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CISG CASE PRESENTATION

Austria 28 April 2000 Supreme Court (Jewelry case) [translation available]
[Cite as: http://cisgw3.law.pace.edu/cases/000428a3.html]

Primary source(s) of information for case presentation: Case text

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Case identification

DATE OF DECISION: 20000428 (28 April 2000)

JURISDICTION: Austria

TRIBUNAL: Oberster Gerichtshof [Supreme Court]

JUDGE(S): Unavailable

CASE NUMBER/DOCKET NUMBER: 1 Ob 292/99v

CASE NAME: Austrian case citations do not generally identify parties to proceedings

CASE HISTORY: 1st instance LG Feldkirch (GZ 6 Cg 205/98d-9) 3 March 1999 [affirmed]; 2d instance OLG Innsbruck (GZ 4 122/99v-13) 11 June 1999 [affirmed]

SELLER'S COUNTRY: Germany (plaintiff)

BUYER'S COUNTRY: Austria (defendant)

GOODS INVOLVED: Jewelry


Case abstract

AUSTRIA: : Oberster Gerichtshof, lOb 292/99v, 28 April 2000

Case law on UNCITRAL texts (CLOUT) abstract no. 427

Reproduced with permission from UNCITRAL

Abstract prepared by Christian Mosser

The German plaintiff (seller) sold jewelry to two Austrian defendants (buyers) based on several orders which explicitly contained a clause whereby the purchase price should be paid in advance. After three reminders the seller in a letter eventually fixed an additional period of time for payment by the buyer, stating that after the expiration of that period he would refuse to accept any payment and consequently claim damages or declare the contract avoided. The buyers refused to pay the price in advance asserting that the parties had agreed on payment after delivery. The seller suffered loss of profit and claimed damages for breach of contract.

The court ordered the buyers to pay damages pursuant to Section 326 of the German Civil Code. The Court of Appeal affirmed that decision but held that the CISG was applicable since the parties had not excluded its application. The clause in the seller's general terms and conditions of business, making German law exclusively applicable, was not found to have excluded the CISG, because that clause did not refer to German domestic law only. Even though the plaintiff based his conditional declaration of avoidance on Section 326 of the German Civil Code (BGB), it was valid under articles 63 and 64 CISG as well. The declaration of avoidance was held to be timely even though it was only raised during the course of the proceedings.

The Supreme Court affirmed the decision of the Court of Appeal and highlighted that, while a declaration under article 64 CISG on the avoidance of the contract is not subject to any form requirements or time limits, it should leave no doubts as to the avoidance of the contract. Insofar as the wording of the seller's letter on the avoidance of the contract may have left doubt about the status of the contract, the subsequent lawsuit was found to have replaced the declaration of avoidance. Under article 74 CISG, damages for breach of contract by one party consist of a sum equal to the loss, including loss of profit, suffered by the other party as a consequence of the breach. Such damages are limited to the loss which the party in breach had foreseen or should have foreseen at the time when the contract was concluded. In this case the buyers could foresee the loss of profit suffered by the seller.

To calculate the damages, the seller could choose between article 75 (substitute transaction) and article 76 CISG (current price). But neither article 75 nor article 76 prevent the seller from claiming damages under article 74 even if the contract is avoided. The Court stated that, if the party to the contract claiming damages regularly concludes similar transactions, the current price calculation under article 76 CISG is excluded only if this party fixes one of these transactions as the benchmark of current price.

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Classification of issues present

APPLICATION OF CISG: Yes [Article 1(1)(a)]

APPLICABLE CISG PROVISIONS AND ISSUES

Key CISG provisions at issue: Articles 6 ; 63(1) ; 64(1)(b) ; 74 ; 75 ; 76 ; 77 [Also cited: Article 49(2) ]

Classification of issues using UNCITRAL classification code numbers:

6B [Choice of law of Contracting State without excluding Convention equals choice of Convention];

63A [Notice fixing additional final period for buyer's performance];

64B11 [Seller's right to avoid contract (grounds for avoidance): buyer does not pay within an additional period set by the seller under art. 63];

74A [General rules for measuring damages (loss suffered as consequence of breach): includes loss of profit];

75A [Damages established by substitute transaction];

76D [Damages based on current price (other damages under art. 74): loss of profit];

77A [Obligation to take reasonable measures to mitigate damages]

Descriptors: Applicability; Choice of law ; Avoidance ; Nachfrist ; Damages ; Profits, loss of ; Foreseeability ; Cover transactions ; Mitigation of loss

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Editorial remarks

Excerpt from analysis of Austrian case law by Willibald Posch & Thomas Petz*

        * "Austrian Cases on the UN Convention on Contracts for the International Sale of Goods", 6 Vindobona Journal of International Commercial Law and Arbitration (2002) 1-24, at 19-20, 22-23.

