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CISG CASE PRESENTATION

Austria 7 September 2000 Supreme Court (Tombstones case) [translation available]
[Cite as: http://cisgw3.law.pace.edu/cases/000907a3.html]

Primary source(s) of information for case presentation: CISG-Austria website

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Case identification

DATE OF DECISION: 20000907 (7 September 2000)

JURISDICTION: Austria

TRIBUNAL: Oberster Gerichtshof [Supreme Court]

JUDGE(S): Unavailable

CASE NUMBER/DOCKET NUMBER: 8 Ob 22/00v

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

CASE HISTORY: 1st instance BG Korneuburg (4 C 1085/92y-56) 10 November 1998; 2d instance LG Korneuburg (21 R 62/99m-62) 14 September 1999

SELLER'S COUNTRY: Germany (plaintiff)

BUYER'S COUNTRY: Austria (defendant)

GOODS INVOLVED: Tombstones


Case abstract

AUSTRIA: Oberster Gerichtshof, 8 Ob 22/00v, 7 September 2000

Case law on UNCITRAL texts (CLOUT) abstract no. 428

Reproduced with permission from UNCITRAL

Abstract prepared by Martin Adensamer, National Correspondent

The German plaintiff (seller) delivered "labrador dark" gravestones to the Austrian defendant (buyer). Two weeks after delivery, the buyer discovered a defect in the material (white lines). One of the stones was sent to Germany for examination. Some of the other stones finally were used for the construction of a tomb. According to the conditions for delivery which had been accepted by the defendant, the buyer had no right to retain the price even if the goods were non-conforming. The buyer finally declared the contract avoided.

The Supreme Court found that the right to retain the price was validly excluded under the conditions of delivery which have been accepted by the buyer and that, therefore, it was not relevant whether the buyer could validly declare the contract avoided.

The Court also found that the validity of agreements that amend the rights of the buyer according to article 4(a) CISG is to be seen in the light of the applicable national law and is not subject to the Convention. Only provisions of national law which are contrary to the basic policy of the Convention are to be disregarded. The rule of German law allowing businesspeople to agree on an exclusion of the right to retain the price does not undermine the basic policy of the Convention. The right, however, to declare the avoidance of the contract as a last resort of the buyer normally must be granted. If this right is restricted, the contracting party at least must have the right to damages.

The Court stated that the question of whether the contract can be avoided arises only when the buyer has paid the price and the seller fails to cure the non-conformity or deliver substitute goods.

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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 4 ; 7 [Also cited: Articles 45 ; 46 ; 49 ]

Classification of issues using UNCITRAL classification code numbers:

4B1 [Scope of Convention (issues excluded): validity under domestic law];

7C22 [Recourse to general principles on which Convention is based: avoidance of contract an ultima ratio remedy]

Descriptors: Scope of Convention ; Validity ; Standard terms and conditions ; Exculpatory clauses ; General principles

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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 8-9.

Scope of Convention ; Validity ; Standard terms and conditions. "[T]he Austrian Supreme Court had to examine the validity of an agreement between the parties of an international sales contract modifying the buyer's rights, and it held that, pursuant to Article 4(a) CISG, the Convention did not apply. Whether the agreement was valid was to be resolved in compliance with the domestic law that, according to the rules of private international law, would govern the contract.

"On several occasions, an Austrian corporation had bought tombstones from a German corporation, which used to respond to the buyer's orders each time by a letter of confirmation that comprised the seller's standard terms which modified the buyer's statutory rights by excluding -- inter alia -- his right of retention. The crucial question before the Austrian Supreme Court was whether this clause was valid. The Court held that questions relating to the validity of clauses in standard terms modifying the rights of a party are not governed by CISG. Consequently, as the conflict rules led to the application of the law at the seller's place of business, German domestic law had to be applied, and under German commercial law the right of retention my be validly excluded by agreement in contracts between merchants.

