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CISG CASE PRESENTATION

France 12 June 2001 Appellate Court Colmar (Société Romay AG v. SARL Behr France) [translation available]
[Cite as: http://cisgw3.law.pace.edu/cases/010612f1.html]

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

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Case identification

DATE OF DECISION: 20010612 (12 June 2001)

JURISDICTION: France

TRIBUNAL: CA Colmar [CA = Cour d'appel = Appellate Court]

JUDGE(S): Guedet (président); Maillard, Vieilledent (conseillers); Schoenberger (greffier)

CASE NUMBER/DOCKET NUMBER: 1 A 199800359

CASE NAME: Société Romay AG v. SARL Behr France

CASE HISTORY: 1st instance Tribunal de grande instance de Colmar 18 December 1997; 3d instance Cour de Cassation 30 June 2004

SELLER'S COUNTRY: Switzerland (plantiff)

BUYER'S COUNTRY: France (defendant)

GOODS INVOLVED: Polyurethane foam covers for air conditioners


Case abstract

FRANCE: Cour d'appel de Colmar 12 June 2001

Case law on UNCITRAL texts (CLOUT) abstract no. 480

Reproduced with permission of UNCITRAL

Abstract prepared by Claude Witz, National Correspondent
with the assistance of Timo Niebsch

A French manufacturer of air conditioners for the automobile industry (the defendant) concluded a "collaboration agreement" on 26 April 1991 with its supplier, a Swiss company (the plaintiff). The plaintiff undertook to deliver at least 20,000 crankcases over eight years according to the needs of the defendant's client, a truck manufacturer. The goods were described in a precise manner and the method of calculating the price was fixed for the entire duration of the contract initially envisaged by the parties. Following a sudden collapse in the automobile market, which caused the truck manufacturer to change its terms of purchase radically by imposing on the defendant a price for the air conditioners which was fifty per cent lower than the price of the incorporated components sold by the plaintiff, the defendant declared in a letter of 6 December 1993 its desire to stop using the crankcases manufactured by the plaintiff in the production of air conditioners. As at 31 December 1993, only 8,495 of the 20,000 casings had been delivered. On 19 June 1996 the plaintiff brought an action against the defendant before the Colmar District Court to obtain 3,071,962 Swiss francs in damages.

The Court of First Instance, competent pursuant to a jurisdiction clause that is effective under the terms of article 17 of the Lugano Convention on jurisdiction and the enforcement of judgements in civil and commercial matters, dismissed the plaintiff's claim for compensation. The court declined to apply the CISG on the grounds that the collaboration agreement could not be characterized as a sales contract because the total quantity of goods to be delivered was not determined. The agreement -- a framework agreement on production and distribution -- was governed by article 4 of the Rome Convention and the law applicable to the case was Swiss law. The Court of First Instance concluded that the agreement did not create any firm obligation to purchase on the part of the defendant.

The Court of Appeal reversed that judgement. It found the CISG to be applicable to the "collaboration agreement". Despite the title of the agreement, the Court defined it as a sales contract under the terms of CISG. The Court stated that the important factor was to determine the actual content of the agreement and to verify whether the parties had entered into the obligations of a buyer and a seller as defined in articles 30 and 53 CISG. The designation of the parties as manufacturer and buyer, the precise determination both of the goods to be delivered and of the method of calculating the price, and the fixing of a minimum quantity of 20,000 crankcases led to the conclusion that the agreement had all the characteristics of a sales contract. The Court recognized that the agreement did not contain any clause expressly imposing an obligation to buy on the defendant. However, "it follows from the general economic balance of the contract -- and from the particular stipulation with regard to the obligation to build up inventory -- that the delivery obligation expressly contracted by the [plaintiff] entails an implicit obligation on the [defendant] to buy the goods that the [plaintiff] undertook to deliver". Moreover, the court noted that "the obligation imposed on one party to deliver the goods -- rather than merely to keep them available -- implies the prior agreement of the counterparty to receive the goods at the agreed price and, therefore, the counterparty's undertaking to pay the price of the goods to be delivered".

The Court of Appeal then noted that the defendant had taken delivery of 8,495 crankcases at the time of termination of the contractual relationship. As the defendant had undertaken to receive and pay for 20,000 units, it had not performed its obligations. Pursuant to article 61 CISG, the plaintiff therefore had grounds for claiming damages unless the significant modification of the terms of purchase of the defendant's client could be found to constitute grounds for exemption under article 79 CISG. However, the Court emphasized that this modification, which made it very costly for the defendant to continue incorporating components produced by the plaintiff, was neither exceptional nor unforeseeable in a contract whose duration was fixed at eight years. The court observed that "it was up to the [defendant], a professional experienced in international market practice, to lay down guarantees of performance of obligations to the [plaintiff] or to stipulate arrangements for revising those obligations. As it failed to do so, it has to bear the risk associated with noncompliance".

The Court of Appeal thus concluded that the claim for compensation for the damage was in principle well-founded. However, the Court considered it necessary to carry out an expert evaluation before ruling on the amount of compensation. Article 77 CISG obliged the plaintiff to mitigate the loss. The Court noted that the damage alleged by the plaintiff -- the loss of profit and the cost of the raw materials which became unusable -- might not have been so great if the inventory had been resold and if the sum invested in the implementation of the agreement could have been amortized in a different way.