Avoidance ; Nachfrist. "On 11 September 1997 and on 28 April 2000, the Austrian Supreme Court rendered decisions on the fixing of an additional period of time for performance. In the earlier decision, it held in ambiguous language that CISG, which is applicable on the merits of the case, 'also' required that an additional period of time for performance was fixed and the contract declared void according to Articles 63(1) and 64(1)(b) CISG. In the later decision the Court stated that, according to Article 63 CISG, the seller was entitled to fix an additional period of time of reasonable length for performance, and, if the buyer either failed to pay the purchase price within this additional period or refused to pay at all, the seller might unilaterally declare the contract void. The Court emphasized that there are no formal requirements for this declaration of avoidance and that it must not fix a time limit. What has to be clearly expressed, however, is that neither party shall remain bound by the contract.

"In the relevant case, the meaning of a statement made by the seller's lawyer, after having brought an action against the buyer, was at issue. In this statement, the lawyer declared that no performance would be accepted if the buyer failed to perform within the additional period of time. Notwithstanding the ambiguity of the statement that made it appear as if the avoidance of the contract was just meant as an alternative, the Court regarded it as sufficiently definite to constitute a declaration of avoidance after an action had been brought by the seller." [pages 19-20]

Damages. "[In] the Austrian Court's … judgment on Article 74 … on 28 April 2000 … [i]n the view of the Court, the principle of awarding damages for breach of contract that amount to full compensation of the loss, including loss of profit, ought to be understood as a continuation of legal conceptions that had been developed by national courts interpreting their domestic law prior to CISG. Thus the courts came to acknowledge the general rule that merchants, whose business is the trading of goods like those of the avoided contract in question [a German manufacturer of jewelry sold jewels to an Austrian jeweler], would always be able to conclude a contract on the basis of the market price. The only advantage that a merchant would draw from being released from the duty to perform the avoided contract is that he or she would not have to purchase additional goods when performing the substitute transaction. The merchant would save the acquisition costs and the difference between the defaulted purchase price of the avoided contract and his or her savings of acquisition costs; in other words, the profit margin would constitute the amount of damages suffered by the seller of fungible goods. The loss of this profit would qualify as 'actual damages', because it had already been a part of the seller's assets at the time of conclusion of the contract. In the end, the Austrian Supreme Court stated in explicit wording that the seller's usual trade margin would usually be his or her foreseeable loss of profit within the meaning of Article 74 CISG.

"Furthermore, the Supreme Court mentioned in this decision that, in the same way as provided by the relevant rules of Austrian domestic law, damages may be assessed under CISG either on the basis of a 'concrete method of computation', viz. by substitute transactions according to Article 75 CISG, or on an 'abstract basis of calculation', viz. by reference to the current market price according to Article 76 CISG. However, neither Article 75 nor Article 76 precludes the creditor's right to assess damages in accordance with the general rule of Article 74 CISG. [pages 22-23]

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Citations to other abstracts, case texts and commentaries

CITATIONS TO OTHER ABSTRACTS OF DECISION

English: Unilex database <http://www.unilex.info/case.cfm?pid=1&do=case&id=481&step=Abstract>

German: [2000] Zeitschrift für Rechtsvergleichung (Germany) 188-189

CITATIONS TO TEXT OF DECISION

Original language (German): CISG-Austria website <http://www.cisg.at/1_29299v.htm>; CISG online.ch website <http://www.cisg-online.ch/cisg/urteile/581.htm>; [2000] Österreichisches Recht der Wirtschaft (RdW) No. 643; [2000] EvBl No. 167; [2000] Zeitschrift für Rechtsvergleichung (ZfRV) 80; [2000] Östereichische Juristenzeitung (ÖJZ); Unilex database <http://www.unilex.info/case.cfm?pid=1&do=case&id=481&step=FullText>

Translation (English): Text presented below

CITATIONS TO COMMENTS ON DECISION

English: Saidov, Damages under the CISG (December 2001) nn.72, 298, 300; Willibald Posch & Thomas Petz, 6 Vindobona Journal of International Commercial Law and Arbitration (2002) 1-24, at 19-20, 22-23 [English translation of German commentary cited below] [Go to these commentaries for an excellent comprehensive analysis of Austrian case law on the CISG]; Bernstein & Lookofsky, Understanding the CISG in Europe, 2d ed., Kluwer (2003) § 6-28 n.337; [2005] Schlechtriem & Schwenzer ed., Commentary on UN Convention on International Sale of Goods, 2d (English) ed., Oxford University Press, Art. 49 para. 23 Art. 74 para. 44; Schwenzer & Fountoulakis ed., International Sales Law, Routledge-Cavendish (2007) at p. 461

