12.3 RETROSPECTIVE OR PROSPECTIVE APPROACH

The various legal systems exhibit great differences in concepts and terminology in the area dealing with the effects of termination. The differences in the practical results obtained are not so great but are still significant. The most apparent difference is between systems such as the FRENCH which treats résolution as essentially retrospective and those such as the COMMON LAW which sees termination (or "rescission for breach") as essentially prospective.  ⁶²⁵ 

In some legal systems avoidance of the contract eliminates all rights and obligations which arose out of the contract. In such a view once a contract has been avoided, there can be no claim for damages for its breach and contract clauses relating to the settlement of disputes terminate with the rest of the contract.  ⁶²⁶  It would be very inconvenient, however, to treat a contract which has been terminated as cancelled in the sense of never having been made. First, if the contract had never been made the aggrieved party might be precluded from claiming damages for loss of its expectations, which would not seem an appropriate outcome. Secondly, if the contract were cancelled in the sense of never having been made, this might prevent the application of dispute settlement clauses or other clauses which were clearly intended to apply even if the contract were terminated.  ⁶²⁷  On the other hand, in "prospective" systems such as the COMMON LAW claims by either party which arose before the date of termination are largely unproblematic: they are not affected by subsequent termination, except that if money due but as yet unpaid would in any event have to be repaid after termination, it will for obvious reasons cease to be payable. It seems likely that other systems would reach the same result even if in theory termination was retrospective; for instance, in FRENCH law for a contract à exécution successive only résiliation for the future might be ordered.  ⁶²⁸  Indeed, as the differences are sometimes more apparent than real it may be helpful to consider the effect of "termination" in the various systems in a number of factual situations.  ⁶²⁹ 

As regards the question whether termination has retrospective or prospective effects on the contract, it is hard to say that the Convention adopted any single approach.  ⁶³⁰  This is because it provides, on the one hand, that avoidance releases both parties from the obligations they have undertaken under the contract, subject to any damages which may be due and without affecting any provision of the contract for the settlement of disputes or any other provision of the contract governing the rights and obligations of the parties consequent upon the avoidance of the contract(Art. 81(1)). As to be discussed separately infra. 12.4, the two sets of Principles adopt a similar mechanism. Under the UNIDROIT Principles, Termination does not preclude a claim for damages for non-performance (Art. 7.3.5(2)) or affect any provision in the contract for the settlement of disputes or any other term of the contract which is to operate even after termination(Art. 7.3.5(3)). Under the PECL, Art. 9:305 are most pertinent to this point: Termination of the contract [...] does not affect the rights and liabilities that have accrued up to the time of termination (Art. 9:305(1)); nor does it affect any provision of the contract for the settlement of disputes or any other provision which is to operate even after termination(Art. 9:305(2)).

On the other hand, the Convention requires both parties to return all benefits of possession (profits and advantages of use). If the seller is required to return the price, he must also pay interest from the date on which the price was paid. Similarly, in contrast to the seller who is bound to pay interest on the refundable price, the buyer is required to account to the seller for all benefits which he has actually derived from using the goods or part of them (Art. 84). In addition, it imposes on the parties reciprocal duties of restoration (Art. 82). An obvious example of adoption of the retrospective effect of termination by the Convention can be found when an installment contract is entirely terminated after delivery of some defective installments (Art. 73(3)). Under this provision, all installments are to be returned even though some of them are perfect. These instances reveal that, although the Convention does not pose the problem in abstract terms of retrospectivity, its wording implies retrospective effects of avoidance.  ⁶³¹  Accordingly, it can be said that under the Convention an avoidance only "redirects" the main obligations of the contract; it does not void the contract ab initio.  ⁶³² 

Nonetheless, it should be said that the contract is not nullified upon the exercise of the remedy of avoidance. Some obligations of the parties are terminated and some remain in existence. The specific obligations characteristic of the sales contract end or performance already made in fulfilling these obligations has to be returned in goods or in price so that a situation is achieved as from before the conclusion of the contract. However, the contract remains in force as long as there are still claims of the parties under it, including claims for returning the goods or the price. On these grounds, the contract cannot be considered as terminated either ex nunc or ex tunc, although legal doctrine does not adopt unified opinion on that question. The discussion, whether the avoidance operates retrospectively or prospectively is said to be of little help as avoidance always releases the parties from future characteristic obligations and, at the same time, imposes on the parties reciprocal duties of restoration having retrospective effect.  ⁶³³ 

Thus, it may be concluded that the Convention has adopted a quasi-rescission and not a real one.  ⁶³⁴  As to be demonstrated below, such a quasi-rescission mechanism is followed either under the UNIDROIT Principles or under the PECL. However, it is also to be noted that the UPICC/PECL approach differs to some extent from the CISG approach. Such differences will be given details separately infra. 12.5.