Go to Database Directory || Go to CISG Table of Contents || Go to Case Search Form || Go to Bibliography
Search the entire CISG Database (case data + other data)

CISG CASE PRESENTATION

Finland 26 October 2000 Helsinki Court of Appeals (Plastic carpets case) [translation available]
[Cite as: http://cisgw3.law.pace.edu/cases/001026f5.html]

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

Case Table of Contents


Case identification

DATE OF DECISION: 20001026 (26 October 2000)

JURISDICTION: Finland

TRIBUNAL: Helsingin hoviokeus [Helsinki Court of Appeals]

JUDGE(S): Unavailable

CASE NUMBER/DOCKET NUMBER: S 00/82

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

CASE HISTORY: Helsinki Court of First Instance (Judgment 28966, Civil dispute 97/20514) [affirmed with modifications]

SELLER'S COUNTRY: Finland (defendant)

BUYER'S COUNTRY: Switzerland (plaintiff)

GOODS INVOLVED: Plastic carpets


Classification of issues present

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

APPLICABLE CISG PROVISIONS AND ISSUES

Key CISG provisions at issue: Articles 7(2) ; 8 ; 9 ; 11 ; 74 ; 78 [Also cited or impliedly referred to: Articles 13 ; 77 ]

Classification of issues using UNCITRAL classification code numbers:

7C223 [Recourse to general principles on which Convention is based: loyalty and cooperation];

8A ; 8B ; 8C [Interpretation of the intention of the parties];

9A ; 9B ; 9C ; 9D [International usages; Implied agreement on international usages; Practices established by the parties; Parties bound by applicable usages and practices];

11A [No need for writing or other formality for conclusion of contract];

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

78A ; 78B [Interest on delay in receiving any sum in arrears; Rate of interest]

Descriptors: Formal requirements ; General principles ; Cooperation ; Intent ; Usages and practices ; Damages ; Foreseeability of damages ; Proof of damages ; Profits, loss of ; Interest

Go to Case Table of Contents

Editorial remarks

EDITOR: Sanna Kuoppala

Excerpt from "The Application and Interpretation of the CISG in Finnish Case Law 1997-2005" (April 2009)

HELSINKI COURT OF APPEAL, S 00/82 (26 OCTOBER 2000)

7.1   Classification of the issues present
7.2   Applicable law
7.3   Breach of contract
        7.3.1   Proceedings in the District Court
                    7.3.1.1   Buyer's claim
                    7.3.1.2   Seller's reply
        7.3.2   Decision of the District Court
                    7.3.2.1   Disputed issues
                    7.3.2.2   Relevant law
                    7.3.2.3   Court's evaluation of evidence submitted and its conclusions
        7.3.3   Proceedings in the Court of Appeal
                    7.3.3.1   Seller's Appeal
                    7.3.3.2   Buyer's reply to the Seller's appeal
        7.3.4   Decision of the Court of Appeal
        7.3.5   Dissenting opinion
        7.3.6   Formal requirements of the contract
        7.3.7   Practices and usages
                    7.3.7.1   Applicable practices and usages
                    7.3.7.2   Nature of usage
                    7.3.7.3   Gap filling
        7.3.8   Decision on breach of contract analysed
7.4   Damages
        7.4.1   Proceedings in the District Court
                    7.4.1.1   Buyer's claim and Seller's reply
        7.4.2   Decision of the District Court
                    7.4.2.1   Relevant law
                    7.4.2.2   Conclusions
        7.4.3   Proceedings in the Court of Appeal
                    7.4.3.1   Seller's Appeal
                    7.4.3.2   Buyer's reply on the Seller's appeal
        7.4.4   Decision of the Court of Appeal
        7.4.5   Decision on damages analysed

[...]

7.1 Classification of the issues present

The case involved a business relationship between the Seller, a Finnish company (the defendant) and the Buyer, a Swiss company (the plaintiff). The Buyer had bought plastic carpets from the Seller in an aim to resell them in the Swiss market. The questions in dispute included whether there was a long-term agreement between the parties containing exclusive selling rights and if so, whether the Seller had breached the contact. See below for English translation of this case by Jarno Vanto. The decision of the Court of Appeal affirmed the decision of the District Court of Helsinki, judgment 28966, 97/20514 with modifications.[428]

7.2 Applicable law

The District Court stated simply that the places of business of the parties were in different States, which are Contracting States to the CISG. According to Article 1(1)(a), the CISG applies directly if the parties to a contract of sale of goods have their places of business in different Contracting States. In Finland, the CISG came into force on 1 January 1989, in Switzerland on 1 March 1991.

The Court did not discuss the issue of the applicable law on the formation of the contract. Finland has made a declaration under Article 92 not to be bound by Part II of the Convention, Formation of the Contract.[429] However, Article 1(1)(b) provides that the CISG is also applicable, even if the parties to contract do not have their places of business in different Contracting States when the rules of private international law lead to the application of the law of a Contracting State. According to the Finnish conflict of law rules applicable to international sale of goods, the Act on the Law Applicable to the Sale of Goods of International Character (26 June 1964/387, as amended by the Act 27 May 1988/468) which is based on the 1955 Hague Convention, in the absence of a choice of law under Section 3, the sale shall be governed by the law of the State where the seller had his place of habitual residence when he received the order; if the order was received by a business owned by the seller, the sale shall be governed by the law of the State where the business is situated (Section 4, subsection 1). However, if the buyer placed the order in the State where the buyer has his habitual residence or where he owns a business and the seller or his agent received the order in said State, the sale shall be governed by the law of the buyer's State (Section 4, subsection 2). Based on the facts presented in the Court's decision, the law applicable to the contract according to the conflict of law rules in Finland would be the law of the Seller's state, i.e. Finland.

The Court of Appeal did not address the question of applicable law.

7.3 Breach of contract

7.3.1 Proceedings in the District Court

7.3.1.1 Buyer's claim

The Buyer claimed that in 1995 the Buyer and the Seller had agreed that the Seller would sell and deliver plastic products to Buyer in Switzerland. As agreed in the contract, Buyer acted as the importer of Seller's products and was granted the right to exclusively sell plastic products to wholesalers in Switzerland. In January 1996, the parties had agreed at a trade show that the imports will also encompass Powerturf- plastic carpets. The Buyer's manager had visited the Seller on 18 January 1996 and the parties had confirmed that their agreement that took place at the trade show. At that time, the Buyer's manager had also told the Seller of the Buyer's Swiss business partner, Company B. In January and February, the Buyer and the Seller had exchanged letters and phone calls and refined the details of their agreement. The parties continued their negotiations at Seller's premises in March 1996. At that time, the parties elaborated on earlier events and went through details. The parties confirmed the amount to be delivered, 4,700 square meters, and the terms of delivery. After Company B confirmed its order to the Buyer on 6 August 1996, the Buyer delivered to the Seller a written confirmation concerning the amount of 4,700 square meters. Of the sale concerning 10,000 units to be delivered in January, the Seller had only delivered the first consignment, consisting of 207 units. Regardless of the Buyer's notifications the consignment for January, consisting of 621 units, still remained undelivered in March.

The Seller had informed that the sale will not be carried out in its totality because the Seller had made an exclusive sales agreement with Company I for distributing Powerturf- in Europe in 17 European countries including Switzerland. The delayed delivery and the cancellation of the sale were in breach of the contract made with the Buyer.

7.3.1.2 Seller's reply

The Seller denied the claim in its totality. The Seller alleged that the Buyer and the Seller had never made the alleged agreement concerning sales of Powerturf-plastic carpets for the year 1997. Neither have the parties reached an agreement as to whether the Seller would commit itself to selling the Buyer a certain annual amount of this product, nor have the parties negotiated on expanding the contract.

The Seller alleged that during their business relationship, the parties had entered into individual sales transactions, the terms of which had been agreed on individually, and that the fact that the Seller had occasionally sold the Buyer its products as individual consignments did not constitute a duty of delivery on the part of the Seller as alleged in the Buyer's statement of claims. No contract whatsoever concerning the year 1997 was specified in March 1996.

The Seller had notified the Buyer already in March 1996 that after 1996 the Seller could no longer sell Powerturf- products directly to the Buyer. The Seller had entered into an exclusive sales agreement concerning Powerturf- products with a Danish distribution company (Company I). The Seller informed the Buyer in writing on 17 December 1996 about the conclusion of that agreement. Simultaneously, the Seller notified the Buyer that Powerturf- will no longer be sold directly. The products involved in the sales between the parties before that point in time had been duly delivered to the Buyer by the Seller. The order made on 9 December 1996 was a normal individual order in which no annual delivery agreement was referred to. The parties had not made any agreement as to any 621 units. Additionally, the alleged amount of 5,000 square meters was a considerably large amount for a company like the Seller.