German: Willibald Posch & Ulfried Terlitza, Internationales Handelsrecht (2001) 47-56, at relevant pages

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Case text (English translation)

Queen Mary Case Translation Programme

Austrian Supreme Court (Oberster Gerichtshof)

28 April 2000 [1 Ob 292/99v]

Translation [*] by Ruth M. Janal [**]

Translation edited by Elisabeth Opie [***]

1. Facts of the case
2. Findings of Court of First Instance
3. Findings of Court of Appeal
4. Grounds for decision

     [For an in-print adaptation of this translation accompanied by the full text of the commentary by Posch & Petz cited above, go to 6 Vindobona Journal of International Law and Arbitration (2002) 184-190. To help persons cite this case translation to either this Internet publication or the Vindobona publication, we have included paginations that accord with those of the Vindobona Journal.]

1. Facts of the case

[Seller] conducts a business for the manufacture and sale of jewelry in Hamburg [Germany], with an annual turnover of DM [Deutsche Mark] 600,000. From the beginning of the year 1995 until the end of 1998 the [buyer] operated a jewelry store in Bregenz [Austria]. The store manager's wife, who was responsible for sales and purchases within the business, contacted [seller], upon which [seller] drove to Bregenz to present its collection. It printed out the list of selected pieces of jewelry from its laptop and handed over the produced "orders" to the manager's wife, who then added the company stamp. The parties "were in agreement" both as to the order and to the payment arrangements, which were listed in one of the orders as follows:

"Advance payment: 15 % discount of net sum
5 % discount for immediate payment
Date of payment: 10 November 1997 (receipt in the account of seller)" [page 184]

After receipt of the advance payment - envisaged by check by 10 November 1997 - [seller] was to deliver the jewelry on 13 or 14 November 1997. Further orders were to be paid within seven days after receipt of the goods with a discount of 5 %.

Both orders contained the note:

"Proprietary rights are reserved until complete payment of the delivered goods has been made. Our general conditions, which were handed over to you in connection with this order, are part of the contract."

[Seller] handed over the general conditions together with the orders. Section 5 of the general conditions reads:

"Payment ... Delivery to companies unknown to us is made only in case of advance payment or COD. The same applies to customers outside of the Federal Republic of Germany."

The manager's wife faxed both orders to [seller's] business in Hamburg, so that production could proceed straight away. The pieces of jewelry were manufactured according to the order. [Seller] invoiced the jewelry on 5 November 1997 in the amount of DM 19,331.85 (DM 18,365.26 when taking into account the 5 % discount for immediate payment) as well as DM 13,155.45 (DM 12,497.68 when taking into account the 5 % discount for immediate payment).

In its letter of 14 November 1997, [seller] reminded the [buyer] of the payment due and told it that the goods were ready to ship and would be sent to [buyer] as soon as an irrevocable receipt of payment had occurred. In a second reminder letter of 17 November 1997, [seller] fixed an additional period of time for payment of the purchase price, until 26 November 1997. On 3 December 1997, [buyer] sent [seller] two checks for the amount of the two invoices. [Seller's] bank refused to cash the checks for lack of funds.

In its letter of 22 December 1997, [seller] informed [buyer] about these events and told it that as a result [seller] would be unable to ship the goods. On 12 January 1998, [seller's] German attorney sent [buyer] the following letter:

"With reference to the contracts and invoices referred to above as well as to our client's letter of 17 November 1997, we point out that you have been delayed with your contractual obligations to pay the purchase price for the ordered jewelry since 10 November 1997. Furthermore you have sent our client two uncovered [page 185] checks and thereby committed check fraud punishable by law. In order to avoid litigation and prevent any further damages, our client is willing to give you a final opportunity to fulfill your contractual obligations. In the name and with power of attorney of our client, we therefore fix a final additional period of time for payment of the above-mentioned invoices - until 2 February 1998.

Should our client not receive the purchase price until that date, it will refuse to accept the performance of your obligation. Our client will then seek damages for non-performance or withdraw from the contract."

