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

Italy 13 December 2001 District Court Busto Arsizio (Machinery case) [translation available]
[Cite as: http://cisgw3.law.pace.edu/cases/011213i3.html]

Primary source(s) of information for case presentation: Unilex database

Case Table of Contents


Case identification

DATE OF DECISION: 20011213 (13 December 2001)

JURISDICTION: Italy

TRIBUNAL: Tribunale [District Court] di Busto Arsizio

JUDGE(S): Unavailable

CASE NUMBER/DOCKET NUMBER: Unavailable

CASE NAME: Unavailable

CASE HISTORY: Unavailable

SELLER'S COUNTRY: Italy (defendant)

BUYER'S COUNTRY: Ecuador (plaintiff)

GOODS INVOLVED: Machinery for recycling of plastic bags


UNCITRAL case abstract

ITALY: Tribunale [District Court] e di Busto Arsizio 13 December 2001
(Plasticos de Exportacion Expoplast C.A. v. Reg Mac s.r.l.)

Case law on UNCITRAL texts [A/CN.9/SER.C/ABSTRACTS/123]
CLOUT abstract no. 1192

Reproduced with permission of UNCITRAL

Abstract prepared by Silvia Solidoro

An Italian seller and an Ecuadorian buyer entered into a contract for the sale of an industrial machinery to be used in recycling plastic bags for the packaging of food products. Since upon installation, the machinery turned out to be defective, the buyer, alleging non-conformity to the contractual specifications, brought an action before the Italian Court of Busto Arsizio, claiming avoidance of the contract besides damages. After stating that the contract was governed by the CISG, the Court applied Art. 35(2) of the Convention, finding that the good sold was not fit for the particular use made known to the seller at the time of the conclusion of contract. Indeed, in the Court’s view, it had been widely demonstrated that during the negotiations the buyer had provided the counterpart with the sample of the material to be processed, expressly pointing out that all the industrial equipment supplied by the European manufacturers previously entrusted with the recycling had fallen under a serious malfunction because of the special features of the goods to be worked. Since the seller had assured the buyer of the high performance which its own machinery would reach in the manufacturing process, this could be deemed the prima facie evidence of its liability, taking account of the failure of the recycle system to produce bags in the quantity originally agreed.

The Court dismissed the seller’s argument according to which the buyer had lost its right to rely on any lack of conformity of the good sold, because of late notice of the defects of the machine resulting from the installation. The Court actually found that the buyer’s conduct had been consistent with the provisions of Art. 39(1) CISG, since the source of malfunction was very hard to discover due to its highly technical nature. In reaching this conclusion, the Court stated that the determination of the “reasonable time”, which can’t go beyond the 2 years limit, involves taking into account different factors, concerning, inter alia, the distinctive features of the defects. The Court further held that the special nature of the defects may justify the buyer’s notice of non-conformity describing the defects as they appear without specifying their origin.

Finally, the Court stated that the buyer was entitled to avoid the contract, arguing that, consistent with the nature of the avoidance, i.e. an extreme ratio with respect to the other remedies available to the buyer under the system of the Convention, the latter had rightly notified the counterpart only after the failure of its attempts to solve the malfunctioning of the machinery. In reaching this conclusion, the Court argued that Art. 49(2) CISG, whereby the buyer’s declaration of avoidance must be notified within a reasonable time, requires the existence of a “fundamental breach” of the seller’s obligations. In this regard, the notion of “reasonable time” expressed by Art. 49 differs from that under Art. 39 (1) CISG, which runs from the moment when the party discovers or ought to have discovered the non-conformity of the goods (regardless of the possibility to avoid the contract). The Court considered that the buyer’s avoidance of the contract at the moment of the installation of the machine, and not after trying to fix its defects, would have been contrary to the principle of good faith which governs international transactions as well [as domestic ones].