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Classification of issues present

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

APPLICABLE CISG PROVISIONS AND ISSUES

Key CISG provisions at issue: Articles 30 ; 53 ; 74 ; 77 ; 79 [Also cited: Articles 2 ; 3 ; 7 ; 61 ]

Classification of issues using UNCITRAL classification code numbers:

30A [Seller's obligations];

53A [Buyer's obligations];

74A [General rule for measuring damages: loss suffered as consequence of breach];

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

79B [Impediments excusing party from liability for damages]

Descriptors: Sale, definition of ; Damages ; Mitigation of loss ; Exemptions or impediments ; Hardship

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Editorial remarks

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Citations to other abstracts, case texts and commentaries

CITATIONS TO OTHER ABSTRACTS OF DECISION

English: Unilex database <http://www.unilex.info/case.cfm?pid=1&do=case&id=814&step=FullText>

CITATIONS TO TEXT OF DECISION

Original language (French): CISG-France website <http://Witz.jura.uni-sb.de/CISG/decisions/120601v.htm>; Unilex database <http://www.unilex.info/case.cfm?pid=1&do=case&id=814&step=Abstract>

Translation (English): Text presented below

CITATIONS TO COMMENTS ON DECISION

English: [2004] S.A. Kruisinga, (Non-)conformity in the 1980 UN Convention on Contracts for the International Sale of Goods: a uniform concept?, Intersentia at 138; [2005] Schlechtriem & Schwenzer ed., Commentary on UN Convention on International Sale of Goods, 2d (English) ed., Oxford University Press, Art. 79 paras. 20, 30; Carla Spivack, 27 Pennsylvania Journal of International Economic Law (Fall 2006) n.145 [commentary on Art. 79 issues]

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Case text (English translation)

Queen Mary Case Translation Programme

Appellate Court of Colmar
(Société Romay AG v. SARL Behr France)

12 June 2001

Translation [*] by Serge Lapine [**]

Translation edited by Julia Hoffmann [***]

[...]

Plaintiff, Société Romay AG [Seller], a Swiss company, produces mouldings; SARL Behr France [Buyer] specializes in the manufacture of air conditioners for the automotive industry. On 26 April 1991 they concluded a " collaboration agreement" for the supply by the [Seller] of black polyurethane foam covers for the air conditioners of trucks of the company Société RVI, which was [Buyer]'s ultimate customer.

By letter of 6 December 1993, [Buyer] notified [Seller] that starting from mid-January 1994 it would no longer use the covers manufactured by the [Seller], and that in the future this article would be ordered only as a spare part. In its reply of 21 December 1993, the [Seller] acknowledged the position taken by the [Buyer]. Referring to large investments needed for carrying out the agreement signed in 1991, the [Seller] sought reparation of damage suffered from the "rescission" of the contract, that is, a sum varying from 1,898,325 to 3,077,587.50 Swiss francs depending on the means of eventual compensation. As the parties failed to resolve the dispute between themselves, on 19 June 1996, the [Seller] commenced proceedings against the [Buyer] in the Commercial Chamber of the Tribunal de Grande Instance [Court of First Instance] of Colmar seeking compensation in French francs of the sum equivalent to 3,071,962 Swiss francs as a reparation of damages, and 63,000 French francs under Article 700 of the New Code of Civil Procedure. The [Buyer] based its claim on Swiss law in addition to the Vienna Convention 1980. [Buyer] sought a declaration by the Court that it was the [Seller]'s initiative to avoid the contract of 26 April 1991, and that the [Seller]'s claim be dismissed, and that [Buyer] reserved its rights to claim damages and interest for abuse of process. In addition, [Buyer] asked for an expert's report on the amount claimed by the [Seller] and submitted that the [Seller] must bear the costs in the amount of 50,000 French francs by virtue of Article 700 of the new Code of Civil Procedure.

By its judgment of 18 December 1997, the Commercial Chamber of the Court of First Instance of Colmar declared the [Seller]'s claim admissible but rejected it. The Court of First Instance ordered the [Seller] to pay to the [Buyer] the sum of 10,000 French francs in compensation for its procedural costs as well as the court costs. First, the Court of First Instance noted that the agreement of 26 April 1991 included a clause conferring jurisdiction compatible with Article 17 of the Convention of Lugano and this was not disputed by the parties. Further, the Court of First Instance stated that the agreement contained no provision on applicable law and thus, as a preliminary matter, it was necessary to determine the nature of this agreement, given that its international character followed from the nature of its parties and from the purpose of the contract. In this regard, the Court of First Instance considered that the agreement of 26 April 1991 contained no provision on quantity of the goods and therefore the Vienna Convention 1980 - which applies only to definitive contracts of sale - is not applicable in this case.

Pursuant to the rules of private international law referring to the lex fori, that is, to the provisions of Article 12, para. 2 of the New French Code of Civil Procedure, the Court inquired into the will of the parties at the time of the conclusion of the agreement. Considering that the agreement in question contained no definitive obligation either to deliver or to give, nor a firm obligation to buy, the Court of First Instance concluded that there was no contract of sale but a framework agreement for the production and distribution or of "common work" based on reciprocal exclusive rights. Accordingly, it rejected the application of the Hague Convention of 15 June 1955 and accepted the application of the Rome Convention, Article 4 of which refers to the country with which it is most closely connected, that is, the country where the party who is to effect the performance which is characteristic of the contract has his habitual residence at the time of conclusion of the contract.