In its statement of claims, the Buyer had introduced a term "Jahreskontrakt" referring to an annual delivery agreement. This term was single-handedly created by the Buyer. The Seller had been notified of the document unilaterally drafted and signed by the Buyer the first time on 20 March 1997. At that time, it reached the Seller through a fax message. The Seller had never accepted the said contract/offer. Neither had the Seller made an offer to the Buyer involving a term "Jahreskontrakt". The Seller had not negotiated in any manner whatsoever with the Buyer over a contract with the said content. No agreement as to the coming about or existence of this kind of contract had been reached even later. The sales that had taken place did not in any manner support the allegations of the Buyer concerning the conclusion of the contract, for example, impliedly.

7.3.2 Decision of the District Court

7.3.2.1 Disputed issues

The decision of the District Court was not written in the clearest and most consistent way in relation to what has been ordered and when. The District Court clarified that it was undisputed that the Buyer had ordered and the Seller had delivered Powerturf- products until the end of the year 1996. The deliveries had been conforming and they had been paid for. The disputed circumstances included:

   -    Whether the parties had agreed on deliveries for the year 1997; and
   -    Whether there was a long-term contract between the parties.

Further, if the contract had been concluded in a manner brought forward by the Buyer:

   -    Had the Seller breached the contract?; and
   -    What were the economic consequences to the Buyer?

7.3.2.2 Relevant law

The District Court stressed in the beginning that the freedom as to form of a contract is a principle in contract law. Contracts can also be concluded orally. It also referred to the applicable CISG Articles, Articles 8 and 9 and Articles 11 and 13.

The Court also referred to scholarly writings in relation to the widely recognised, so-called principle of loyalty. According to this principle, the parties to a contract have to act in favour of the common goal; they have to reasonably consider the interests of the other party.

Secondly, the Court referred to the scholarly writing on export trade, according to which a reseller has been referred to as an entity that buys products from the principal, e.g., the manufacturer, and sells them further to its own customers at its own risk. This definition has been formulated to differentiate a resale agreement from an agency agreement. In the latter, the agent works on behalf of the principal and in a manner binding on the principal. The Court stressed that an importer is not a legal concept as such. The types of contracts in resale agreements vary according to whether the manufacturer has agreed, for example, to grant to the reseller an exclusive selling right to a certain area, or whether the manufacturer has reserved the right to sell the products itself or to name other resellers in the area. Exclusive selling rights have been seen meaning that the manufacturer itself does not sell the products or name other sellers to a particular area.

Finally, the Court stated that exclusive selling agreements can be ended on notice. If the parties have not agreed on a notice period, the situation can be problematic where the manufacture wishes to name a new exclusive seller for a certain area. Such actions during the tenure of an exclusive selling agreement have been classified as breaches of contract.

7.3.2.3 Court's evaluation of evidence submitted and its conclusions

As a conclusion of its evaluations, the District Court held that the parties had orally agreed on Buyer's exclusive selling right in Switzerland. The duration of the contractual relationship or a period of notice had not been agreed on. In December 1996, the Seller made an agreement granting the exclusive selling rights to another company, Company I, concerning Powerturf- products. Consequently, the Buyer had lost its exclusive selling rights without notice.

Four witnesses had stated that selling and expanding a customer base takes a considerable amount of time and requires both work and financial input. Even if it had been brought forward that the Seller had notified the Buyer as to its negotiations with Company I on cooperation, it has not been established that the Seller had informed the Buyer on the ending of the exclusive selling rights before the fax message of 17 December 1996. Hence, the Buyer may have continued his selling efforts, the result of which was that the Buyer had made a contract with Company B. As a result of the contract between the Buyer and Company B, the Buyer had been able to commit himself to buying from the Seller the amount mentioned in the annual contract. Through its actions, the Seller had been in breach of contract. This conclusion could not be disregarded even though it had not been established whether the Seller was informed of the annual agreement in August 1996.

7.3.3 Proceedings in the Court of Appeal

7.3.3.1 Seller's Appeal

In its appeal, the Seller stressed that the parties had never concluded the annual agreement concerning the sale of Powerturf- products, as alleged by the Buyer. Neither had the parties made an agreement nor had they reached an understanding according to which the Seller would have committed himself to or would be under a duty to deliver a certain minimum amount of this product to the Buyer. There had been no negotiations whatsoever as to this kind of an agreement. The parties had traded amongst themselves on the basis of individual sales and no commitments had been made in relation to deliveries for the year 1997. The Buyer had no exclusive selling right for the Seller's products.

7.3.3.2 Buyer's reply to the Seller's appeal

In its answer to Seller's appeal to the Court of Appeal, the Buyer stated that, based on an oral agreement made between the Seller and the Buyer in August 1995, the Buyer had acted as an importer of Seller's products in Switzerland as an exclusive seller and at given prices. The intention of the agreement was that the Buyer would order everything Buyer was able to sell and the Seller committed itself to deliver the required products. According to international trade usage, a contractual relationship concerning imports brings about duties to the parties, even if the details had not been agreed on. This usage knows of no procedure where each delivery would be regarded as an individual sale. The manufacturer has a duty to contribute to the sales carried out by the importer. Cancelling an import agreement has to be carried out in a manner that neither of the parties has to suffer damage. Especially, liabilities to third parties have to be considered.

7.3.4 Decision of the Court of Appeal

The Court of Appeal held that it had become apparent from the statements of both parties and one of the witnesses that during negotiations on 16 August 1995 there had been discussion at least about prices and times of delivery, according to which sales were to take place and that an agreement was reached. After the negotiations, the Buyer had received a price list of the Seller's carpet products which was supposed to be used as a basis for negotiations between the parties. Based on the evidence presented, the Court of Appeals evaluated the conclusion of the contract on 16 August 1995 between Seller and the Buyer and also the issue of whether Powerturf- carpets were included in the contract later on. The contract between the parties had created duties to the Seller as a supplier in relation to the Buyer -- at least in the sense that the Seller had been under a duty to deliver the goods ordered by the Buyer -- at least to the extent that the orders had been made within the agreed framework. The Seller had been under a duty to contribute to the achievement of the goals of the contract and to support the Buyer's selling activities in Switzerland through its own actions. Because the Buyer's ability to act in conformity with the contracts the Buyer concluded with its own customers could not have been possible without the Seller's support, the Court of Appeals failed to find the Seller's statement credible; the statement being that Seller had obligations only in relation to individual deliveries and that the Seller could at will refuse orders placed by the Buyer, disregarding their terms altogether.

On grounds appearing from the judgment of the District Court, the Court of Appeals found that the Buyer had at least until further notice obtained de facto exclusive selling rights of the Seller's carpet products in Switzerland. However, the Court of Appeals held that this circumstance was of no significance because Seller's duties in relation to the Buyer resulted from the aforementioned import agreement, regardless of whether exclusive selling rights had been granted or not.

7.3.5 Dissenting opinion

The dissenting opinion evaluated the submitted evidence differently. Based on the statements of the parties and the witnesses and written evidence, according to the dissenting opinion, it was apparent that there was no enforceable contract between the parties. Nor had the Buyer agreed to deliver the alleged 5,000 square meter consignment to Company B. The decision of the District Court should have been overturned, i.e. the Seller should not have been held liable for damages to the Buyer. Rather, the Buyer should have been held liable to compensate the Seller for its legal expenses.

7.3.6 Formal requirements of the contract

Article 11 provides that a contract of sale need not be evidenced by writing and is not subject to any other requirements as to form

Article 11

A contract of sale need not to be concluded in or evidenced by writing and is not subject to any other requirements as to form. It may be proved by any means, including witnesses.

Article 13 of the CISG provides that, "for the purposes of the Convention, "writing" includes telegram and telex".

Article 11 responds to the fact that many contracts for the international sale of goods are concluded by modern means of communication which do not always involve a written contract.[430] Article 12 provides that a Contracting States can make a declaration under Article 96 to prevent the application of the rule in Article 11 (or Article 29 or Part II of the Convention) which allows a contract of sale or its modification or termination by agreement or any offer, acceptance, or other indication of intention to be made in any form other than in writing where any party has his place of business in that Contracting State.[431]

The issue of electronic communications beyond telegram and telex was not considered during the drafting of the CISG in the 1970's. However, by not prescribing any form in this article, CISG enables the parties to conclude contracts electronically.[432] In relation to the definition on writing, the CISG Advisory Council has stated that the prerequisite of "writing" is fulfilled as long as the electronic communication is able to fulfil the same functions as a paper message. These functions are the possibility to save (retrieve) the message and to understand (perceive) it.[433]

In effect, Article 11 deals with the formation of the contract even though it is not situated in Part II of the Convention, Formation of the Contract. As noted above, Finland has made a declaration provided for in Article 92 not to be bound by Part II of the Convention. Professor Honnold has raised a question whether it should be concluded that in order to give full effect to the declaration under Article 92, Article 11 should be regarded as being part of Part II of the Convention and thus not applicable in Scandinavia.[434] This is however not a problem as the Scandinavian laws relation to the formation of the contract do not conflict with the CISG.[435] According to the Finnish Contracts Act (13 June 1929/228), the contracts need not be evidenced in writing. In this respect, there is no difference between the Finnish Contracts Act and the CISG.