Go to Case Table of Contents


Classification of issues present

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

APPLICABLE CISG PROVISIONS AND ISSUES

Key CISG provisions at issue: Articles 7(1) ; 25 ; 35 ; 39(1) ; 45(b) ; 49(2) [Also cited: Article 45 ]

Classification of issues using UNCITRAL classification code numbers:

7A3 [Observance of good faith];

25A [Effect of a fundamental breach: avoidance of contract];

35B3 [Conformity of goods to contract: quality of goods held out as sample or model];

39A ; 39A1 [Requirement to notify seller of lack of conformity: buyer must notify seller within reasonable time; Degree of specificity required];

49B1 [Buyer's right to avoid contract: buyer's loss of right to declare avoidance after delivery (failure to avoid within periods specified in art. 49(2)(a) & (b)]

Descriptors: Good faith ; Conformity of goods ; Lack of conformity notice, specificity; Lack of conformity notice, specificity ; Fundamental breach ; Avoidance

Go to Case Table of Contents


Editorial remarks

Go to Case Table of Contents


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=927&step=Abstract>

CITATIONS TO TEXT OF DECISION

Original language (Italian): [2003] Rivista di Diritto Internazionale Privato e Processuale 150-155; Unilex database <http://www.unilex.info/case.cfm?pid=1&do=case&id=927&step=FullText>

Translation (English): Text presented below

CITATIONS TO COMMENTS ON DECISION

English: Korpinen, On legal uncertainty regarding timely notification of avoidance of the sales contract (2004); CISG-AC advisory opinion on Examination of the Goods and Notice of Non-Conformity [7 June 2004] (this case and related cases cited in addendum to opinion); Spaic, Analysis of Fundamental Breach under the CISG (December 2006) n.303; Ferreri, Remarks Concerning the Implementation of the CISG by the courts (The Seller’s Performance and Article 35); Sheehy, Good Faith in the CISG: The Interpretation Problems of Article 7

Go to Case Table of Contents

Case text (English translation) [first draft]

Queen Mary Case Translation Programme

Decision of the Tribunal of Busto Arsizio, Italy
13 December 2001

Translation [*] by Maja Perpar [**]

Translation edited by Pedro Martini [***]

PROCEDURAL HISTORY

By statement of claim, served on 8 July 1998, Expoplast C.A. (hereinafter: [Buyer]), in the person of its legal representative brought suit before this Court against Reg Mac s.r.l. (hereinafter: [Seller]), in the person of its legal representative, asking the Court to determine that the breach of the contract for the sale of the "Medw Asb 10001100 lino with agglometrator" machinery supplied by [Seller] was caused exclusively by [Seller], to declare the contract avoided and order [Seller] to compensate [Buyer] for damages and loss of profit.

[Buyer] submitted that:

-    the parties have, through the company Imocom, [Seller]'s agent in Ecuador, entered into a contract for the sale of a machinery for recycling plastic bags used in the production of bananas;

-    that prior to the conclusion of the said contract, the parties conducted intense negotiations regarding the examination of the type of material to be processed;

-    that [Buyer] had, precisely for this reason, sent [Seller] a sample of the product it intended to recycle, and furthermore indicated, although verbally, peculiarities related to the recycling of the mentioned material;

-    that [Seller] had, after conducting the necessary examinations, ensured the suitability of the machinery for the intended use, guaranteeing also the productive capacity of 250/300 Kg/h;

-    that the contract concluded between the parties also included the type of guarantees, the terms of payment and everything necessary for the performance of the contract;

-    that after [Buyer]'s full payment of the price agreed, already in the period of testing, the problems with malfunctioning of the machinery arose, with productivity well below the promised;

-    that these problems continued to occur and were always notified to [Seller], either directly or through [Seller]'s agent in that country, however, without [Seller]'s prompt reply to [Buyer]'s requests for interventions to remedy the situation;

-    that, nevertheless, even the measures that were taken to ascertain the type of defects of the machinery did not result in any improvement of the production;

-    that only in the last analysis [Seller] attributed the problem of reduced productivity to the type of product being processed, assuming that the product was different from the one used for the testing;

-    that considering the gravity and fundamentality of [Seller]'s breach, [Buyer] is entitled to declare the contract avoided under CISG and, as communicated to [Seller], demand [Seller] the restitution of the price and the payment of damages.

[Seller] appeared before the Court and asked the Court to reject all claims against it, alleging absolute groundlessness of [Buyer]'s factual and legal assertions, stating firstly, that the supplied machinery was in conformity with the contractual provisions and secondly, that [Buyer] failed to give timely notice of the defects and, pursuant to the correct interpretation of the aforementioned convention (CISG), is not entitled to declare the contract avoided.

