Switzerland 1 March 2002 Civil Court Basel (Soyprotein products case) [translation available]
[Cite as: http://cisgw3.law.pace.edu/cases/020301s1.html]
DATE OF DECISION:
CASE NUMBER/DOCKET NUMBER: P 1997/482
CASE HISTORY: 2d instance Appellationsgericht Basel-Stadt 22 August 2003
SELLER'S COUNTRY: Belgium (defendant)
BUYER'S COUNTRY: Switzerland (plaintiff)
GOODS INVOLVED: Soyprotein products
APPLICATION OF CISG: Yes [Article 1(1)(b)]
APPLICABLE CISG PROVISIONS AND ISSUES
Key CISG provisions at issue:
Classification of issues using UNCITRAL classification code numbers:
25B [Definition of fundamental breach: substantial deprivation of expectation, etc.]; 39A [Requirement to notify seller of lack of conformity: buyer must notify seller within reasonable time]; 49A1 [Buyer's right to avoid contract (grounds for avoidance): fundamental breach of contract]; 74A [General rules for measuring damages: loss suffered as consequence of breach]; 77A [Obligation to take reasonable steps to mitigate damages]
25B [Definition of fundamental breach: substantial deprivation of expectation, etc.];
39A [Requirement to notify seller of lack of conformity: buyer must notify seller within reasonable time];
49A1 [Buyer's right to avoid contract (grounds for avoidance): fundamental breach of contract];
74A [General rules for measuring damages: loss suffered as consequence of breach];
77A [Obligation to take reasonable steps to mitigate damages]
CITATIONS TO ABSTRACTS OF DECISION
(a) UNCITRAL abstract: Unavailable
(b) Other abstracts
CITATIONS TO TEXT OF DECISION
Original language (German): CISG-online.ch website <http://www.cisg-online.ch/cisg/urteile/729.htm>
Translation (English): Text presented below
CITATIONS TO COMMENTS ON DECISION
UnavailableGo to Case Table of Contents
Case text (English translation) [second draft]
Queen Mary Case Translation Programme
Translation [*] by Mark Beamish [**]
I. 1. The Plaintiff and Counter-defendant (henceforth: [Buyer]) is a limited company established in ________. The Defendant and Counter-claimant (henceforth: [Seller]) is a company according to Belgian law established in Belgium.
The legal predecessor of the Plaintiff (henceforth also referred to as [Buyer]) and the [Seller] agreed through a contract dated December 1996, described as a Supply Agreement (exhibit 1/ exhibit 7 of the [Buyer]'s statement of case), that the [Seller] would deliver to the [Buyer] FoodShaper products, namely the products FoodShaper B 100 and FXP-C-0003. These products were sold exclusively in Switzerland to the firm ______ Ltd, which wanted to make vegetarian schnitzels out of them. According to section 4.3 of the agreement, a basic price of US $4.85/kg DDP Basel was agreed, and a CHF-reference was also included. The contract made by the parties consists of various attachments (see annex to exhibit 7 of the [Buyer]'s statement of case), which include correspondence of the parties. The relevant correspondence between the parties relates to the quality of a delivery of 400 tonnes of FoodShaper, in terms of its origin from non-genetically modified soya beans.
2. In a letter dated 16 April 1997 (exhibit 26 of the [Buyer]'s statement of case), the [Buyer] informed the [Seller], with reference to previous faxes and telephone conversations, that the firm ____/____, for which the goods in question were to be imported, had decided to stop the project and to demand compensation. The delivered goods were held by _____Ltd., stored ready for the [Seller]. In essence, the [Buyer] thereby terminated the contract and declared it avoided.
3. In the present case, the [Buyer] is demanding damages from the [Seller] for the loss caused by the cancellation of the contract between the parties. The [Seller] is seeking dismissal of the [Buyer]'s claim and is demanding by way of counterclaim that the [Buyer] pay all outstanding invoices.
4. In section 10.6 of the Supply Agreement, the parties agreed that in the case of legal disputes arising from the contract, Swiss law should be applied and the competent courts should be those of Basel.
