REMEDIES AVAILABLE FOR BREACH OF CONTRACT UNDER THE UN CONVENTION ON CONTRACTS FOR THE INTERNATIONAL SALE OF GOODS

Published date01 December 1996
AuthorLOCKNIE HSU
Date01 December 1996
Citation(1996) 8 SAcLJ 113

This article, which is complementary to the previous one, examines in detail the remedies available under the UN Convention on Contracts for the International Sale of Goods, which recently came into force in Singapore. Where appropriate, brief comparisons are made with the remedies available under the Sale of Goods Act.

INTRODUCTION

The Convention came into force in Singapore on 1 March 1996, introducing with it a system of remedies which appear, in the main, to resemble those under the Sale of Goods Act.1 On closer examination, however, the Convention contains remedies which are new, some of which may even be alien to the common law system. This paper will discuss these remedies, and make a brief comparison of them with those under the Sale of Goods Act where appropriate. As breach is the basis of a remedy, it is necessary to first consider what constitutes breach, to appreciate when a remedy is available.

BREACH UNDER THE SALE OF GOODS ACT

Breach under the Sale of Goods Act is determined by reference to noncompliance with terms known either as conditions and warranties. Breach of a condition means that the innocent party may rescind, ie, terminate, the contract. This is so regardless of the mildness or severity of the breach.2 Although there are a number of implied conditions imposed by the Act, such as those in sections 12 to 15, these are not exhaustive. Other conditions could arise from the parties’ own agreement.

Breach of a warranty, on the other hand, leads to a different result: under section 53, the seller’s breach of a warranty allows the buyer either to diminish or extinguish the price, or to obtain damages. The latter would be calculated from the value of the goods at delivery, and their price if the warranty had been complied with. The innocent party is not entitled to treat the contract as discharged.

Additionally, under the common law, a third type of term, known as the innominate or intermediate term, has been identified.3 The breach of such terms do not necessarily lead to the termination of a contract. Where the breach leads to a substantial deprivation of the innocent party’s rights, that party may have a right to treat the contract as discharged.

Any action by the innocent party subsequent to a breach must be undertaken cautiously, as it may be interpreted to be a waiver of the breach, which in turn may lead to a loss of rights to remedy.4 This may cause an innocent party to withhold any request for redress short of termination, even if such redress might be a more practical and speedy solution to the situation. To some extent, the Convention corrects this by providing a number of self-help remedies which are less drastic and narrow in scope than terminating the contract.

BREACH AND AVOIDANCE UNDER THE CONVENTION

In order to consider the remedies available under the Convention, it is necessary to first look at the situations which may give rise to them, ie, what constitutes breach.

The Convention does not make use of the classification of terms into conditions and warranties under the Sale of Goods Act, previously referred to. Instead, the reference in Art. 25 is to ‘fundamental breach’:

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.

This has specific implications for what the Convention terms as ‘avoidance’ of contract (eg in Art. 49) and remedies available (eg in Art. 46 and 70). The insertion of the requirement for a reasonable person’s foreseebility limits the scope of the concept of ‘fundamental breach’.

There has been criticism that this article creates problems. One problem is said to be that it would be easier to prove a ‘fundamental breach’ under this article, than to prove the same at common law. Another would be because of the last limb of the article, which is alien to common law fundamental breach.5 As a result, Article 25 appears to create a kind of

fundamental breach which is different from that recognised at common law.6

References are made in the Convention to consequences of such fundamental breach, relating to the remedies available in such cases. These will be examined below. Additionally, the Convention specifies a number of obligations for the buyer and seller. Breach of these would carry remedies mentioned in the Convention, which will also be examined below.

REMEDIES UNDER THE CONVENTION

In examining the remedies available, the bases for each will be discussed, in order to see when the former arise. The buyer’s and seller’s remedies will be looked at in turn, followed by remedies common to both. A number of other relevant issues will also be addressed.

