hamburg IHR 2001, 19 (21).

31Id.

32China International Economic and Trade Arbitration Commission (CIETAC), 12.1.1996, CLOUT No. 678.

in most legal systems that the loss and its extent must be reasonably certain, in particular with respect to lost profits.33

E. Problems

1. Unforeseeable Losses

There are not many cases where the courts held losses to be unforeseeable. An example is a German Federal Court decision that denied repair costs of 78,000 DM as unforeseeable, as the value of the goods was only 63,000 DM.34 The court held that it was not to be expected that the seller would foresee repair costs that are out of proportion to the value of the bargain. In this case, the buyer also violated its duty to mitigate. Another German court, involving a Turkish seller and a German buyer of half-fabricated goods, held that the Turkish seller could not have foreseen that a delay in delivery would cause the buyer additional production costs due to buyer switching the place for completing the goods from Turkey to Germany because of time constraints. The German company was attempting to recover the higher costs of completing the goods in Germany.35 The decision would have been different if the seller was informed of the buyer’s plans when the contract was concluded.

2. Consequential Damages

“Normal” consequential damages are generally foreseeable. Collection of such damages is supported by the CISG’s full compensation principle, and corresponds to the risk allocation envisioned by the CISG. Therefore, a buyer is, for instance, entitled to damages where a “floating center” (a basin filled with salt water so that a person can float on the water) leaks and damages the buyer’s house.36 If, as in this case, the nonconformity of the good is the ground for further damages, two restrictions must be taken into account. First, Article 5 excludes cases from the scope of the CISG where the good or its defect causes bodily harm to a person. In such cases, the national contract or tort law would be applied.37 Second, in order to be entitled to compensation, the buyer must have fulfilled its duty to notify the seller of the defect, or failure to give notice was excused under Articles 40 or 44.

3. Loss of Business

CISG Article 74 provides expressly that lost profits are recoverable. As mentioned previously, the loss must be proved with sufficient certainty. It can also include the loss of further sales (volume sales), which would have been made had the breach not occurred.

33Delchi Carrier.

34BGH NJW 1997, 3311.

35Oberlandesgericht (Court of Appeal [OLG]) Bamberg Transportrecht-Internationales Handelsrecht (TranspR-IHR) 2000, 17.

36Handelsgericht Zurich¨ SZIER 1996, 51 (the “floating centre” was evidently not used for private purposes).

37See Schlechtriem and Butler, UN Law, para. 39; contra, OLG Dusseldorf,¨ July 2, 1993, Recht der Internationalen Wirtschaft (RIW) 1993, 845 (applying the CISG, though without any discussion of the problem).

The U.S. decision in Delchi Carrier SpA v. Rotorex dealt with such a situation. The buyer could not complete the manufacture of its air conditioners in the spring for the coming summer selling season because the seller had delivered 10,800 nonconforming compressors. With some delay, and after a short break of its production, the buyer was able to secure fitting compressors from another source. The court accepted that, although the buyer finally could produce the full number of air conditioners, it nevertheless lost sales due to the seller’s breach – because of the postponed manufacture, the buyer could not fulfill orders to its customers during that time. The sale of air conditioners as a typical summer product meant the buyer could not later make good the lost volume of units that were not available for sale during the important selling period.38 Under the circumstances in the Delchi case, compensation of lost volume was justified.

4. Wasted Expenditures

With compensation of “loss, including loss of profit,” Article 74 protects the indemnity interest and the expectation interest of the creditor. International case law on the CISG acknowledges that the reliance interest also should be protected. A creditor is entitled to compensation of such expenditures as it reasonably incurred in reliance on the correct performance of the contract by the other party. If, for instance, the buyer purchased tooling uniquely fitted for its production process that proved to be defective, then it can claim the full costs of the tooling if the tooling cannot be used for other production purposes.39

5. Currency Loss

The CISG does not state in which currency the damages should be paid that a debtor owes as compensation or whether a loss in the value of currency falls under Article 74. Generally, the compensation sum is owed in the currency in which the loss was suffered. In most cases, in particular in cases of delayed payment of the price, this currency will be the contract currency. This is the currency on which the parties have explicitly or implicitly agreed or, absent such an agreement, an appropriate currency that would correspond to the parties’ practices or to international usage, or in the last instance the currency at the seller’s place of business.40 It is a different question whether the debtor then must pay in this currency or is allowed to pay the value of the contract currency also in another currency. Again, this depends on the parties’ express or implicit agreement on such right of substitution, on their practices, on international usage or, lastly, on the applicable law. The CISG itself does not provide such a right.41

A loss due to falling exchange rates can be a foreseeable recoverable loss, namely, when the creditor receives the compensation sum in a foreign currency. In that case it is foreseeable that the creditor has to exchange the money into the currency at his

38Delchi Carrier.

