International trade and international contractsInternational trade in goods is essential to foster market and trade relations, but what happens when agreed international agreements are broken?
Contractual breach can have serious consequences for all actors, and its resolution can be complex due to the interaction of different jurisdictions, being essential to define the breach, and to know the possible actions.
What do we mean by international contractual breach?
Non-performance consists of the failure of a party to perform its contractual obligations, including defective performance or late performance, which term is familiar in most codes of European tradition.
The Vienna Convention (1980), which regulates the formation of the contract of sale and the seller’s rights and obligations, although it does not mention the term “non-performance” as such, implicitly implies defective or late performance of the obligations of both parties.
In relation to the Unidroit Principles (1994), a set of international rules intended to regulate international commercial contracts in private law, a distinction is made between “essential” and “non-essential” performance of a contract, terms originating from common law, with only the first “essential” element leading to the termination of the contract.
Practical examples of breach of contract
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- Breach due to “delay“
A company might consider a small delay in the delivery of essential parts as a serious breach, as this could stop its production line and cause significant losses (i.e. automotive manufacturer needing specific parts to produce).
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- Non-compliance on “campaign products“
Companies selling seasonal products have a specific timeframe for selling their goods. A delay in delivery could cause the products to lose their relevance in the market and thus their value (i.e. holiday season).
Possible actions for international breach of contract
Some of the possible actions against breach of contract, set out in the Vienna Convention and the Unidroit Principles, are as follows:
- Supplementary term: To grant an additional period for the performance of the obligations, with the possibility of suspending one’s own obligations or terminating the contract if they are not performed within the granted term.
- Forced execution and cure of non-compliance: Forced execution of the obligations and possibility of curing these non-compliances.
- Exception of unperformed contract: If one party fails to perform, the other party may suspend the performance of the contract, depending on whether the obligations are simultaneous or successive.
- Resolution of the contract: Bilaterally or unilaterally, communicating it to the other party, with specific effects on future obligations and requesting possible compensation.
The adequacy of these actions will depend on the specific circumstances of the breach and the damage caused, and should be assessed according to the regulatory context and the contractual clauses agreed between the parties.
Contractual drafting, excellence and dispute resolution
Navas & Cusi offers advice in the drafting and negotiation of international sales contracts, as well as in the effective resolution of disputes. Our team of lawyers identifies potential risks arising from a contract, ensuring that commercial transactions comply with all applicable regulations, and protecting our clients’ interests in the event of contractual breach.
Thanks to our network of offices located in strategic countries, with main offices in Barcelona and Madrid, and always providing a personalized approach to each matter, we have a successful track record in resolving cross-border commercial disputes and breach of contract.
Conclusion
In the increasingly common international business, contracts for the sale of goods are essential, and with the possibility of breach, the parties must take the utmost precautions to minimize possible damages.
It is necessary to take prior advice and be prepared for any breach in order to protect one’s own interests. For this, having lawyers specialized in International Law such as those at Navas&Cusí is to have an excellent ally by your side.