7.3.7 Practices and usages

7.3.7.1 Applicable practices and usages

The primary source in determining the relationship between the contracting parties is the underlying contract itself. The principle according to which the primary source of the rules governing the sales contract is party autonomy; this cannot be stressed too much. In determining the parties' rights and obligations, the first and primary source is always the contract between the parties. The primacy of the contract is promoted throughout the Convention but the most important Article in this respect is Article 6.[436] Article 6 provides:

Article 6

The parties may exclude the application of this Convention or, subject to article 12, derogate from or vary the effect of any of its provisions.[437]

An expression of party autonomy can also be found in Article 9 of the Convention. Article 9 gives direct effect to commercial usages and practices of the parties. Any applicable practice or usage has the same effect as a contract.[438] Article 9 provides:

Article 9

(1) The parties are bound by any usage to which they have agreed and by any practices which they have established between themselves.
(2) The parties are considered, unless otherwise agreed, to have impliedly made applicable to their contract or its formation a usage of which the parties knew or ought to have known and which in international trade is widely known to, and regularly observed by, parties to contracts of the type involved in the particular trade concerned.

The practices which the parties have established between themselves and any usage to which the parties have agreed override the provisions of the Convention. Further, the parties are considered to have impliedly made applicable to their contract a usage of which they knew or ought to have known and which in international trade is widely known to, and regularly observed by, parties to contracts of the type involved in the particular trade concerned. Article 9 confirms the fact that established practices and usages often create expectations that are so basic that they "go without saying" in making a contract.[439]

In order for an international usage to be impliedly binding on the parties it must be widely known and regularly observed and thus, can be assumed to be a part of the expectations of the parties. The existence of a usage as such is thus not enough but the parties must have understood, at least impliedly, that a usage is a part of their contact.[440] In other words, a usage must on an objective basis be part of the contractual expectations of the parties.[441] The facts one "ought to have known" include those facts that would be disclosed by an investigation or inquiry that the party should make.[442] As for the burden of proof, based on the analyses of the case law in the UNCITRAL Digest,[443] at least as long as the legal system considers the issue as being one of fact, the party who alleges the existence of any binding usage has to prove it.

7.3.7.2 Nature of usage

According to Article 7(1), in the interpretation of the Convention regard is to be had to its international character and to the need to promote uniformity in its application and the observance of good faith in international trade.[444] Indeed, Professor Bonell stresses that the concept of usages must be determined in an autonomous and internationally uniform way.[445] He states that Article 9 refers to usages in the widest possible sense, i.e., to any practice or line of conduct regularly observed within a particular trade sector or at a particular market place, irrespective of whether, according to some national law, it would fall within a national category of a usage. The trade may be restricted to a certain product, region or set of trading partners.[446]

It has also been argued that the inherent nature of usage guarantees that the usages are reasonable as unreasonable behaviour would never develop itself to be a usage.[447] Could it be possible to use the concept of goods faith in order to specify the concept of usage even further than this? According to the literal construction, Article 7 is limited only to the interpretation of the CISG; it does not apply to the interpretation of the contract itself. It imposes only an obligation to interpret the Convention in good faith; it does not invoke good faith as a general principle applicable to the parties to a contract. However, as Professor Lookofsky has also pointed out, the distinction between good faith interpretation and good faith performance is proving to be more apparent than real, especially since matters governed by this Convention which are not expressly settled in it are to be settled in conformity with the general principles on which it is based, as provided for in Article 7(2).[448]

Certainly the need to promote uniformity in the application of the Convention must be taken as a starting point when applying the principle of good faith as required by Article 7(1).[449] The principles to be derived from the general concepts of good faith must therefore be developed using internationally recognized principles of honourable conduct as opposed to purely domestic standards.[450] In addition, the principle of good faith must be construed in the light of the special conditions and requirements of international trade.[451] The preamble of the Convention itself states that "the adoption of uniform rules which govern contracts for the international sale of goods and take into account the different social, economic and legal systems would contribute to the removal of legal barriers in international trade ...".

7.3.7.3 Gap filling

Article 7(2) is intended to avoid recourse to rules of law outside the CISG regimen in order to create and replace all existing laws in relation to the international sale of goods.[452] Questions concerning matters governed by the Convention but not expressly settled in it are to be settled in conformity with the general principles on which it is based. Only if no such general principles can be identified, does the law applicable by virtue of the rules of private international law settle the questions.[453] Those issues that are specifically ruled out of the sphere of the Convention, such as validity of the contract as provided for in Article 4, are left to the sphere of the applicable national law.[454]

There are several recognised general principles on which the Convention is based.[455] For example, the many references to reasonableness in the CISG demonstrate that the reasonableness test constitutes a general criterion for evaluating the parties' behaviour to which one may resort in the absence of any specific regulation.[456] In fact, reasonable conduct has been identified as a specific element of an even more general Convention principle which requires both CISG parties to act in good faith.[457]

Among the others, Professor Bonell also mentions the principle of good faith as a general principle of the CISG.[458] He supports the opinion that the need to promote the observance of good faith in international trade is necessarily directed to the parties to each individual contract of sale.[459] Good faith is also one of the general principles underlying the Convention as a whole and thus not limited solely to the interpretation of the Convention, notwithstanding the language used in Article 7(1).[460] Professor Schlechtriem, on the other hand, is of the opinion that the requirement to observe good faith in international trade cannot be extended to cover the conduct of the contracting parties. However, he continues that the notion of good faith may influence the understanding of the individual contract and that the 'observance of good faith' must be regarded as one of the general principles on which the Convention is based. As such, it cannot be directed at the parties but plays a role that can be used in gap-filling under Article 7(2).[461]

Professor Hillman concentrates in, among the others, for the parties' right to receive fruits for their exchange.[462] A party who enters an international sales contract expects cooperation and reasonable conduct by his counterpart in order to achieve benefits from the transaction. Justifiably, a party also anticipates being able to rely on his partner's communications and actions. Professor Hillman argues that the duty to act reasonably may be the Convention's most pervasive general principle.[463]

Several provisions of the Convention facilitate the successful completion of an exchange by discouraging breakdowns even when something goes wrong.[464] The Convention's goal of saving deals promotes important international values pertinent to the contracting process. The Convention strengthens the parties' trust and cooperation, thereby encouraging future exchanges and helping to unite the international trading community. From the parties' point of view, promoting performance also enables the parties to plan, firm in the knowledge of what they are to receive and to give up.[46]5 Also Professor Audit stresses that for both practical and legal reasons, it is more important to avoid the rescission of contract in the context of international sales than in the setting of domestic transactions.[466]

Professor Honnold points out that consummating an international sale calls for cooperation.[467] Several provisions of the Convention require the buyer and the seller to take interlocking steps in order to fulfil the contract successfully. Based on this, Professor Honnold suggests that providing needed cooperation is one of the general principles on which the Convention is based. Further, Professor Honnold suggests that in cases of doubt, a proposed application of a general principle may be tested against applicable trade usages and against contract practices and modern rules of law specially designed for international transactions.[468]

7.3.8 Decision on breach of contract analysed

In essence, the District Court and the Court of Appeal reach the same conclusion, the Seller had a contractual duty to act reasonably toward the Buyer. By failing to do so, the Seller was in breach of the contract. Based on the principle of loyalty and an applicable international usage, the Seller had a duty, regardless whether an exclusive sales contract between the parties had been concluded, to promote the common goal of the parties established by an import agreement. As the damages were predictable in the circumstances, the Seller had a duty to notify the Buyer about the termination of the business relationship in such way and in such time that the damages could be avoided.[469]

As noted above, the status of good faith as a general principle of the Convention regulating the parties behaviour is not, at least according to the literal meaning of the Convention, confirmed. In its reasoning, the Court referred to the principle of loyalty which is, as noted above, recognised in scholarly writings as one of general principles on which the Convention is based on. In essence, the principle of loyalty embodies the principle of good faith which rationally includes the requirement to act reasonably. Moreover, this principle of loyalty is supported in this case by the fact that an applicable international usage embodies the principle. In cases where the parties have equal bargaining powers, where the parties have contracted in their professional capacity in the market involving equally industrialized and developed countries with similar economic and social structure, a usage demonstrates the accepted and promoted conduct which is inherently reasonable in the market economy. The result is an applicable international usage which embodies not only the notion of good faith but also other general principles underlying the Convention, the duty to communicate with other party [470] and a duty to mitigate the loss.[471]

Even if the duty to act in good faith and specification of the general principles of the Convention can be difficult, there ought not to be any problems in relation to the established international usages applicable to the case. As long as the requirements of Article 9(2) are fulfilled, a usage has a force of contract and is part of the contractual expectations of the parties. The Court took an innovative approach. It is important that the national Courts develop the general principles of the Convention in the light internationally accepted and uniform concepts, those embodied in recognised usages.

7.4 Damages

7.4.1 Proceedings in the District Court

7.4.1.1 Buyer's claim and Seller's reply

The Buyer claimed damages because of the Seller's breach of the exclusive sales agreement, including its own lost profit, loss of good will and general expenses relating to sales and marketing. At the time of the proceedings, the Buyer's own customer, Company B had not yet initiated proceedings against the Buyer. The Seller claimed that the Buyer was never granted exclusive selling rights as an importer of the Seller's products and consequently the Seller could not have been in breach of any contract and there was no duty to pay damages.

