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CISG CASE PRESENTATION
Switzerland 9 July 2002 Commercial Court Zürich (Turnkey plant case) [translation available]
[Cite as: http://cisgw3.law.pace.edu/cases/020709s1.html]
Primary source(s) of information for case presentation: Case text
Case Table of Contents
Case identification
DATE OF DECISION: 20020709 (7 July 2002)
JURISDICTION: Switzerland
TRIBUNAL: HG Zürich [HG = Handelsgericht = Commercial Court]
JUDGE(S): Unavailable
CASE NUMBER/DOCKET NUMBER: HG 000120/U/zs
CASE NAME: RT AG v. WT GmbH & Co. KG
CASE HISTORY: Unavailable
SELLER'S COUNTRY: Switzerland (plaintiff)
BUYER'S COUNTRY: Germany (defendant)
GOODS INVOLVED: Turnkey plant
APPLICATION OF CISG: No
APPLICABLE CISG PROVISIONS AND ISSUES
Key CISG provisions at issue: Articles 3 ; 6
Classification of issues using UNCITRAL classification code
numbers:
3A ; 3B [Convention applies to contract for goods to be manufactures; But not where services preponderant part of obligations];
6B [Choice of law of Contracting State equals choice of CISG unless parties clearly indicate otherwise]
Descriptors: Choice of law ; Services
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CITATIONS TO ABSTRACTS OF DECISION
(a) UNCITRAL abstract: Unavailable
(b) Other abstracts
Unavailable
CITATIONS TO TEXT OF DECISION
Original language (German): CISG-online.ch website <http://www.cisg-online.ch/cisg/urteile/726.htm>; see also Schweizerische Zeitschrift für Internationales und Europäisches Recht (1/2003) 102
Translation (English): Text presented below
CITATIONS TO COMMENTS ON DECISION
English: [2005] Schlechtriem & Schwenzer ed., Commentary on UN Convention on International Sale of Goods, 2d (English) ed., Oxford University Press, Art. 3 paras. 6a, 8 Art. 6 para. 14
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Case text (English translation) [second draft]
Queen Mary Case Translation Programme
Commercial Court (Handelsgericht) Zürich
9 July 2002
Translation [*] by Ruth M. Janal [**]
Legal request: To order the Defendant [buyer] to pay to the Plaintiff [seller] EUR 1,366,500.-
plus interest at a rate of 5% from 30 June 1999. To order the [buyer] to bear the costs of the
proceedings and to reimburse the [seller] for its costs.
THE COURT CONSIDERS:
I. (Introduction and statement of facts)
The [seller] is active in the field of consultation, development and sale of proceedings for and
facilities of environmental technology. [Seller] is in particular engaged with the production and
delivery of large plants used for waste recycling. The [buyer] is active in the field of separation
of potential recyclables, respectively waste.
The parties started their business relationship in 1998. On 2 March of that year they entered
into delivery contract no. 970/1297/06 for a 3 t/h AI-synthetics results-separation facility. This
delivery contract and the corresponding plant are referred to in as "WTG 1". Content of the
contract was the planning, delivery, assembly and putting into operation of a complete plant for
the breaking down and separation of aluminium-plastics-combines. An overall price of
7,772,320.- DM [German marks] was agreed upon. This plant was produced and delivered by
the [seller]. According to the [seller]'s submissions, the assembly works were completed in
March of 1999. Subsequently, the plant was put into operation. According to the [seller], the
[buyer] was very pleased with the plant. The [buyer] disputes this, stating that the plant WTG
1 did not live up to the contractually agreed performance. According to the [buyer], the plant
was never completed and consequently also not accepted by the [buyer].
On 11 June 1999, the parties entered into another delivery contract: Contract No. 0972/0399/03
for a 6 t/h food-cardboard-packaging results-separation facility. This delivery and the
corresponding plant are subsequently referred to as "WTG 2". Content of the contract was the
planning, delivery, assembly and putting into operation of a complete plant for the breaking
down and separation of food-cardboard packaging. The facilities were supposed to dissolve the
celluloid portion of food-cardboard packaging for its economic reuse. An overall price of EUR
4,555,000.- was agreed for this plant; 30% of this amount, that is, EUR 1,366,500.-, was to be
paid as an advance, by 30 June 1999.
Since the production and the delivery of the large-scale plant WTG 2 inevitably required some
time, the parties agreed upon a temporary conversion of the AI-synthetics result-separation
facility (WTG 1) for the purpose of processing food-cardboard packaging. In this context, they
concluded on 21 June 1999 "Delivery Contract no. 971/0499/02 regarding the conversion of
the result-separation facility (Delivery Contract no. 970/1297/06) for the processing of food-cardboard packaging". This delivery contract and the corresponding facilities are subsequently
referred to as "WTG 1a". The maximum price for the conversion was fixed at DM 1,250,000.-,
and it was agreed that 20% to 30% of the effectively accrued costs could be counted towards
the works price owed under WTG 2. The conversion of WTG 1 into WTG 1a took place in
mid-June 1999. The converted plant was put into operation. According to the [buyer], WTG
1a has also never performed according to the contractual stipulations. In the period following,
the parties had arguments and later ended up in complete discord. In the meantime, plant WTG
1a was put back into its original state. However, this was not undertaken by the [seller] - as
the contract provided - but on the [buyer]'s own authority. On 21 September 2000, the (re-converted) plant WTG 1 was put out of operation due to a total loss of the accelerator. The
plant has been at a standstill ever since.
