The globalization of trade in today’s world undoubtedly contributes to companies significantly increasing their turnover and represents a unique opportunity to make themselves known in different markets beyond their borders. However, international trade also poses a number of challenges when the contractual relationship is affected by the existence of a breach of contract.
Breach of contract may occur, for example, when the seller fails to deliver the goods within the agreed timeframe, when the goods arrive at their destination but are defective, or even in cases where the buyer fails to pay the agreed price within the agreed time.
How can the parties defend themselves in the event of breach of contract?
In the event of a breach of contract at the international level, the most appropriate legal solution is the application of the Vienna Convention on the International Sale of Goods, as it is an international convention ratified by 89 States. Its universal nature and homogeneous interpretation make it an ideal instrument for regulating international sales contracts, offering greater legal certainty to contracting parties, including those operating in States parties such as Spain.
It should be noted that all member States of the European Union have ratified the Vienna Convention. Consequently, in application of Regulation (EC) No 593/2008, known as Rome I, on the law applicable to contractual obligations, when it is provided that “the contract for the sale of goods shall be governed by the law of the country where the seller has his habitual residence”, what in reality operates automatically is the application of the Vienna Convention itself. This is due to the principle of primacy of international conventions over national norms, which ensures uniform and supranational regulation in the matter.
To give a practical example, if the seller is based in Germany and sells products in Spain, in the event of breach of contract, the Vienna Convention will be directly applied as it is the “law of the country where the seller has his residence” and not German law, since both countries have ratified this Convention.
However, the Vienna Convention will be binding only if the parties have not chosen the applicable law in the contract of sale itself, because in this case the general principle of the will of the parties prevails. To continue with the previous example, in the event that the two companies have signed a contract including a choice of law clause, such as Spanish law, regardless of what is provided for in the European Regulation Rome I, Spanish law will apply in the event of any breach as it is the law chosen by the parties in their contract.
What are the buyer’s rights in the event of breach of contract by the seller?
The Vienna Convention establishes the principle of “strict liability” of the seller regardless of whether fault or negligence can be attributed to it. Therefore, if the seller breaches its obligation to deliver the goods because it was unable to deliver them for any reason, it is subject to strict liability to the buyer. This liability does not extend, of course, to cases of force majeure, such as strikes by freight transport personnel, wars, fires, etc. This is provided for in Article 79 of the Convention, excluding the seller’s liability when it is proven that the breach was due to an “obstacle beyond its control, provided that at the time of conclusion of the contract the seller could not have known of the incident causing the force majeure”.
According to article 47 of the Convention, the buyer is under an obligation to give the seller a “reasonable” period of time to remedy the defect and/or to put an end to the breach. If the seller does not respond, the buyer may, at his or her own discretion, take the following actions as provided for in Article 45:
- Require full compliance with the contractual obligation (Article 45(1)(a) in conjunction with Article 46(1) of the Convention). The primary performance claim takes precedence over the other actions provided for in the event of non-compliance.
- Withdraw from the contract (Article 45(1)(a) in conjunction with Article 49) provided that the seller’s breach constitutes a serious breach of the contract. The gravity of the breach is defined in article 25 of the Convention as “a breach which causes such damage to the other party as effectively deprives it of what it was entitled to expect from the contract“, such as the delivery of the goods within the stipulated time. A necessary condition for the declaration of withdrawal to take effect is its notification to the other party.
- Request compensation for damages. It is important to note that according to the Convention, the claim for compensation can be exercised even if the buyer has unilaterally terminated the contract of international sale.
Practical tips to prevent non-compliance
For the seller
In our experience, in cross-border trade it is very common for the buyer to allege defects in the goods when they receive them at destination, so it is essential that the contract provides for expensive quality control mechanisms (quality check). In order to be able to determine the condition of the goods in the event of a lawsuit, it is highly advisable that the contract itself agrees that, together with the delivery and the transport document (CMR), the seller will have the right to keep photos and videos of the packaged and loaded products, so that it is recorded that what was delivered corresponds to what was agreed. This practice can protect the seller against images of products other than those delivered and the submission of dubious evidence to the court.
For the buyer
In this case, there are more and more cases of international scams or insolvent companies that take advantage of the difficulty of bringing a lawsuit in another or several jurisdictions to avoid paying the price of the international sales contract. To this end, what our firm always recommends to its clients operating in the international arena is to require the buyer to provide letters of credit or international bank guarantees or export credit insurance, especially when it comes to orders of a high economic level and the full payment of the goods is made before their delivery. These instruments allow the buyer to ensure the solvency and seriousness of the other party, in addition to being able to recover what was paid or receive the corresponding compensation.
Reciprocal protection clauses
Following the principle that prevention is better than cure, it is essential that the sales contract includes clauses for joint inspections or through neutral third parties in the country of destination and that it provides for complaint procedures with short and clear deadlines for reporting defects, since delays in these procedures can result in significant losses for the business of both parties.
Contract Drafting, Excellence and Dispute Resolution
Navas & Cusi offers advice on the drafting and negotiation of international sales contracts, as well as on the effective resolution of disputes. Our team of lawyers identifies the possible risks arising from a contract, ensuring that business transactions comply with all applicable regulations, and protecting the interests of our clients in the event of a breach of contract.
Thanks to our network of offices located in strategic countries, with headquarters in Barcelona and Madrid, and always providing a personalized approach to each matter, we have a successful track record in the resolution of cross-border commercial conflicts and breach of contract
Conclusion
In increasingly common international business, contracts for the sale of goods are essential, and in the event of non-compliance, the parties must take the utmost precautions to minimize possible damage.
Prior advice and preparation for any breach is necessary to protect one’s own interests. For this, having lawyers specialising in International Law such as those at the Navas & Cusí law firm is to have an excellent ally by your side.