7.4.2 Decision of the District Court

7.4.2.1 Relevant law

Firstly, the District Court referred to the applicable legislation, Article 74.

The Court also referred to the Finnish scholarly writings according to which damages are seen as compensation for positive contractual interest.[472] The aim of this is to place the contracting party in a position where he would have been if the contract had been duly performed. According to the Finnish Sale of Goods Act, damages for breach of contract consist of compensation for expenses, price differences, lost profit and other direct and indirect loss that resulted from the breach of contract. An indirect loss is a loss such as profit that has been lost because a contract with a third party has been avoided or has not been performed properly.[473]

In contract law, damages as a concept has a wider meaning than in the Finnish Sale of Goods Act. Contract law knows no general limitations as to types of loss. A contracting party's liability for damages is seen as based on negligence. Additionally, there is a presumption of negligence which requires that a contracting party claiming damages must prove the existence of a contract and the coming about of a loss.

The District Court concluded that it was apparent from a written exhibit presented by the Buyer, namely a confirmation letter to Company B on 7 August 1996, that Company B and Buyer had agreed on granting Company B exclusive selling rights in Switzerland by stating: "for our common sales goal and for fulfilment of your annual requirements we have agreed on a delivery of 5,000 square meters which is to be delivered in at least 200 square meter partial deliveries." Further, it was apparent from the statement provided by Witness N, that Company I had later sold Powerturf- carpets to Switzerland in the amount of 8,000 square meters during a period of three years.

7.4.2.2 Conclusions

Company B's claim as to lost profit had not become timely from the Buyer's point of view. On the other hand, it was apparent from the evidence presented that Company B was one of three largest carpet wholesalers in Switzerland. No clarification as to anticipated overhead in relation to the goods in question had been presented. Additionally, it was not clear whether Company B would have been able to buy these products from Company I. Consequently, no clarification as to mitigation of damages on Company B's behalf had been presented.

The District Court had been presented with a sales brochure produced by Company B. Clarification in writing had also been presented in relation to ordering of samples. The claim as to the marketing expenses could thus be held as reasonably established.

Due to reasons mentioned above, the sales goal could not be used as a basis for estimating Buyer's lost profits. The Buyer's claim for general expenses could be held as credible in terms of them being accumulated in connection with sales and marketing efforts. In estimating the loss resulting from loss of good will, the District Court took into consideration the fact that the Buyer had not done business in this trade sector before the coming about of the business relationship now in question. On the other hand, even according to Buyer's own statement, it was still doing business in another trade sector in Switzerland.

Based on the above, the District Court estimated the damage caused to the Buyer on the basis of a rule laid down the Code of Judicial Procedure (Section 17).[474] As a reasonable compensation for the loss suffered by the Buyer, the District Court held the amount as being Sf 70,000.

7.4.3 Proceedings in the Court of Appeal

7.4.3.1 Seller's Appeal

In December 1996, when the Seller had notified the Buyer that, due to an exclusive selling agreement with another company, it could no longer be able to sell Powerturf- products directly to the Buyer, the Seller was not aware of Company B's alleged order. The decision of the District Court did not confirm the conclusion or the existence of the sales contract. Instead, the District Court had stated that the consignment of the alleged size had not been ordered from the Seller or the delivery was not otherwise agreed on. Therefore, the Seller could not have been in breach of the contract and the claim should be dismissed.

Additionally, the Buyer had not established that it had an order of the alleged size, the cancellation of which would have caused it damages. It was not likely, that the amount of 5,000 square meters of Powerturf- would have been sold in Switzerland in one year. It had not been established that the Buyer had paid or would have been under a duty to compensate Company B for expenses resulting from sales brochures. Moreover, it was not established that Company B's sales brochure, the subject of which was a product named Portalcleaner, dealt with Powerturf- in any way. Additionally, the damages awarded by the District Court concerning overhead were excessive.

7.4.3.2 Buyer's reply on the Seller's appeal

During contract negotiations carried out in 1996, the Buyer committed itself to deliver 5,000 square meters of Powerturf- carpet to Company B during the year 1997. Correspondingly, the Seller committed itself to deliver the said amount to the Buyer. The Seller had a duty to deliver on the basis of both the import agreement and the contract concerning the order itself. In the beginning of the year 1997, it had become apparent, however, that the Seller had no intention to fulfil its duty because Seller had granted the exclusive selling rights of the said product to another company. This had caused the Buyer more damage than the amount mentioned in the District Court because the Buyer had been unable to fulfil its own duty in relation to Company B.

In the District Court, the Seller had not denied the damage caused to Company B or the Buyer's liability for it. The method of calculating the overhead had been undisputed in the District Court. The damages for overhead were based on the actual amount of goods ordered by Company B. Consequently, it was insignificant from the point of view of the decision whether or not the said amount of Powerturf- could be sold in Switzerland. In any event, the said amount was not excessive in relation to the Swiss market.

In its response to this, the Seller demanded that Buyer's appeal be dismissed because the claims contained in Buyer's statement of claims had been mainly dismissed in the District Court. The Seller has had justified grounds to refuse to accept the claims and to refuse to take part in negotiations and the Seller should not be made to pay Buyer's legal fees.

7.4.4 Decision of the Court of Appeal

Based on correspondence submitted in the case, it was apparent that Company B had at the latest in August committed itself to buying 5,000 square meters of Powerturf-, which was to be supplied by the Buyer. Even if it remained un-established that a fax message concerning this circumstance had reached the Seller on 8 August 1996, the Court of Appeals failed to find it credible that the Seller had no knowledge of negotiations over the matter. Even if it was possible that the representatives of the Seller did not pay attention to Company B as a name, the Court of Appeal, considering the experience of the Buyer's manager, failed to believe that the Buyer's manager would have negotiated a cooperation agreement of this scale without contribution from the Seller and without informing the company of these negotiations. Thus, the Seller had to have been aware of the negotiations and their outcome. Because the Seller did not prohibit the continuation of these negotiations, the Buyer had a right, and a duty, to continue its operations according to the import agreement. Even if the Seller had told about his negotiations with another company about importing Powerturf-, this had no effect on the Buyer's right to operate because, in the manner described in the judgment of the District Court, it had not been established that the contract concluded between the Seller and Company I would lead to cancellation of the contract between the Buyer and the Seller.

The Seller had stated that because it had not been established that the Buyer had made the alleged order of 5,000 square meters before the cancellation of the contract, the Seller could not be held liable for non-delivery of ordered goods. However, the Court of Appeals held that it had no significance in the matter whether the actual order had already been made or not, because during the existence of the import agreement, the Buyer had committed itself to deliver goods to Company B and that the Seller was aware of this. The cancellation of the import agreement by the Seller had resulted in a failure to fulfil these commitments. The Court of Appeal agreed with the view of Witness P that. even though an importer by definition acts on his own behalf and at his own risk, the operations cannot be based on a risk of an abrupt ending of a contract. Consequently, the Seller, in the manner described in and on the basis of the legal considerations of the judgment of the District Court, was under a duty to pay damages to the Buyer for loss resulting from liability to a third party, Company B.

The Court of Appeal affirmed the amount of damaged awarded in the District Court.

7.4.5 Decision on damages analysed

As stated earlier, even though the burden of proof is not specifically settled in the CISG, it is a matter governed by the CISG.[475] This view is supported by scholarly writings and by international case law. Any party who wants to derive beneficial legal consequences from a legal provision has to prove the existence of the factual prerequisites of that provision, i.e. the party wishing to avoid the contract must prove that there indeed has been a fundamental breach of the contract. The District Court, however, took the stand that the burden of proof was a procedural issue and covered by the Finnish rules on procedure, i.e. the applicable Finnish rules on damages, the Code of Judicial Procedure. The Buyer had a duty to prove the existence and the amount of damages. The same conclusion could have been derived from the CISG.

According to Article 74, the damages for breach of contract consist of a sum equal to the loss, including loss of profit suffered as a consequence of the breach. A limitation is that such damages may not exceed the loss which the party in breach foresaw or ought to have foreseen at the time of the conclusion of the contract, in the light of the facts and matters of which he then knew or ought to have known, as a possible consequence of the breach of contract.[476] As so often with damages, the question relates in the end to the proof and estimation of the damages. The Courts concluded that as an experienced business partner, the Seller should have anticipated the Buyer's losses in this case.

[...]


FOOTNOTES

[...]

428. The District Court ruled that the parties will not be compensated for their legal expenses as provided by the Finnish Code of Judicial Procedure, Chapter 21. Many claims had been made during the course of the proceedings; some were decided in favour of the Buyer, some in favour of the Seller. The Court of Appeal held that the Buyer had won the case in both instances. The Buyer had been awarded about a half of what he had claimed in damages. However, the part of the claim that was not admitted was a discretionary issue that has had no bearing on the amount of legal expenses. The Court of Appeal ordered the Seller to pay for Buyer's legal expenses accrued in the District Court with interest. The Seller was also ordered to pay the Buyer's legal expenses in the Court of Appeal. Otherwise the decision of the District Court remained unchanged. See CISG Advisory Council Opinion No.6: 5. Under Article 74, the aggrieved party cannot recover expenses associated with litigation of the breach.

