Question 1
This question concerned the construction of the contract between CatCon and Beemer concerning the sale by
CatCon of 12 000 catalytic converters to Beemer. The contract was, in effect, a 12 month instalment contract
for the delivery of 1000 catalytic converters each month in exchange for the payment of $5 000. You were
asked to advise Elisabeth on any rights CatCon has in relation to this situation. You were also asked to explain
what you thought the best outcome for CatCon would be in the circumstances and how you would advise
Elisabeth on this. The main issues were whether or not CatCon could recover the monies owed it under the
contract; whether it might be in a position to terminate the contract; and whether or not it could recover any of
the shipments already sent to Beemer. This was the focus of the first instruction and required you to construe
the contract in order to arrive at a conclusion on this point. The second instruction, to explain what you
thought the best outcome for CatCon would be, required you to think pragmatically and in the interests of
CatCon, your client, and gave you scope to demonstrate how you might do this, given the conclusions you
arrived at concerning what the legal position was likely to be.
In order to properly construe the contract, it was necessary to identify the relevant law applicable to the
contract and then to apply it appropriately. The facts were silent on whether or not the parties had expressly
stipulated a governing law of the contract. You were told that Elisabeth had come to you for advice on the
situation leaving it open to you to explain to her the position under Australian law. In this case, Australian
contract law (specifically the law of NSW) will apply to the construction of the contract. This means not just
the general law but the Sale of Goods Act 1923 (NSW) and the Sale of Goods (Vienna Convention) Act 1986
(NSW) (hereafter CISG Act).
As most students correctly identified, the CISG Act applied to this situation because both parties to the
contract had their places of business in different contracting states that are parties to the CISG convention. An
exhaustive demonstration of the application of the CISG was unnecessary. In order to determine whether or
not CatCon could terminate the contract and recover any of the goods sent, it was necessary first of all to
consider whether or not the contract provided expressly for termination (as was the case, for example, in
United Plastics Ltd v Reliance [1977] 2 NZLR 125). In the absence of any express term, it was necessary to
apply the provisions of the CISG. Under that regime, a contract can only be avoided (to use the language of
the convention) if a party has made a fundamental breach of the contract in accordance with art. 25. Applying
the decisions from Roder Zelt and Perwaja Steel, it might be argued that failure to make the payments
amounted to a failure to pay the price of the contract which, in turn, amounted to a fundamental breach. This
was an instalment contract under art. 71. Applying that article, CatCon might be entitled to avoid the contract
in relation to October and future instalments, provided the avoidance was based on a fundamental breach.
Similarly, there was scope for arguing that, under Art. 72 (anticipatory breach), again once it was established
that a fundamental breach would be committed, CatCon could avoid the contract. The better argument was
that, drawing on Roder Zelt, the insolvency of Beemer itself amounted to a fundamental breach under art. 25.
That would then entitle CatCon to avoid the contract without needing to argue under Art. 72. While it was
open to students to argue that CatCon might choose to suspend the contract (under Art. 71), in the
circumstances given, this would be of little practical use since Beemer, being insolvent, was unlikely to be in a
position to resume performance.
CatCon’s courses of action were to try and stop delivery of the goods in the October shipment (the goods were
shipped on 25th October and on 27 October, CatCon was advised of Beemer’s insolvency. There was scope
therefore to argue that the goods were still possibly within the sphere of control of CatCon. More information
was needed to make a conclusive argument on this point. It was sufficient therefore, if students recognised that
this argument could be made. Better papers explored this through a discussion of the application of Art. 85
CISG and s.42 SoGA (NSW). CatCon could also exercise rights under Art. 78 for interest on the amount left
unpaid under the contract together with the right to damages provided for in Art. 74. Again, owing to
Beemer’s insolvency, claims for monetary compensation may well go unsatisfied: CatCon will merely be an
unsecured creditor and will have to prove in Beemer’s insolvency. At least if CatCon can recover the October
shipment and avoid the contract, CatCon’s losses will be less than they otherwise would be.
CatCon had allowed Beemer extra time to pay (until 10/11). Beemer’s failure to pay for the September
shipment did not therefore amount to a breach of contract. Ordinarily, suspension of the contract under art.
71 would not have been available to CatCon in this instance (see Art 63: a party may not act inconsistently
with other remedies). However, the notification of the insolvency cuts across the ‘Nachfrist’ arrangement; it
would amount to notification by Beemer of an inability to perform during the additional time (see art. 63(2)).
Therefore, under art. 64, CatCon would have been entitled to declare the contract avoided (applying reasoning
and discussion in Roder Zelt and Perwaja Steel, as already indicated). Damages could be claimed for any loss
flowing from the delayed payment, notwithstanding the extra time allowed for payment: if a contract variation
had been negotiated, then there would have been no breach by Beemer; however, if there was only additional
time allowed for performance, this would not affect CatCon’s entitlement to claim damages (see Art. 61(2)).
It would be necessary for CatCon to establish the extent (quantum) of its loss – more information would have
been needed to do this in any detail.
Agency was not in issue. Some papers indicated that it might be relevant when considering whether or not the
carrier was acting as CatCon’s or Beemer’s agent, when considering the question of stopping the goods in
transit, but further information would have been needed in order to make a conclusive argument on this point.
It was important to be consistent in using ‘CISG-friendly’ language ie, not referring to terms as
conditions/warranties nor to termination rather than avoidance of the contract. Some papers referred to
Bodilingo v Webb but did not use the case effectively. It was not an appropriate authority because it concerned
the sale of a business, not an instalment contract. Statements made in the course of that judgment might have
been useful but needed to be applied appropriately, demonstrating that, while the two situations could be
distinguished, there was nevertheless some guidance to be had from the statements in Bodilingo, if that was
what was being argued. There was scope for considering restitution under Art. 81 with respect to the
September and October shipments. However, Beemer’s insolvency would complicate any restitutionary
claims: it would be likely that the goods supplied in September would already have been installed in motor
vehicles, requiring a consideration of (German) personal property law; if CatCon could stop the October
shipment, a restitutionary claim would be redundant; and if CatCon could not stop that shipment, it would be
necessary again, to consider whether or not CatCon could claim restitution in the face of Beemer’s insolvency
(this discussion was beyond the scope of the question and answer but is included for the sake of completeness
because some papers raised it). Most discussions of the application of Roder Zelt while satisfactory, could
nonetheless have been more precise and focussed.