The performance which is characteristic of the contract being supplied by the [Seller] of Switzerland and the contract being drafted in German, the Court of First Instance considered that it was appropriate to apply Swiss law.

On the basis of Article 2 of the Swiss Civil Code, which provides an obligation of good faith in the performance of contracts, the judges at First Instance ruled that, in the absence of a definitive obligation to buy, there was no intentional non-performance of the contract, that the violation of the exclusive rights to supply was not proved by the [Buyer] and that the termination of the contract was only due to the absence of the order from the Société RVI, the ultimate customer of the [Buyer].

By declaration filed with the court on 22 January 1998, the [Seller] appealed this judgment.

In its final submissions of 20 October 2000 the [Seller] asks the Appellate Court to:

   -   Quash the judgment of the Court of First Instance;
   -   Find that the [Buyer] refuses to take delivery of 11,505 sets of covers which it undertook to buy from the [Seller] by the agreement of 26 April 1991;
   -   Find that the [Buyer] committed a non-performance with fault and a serious breach of its contractual obligations;
   -   Order the [Buyer] to pay to the [Seller] the sum in French francs equivalent to 3,040,656 Swiss francs as damages in the form of lost profit and the sum equivalent to 31,306 Swiss francs for the stock of unmarketable goods;
   -   Reject all the claims of the [Buyer];
   -   Order [Buyer] to pay all the judicial costs of both the first instance and the appeal and to pay the sum of 100,000 French francs by virtue of Article 100 of the new French Code of Civil Procedure.

The [Seller] first points out that the competence of the Appellate Court is not contested. On the qualification of the contract in question, it reminds that the Vienna Convention 1980 constitutes substantive international law uniformly applicable to international sales. In the absence of the express definition, it follows from certain provisions of the Vienna Convention 1980 that it adheres to the classic definition of a contract of sale, that is, the meeting of two obligations: for the seller to deliver the goods and to transfer the property in them; and for the buyer to take delivery and to pay the price. In the light of this text, the contract in question must be inevitably qualified as a contract of sale insofar as there is an agreement on the object of delivery, the volume of the sale and the unit price:

   -   The purpose of the contract is indisputable, it relates to air conditioner covers;
   -   The provision on the volume of the delivery "of not less than 20,000 units within eight years according to the needs of the RVI" refers without doubt to the minimum quota which must be strictly construed and the reference to the needs of the RVI is made only to allow for prolongation of the orders to the eight-year period and to give the [Buyer] a chance to order more than 20,000 units during this period;
   -   The unit price - even though variable depending on the quantity of the goods - is still determinable.

Hence, the Vienna Convention 1980 is applicable to the present dispute, bearing in mind that the Convention was ratified by Switzerland and France prior to the conclusion of the contract in question. If the qualification of the agreement as a contract for delivery of goods in installments is upheld, there is a need to refer to Article 1 of this Convention (the von Caemmerer/Schlechtr[iem] text) . Finally, even if one were to analyze the agreement with reference to French law (articles 1129, 1156, 1164, 1582, and 1583 of the French Civil Code), the agreement would be classified as a contract of sale.

For the [Seller], the agreement of 26 April 1991 even goes beyond a simple contract of sale since it contains:

   -   For the [Buyer], an obligation to buy 20,000 units within eight years and an obligation to go beyond this quota depending on the needs of the Société RVI; and
   -   For the [Seller], an obligation to ensure the production capacity necessary to fulfill the orders from the [Buyer].

Agreements which, in the absence of knowledge of their exact volume eight years in advance, provide for two quotas - one of which is a definitive minimum and the other one is provisional - conform with the trade usages, namely on an international level.

Hence, bearing in mind the duration of the contract and the undertakings of the [Seller] to ensure its annual productive capacity in accordance with the provisional quotas, it was essential that it guarantee the depreciation of its investment by ensuring a minimum of sales. The quantity of 20,000 units was contractually agreed in a very reasonable manner, since during the first five years the parties agreed on the volume of the deal of 24,000 air conditioner covers, and over the total period of the contract the supply of 42,000 units.

Accordingly, it would be paradoxical and contrary to the will of the parties to analyze the agreement of 26 April 1991 as simply a declaration of intent on the part of the [Buyer], given that because of the estimated volume of sales, the [Seller] had an obligation to ensure its productive capacity at the level of at least 20,000 units, if not more. In these circumstances, the [Seller] had to invest approximately 1,000,000 Swiss francs.

In the event that the Vienna Convention 1980 does not contain the substantive law allowing for the resolution of the dispute, Swiss law - the law of the country where the seller has his habitual residence - would apply and would qualify the agreement in question as a contract of sale. Indeed, according to Article 184 of the Swiss Code of Obligations a sale is "a contract by which the seller undertakes to deliver to the buyer the goods sold and to transfer property in them for the price that the buyer undertakes to pay."

Article 2 of the Swiss Civil Code provides for exercising one's rights and for fulfillment of one's obligations in good faith. However, the [Buyer] manifestly violated this obligation in terminating the agreement starting from 6 December 1993, whereas it still had to take delivery of 11,505 air conditioner covers.