"However, the Austrian Supreme Court also held that provisions of domestic law were to be regarded as invalid if they infringed the fundamental principles on which CISG is based. This would be the case if a domestic law excluded the right to declare a contract void.45 In the Court's view it was sufficient, however, if the loyal party's right to claim compensatory damages would be preserved. Thus, the recognition of the validity of a contractual exclusion of the right of retention by domestic German law was accepted."

         45. The Supreme Court substantiated this view by emphasizing that the right to avoid a contract would be the last resort of a party performing his or her contractual obligations, if the other party failed to perform within an additional period of reasonable length, or if the supplied goods continued to be useless for the buyer.

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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=473&step=Abstract>

CITATIONS TO TEXT OF DECISION

Original language (German): CISG-Austria website <http://www.cisg.at/8_2200v..htm>; [February 2001] Internationales Handelsrecht (IHR): Zeitschrift für die wirtschaftsrechtliche Praxis 42-44; [2001] Zeitschrist für Rechtsvergleichung (ZfRV) 70; [2000] Österreichisches Recht der Wirtschaft (RdW) No. 9; Unilex database <http://www.unilex.info/case.cfm?pid=1&do=case&id=473&step=FullText>

Translation (English): Text presented below

Translation (Portuguese): CISG Brazil database <http://www.cisg-brasil.net/downloads/casos/tombstones%20case.pdf>

CITATIONS TO COMMENTS ON DECISION

English: Willibald Posch & Thomas Petz, 6 Vindobona Journal of International Commercial Law and Arbitration (2002) 1-24, at 8-9 [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) §: 7-4 n.67; Graffi, Case Law on the Concept of "Fundamental Breach" in the Vienna Sales Convention, Revue de droit des affaires internationales / International Business Law Journal, No. 3 (2003) 338-349 at n.89; [2005] Schlechtriem & Schwenzer ed., Commentary on UN Convention on International Sale of Goods, 2d (English) ed., Oxford University Press, Art. 4 paras. 12, 21, 23 Art. 46 para. 48 Art. 49 paras. 7, 49; Henschel, The Conformity of Goods in International Sales, Forlaget Thomson (2005) 141, 158; Peter Huber, CISG: The Structure of Remedies, 71 RabelsZ (2007) n.21

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

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Case text (English translation)

Queen Mary Case Translation Programme

Supreme Court of Austria (Oberster Gerichtshof)

7 September 2000 [8 Ob 22/00v]

Translation [*] by Florian Arensmann [**]

Edited by Institut für ausländisches und internationales
Privat- und Wirtschaftsrecht der Universität Heidelberg
Daniel Nagel, editor
[***]

PARTICULARS

The Supreme Court is represented by Dr. Petrag (President of the Court) and Dr. Langer, Dr. Rohrer, Dr. Spenling and Dr. Hoch (Counselors of the Court).

This is a combined dispute between Plaintiff G*** GesmbH (G*** limited liability corporation), hereafter referred to as [Seller], represented by Dr. Friedrich H. Köbl, attorney in Vienna vs. Defendant Johann T*** GesmbH, *** (Johann T*** limited liability corporation, ***), hereafter referred to as [Buyer], represented by Dr. Erhard Mack, attorney in Korneuburg, for payment of remaining 131,900.00 Austrian schillings [ATS] (see case record) as a result of [Buyer]'s appeal (Revision) against the decision of the District Court (Landesgericht) Korneuburg dated 14 September 1999 (GZ 21 R 62/99m-62) by which the decision of the Municipal Court (Bezirksgericht) Korneuburg dated 10 November 1998 (GZ 4 C 1085/92y-56 combined with 4 C 1083/92d) was approved.

DECISION

The Supreme Court of Austria reached the following decision:

   -    [Buyer]'s appeal (Revision) is dismissed regarding the main issue. [Buyer]'s appeal on points of law is, however, acceded to with respect to the ancillary charges. The decision appealed against is modified to the extent that points 1. to 3. in terms of the outline of the decision of the Court of First Instance are changed to read:

"1. The order for payment by note of 24 November 1992 in 4 C 1085/92y-2 is upheld except for the request for the award of 20 % sales tax for interest. The order is revoked in respect to the latter.