II. In the claim of 20 November 1997 the [Buyer] demanded that the [Seller] be ordered to pay Swiss francs [Sf] 800,000 plus interest at 5% since submission of the claim. [Buyer] further sought a summons of the parties to a mediation process.
III. At the mediation process on 19 May 1998, the representatives of both parties as well as Mr._____ for the [Buyer] took part. The mediation process, however, did not lead to an agreement. The limited time period for the [Buyer] to submit its statement of case thus began.
IV. In its statement of case on 23 November 1998, the [Buyer] demanded that the [Seller] be ordered to pay a sum less than the original demand, namely Sf 745,285.10 plus interest; according to the aforementioned calculation.
V. In its response to the claim and counterclaim on 31 May 1999, the [Seller] sought the total dismissal of the [Buyer]'s case. By way of counterclaim, [Seller] demanded that the [Buyer] pay Sf 1,841,526.45 plus interest at 5% since 15 August 1997. [Seller] demanded further that the ordinary and exceptional costs of the claim and counterclaim be paid by the [Buyer].
VI. In response to the counterclaim, on 24 September 1999 the [Buyer] reasserted the demands in its original submission and demanded further the dismissal of the [Seller]'s counterclaim in its entirety with costs.
VII. By order of 28 September 1999, the judge ordered disclosure of documents.
VIII. The first main hearing in the Civil Court took place on 4 February 2000 in the presence of both parties' representatives. The [Buyer] made a number of applications for hearing of evidence. Following this, both parties' representatives spoke before the Court. The Civil Court then decided to submit the case for an expert's report.
IX. By order of 16 February, a time limit was set for the [Buyer] to make advance payment for the report procedure. The advance payment was made within the time limit. Then a time limit was set for both parties to suggest possible experts and for submission of questions for the experts. The respective requirements were fulfilled by the parties within an extended time limit on 27 June 2000. By an order of 19 July 2000, the legal documents and supplements were sent to the named expert team of Dr. A. H. and Mr. B. from the Cantonal Laboratory of Basel (Kantonalen Laboratorium Basel-Stadt). On 1 February 2001 the report completed on 26 January 2001, including all supplements, was submitted. The experts' report was sent to both parties for their opinion and for them to submit questions aimed at further clarification. After the parties' opinions and questions had been delivered, the expert team gave their responses and answers on 21 June 2001. The [Seller] expressly decided not to submit a further opinion on the expert team's responses and the [Buyer] failed to do so within the time limit.
X. By order of 28 September 2001, the judge issued a summons for the second hearing.
XI. The second main session of the Civil Court took place on 1 March 2002. For the [Buyer], Mr.____ and [Buyer]'s representative took part, and for the [Seller] its representative. Both parties' representatives spoke before the Court. For the complete proceedings, one is referred to the minutes of the hearing and the following grounds for the decision.
XII. On 12 March 2002, the [Seller] appealed against the orally presented judgment of the Civil Court.
GROUNDS FOR THE DECISION
1. First it must be established to which law the contract between the parties is subject.
1.1 In section 10.6 of the Supply Agreement (exhibit 7 of the [Buyer]'s statement of case), the parties made a legally effective decision that all disputes arising from the contract would be subject to Swiss law.
1.2 At the time of the conclusion of the contract in December 1996, the United Nations Convention on Contracts for the International Sale of Goods (CISG), was in force in Switzerland, as it had been since 1 March 1991. According to Art. 1(1)(a) CISG, the Convention is to be applied to contracts of sale of goods where the parties to the contract are established in different States, when these are States in which the Convention has effect. On the basis of this article, the applicability of the CISG in the present case is to be affirmed, because although at the time of conclusion of the contract the Agreement was not in force in Belgium, that country had ratified it (31 October 1996) and it was in force at the time of the contract's being fulfilled. A legal choice, such as the parties made through their contract, is taken to refer to a "living organism" and the contract is therefore subject to post-contractual changes in the chosen legal system (see Vischer, Veränderungen des Vertragsstatuts und ihre Folgen, in: Festschrift Max Keller, Zürich 1989, pp. 547-561, p. 549). Finally, Art. 1(1)(b) CISG suggests the applicability of the CISG. The claim of the [Buyer] in the present case is thus to be judged according to the articles of the CISG.
