11.4 RISK IN COMMUNICATION

As discussed above, the entitled party may terminate the contract by a mere declaration, no further steps are required, neither agreement by the other party nor assistance by the courts. Then the question arises: when does the declaration become effective: once the notice is given, or when it reaches the addressee? It is an issue of great significance, which concerns not only who should bear the risk of delay, error or loss in respect of a communication, but also whether the declaration is irrevocable once it is made.

11.4.1 CISG Approach

The declaration of avoidance under the CISG is subject to the provisions of Art. 27 which reads: "Unless otherwise expressly provided in this Part of the Convention, if any notice, request or other communication is given or made by a party in accordance with this Part and by means appropriate in the circumstances, a delay or error in the transmission of the communication or its failure to arrive does not deprive that party of the right to rely on the communication." The risk therefore is prima facie on the person to whom the communication is addressed.  ⁵⁷⁹ 

It is said that under the CISG the general rule that the risk of delay, error or loss in respect of a communication is to be borne by the addressee arises out of the consideration that it is desirable to have, as far as possible, one rule governing the hazards of transmission.  ⁵⁸⁰  One advantage of the rule is that at least a clear and unequivocal solution has been found for the question which was generally left open by ULF and ULIS. Since Art. 27 is optional, the parties are also at liberty to set other requirements, such as receipt for communications to be effective. Even absent explicit agreement, usages or practices established between the parties can modify the principle stated in Art. 27. The idea underlying the principle and the exceptions in Art. 27 is that the risk for transmitting a message should be carried by the one who, as a result of his deviation from normal performance, caused the statement to be sent. This is persuasive, for example, in the case of a notice of defects, since the seller is responsible for ensuring that the quality of goods conforms to the contract.  ⁵⁸¹ 

One may admit that the transmission risk in communication of a notice of avoidance should be borne by the party who caused the notice to be sent in a manner not fitting to the contract terms. Such an approach however, would not be justified in situations exempted, such as when the avoidance does not result from defective performance attributable to that party.  ⁵⁸²  An avoidance does not always have to be motivated by a disruption in performance for which the other side is responsible. It can also be caused by force majeure, which cannot be attributed to either party. In such cases the basic idea behind Art. 27 cannot convincingly support apportioning the risk of transmission to the addressee.  ⁵⁸³  Nonetheless, it may happen that the defaulting party will continue performance of the avoided contract, not having received the notice. In such a situation it is a question of good faith or mitigation of loss for the entitled party to draw the other party's attention in the content of the notice if he becomes aware from the conduct of the other party that he did not receive the communication. "If, however, the sending party recognizes from the behaviour of the other party that the latter has not received the communication, it should be a matter of good faith (Art. 7) or of mitigating a loss (Art. 77) for the former to draw the attention of the latter to the content of the communication. Otherwise, he would, for instance, no longer have the right to assert accumulating claims for damages."  ⁵⁸⁴ 

Indeed, a number of scholars interpret the rule in Art. 27 as an acceptance of the dispatch theory. This can mean that Art. 27 not only provides that "a delay or error in the transmission of the communication or its failure to arrive does not deprive [the declaring] party of the right to rely on the communication", but also explains this result by assuming that the declaration becomes effective on dispatch. Some writers have expressed a contrary point of view by taking the position that effectiveness occurs only upon receipt. Neumayer emphasizes that the practical importance of this receipt concept is the ability of the declaring party to withdraw or change his declaration at any time prior to the time of receipt. Schlechtriem further believes that the theory that such declarations should at least remain ineffective prior to receipt makes sense. A declaration which avoids the contract or reduces the price should not occur before the other party has a chance to know the declaration and the change in the legal situation brought about thereby.  ⁵⁸⁵  As to be shown below, the receipt rule has been adopted by the UNIDROIT Principles and the PECL.

11.4.2 Receipt Principle under the UNIDROIT Principles

Like the CISG, the right of a party to terminate the contract under the UPICC is also exercised by notice to the other party. However, unlike the dispatch rule established under Art. 27 CISG, the notice to be given under the UPICC by the aggrieved party is subject to Art. 1.9, which reads pertinently in Art. 1.9(2): "Anotice is effective when it reaches the person to whom it is given." It is further stated in the Official Comment that with respect to all kinds of notices the Principles adopt the so-called "receipt" principle, i.e. they are not effective unless and until they reach the person to whom they are given. For some communications this is expressly stated in the provisions dealing with them: see Arts. 2.3(1), 2.3(2), 2.5, 2.6(2), 2.8(1) and 2.10. The purpose of the present Article is to indicate that the same will also be true in the absence of an express statement to this effect, e.g. for Art. 7.3.2 (Notice of Termination).  ⁵⁸⁶ 

Thus, the so-called "receipt" principle is adopted under the UNIDROIT Principles, in opposition to the dispatch rule established under the CISG. Accordingly, UPICC Art. 3.6 (Error in Expression or Transmission) prescribes that: "An error occurring in the expression or transmission of a declaration is considered to be a mistake of the person from whom the declaration emanated." As noted above, the practical importance of this receipt concept is the ability of the declaring party to withdraw or change his declaration at any time prior to the time of receipt;  ⁵⁸⁷  however, one may admit that the transmission risk in communication of a notice of avoidance should be borne by the party who caused the notice to be sent in a manner not fitting to the contract terms.  ⁵⁸⁸  Thus, it seems unfair that under the UNIDROIT Principles the notice of termination to be given by the aggrieved party becomes effective when the non-performing party receives it.  ⁵⁸⁹  In this point, the combined approach adopted under the PECL, as to be discussed below, may be referred for a better solution.

