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CISG CASE PRESENTATION

Serbia 12 February 2001 Foreign Trade Court of Arbitration attached to the Yugoslav Chamber of Commerce ("Wet blue" leather case) [translation available]
[Cite as: http://cisgw3.law.pace.edu/cases/010212sb.html]

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

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Case identification

DATE OF DECISION: 20010212 (12 February 2001)

JURISDICTION: Arbitration ; Serbia

TRIBUNAL: Foreign Trade Court of Arbitration attached to the Yugoslav Chamber of Commerce

JUDGE(S): Unavailable

CASE NUMBER/DOCKET NUMBER: T-16/99

CASE NAME: Unavailable

CASE HISTORY: Unavailable

SELLER'S COUNTRY: Cyprus (claimant)

BUYER'S COUNTRY: Yugoslavia / Serbia (respondent)

GOODS INVOLVED: "Wet blue" leather


Classification of issues present

APPLICATION OF CISG: The tribunal appears to have applied both the Yugoslav Law on Contracts and Torts and the CISG

APPLICABLE CISG PROVISIONS AND ISSUES

Key CISG provisions at issue: Articles 38 ; 39 ; 78

Classification of issues using UNCITRAL classification code numbers:

38A [Buyer's obligation to examine goods: time for examining goods];

39A11 ; 39A2 [Requirement to notify seller of lack of conformity: buyer must notify seller within reasonable time; Specification of nature of non-conformity: degree of specificity required];

78B [Rate of interest]

Descriptors: Examination of goods ; Lack of conformity notice, timeliness ; Lack of conformity notice, specificity ; Interest

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Editorial remarks

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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 (Serbian): Click here for Serbian text of case

Translation (English): Text presented below

CITATIONS TO COMMENTS ON DECISION

Serbian: [2008] Vladimir Pavi, Milena Djordjevi, Primena Becke konvencije u arbitraznoj praksi Spoljnotrgovinske arbitraze pri Privrednoj komori Srbije, Pravo i privreda br. 5-8/2008, cited at pp. 581, 598, 601.

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Case text (English translation) [second draft]

Queen Mary Case Translation Programme

Foreign Trade Court of Arbitration
Attached to the Yugoslav Chamber of Commerce in Belgrade

Award of 12 February 2001 [Proceedings No. T-16/99]

Translation by [*] Ivana Nincic
Edited by Prof. Vladimir Pavic, Milena Djordjevic, LL.M. [**]

Claimant (Cyprus) [Seller] v. Respondent (Yugoslavia) [Buyer]

The Foreign Trade Court of Arbitration attached to the Yugoslav Chamber of Commerce in Belgrade, in a dispute concerning the claim of the [Seller] against the Respondent [Buyer] for payment of the principal debt in the amount of Deutsche Mark [DEM] 114,541.00, with interest and compensation for the costs of the proceedings, upon the conducted arbitration proceedings and in camera meeting of the arbitrators, held on 12 February 2001, pursuant to Articles 47, 49 and 51 of the Rules of the Foreign Trade Court of Arbitration attached to the Yugoslav Chamber of Commerce by unanimous vote makes the following:

AWARD

1.    [Seller]'s claim is granted and [Buyer] is ordered to pay to [Seller] for the principal debt the amount of DEM 114,541.00;
 
2.    On the amount stated in point 1 of the award, [Buyer] is ordered to pay to [Seller] the statutory interest rate of 6% annually as stated: on the amount of DEM 32, 541.00 - starting from 23 November 1997 until the final payment; and on the amount of DEM 82,000.00 - starting from 15 January 1998, until the final payment.
 
3.    [Buyer] is ordered to pay to [Seller] the amount of US $2,100.00 as compensation for the arbitration fees paid by [Seller].
 
4.    [...]

STATEMENT OF REASONS

Jurisdiction and the appointment of the Arbitral Tribunal

The jurisdiction of this Court of Arbitration in this matter is established in Art. 8 of the Contract concluded by the parties for the sale of the disputed leather. It provides that any disputes arising out of performance of this contract would be resolved before an arbitral tribunal of the Foreign Trade Court of Arbitration attached to the Yugoslav Chamber of Commerce in Belgrade.

Neither of the parties disputed the jurisdiction of this Court of Arbitration.

Applicable law

The contract in which [Seller] and [Buyer] established the jurisdiction of this Court of Arbitration was silent on the issue of applicable substantive law. In such a situation, Article 46 of the Rules of the Foreign Trade Court of Arbitration attached to the Yugoslav Chamber of Commerce (hereinafter the Rules) provides that the arbitral tribunal is to apply the law indicated by the conflict-of-law rules that the tribunal deems to be most appropriate in the case.

