11.6 DECLARATION WITHIN REASONABLE TIME

11.6.1 Definition of reasonable time

On all accounts, avoidance of the contract has significant results. It is particularly the case as far as care and disposition of the goods are concerned. Deferring the declaration of avoidance creates expenses and risk for both parties to the contract.  ⁶⁰⁰  In order to protect contracted parties against the undesirable effects of the postponement of the aggrieved party's right to termination, the three instruments each lays down, under CISG ArtS. 49(2) / 64(2), UPICC Art. 7.3.2(2) and PECL Arts. 9:303(2), 9:303(3), respectively, rules setting a time limit -- a reasonable time-- for the hesitant party intending to avoid the contract.

The term "a reasonable time" is not defined under the rules. What is a reasonable time will depend upon the circumstances. For instance the aggrieved party must be allowed long enough for it to know whether or not the performance will still be useable by it. If delay in making a decision is likely to prejudice the defaulting party, for instance because it may lose the chance to prevent a total waste of its efforts by entering another contract, the reasonable time will be shorter than if this is not the case. If the defaulting party has tried to conceal the defects, a longer time may be allowed to the aggrieved party.  ⁶⁰¹  It is also noted that in situations where the aggrieved party may easily obtain a substitute performance and may thus speculate on a rise or fall in the price, notice must be given without delay. When it must make enquiries as to whether it can obtain substitute performance from other sources the reasonable period of time will be longer.  ⁶⁰² 

In other words, such a formulation of the time limit within the exercise of the right to avoidance enables a flexible application of the rules to many different international commercial contracts. The time limit will vary with respect to the nature of the goods or services according to the market conditions in which the transaction will be pursued or other factors such as, usages developed within a trade, or a course of dealing between parties to a contract. So, the time limit would have to be evaluated pursuant to the circumstances of a given case.  ⁶⁰³ 

11.6.2 CISG Approach

In the case of late performance, CISG ArtS. 49(2)(a)/ 64(2)(a), which refer to cases where the performance is delayed nevertheless the non-performing party has performed following that delay, not only when it constitutes a fundamental breach of contract, as in the case of a fixed-term contract, but also when the delayed performance is effected after the deadline set in a Nachfrist notice. With respect to the buyer, Art. 49(2)(a) states that "where the seller has delivered the goods, the buyer loses the right to declare the contract avoided unless he does so: (a) in respect of late delivery, within a reasonable time after he has become aware that delivery has been made". With respect to the seller, Art. 64(2)(a) provides that "where the buyer has paid the price, the seller loses the right to declare the contract avoided unless he does so: (a) in respect of late performance by the buyer, before the seller has become aware that performance has been rendered". However, the Secretariat Commentary clearly states that the entitled party does not lose his right to declare the contract avoided under Art. 49(2)(a)/64(2)(a) until all the goods have been delivered or until the total price has been paid.  ⁶⁰⁴ 

All cases of non-performance under the CISG, other than the late performance provided that a fundamental breach of the contract occurs, are regulated under Art. 49(2)(b)/64(2)(b). So far as the seller is concerned, such other breaches embrace delivery of non-conforming goods as well as delivery of goods not free from claims of a third party.  ⁶⁰⁵  For the buyer, since late performance constitutes the main case of a breach of obligation by the buyer, other breaches (all the more so since they have to be fundamental to substantiate a right to avoid the contract) will be of relatively little practical relevance. Cases to which that right could possibly be applied would be, for instance, sub-supply of defective materials, breaches of the prohibition to re-export goods, insofar as this can effectively be countered by avoiding the contract, and pledging of goods which were sold under the reservation of title. These will above all be non-conforming activities by the buyer which are not specifically covered by the CISG.  ⁶⁰⁶ 

For the all breaches other than late performance, the general rule is still that the aggrieved party has to exercise his right within a reasonable time. The time may differ in particular situations. For the buyer, the time starts to run (Art. 49(2)(b)): (i) after he knew or ought to have known of the breach; (ii) after the expiration of any additional period of time fixed by the buyer in accordance with paragraph (1) of article 47, or after the seller has declared that he will not perform his obligations within such an additional period; or (iii) after the expiration of any additional period of time indicated by the seller in accordance with paragraph (2) of article 48, or after the buyer has declared that he will not accept performance. For the seller, the time starts to run (64(2)(b)): (i) after the seller knew or ought to have known of the breach; or (ii) after the expiration of any additional period of time fixed by the seller in accordance with paragraph (1) of article 63, or after the buyer has declared that he will not perform his obligations within such an additional period.