39Id.

40See KG January 24, 1994, RIW 1994, 683; Schlechtriem and Butler, UN Law, para. 211.

41Oberster Gerichtshof (Austrian Supreme Court [OGH]), October 22, 2001, Internationales Handelsrecht (IHR) 2002, 24.

or her place of business. Any exchange rate loss then falls under Article 74.42 The internal loss of value of a currency (inflation) can also be a recoverable loss if the extent of that loss is unforeseeable (unexpectedly high) and can be proved with reasonable certainty.43 Moreover, the applicable interest rate must not already cover the level of internal inflation.44

6. Litigation Costs

It has been held by U.S. courts that under the CISG, litigation costs are not recoverable.45 The U.S. courts reference the so-called American rule according to which each party has to bear its own legal costs. The statement goes, however, too far; it is correct only insofar as provisions or rules of civil procedure regulate litigation costs. The rules of civil procedure in areas within their scope may exclude the CISG, except in the areas of the burden of proof and Article 11. However, the CISG provisions on damages remain applicable outside legal proceedings. In U.S. legal proceedings, the American rule may be justified because there are other mechanisms to compensate a successful claimant for litigation costs (in particular, contingency fees, high compensation awards, and punitive damages). Outside legal proceedings, no such means of compensation exist. Then to deny damages would contradict the full compensation principle of Article 74. Therefore, any litigation costs outside the coverage of the procedural rules can be recovered if reasonably foreseeable. That is generally the case where the kind of breach of contract and the conduct of the other party make it reasonable to require a lawyer, in particular, in

42 Ulrich Magnus, “Wahrungsfragen¨ im Einheitlichen Kaufrecht. Zugleich ein Beitrag zu seiner Luckenf¨ullung¨ und Auslegung,” 53 Rabels Zeitschrift fur¨ auslandisches¨ und internationales Privatrecht (RabelsZ) 138 (1989); in the same sense Wilhelm Albrecht Achilles, “Kommentar zum UNKaufrechtsubereinkommen¨ (CISG),” in Gemeinschaftskommentar zum Handelsgesetzbuch mit UN-Kau- frecht, 8th ed. (ed. J. Ensthaler) (Cologne: Heymann, 2011), Article 74, para. 11; Brunner, UN-Kaufrecht, Article 74, para. 45; Gotanda in UN Convention, Article 74, para. 52; Norbert Kranz, Die Schadensersatzpflicht nach den Haager Einheitlichen Kaufgesetzen und dem Wiener UN-Kaufrecht (1989), 150f.; Huber in Kommentar zum Burgerlichen¨ Gesetzbuch, Article 74, para. 50; Mankowski in Munchener¨ Kommentar, Article 74, para. 40; Burghard Piltz, Internationales Kaufrecht, 2nd ed. (Munich: Beck, 2008) §5, para. 453; Burghard Piltz, Neue Entwicklungen im UN-Kaufrecht, Neue Juristische Wochenschrift (NJW) 1994, 1101, 1106; Bernd Scheifele, Die Rechtsbehelfe des Verkaufers¨ nach deutschem und UN-Kaufrecht (Rheinfelden: Schauble,¨ 1986) 111; Schwenzer in Schlechtriem and Schwenzer, Commentary, Article 74, para. 41; Rolf Weber, “Vertragsverletzungsfolgen: Schadensersatz, Ruckabwicklung,¨ vertragliche Gestaltungsmoglichkeiten,”¨ in Wiener Kaufrecht (ed. E. Bucher) (Bern: Stampfli,¨ 1991), 165, 200–1; Wolfgang Witz, Hanns-Christian Salger, and Manuel Lorenz, Internationales Einheitliches Kaufrecht (Heidelberg: Recht und Wirtschaft, 2000), Article 74, para. 21.

43Rechtbank Roermond, May 6, 1993, in: UNILEX; Hof Arnhem Nederlands Internationaal Privaatrecht (NIPR) 1998 Nr 101; Handelsgericht Zurich¨ SZIER 1998, 75.

44OLG Dusseldorf,¨ January 14, 1994, Case Law on UNCITRAL Texts (CLOUT) Nr. 130.

