THE CONCEPT OF THE FUNDAMENTAL BREACH OF CONTRACT IN THE CISG

When contracting party fails to perform the contract for the international sale of goods, then the other party can use certain remedies, including the right to terminate the contract. The termination of the contract in situation when the debtor has breached his contractual obligation opposes the principle pacta sunt servanda and all legal systems provide for the conditions and limitations under which creditor can acquire and realize that right. The most important limitation in that sense refers to the requirement that the breach of contract must be serious and severe. The Vienna Convention on Contracts for the International Sale of Goods in this respect provides for the concept of fundamental breach of contract, as the general ground for termination the contract due to it ̕ s non-performance. General because it takes no account what exactly debtor do or not do when violated the contract; it is only important that his actions fits with the conditions for qualification the fundamental breach of contract. In that sense the Convention sets three criteria for estimate that question: first, that the debtor has breached the contract; second, it has resulted in such detriment to the other party as substantially deprives him of what he is entitled to expect under the contract and third, the debtor did not foresee such a damage as a consequence of breach of contract nor such a result could forese a reasonable person of the same kind in the same circumstances.


Abstract
When contracting party fails to perform the contract for the international sale of goods, then the other party can use certain remedies, including the right to terminate the contract.The termination of the contract in situation when the debtor has breached his contractual obligation opposes the principle pacta sunt servanda and all legal systems provide for the conditions and limitations under which creditor can acquire and realize that right.The most important limitation in that sense refers to the requirement that the breach of contract must be serious and severe.
The Vienna Convention on Contracts for the International Sale of Goods in this respect provides for the concept of fundamental breach of contract, as the general ground for termination the contract due to it ̕ s non-performance.General because it takes no account what exactly debtor do or not do when violated the contract; it is only important that his actions fits with the conditions for qualification the fundamental breach of contract.In that sense the Convention sets three criteria for estimate that question: first, that the debtor has breached the contract; second, it has resulted in such detriment to the other party as substantially deprives him of what he is entitled to expect under the contract and third, the debtor did not foresee such a damage as a consequence of breach of contract nor such a result could forese a reasonable person of the same kind in the same circumstances.
The concept of fundamental breach of contract is the original solution of the Vienna Convention and is the result of decades of work on the unification of the law of the international sale of goods.The most important achievement of such solution is that it introduced applicable objective criteria and standards for the evaluation of the significance and severity of the breach of the contract which are sufficient to activate the creditorʼs right to terminate it.Several decades of successful implementation of the Convention contributed to the developing of that concept in practice and to its increasingly application not only

Introduction
When a debtor fails to perform what he has accepted as his contractual obligation from a contract on the international sale of goods, then the other party may be able to use a certain legal remedies against him in order to restore the balance of mutual contractual benefits, which has been disrupted by the breach of the contract.These remedies include the right of the creditor to terminate the contract if other conditions as well, have been met.The termination of the contract is contrary to the principle of pacta sunt servanda and all legal systems set limits under which the creditor acquires or realizes that right, which is necessary to prevent its abuses, as well as to maintain and enforce as many contracts as possible.In this regard, in the comparative law, the view that the termination can only be achieved for the most serious violations of the contract prevails.Bearing in mind that it is impossible to precisely determine all such violations in advance, the issue of the conditions for acquiring the right to terminate contracts in legal sources is regulated by the special and by the general rules on a regular basis.The formulation of a general rule, which is appropriate for application to the situations not being covered by specific rules is not easy to achieve, and in comparative law, the concept of a fundamental breach of contract in the Vienna Convention on Contracts for the International Sale of Goods 1 stands out as a good example (further: the Vienna Convention).
1 The UN Convention on Contracts for the International Sales of Goods, Vienna 1980.The quality of the Vienna Convention's solution is clearly confirmed by the fact that it has been successfully applied for more than three decades and is taken over not only by international sources of contract law but also by an increasing number of national regulations.Thus, for example, UNIDROIT Principles of International Trade Contracts (UNIDROIT Principles), Principles of European Contract Law and Draft Common Frame of Reference (DCFR), similar to the concept of fundamental breach of contract in the Vienna Convention, provide the "essential non-performance" as basis for the termination of the contract (Art.7.

The determination of a fundamental breach of contract
The rule on a fundamental breach of contract was set forth in Art.25. of the Vienna Convention, which reads as follows: "A breach of contract committed by one of the parties is fundamental if it results in such a detriment to the other party, so as to substantially 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.". 2 Based on what is previously exposed, there are three requirements that have to be met in order for one violation of the contract to be qualified as fundamental: first, that the debtor has violated the contract; second, that the other party suffer damage as consequence of the breach of contract, which essentially deprives him of what he was justifiably expected from the contract performance; third, that the party that committed the violation had foreseen the damage as its consequence, or that such a consequence could have been predicted by a reasonable person of the same characteristics given the same circumstances.