2. 2.1 In the correspondence of 16 April 1997 (exhibit 26 of the [Buyer]'s statement of case), the [Buyer] informed the [Seller] of its termination of the contract. According to Art. 49(1)(a) CISG, the purchaser may declare the contract avoided if the failure by the seller to perform any of its obligations under the contract or this Convention amounts to a fundamental breach of contract.
A breach of contract is fundamental according to Art. 25 CISG, "when it results in such detriment to the other party as substantially to deprive him of what he is entitled to expect under the contract, unless the party in breach did not foresee and a reasonable person of the same kind in the same circumstances would not have foreseen such a result." What is thus decisive is how important the interest is, which is created through the breached term of the contract (Schlechtriem in: BTJP 1990, Bern 1991, p. 106 et seq.).
2.2 In order to judge whether the [Buyer] was justified, with respect to the quoted terms of the CISG, in informing the [Seller] of termination of the contract, the specific agreements of the parties must first of all be looked at. Agreements relating to the quality of the goods to be delivered by the [Seller], which is central to the current dispute, are of particular importance. In relation to this, special attention will be given to the various correspondence which the parties made a component of their contract through the Supply Agreement (exhibit 7 of the [Buyer]'s statement of case). For the purpose of describing the products to be delivered, Art. 2 of the contract refers to "Attachment 2: Specification Sheets" and "Attachment 3: 400 Tonne special inventory". With respect to the quality of the goods, Art. 5.5 "Product Quality" makes reference to the aforementioned attachments as well as "Attachment 4: Quality Statement".
Attachment 2, a fax from the [Seller] of 10 March 1996 (exhibit 1 of the [Buyer]'s statement of case), contains a general description of the product "FoodShaper FXP - C 0003", which is made essentially from the protein from soya beans. Also in the [Seller]'s fax of 22 March 1996 to _____ Ltd. (exhibit 2 of the [Buyer]'s statement of case) general remarks were made about the purity of so-called "SUPRO brand isolated" soya proteins and the chemicals used in the process. Contrariwise, the other correspondence of the parties (namely that contained in attachments 3 and 4 of the Supply Agreement) relates to the origin of the proteins from non-modified soya beans.
Thus it is stated in a letter from the [Seller] of 19 August 1996, which is signed by Mr. ______ and to be found in Attachment 3 of the Supply Agreement (exhibit 3 of the [Buyer]'s statement of case): "it indeed is possible to accommodate your need of 400 T FoodShaper produced from guaranteed non-genetically modified soybeans." Furthermore, Attachment 3 contains another fax from the [Seller] of 5 September 1996 (exhibit 4 of the [Buyer]'s statement of case), in which Mr. _____ states in reply to a letter of the Director of _____ Ltd. of 30 August 1996: "To continue in the spirit of our joint co-operation and at your direction, ____ will produce and store up to 400 MT of non-genetically modified soybean SUPRO Food Shaper product for ___/____." Equally, the [Seller] sticks to this in its assurance of 31 October 1996 (exhibit 5 of the [Buyer]'s statement of case) ("To whom this may concern"): "This letter is to certify that all soyprotein ingredients used in the production of ____ FoodShaper products covered under the Terms of this audit by ____ on behalf of____ of Switzerland are free of genetically modified soybeans". The basis of this express guarantee that the delivered goods were free from genetically modified soya beans is, according to the [Seller]'s testimony, that the proteins came from soya beans from 1996. Even if this assurance did not become part of the contract by way of being expressly included as an attachment, its content may nevertheless be attached as an assurance, during the negotiation period, to aid the interpretation of the contract.
However, in the telex of 19 September 1996 (Attachment 4 of the Supply Agreement, exhibit 6 of the [Buyer]'s statement of case), the [Seller]'s colleague ____ stated: "There is no practical way for ____ to determine that any ingredient, including any enzymes which might be used in the production of FoodShaper products have or have not been genetically engineered." This statement relates clearly, however, to ingredients, in particular enzymes, which could be used in the production of FoodShaper products. This allows an inversion of the argument, so that an exception from the aforementioned assurance is made: that parts of genetically modified source materials, namely the soya beans, were used in the production of FoodShaper products. In summary then, the [Seller] owed a contractual obligation to the [Buyer] to produce 400 tonnes of SUPRO FoodShaper without any elements of genetically modified soya. The only exception was the use of genetically modified enzymes or other additives, the use of which could not be avoided.