45See Zapata Hermanos Succesores, S.A. v. Heartside Baking Co. Inc., 313 F.3d 385 (7th Cir. 2002), reversing Zapata Hermanos Successores S.A. v. Hearthside Baking Co., 2001 WL 1000927 (N.D. Ill., 2001); Harry Flechtner and Joseph Lookofsky, “Viva Zapata! American Procedure and CISG Substance in a U.S. Circuit Court of Appeal,” Vindobona J. Int’l Commercial Law & Arbitration 93 (2003); Gotanda in UN Convention, Article 74, para. 69; Ulrich Magnus, Zeitschrift fur¨ Europaisches¨ Privatrecht (ZEuP) 2006, 120–1; Peter Schlechtriem, Praxis des Internationalen Privatund Verfahrensrechts (IPRax) 2002, 226; in the same sense as the second Zapata decision also San Lucio, S.r.l. and San Lucio USA v. Import & Storage Services, LLC, and others, April 15, 2009, IHR 2010, 64 (US District Court for the District of New Jersey); see also CISG Advisory Council, “Opinion No. 6,” available at CISG-online/cisg-ac.

the pursuit of a claim in a foreign country.46 For example, the creditor should be able to collect any legal costs, under Article 74, including those expended prior to the debtor’s payment, even if incurred prelitigation.47 Also, the costs of arbitration are recoverable unless there is a specific provision regulating them in the arbitration agreement or in the rules of the agreed arbitration court.48

7. Loss of Goodwill

In rare cases, the intangible loss of goodwill has been held to be recoverable under Article 74. The Swiss Federal Court stated that the buyer of nonconforming goods may claim compensation for loss of goodwill (loss of clients) “if the buyer appears to be a wholesaler in a sensitive market and has no possibility to provide its clients by own measures in time with conforming goods.”49 In the case at hand the seller had delivered meat with fifty percent of fat instead of the agreed upon thirty percent. If the wholesale buyer can prove that he had lost some of his sub-buyers, then the principle of full compensation requires that such losses are recoverable.

IV. Avoidance

Avoidance plays an almost equally important role as damages in the CISG remedial scheme. It is a remedy of particularly drastic and incisive effect; it releases the parties from their obligations and ends the maxim pacta sunt servanda for the individual contract. Only residual obligations, mainly of restitution or already incurred damages, remain in force.50

Contract law defines the borderline when a party is entitled to avoid a contract by unilateral declaration because the other party has committed, or is likely to commit, a breach of contract. An intuitive rule would probably free the aggrieved party from its contract where the breach of the other party has some weight, whereas a minor nonperformance may not provide a justification to cancel the contract that may have become burdensome for quite some other reason. For international sales transactions it has, in addition, to be taken into account that often considerable costs and efforts – higher than in internal sales – for transport, customs, and so forth, but also for the negotiation of the contract, are necessary and have been incurred. It is the respective party’s interest that these costs and efforts should not be wasted. It is also in the public interest to have legal rules that safeguard the efficient use of resources and avoid any waste as far as possible.

46OLG Dusseldorf¨ RIW 1996, 958; Handelsgericht Aargau SZIER 1999, 192; also AG Berlin-Tiergarten IPRax 1999, 172; AG Alsfeld NJW-RR 1996, 120 (though in the specific case rejecting the claim because it would have led to double costs); OLG Hamm, April 2, 2009, IHR 2010, 59 (63); LG Potsdam April 7, 2009, IHR 2009, 205.

47LG Flensburg IHR 2001, 202.

48Schiedsgericht der Handelskammer Hamburg (Arbitration Court of the Chamber of Commerce of Hamburg), NJW 1996, 3229.

49BG SZIER 1999, 179, 181: “wenn der Kaufer¨ erkennbar Zwischenhandler¨ in einem empfindlichen Markt ist und zudem keine Moglichkeit¨ hat, durch eigene Vorkehren seine Abnehmer anderweitig fristgerecht mit mangelfreier Ware zu versehen.”

50See CISG Article 81(1) (contractual dispute resolution – jurisdiction or arbitration – clauses remain in force).

On the other hand, there must be a level of breach from which the aggrieved party is entitled to end the contract because its further continuation has become unacceptable.

A. The Concept

The CISG follows a modified concept of the common law rule that, unless the parties have not agreed otherwise, the right to terminate requires a serious breach of the contract where an ordinary party would have lost the interest in the contract. This breach must be either fundamental in nature or a complete nonperformance within an additional period of time set by the creditor.51 This latter case can also be regarded as a specific, formalized form of fundamental breach. The CISG thus sets the threshold rather high for the avoidance of a contract. For this reason, courts have termed avoidance a remedy of last resort (ultima ratio) that is only available when the aggrieved party can no longer be expected to continue the contract.52 The reason for this high threshold is to prevent the unnecessary waste of costs and efforts for the negotiation of the contract, transport of the goods, and other related costs.