In addition to the rules on the time limits for avoidance, the Convention clearly states in Art. 45(3)/61(3) that no period of grace can be granted by a State court or arbitral tribunal. This rule applies to the remedy of avoidance. As the Convention does not foresee any procedure for applying to a court for avoidance of the contract, such an additional period cannot be maintained in the Convention's regulation. Such a procedure would be inappropriate in international trade as it could be expensive and take time for a judge to decide to allow immediate avoidance or to grant a period of grace. The situation is different when the aggrieved party is equipped in the so-called Nachfrist procedure with the right to grant the breaching party a reasonable additional period. It would be highly undesirable to leave the matter to judicial discretion. In the case of a fundamental breach of contract, the right of the aggrieved party to avoid the contract arises immediately at the time of the breach (or in case of an anticipatory breach even before), and it cannot be deferred by any court or arbitral tribunal.  ⁶⁰⁷ 

11.6.3 UNIDROIT Principles / PECL Approach

By contrast with the sorting out of late performance from other breaches under the CISG, both UPICC Art. 7.3.2(2), which reads as: "If performance has been offered late or otherwise does not conform to the contract the aggrieved party will lose its right to terminate the contract unless it gives notice to the other party within a reasonable time after it has or ought to have become aware of the offer or of the non-conforming performance." and PECL Art. 9:303(2), which reads as: "The aggrieved party loses its right to terminate the contract unless it gives notice within a reasonable time after it has or ought to have become aware of the non-performance." state a general rule that will apply not only when the aggrieved party has received a late tender of performance but also when it has received a tender which was defective.

Thus, in case of defective performance or where the performance is delayed nevertheless the non-performing party has performed following that delay, an aggrieved party who intends to terminate the contract must give notice to the other party within a reasonable time after it becomes or ought to have become aware of the non-performance.  ⁶⁰⁸  Indeed, in either case (late or defective performance), once it knows or should know of the tender, it should have a reasonable time to check it for defects and to decide what to do; but if it waits for more than a reasonable time without notifying the other party that it is terminating the contract it loses the right to terminate. If it is prepared to accept the tender, it need not give any notice.  ⁶⁰⁹ 

Unlike the delayed nevertheless performed performance, when a tender of performance is due but has not been made, the courses of action open to the aggrieved party will depend on the circumstances, i.e. its wishes and knowledge. Such overdue performance is also covered by UPICC Art. 7.3.2(2) and given clearer guidance in PECL Art. 9:303(3). It may be the case that the aggrieved party does not know whether the other party intends to perform, and either it no longer wants the performance or is undecided. In this case the aggrieved party may wait and see whether performance is ultimately tendered and make up its mind if and when this happens. Alternatively, it may still want the other party to perform, in which case it must seek performance within a reasonable time after it has or ought to have become aware of the non-performance.  ⁶¹⁰ 

One should note, however, that UPICC 7.3.2(2) does not deal with the situation where the non-performing party asks the aggrieved party whether it will accept late performance. Nor does it deal with the situation where the aggrieved party learns from another source that the non-performing party intends nevertheless to perform the contract. In such cases good faith (Art. 1.7) may require that the aggrieved party inform the other party if it does not wish to accept the late performance. If it does not do so, it may be held liable in damages.  ⁶¹¹  Notably, such gap has been filled in PECL Art. 9:303(3), which reads: (a) When performance has not been tendered by the time it was due, the aggrieved party need not give notice of termination before a tender has been made. If a tender is later made it loses its right to terminate if it does not give such notice within a reasonable time after it has or ought to have become aware of the tender. (b) If, however, the aggrieved party knows or has reason to know that the other party still intends to tender within a reasonable time, and the aggrieved party unreasonably fails to notify the other party that it will not accept performance, it loses its right to terminate if the other party in fact tenders within a reasonable time.

Thus, a clearer guidance is outlined with regard to the situations when a tender of performance is due but has not been made: (1) It does not know whether the other party intends to perform or not but it wants performance. In that case it should seek specific performance, and it must seek it within a reasonable time after it has or ought to have become aware of the non-performance. (2) It does not know whether the other party intends to perform and either it does not want the performance or is undecided. In this case it may wait to see whether performance will ultimately be tendered and under PECL Art. 9:303 it may make up its mind if and when this happens. If the defaulting party wishes it may ask the aggrieved party whether it still wishes to receive performance, in which case the latter must answer without delay. (3) It has reason to know that the defaulting party is still intending to perform within a reasonable time, but it no longer wishes to receive the performance. In this case it would be contrary to good faith for it to allow the defaulter to incur further effort in preparing to perform and then to terminate when performance is tendered. Therefore PECL Art. 9:303(3)(b) requires it in this situation to notify the other party that it will not accept the performance, on pain of losing its right to terminate if the other party does in fact perform within a reasonable time.  ⁶¹² 

11.6.4 Concluding Remarks

The rules of the three instruments governing the time for avoidance have a very significant role, and their most important function is to provide a sanction for contravening the time limits laid down to declare the contract avoided, namely, the loss of the right to declare avoidance, notwithstanding the presence of substantive grounds for it.  ⁶¹³ 

~{{ UPICC Art. 1.9(1) reads: "Where notice is required it may be given by any means appropriate to the circumstances." PECL Art. 1:303(1) reads: "Any notice may be given by any means, whether in writing or otherwise, appropriate to the circumstances."