1. The Buyer’s Remedies
Bases of Remedies
(a) Lack of conformity of goods

Unlike the Sale of Goods Act, the Convention does not assume that a breach due to non-conformity is a breach of a condition. The consequences of such a breach must, as a result, be examined before determining the remedy available. One would, for instance, need to ask if the breach constitutes a fundamental breach falling within Art. 25. If so, the buyer may have a right to treat the contract as discharged; if not, he would have to resort to other remedies provided by the Convention.

The terms governing the seller’s non-performance in relation to lack of conformity can be found in Arts. 35 to 40. The types of nonconformity are stated in Art. 35. Further conditions which must be noted before the non-conformity forms the basis of a seller’s liability are found in Arts. 36 and 39. In particular, it is noteworthy that under Art. 39(1), the buyer may lose his right to rely on non-conformity if he fails to give notice to the seller specifying the nature of the lack of conformity within a reasonable time after he has discovered it or ought to have discovered it. In addition, Art. 39(2) imposes, on a buyer, a general time-bar of two years from handover of the goods, to rely on any non-conformity.7 If this period is not observed, the buyer loses his

right to rely on the non-conformity. This places a burden on the buyer to be vigilant and to act promptly if he is to rely on the foregoing Articles.8

(b) Third party rights

Arts. 41 and 42 require the seller to deliver goods which are free from third party rights or claims, unless the buyer has agreed to take them subject to such rights or claims. If such a third-party right or claim arises, the buyer has a right against the seller, but Art. 43 states that such right is lost if the buyer does not give the requisite notice. Despite this, though, Art. 44 still allows the buyer to reduce the price in accordance with Art. 50, or claim damages (except for loss of profits). By comparison, section 12 of the Sale of Goods Act provides that it is an implied condition that the seller has a “right to sell” the goods, that the goods would be free of any “encumbrance or charge” and that the buyer will enjoy “quiet possession”.

Apart from these Articles, the Convention provides no specific protection of the buyer against third-party rights or claims. In contrast, the Sale of Goods Act devotes sections 21 to 26 on Transfer of Title to such protection, as exceptions to the so-called nemo dat rule.

(c) Breach of contract in general by seller

For general non-performance of the seller’s obligations under the contract or the Convention, Arts. 42 to 52 provide the buyer with a variety of remedies. Under Art. 45(1), these are the remedies which are stated in Arts. 46 to 52, and the right to claim damages under in Arts. 74 to 77. Art. 45(2) further states that, by exercising other remedies, the buyer is not deprived of any right he may have to claim damages.

(d) Fundamental breach

For cases of fundamental breach as defined in Art. 25, the buyer has the remedy of avoiding the contract under Art. 49(1)(a). The requirements for exercise of this right are in Art. 49(2); non-compliance can lead to loss of the right to declare the contract avoided.

(e) Non-delivery by Seller

Non-delivery by the seller is a breach which entitles the buyer to, inter alia, avoidance of the contract under Art. 49(1)(b).

Buyer’s Remedies

Based on the above grounds of breach or non-performance, the following are the respective remedies available to the buyer under the Convention. Unlike the Sale of Goods Act, the Convention does not make frequent reference to the buyer’s right to reject the goods for breach.9 Implicitly, however, the buyer has this right in appropriate cases, as such rejection is alluded to in Art. 86(1).

(a) Reduction of price

Where there is non-conformity in the goods, the buyer is allowed under Art. 50 to reduce the price “in the same proportion as the value of the goods actually delivered had at the time of delivery bears to the value that the conforming goods would have had at that time.” There is a proviso in the Article, which disallows such reduction if the conditions in Arts. 37 or 48 apply.10

It may be recalled that under the Sale of Goods Act, a buyer is allowed to reduce the price in one particular situation, namely, under section 53(1)(a), for a breach of warranty.

(b) Require performance

Art. 46(1) allows a buyer to “require performance”, unless he has resorted to a remedy inconsistent with such requirement. The exercise of this right to require performance is rather ambiguous, and has no real equivalent at common law or under the Sale of Goods Act. Perhaps therein lies the advantage, as the Convention is not meant to reproduce the rights under at common law or under the Act.

The right given under Art. 46(1) appears to be a new one, breach of which has uncertain consequences. One view is that the right translates into a right to specific...

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