B. Requirements

1. Breach of Contract

Like every CISG-remedy, avoidance presupposes a breach of contract in the same sense as already discussed with respect to damages. However, in contrast to damages and price reduction, a simple breach does not suffice. The breach must be of a specifically serious nature, namely, as mentioned above, a fundamental breach or the non-performance after an additional period for performance had been set (Nachfrist). The general rule, under the CISG, is that no fault of the party in breach is required.

2. Fundamental Breach

The core element of avoidance under the CISG is the fundamental breach.53 Article 25 defines a breach as 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.

Expressed in a simplified form, the fundamentality of a breach requires, first, that, under an objective perspective, the breach destroyed the aggrieved party’s interest in the contract and, second, that the breaching party did foresee or should have foreseen such a result of

51See CISG Articles 49 and 64.

52BGH, 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 Camara´ 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).

53See thereto in more detail Chapter 15 in this book.

its breach. Although it is not the aggrieved party’s subjective assessment of its detriment that is decisive, it is, however, clear that the contractual agreement sets the standard by which to measure the nonbreaching party’s expectations under the contract.54 The aggrieved party must then have been substantially deprived of his objectively determined expectations. Further, this must have been foreseeable by the party in breach. Article 25 does not fix the foreseeability determination at the time of the conclusion of the contract (Article 74). Nonetheless, the result of a breach should be foreseeable at that date in order to enable the parties to assess the risks they are undertaking.

The CISG’s definition of “fundamental breach” contains a number of flexible and rather vague terms which can make it risky to rely on a fundamental breach as such. In hindsight, a court may decide that the breach was not substantial enough or could not have been reasonably foreseen as to allow avoidance. In such cases, the aggrieved party itself would be in fundamental breach for declaring the contract avoided. This risk can be minimized by express contract clauses listing fundamental breach events as well as by declaring avoidance in only cases of clear fundamental breach. Insofar, despite extended theoretical discussions on the definition of “fundamental breach,” its precise contours can only be derived from existing international case law. Some of the problems of determining fundamental breach and applying the avoidance remedy are discussed in the following sections.

3. Nachfrist Procedure

A simpler and safer way to avoidance is the so-called Nachfrist procedure under Article 49(1)(b) in connection with Article 47(1) and, respectively, under Article 64(1)(b) in connection with Article 63(1).55 This procedure is modeled after a similar principle in German law.56 However, under the CISG, this way is not always available, as it requires the complete nonperformance of the debtor’s duty – nondelivery by the seller,57 as well as nonpayment and nonreceipt of the goods by the buyer.58 The debtor’s serious declaration not to perform within the additional period of time has the same effect as his or her nonperformance. Where the debtor has, however, performed, although incorrectly, this mechanism is not available. In such a case, the creditor can avoid the contract only if the incorrect performance in itself is a fundamental breach. The underlying idea is that the creditor should not be able to elevate a minor breach by mere Nachfrist to a fundamental breach that allows avoidance. This also shows that the drafters intentionally designed avoidance as a remedy of last resort.

If there is complete nonperformance of the debtor’s principal sales duties, the creditor can “fix an additional period of time of reasonable length for performance”59 and declare

54For a subjective perspective, see Schlechtriem and Butler, UN Law, para. 111 (agreement of the parties is decisive when they say that “rather the significance for the creditor is the key consideration”).

55See to the Nachfrist procedure Larry A. DiMatteo, Law of International Contracting, 2nd ed. (Austin: Wolters Kluwer, 2009), 253 et seq.

56See §323 German Civil Code (BGB); see also Federal Court of Australia, May 20, 2009, [2009] FCA 522 = CLOUT case No. 956.

57See CISG Article 49(1)(b) (“in case of non-delivery”).

58See CISG Article 64(1)(b) (“if the buyer does not . . . perform his obligation to pay the price or take delivery of the goods”).

59CISG, Articles 47(1) and 63(1).

the contract avoided if the debtor does not perform during that period (Article 49(1)(b)). The contract then ends with the creditor’s declaration of avoidance or the lapse of the additional period, whichever is the later. The reasonable length depends on the circumstances and takes into account how long a reasonable debtor would need to complete performance.