[Buyer's] failure to take delivery of the selected jewelry caused a loss of profit on the part of [seller] in the amount of DM 21,314.75 - the difference between the purchase price and its manufacturing costs. This damage arises regardless of a possible resale of the goods ordered to a subsequent buyer, as the later contract would have been formed independently of the [buyer's] order.

In its statement of claim - which was lodged with the Court of First Instance on 23 September 1998 - [seller] is asking for damages for loss of profit in the amount of DM 21,314.

[Seller] states:

The pieces of jewelry were predominantly manufactured specifically for [buyer]. [Buyer] did not fulfil its obligation to pay the price in advance. [Seller] informed [buyer] in its last payment reminder that it would withdraw from the contract and claim damages if the latter did not perform. Since no payment was made, [seller] withdrew from the contract and is now asking for damages for loss of profit.

[Buyer] raises the following objections:

According to the agreement between the parties, the payment was to be made after delivery and inspection of the goods. Payment was made by the two checks, which were however later stopped because delivery was not made. The basis for the contract ceased to exist as the jewelry was not at the [buyer's] disposal for the Christmas business. Furthermore, [seller] neither took the necessary steps to cause the payment to be in arrears under the law, nor was the contract avoided. [Seller] did not mitigate its damages, obviously resold the goods far under value and thereby caused the harm himself. [Seller] did not inform the [buyer] of the intended sale. The amount asked for includes the profit margin, which [seller] is not entitled to demand.

[Buyer] raises a counterclaim for DM 30,862.94, reasoning that this amount is equivalent to the typical profit margin in its own industry, which is double the amount of the net purchasing price. The counterclaim is based on damages for loss of the Christmas business. [page 186]

2. Findings of Court of First Instance

The Court of First Instance found that [seller's] demand for DM 21,340.75 was justified, whereas [buyer's] counterclaim was unfounded, and ordered [buyer] to pay [seller] DM 21,314.75 with interest of 5% since 1 March 1998, payable in the equivalent of Austrian Schillings according to the exchange rate for goods at the Vienna stock exchange. It denied the claim for further damages.

It set out the following:

The applicable law is the United Nations Convention on Contracts for the Sale of International Goods (CISG) and - in matters not settled by the Convention - German law according to § 36 IPRG.[*] The consequences of a payment in arrears are therefore to be settled according to § 326 BGB.[*] [Seller] satisfies the requirements to receive damages set out by this provision. Despite the fixing of an additional period of time, [buyer] failed to fulfil its obligations under the contract and is therefore liable for damages. The damage consists of the difference between the value of the promisor's performance and the promisee's saved expenses. [Buyer] is therefore liable to pay the purchase price minus [seller's] saved expenses (which are equivalent to the manufacturing costs).

3. Findings of the Court of Appeal

The Court of Appeal rejected [buyer's] appeal and allowed the appeal to the final instance.

Starting from the first court's observation it decided:

4. Grounds for the decision

The appeal against the decision of the Court of Appeal is not justified.

The contract between the parties is governed by the United Nations Convention on Contracts for the International Sale of Goods, which entered into force in Austria on 1 January 1989 (BGBl [*] 1988/96) and entered into force in Germany on 1 January 1991 (BGBl [*] 1990/303). According to Art. 1(1)(a), the CISG is applicable because the parties, whose places of business are in two different Contracting States, concluded a contract for the sale of goods. As the Court of Appeal has correctly pointed out, the parties did not exclude the application of the Convention pursuant to Art. 6 CISG (cf. Posch in Schwimann ABGB2,[*] Art. 6 CISG n. 8).

Under Art. 63(1) CISG, the seller may fix an additional period of time for performance by the buyer of its obligation. According to Art. 64(1)(b) CISG, the seller may declare the contract avoided if the buyer does not, within the additional period of time fixed by the seller, perform its or its obligation to pay the price or take delivery of the goods. Avoidance of contract is effected by a unilateral declaration of the non-breaching party to the other party. The declaration of avoidance does not have to satisfy any form requirements and there are no time limits imposed - apart from Art. 49(2) CISG, which is not relevant in the present case. The declaration must be unambiguous in that the [page 188] [aggrieved party] does not wish to keep the contract on foot (SZ 69/26 with further references).

In the letter of 17 November 1997, [seller's] attorney declared that [seller] would refuse to accept payment of the purchase price should [buyer] not perform its obligation within the additional period of time fixed. As the Court of Appeal correctly pointed out, this is to be understood as a conditional declaration by [seller] to (then) avoid the contract. Insofar as the meaning of this declaration was blurred by the alternative "... or withdraw from the contract" this ambiguity was certainly resolved by the statement of claim, which unequivocally declared the contract avoided. As has already been pointed out, the declaration of avoidance is generally not bound to any specific form or time frame under the CISG, so that the statement of claim can replace the declaration of avoidance - comparable to established case law with respect to §§ 918 AGBG [*] (1 OB 203/98d; SZ 52/154; JBl 1974, 368).

