4.2 RATIONALE UNDERLYING THE OPTIONAL APPROACH

4.2.1 Optional Approach under the Studied Instruments

The CISG deals with the Nachfrist remedy separately under Arts. 47 and 63. Art. 47(1), tying in with Art. 33 which fixes the time when the seller must deliver the goods, deals specifically with the buyer's options and states: "The buyer may fix an additional period of time of reasonable length for performance by the seller of his obligations." A similar remedy in favour of the seller is set forth in Art. 63, which is connected with timing obligations of the buyer in such provisions as Art. 38(1) (examination) and Art. 59 (payment of the price). Art. 63(1) is concerned with the options of the seller and provides: "The seller may fix an additional period of time of reasonable length for performance by the buyer of his obligations."

As stated above, the CISG incorporated, among other elements, the notion of Nachfrist from German law. However, unlike German law, the CISG does not require a party to offer an additional period of time under which a prospectively defaulting party may perform under the contract. The substantive difference between the two approaches is both obvious and important. Under German law, for instance, if the buyer requests a Nachfrist, the seller is obligated to respond to the request. Failure to do so results in an automatic grant of additional time.  ¹⁹⁶  To the contrary, Knapp submits when discussing Art. 63 CISG that: "Fixing an additional period of time under Article 63(1) is the seller's right, but not his obligation . . . the seller may sue for enforcement of his right without granting the buyer any additional term for performance. Similarly, if the failure by the buyer to perform his obligation amounts to a fundamental breach of contract, the seller is authorized to declare the contract avoided under Article 64(1)(a) without having any obligation to fix first an additional term of performance for the buyer. In this respect the procedure envisaged by Article 63(1) differs from the Nachfrist of the law of the Federal Republic of Germany and the mise en demeure under French law."  ¹⁹⁷ 

In fact, the wording "may" used both in CISG Arts. 47(1) and 63(1) shows that the procedure envisaged under the CISG is not mandatory. It merely permits a party to offer such an additional period of time. Both provide identical obligations for the buyer and the seller with regards adherence, notice, and reasonable length of time. In other words, Arts. 47 and 63 each creates the possibility that a buyer or seller may -- but need not -- set a Nachfrist with the main consequence being that the buyer or seller, during that period, must generally adhere to its contractual obligations while retaining its rights to subsequently claim damages. This optional approach is adopted both in UPICC and PECL. Art. 7.1.5(1) UPICC reads: "In a case of non-performance the aggrieved party may by notice to the other party allow an additional period of time for performance." Art. 8:106(1) PECL reads: "In any case of non-performance the aggrieved party may by notice to the other party allow an additional period of time for performance." Under these provisions, it is for the aggrieved party among their options, not obligated to allow an additional period for performance.

In other words, none of the three instruments requires, as under the German law, an automatic extension of time for performance and delegate such option to the discretion of the parties involved. As a result, the procedural device of granting additional time does not have the same function under German and international commercial law, respectively. In this point, different function actually derives from the particular rationale of Nachfrist in the context of international commercial law.

4.2.2 Underlying Rationale

The idea behind Nachfrist in the three instruments is that the aggrieved party should not be able to avoid the contract merely because the obligations are not performed on time. While details of the question of termination are not dealt with in this Chapter, it is to be shown (with the detailed discussion in PART III) that each of the three instruments specifically rejects the idea that in an international commercial contract the aggrieved party may, as a general rule, avoid the contract once the contract date for performance has passed and the other party has not yet performed one or more of his obligations. In these circumstances termination of a contract is primarily to be justified on the basis of the doctrine of "fundamental breach/non-performance".

Under this requirement, termination can be a thorny problem, for in any case the aggrieved party must be sure that the breach is fundamental. Under certain circumstances, such as when time is of the essence, late performance may become a fundamental non-performance. But it is not necessarily always the case when time is not clearly of essence. In this respect, Nachfrist clarifies a situation which otherwise would be unclear. It means that Nachfrist in the three instruments in itself is not a remedy, or is not really a stand-alone remedy in the traditional sense. It fits very closely with other remedies, particularly those allowing the parties to terminate the contract when it is meant to fit into the concept of fundamental non-performance. Thus, if the aggrieved party is in a situation where there is uncertainty as to the existence of a reason to avoid the contract, he can overcome this by fixing a Nachfrist.

On the one hand, as discussed previously in Chapter 3, the right of the aggrieved party to require specific performance by the other party anticipates the aid of a court or arbitral tribunal in enforcing that right. However, in case of delayed performance, the use of judicial procedures for enforcement may not seem feasible or may require more time than the aggrieved party can afford to wait. It may consequently be to the aggrieved party's advantage to avoid the contract and make a substitute purchase from a different supplier.  ¹⁹⁸  On the other hand, however, at that time the aggrieved party may not be certain that the breaching party's delay constitutes a fundamental breach of contract justifying the avoidance of the contract. This is particularly because of the special characteristics of late performance, which is significantly different from other forms of defective performance: "Late performance can never be remedied since once the date for performance has passed it will not occur again, but nevertheless in many cases the party who is entitled to performance will much prefer even a late performance to no performance at all. Secondly, at the moment when a party fails to perform on time it is often unclear how late performance will in fact be. The commercial interest of the party receiving performance may often therefore be that a reasonably speedy completion, although late, will be perfectly acceptable but that a long delayed completion will not."  ¹⁹⁹ 

One way to circumvent the above problems is by use of the Nachfrist procedure. It appears that the primary purpose of a Nachfrist procedure is to protect the aggrieved party who is waiting for a delayed performance. While waiting, the aggrieved party might have to determine at what point the delay constitutes such a fundamental breach that he becomes entitled to terminate the contract. In any event, unlike in the case of fixed-term contracts,  ²⁰⁰  a delay in performance is not automatically a fundamental breach of contract. Hence, the Nachfrist procedure is established where it is not clear from the contract itself or the surrounding circumstances whether failure to make timely performance amounts to a fundamental breach, and thus "enables that party to give the performing party a second chance without prejudicing its other remedies".  ²⁰¹  Indeed, the procedure would apply regardless of whether the breach would otherwise have been considered fundamental. In other words, failure of the other to meet such a reasonable deadline is then grounds for termination whether the breach is fundamental or not.