It follows that in accordance with both the Vienna Convention 1980 and Swiss law, the [Seller] is entitled to claim recovery of the damage suffered and this Court considers that the [Buyer] cannot justify its behavior by invoking the notion of material change of circumstances on the ground that it could not resell the covers to the Société RVI and, in any event, only at a price lower than the price agreed with the [Seller].

Indeed, the arguments of the [Buyer] prove at least that the Société RVI still uses air conditioners sold by the [Buyer] and the issue relates only to a question of price. At the same time, the discrepancy between the purchase price and the selling price cannot be invoked against the [Seller] which did not intervene in relations between the [Buyer] and the Société RVI. Besides, the debtor cannot be absolved of its obligations by the mere fact that it is not responsible for the failure to perform. The scope of application of material change of circumstances - admitted by the Vienna Convention and by Swiss law - is very limited and only covers in fact force majeure. However, none of the elements of this concept are present in this case, for the fact that the performance of the contract simply became more expensive does not constitute an external, unforeseeable and unavoidable circumstance.

Moreover, under Swiss law it is for the one who does not perform its obligations to prove that this non-performance was not intentional.

However, in the present case, the [Buyer] could have taken precautions which it failed to take in respect of the Société RVI when it undertook obligations with respect to [Seller]. By this, [Buyer] assumed the risk which it must now bear. The decrease of the needs of the Société RVI was also foreseeable and the relationship between the reciprocal obligations of the parties did not change.

The [Seller] cannot be obliged to suffer the damage caused by the breach by a third party of a contract to which the [Seller] was not party.

It follows that the [Buyer] must be ordered to compensate for the loss suffered by the [Seller] in full, that is, according to the Swiss doctrine and practice, the aggrieved party must be put in the same position as it would have had if the contract had been performed. In the present case, the recovery of damages comprises:

   -   Compensation of the raw materials ordered by the [Seller] to produce the covers, in the sum of 31,306 Swiss francs;
   -   Payment of the lost profit calculated on the basis of the price of covers which should have been delivered (11,505 x 458 Swiss francs = 5,269,290 Swiss francs), allowance made for depreciation costs (19,371 Swiss francs per unit or 2,228,634 Swiss francs) which makes in total 3,040,656 Swiss francs.

In its final submissions of 11 December 2000, the [Buyer] asks the Appellate Court to:

   -   Appoint, prior to judgment, an expert with the task to assess the radical decrease in the demand for the industrial vehicles within the European Union in 1993, to ascertain the requirements of the Société RVI and to compare the prices of different suppliers of the components of air conditioners;
   -   Order, where necessary, the testimony of Mr. Th., of the Société RVI, on the necessity to reduce by half, the price of the air conditioning sets;
   -   Find that the [Seller], unlike the [Buyer], has not established the necessity of application of Swiss law;
   -   Order the adverse party to present the customary certificate (certificat de coutume) with the date and signature of its author;
[Translator's note: A certificat de coutume is a certificate issued by a foreign lawyer to confirm the existence of a legal rule based on custom or judicial practice.]
   -   Declare the claim of the [Seller] inadmissible and ill-founded;
   -   Declare itself competent to hear the case;
   -   Uphold the judgment of the Court of First Instance, modifying it as regards procedural compensation;
   -   Find that applicable substantive law is the Swiss law of contract.

In addition, if the Vienna Convention 1980 is considered to be applicable, to:

   -   Find that the [Seller] only claims damages and interest and has renounced the performance of the contract between the parties; and
   -   Declare that the [Buyer] must be exempted from responsibility by virtue of Articles 79(1) and 79(5) of the Vienna Convention 1980.

In any event, [Buyer] asks the Court to:

   -   Find that the agreement of 26 April 1991 was cancelled by the [Seller] on 6 December 1993 and that [Seller has chosen to claim the compensation for the alleged failure to perform in the form of damages instead of claiming performance of the agreement;
   -   Declare that the [Buyer] is not responsible for the failure to perform the contract and that its cancellation is imputable to the [Seller];
   -   Find that the [Buyer] is also exempted from responsibility according to the general principle of international law providing for good faith and according to positive Swiss law on material change of circumstances;
   -   Reject all the claims of the [Seller];
   -   Order [Seller] to pay 100,000 French francs to the [Buyer] as damages caused by misuse of right to lodge a claim with interest on it at the rate set by law beginning from the date of  the eventual decision of the Appellate Court;
   -   Order [Seller] to pay the judicial costs of the first instance and of appeal and to pay the sum of 50,000 French francs for each of these instances.

Finally, in case of finding fault on the part of the [Buyer] to:

   -   Declare that the [Seller] did not observe its obligation to minimize its alleged losses;
   -   Reduce accordingly the amount of the damages; and
   -   Designate an expert with the task to undertake this evaluation taking into consideration the obligations of the [Seller].

In support of its submissions, the [Buyer] asserts that the agreement of 26 April 1991 is not a contract of sale and that it does not concern the delivery of 24,000 covers per year. This agreement deals with a potential and hypothetical figure of 20,000 units within eight years depending entirely on the effective needs of the Société RVI of which the [Buyer] is the supplier, which was not unknown to the [Seller].

