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Supreme Court Decision 2011Da103977 Decided November 28, 2013【Damages】

(11/28/2013)

Main Issue and Holding

In an international goods transaction contract where the United Nations Convention on Contracts for the International Sale of Goods is applied, one of the parties decides to pay by letter of credit then the buyer refused to establish a documentary credit which is in accordance with the conditions agreed upon in the contract, whether the seller may avoid the contract (affirmative)

Summary of Decision

According to the United Nations Convention on Contracts for the International Sale of Goods (hereinafter “Convention”), the buyer is obliged to pay the price for the goods as required by the contract and this Convention (Article 53), and the buyer’s obligation to pay the price includes taking such steps and complying with such formalities as may be required under the contract or any laws and regulations to enable payment to be made (Article 54). And a breach of contract committed by one of the parties is fundamental if it results in such detriment to the other party as substantially to deprive him of what he is entitled to expect under the contract (Article 25), and the seller may declare the contract avoided if the failure by the buyer to perform any of his obligations under the contract or this Convention amounts to a fundamental breach of contract (Article 64(1)(a)). Therefore, the buyer is obliged to establish documentary credits in accordance with the conditions agreed upon in the relevant international trade contract if the Convention applies to the contract and one of the parties decides to pay by documentary credit. If the buyer refused to establish documentary credit in accordance with the conditions agreed on the contract instead of merely delaying the establishment, such a refusal constitutes a fundamental breach of contract as provided by Article 25 of the Convention, since it substantially deprives the seller from what he is entitled to expect under the contract, and the seller may avoid the contract.

Reference ProvisionsArticles 25, 53, 54, 64(1)(a) of the United Nations Convention on Contracts for the International Sale of Goods

Article 25 of the United Nations Convention on Contracts for the International Sale of Goods A breach of contract committed by one of the parties is fundamental if it results in such detriment to the other party as substantially to deprive him of what he is entitled to expect under the contract, unless the party in breach did not foresee and a reasonable person of the same kind in the same circumstances would not have foreseen such a result.

Article 53 of the United Nations Convention on Contracts for the International Sale of Goods The buyer must pay the price for the goods and take delivery of them as required by the contract and this Convention.

Article 54 of the United Nations Convention on Contracts for the International Sale of Goods The buyer’s obligation to pay the price includes taking such steps and complying with such formalities as may be required under the contract or any laws and regulations to enable payment to be made.

Article 64 of the United Nations Convention on Contracts for the International Sale of Goods (1) The seller may declare the contract avoided: (a) if the failure by the buyer to perform any of his obligations under the contract or this Convention amounts to a fundamental breach of contract; or (b) if the buyer does not, within the additional period of time fixed by the seller in accordance with paragraph (1) of article 63, perform his obligation to pay the price or take delivery of the goods, or if he declares that he will not do so within the period so fixed.

Plaintiff-AppelleeRiverina (Australia) Pty Ltd. (Bae, Kim & Lee LLC, Attorneys Yang Min-seok, et al., Counsel for plaintiff-appellee)

Defendant-AppellantDaehyun Trading Co.

Judgment of the court belowSeoul High Court Decision 2011Na8463 decided October 27, 2011

DispositionThe appeal is dismissed. The costs of appeal are assessed against Defendant.

ReasoningThe grounds of appeal are examined. Any supplementary appellate brief submitted after the deadline is considered only to the extent which it supplements the grounds for appeal.

1. According to the United Nations Convention on Contracts for the International Sale of Goods (hereinafter “Convention”) which is the governing law of the contract of this case, the buyer is obliged to pay the price for the goods as required by the contract and this Convention (Article 53), and the buyer’s obligation to pay the price includes taking such steps and complying with such formalities as may be required under the contract or any laws and regulations to enable payment to be made (Article 54). And a breach of contract committed by one of the parties is fundamental if it results in such detriment to the other party as substantially to deprive him of what he is entitled to expect under the contract (Article 25), and the seller may declare the contract avoided if the failure by the buyer to perform any of his obligations under the contract or this Convention amounts to a fundamental breach of contract (Article 64(1)(a))

Therefore, the buyer is obliged to establish documentary credits in accordance with the conditions agreed in the relevant international trade contract if the Convention applies to the contract and one of the parties decides to pay by documentary credit. If the buyer refused to establish documentary credit in accordance with the conditions agreed on the contract instead of merely delaying the establishment, such a refusal constitutes a fundamental breach of contract as provided by Article 25 of the Convention, since it substantially deprives the seller from what he is entitled to expect under the contract, and the seller may avoid the contract.

2. The court below acknowledged the facts in its ruling upon considering the adopted evidence, then determined that the contract of this case was avoided in its entirety by Plaintiff’s declarance, based on the following. Defendant did not establish a documentary credit which coincides with the contract of this case, and added contents which are difficult to realize or were not agreed in the contract of this case, and which cannot be attributed to the Plaintiff’s responsibility or costs {such as 40-feet container packaging, disallowance of transshipment, certificate of inspection issued by a person designated by Defendant, certificate of non-GMO (Genetically Modified Organism)} to the documentary credit conditions or required documents, and refused to modify the above contents despite Plaintiff’s request for modification within a reasonable period for addition. Defendant’s above acts constitute fundamental breach of contract and failure to perform obligations during the period for addition, and although the documentary credit of this case concerns the May 2009 shipment, Plaintiff may declare the contract of remaining shipments as avoided in accordance with Article 73(2) of the Convention because Defendant’s above acts are sufficient grounds to conclude that a fundamental  breach  of  contract  will  occur  with  respect  to  future  instalments.

3. Upon examination in light of aforementioned legal principles and records, the court below’s aforementioned determination is just and acceptable, and contrary to the allegations in the grounds of appeal, there were no errors by infringing the boundaries of the principle of free evaluation of evidence by violating the rules of of logic and experience, or by misapprehending the interpretation or application of the Uniform Customs and Practice for Documentary Credits or the Transboundary Movement, Etc. of Living Modified Organisms Act, of the obligations of buyers and sellers as provided by the convention, avoidance of a contract due to fundamental breach of contract, avoidance of a contract due to the establishment of a reasonable period for addition, contract avoidance in installment delivery contracts, and the legal principles on excluding Convention application by the principle of party autonomy.

4. Therefore, the appeal is dismissed, the costs of appeal are assessed against the defeated party. It is decided as per Disposition by the assent of all participating Justices.

Justices  

Park Byoung-dae (Presiding Justice)

Yang Chang-soo

Ko Young-han

Kim Chang-suk (Justice in charge)

 

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