The Tribunal took into account that the contract from which the dispute arose was concluded in Belgrade, that it was concluded in the Serbian language, that one of the contracting parties was a Yugoslav company with a seat in Yugoslavia, and that the arbitral proceedings are conducted before an arbitral tribunal seated in Belgrade, and that according to the principles of International Private Law it is considered that in the case at hand the most appropriate conflict-of-laws rules are lex loci contractus and lex fori. Therefore, the Tribunal concluded that Yugoslav substantive law should be applied in this dispute.

The appointment of the Arbitral Tribunal

[...]

Claim, Answer to the Statement of Claim, Written Submissions and Parties' Statements during the Proceedings

In its Statement of Claim, [Seller] asserted that the parties to the dispute concluded two contracts for the sale of "wet blue" leather:

The first contract was concluded on 13 June 1997 in which the sale of goods was contracted in m2 (square meters) and the payment was to be in DEM; and

The second contract was concluded in August 1997, in which the goods were measured in kg, and payment was to be effected in US dollars.

The [Seller] asserted that [Buyer] did not pay [Seller] the amount of DEM 32,541.00 for the delivered goods pursuant to commercial invoice no. 165-97, according to which the goods were sent on 23 September 1997 and, pursuant to commercial invoice no. 191-97, the amount of DEM 82,000.00, according to which the goods were sent on 25 November 1997. As interest was contracted for in the event of delay in payment for the delivered goods, at the rate of 0.1% daily for every day of the delay, [Seller] in its Statement of Claim requested that the Tribunal grant it the interest due for both deliveries from the day of maturity of the obligation of payment until the final payment, and compensation for the costs of the proceedings.

With its Statement of Claim, [Seller] enclosed copies of both contracts, copies of the above mentioned invoices, photocopies of the consignment notes for the goods which are the subject-matter of the dispute with customs-house receipts, and insurance policies.

[Buyer] contested the grounds of the [Seller]'s Statement of Claim and in [Buyer]'s submission of 30 May 1999 pointed to the fact that Article 4 of the relevant contract between the parties provides that:

  1. The quality of the goods has to be confirmed by a certificate of quality which is issued by the manufacturing plant;

  2. The examination of the goods is to be conducted in situ at the manufacturing plant; and

  3. The [Seller] is obliged to present this confirmation to the [Buyer] prior to delivery of the goods.

[Buyer]'s asserts that [Seller] did not provide such evidence prior to the handing over of the goods in the contracted manner. Further, the [Buyer] asserted that the delivered goods were not of the required quality, that this was noted by [Buyer]'s internal commission for quality control, and that this fact was made known to [Seller] by delivery of this commission's report, as well as via fax on 25 February 1999. To document this, [Buyer] submitted the reports of the internal commission and the fax-letter of 25 February 1999 addressed to the [Seller].

In its submission dated 14 November 2000, [Seller] pointed out that [Buyer], in accordance with the contract, sent its representative to Kiev in order to make a selection of the goods and potentially state his objections, if any, and give notice of non-conformity before their loading and that the representative of the [Buyer] did not state any objections. [Seller] further asserted that the shipment was made in five trucks, that [Buyer] duly paid for the goods sent by three trucks, that for the remaining two trucks it did not pay pursuant to commercial invoices no. 165-97 and no. 191-97, which is the subject of [Seller]'s claim in the present dispute. [Seller] further noted that it was [Buyer]'s obligation to examine the goods in an ordinary manner within as short a period as is practicable in the circumstances and to give notice of potential lack of conformity to the seller instantly, which it did not do, but instead registered its objections only later, in its fax-letter on 25 February 1999, thus failing to make timely objection to the quality and quantity of the goods.

In its submission of 9 January 2000, [Buyer] stated that it registered its objections to the quality of the delivered goods on time, as the contracting parties were in continuous contact, and with respect to the objections on the quantity of the goods, it asserts that it is up to [Seller] to prove the quantity of the delivered goods, and not up to [Buyer], as the recipient of the goods. To evidence that the parties were in constant correspondence, [Buyer] proposed having the signatories of the contract as witnesses.

At the hearing held on 15 January 2001, the Tribunal accepted having the company owners and managers of [Seller] and [Buyer] testify as to the circumstances and whether the notice of lack of conformity of the goods was given in a timely manner.