429. Likewise Denmark, Norway and Sweden.

430. Text of Secretariat Commentary on article 10 of the 1978 Draft (draft counterpart of CISG article 11).

431. The most prominent Contracting States where the declaration provided for in Article 96 is in force are the Russian Federation and China. See further for other countries: <URL: http://www.uncitral.org/uncitral/en/uncitral_texts/sale_goods/1980CISG_status.html>

432. CISG Advisory Council Opinion No.1.

433. CISG Advisory Council Opinion No.1.

434. Honnold 1999, p. 137.

435. See further Chapter 2.2.4 CISG and the Nordic Countries.

436. Honnold 199, p.77.

437. Article 12 provides that the Contracting State may preserve its domestic rules that require writing in the formation or modification of the contract. (CISG Articles 11, 12, 29, 96).

438. Honnold 1999, p. 131.

439. Honnold 1999, p. 130.

440. Ruotamo & Ramberg 1997, 36-37.

441. Honnold 1999, p. 128-129; see also Bonell in Bianca & Bonell 1987, p. 107-108.

442. Honnold 1999, p. 260.

443. UNCITRAL Digest 2004, Article 9, Binding international trade usages (Article 9(2)).

444. See also Chapter 2.2.6.2 Interpretation of the Convention.

445. Bonell in Bianca & Bonell 1987, p. 111, see also Bout 1998, p. 3.

446. Text of Secretariat Commentary on article 8 of the 1978 Draft (draft counterpart of CISG article 9).

447. Bonell in Bianca & Bonell 1987, p. 113 in reference to the legislative history of the Convention; Bout 1998, p. 4.

448. Lookofsky 2000, p. 50.

449. Bonell in Bianca & Bonell 1987, p. 87.

450. Bonell in Bianca & Bonell 1987, p. 86.

451. Bonell in Bianca & Bonell 1987, p. 87.

452. Honnold 1999, p. 102.

453. See also Chapter 2.2.6.2 Interpretation of the Convention.

454. See further Chapter 2.2.2.1 Basic rules on applicability.

455. E.g. see further Schlechtriem in Schlechtriem & Shcwenzer 2005, p. 104 ; Honnold 1999, 107-108.

456. Schlechtriem in Schlechtriem & Schwenzer 2005, p.104; Bonell in Bianca & Bonell 1987, p. 80-81.

457. Lookofsky 2000, p. 50.

458. Bonell in Bianca & Bonell 1987, p. 80.

459. Bonell in Bianca & Bonell 1987, p. 84.

460. Bonell in Bianca & Bonell 1987, p. 85.

461. Schlechtriem in Schlechtriem &Schwenzer 2005, p. 95.

462. Hillman 1995, B. Ensuring That Each Party Receives the Fruits of the Exchange.

463. Hillman 1995, B. Ensuring That Each Party Receives the Fruits of the Exchange. See also Bonell in Bianca & Bonell 1987, p. 80.

464. Hillman 1995, C. Keeping the Deal together; also Bonell in Bianca & Bonell 1987, p. 81.

465. Hillman 1995, C. Keeping the Deal together.

466. Audit 1990, p. 184.

467. Honnold 1999, p. 351; 374-375.

468. Honnold 1999, p. 110. In Cour d'appel de Grenoble, 93/4126 (13 September 1995) the French Court found the Seller liable for abrupt discontinuance of business relations between parties bound by long-standing practices. The case involved two orders of cheese placed by a French Buyer with the Italian Seller. After receiving the orders, the Seller informed the Buyer that he was not able to execute the orders unless the Buyer obtained the clearance of the factoring company to which he had assigned his receivables. The Court of Appeal ruled that the Seller had been supplying the Buyer for a long time without showing any concern for his solvency and by virtue of article 9 CISG, was liable for a breach of contract.

469. See also Di Matteo et al. 2004, p. 316-317.

470. Honnold 1999, p. 107-108; Bonell in Bianca & Bonell 1987, p. 81.

471. Honnold 1999, p. 108; Schlechtriem in Schlechtriem & Schwenzer 2005, p. 104; Bonell in Bianca & Bonell 1987, p. 81

472. See e.g. Routamo 1996, p. 208-209.

473. Section 67 of the Finnish Sale of Goods Act.

474. Chapter 17 governs the rules on evidence. Section 1(1) provides that in a civil case the plaintiff shall prove the facts that support the action. If the defendant presents a fact in his favour, also he shall prove it. According to Section 2(1) after having carefully evaluated all the facts that have been presented, the court shall decide what is to be regarded as the truth in the case. Section 6 of Chapter 17 eases the burden of proving the damages, if necessary. According to Section 6 if the issues relates to the quantum of damages and no evidence is available or if evidence can only be presented with difficulty, the court shall have the power to assess the quantum, within reason. This Section eases especially cases were the damages are purely economical in nature, such as loss of good will. See further Ruotamo 1996, p. 210.

475. See Chapter 2.4.3.4 Burden of proof.

476. See further Chapter 4.7.2 General clause on damages.

[...]

See entire text of Sanna Kuoppala, "The Application and Interpretation of the CISG in Finnish Case Law 1997-2005" (April 2009)

Go to Case Table of Contents

Citations to case abstracts, texts, and commentaries

CITATIONS TO ABSTRACTS OF DECISION

(a) UNCITRAL abstract: Unavailable

(b) Other abstracts

Unavailable

CITATIONS TO TEXT OF DECISION

Original language (Finnish): CISG Nordic website <http://www.cisgnordic.net/001026FI.shtml>; see also Unilex database <http://www.unilex.info/case.cfm?pid=1&do=case&id=726&step=FullText>

Translation (English): Text presented below

CITATIONS TO COMMENTS ON DECISION

English: Saidov, Damages under the CISG (December 2001) n.104; Article 78 and rate of interest: Mazzotta, Endless disagreement among commentators, much less among courts (2004) [citing this case and 275 other court and arbitral rulings]; CISG-AC advisory opinion on Calculation of Damages under CISG Article 74 [Spring 2006] nn. 15, 28 (related cases cited in addendum to opinion)

Go to Case Table of Contents

Case translation (English)

Queen Mary Case Translation Programme

Helsinki Court of Appeals 26 October 2000

Translation [*] by Jarno Vanto [**]

Proceedings before Helsinki Court of First Instance

  1. Case history: Background of the case and undisputed circumstances
  2. Claims brought by the buyer
    -   Basis for buyer's claims
  3. Seller's rebuttal
    -   Grounds for seller's rebuttal
  4. Undisputed circumstances
  5. Disputed circumstances
  6. The grounds for the ruling of Court of First Instance
  7. Law
  8. Court's evaluation of evidence submitted and its conclusions
    -   Damages
         --    Law
         --    Claims
         --    Conclusions
    -   Judgment

Proceedings before Helsinki Court of Appeals

  1. Basis for seller's appeal and their grounds
  2. Buyer's rebuttal
  3. Evidentiary issues
  4. The judgment of the Court of Appeals
    -   Conclusions drawn by Court of Appeals
         --    Basis for damages
         --    The amount of damages
         --    Legal expenses
    -   Judgment
  5. Dissenting opinion

PROCEEDINGS BEFORE THE HELSINKI COURT OF FIRST INSTANCE

Case history: The background of the case and undisputed circumstances

The claimant [hereinafter "buyer"] is a Swiss company that is in practice run by [buyer's manager] a Finnish native Mi. [Buyer] is active in the fields of imports and exports of a variety of goods to and from Switzerland.

The defendant [hereinafter "seller"] is a Finnish company active in the field of plastic products. [Seller] manufactures plastic parts for different industries and also a variety of plastic mud and doorstep carpets.

The parties have had business relations with one another from the latter half of 1995 until the first half of 1997 in a manner that [buyer] has bought plastic carpets from [seller] in an aim to resell them in the Swiss market.

In the beginning of this relationship the sales consisted of so-called [plastic] grass carpets. From the beginning of 1996 Powerturf- carpets were also included in the selection of [seller].

Through a contract, [seller] has granted exclusive selling rights of Powerturf- grass carpets in Europe to a multinational corporation, Company I, from the beginning of 1997. For reasons explained below, the business relationship between [buyer] and [seller] ended in the beginning of 1997.

Claims brought by the [buyer]

The [buyer] sought to have the Court of First Instance require the [seller] to pay damages of Sf 212,371 on the basis of a breach of contract relating to sales of plastic products. Additionally, the [buyer] sought interest, based on the Finnish law of interest, starting from official notification of [buyer's] claims on 28 October 1997.

The [buyer] also demanded that the [seller] pay the legal expenses of the [buyer], including the value-added tax, to the full, totaling Fmk 235,500.

