The concept of fundamental breach and avoidance under CISG

Abstract

It examines CISG literature and case law in the area of avoidance and identifies several theoretical and practical issues associated with the current understanding of avoidance as a remedy of last resort. Almost every aspect of the CISG is open to interpretation because there is neither a higher court to ensure its uniform application nor official guidance on disputed provisions. This fact is very clear with regard to the remedy of avoidance and the concept of fundamental breach. This study addresses the legal and practical problems associated with this area of research. This study proposes that the current understanding of the CISG’s remedy of avoidance as a remedy of last resort is not truly reconcilable with the legal practices in this area. Courts and arbitral tribunals have occasionally ruled in favour of avoidance without discussing whether there was still a possibility for the aggrieved party to benefit from the defective performance in some other way. This study shows that in cases where the right to avoid the contract arises, whilst the principle of favor contractus should not be neglected, it plays a far less significant role than other CISG general principles such as protecting trust in international trade, the good faith principle, reasonability, the principle of full compensation and the principle that promises must be observed. By employing the fundamental breach that is based on depriving the promisee of his legitimate expectations as seen from the promisor or a reasonable promisor’s perspective, the CISG provides judges and arbitrators with ample tools to apply their discretion on a case by case basis in order to judge whether avoidance was rightfully declared. There is no single abstract rule that governs the fundamentality of the breach under the CISG.