In short, the granting of additional time can be advantageous since, in case of delayed performance, the innocent party may, inter alia, employ this device in order to relieve himself of the risk of wrongful termination, which results from a peculiarity of the three instruments, namely the fact that it can be difficult to determine when the failure to promptly perform amounts to a fundamental non-performance.  ²⁰² 

4.2.3 Granting Additional Period in Two Situations

Following the optional approach and its underlying idea under the three instruments, when there has been a non-performance by one party (the debtor), the other (the aggrieved party) may always fix an additional period of time for performance.

The Nachfrist procedure under CISG Arts. 47 and 49(1)(b)/Arts. 63 and 64(1)(b), UPICC Art. 7.1.5 or PECL Art. 8:106 in effect contains two rules: (a) Even where the aggrieved party has an immediate right to terminate because of the other's non-performance, if the aggrieved party has indicated that it is still prepared to accept performance, it may not change its mind without warning.  ²⁰³  (b) Where there has been a delay in performance but the delay is not fundamental (because time was not of the essence and the delay has not yet had serious consequences for the aggrieved party) the aggrieved party may terminate the contract after having given the non-performing party reasonable notice. In this point, two preliminary points need to be borne in mind: (a) Under the three instruments there is no need for the aggrieved party to serve a notice on the non-performing party in order to put the latter into breach; (b) Under the three instruments termination is an act of the aggrieved party, not an act of a court or arbitrator. Provided there has been a fundamental non-performance or the other conditions for termination are met the aggrieved party may terminate by giving notice of termination to the non-performing party.  ²⁰⁴ 

As stated above, not every delay in performance will constitute a fundamental non-performance and thus the aggrieved party will not necessarily have the right to terminate immediately merely because the date for performance has passed. It will only have this right if time was "of the essence". In cases of non-fundamental delay, however, the Nachfrist procedure allows the creditor to fix an additional period of time of reasonable length for performance by the debtor. If upon expiry of that period of time performance has not been made, the aggrieved party may terminate the contract. This case is probably the one in which the notice procedure will be used most frequently. The notice procedure can also be used when it is the aggrieved party who is to perform a service but the other party has refused to accept or to allow performance. It should be noted that the Nachfrist procedure applies even if the non-performance is excused because of a temporary impediment (see Chapter 20).  ²⁰⁵ 

In other cases the notice procedure does not give the aggrieved party any additional rights but is nonetheless useful. Even where the delay or other non-performance is fundamental, and thus the aggrieved party has the right to terminate immediately, it may not wish to do so: it may be prepared to accept a proper performance by the debtor provided it is rendered within a certain period. The procedure permits it to give the debtor a final chance to perform (or to correct a defective performance), without the aggrieved party losing the right to seek specific performance or to terminate if by the end of the period of notice the debtor has still not performed in accordance with the contract. At the same time, however, the rule that the aggrieved party may not seek specific performance or terminate during the period of notice protects the debtor from a sudden change of mind by the aggrieved party. The debtor may have relied on having the period set in the notice in which to perform.  ²⁰⁶ 

The notice procedure may also be used when a performance is prompt but defective in a way which is not fundamental. In such a case the aggrieved party will not have the right to terminate and serving a notice fixing an additional time for performance will not give it that right, because the Nachfrist procedure applies only to delayed performance, not to defective performance. Nonetheless, serving a notice may still perform the useful functions of informing the debtor that the aggrieved party still wants proper performance and of giving the debtor a last chance before the aggrieved party seeks specific performance. In these respects the notice serves the same function as a mise en demeure in French law or Mahnung in German law, though under the CISG, UPICC or PECL the aggrieved party is not required to serve a notice before exercising a remedy except in the case of termination for non-fundamental delay.  ²⁰⁷ 

In sum, the aggrieved party may serve a Nachfrist notice informing the other party to continue performing in case of non-fundamental delay or where he is in doubt whether the other party has committed a fundamental breach. After the expiry of this period the aggrieved party can consider a fundamental breach to have occurred and avoid the contract. Thus the breach is "upgraded" by the expiration of the Nachfrist. On the other hand, even in the case of a fundamental breach where the aggrieved party is entitled to avoid the contract immediately, termination may not be necessarily the best solution for him. The aggrieved party may be prepared to accept a proper performance by the debtor provided it is rendered within a certain period. The Nachfrist procedure permits it to give the debtor a final chance to perform. Clearly, the Nachfrist procedure under the three instruments has advantages for both parties, although its principal purpose is to provide additional latitude and protection to the innocent party in case of uncertainty. The advantage for the non-performing party in this situation, apart from the fact that he now has more time to perform (although he may still be subject to a claim for damages in respect of any delay), is that he can rely on the fact that the aggrieved party is bound by that period, during which the latter may not resort to termination or specific performance.