2.3 The [Buyer] takes the view in the present case, that the [Seller] has fallen foul of the aforementioned contractual assurance relating to the freedom of the delivered goods from genetically modified soya. [Buyer] carries the burden of proof here.
The experts maintain that the examination of the Laboratory for Food Chemistry at the University of Bern was carried out according to valid methods. On the basis of these results, the examined goods delivered by the [Seller] before 3 June 1997 were not saleable, i.e., they were not at that time allowed to be processed, transported or sold in Switzerland (answer to question 7 of the [Buyer], sentence 7 and 8 of the report of 26 January 2001). Due to the non-uniform dispersal of the contamination and the lack of clarity as to the nature of it, complaints would have had to be expected if any further processing of goods took place (answer to question 3 of the [Seller], sentence 8 of the report of 26 January 2001).
The experts hold clearly that at the time of the measurements, the detected amounts were definitely not considered to be GM-free, even if today, after the introduction of the declaration limit set on 14 June 1999, amounts corresponding to between 0.1 and 1% RR-soya are seen as unavoidable GM traces (answer to question 3 ccc of the [Seller] party, sentence 6 of the report of 18 June 2001). Similarly, the report makes clear that the source materials delivered by the [Seller] were not GM-free. The possibility of contamination caused exclusively by the processing by ____ Ltd. was unambiguously ruled out (answer to extra-question 3 of the [Buyer], sentence 1 and 2 of the report of 18 June 2001).
2.4 As explained in paragraph 2.1, the prerequisite for a declaration of avoidance of the contract by the purchaser according to the CISG is a fundamental breach of contract by the vendor (Art. 49(1)(a) and Art. 25 CISG). In the present case, the interest in question, as defined by the breached term of the contract, is clearly of importance to both parties. The question of GM-freedom of foodstuffs is an important and, in terms of public discussion, particularly from the viewpoint of the consumer, a central one. So the [Buyer] had good reason to deal with that point expressly in the contract, by integrating the correspondence into it. The breach of the [Seller]'s contractual assurance therefore qualifies as a fundamental breach of contract.
2.5 The duty of the party avoiding the contract to make the complaint with a time limit is set out in Art. 39(1) CISG. The [Buyer] has fulfilled this duty in the course of the legal process with its uncontested telephone call on 19 March 1997 (see "telephone note", exhibit 19 of the [Buyer]'s statement of case), as well as its written correspondence of 20 March 1997, 1 April 1997, 3 April 1997, 4 April 1997, 9 April 1997, 10 April 1997 and 16 April 1997 (exhibits 20-26 of the [Buyer]'s statement of case). Similarly the [Buyer] observed the time limit for disputing the contract, as set out in Art. 49(2)(b) CISG, through the [Buyer]'s statement of 15 May 1997 (exhibit 18 of the [Buyer]'s statement of case).
2.6 In summary it is held that the [Buyer] was entitled to avoid the contract, concluded between itself and the [Seller], according to Art. 49(1) CISG.
3. Next, the question of what compensation the [Buyer] can demand from the [Seller] on the basis of Art. 74 et seq. CISG must be addressed.
3.1 The [Buyer] asserts, first of all, that the damage suffered by its amounts to Sf 800,000.-, which is the sum it had to pay according to the comparable ruling in the case of the firm ____ Ltd. against its (see Comparison between the [Buyer] and firm ____ of 16 December 1997, exhibit 31 of the [Buyer]'s statement of case). Here the damage to be proved by the [Buyer] must represent an involuntary disposal of property, and that there is a sufficient causal link between this and the [Seller]'s breach of contract. The corresponding comparative sum of Sf 800,000.-, which itself is not contested, does not alone suffice to substantiate the damage suffered by the [Buyer] or the legal causal link. Equally insufficient is the integral reference to the compiled list representing the claim for damages of ____Ltd. to the [Buyer] of 4 July 1997 (exhibit 30 of the [Buyer]'s statement of case). In the following it must therefore be considered in detail in what context the [Buyer] is able substantively to prove its loss caused by the [Seller]'s breach of contract.