GROUNDS FOR THE DECISION

Given the nature of the contract and the subjective qualities of the parties, the Court recognizes the applicability of the provisions of CISG (undisputed by [Seller]), under which [Seller] alleges that the legal requirements for granting the request are not met.

Considering the evidence produced, this Court is of the opinion that the oral evidence and the many documents brought forth by [Buyer] do not leave any doubts as to the content of the contract concluded between the parties, as well as the obligations therein. In particular, properly defined the type of machinery sold, it seems important to observe that the obligation of delivery expressly undertaken by [Seller] requested that the machinery guaranteed certain levels of productivity.

[Seller]'s objection concerning the lack of guarantees about the promised level of productivity is, therefore, unfounded due to the express content of documents 2, 5, 6 and 10, produced by [Buyer]. Neither can it be said that obtaining the aforementioned levels of productivity was not an essential part of the agreement, since the whole set of pre-contractual negotiations preceding the final conclusion of the agreement had particular regard to this aspect. This was important for the [Buyer] which had furthermore made this clear both directly as well as indirectly, through Imocom ([Seller]'s agent for Ecuador), to [Seller].

Significant in this regard is also the fact that [Buyer] sent samples of material to be recycled to [Seller], due to the fact that it had intended to use the machinery for a peculiar purpose and thus expected problems. [Buyer] described all this to [Seller], also through the agent company, highlighting the problems that were previously encountered when processing this type of materials with the machines supplied to other companies in the sector by other European producers. It has therefore been unquestionably shown that [Seller], also through Imocom, has provided ample guarantees concerning the expectations about their specific technology.

Once the contract was concluded and the machinery supplied, which was guaranteed to be suitable for use and to have specific productive capacities, and installed at the [Buyer]'s production facility, the machine failed to function properly from the very beginning. The fact that the machine never functioned at optimal levels that were reached during the tests conducted in Italy, is in fact undisputed, even from the standpoint of [Seller]'s defense, which does not contest the failure to achieve the agreed upon standards of productivity. It does, however, deny that such shortcomings can be attributed to its delivery, asserting that the failure is a result of different factors such as the difference between the materials used for the on-site processing and those used during the testing or an inability to operate the machine, in any case, contesting the timeliness of [Buyer]'s notice of non-conformity.

Moreover, the malfunctioning of the machinery was evident from its installation as confirmed by witness statements of Vaca, Mattiello and Echeverria, and evident from doc. 14, letters from Expoplast experts (doc. 15, 24 and 32), letters from Imocom (doc. 19 and 20) as well as by [Seller] itself in letters dated 26 and 29 August 1996 (doc. 27 and 28) as well as from the reports provided by Eng. Girardello, written in May and October 1997. It is indeed indisputably shown that even after the interventions and repairs conducted by [Seller], the machine was far away from achieving the promised production capacity. In fact, it has been proven that the interruptions of the production cycle continued. So did the replacements, repairs, maintenance, increased power consumption and low production level, which resulted in economic inefficiency of the production.

It should furthermore be noted that [Seller] was, so to say, merely speculating about the type of problem that caused the described defects and was not at any point able to identify the cause of the problems with certainty, at one point attributing the defects to the ''washing machine'', then to the desiccators, to high pressure hydraulic valves and at another point to the thickener; as widely demonstrated in the presented documents and confirmed in the production of evidence.

In light of these arguments, the Court finds that in the case at hand the requirements set out in Art. 35 CISG were fully met, since the purchased product has proved to be unsuitable for the purpose stipulated in the contract, lacking the qualities that [Seller] ensured by the presentation of a sample and was furthermore unsuitable for the particular purpose made known to [Seller] at the time of the conclusion of the contract.

As demonstrated by the documents, the testing of the samples took place before the conclusion of the contract and consequently [Seller] was aware of the particular purpose for which [Buyer] intended to use the product. Notwithstanding, the delivered machinery proved to be absolutely unsuitable for the purpose indicated in the contract and lacked the essential qualities (proper functioning and production levels) that were promised.