- Basis for [buyer's] claims

[Seller] and [buyer] agreed in 1995 that [seller] would sell and deliver plastic products to [buyer] in Switzerland. As agreed in the contract, [buyer] acted as the importer of [seller's] products and was granted the right to exclusively sell plastic products to wholesalers in Switzerland. During 1995, [seller] delivered such plastic products as agreed on in the contract.

In January 1996 the parties had agreed at a trade show that the imports will also encompass Powerturf- plastic carpets. [Buyer's manager] visited [seller] on 18 January 1996. [Buyer's manager] at that time told [seller] of [buyer's] Swiss business partner Company B and the parties have confirmed their agreement that took place at the trade show. In January and February, [buyer] and [seller] exchanged letters and phone calls and refined the details of their agreement. [Seller] committed itself to delivering to [buyer] 500 square meters of Powerturf- carpets during the year 1997. Because [buyer's] negotiations with Company B have continued, [buyer's] commitment to purchase these plastic carpets was left open.

The parties continued their negotiations at [seller's] premises in March 1996. The parties at that time elaborated on earlier events and went through details. The parties confirmed the amount to be delivered, 4,700 square meters, and the terms of delivery. After Company B confirmed its order to [buyer] on 6 August 1996, [buyer] delivered to [seller] a written confirmation concerning the amount of 4,700 square meters. Of the sale concerning 10,000 units, [seller] has only delivered the first consignment, consisting of 207 units. Regardless of [buyer's] notifications the consignment, for January, consisting of 621 units, still remained undelivered in March.

[Seller] has informed that the sale will not be carried out in its totality because [seller] had made an exclusive sales agreement with Company I for distributing Powerturf- in Europe in 17 European countries including Switzerland. The delayed delivery and the cancellation of the sale are in breach of contract made with [buyer]. This is a matter of seller's breach of contract.

[Seller's] rebuttal

The [seller] denied the claim in its totality and demanded that it not be admitted. [Seller] also demanded compensation for its legal expenses amounting to Fmk 181,430.50, including value added tax and lawful interest.

- Grounds for [seller's] rebuttal

[Seller] alleged that the [buyer] and the [seller] have never made the alleged agreement concerning sales of Powerturf- for the year 1997. Neither have the parties reached an agreement as to whether the [seller] would commit himself to selling the [buyer] a certain annual amount of this product, nor have the parties negotiated on expanding the contract.

[Seller] alleged that during their business relationship, the parties have entered into individual sales transactions, the terms of which have been agreed on individually, and that the fact that the [seller] has occasionally sold the [buyer] its products as individual consignments does not constitute a duty of delivery on the part of the [seller] as alleged in the [buyer's] statement of claims. No contract whatsoever concerning the year 1997 was specified in March 1996. The defendant has notified the [buyer] already in March 1996 that after 1996 the [seller] can no longer sell Powerturf- directly to the [buyer].

The [seller] has entered into an exclusive sales agreement concerning Powerturf- with a Danish distribution company [Company I]. The [seller] informed the [buyer] in writing on 17 December 1996 about the conclusion of that agreement. Simultaneously, the [seller] notified the [buyer] that Powerturf- will no longer be sold directly. The products involved in the sales between the parties before that point in time have been duly delivered to the [buyer] by the [seller]. The order made on 9 December 1996 was a normal individual order in which no annual delivery agreement was referred to. The parties had not made any agreement as to any 621 units. Additionally, the alleged amount of 5,000 square meters is a considerably large amount for a company like the [seller].

In its statement of claims, the [buyer] introduced a term "Jahreskontrakt" referring to an annual delivery agreement. This term was single-handedly created by the [buyer]. The [seller] was notified of the document unilaterally drafted and signed by the [buyer], the first time on 20 March 1997. At that time, it reached the [seller] through a fax message. The [seller] has never accepted the said contract/offer. Neither has the [seller] made an offer to the [buyer] involving a term "Jahreskontrakt".

The [seller] has not negotiated in any manner whatsoever with the [buyer] over a contract with the said content. No agreement as to coming about or existence of this kind of contract has been reached even later. The sales that have taken place do not in any manner support the allegations of the [buyer] concerning the conclusion of the contract, for example, impliedly.

The [buyer] was never granted exclusive selling rights as an importer of [seller's] products. Consequently the defendant could not have been in breach of any contract. No duty to pay damages exists.

Yes, [buyer's manager] has visited [seller], but every time the discussions have been over another product.

Undisputed circumstances

[Buyer] has ordered and [seller] has delivered Powerturf- products until the end of the year 1996. The deliveries have been conforming and they have been paid.

Disputed circumstances

1. Have the parties agreed on deliveries for the year 1997? The existence of an import/exclusive selling rights contract? Does another contract exist between the parties? On the basis of individual orders, as alleged by the [seller], has there come about a trade usage or another type of a long-term arrangement? Have there been negotiations during 1996, as alleged by the [buyer]? Has an agreement been reached as to terms of delivery and amounts to be delivered?

2. Contractual breach (if the contract has been concluded in a manner brought forward by the [buyer]): By [seller's] actions at the end of 1996 and in the beginning of 1997?

3. The economic consequences to the [buyer]: overhead, liability to third parties and expenses and sum totals concerning all of them.

Both written and oral evidence was submitted.

The grounds for the ruling of the Court of First Instance

The written evidence submitted by the parties corroborates the corresponding circumstances and conceptions as do the oral submissions of the parties.

Law

Freedom as to form of a contract is a principle in contract law. Contracts can also be concluded orally.

The places of business of the parties are in different States, which are Contracting States to the CISG.

According to Article 8(1) of the CISG, statements made by and other conduct of a party are to be interpreted according to his intent where the other party knew or could not have been unaware what that intent was. Paragraph (2) of this Article provides that if the preceding paragraph is not applicable, statements made by and other conduct of the party are to be interpreted according to the understanding that a reasonable person of the same kind as the other party would have had in the same circumstances. Paragraph (3) of the Article provides that in determining the intent of a party or the understanding a reasonable person would have had, due consideration is to be given to all relevant circumstances of the case including the negotiations, any practices which the parties have established between themselves, usages and any subsequent conduct of the parties.

According to Article 9(1) of the CISG, a usage to which the parties have agreed to and practices to which they have established between themselves are binding on them. Paragraph (2) of this Article provides, that the parties, unless otherwise agreed, have impliedly made applicable to their contract or its formation a usage of which the parties knew or ought to have known and which in international trade is widely known to, and regularly observed by, parties to contracts of the type involved in the particular trade concerned.

According to Article 11, a contract of sale need not be concluded in or evidenced by writing and is not subject to any other requirement as to form. It may be proved by any means, including witnesses. Article 13 of the CISG provides that, for the purposes of the Convention, "writing" includes telegram and telex.

The so-called principle of loyalty has been widely recognized in scholarly writings. According to this principle, the parties to a contract have to act in favor of the common goal; they have to reasonably consider the interests of the other party.

In scholarly writing on export trade, a reseller has been referred to as an entity that buys products from the principal, e.g., the manufacturer, and sells them further to his own customers at his own risk. This definition has been formulated to differentiate a resale agreement from an agency agreement. In the latter, the agent works on behalf of the principal and in a manner binding on the principal.

An importer is not a legal concept as such. The types of contracts in resale agreements vary according to whether the manufacturer has agreed, for example, to grant to the reseller an exclusive selling right to a certain area, or whether the manufacturer has reserved itself the right sell the products itself, or to name other resellers in the area. Exclusive selling rights have been seen as meaning that the manufacturer itself does not sell the products or name other sellers to a particular area.

Exclusive selling agreements can be ended on notice. If the parties have not agreed on a notice period, the situation can be problematic where the manufacture wishes to name a new exclusive seller for a certain area. Such actions during the tenure of an exclusive selling agreement have been classified as breaches of contract.

Court's evaluation of evidence submitted and its conclusions

As a conclusion of its evaluations, the Court of First Instance held that the parties have orally agreed on [buyer's] exclusive selling right in Switzerland. The duration of the contractual relationship or a period of notice have not been agreed on. In December 1996, [seller] made an agreement granting the exclusive selling rights to another company, Company I, concerning Powerturf- products. Consequently, [buyer] has lost his exclusive selling rights without notice.

Four witnesses have stated that selling and expanding a customer base takes a considerable amount of time and requires both work and financial input. Even if it has been brought forward that [seller] has notified [buyer] as to its negotiations with Company I on cooperation, it has not been established that [seller] would have informed [buyer] on the ending of the exclusive selling rights before the fax message of 17 December 1996. Hence, [buyer] may have continued its selling efforts, the result of which is that [buyer] has made a contract with Company B. As a result of the contract between [buyer] and Company B, [buyer] has been able to commit himself to buying from [seller] the amount mentioned in the annual contract. Through its actions, [seller] has been in breach of contract. This conclusion cannot be disregarded on the basis of the circumstance that it has not been established that [seller] was informed of the annual agreement in August 1996.

- Damages

Law

According to Article 74 of CISG, damages for breach of contract 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 may not exceed the loss which the party in breach foresaw or ought to have foreseen at the time of the conclusion of the contract, in the light of the facts and matters of which he then knew or ought to have known, as a possible consequence of the breach of contract.