Violation of the contract
Legally valid contracts bind on the parties that concluded it and, most widely, any deviation from what was agreed represents a breach of contract.However, things cannot be simplified so much because there are many circumstances to be considered before it is concluded that the debtor has violated the contract in a way which is relevant from the legal point of view and give the creditor right to legal remedies. 3In the Vienna Convention, this issue has been regulated in accordance with the unitary concept of non-performance of the contract, which is characterized by the principle that any deviation from what the contract stipulates represents its non-performance 4 The debtor's fault is not relevant to assessing whether a contract has been breached or to qualify one breach of contract as a fundamental; it is significant only for determining the remedies available to the creditor.Thus, the fact that the debtor is excused from the contractual liability5 always prevents the creditor from claiming compensation, and if it becomes impossible to fulfill the obligation (which is also the basis for the exclusion from contractual liability), then he also loses the right to claim the specific performance.However, all other remedies, and thus the right to terminate the contract under the stipulated conditions, remain at his disposal.

Detriment of a contractual interest
In order for a breach of contract to be fundamental, it is necessary that the creditor has suffered damage and not just any damage, but only the damage which essentially deprives him of the benefit he justifiably expected from the contract and its performance.This question is assessed with regard to the interests of the injured creditor.The subjective criterion is primary, but it is not, however, exclusive nor should be because such a solution could be a source of abuse.For this reason, the rule requires that only the creditor's justified expectations are to be taken into account.In this regard, the degree of the vulnerability of his interests is primarily based on the assumption that the contract, in addition to regulating contractual obligations, also indicates the importance of the parties that have concluded it.Thus, for example, if the contract stipulates that delivery should be within a fixed period of time and the seller misses that deadline, then this fact itself is sufficient to constitute a fundamental breach of contract.In the same situation, however, without a fixed deadline, the breach of contract would not be so qualified.
Instead of the term "damages" in Art.25. of the English text of the Vienna Convention, the term "detriment" is used, which is specific in a way that it is not usually used in other texts of the same kind, nor is it mentioned elsewhere in the Convention.Since the definition of "detriment" is not given in the text of the Vienna Convention, and in Art.74., which regulates the notion of damage 6 uses the term "damage", it is concluded that those are not an analogous terms.In relation to this issue in the literature prevails the view that the damage in the sense of Art.25. of the Vienna Convention, i.e. as part of a substantive violation of the contract, has to be widely interpreted and that the concept of "damage" includes both actual and future monetary losses, as well as any other negative consequence in the form of material or non-pecuniary damage. 7urther, this damage must be such that it substantially deprives the party which is loyal to the contract of benefits that were expected from it.The emphasis is, therefore, on the effects that the damage, as a result of the breach of contract, has caused to the other contracting party 8 .That exactly is necessary to justify the claim for termination of the contract 9 -that no other legal remedy in this situation would be adequate for the injured party.The fact that the Convention does not give a closer definition of the term "substantially" but to decide on it by court or arbitration according to the circumstances of the particular case, may cause problems in the application of the concept of the fundamental breach of contract due to the different interpretations of that term 10 . 7The same: F. M. Bianca and M. J. Bonell), Giuffrè, Milan 1987, 211. 8 In this way, it is clearly pointed out that the decisive criterion is not reflected in the degree of damage, but in the significance of the interests that the contract and the specific contractual obligation had for the injured party.See J. Perović, 133.That does not exclusively depend on size of the damage, though the size of the damage is one of the important elements when determining the significante of the damage for the creditor.See U. Schroeter, ,,Art.25ˮ, in: Schlechtriem&Schwenzer Commentary on the UN Convention on the Internatioinal Sale of Goods (CISG) (ed.I. Schwenzer), Oxford University Press, Oxford 2016, 428-429. 9This is assessed according to the circumstances of each case in particular.Thus, for example, if the seller fails to fulfill his obligation to pack goods, but the goods are delivered to the buyer properly, the damage in the sense of "detriment" exists if the circumstance precisely deprived the buyer of the possibility to sell goods to third parties (for example, the goods are recognizable by their packaging, which distinguishes them from goods of the same type of other manufacturers, which are of doubtful quality).P. Schlechtriem, Uniform Sales Law -The UN-Convention on Contracts for the International Sale of Goods, Manz, Wien 1986, 60. 10 In assessing this issue, the court or arbitration can be guided by previous court decisions and doctrinal attitudes.The Commentary of the UNCITRAL Secretariat can also be of great help which, in this regard, recommends that the following circumstances should be taken into account: the value of the entire contract, the monetary loss resulting from the breach of the contract, and to what extent the violation of the contract made by one party affects the other activities of the other contracting party.See: http://www.cisg.law.pace.edu/cisg/text/secomm/secomm-25.html(last accessed September 20, 2018).These guidelines, however, are given in the context of comments on Art.23. of the Draft of the Convention of 1978, which has been amended to the final wording of Art.25. of the Convention, and it should be taken into account with caution.The most complete change between the draft of the provision on a fundamental breach of contract and its final text is reflected in the fact that instead of the degree of damage, the emphasis was put on the importance of the interests that the contract and the specific contractual obligation had for the injured party.On the basis of this, it is concluded that the existence of a fundamental breach of contract can only be said in the event that that interest is brought into question, that is, only if the injured party loses interest in the contract being executed after his injuries have occurred.For details see P. Schlechtriem, Commentary on the UN Convention on the international Sale of Goods, Clarendon Press, Oxford 1998, 177.
Here, the question of when the damage, that the creditor suffers from the breach of the contract, becomes such that it substantially deprives him of what he expects from the contract, is being raised.Pursuant to the provisions of Art. 25, it follows that this is the moment when the injured party has to prove that fact or that the breach of contract inevitably leads to that consequence.In the assessment of this issue, not only is the subjective interest of the injured party relevant, but also should be taking into account the expectations that are objective, first of all based on the provisions of the contract itself and on the circumstances of the particular case11 .