4. Part-Performance and Installment Contracts

Special avoidance rules apply in cases of part-performance and nonperformance in installment contracts. Under Article 51, the creditor can avoid the contract for the missing part, for instance for missing 50 units of the owed 100 units, if their nondelivery or their incorrect delivery constitutes a fundamental breach or is not delivered within a Nachfrist extension. The whole contract can only be avoided if the failure to correctly deliver performance is a fundamental breach of the whole contract. For example, if the delivered parts are unusable without the delivery of other goods, or a Nachfrist period has lapsed, then a fundamental breach of the entire contract has occurred.60

Almost the same rules apply to installment contracts where the parties must have agreed on delivery in at least two separate installments. In such a case, Article 73 is applicable. Under this provision, the creditor can avoid the contract for the single installment if the nonperformance or incorrect performance is a fundamental breach with respect to that installment; avoidance of the entire contract is possible, if the former installment(s) of the goods have become useless due to the missing or incorrect installment.

5. Avoidance for Anticipatory Breach

Still another rule applies where a party wants to avoid a contract before the date of performance because of its reasonable anticipation that the other party will in all likelihood commit a fundamental breach (Article 72). The party declaring an anticipatory breach risks liability if the declaration is not clearly supported by a high likelihood that a fundamental breach will occur. The mere suspicion that such a breach will happen does not suffice. There must be clear facts that show that it is almost certain that the breach will occur.61 This has, for instance, been held to be the case where past deliveries were always significantly late and it is clear that this will also occur in future.62 It is also the case where the bankruptcy of the debtor is expected and where it is obvious that the other party is no longer preparing to perform, especially where longer preparations are necessary for a timely and correct performance.

6. Duties of the Creditor

Parallel to the remedy of damages, where the breach concerns nonconforming goods, the buyer must always fulfill its duty to give notice of any defect in a timely manner if

60Article 51(1) refers to Articles 46 to 50 and thus includes Article 49 with its two alternatives of fundamental breach or Nachfrist. This must also apply to Article 51(2).

61OLG Dusseldorf¨ April 24, 1997, CISG-online 385 [sicherer Schluss]; LG Berlin September 20, 1992, UNILEX.

62OGH JBl 1999, 54.

it wants to rely on the remedy of avoidance. Without correct notice, the buyer cannot avoid the contract unless the exceptions of Article 40 or 44 CISG apply. However, this limitation is only applicable where the seller violated its duty to deliver goods that conform to the contract and are free of third party rights and claims. It does not extend to the violation of other duties of the seller or to the duties of the buyer.

Further, the creditor must observe its mitigation duty, although Article 77 technically only regulates mitigation relating to damages claims. A neglect of this duty, for instance the speculative delay of the declaration of avoidance, may not exclude the creditor’s right to avoid but may impact whether and what amount of damages are awarded.

7. Declaration of Avoidance

Avoidance does not occur automatically; the entitled party must declare it “by notice to the other party” (Article 26). According to Article 27, it suffices if the declaration is dispatched “by means appropriate in the circumstances” so that the other party would receive it in a timely fashion. If that is the case, the declaration becomes effective even if not received by the other party or not received in a timely or correct manner. Unless a form requirement under Articles 12 and 96 CISG applies, there is no specific formality for the declaration of avoidance except that it must be expressed – orally or in writing

– in clear and unambiguous terms that the contract is terminated. A mere complaint of violations of contract duties does not suffice.63 Further, the creditor must declare avoidance within a reasonable time after it knew or should have known that the ground for avoidance had occurred (Articles 49(2) and 64 (2)). Otherwise, the creditor loses the right to avoid the contract.

8. Exemption

Where the debtor is relieved from performance due to an unforeseeable and unavoidable impediment (Article 79), the creditor may nonetheless terminate the contract if the nonperformance constitutes a fundamental breach or if the debtor does not perform during an additional period of time, which the creditor can set despite the exemption of the debtor. Article 79(5) relieves the breaching party only from the duty to pay damages (and implicitly also from the duty to perform). Other remedies, in particular avoidance, remain available. The creditor should not be further bound by a contract that the other party cannot and does not, and is not obliged to, perform.64

9. Exclusion of Avoidance

In principle, the remedy of avoidance is further excluded in a specific case concerning only the buyer, namely when the buyer cannot return the received goods in substantially the same condition as they were received (Article 82(1)). If this return is impossible, the buyer loses the right of avoidance. The underlying consideration is that the buyer shall

63See, e.g., the formulation “de maat is vol” (“the glass is full”) in connection with the request of repayment of the purchase price was held to be a sufficiently clear declaration of avoidance; see Rechtbank van Koophandel Kortrijk, June 4, 2004, available at CISG-online No. 945.

64As long as the exempting impediment lasts; see Article 79(3).