[Seller] nevertheless argues that [Buyer] lost its right to rely on the breach of contract, since its notification was not timely with regard to the criteria expressly provided for in Art. 39 CISG. The claimed exception is unfounded and must therefore be rejected. Indeed the invoked provision links the timeliness of the notification to the criteria of reasonable time after the party discovered or ought to have discovered the lack of conformity. As noted, the provision does not set out a firm and objective criteria, but rather provides for a general standard which can only be interpreted with regard to the specific case and in particular with reference to the nature and type of defect. In the present case, however, considering [Seller]'s own approach to determining the probable cause of malfunctioning of the machinery, which changed with every action carried out, it is reasonable to assume that the problem was not obvious or visible at first sight at the moment of the delivery of the machine. Consequently, the time period for the [Buyer] to become aware of the defect must be extended to the time needed for the assessment, necessarily technical, of the problem, without prejudice to the time limit of two years, after which the notification cannot in any case be considered timely.

The case records show that the defects were being discovered and notified from the moment of installation of the machinery in the presence of Expoplast, [Seller] and Imocom, as stated by witnesses (Mattielo and Echeverria) and in [Buyer]’s doc. 14 . Furthermore, the complaint was then progressively specified and made known through [Buyer]'s letter of 26 December 1995 (doc. 15). [Buyer] subsequently contacted [Seller]'s agent Imocom and [Seller] itself on several occasions and explained the problem (doc. 17, 18, 21, 22, 24).

[Seller]'s assertion that the requirements of Art. 39 were not met since the notification was given to a third party and not to [Seller] and was, in any case, not given within the reasonable time period, is completely unfounded and must therefore be rejected. [Seller] in fact alleges that the valid and effective notice was given on 3 July 1996, denying the validity and effectiveness of the previous documents. However, this assumption is without merit because regardless of the fact that the mentioned notice was given to Imocom, it must be noted that the problem of the machinery's malfunctioning was also notified during installation, on 26 December 1995. Neither can it be said that the notice given to Imocom, [Seller]'s agent, did not have a valid effect towards [Seller], since Imocom transmitted the complaints to [Seller] via fax sent on 22 January 1996 (doc. 16). In conclusion, it must be held that [Buyer]'s notification of the defects of the machine was timely and in any case within the time period set out in Art. 39 CISG.

[Seller]'s second assertion regarding the lack of "specificity" of the notice is also unfounded. [Seller] alleges that [Buyer] only complained about a general malfunction without indicating the type of defect in detail. This assertion is, in the opinion of the Court, without merit, as the [Buyer] bears the burden of giving a timely notice of the defect as it is revealed (outward manifestation of the defect) but not of identifying the cause of the defect. In the present case, [Seller] itself made several different statements on what might be the cause of the non-functioning and low productivity, a clear indication of a particular technical complexity. This makes [Seller]'s argument that [Buyer] ought to have specified the technical type of the defect even more unjustified.

In light of these facts, the Court finds that [Seller] breached the contract and that this breach must furthermore be qualified as "serious and fundamental" according to Art. 35 CISG. On the basis of the hearings conducted, the Court with certainty excludes on this point the possibility that the malfunctioning of the machinery could be attributed to [Buyer].

On the first point, it should be noted that during all the performed repairs [Seller] always categorically excluded the possibility that the problem could be attributed to the processed material, percentage of humidity in the material or to the percentage of the so called dirt. This allegation was made only after the production levels still remained very far from promised despite the recommended repairs of the machine. The statement made in court by witness Mattiello according to which "[Seller] never dealt with the issue of dirt" is to be held valid. Indeed, the testimonies show that the type of material used for processing (to greater or lesser extent dirty and humid) did not cause the non-achievement of the productivity standards. This possibility was excluded by witnesses statements of Mattiello and Sarac as well as in writing by Mattiello (doc. 30), which stated that the non-functioning of the machine is not dependent on whether the material is humid or dry. This was also confirmed by a witness statement of Vaca, leaving no room for opposite interpretation, given in the witness statement of Eng. Girardello. The statement of Mr. Girardello on this point proves to be entirely unreliable, since it is contrary to what he himself indicated (doc. 30) in a report that was written after his visit to Ecuador. Moreover, it has to be pointed out that some documents mention a greater percentage of humidity or dirt, but not a different material. In light of the facts presented in the hearings, the Court finds that there is no evidence (in fact, there is evidence to the contrary) that the non-functioning of the machinery was caused by the fact that the processed material was different from the one sent as a sample. The same goes for the electricity problem (different voltage), related to the functioning of the machines, which cannot attribute the responsibility for malfunctioning to [Buyer] for the two following reasons: firstly, it was [Seller]'s responsibility to make the machine suitable for functioning in a foreign country ([Buyer] only had to make the connection to its electrical panel) and secondly, the malfunctioning of the machine continued even after this issue (wrong voltage in one of the motors) was discovered, which proves that this issue is not causally linked with the defect.

