The cancellation of international sales contracts is an important and complicated issue in international trade. According to regulations of the United Nations Convention 1980 on international sales contracts (purchase and sale contracts), a party may cancel its contract with either party if there is any serious breach or failure of implementing obligations of such a breaching party within a determined final duration or reasonable time.
The cancellation of international sales contracts is an important and complicated issue in international trade. According to regulations of the United Nations Convention 1980 on international sales contracts (purchase and sale contracts), a party may cancel its contract with either party if there is any serious breach or failure of implementing obligations of such a breaching party within a determined final duration or reasonable time.
However, it is often absolutely distinctive to determine what is a serious breach or reasonable time depending on each specific case, parties should thoroughly choose and set up terms and provisions (articles) regarding the contract cancellation in their contracts, and need to obtain a number of relevant basic knowledge to protect their rights and interests when arising undesirable disputes by themselves.
I. In what cases are international sales contracts cancelled?
- Pursuant to Clause 1, Article 49 of United Nations Convention on Contracts for the International Sales of Goods 1980 (CISG), parties are allowed to cancel such contracts in the following cases:
+ If the seller fails to perform its obligation arose from the contract or this Convention that constitutes a main breach in the contract, or;
+ If the seller fails to transfer goods within a reasonable time extended by the purchaser, or the seller declares that he/she won’t transfer goods in such an extended time.
- In addition, Clause 4, Article 312 of the Commercial Law 2005 of Vietnam regulates cases for cancelling international sales contracts, as follows:
+ There is a breaching behavior agreed upon as a condition for cancelling the contract by parties;
+ One party breaches its basic obligation under the contract.
II/ How is the illegal cancellation of international sales contracts handled?
1/ Which laws will be applied in handling the illegal cancellation of international sales contracts?
As common principles of the Private International Law, parties have the right to freely agree and choose applicable laws for their contractual relationships. Applicable laws may be national laws, international treaties, international commercial terms (incoterms) or case law (precedent).
However, if parties don’t achieve an agreement on applicable laws, it is required to prioritize applying national laws where the contract is set up and performed to resolve disputes.
2/ What measures will be applied in handling the illegal cancellation of international sales contracts?
The illegal cancellation of international sales contracts shall be handled under provisions in contracts, agreements or applicable Laws.
III/ Questions regarding the cancellation of international sales contracts
1/ What provisions of the contract are not valid for the cancellation of international sales contracts?
Pursuant to Article 81 of the United Nations Convention on Contracts for the International Sales of Goods 1980 (CISG), the cancellation of international sales contracts isn’t valid for compensation obligations for possible damages, dispute resolution or parties’ rights and obligations.
2/ When international sales contracts are cancelled, and purchasers have to apply replacements, can they claim compensation for the difference between the goods price in contracts and in replacements?
Pursuant to Article 75 of the United Nations Convention on Contracts for the International Sales of Goods 1980 (CISG), when a contract is cancelled and if, in a reasonable manner and a reasonable time after, the purchaser has purchased replaceable goods, he/she may claim compensation for the different levels between the goods price in contracts and in replacements as well as any possible damages compensation.
3/ If it is found that one party may cause a main breach of the contract before performing it, can either party cancel the contract?
Pursuant to Article 72 of the United Nations Convention on Contracts for the International Sales of Goods 1980 (CISG), if, before the date of performing the contract, it is considerable that one party will obtain a main breach under the contract, either party may declare the cancellation of such contract.
4/ If one party expects to cancel the contract, it is required such a party to submit a reasonable notice to either party
According to legal regulations, if one party expects to declare the cancellation of the international sales contract, such a party is required to send a reasonable notice to either party.
The aim is to allow the breaching party the opportunity to verify that he/she is able to completely implement his/her obligations. It helps parties obtain an equal condition for resolving matters before the cancellation and maximally limits potential risks and damages.
5/ When one party has performed a part of the contract, such a party may request either party to refund goods or payments completed when cancelling the contract
Pursuant to Article 81 of the United Nations Convention on Contracts for the International Sales of Goods 1980 (CISG), if one party has performed a part of the international sales contract, such a party may require either party to refund goods or payments completed when cancelling the contract.
The above is the necessary information and questions regarding the cancellation of the international sales contracts provided by NPLaw. If Clients have any further queries or need professional legal support and advice, please do not hesitate to contact NPLaw.