2. The order for payment by note of 24 November 1992 in 4 C 1083/92d-2 is upheld except for the request for the award of 20 % sales tax for interest. The order is revoked in respect to the latter.

3. [Buyer] is therefore ordered to pay [Seller] 71,500.00 ATS plus 6 % interest since 27 May 1992 and 60,400.00 ATS plus 6 % interest since 23 June 1992 within 14 days.

The additional demand that [Buyer] was further obliged to pay 20 % sales tax for the interest mentioned in point 3 is dismissed.

[Buyer] is ordered to pay [Seller] the costs of the first instance proceedings amounting to 101,696.34 ATS (including 10,258.04 ATS sales tax and 40,148.10 ATS cash expenditure) as well as the costs of the appellate proceedings amounting to 14,365.68 ATS (including 2,394.28 ATS sales tax) within 14 days."
 

   -    [Buyer] is further ordered to pay [Seller] the costs of the proceedings regarding the appeal (Revision) amounting to 8,112.00 ATS (including 1,352.00 ATS) within 14 days.

FACTS

1. Concerning the appeal on the main issue

At the beginning of the nineties, [Buyer] ordered gravestones and gravestone-edgings on several occasions from [Seller]. [Buyer] received an order confirmation each time, regardless of whether the orders were given in writing or by telephone. [Seller]'s standard terms of sale and delivery were printed on the backside of the order confirmation forms, as in the case in dispute. The standard terms of sale and delivery were accepted by [Buyer] and were never contested. In 5 of the standard terms of sale and delivery, the following is set out:

" 5 Warranty and Liability:

1. The material to be used is chosen as consistently as possible with regard to color and structure. Compliance with the samples cannot be guaranteed. Small differences concerning graining, deviations in color and structure are not material defects but natural and cannot be objected to. Minimal deviations in admeasurements concerning memorials (5 cm for sizes greater than 50 cm and 3 cm for sizes up to and including 50 cm) do not entitle the buyer to file objections.

2. The goods are to be examined by the buyer for defects in material or transport damage at the time of receipt or, in case of collection by the buyer, immediately. Notice of defects is to be given in writing 24 hours after delivery. Objections raised later will be rejected.

3. The buyer has to grant the seller adequate time for verification of any notice of defects. If the notice is proved to be qualified, seller will be liable for the defects excluding all further claims, regardless of which legal reason, as follows:

a)    At our option, we will repair the defects or deliver goods of the same kind and quality. The buyer has to provide adequate time and opportunity for repair or replacement after previous information.
 
b) If neither repair nor replacement is possible, seller has the right to convert and to pay back the purchase price. With regard to raw material, discounts can only be granted for the non-utilizable part of the material. Further liability for damages resulting from failure to perform is excluded.

4. Liability for defects of any kind, regardless of which legal reason, which can occur in connection with processing the goods, is excluded.

5. Notices of defects do not entitle the buyer to retain the purchase price or to other claims."

At the beginning of 1992, [Buyer] ordered from [Seller] two complete burial sites "Labrador dunkel" [Translator's note: "Labrador dunkel" specifies a certain structure and color]. The payments were safeguarded with bills of exchange, namely, with bill of 2 March 1992 in the amount of 71,500.00 ATS and with bill of 23 March 1992 in the amount of 60,400.00 ATS. However, both bills were protested due to non-payment.

The gravestones that were ordered were delivered to [Buyer] directly from Germany in February and in March 1992, respectively. [Buyer] accepted the goods delivered without any objection. Initially, there were no noticeable defects of the gravestones. However, only two to three weeks later, some gravestones displayed a white ledge which is a structural defect. These defects constitute "latent defects" as they were not noticeable at the time of the delivery but only appeared by-and-by. According to the statements -- objected to by [Seller] in the response to the appeal, but based on the conclusions of an official expert -- cemetery pieces with such hidden defects were useless for the customers. In the business of stone masons, it was customary that such work pieces with structural defects would be replaced by pieces free of defects.