From what has been said it is clear that the supplied machinery was completely unsuitable for the promised and agreed upon use and that the nature and type of [Seller]'s breach of contract, considering seriousness and fundamentality, would per se justify the request for avoidance of the contract under Art. 49 CISG. [Buyer] is in fact seeking both remedies for the breach of contract provided for in CISG: compensation of damages under Art. 45 as well as avoidance of the contract due to fundamental breach of contract under Art. 49.

The fundamentality of [Seller]'s breach of contract has therefore been proven.

[Seller] furthermore objected that [Buyer] lost its right to declare the contract avoided under Art. 49, since it exercised this right no sooner than on 25 May 1998 despite the fact that the machinery was delivered in October 1995 and tested in December of the same year. [Seller] therefore argues that the "reasonable time" within which the said right must be exercised was exceeded. However, [Seller]'s assertion on this point appears hasty; to say that, due to the fact that the machine was not functioning properly from the beginning, [Buyer] should immediately state its intention to declare the contract avoided is equivalent to denying the rationale of the invoked provision, which should in fact be understood as a surplus instrument to other possibilities.

The duty of both contractual parties to observe good faith exists in international law as well. [Buyer]'s avoidance of the contract at the time of testing would consequently mean an explicit demonstration of bad faith.

Moreover, the Court agrees with [Buyer]'s assertion that there is no coincidence between the reasonable time period required by Art. 39 and the time period referred to in Art. 49, since the two time limits set out in the mentioned provisions have different purposes. The starting point of the reasonable time period in the first provision is dependent of the moment in which the party discovers or ought to have discovered the defect regardless of the possibility to declare the contract avoided pursuant to Art. 49 CISG. Considering the drastic purpose of the avoidance of the contract, it is furthermore evident that this possibility is to be applied only when there are no other possible solutions left. It is consequently impossible for the two situations to coincide. This is also what happened in the case at hand, where identification of the reasons for malfunctioning of the machine itself took a considerable amount of time which was due also to [Seller]'s failure to perform the due interventions and inspections.

Considering the time passed, the non-functioning of the machine despite the interventions, the failure to achieve the promised standards of productivity despite the definite identification of the processed material (it should be noted that a shipment of dirty and humid material was subsequently sent to Italy for further testing) and especially [Seller]'s absolute rejection to take any responsibility, although when the uselessness of the purchased machinery became evident and certain, [Seller] initially implemented a solution that was timely, that did not raise any issues concerning the moment of delivery/testing of the machine, since they have absolutely no influence on the matters that interest us here.

For all the above reasons, the Court holds that [Buyer]'s statement to declare the contract avoided under Art. 49 was made within the time period provided for in CISG. The Court furthermore holds that [Seller] fundamentally breached the contract of sale which shall be deemed avoided due exclusively to behavior and consequent fault of [Seller], which is then liable for compensatory damages.

[Seller] therefore has the right to obtain the machinery from [Buyer] and is liable to refund the paid price, amounting to $247.300 plus interest calculated at the official interest rates of the date of the payment (of $74.190 paid in December 1994 and $173.110 paid in May 1995).


FOOTNOTES

* All translations should be verified by cross-checking against the original text.

** Maja Perpar studied law at University of Ljubljana, was a participant at 18th and a coach at 19th Willem C. Vis Moot.

*** Pedro Martini is a Brazilian legal practitioner in the field of domestic and international commercial arbitration.

Go to Case Table of Contents
Pace Law School Institute of International Commercial Law - Last updated November 26, 2012
Comments/Contributions
Go to Database Directory || Go to CISG Table of Contents || Go to Case Search Form || Go to Bibliography