The predictability of the damages
Finally, when it is established that the creditor suffered damage due to a breach of contract and that because of it he is substantially deprived of what he reasonably expected from its performance, then it still does not mean that a fundamental breach of contract has occurred.This is because the debtor has the right to prove that such a consequence he did not have foreseen, nor would a reasonable person of the same kind in the same circumstances have foreseen such a result. 12If he proves that with success, then there is no fundamental breach of contract, even if the qualification requirements for the damage are satisfied.
The question whether the damage could have been known to the party that violated the contract primarily depends on the circumstances of the particular case, but also on the personal ability of the debtor (for example, from his experience, from ability to perceive the circumstances of the matter in question, etc.)However, even here there was not only a subjective criterion but an objective criterion as a corrective, which is reflected in the "reasonable person of the same kind" 13 .An objective criterion is necessary because, otherwise, the party that violated the contract could always refer to the unforseeable circumstances i.e. to the unforseeable consequences of his actions, and that would be sufficient to prevent qualification of a breach of the contract as a fundamental one.That is why both criteria are interconnected and must be used together, since only in this way can the controversy be corrected. 14ere also raises the question in which moment the party that breached the contract, should anticipate the consequences of such conduct?Is it the moment when the contract is concluded, or a moment after that and if so, which one?Since the Vienna Convention does not provide the answer to this question, in the literature it is the source of various interpretations.Thus, while one group of authors considers that the moment of the conclusion of the contract15 is relevant, the others deem that it is the moment in which the contract is breached or the period immediately prior to that 16 , while professor Hannold states that the moment when creditor informe the other party that the breach of a contract cause him a fundamental damage should be considered as relevant 17 .
The above points of view would make sense if there had been made a mistake in the determination of the text of the Vienna Convention, due to which this essential issue remained unsettled.However, there is no real basis for such attitude, given that the history of work on the formulation of Art. 25 of the Convention shows that the proposal which explicitly states that the predictability of the damage is related to the moment of the conclusion of the contract, is not accepted.Based on this, it can be concluded that, by omitting any definition of the moment relevant to the assessment of predictability, the Vienna Convention actually wanted to enable courts and arbitrations to decide on the matter on the basis of a flexible norm, so that they can decide with respect to the circumstances of the particular case 18 .This, however, contributed to a legal uncertainty, which could have been avoided if a different solution was accepted, that is, if this issue was explicitly resolved by the Vienna Convention itself.
Of all the foregoing proposals it seems that it can be argued with the strongest arguments that the predictability of the damage should be related to the moment of the conclusion of the contract.Namely, if it turns out that the question of justified expectations from the injured party's contract is assessed by the moment of its conclusion (which has already been said in the consideration of the question of "Detriment of a contractual interest"), then the same principle can be applied also in relation to the predictability of the consequences of the injured contract.In other words, if the expectations of the contracting parties from the performance of the contract are formed at the time of its conclusion, then the consequences of the non-performance of the contract should also be foreseen at the same time.Any other solution that takes into account some other moment as relevant (which would necessarily be after the conclusion of the contract) leads to legal uncertainty, because the parties assume that the contract will be performed under the circumstances in which it was concluded and the question is, whether they at all conclude a contract if they knew that one of them would later require the change contractual obligation or one part of it.