After the latent defects appeared, [Buyer]'s director called the representative of [Seller] who thereupon agreed to have a closer look at the gravestones. Finally, the latter collected a plate [of the gravestone] and sent it to Germany for examination. It is true that discussions regarding a goodwill solution in the form of the [Seller] collecting the defective pieces and delivering new gravestones took place. However, there was never any statement that [Buyer] would be entitled not to pay the bills. As the bills of exchange could not be honored after the expiration of the three months, which had been agreed upon, [Seller] was no longer willing to discuss a goodwill solution with [Buyer]. The plate already collected remained in Germany. For the remainder, the defective, objected work pieces were in any event, partly used by [Buyer] for building one of the ordered burial sites. There never was any deviation from the standard terms of sale and delivery originally agreed upon.

On request by [Seller], the Court of First Instance issued orders for payment by note of 24 November 1992 in the amount of 71,500.00 ATS (see case record) and 60,400.00 ATS. [Buyer] filed an objection against these orders, especially stating that the stones were defective and were not replaced although this was assured. For this reason, [Buyer] declared its withdrawal [avoidance of the contract] on 8 September 1992 which is not disputed.

[Seller] indeed conceded the defects. However, [Seller] was of the opinion that they were only of minor importance. Consequently, only -- if at all -- a reduction in price could be granted. According to the standard terms of sale and delivery, [Buyer] would not be entitled to the raised objections.

The Court of First Instance dismissed [Seller]'s claim for lack of a right to sue or for prescription, respectively.

In the appellate proceedings, the Court of First Instance acceded to the [Seller]'s claim after the Supreme Court's decided to repeal its initial judgment and refer the matter back to the Court of First Instance.

The Court of First Instance assumed the legal opinion -- which was imposed by the Supreme Court -- that the CISG is to be applied to the sales contracts in the present case. Neither the assignment -- a question which was not relevant in the proceedings in the Supreme Court anymore -- nor the prescription is governed by the CISG. Therefore, the relevant rules of the national law determined by the conflict of laws are to be applied. For this purpose, the law of obligations is decisive. For lack of other contractual regulations, the Austrian IPRG [*] (36) refers to German law as the dispute is about a delivery of goods from Germany to Austria. There is no back reference in the German law. According to German law, the claims are not time-barred, 196(2), 201 BGB [*]. For the -- now undisputed -- case that [Seller] has the right to sue by reason of timely valid (back) assignment, the Court of First Instance was ordered to take evidence regarding the remaining objections of [Buyer] and to make the necessary conclusions. It was especially to be taken into account that according to 36 IPRG, 477 and 478 BGB are decisive for the prescription of [Buyer]'s claims for rescission or reduction in price according to Art. 45 CISG.

In the continued proceedings, the Court of First Instance assumed in regard to law that Art. 4 CISG does not govern the validity of contracts, single contractual provisions or the validity of usages. Therefore, national law was to be applied in the case at hand. According to 36 IPRG, the law of obligations is decisive. German law was thus to be applied. It was especially to be discussed whether [Seller]'s standard terms of sale and delivery became the basis of the legal transaction between the parties. It is no longer in dispute in the appellate proceedings that they were validly agreed upon. As regards the regulation of terms, the Court of First Instance was of the opinion that according to 11 No. 2(d) AGBG [*], a provision in the general terms and conditions excluding or restricting the right to withhold performance -- which the contractual partner of the using party is entitled to, 320 BGB -- was invalid. This provision was, however, not to be applied to standard terms of sale and delivery which were used in respect to commercial transactions. According to German law, there were also basically no concerns against the exclusion of the right to withhold performance and the right of retention in the commercial intercourse by general terms and conditions. Consequently, [Seller] was entitled to claim payment due to a valid exclusion of the right of retention of the purchase price.

[Buyer] appealed against this decision, especially complaining that, according to the CISG, in any case, the question was to be reviewed as to which remedies are available in case of impairments of performance. In this respect, [Buyer] referred to Art. 49(1) CISG which defines the prerequisites under which the buyer can declare a contract avoided.

The Appellate Court dismissed [Buyer]'s appeal for the reasons mentioned by the Court of First Instance and held that the ordinary appeal (Revision) would be admissible as there was no case law of the Supreme Court regarding the interpretation of the German AGB-G (also in respect to Art. 46 et seq. CISG).

