Cancellation of International Commercial Agreements: Why is it Difficult? What is the Procedure for it?

As it is known, there are some difficulties the tradesmen dealing with international trade cannot avoid and some costs related to them. I tried to list the primary difficulties as follows:

• The busy schedule to establish business contacts and market research activities,
• The efforts made to progress through difficult negotiation stages,
• Providing organizations for expensive transportation/logistic activities and the delivery operations of the goods,
• Long calculation operations carried out to determine the risk and insurance of the operations,
• Dealing with the customs duties and non-tariff barriers which can be nightmares for both parties,
• Supplying certificates, accreditation and approval documents, preparations, efforts and new expenses,
• Bearing the transaction expenses arisen from the use of payment tools of the banking system.

The Created Volume, Efforts and Operating Time are Considered as “Values Required to be Protected”

When all of the above mentioned variables are taken into account; taking actions by also taking risks in order to maintain a commercial relationship, expenses incurred on the labour force and operating machines by the parties to fulfil their obligations, achieving the delivery operations by overcoming several natural and human-related obstacles are considered as values by both national and international legal and judicial tribunals; and the relevant agreement is tried to be supported by protecting those values.

Establishing the “Cancellation is an Ultimate Remedy” Principle

As a practical result of this application; for an international commercial contract put into effect and started to operate after overcoming the above mentioned difficulties, resolving the conflicts arise during the performance stage of the contract with alternative ways is the rule, and easy cancellation of the agreement by one of the parties is an exception unless the parties have an agreement otherwise. Therefore, a principle which we can express as “cancellation is the ultima ratio remedy” was established.

Adoption of the Cancellation is the Ultimate Remedy Principle by International Legal Institutions and Judicial Tribunals

In accordance with this principle, each of the parties has to make all kinds of efforts and show goodwill in order to maintain the international commercial contract and fulfil their obligations undertaken with the agreement. Correspondingly, it is difficult to cancel an agreement made within the scope of international trade in accordance with the laws and it requires following some strict rules/procedures. Those rules/procedures were formed in accordance with the United Nation Convention on Sale of Goods (CISG) and within the frame of national court and arbitration awards and the convention. In this regard, it is necessary to fulfil the following requirements for a legitimate cancellation of an agreement:

Requirements for a Valid Cancellation

1. Fundamental Breach of One of the Undertaken Contract Provisions

This case was regulated in the 49^th, 64^th, 72^nd and 73^rd articles of CISG. In brief, in this case one of the parties does not gain the expected interest from the agreement. Making clear determinations on the agreement related to what are the main expectations/interests of the parties are recommended by all international commercial law practitioners and case- law. On-time issuance for Letter of Credits, On-time payments, on-time deliveries of the contract goods can be examples for this case. In case these kind of clear determinations/regulations do not exist in the agreement, such breaches are not considered as fundamental breaches.

One of the most frequent problems we have encountered with is the misconception on automatic cancellation of an agreement as a result of delivery of defective contract goods and not making the payments. On the contrary of this misconception which is encountered in international trade, the parties cannot cancel an agreement by themselves or automatically unless they agreed on otherwise.

Accordingly, the fundamental breaches should be agreed by the parties clearly during the agreement-making process (this is the method we recommend) or in case of a breach, the degree of it should be evaluated and the breaching party should be granted with an extension of time after a warning to resolve it. Otherwise, the agreement will be considered to be maintained. And this causes great conflicts especially in the case of a contract for delivery of goods by instalments.

Making Notice to Party who the Fundamental Breach of Contact

It is required to make the notice with suitable means of communication in order the cancellation to be valid. It is possible to use the recent electronic means of communication such as e-mail, fax, Skype, WeChat, Trade Manager, Whatsapp, Tango. The notification should bear clear cancellation expressions and contain a short explanation for the reason of cancellation. If the seller party cancels the agreement, it is necessary to inform the other party about the consequence of the contract goods which have not been delivered yet (such as selling them to another party etc.). If the buyer cancels the agreement, it is necessary to inform the other party about the consequence of the goods received earlier (such as the goods are under protection, they will be sold to prevent and mitigation of the damages etc.).

According to the court decisions made within the scope of CISG, it is necessary to notify the other party about the cancellation within 2 and 5 months from the realization of the fundamental breach. Unless there is a special valid reason, the longer periods are not considered as admissible. Please note that, if the agreement is not cancelled clearly, the parties are bond with the agreement and some of their debts maintain.

Special Investigation: Issues Necessary to be Taken into Consideration on the Delivery of Goods:

The conflicts as a result of delay on the delivery of goods in international trade are encountered frequently. I suggest the following issues to be considered especially during the cancellation of an agreement as a result of a fundamental breach related to delivery:

• For the cases bearing the suspicion that, the future delivery can be considered as risky since a single delivery operation is not carried out for the agreements depending on successive and separate deliveries, the agreement can be cancelled depending on the conditions and case as a result of fundamental breach (CISG 73).
• It is necessary to add the provision “time is essence” to the agreement to enable the late delivery to be considered as fundamental breach cancellation reason.
• If the other party uses expressions such as “in the quickest possible way” in the, correspondences, pro forma invoices and agreements, you should be more sensitive about the delivery dates. You need to inform the other party that you do not accept such kind of expressions if necessary.
• Grounding on the provisions of INCOTERMS for your agreements, correspondences, , offers and pro forma invoices does not enable a simple delay of the contract goods to be considered as a material breach of an agreement.
• On the other hand, floating prices of the contract goods or a simple delay of the seasonal goods can be considered as a material breach of an agreement.

Consequently, it is not easy to cancel an effective agreement due to the costs arisen from it within the scope of international commercial legal practices. Therefore, it is important to determine what the “(simple) breaches” are and what the “fundamental breaches” are during the agreement-drafting and designing the expected interests.