The burden of proving the predictability of damage in the context of a fundamental breach of contract
The Vienna Convention in Art. 2 explicitly states that the party in breach has to prove that the damage was unpredictable if he wishes to challenge the creditor's assertion that the breach of the contract is fundamental.This rule does not cause any dilemma in situations when it is not disputable that the contractual obligation which had been violated, constitutes an essential element of the contract (for example, when the delivery time is fixed), as well as when the request is satisfied that a "reasonable person of the same characteristics in the same 18 About this question see: Legislative History 1980 Vienna Diplomatic Conference and preparations for the Conference, CISG, Article 25, http://www.cisg.law.pace.edu/cisg/chronology/chrono25.html(last accessed  September 20, 2018).Moreover, in Art.74 concerning compensation for damages, the predictability of damage is explicitly related to the moment of the conclusion of the contract, unlike in Art. 25, and on the basis of this, it can be concluded that there was no intention that Art. 25 sets such a restriction.circumstances" would have predicted the nature of the injury done 19 .The issue is, however, more complex when a specific case is characterized by special, unusual circumstances, which the party that breached the contract did not know, and that such circumstances could not been known to a "reasonable person with the same characteristics", too.Under these conditions, the breach of contract cannot be qualified as fundamental.However, in the described situation, the injured creditor has the right to prove that he has notified the debtor in a timely and appropriate manner about the special circumstances, or that the debtor has been informed about those circumstances on the otherwise manner.This practically means that the injured party can also obtain the fundamental breach of contract in circumstances under which this would be difficult to achieve in the normal order of the things and actions. 20

Conclusion
The conditions under which the violation of the contract's obligations may be qualified as a fundamental breach of contract set for in the Vienna Convention, clearly indicate that this legal source respects the principle of pacta sunt servanda and seeks to keep and enforce as many contracts as possible.The restriction for acquiring and using the right to terminate the contract due to its non-performance, imposed by the concept of a fundamental breach of contract and the rule of foreseeability, are in the interest of the debtor because, in this way, he gain an additional possibility for the contract to be executed.The predictability rule, however, is not at the expense of the injured party's interests, but its primary function is to limit the right for termination the contract to justified cases only, when other legal remedies, first of all, claim for damages, cannot adequately compensate for the losses that the creditor suffers from a non-performance.
However, a flexible formulation of the concept of a fundamental breach of contract means that a court or arbitration ultimately decides upon it on the basis of circumstancias of every particular case, which may lead to arbitrariness and legal uncertainty.Therefore, this concept carries a 19 "If, for example, when interpreting a contract, a particular understanding of a particular trade profession is found to be relevant, then the party that breached the contract cannot be relied upon its own ignorance.In order to avoid the termination of a contract on the basis of a fundamental breach of contract, the lack of personal knowledge of the parties in question is not sufficient; in order to challenge the existence of a fundamental breach of contract, such a defect should exists, both on the party that committed the injury and on the side of a reasonable person of the same characteristics in the same circumstances."J. Perović,163. 20 Ibid.,164.special risk for the injured party, which is reflected in the fact that he cannot know in advance whether the breach of the contract made by the debtor is fundamental, i.e. whether he can terminate the contract on that basis.In order to avoid this risk, the injured creditor will often use another legal remedy, which may be less appropriate to him.These uncertainties can be reduced only if the parties to the contract clearly and precisely compile their contract, in which the obligations and their significance are determined so that the need for interpretation is reduced to the minimum.However, the practice of applying the Vienna Convention, as well as the expert and scientific papers on the fundamental breach of contract, undoubtedly positively influence the overcoming of these uncertainties.In support of this goes the fact that the concept of a fundamental breach of contract is accepted by other international instruments for unification of the contract law, as well as fact that the number of national laws which opt for it constantly increase.
Ferrari, ,,Fundamental Breach of Contract Under the UN Convention on the International Sale of Goods -25 Years of Article 25 CISGˮ, Journal of Law and Commerce Vol.25/2006, 495; M. Will, ,, Article 25ˮ, in: Commentary on the International Sales Law, The 1980 Vienna Sales Convention (eds.C. 3.1.UNIDROIT Principles; Art.8: 103 Principles of European contract law; Art.3: 502 DCFR.In national regulations this concept has long been accepted in Scandinavian law, but also in Estonian Law of Obligations, The Netherlands Wetboek; Chinese Contract Law, and as an alternative proposal is also formulated in Art.264.Draft of the Civil Code of the Republic of Serbia (text of May 29, 2015).