[Buyer]'s appeal (Revision) is addressed against this judgment. [Buyer] claims that the judgment showed procedural errors, adversity to case records and wrongful legal consideration and requests to repeal the judgment and refer the case back to the Court of First Instance; alternatively, [Buyer] files an amendment requesting the dismissal of [Seller]'s claim.

[Seller] requests that the appeal be dismissed as inadmissible or, in the alternative, that the appeal be dismissed.

REASONING

The [Buyer]'s appeal on points of law is dismissed for lack of relevant legal questions.

The [Buyer] itself submits that the lack of case law of the Supreme Court is irrelevant for the consideration of the legal relevance in terms of 502(1) ZPO [*] if the interpretation of foreign substantive law -- to be applied according to the conflict of laws -- by the Appellate Court complies with the permanent case law of the foreign court of final appeal and the foreign legal jurisprudence. Even if a legal question concerning the interpretation of a foreign provision, which has not been decided before in the domestic country, is submitted to the Supreme Court of Austria for the first time, it is not the duty of this court of final appeal (namely the OGH) to contribute to the interpretation of foreign law. The appeal (Revision) would only be admissible if a consolidated opinion in the case law and the leading doctrine in the original scope of the decisive foreign law was neglected (EvBl [*] 1985/172 = IPRE [*] 2/8; 2 OB 297/98k; 7 Ob 283/98p et al.).

The [Buyer] is of the opinion that the latter prerequisite was met in the present case as the decision of the Appellate Court was based on a considerable misjudgment concerning the legal situation. The Appellate Court had wrongly considered the declaration -- objected to as missing -- concerning its withdrawal from the contract for legal reasons as unnecessary. Therefore, [Buyer] alleges that the proceedings remained defective.

It has indeed not expressly been determined that [Buyer] declared the withdrawal from the contract some months after delivery. However, [Seller] accepted that. For this reason, the avoidance can be assumed even without express determination. [Seller] only disputes the entitlement and thus, the validity of the declaration of avoidance releasing legal consequences -- which is a point of law.

The following questions can remain undiscussed in the present case:

   -    Whether a buyer's right to avoid a contract was basically meant to be excluded in the standard terms of sale and delivery (whose interpretation only concerns an individual case and which is not of general importance going beyond it);
 
   -    Whether this right would nevertheless be admissible under certain circumstances; or
 
   -    Whether this question remained ungoverned resulting in the application of optional law (Art. 49 CISG in the case at hand); and
 
   -    Whether the CISG -- which provides for the right to declare the contract avoided under very restricted prerequisites -- would grant [Buyer] such a right in this case at all.

These questions are, however, not relevant because a right of retention concerning the purchase price in case of breach of warranty was excluded in the standard terms of sale and delivery that the parties agreed upon. According to German law, such an exclusion can in general be validly stipulated between merchants (Hensen in Ulmer/Brandtner/Hensen, AGBG, 11(2) para. 15), which is not disputed by [Buyer].

This result is also reached under the CISG. As the lower instances already correctly held, parties can generally modify the rights of the buyer. However, according to Art. 4(a) CISG, such agreements are subject to a validity check pursuant to the applicable national law (German law in the case at hand) determined by the conflict of laws. As already mentioned, German law allows this exclusion for mutual commercial transactions. This rule does not contradict the core values of the CISG; only national provisions contradicting these core values can be considered as inadmissible. The right to declare a contract avoided (among others) -- which must be preserved in general for an observant party as the ultima ratio -- belongs to these values in any case to be secured as far as the opposing party does not deliver the goods even after an appropriately extended period of time or the goods remain basically useless despite a supplementary performance. If this right of avoidance is also restricted, there must in any case be a right for compensation of the damages caused by the deficiency in performance for the observant party (Schnyder/Straub, UN-Kaufrecht, Art. 45 para. 63 et seq.; Staudinger/Magnus, Un-Kaufrecht, Art. 4 para. 26, Art. 45 para. 47). The exclusion of the right for retention agreed upon does not constitute a restriction of these rights.