The intent of the parties was clear: to link the orders from the [Buyer] to the [Seller] with those from the Société RVI to the [Buyer]. The agreement concluded to this end is deliberately unqualified, for the figure of 20,000 units represents only an order of size which is confirmed by three elements of the "certificate" of 26 April 1991:

   -   The expression "mindestens" (at least) referring to the estimated sum;
   -   The contractual provision under which the quantities actually ordered would depend at the end of the years on the needs of the ultimate customer, present in the "certificate" even if the ultimate customer did not sign it;
   -   The estimated quantities reflected in the "certificate" of about 3,000 units for the year 1991, about 4,000 units for 1992, about 5,000 for 1993 as well as the expression "prognostizierte Lieferquoten" which does not mean "the stipulated volume" as it suggests the [Seller] but "the provisional quantity".

Thus there is a framework agreement defining the object, the quantity and certain elements for the future determination of the price (approximate unit prices) as well as other anticipatory substantive elements. This agreement constitutes, in general, an undertaking of the [Buyer] to place an order annually over eight years with the [Seller] for the quantity corresponding to the effective needs of the Société RVI which is jointly agreed as a sole and express customer of the air conditioner covers. Both parties shared the risk of acting in accordance with the needs of the ultimate customer which is supported by the history of their relations.

At the same time, the collapse of the automobile market made the Société RVI drastically reduce (by almost half) the price of the supplied air conditioners. The [Buyer] immediately notified the [Seller] of this decision and of its obligation to reassess its own conditions of purchase. Since the [Seller] did not agree to take into account this market change, [Buyer] had to cease its purchases from the [Seller] and to turn to a third company, the Société C... The [Buyer] supports its argument by referring to the fact that the price for one cover supplied by the [Seller] was up to 458 Swiss francs, i.e., 1,880 FF whereas the price of the half-cover supplied by Société C... is from 51.40 to 46.83 per unit. The continuation of the relations with the [Seller] would have led [Buyer] to resell at a serious loss with economic and financial losses which would have been intolerable for the company. Besides, the collapse of the market was unforeseeable at the moment of conclusion of the agreement.

As to the law governing the relations between the parties, the [Buyer] reiterated that the application of the Vienna Convention 1980 depends on the qualification of the contract according to criteria set out in the Convention and not by reference to the lex fori (Swiss or French law). However, the title "confirmation related to the collaboration between B... and R..." does not characterize the contract as a contract of sale or a contract of sale by installments for, except for the obligation to establish a quantity of goods so as to ensure a certain supply capacity, the agreement does not contain any obligation for the parties and does not provide for the determination the alleged volume of the goods which is expressly dependant on the Société RVI. The agreement, as it is clear from its title, is nothing more than an agreement of collaboration. Accordingly, the Vienna Convention 1980 is inapplicable.

Even in the opposite case, the [Buyer] should be entitled to exemption from any obligation to pay compensation to the [Seller] on the basis of the notion of material change of circumstances which is enshrined in the provisions of Article 79 of the Vienna Convention 1980. Indeed, the economic substance of the commercial collaboration with the [Seller] was nullified for the [Buyer] by the decision - originally not subject to negotiations and not foreseeable - by the Société RVI to reduce by half the purchase price of the final product which is equivalent to a 100% increase of its expenses. The contractual relationship between the [Buyer] and the Société RVI impacted upon the relationship between the [Buyer] and the [Seller] and in any event related to the immediate environment of the agreement so that the sudden drop in the needs of the Société RVI justified adjustment or cancellation of the collaboration as a whole and not necessarily with reference to the "hardship" clause. Bearing in mind this exceptional situation, the [Buyer] should have been entitled to deviate from the obligations which would have had unacceptable consequences. In this situation, the attitude of the [Seller] who persisted in relying on the agreement of 26 April 1991 - which it wrongfully interpreted - which refused to take into account the disruption of the economic substance of the contract resulting from the constraints imposed by the Société RVI appears completely contrary to the general rules of good faith enshrined in Article 2 of the Swiss Civil Code as well as in Article 7 of the Vienna Convention 1980. Invocation of the material change of circumstances remains however subsidiary.

Therefore, in the absence of the qualifying criteria in the international private law convention, there are grounds to apply norms of international private legal rules of lex fori which mean - under both French and Swiss international private law - the law of the State where the debtor of the "non-pecuniary performance that is characteristic of the contract" is domiciled.

In the present case, although the framework agreement does not define any "performance" applicable to any of the parties, the possible market development highlights the production and delivery activity of the [Seller] which can be assimilated to this "characteristic performance" which leads to the application of Swiss law, which is admitted by the [Seller]. Hence, even if the [Seller] is able to prove that the [Buyer] was obliged to meet its obligations which were not fulfilled - which is not true - there would be no grounds to apply the notion of material change of circumstances existing both in Swiss doctrine and jurisprudence in a form very close to the Vienna Convention 1980 (flagrant discrepancy in performances due following from the unforeseeable change of circumstances) for the reasons given above.

The evidence that the performance of the [Buyer] would have become exorbitant would allow it to contest an action for damages and interest for the non-performance of its contractual obligations (Article 97 of the Swiss Civil Code) the realization of which entails the proof of the fault on the part of the debtor.

There is no obligation of the [Buyer] besides the one included in the contract, and the approximate information contained in the agreement of 26 April 1991 does not permit the conclusion that there existed any implicit obligation. To illustrate its position, [Buyer] reiterates that the quantity of units to be delivered within eight years is 20,000 whereas the prognostics for the first five years reaches 24,000 units.