In its written submission of 5 February 2001, [Buyer] pointed out that the only relevant contract which can be taken into consideration in the present dispute is contract no. 51, dated 13 June 1997, in which the price was contracted in DEM per piece of average dimensions (surface). The only criterion which is to be applied is the piece of leather as a unit of measure, and the weight is not a valid measure (as it varies depending on dampness). By analyzing individual commercial invoices and the reports in this way, [Buyer] calculated that [Seller] unjustifiably claimed against [Buyer] for the amount of DEM 87,298.64 and that for this part [Seller]'s claim is groundless. [Buyer], however, admitted the debt in the amount DEM 27,242.36, but denied [Seller]'s right to interest.

At the hearing of 5 February 2001, Mr. X, the owner of [Seller]'s company, testified that Mr. Y, [Buyer]'s employee stayed in Kiev, where he handpicked and selected the pieces of leather, which were subsequently packed in bales, on which he placed his signature, marking the goods as his. Mr. X further testified that he never received any reports from [Buyer] regarding a lack of conformity of the goods, nor were such objections ever expressed to him verbally, and that the required weight measurement was conducted in the manufacturing plant, as the goods were to be paid for based on such measurement. At that time, a machine which would measure the surface of the leather did not exist in the manufacturing plant.

Mr. Z, the owner of [Buyer]'s company, testfied that the lack of conformity of the purchased goods was ascertained immediately upon arrival of the trucks from Ukraine, while unloading the goods, and that immediately upon the examination of the goods received, he informed the [Seller] via fax regarding the lack of conformity. This was a non-conformity with respect to quality of the goods, namely, that, contrary to the oral agreement, instead of I, II and III class goods, class II, III, and IV goods were delivered, He also emphasized that he personally was in direct contact with Mr. X after the arrival of every truck.

The Holding of the Tribunal

Applying Yugoslav law to the dispute, and by this meaning the rules of the Yugoslav Law on Contracts and Torts, and the rules of the UN Convention on Contracts for the International Sale of Goods (hereinafter the CISG), as an integral part of the Yugoslav legal system, the Tribunal decided on the disputed legal issues pursuant to the rules on qualitative and quantitative handing over of the goods in a contract for the sale of goods. The basic legal questions which to be resolved were::

Determining the non-conformity of the delivered goods (time and place of the examination of goods) and determining the non-conformity (the persons who conducted the examination of the goods); and

The giving of notice of non-conformity to the [Seller] (the content of the notice, timeliness, and means of giving notice).

The Tribunal concluded that in the disputed contract the anticipated place of handing over of the goods was the place of the leather manufacturer's plant, in which place the expert-specialist for leather whom [Buyer] chose and sent, selected the goods in the name of the [Buyer] and at which time he needed to raise potential objections to the quality and quantity of the contracted goods. In this way, the time for giving a notice of non-conformity was determined by this very contract.

The rules on giving notice of non-conformity to the seller relate to the following questions: (1) the content of the notice, (2) the time of giving the notice, and (3) the means of giving notice.

(1) According Article 484 paragraph 1 of the Yugoslav Law on Contracts and Torts, in giving notice of a lack of conformity of the goods, the buyer is obliged to describe the non-conformity in detail and to call upon the seller to examine the goods. In this case, the [Buyer], i.e., his agent for receipt of the goods, did not give any notice at the time of receipt of the goods. Also, the [Buyer], even later, upon the arrival of the goods in Yugoslavia, even in its internal reports did not make any relevant objections, objections related to the quantity of the delivered goods, but rather made objections related to the surface, which is a subject matter of the contract to which the claims set before the Tribunal are not related.

The Tribunal established that the subject-matters of the dispute at hand are two unpaid commercial invoices: invoice no. 165-97 (for goods sent on 29 September 1997) and invoice no. 191-97 (for goods sent on 25 November 1997). These invoices originated from the contract dated 29 July 1997, which provided for delivery in kg, and payment in US dollars. The mentioned reports do not contain any objection to either the quantity or the quality of the delivered leather, but rather an objection as to its surface. However, in the contract that is relevant to the claims in this case does not provide for the surface that has to be obtained from the contracted quantity, and therefore, one cannot determine the deviation expressed in surface (m2).