In Finnish scholarly writings, the central form of damages is seen as compensation for positive contractual interest. The aim of this is to place the contracting party in a position where he would have been if the contract had been duly performed.

According to the Finnish Sale of Goods Act, damages for breach of contract consist of compensation for expenses, price differences, lost profit and other direct and indirect loss that resulted from the breach of contract. An indirect loss is a loss such as profit that has been lost because a contract with a third party has been avoided or has not been performed properly.

In contract law, damages as a concept has a wider meaning than in the Finnish Sale of Goods Act. Contract law knows no general limitations as to types of loss. A contracting party's liability for damages is seen as based on negligence. Additionally, there is a presumption of negligence which requires that a contracting party claiming damages must prove the existence of a contract and the coming about of a loss.

Claims

It is apparent from the written exhibit of [buyer], namely a fax message, that [buyer] has claimed damages for a breach of the exclusive sales agreement amounting to Sf 120,000. This consists of Sf 20,000 for marketing expenses and Sf 100,000 for lost profit.

According to [buyer's] pleadings, it has not paid Company B anything; Company B has not yet initiated proceedings for collecting the sums.

[Buyer] has claimed Sf 51,371 for his own lost profit, Sf 30,000 for loss of good will and Sf 11,000 for general expenses relating to sales and marketing.

It is apparent from a written exhibit presented by the [buyer], namely a confirmation letter to Company B on 7 August 1996, that Company B and [buyer] have agreed on granting Company B exclusive selling rights in Switzerland by stating: "for our common sales goal and for fulfillment of your annual requirements we have agreed on a delivery of 5,000 square meters which is to be delivered in at least 200 square meter partial deliveries."

It is apparent from the statement provided by Witness N, that Company I had later sold Powerturf- carpets to Switzerland in the amount of 8,000 square meters during a period of three years.

Conclusions

Company B's claim as to lost profit has not become timely from [buyer's] point of view. On the other hand, it is apparent from the evidence presented that Company B is one of three largest carpet wholesalers in Switzerland. No clarification as to anticipated overhead in relation to the goods in question has been presented. Additionally, it is not clear whether Company B would have been able to buy these products from Company I. Consequently, no clarification as to mitigation of damages on Company B's behalf has been presented.

The Court of First Instance has been presented with a sales brochure produced by Company B. Clarification in writing has also been presented in relation to ordering of samples. The claim as to marketing expenses can thus be held as reasonably established.

Due to reasons mentioned above, the sales goal can not be used as a basis for estimating [buyer's] lost profits. [Buyer's] claim for general expenses can be held as credible in terms of them being accumulated in connection with sales and marketing efforts. In estimating the loss resulting from loss of good will, the Court of First Instance has taken into consideration the fact that the [buyer] has not done business in this trade sector before the coming about of the business relationship now in question. On the other hand, even according to [buyer's] own statement, it is still doing business in another trade section in Switzerland.

Based on the above, the Court of First Instance has estimated the damage caused to [buyer] on the basis of a rule laid down the Law of Civil Procedure (section 17). As a reasonable compensation for the loss suffered by the [buyer], the Court of First Instance holds the amount as being Sf 70,000.

- Legal expenses

Many claims have been made during the course of these proceedings, of which a part will be decided in favor of the [buyer] and a part in favor of the [seller]. Hence the Court of First Instance, as provided by The Law of Civil Procedure (section 21), rules on legal expenses in a manner laid down in the judgment.

Judgment

[Seller] will pay [buyer] a sum total of Sf 70,000 or an equal amount of Fmk at the exchange rate of the date of payment. The sum will be added with interest as defined in the Finnish Law on interest (section 4) starting from one month after the notification of summons onwards, 28 October 1997.

All other claims are denied.

The parties to these proceedings will not be compensated for their legal expenses.

The parties shall pay witness fees to the witnesses heard during these proceedings.


PROCEEDINGS BEFORE THE HELSINKI COURT OF APPEALS

Appellants and other parties: [Seller], Finland; [Buyer], Switzerland

Proceedings on the matter in the Court of Appeals: The Court of Appeals, in its judgment of 18 February 2000, has dismissed [seller's] request concerning barring of execution of the judgment of the Court of First Instance. In its interim judgment of 13 June 2000, the Court of Appeals considered [seller's] primary claim concerning repealing of the judgment of the Court of First Instance on the basis of the Finnish Law of Procedure (section 24).

As to other claims, a trial has been held in the Court of Appeals between the dates of 25 September - 27 September 2000, of which minutes have been drafted.

Basis for [seller's] appeal and their grounds

[Seller] has demanded that the statement of claims should be dismissed and that [buyer] should be made to pay [seller's] legal expenses added with lawful interest.

[Seller] and [buyer] had been in a business relationship with one another in a manner that [seller] had acted as a manufacturer of a variety of carpets and [buyer] had acted as a buyer in order to resell the products to the Swiss market. The parties had never concluded the annual agreement concerning the sale of Powerturf- products, as alleged by [buyer]. Neither had the parties made an agreement nor had they reached an understanding according to which [seller] would have committed itself to or would be under a duty to deliver a certain minimum amount of this product to [buyer]. There have been no negotiations whatsoever as to this kind of an agreement. The parties have traded amongst themselves on the basis of individual sales and no commitments have been made in relation to deliveries for the year 1997. [Buyer] had no exclusive selling right for [seller's] products. In December 1996, [seller] had notified [buyer] that, due to an exclusive selling agreement with another company, it could no longer be able to sell Powerturf- products directly to [buyer]. At the time, [seller] was not aware of Company B's alleged order. The judgment of the Court of First Instance does not confirm the conclusion or the existence of the sales contract. Instead, the Court of First Instance has stated that the consignment of the alleged size had not been ordered from [seller] or the delivery of which was not otherwise agreed on. Therefore, [seller] could not have been in breach of the contract and the claim should be dismissed.

Additionally, [buyer] has not established that it had an order of the alleged size, the cancellation of which would have caused it damage. It is not likely, that the amount of 5,000 square meters of Powerturf- would have been sold in Switzerland in one year. It has not been established that [buyer] had paid or would have been under a duty to compensate [Company B] for expenses resulting from sales brochures. Moreover, it was not established that [Company B's] sales brochure, the subject of which was a product named Portalcleaner, dealt with Powerturf- in any way. Additionally, the damages awarded by the Court of First Instance concerning overhead were excessive.

In the Court of First Instance, [seller] brought out that there is no significance to the contract between [buyer] and Company B, because the subject matter of the proceedings is [buyer's] alleged order from [seller]. Consequently, [seller] had grounds not to appeal earlier to the circumstances concerning the contractual relationship between [buyer] and Company B.

[Buyer] has demanded that [seller] should be made to pay [buyer] Fmk 235,500 for legal expenses from the Court of First Instance added with lawful interest and also legal expenses from the Court of Appeals added with lawful interest.

Initiation of this appellate proceeding in order to obtain compensation for legal expenses has been a necessity even where [seller] has won the case in the Court of First Instance because the legal expenses have been accrued as a result of establishing liability for damages where clear facts were denied and contradicting statements presented. The amount of damages has no effect on these expenses.

[Buyer's rebuttal]

[Buyer] has demanded that [seller's] claims be denied in their entirety.

Based on an oral agreement made between [seller] and [buyer] in August 1995, [buyer] has acted as an importer of [seller's] products in Switzerland as an exclusive seller and at given prices. The intention of the agreement was that [buyer] would order everything it was able to sell and [seller] committed itself to delivering the required products. According to international trade usage, a contractual relationship concerning imports brings about duties to the parties, even if the details had not been agreed on. This usage knows of no procedure where each delivery would be regarded as an individual sale. The manufacturer has a duty to contribute to the sales carried out by the importer. Canceling an import agreement has to be carried out in a manner that neither of the parties has to suffer damage. Especially, liabilities to third parties have to be considered.

During contract negotiations carried out in 1996, [buyer] committed itself to delivering 5,000 square meters of Powerturf- carpet to Company B during the year 1997. Correspondingly, [seller] committed itself to delivering the said amount to [buyer]. [Seller] had a duty to deliver on the basis of both the import agreement and the contract concerning the order itself. In the beginning of the year 1997, it became apparent, however, that [seller] had no intention to fulfill its duty because it had granted the exclusive selling rights of the said product to [Company I] another company. This has caused [buyer] more damage than the amount mentioned in the Court of First Instance because it has been unable to fulfill its own duty in relation to Company B.

In the Court of First Instance, [seller] has not denied the damage caused to Company B or [buyer's] liability for it. The method of calculating the overhead has been undisputed in the Court of First Instance. The damages claimed on the basis of overhead is based on the actual amount of goods ordered by Company B. Consequently, it is insignificant from the point of view of the decision whether or not the said amount of Powerturf- can be sold in Switzerland. In any event, the said amount is not excessive in relation to Swiss market.