The overall price resulting from delivery contract WTG 1 of 7,772,320.- DM was paid
completely, apart from an asserted outstanding amount of Sf [Swiss francs] 12,000.- for a
steering apparatus. According to the [seller], there are still open amounts resulting from
delivery contract WTG 1a of roughly 690,000.- DM. However, the [seller] is not claiming this
sum in the present case. With the pending claim, the [seller] rather demands payment of the
advance agreed in delivery contract WTG 2 of 1,366,500.- EUR. The [buyer] essentially
refuses payment of this amount with the argument that the asserted claim no longer exists, as
the [buyer] declared Delivery Contract WTG 2 avoided. In the alternative, [buyer] pleads that
the claim no longer exists because the [seller] avoided the contract.
II. (History of the proceedings)
On 30 March 2000, the directive [of the Justice of Peace] and the statement of claim were
received. On the same day, the [seller] pursuant § 76 ZPO [*], was called upon to file a
security for the proceedings in the amount of 35,000 Sf. After receipt of the statement of
defense on 11 September 2000, a hearing with the Court's reporter took place on 16
November 2000. A settlement could not be reached during this hearing. The proceedings were
continued in writing with the [seller]'s reply of 5 March 2001 and the [buyer]'s rejoinder of 28
May 2001. With its submission of 21 August 2001, the [seller] gave its statement regarding
the new items in the rejoinder. The proceedings are ready to be adjudged.
III. (Procedural requirements)
The local jurisdiction is based upon the forum selection clause in delivery contract WTG 2. The
jurisdiction over the subject results from § 63 no. 2 in connection with § 62 GVG [*].
IV. (Substantive law)
A. Applicable law
1. The parties agreed upon a choice of law in the meaning of Art. 116(1) IPRG [*] in delivery contract WTG 2. The agreed clause states:
"This contract is governed by Swiss law."
The clause takes precedence over the choice of law clause contained in the Standard Delivery Terms for Machines and Facilities according to VSM [*] (subsequently: Standard Terms VSM).
2. According to the [buyer], the parties therefore agreed upon the application of the
Swiss Law of Obligations. The [seller] also refers to the fact that the delivery contract WTG 2
underlies Swiss law; however, [seller] subsequently refers to the CISG. [Seller] submits that
the choice of law clause does not solely refer to the Swiss Law of Obligations, but to all
provisions of Swiss substantive law.
3. In general, an agreement by the parties that their contract is to be governed by a
certain national law is to be understood as a sole reference to substantive law
(Vischer/Huber/Oser, Internationales Vertragesrecht, 2nd ed., Bern 2000, n. 140). Since the
CISG (also referred to as "Vienna Sales Law") contains provisions of substantive law, it is
principally included in a choice of law clause such as the one formed by the parties in the
present case. If this does not correspond to the parties' intention, it is upon them to
unambiguously exclude the application of the CISG and to clearly refer in their choice of law
to the autonomous domestic sales law, that is, the Swiss Law of Obligations (Keller/Siehr,
Kaufrecht, 3rd ed., Zurich 1995, p. 158 n. 1.2). Since the parties did not act in this manner,
their choice of law clause includes the CISG.
4. A contract for the supply of goods to be manufactured or produced can fall under the
scope of the CISG. In order to determine the applicable law, the Court therefore needs to evaluate Delivery Contract WTG 2.
a. In Delivery Contract WTG 2, the [seller] obliged itself to plan, deliver, assemble,
supervise the assembly, and put into operation the food-cardboard-packaging separation-facility. The [seller] has to deliver the necessary machines and plant components for the
operation of facility WTG 2. Therefore, a works contract or turnkey contract is to be assessed.
A contract for works obliges the contractor to produce a work (Art. 363 OR [*]). If the party
also undertakes to supply the material for the work, a so-called contract for works and
materials exists. In contrast to a sales contract, which obliges the seller to hand over the
subject of sale and transfer the title (Art. 184(1) OR), the contractor to a contract for works
owes the customer the supply of labor connected with a certain work success. Nevertheless, a
sales contract may also be connected with installation duties, which would then constitute
contractual accessory obligations. In such a case, the contract is a sales contract with
installation duties. However, the supply of labor is in the foreground of a turnkey contract such
as the one at hand. Consequently, the production and not the delivery of the goods is of
primary importance, so that the goods to be delivered appear to be secondary to the promised
work success and the material used appears to be rather basic material than subject of a sale.