Also, even with respect to the objections related to the quality, in the mentioned reports the nature of the non-conformity related to the quality of the leather is not described in adequate detail, but instead it is just stated that in the process of treatment of leather, at the moment of its cutting, was a bigger loss with respect to the surface. On the other hand, even if one would accept that the time and place of determining of the non-conformity was at the moment of receipt of the goods at the buyer's premises, in any case, the buyer did not fulfill its obligation under the law to call upon the seller and provide for his presence at the moment of determining the non-conformities of the received goods.

(2) Objections [notices of lack of conformity] have to be made duly and on time in order to have legal effect. The rules of the Yugoslavia Law on Contracts and Torts and the CISG are completely clear on this and are followed by rigorous sanctions. According to these rules, the buyer is obliged to examine the goods, or cause them to be examined immediately, or within as short a period as is practicable in the circumstances and to give notice to the seller, without delay, otherwise, the buyer loses the right to rely on the lack of conformity. If both parties were present during the examination, the buyer is obliged to express his objections regarding apparent non-conformity immediately, under the sanction of loss of rights. In this case, however, at the moment of receipt of the goods in the manufacturer's plant, in the presence of both parties, the [Buyer] did not make any objections to the [Seller]. Further, after receiving the goods at the premises of the [Buyer], the [Buyer] again did not give notice to the [Seller] immediately, or within a reasonable time, nor did the [Buyer] call upon the [Seller] to be present at the examination of the goods. It was only in the letter of 25 February 1999 that the manager of the [Buyer]'s company notified the [Seller] that because of damages on the machine the leather had passed though it without adequate straining which led to "improper enlargement of weight", and because of this after the processing of the leather, the difference between the amount purchased and the amount produced, expressed in square meters, became apparent. However, the objections regarding the quality and quantity (pursuant to the CISG, both notions are encompassed by the concept of lack of conformity) have to be given to the seller in the form of a notice in which the nature of the lack of conformity is specified, immediately, or rather, within a reasonable time after the buyer discovered it or ought to have discovered it.

(3) According to Article 484 paragraph 2 of the Yugoslavia Law on Contracts and Torts, the buyer has to give the notice of lack of conformity to the seller in a reliable way. The Tribunal evaluated the [Buyer]'s objection that at the moment of receiving the goods in Kiev, a confirmation of the [Buyer] was not issued to the [Seller], with potential claims as to the quality and quantity, as was provided for in the contract. However, this confirmation, first, is not exclusively relevant for giving potential objections, and further, according to the contract, it was the obligation of the [Buyer] to issue such a confirmation to the [Seller], and the [Buyer] cannot call upon its own omissions in order to retain or protect its rights.

The parties provided in the contract that, for untimely payment, interest in the amount of 0.1% daily is owed and, in its statement of claim, the [Seller] requested such interest on the principal amount due. However, the Tribunal held that the statutory rate of interest is to be applied in this case, which, according to the laws of the Federal Republic of Yugoslavia [FRY] (Law on the statutory interest rate, Official Gazette of FRY No. 32/92, Article 2), amounts to 6% annually, as this is a claim from a legal relationship with a foreign element.

Costs of the proceedings

In response to the Tribunal's request, both parties submitted their costs of proceedings. In its submission of 5 February 2001, [Seller] requested compensation of the following costs in the proceedings: for representation at the hearings, for the writing of the statement of claim and other submissions, and for costs of travel - the amount of Serbian dinars [RSD] 51,028.00, and the amount of US $2,100.00, which was paid as an arbitration fee.

The Tribunal found that these expenses were reasonable and in accordance with the tariff of fees chargeable by attorneys, and as [Seller]'s request in the dispute against [Buyer] was granted in full, all the requested expenses were granted.

The Tribunal did not grant compensation of expenses requested by [Buyer], as it did not succeed in the dispute.

Finality of the Award

Pursuant to Article 483 of the Yugoslav Civil Procedure Act and Article 54 of the Rules of the Foreign Trade Court of Arbitration attached to the Yugoslav Chamber of Commerce, this arbitral award is final, is not subject to appeal and has the force of a final decision of a court.

In Belgrade, 12 February 2001

[...]


FOOTNOTES

* All translations should be verified by cross-checking against the original text. For purposes of this translation, Claimant of Cyprus is referred to as [Seller] and Respondent of Yugoslavia is referred to as [Buyer].

** Ivana Nincic is a graduate of the University of Belgrade Faculty of Law where she is currently attending Master studies in European Integration. Prof. Vladimir Pavic is an Associate Professor in Private International Law and Arbitration. Milena Djordjevic, LL.M. (U. of Pittsburgh) is a Lecturer in International Commercial Law at the University of Belgrade Faculty of Law.

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