3.2 The [Buyer] asserts that Sf 400,000.- of the comparative sum paid to ____ relates to the taking back of the goods delivered by the [Seller] (see [Buyer]'s statement of case, sentence 16). In addition, it is maintained that the [Buyer] had no choice but to accept the avoidance of its contract with ____Ltd. by the latter, because of the unsuitable goods delivered by the [Seller] and the [Buyer]'s subsequent inability to fulfil its obligations in the contract with ____Ltd. In this point, a loss which is sufficiently causally linked with the [Seller]'s breach is adequately demonstrated. Also, any possible value of the stored goods cannot be calculated into the equation to mitigate the [Buyer]'s loss, because it justifiably avoided the contract with the [Seller] and held the goods purely for the [Seller]'s disposal.
In detailed workings of its damages claim under this head, the [Buyer] states that it had to take back 54,315kg at Sf 6.98 (= US $4.85 at a rate of 1.4390) of the delivered goods. This results in an amount of Sf 379,118.70. The [Seller] has not made a substantiated contestation of the amount. This sum should therefore be granted to the [Buyer], even though the draft of 4 July 1997 (exhibit 30 of the [Buyer]'s statement of case) was premised on a smaller weight of goods and resulted in a sum of Sf 369,958.
3.3 A further sum of Sf 36,138.50 arises out of the list making up the claim of 4 July 1997 (exhibit 30 of the [Buyer]'s statement of case) for the labelling of the goods. The [Buyer] has, however, not substantiated or verified to the satisfaction of the law this damage bill, nor the further listed bills in the said table. The statement in the [Buyer]'s statement of case that the [Buyer] had to pay ____Ltd. A Sf 400,000.- "lump sum for all other costs" ([Buyer]'s statement of case, sentence 16) is, as already said, insufficient for this. The mentioned sum can therefore not be awarded.
3.4 In addition, the [Buyer] makes a demand for Sf 80,083.85 for four individually detailed unpaid customs bills. The presented receipts (exhibits 32-35 of the [Buyer]'s statement of case) are, however, simply bills of the [Buyer] addressed to the [Seller]. Apart from this, there is a confirmation from the (Regional Customs High Authority (Oberzollkreisdirektion) of 13 February 1997 (exhibit 36 of the [Buyer]'s statement of case), in which it is confirmed that all duties on the goods were correctly paid according to Swiss customs tariffs. The [Seller] does not, however, substantially dispute that the amount of the customs bills equates to that of the four mentioned bills. Nor does the [Seller] contest that the customs expenses are, according to the contract between the parties, to be paid by him. It follows that the [Buyer] is to be awarded the sum of Sf 80,063.85 under the head of "customs bills".
3.5 Next, the [Buyer] demands Sf 8,132.80 as commission at a rate of 1.5% of the total amount of the bill of US $376,781.32 (see basis of claim, sentence 18). It is to be inferred from the written correspondence of the [Seller] to the [Buyer] of 31 January 1997 (exhibit 44 of the [Buyer]'s statement of case) that a commission had been agreed between the parties. Thus in the mentioned correspondence it is, among other things, stated under 2. "Commission on ____ FoodShaper": "My perspective on commission is that we can increase it if you reregister our product correctly." But only that which is in principle already agreed can be raised. In the [Buyer]'s reply to the mentioned correspondence, dated 13 February 1997 (exhibit 45 of the [Buyer]'s statement of case), it is held under Point 2. "Commission on ____ FoodShaper" that the current commission was agreed at 1.5%. The [Seller] for its part has not presented any correspondence, which would contradict this reply. The [Seller] also does not challenge with substantiation the sum of Sf 8,132.80, calculated by the [Buyer]. The named sum is thus to be awarded to the [Buyer] as a lost profit.
