What About Termination Due to (a fundamental) Breach of Contract and the Vienna Sales Convention (CISG)?

Written by Lennard Noordzij @ AMS Advocaten

The Vienna Sales Convention applies to international purchase agreements concerning movable property not intended for personal use. A buyer can only enforce the replacement of defective goods on the grounds of this Convention or terminate the agreement in the event of a ‘fundamental’ breach of contract. Dutch contract Law Lawyer Lennard Noordzij explains how it works.

International purchase agreement: Vienna Sales Convention
The Vienna Sales Convention (CISG) applies to international purchase agreements concerning movable property between professional parties (i.e. not consumers). The Netherlands and virtually all major trading partners such as Germany, the United States, China, France, and Japan – the United Kingdom is a notable exception – are party to the CISG. The CISG will apply if it has not been excluded by contract. The provisions of the CISG set aside the provisions of Dutch law.

Termination under Dutch law
Under Dutch law, an agreement may be terminated by dissolution. A party’s failure to comply with one of its obligations – if compliance is not possible at a later date or if the failing party refuses to comply – entitles the other party to terminate the contract unless the shortcoming is minor in nature. The consequence of termination is that all transactions made on the basis of the contract must be cancelled.

Termination under the Viennese Convention
The CISG is stricter in this. A contract can only be terminated in the event of a ‘fundamental’ breach of contract (and not just ‘any’ breach of contract). A fundamental breach of contract would lead to such damage to the other party that it is substantially denied what it could have expected from the contract. This is not the case if the party in default had not expected this effect and a reasonable person of the same capacity in the same circumstances would not have expected it either.

Contract terminated due to a fundamental breach of contract
In a case about a truck, the Arnhem Court of Appeal ruled that the buyer had rightly terminated the purchase contract. In this case, the seller had placed an advertisement prior to the sale, which stated that the truck was as good as new. Therefore, the buyer was entitled to assume that the seller was offering a reliable, well-functioning truck with low mileage. The Court of Appeal found that this was not the case on the basis of an expert’s report on the truck. The seller had to repay the purchase price to the buyer.

Why would a buyer exclude the Vienna Sales Convention?
A purchase agreement concerning movable property can be terminated less quickly under the CISG than under Dutch law. This may be a reason for a seller of movable property to declare the CISG applicable, or for a buyer to exclude the CISG.

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