At the same time, the [Seller] does not clarify the criteria allowing it to determine whether the [Buyer] performed the contract correctly or not.

The [Buyer] also contests the [Seller]'s assertion that it was not aware of the nature of the relations between [Buyer] and the Société RVI and repeats that the agreement of 26 April 1991 refers expressly to the "needs of the Société RVI". The [Buyer] insists on the fact that by the letter of December 1993, the [Seller] renounced performance of the contract and restricted itself to a simple claim for damages, which is also unjustified.

Indeed, in the light of Swiss law - as well as numerous international instruments - the party aggrieved by the non-performance of the contract must take all measures to mitigate its loss (Article 44 and 99 of the Swiss Code of Obligations). Article 77 of the Vienna Convention 1980, which is only an application of the principle of good faith, also provides that:

"A party who relies on a breach of contract must take such measures as are reasonable in the circumstances to mitigate the loss, including loss of profit, resulting from the breach. If he fails to take such measures, the party in breach may claim a reduction in the damages in the amount by which the loss should have been mitigated."

In the present case it should be admitted, even if the [Seller] had made the investments on which it relied, that it should have at least looked for other commercial partners to make a return on its investments, which it acknowledges not having done.

Furthermore, the alleged damage was not at all proved, neither as to the estimated loss of profit nor to the stock of covers claimed to have been fabricated. In light of the size of the claimed sums, an accounting expertise is in any case essential to evaluate the damage caused.

Finally, the [Buyer] considers that it is entitled to recover from the [Seller] the damage for the abuse of process - 10,000 French francs - which is separate from the sum claimed under Article 700 of the Swiss Code of Civil Procedure - 50,000 French francs.

Considering the case proceedings, the evidence filed in this action and the submissions of the parties to which the Court refers for the fullest account of their arguments;

ON THE ADMISSIBILITY OF THE APPEAL

It should be noted that the [Buyer] which insists on the inadmissibility of the appeal lodged by the [Seller] in its final submissions does not submit any argument necessary to justify this inadmissibility. In the absence of any procedural reason for the non-admissibility, it is appropriate to declare the appeal as admissible.

ON THE MERITS

The place of residence and the legal status of the parties determine the international character of the agreement of 26 April 1991. The absence of precision in the agreement raises the question of law applicable to the dispute between the parties. The UN Convention on Contracts for the International Sale of Goods (CISG) signed in Vienna on 11 April 1980 applies to "contracts of sale of goods between parties whose places of business are in different States: (a) when the States are Contracting States; or (b) when the rules of private international law lead to the application of the law of a Contracting State." (Article 1(1)).

The Vienna Convention 1980 entered into force on 1 January 1988 in France and on 1 March 1991 in Switzerland. It constitutes uniform international material law applicable in the field of international sales. It follows from that that the application of this Convention is linked to the classification of the contract. However, as the Court of First Instance indicated, the Vienna Convention 1980 gives no precise definition of a contract of sale, the formation and rights and consequences arising out of which it is supposed to govern. By reference to provisions relating to the reciprocal obligations of the parties, we may consider that the Convention applies, subject to the exceptions listed in Articles 2 and 3, to any agreement containing the following main elements:

   -   For one of the parties - the Seller - the obligation to deliver and to transfer the property in the goods (Article 30); and
   -   For the other party - the Buyer - the obligation to pay the price and to take delivery of these goods.

The title of the agreement signed on 26 April 1991 by the [Buyer] and the [Seller] ("Confirmation related to the collaboration between B... and R...") does not, of course, refer directly to a contract of sale. It should be noted, however, that the classification given to the contract concluded by them is not decisive. What is important to determine is the real content of their agreement based on the particular provisions upon which they agreed.

In this regard, it should be noted, first of all, that the parties to the agreement of 26 April 1991 are referred to as "the manufacturer" (Société Romay AG ) and the "buyer" (SARL Behr France) (see para. 1, lines 1 and 2).

Furthermore, importantly, the goods to be supplied are described exactly:

"Complete covers 95.028.10.102
-  made of shock-resistant, hard polyurethane foam (BAYDUR 1301)
-  specific weight: 700 g/dm3
-  black in color;
-  including all the parts inserted in the expanded material;
-  packaging in recyclable cardboard boxes."

The quantities to be delivered are determined in Article 2:

"Volumes of delivery are the following:
At least 20,000 units over the course of eight years ordered according to the needs of the Société RVI.
Provisional estimates:
1991 "around 3,000 units (during the whole year);
1992 around 4,000 units;
1993 around 5,000 units;
1994 around 6,000 units;
1995 around 6,000 units."

If the words have a meaning, the reading - and not the interpretation which is justified only in case of omission, imprecision or apparent contradiction - of the term "at least 20,000 units" does not refer to an "approximate" quantity, as the [Buyer] claims, but to a minimum number of 20,000 covers to be delivered over eight years. The reference to "the needs of the Société RVI" is not made to the volume of "deliveries" but constitutes a simple criterion of distribution - of "demand", according to the terms of the agreement - of the goods during the period in question. It also opens a possibility to maintain relations between the [Seller] and the [Buyer], on the basis of the provisions of the agreement, beyond 20,000 supplied units.

There exists no intrinsic contradiction between the threshold amount of delivery precisely fixed at 20,000 units and the "needs" of a third party (RVI), necessarily approximate during the period of eight years, but which the [Buyer] could, bearing in mind the agreements which it concluded with this client, expect to reach the minimum level guaranteed to the [Seller].