According to both Austrian as well as German case law outside the sphere of application of the CISG, businesspersons, who regularly trade with goods as the ones involved in the avoided contract at hand, will - as a general rule - always be in a position to replace the failed transaction by a substitute transaction selling the goods of the avoided contract or different goods on the basis of the current market price. The seller's only advantage gained from the failed transaction consists in not having to acquire additional goods for the following transaction, therefore in saving acquisition costs. The difference between the purchase price of the first transaction and the above-mentioned advantage, i.e., the "profit margin", therefore constitutes the loss of the seller in the trade with fungible goods. The loss of this profit qualifies as actual or direct loss since this profit had already become part of the seller's assets at the time the contract was concluded (6 Ob 797/80; Koziol, Österreichisches Haftpflichtrecht I, 3rd ed., n. 2/84; Emmerich in MünchKomm, 3rd ed., § 325 n. 93 f.).

This analysis developed by the courts is taken up in CISG Art. 74, according to which damages for breach of contract by one party consist of a sum equal to the loss, including the loss of profit, suffered by the other party. Under the second sentence of Art. 74, a claim for damages is only limited by the foreseeability of the loss for the party in breach. It is being said that loss of profit - the typical sales margin of the seller - is a damage that is foreseeable for a buyer who refuses to take delivery of the goods (Staudinger, KommzBGB, CISG , Art. 74 n. 43 with further references). We concur in view of the above-mentioned literature and case law.

As in Austrian law under §§ 920, 921 ABGB,[*] the CISG enables the non-breaching party to calculate its loss "concretely" by reference to a substitute transaction (Art. 75 CISG) or via an abstract calculation of loss by reference to the current price of the goods [page 189] (Art. 76 CISG). However, neither Art. 75 nor Art. 76 excludes the possibility that, after the contract has been avoided, the promisee can calculate its damage for non-performance concretely according to the general rule under Art. 74 (Schlechtriem, UN-Kaufrecht, 3rd ed., Art. 75 n. 12). Where the party regularly concludes similar transactions, the abstract calculation of damages under Art. 76 CISG is excluded only if it identifies one of them as a specific substitute transaction (Schönle in Honsell, UN-Kaufrecht, Art. 76 n. 5).

Apart from the fact that the proceedings do not indicate the conclusion of such specific substitute transactions, [buyer's] objection that [seller] failed to mitigate the loss (Art. 77 CISG) is ineffective as far as the promisee, in performing the substitute transaction, would have lost another similar transaction bringing the same profit as the first transaction. In this case, the seller can assess its contractual interest according to the principle of full reparation by taking the difference between its own costs (i.e., the costs of acquisition or manufacture) and the contract price (Schlechtriem, UN-Kaufrecht, 3rd ed., Art. 75 n. 12; Karollus, UN-Kaufrecht, 220).

In the end, [buyer's] (completely unsubstantiated) objection that [seller] failed to mitigate damages is therefore irrelevant, because the Court of First Instance found that a miscellaneous resale of the goods intended for the [buyer] would have materialized independently of the [buyer's] order.

Appeal denied. The decision on costs is based on §§ 40, 41 ZPO [*]. [page 190]


FOOTNOTES

* All translations should be verified by cross-checking against the original text. For purposes of this translation, the German Plaintiff-Respondent is referred to as [seller], the Austrian Defendant-Appellant as [buyer]. Monetary amounts in German currench (Deutsche Mark) are indicated as [DM].

Translator's note on other abbreviations: AGBG = [Austrian Civil Code]; BGB = Bürgerliches Gesetzbuch [German Civil Code]; BGBl = Bundesgesetzblatt [Federal law gazette]; DM = Deutsche Mark; IPRG = Gesetz über das Internationale Privatrecht [Austrian Code on Private International Law].

** Ruth M. Janal, LL.M. (UNSW) is a PhD candidate at Albert-Ludwigs-Universität, Freiburg.

*** Elisabeth Opie, B.A., LL.B (Hons), LL.M, Legal Counsel for Commonwealth Scientific and Industrial Research Organisation; Editor-in-Chief, Vindobona Journal of International Commercial Law and Arbitration.

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Pace Law School Institute of International Commercial Law - Last updated February 7, 2007
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