Nonetheless, like Art. 27 CISG, Art. 1.9 UPICC is also optional, the parties are therefore at liberty to set other requirements, such as dispatch for communications to be effective. "The parties are of course always free expressly to stipulate the application of the dispatch principle. This may be appropriate in particular with respect to the notice a party has to give in order to preserve its rights in cases of the other party's actual or anticipated non-performance when it would not be fair to place the risk of loss, mistake or delay in the transmission of the message on the former. This is all the more true if the difficulties which may arise at international level in proving effective receipt of a notice are borne in mind."  ⁵⁹⁰  Moreover, as it operates under Art. 27 CISG, it is equally correct to state that even absent explicit agreement, usages or practices established between the parties can modify the principle stated in Art. 1.9 UPICC.

11.4.3 Combined Approach under the PECL

With regard to what is required to make effective any notice under the PECL, Art. 1:303(2) states pertinently that: "Subject to paragraphs (4) and (5), any notice becomes effective when it reaches the addressee." Like the UNIDROIT Principles, the general rule adopted by the PECL is that a party cannot rely on a notice sent to the other party unless and until the notice reaches that party.  ⁵⁹¹ 

In other words, the PECL Art. 1:303(2) adopts the receipt principle as a general rule. At the same time, it is to be stressed that the principle of good faith and fair dealing (Art. 1:201) means that a party cannot complain that it has not received a notice, or has not received it in time, if it has deliberately evaded receiving it.  ⁵⁹²  Moreover, this Article links the general rule to two qualifications for the operative effect of communications, the second one of which is Art. 1:303(5) reading: "A notice has no effect if a withdrawal of it reaches the addressee before or at the same time as the notice." This qualification clarifies the ambiguity found in the practice of the CISG on whether a rule is supported that permits the revocation of a declaration governed by CISG Art. 27 after the declaration has been dispatched.

Even, together with this general rule, the first qualification contained in Art. 1:303(2) is the application of dispatch rule for case of default, which is reflected in Art. 1:303(4) as: "If one party gives notice to the other because of the other's non-performance or because such non-performance is reasonably anticipated by the first party, and the notice is properly dispatched or given, a delay or inaccuracy in the transmission of the notice or its failure to arrive does not prevent it from having effect. The notice shall have effect from the time at which it would have arrived in normal circumstances." It is noted that many of the situations in which the PECL envisages one party giving a notice to the other are situations in which the party to be notified is in default, or it appears that a default is likely. Here it seems appropriate to put the risk of loss, mistake or delay in the transmission of the message on the defaulting party rather than on the aggrieved party.  ⁵⁹³  Thus, in the context of Art. 9:303 (Notice of Termination), the PECL follows the dispatch rule established under Art. 27 CISG.

Indeed, the dispatch principle applies under the PECL to notices given under many other articles besides Art. 9:303.  ⁵⁹⁴  However, it must be remembered the focus of this qualification is put on the situations in which the party to be notified is in default, or it appears that a default is likely because it seems appropriate to put the risk of loss, mistake or delay in the transmission of the message on the defaulting party rather than on the aggrieved party. Accordingly, the dispatch rule does not apply to a notice which is to be given by the defaulting party, e.g. under Art. 8:108(3), or by a party which wishes to invoke hardship, see Art. 6:111, or to an assurance of performance under Art. 8:105(2).  ⁵⁹⁵  Also, as implied in Art. 27 CISG, the dispatch principle will not apply if the means of notice was not appropriate in the circumstances. It will be able to rely on it only if and when it arrives.  ⁵⁹⁶ 

In sum, with respect to the notice of termination, the PECL combines both the dispatch rule and the receipt principle. In general, it takes the position that effectiveness occurs only upon receipt. At the same time, the application of dispatch rule for case of default is also presumed. The Official Comment makes it clear: "A notice subject to the general 'receipt' principle takes effect when it is received. A notice subject to the dispatch principle may be effective even though it never arrives or is delayed, but it is not effective the moment it is dispatched. It would not be fair that even a non-performing party should be affected by a notice as from a time at which it could not have known about it. Accordingly the notice takes effect only from the time at which it would normally have been received."  ⁵⁹⁷  In other words, in the event of loss of the communication, effectiveness occurs at the hypothetical moment of receipt under normal circumstances.