3.6 A further sum of Sf 41,971.15 is demanded by the [Buyer] for storage costs for the time up until the submission of claim (see the [Buyer]'s statement of case, sentence 20). Since the [Seller] has refused to take back the delivered goods since the termination of the contract by the [Buyer], the storage costs represent, in principle, part of the damage which has to be compensated.
For the calculation of damages claimed under this head, the [Buyer] submits bills from the firm ____ Ltd. for the period of time 1 July 1998 to 31 October 1998 (see exhibit 48 of the [Buyer]'s statement of case). The [Seller] does not dispute the amount of the costs; it merely challenges its obligation to compensate. Therefore, the [Buyer] is also to be awarded the claimed sum under this head.
3.7 Finally, the [Buyer] demands Sf 25,909.25 for costs it has borne in relation to pre-process expenditure.
It is further maintained that the [Buyer] omitted to involve the [Seller] in the parallel process [Buyer] had with ____ Ltd. and thereby failed to avail itself of any possible support for its case. It has therefore not been shown that the relevant costs have arisen unavoidably in the sense of sufficient causality. This particular demand of the [Buyer] is thus dismissed.
3.8 Overall, in light of the above considerations, the [Buyer] is to be awarded the following from the [Seller].
|-||Value of goods||Sf||379,118.70|
3.9 The [Buyer]'s demand of a total sum of Sf 509,286.50 has to be set-off against the amount of Sf 1,841,526.45, which the [Seller] demands by way of counterclaim.
The [Buyer] recognizes in its statement of case (sentence 21) that there are unpaid bills owing to the [Seller] to the extent of US $140,231.10, which corresponds to Sf 201,792.55.
The [Seller] for its part maintains that Sf 17,266.10 is to be deducted from this amount, that being the amount conceded by the [Buyer] in correspondence of 5 August 1997 (claim response exhibit 1). Thus the [Buyer] is entitled to Sf 509,286.50 minus Sf 184,526.45, in total Sf 324,760.05. The [Buyer] is also, as demanded, entitled to interest on this amount from the time of the submission of the claim, therefore since 23 November 1998.
4. The foregoing judgment leads to a partial approval of the claim to the extent of the said sum of Sf 324,760.05. The appeal is, on the other hand, to be dismissed in its entirety, since the amount owing to the [Buyer] is higher than the amount sought in the cross-appeal.
At the end of the case it is justified to impose the regular costs of the claim including the fees for the conciliation procedure and expenses on both parties, each paying half. The [Seller] bears the regular costs of the expert procedure which it made necessary by falsely disputing the impurity of the delivered goods due to RR-soya. [Seller] also bears the expenses and regular costs of the counterclaim. All related extraordinary costs are to be borne by each party itself.
Accordingly, it is decided:
|-||In partial fulfilment of the claim, the [Seller] is ordered to pay the [Buyer] Sf 324,760.05 plus interest at 5% from 23 November 1998.|
|-||Any greater claim is rejected.|
|-||The counterclaim is rejected.|
|-||The parties bear in equal share the regular costs of the claim, consisting of a procedural fee of Sf 21,000.-, plus a fee of Sf 600.- for the conciliation procedure and expenses of Sf 470.-.|
|-||The [Seller] bears the regular costs of the expert procedure, consisting of a fee of Sf 3,000 and expenses of Sf 14,965.- as well as the regular costs of the counterclaim, consisting of a procedural fee of Sf 8,400 and expenses of Sf 250.-.|
|-||All related extraordinary costs are to be borne by each party itself.|
Judgment orally delivered on 1 March 2002. Written judgment sent on. Deadline for appeal: 10 days from 1 March 2002.
Civil Court Basel, Chamber V
The Court Reporter
* All translations should be verified by cross-checking against the original text. For purposes of this translation, the Plaintiff and Counter-defendant and her legal predecessor are referred to as [Buyer]; the Defendant and Counter-claimant is referred to as [Seller]. Amounts in the currency of Switzerland (Swiss francs) are indicated as [Sf].
** Mark Beamish: Graduate of King's College London - LL.B. Law with German Law (2002); Diploma in German Civil Law, Passau University (2000); LL.M. Master of Law, Humboldt University, Berlin (2003).Go to Case Table of Contents