[Seller] has demanded that [buyer's] appeal be dismissed because the claims contained in [buyer's] statement of claims have been mainly dismissed in the Court of First Instance. [Seller] has had justified grounds to refuse to accept the claims and to refuse to take part in negotiations and it should not be made to pay [buyer's] legal fees.

Evidentiary issues

The Court of Appeals has heard seven witnesses. The parties to these proceedings have also referred to all written evidence submitted during the proceedings in the Court of First Instance.

The judgment of the Court of Appeals

The representatives of the parties and witnesses heard have largely relied on their statements in the Court of First Instance.

- Conclusions drawn by the Court of Appeals

Basis for damages

It has become apparent from the statements of both the parties and Witness P, that during negotiations on 16 August 1995 there had been discussion at least about prices and times of delivery, according to which sales were to take place and that an agreement was reached. After the negotiations, [buyer] had received a price list of [seller's] carpet products which was supposed to be used as a basis for negotiations between the parties. Based on the evidence presented, the Court of Appeals evaluated the conclusion of the contract on 16 August 1995 between [seller] and [buyer] and also the issue of whether Powerturf- carpets were included in the contract later on. The contract between the parties has created duties to [seller] as a supplier in relation to [buyer] -- at least in the sense that [seller] has been under a duty to deliver the goods ordered by [buyer] -- at least to the extent that the orders have been made within the agreed framework. [Seller] has been under a duty to contribute to the achievement of the goals of the contract and to support [buyer's] selling activities in Switzerland through his own actions. Because [buyer's] ability to act in conformity with the contracts it concluded with its own customers could not have been possible without [seller's] support, the Court of Appeals fails to find [seller's] statement credible, the statement being that [seller] had obligations only in relation to individual deliveries and that [seller] could at will refuse orders placed by the [buyer], disregarding their terms altogether.

On grounds appearing from the judgment of the Court of First Instance, the Court of Appeals finds that [buyer] had at least until further notice obtained de facto exclusive selling rights of [seller's] carpet products in Switzerland. However, the Court of Appeals holds that this circumstance is of no significance because [seller's] duties in relation to [buyer] resulted from the aforementioned import agreement, regardless of whether exclusive selling rights had been granted or not.

Based on correspondence submitted in the case, it is apparent Company B had at the latest in August committed itself to buying 5,000 square meters of Powerturf-, which was to be supplied by [buyer]. Even if it remain unestablished that a fax message concerning this circumstance had reached [seller] on 8 August 1996, the Court of Appeals fails to find it credible that [seller] had no knowledge of negotiations over the matter. Even if it is possible that the representatives of [seller] did not pay attention to Company B as a name, the Court of Appeals, considering the experience of [buyer's manager], fails to believe that [buyer's manager] would have negotiated a cooperation agreement of this scale without contribution from [seller] and without informing the company of these negotiations. Thus [seller] has to have been aware of the negotiations and their outcome. Because [seller] did not prohibit the continuation of these negotiations, [buyer] has had a right, and a duty, to continue its operations according to the import agreement. Even if [seller] had told about its negotiations with another company about importing Powerturf-, this has no effect on [buyer's] right to operate because, in the manner described in the judgment of the Court of First Instance, it has not been established that the contract concluded between [seller] and Company I would lead to cancellation of the contract between [buyer] and [seller].

[Seller] has stated that because it has not been established that [buyer] had made the alleged order of 5,000 square meters before cancellation of the contract, [seller] cannot be held liable for non-delivery of ordered goods. However, the Court of Appeals holds that it bears no significance in the matter whether the actual order had already been made or not, because during the existence of the import agreement [buyer] had committed itself to delivering goods to Company B and that [seller] was aware of this. The cancellation of the import agreement by [seller] has resulted in a failure to fulfill these commitments. This Court of Appeals agrees with the view of Witness P, that even though an importer by definition acts on his own behalf and at his own risk, the operations cannot be based on a risk of an abrupt ending of a contract. Consequently, [seller], in the manner described in and on the basis of the legal considerations of the judgment of the Court of First Instance, is under a duty to pay damages to [buyer] for loss resulting from liability to a third party, Company B.

The amount of damages

The Court of First Instance will not overturn the amount of damages awarded by the Court of First Instance.

Legal expenses

[Buyer] has won the case both in the Court of First Instance and the Court of Appeals. The proceedings have mostly concerned the grounds for damages. The Court of First Instance has admitted [buyer's] claim as to its grounds and awarded in and around a half of what [buyer] has claimed. [Buyer's] claim has thus been admitted only in part. Because the part of the claim that was not admitted was a discretionary issue that has had no bearing on the amount of legal expenses, the Court of Appeals holds that [seller] has to compensate for [buyer's] legal expenses in the Court of First Instance in full.

- Judgment

[Seller] will be made to pay for [buyer's] legal expenses accrued in the Court of First Instance in the amount of Fmk 235,000. The sum is subject to interest on arrears as defined in the Finnish Law of Interest starting from one month after the issuance of judgment onwards.

Otherwise, the judgment of the Court of First Instance remains unchanged.

[Seller] will be made to pay [buyer] Fmk 86,582.50 for legal expenses accrued in the Court of Appeals. This sum is also subject to interest on arrears in a manner described above.


Dissenting opinion

A dissenting opinion of a member of the Court of Appeals in the matter S 00/82

For [buyer] to obtain damages from [seller] the following prerequisites should have been fulfilled:

- The parties ought to have had some sort of an exclusive selling agreement or a resale-agreement, which would have prevented [seller] from selling products to others or at least obliged it to fulfill [buyer's] orders or that [seller] would have committed itself to delivery on the basis of an order received or confirmed;

- [Buyer] ought to have committed itself to resell the products and as a consequence would have suffered damage by failing to deliver; and

- [Seller] ought to have foreseen the amount of damage (CISG Article 74).

Based on the statements of the parties and the witnesses and written evidence, it is apparent that there was no enforceable contract between the parties. I do not see that Witness P's view, that according to him such a contract existed, could be held as evidence enough to prove the existence of such a contract. Already based on the nature of the case it is apparent that the alleged agreement ought to have been concluded in writing and that it ought to have contained detailed terms on the obligations of both parties. It is my opinion that [buyer] has not agreed to deliver the alleged 5,000 square meter consignment to Company B. According to the statement of [buyer's manager], it was only a goal of the company to sell this amount during the year 1997. Later it had appeared that the amount of such products sold in all of Europe was 13,000 square meters for that year.

On the opposite, it had become apparent in the matter that [seller] had price lists which were enforced until further notice, based on which buyers made orders for each sale separately. The said orders were accepted when raw material and other costs had not risen. The so-called agreement with Company I was only the first exclusive selling agreement on behalf of [seller].

The representatives of the parties were not in a business relationship, as [buyer's manager] had imagined. They had met in trade shows and [buyer's manager] has often invited himself to visits while otherwise visiting Finland. On these occasions, there have been discussions about sales but no agreements have been reached. During these meetings, the parties have mentioned that if [buyer] can sell 5,000 square meters of industrial carpets in Switzerland in the year 1996, he will be granted exclusive selling rights. During none of these meetings have the parties mentioned that Company B buys and [buyer] orders the said amount.

[Buyer's manager] has alleged having made an order in German of 5,000 square meters on 8 August 1996 for the year 1997 and to have sent the alleged order by fax to [seller]. Witness N and the staff members of [seller] have not admitted to having seen such an order until, not earlier than in 1997, it was sent added with markings, when the representation of the products had already been given by the [seller] to the Danish company, [Company I].

As proof of sending such a fax, there is the signature of [buyer's manager], but no sending report. It is my opinion, as was the opinion of the Court of First Instance that no such fax message had been sent to [seller] during the summer of 1996. Altogether it is my opinion that [seller] has caused no damage whatsoever to [buyer], and that it ought not have foreseen such damage either.

I would overturn the judgment of the Court of First Instance and would not hold [seller] liable for damages to [buyer]. I would make [buyer] compensate [seller] for its legal expenses amounting to Fmk 232,930.50. I would make this sum subject to interest on arrears as defined in the Finnish Law of Interest starting from the judgment of the issuance of judgment onwards.


The decision has become final.


FOOTNOTE

* All translations should be verified by cross-checking against the original text. For purposes of this translation, the Defendant-Appellant of Finland is referred to as [seller] and the Plaintiff-Appellee of Switzerland is referred to as [buyer]. Amounts in Finnish currency (Finnish markka) are indicated as [Fmk]; amounts in Swiss currency (Swiss francs) are indicated as [Sf].

** Jarno J. Vanto holds a Bachelor of Laws-degree and a Master of Laws-degree from the University of Turku and an LL.M. degree from the New York University School of Law. He is a member of the New York Bar. Mr. Vanto has authored a number of articles on data protection law and on international commercial agreements. He is the Editor-in-Chief and co-author of the International Privacy Guide and Co-Editor and co-author of the International Contract Manual, both published by West, a Thomson-Reuters Business.

Go to Case Table of Contents
Pace Law School Institute of International Commercial Law - Last updated January 14, 2014
Comments/Contributions
Go to Database Directory || Go to CISG Table of Contents || Go to Case Search Form || Go to Bibliography