[Buyer] was thus obliged to pay the purchase price within the period of time agreed upon -- despite the existence of a breach of warranty -- even if the question of warranty was not settled in this point of time. The Appellate Court interpreted the standard terms of sale and delivery in the present case taking the German case law and leading doctrine concerning the validity of the right of retention into account in the way that the buyer in any case has to pay the purchase price in advance and that -- in any case for the time being -- he is only entitled to repair or replacement. This interpretation does not constitute a gross misjudgment which would render the appeal admissible for questions of German law in connection with the CISG. The question whether and under which prerequisites the buyer can avoid the contract or whether he is only entitled to a reduction in price (as [Seller] argues) is only relevant if the purchase price has been paid and neither a repair nor a replacement has taken place (cf. in this respect [Seller]'s objection in the first instance (that it was not possible that the stones delivered were "useless" as they were in fact used for burial sites) which is more important in case of a -- refused in the present case -- negation that a right of retention has validly been agreed upon).

[Buyer] has not claimed a possible right of retention for insecurity ([Seller] temporarily went bankrupt) either in the first instance or in the third instance. Consequently, it is unnecessary to discuss this objection in the appellate proceedings.

2. Concerning the appeal regarding the ancillary charges

The appeal is admissible and justified concerning the further legal question that the lower instances granted interest for delay plus 20 % sales tax contrary to the now predominating case law (which [Buyer] already claimed in the appellate proceedings and now is considered as relevant in the appeal (Revision); however, this does not have any effect on the inadmissibility of the appeal on the remaining points concerning the main issue as these two questions are absolutely independent.

[Buyer] rightly pointed out that -- unlike at the time of filing the suit -- the granting of sales tax out of the interest for delay is not permissible by now as since the accession of Austria to the European Union, the case law of the European Court of Justice (Rs 221/81) has to be considered concerning this issue (SZ [*] 69/102 and 266; 70/110 et al.). This applies for the sales tax out of interest for delay for the period of time before 1 January 1995 as well if this matter is decided after 1 January 1995 (3 Ob 2372/96m = JBl [*] 1999, 390; 3 Ob 325/97y). As a consequence, the decision appealed against was insofar to be modified in terms of dismissing the claim.

The granting of the costs to [Seller] is based on its notice of the inadmissibility of the appeal (Revision) -- which the Appellate Court admitted -- for lack of a relevant legal question; apart from that, the decision as to the costs is based on 43(2)(alt.1) ZPO, for the appellate proceedings also on 50(1) ZPO (cf. the decision concerning a similar case 3 Ob 2372/96m).


FOOTNOTES

* All translations should be verified by cross-checking against the original text. For purposes of this translation, Plaintiff of Germany is referred to as [Seller] and Defendant of Austria is referred to as [Buyer]. Amounts in the former currency of Austria (Austrian schillings) are indicated as [ATS].

Translator's note on other abbreviations: AGBG = Gesetz über Allgemeine Geschäftsbedingungen [German law on standard terms of business]; BGB = Bürgerliches Gesetzbuch [German Civil Code]; EvBl = Evidenzblatt der Rechtsmittelentscheidung [Journal on Austrian jurisprudence]; IPRE = Österreichische Entscheidungen zum internationalen Privat- und Verfahrensrecht [Austrian decision concerning international private and procedural law]; IPRG = Bundesgesetz zum Internationalen Privatrecht [Austrian Conflict of Laws]; JBl = JuristischeBlätter [Austrian law journal]; SZ = Entscheidungen des österreichischen Obersten Gerichtshofes in Zivilsachen [decision of the Supreme Court of Austria in civil matters]; ZPO = Zivilprozeßordnung [Austrian Civil Procedure Code].

** Florian Arensmann is a law student at the University of Osnabrück, Germany, and participated in the 13th Willem C. Vis International Commercial Arbitration Moot with the team of the University of Osnabrück.

*** Daniel Nagel has been a law student at Heidelberg University since October 2002 and an exchange student at Leeds University in 2004/2005.

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