The position of the [Seller] is completely consistent with the continuation of this paragraph which provides for an "estimated" flow - that is uncertain - of deliveries of covers as was planned by the parties for the future five years. Evidently, the total of these annual estimates (which is in the framework of an optimal vision of the performance of the agreement) is above the minimum threshold of 20,000 units.

As for the price of the goods, the agreement contains not "approximate" prices, as the [Buyer] maintains, but a quite precise method to determine the price by reference to:

   -   Different unit prices depending on the quantities of covers delivered every year (above 3,500, from 2,500 to 3,499, from 1,500 to 2,499, less than 1,499 ...) and a set unit price beyond the basic 20,000 units;
   -   An index of revaluation;
   -   Adjustment of unit prices for future years by reference to precise criteria.

This agreement also contains a quite precise order of payment (in seventy-five days in Swiss francs), of delivery (minimum by 168 units) and of packing, as well as an obligation of both parties to constitute a "security stock" of at least 168 sets of air conditioner covers for the [Seller].

It is true that the agreement does not contain any express obligation on the [Buyer] "to buy". However, there is a general principle of interpretation of agreements according to which contracts must be performed in good faith and reasonably.

But it follows from the general nature of the contract - and of the particular provision relating to the obligation to "stockpile" - that the obligation of delivery expressly contracted by the [Seller] necessarily has its counterpart in an implicit obligation of the [Buyer] to buy the goods that the [Seller] undertook to deliver. An agreement that would impose on one of the parties an obligation to produce and to stockpile goods "ready to be delivered" over a period of eight years, without being sure that the other party will buy its products, would be both incomprehensible and unbalanced. However, an obligation to "deliver" - and not to keep at disposal - of one party entails a preliminary consent of the other party to take the goods for the agreed price, and therefore, an undertaking of the latter to pay the price for the goods which must be delivered.

The agreement of 26 April 1991 was applied as explained above by the [Seller] and [Buyer] until the end of 1993: since the agreement contained a set of provisions necessary to make it effective, the orders for delivery were sent by the [Buyer] with only the quantities and the dates of delivery. However, the [Buyer] does not present in its arguments any evidence of the "contract of execution" subsequent to the agreement of 26 April 1991 which would characterise, inter alia, "the framework agreement" which it seeks to establish in the so-called "collaboration agreement".

It follows that the agreement includes reciprocal obligations to deliver and to buy a determined product against the agreed price so that the Vienna Convention 1980 is applicable.

Article 61 of this Convention states that:

"If the buyer fails to perform any of his obligations under the contract or this Convention, the seller may: (...) claim damages as provided in articles 74 to 77."

As regards the initiative of termination of the contract one should remember the terms of the letter of 6 December 1993 sent by the [Buyer] to the [Seller]:

"We confirm our telephone discussion with you today and that the item specified as the object of the contract (Complete cover - Ref. 95.028.10.102) will no longer be used in the series as from mid-January 1994. The items already produced are sufficient to cover the rest of our needs. In future, this article may be ordered as a spare part. In that case, you are kindly asked to communicate to us the minimum quantities of production as well as the price. The seriousness and professionalism which your company has demonstrated allows us to hope that if new articles made of expanded polyurethane were necessary we could develop them together."

This letter concerns the goods covered by the agreement of 26 April 1991.

There is no serious doubt that the [Buyer] expresses in that letter its intention to terminate the contractual relationship being the subject of the agreement:

   -   On the one hand, the [Buyer] clearly declares that it will not take any further deliveries of the air conditioner covers produced by the [Seller];
   -   On the other hand, [Buyer] asks the [Seller] for another offer for the "possible
delivery of spare parts;
   -   Finally, it envisages the conclusion of new agreements in the future.

As concerns the written "confirmation" which followed the telephone conversation during which this position was clearly expressed, the [Seller] had no other choice than to acknowledge the decision of its contracting partner. However, it follows from the evidence, that because of the size of the reduction in the prices imposed by the [Buyer] it was not the renegotiation of the price of the covers detailed in the agreement of 26 April 1991 that was necessary, but instead the supply of a different item at a much lower cost price.

Accordingly, the [Seller] acknowledged the decision to terminate the contract taken by the [Buyer] in a letter dated 21 December 1993.

"By your letter of 6 December 1993 you notified us that the [Seller] intended, as from the end of January, to suspend the supply of covers for air conditioners intended for the Société RVI... This is regrettable as our collaboration could have been excellent and positive."

It is not contested that as of 31 December 1993, the [Buyer] had taken delivery of 8,495 covers which means that 11,505 covers remained to be delivered, by virtue of the contractual undertaking to deliver 20,000 units.

Hence, it should be considered that the [Buyer] did not fulfil its obligations under the agreement of 26 April 1991. However, Article 79 of the Vienna Convention 1980 provides that:

"A party is not liable for a failure to perform any of his obligations if he proves that the failure was due to an impediment beyond his control and that he could not reasonably be expected to have taken the impediment into account at the time of the conclusion of the contract or to have avoided or overcome it or its consequences."

In that case, the contracting party is deprived of the right to claim damages (Article 79(5) of the Convention). In this regard the [Buyer] invokes the collapse of the automotive market, and in particular, of industrial vehicles, which made the Société RVI..., the ultimate customer, radically change its buying conditions and impose on the [Buyer] a price that was less than half the price of the goods supplied by the [Seller].