Therefore, the contract is a contract for work and materials and not a sales contract
(Zindel/Pulver, in: Basler Kommentar, Obligationenrecht Art. 1 - 529 OR [*], 2nd ed., Basle
and Frankfurt/Main, 1996, Art. 363 n. 22). This remains unchanged by the fact that the [seller]
took on further performance obligations, i.e., the instruction and training of the [buyer]'s staff
in the operation and servicing of the delivery objects. These duties constitute secondary
contractual accessory obligations which cannot change the legal qualification of the contract.
b. The CISG also applies to contracts for work and materials (Art. 3(1) CISG).
However, the Convention does not apply to contracts in which the preponderant part of the
obligation of the party who furnishes the goods consists in the supply of labor or other services
(Art. 3(2) CISG). Therefore, the contract is not governed by the CISG, if the supply of labor
forms the preponderant part of the obligations in the individual instance, such as assembly,
adaptation, instruction and similar works (Zindel/Pulver, op cit., remarks before Art. 363 to
379, n. 26). The present case concerns the delivery of a large-scale plant to be manufactured.
Very different components of the plant need to be put together to form a whole new unit. It
goes without saying that the supply of labor for the assembly, supervision of the assembly and
the putting into operation of the plant plays a very important role in such a project. Oftentimes,
the functioning, respectively the correct adjustment of the various plant parts and their
coordination with each other can only be undertaken when the plant is already effectively in
operation. Consequently, the [seller] itself explains (admittedly referring to plant WTG 1, but
the same has to be true for plant WTG 2) that these are simply not facilities that can just be
placed somewhere, but facilities that need looking-after during the initial phase. Accordingly,
the assembly, adaptation, instruction and similar works constitute a considerable part of the
contractual performance. In accordance with scholarly opinion, the Court therefore assumes
that the CISG is not supposed to apply to turnkey contracts, which do not so much provide for
an exchange of goods against payment, but rather for a network of mutual duties to collaborate
with and assist the other party (cf. Keller/Siehr, op cit., 165 no. 2.5; Vischer/Huber/Oser, op
cit., n. 344; Schlechtriem/Ferrari, Kommentar zum Einheitlichen UN-Kaufrecht, 3rd ed.,
Munich 2000, Art. 3 n. 18).
As a consequence, Art. 363 et seq. of the Swiss Law of Obligations (contract for works) are to
be applied to delivery contract WTG 2.
B. [Seller]'s claim
[The Court proceeds with an assessment whether the [buyer] was entitled to declare the
contract avoided. The Swiss Law of Obligations contains several provisions according to
which the customer may avoid a contract for works. One such provision is Art. 377 OR [*],
which allows the customer to avoid the contract at all times and for any reason against full
payment of the services already rendered as well as full compensation of the other party. The
[buyer] submitted that it implicitly declared the contract avoided with letter of 27 September
1999. With that letter, the [buyer] had returned to the [seller] invoices over 650,000 DM for
plant WTG 1a and over 387,878.40 DM for expenses allegedly made in view of plant WTG 2.
The Court does not find that the letter contains the [buyer]'s unequivocal intent to avoid the
contract. However, the [buyer] also explicitly declared the contract avoided in its statement of
defense. The Court holds this declaration to be a valid declaration of avoidance under Art. 377
OR, since the said provision does not require that the customer offers compensation and
reimbursement for the services already rendered to the other party. Following the avoidance of
contract, the [seller] possesses a claim for reimbursement of services rendered as well as
compensation instead of the original payment claim. The [seller] however failed to prove its
expenses for its alleged services or any other losses. [Seller] also apparently does not wish to
claim any such damages during the current proceedings, as it explicitly stated in its reply that
the basis for its claim is the delivery contract WTG 2. The Court therefore dismissed the
claim.]
FOOTNOTES
* All translations should be verified by cross-checking against the original text. For purposes of this translation, the Plaintiff of Switzerland is referred to as [seller]; the
Defendant of Germany is referred to as [buyer]. Amounts in the currency of Germany
(Deutsche Mark) are indicated as [DM]; amounts in the currency of Switzerland (Swiss francs)
are indicated as [Sf]; monetary amounts in the Eurocurrency area (Euro) are indicated as
[EUR].
Translator's note on other abbreviations: GVG = Gerichtsverfassungsgesetz [Code on Court Constitution in the Canton Zurich]; IPRG = Gesetz über das Internationale Privatrecht [Swiss Code on Private International Law]; OR = Bundesgesetz vom 30. März 1911 betreffend die Ergänzung des Schweizerischen Zivilgesetzbuches (Fünfter Teil: Obligationenrecht) [Swiss Code on the Law of Obligations]; VSM = Verein Schweizerischer Maschinen-Industrieller [Swiss Association of Machinery Manufacturers]; ZPO = Zivilprozessordnung [Code on Civil Procedure of the Canton Zurich].
** Ruth M. Janal, LL.M. (UNSW), a Ph.D. candidate at Albert-Ludwigs-Universität Freiburg, has been an active participant in the CISG online database of the University of Freiburg.
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Institute of International Commercial Law - Last updated September 22, 2006
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