As a supplier of the Société RVI..., the [Buyer] could neither oppose nor disregard this unilateral decision, which was absolutely unforeseeable at the time of conclusion of the agreement of 26 April 1991 with the [Seller]. Accordingly, it considers itself entitled to rely on the provisions of Article 79 of the Vienna Convention 1980.

In effect, the [Buyer] proves the price requirements of the Société RVI... by the fax of 20 September 1996 sent by Société RVI... to the [Buyer]:

"We confirm the request of the Société RVI... addressed to the [Buyer] for the significant decrease in price for the air conditioning of our Magnum vehicle in 1992. The price level of this component seriously affected the cost-effectiveness of this vehicle. A necessary cost decrease of the air-conditioning function is an imperative need which was accentuated by the crisis of the truck market in 1993. The decrease was only possible by the replacement of long sets with short ones."

The [Buyer] also shows that in 1999 the Société C... supplied it with air conditioner covers for the Société RVI... for a per unit price varying from 46.93 to 51.40 francs before tax, whereas the minimum price stipulated in the agreement of 26 April 1991 was 435 Swiss francs per unit.

However, the [Buyer] does not prove the 50% fall in the selling price of the conditioners, and has produced only one invoice - of 1991 - for this equipment. Insofar as the "significant drop in prices is not necessarily equivalent to an insurmountable reduction or one that "could not reasonably be expected", the [Buyer] does not prove the state of "necessity" which would allow it to terminate the contract. Even if the [Buyer] had been abruptly compelled by the Société RVI... to reduce its costs so that the supply from the [Seller] had become incompatible with the sound management of the company, it cannot be said that the change of the sale conditions of its products was unforeseeable.

Furthermore, according to the terms of fax of the Société RVI..., the international crisis in the industrial vehicles trade did not precede but followed Société RVI...'s decision to reduce the purchase prices of the air conditioners, which proves that this decision was not exclusively due to the sudden collapse of the market.

In any case, experience shows that over a period of eight years, price fluctuations, even sudden and significant, are not exceptional and, a fortiori, are not unforeseeable. Besides, when becoming involved in such a long and restrictive supply agreement as that of 26 April 1991 the [Buyer], an experienced professional acting in the international market, should have arrange either guarantees of performance of the contractual obligations entered into in respect of the [Seller], or means of revision of these obligations. Otherwise, it should bear the risk of non-performance.

The [Buyer] contends in vain that the [Seller]:

   -   Would have rejected a "hardship clause" if it had been proposed, thus showing that this proposal was not made;
   -   Had assumed the risk of change according to "the needs of the Société RVI ..." which is contested and not proved, but which shows that the [Buyer] was at least aware of the existence of this risk.

It follows from that that the [Buyer] cannot rely on the provisions of Article 79 of the Vienna Convention 1980.

Therefore, as concerns the damages and interest payable, Article 74 of the Vienna Convention 1980 provides that:

"Damages for breach of contract by one party consist of a sum equal to the loss, including loss of profit, suffered by the other party as a consequence of the breach. Such damages 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."

The [Seller] puts forward a sum of 3,040,656 Swiss francs corresponding to the selling price of the remaining 11,505 air conditioner covers which it was to deliver to the [Buyer], with allowances for the depreciation costs (equipment, direct and indirect production costs, transport costs) as well as a sum of 31,806 Swiss francs representing the cost of the raw materials necessary to produce the covers for the [Buyer], which it had in stock since the end of 1993 and which were unmarketable.

The sums put forward by the [Seller] cannot be verified, nor the claim that the raw materials ordered to produce the covers of the [Buyer] are unmarketable. Moreover, Article 77 of the Vienna Convention 1980 provides that:

"A party who relies on a breach of contract must take such measures as are reasonable in the circumstances to mitigate the loss, including loss of profit, resulting from the breach. If he fails to take such measures, the party in breach may claim a reduction if the damages in the amount by which the loss should have been mitigated."

In addition to the resale and reuse of the stocks, it is also important to verify whether the investments allegedly made by the [Seller] to carry out the agreement of 26 April 1991 could not be differently depreciated or valued. Accordingly, it is important to appoint an expert before ruling on the sum of compensation due to the [Seller].

Pending the expert's report, the question of costs and the application of Article 700 of the Code of Civil Procedure must be reserved.

For the reasons given above

The Court, delivering the decision in public hearing as a preliminary finding, on final appeal, and having deliberated in accordance with law, declares the appeal formally admissible.

ON THE MERITS

The Court:


FOOTNOTES

* All translations should be verified by cross-checking against the original text. For purposes of this translation, Plaintiff-Appellant, Société Romay AG of Switzerland is referred to as [Seller] and Defendant-Respondent, SARL Behr France of France is referred to as [Buyer].

** Serge Lapine is a 5th year student at the Law Faculty of Nizhny Novgorod and at the same time at the Interpreters' Faculty of Nizhny Novgorod Linguistic University.

*** Julia Hoffmann, BA, Dip. Lang, LLB (Hons) (Adel), LLM (Paris I), Solicitor of the Supreme Courts of New South Wales and South Australia.

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Pace Law School Institute of International Commercial Law - Last updated February 20, 2007
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