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CISG CASE PRESENTATION

Switzerland 12 December 2002 District Court Zug (Methyl tertiary-butyl ether case) [translation available]
[Cite as: http://cisgw3.law.pace.edu/cases/021212s1.html]

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Case identification

DATE OF DECISION: 20021212 (12 December 2002)

JURISDICTION: Switzerland

TRIBUNAL: KG Zug [KG = Kantonsgericht = District Court]

JUDGE(S): Dr. Meyer (Präsident); Ulrich, Scherer (Kantonsrichters); Renggli (Gerichtsschreiberin)

CASE NUMBER/DOCKET NUMBER: A3 2001 34

CASE NAME: R. GmbH v. O. AG

CASE HISTORY: Unavailable

SELLER'S COUNTRY: Germany (plaintiff)

BUYER'S COUNTRY: Switzerland (defendant)

GOODS INVOLVED: MTBE (methyl tertiary-butyl ether)


IHR headnote

IHR headnotes this case as follows:

"1. On the measurement of damages in case of a covering purchase after the buyer has refused to take delivery of the goods.

"2. The rate of interest due after default is subject to national law. According to Swiss law the law of the seller applies.

"3. The contract term 'without offset or counterclaim' and 'without any withholding, deduction, set-off or counterclaim' excludes the right to rise a counterclaim." Internationales Handelsrecht (2/2004) 65.


Case abstract

SWITZERLAND: Kantonsgericht Zug

Case law on UNCITRAL texts (CLOUT) abstract no. 629

Reproduced with permission of UNCITRAL

Abstract prepared by Corinne Widmer

The case deals primarily with the seller's right to recover the difference between the contract price and the price in a substitute transaction where the buyer has refused to take delivery of the goods. The case also discusses the applicable interest rate under the CISG and the scope of a contractual clause excluding the right to raise counterclaims.

A German company (the seller) entered into a contract with a Swiss company (the buyer) for the purchase of methyl tertiary-butyl ether [MTBE]. The contract set out a period of time within which the buyer was to take delivery of the goods. Before this period had passed, the buyer informed the seller that it would not take delivery until its claims against the seller had been settled. The seller disputed the buyer's claims and fixed an additional period of time for the buyer to take delivery. When the buyer failed to take delivery within the additional period of time, the seller declared the contract avoided. The seller subsequently resold the goods to a third company at a price less than that agreed on in the contract with the buyer and brought suit against the buyer before the Kantonsgericht Zug for the difference in price plus interest. In the same suit, the buyer sought to enforce its alleged claims against the seller by declaring a set-off and, alternatively, by way of counterclaim.

On the merits of the seller's claim, the Court found that the buyer had fundamentally breached the contract by refusing to take delivery of the goods and that the seller was entitled to avoid the contract pursuant to articles 61(1) and 64(1)(a) CISG. The Court held that the seller was entitled to recover damages under article 74 CISG and that, pursuant to article 75 CISG, the seller could recover the difference between the contract price and the price in the substitute transaction. The Court did not accept the buyer's contention that the seller had waited too long before entering into the substitute transaction and was therefore responsible for the fall in the market price for MTBE. The Court noted that the buyer had at first not actually refused the goods, but rather had made acceptance of the goods contingent on the settlement of its claims. Under these circumstances, the seller was entitled to wait until it became certain that the buyer would refuse the goods before entering into a substitute transaction. The Court observed that once it had become clear that the buyer would not take delivery, the seller had found a new buyer for the goods within two days. As such a period of time could not be considered too long, the seller was not responsible for any fall in the market price.

On the seller's claim for interest, the Court stated that under article 78 CISG, interest is due on the purchase price or any other sum in arrears and that it accrues from the time payment is due. The Court held that as the CISG does not determine the applicable interest rate, reference must be made to the applicable domestic law. Therefore the Court determined the interest on the basis of German law.

With regard to the buyer's counterclaim, the Court observed that in the sales contract, the buyer had agreed to pay the purchase price "without offset or counterclaim" and "without any withholding, deduction, set-off or counterclaim". The Court noted that the purpose of such a clause could only be to ensure that payment of the purchase price might be enforced without being delayed by either assertions of set-off or counterclaims. The Court rejected the buyer's submission that the meaning of the term "without counterclaim" was not sufficiently clear, nor its scope foreseeable. Referring to the German translation of the term "counterclaim" the Court held that the parties had clearly intended to exclude the possibility of raising counterclaims. Accordingly, the Court did not consider the merits of the buyer's counterclaim.

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Classification of issues present

APPLICATION OF CISG: Yes

APPLICABLE CISG PROVISIONS AND ISSUES

Key CISG provisions at issue: Articles 8 ; 25 ; 61(1) ; 63 ; 64 ; 74 ; 75 ; 77 ; 78

Classification of issues using UNCITRAL classification code numbers:

8A [Intent of party making statement or engaging in conduct];

25B [Definition of fundamental breach: substantial deprivation of expectation, etc.];

61A2 [Remedies for breach of contract by buyer: seller may claim damages as provided in arts. 74 to 77];

63A [Seller's notice fixing additional final period for buyer's performance];

64A1 ; 64A2 [Seller's right to avoid contract (grounds for avoidance): fundamental breach of contract; Buyer does not pay or take delivery within additional period set by seller];

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

75A1 [Damages established by substitute transaction after avoidance: resale by aggrieved seller];

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

78B [Rate of interest]

Descriptors: Intent ; Avoidance ; Fundamental breach ; Nachfrist ; Damages ; Cover transactions ; Mitigation of loss ; Interest

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Editorial remarks

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Citations to other abstracts, case texts and commentaries

CITATIONS TO OTHER ABSTRACTS OF DECISION

Unavailable

CITATIONS TO TEXT OF DECISION

Original language (German): CISG-online.ch website <http://www.cisg-online.ch/cisg/urteile/720.htm>; [2004/2] Internationales Handelsrecht 65-67

Translation (English): Text presented below

CITATIONS TO COMMENTS ON DECISION

English: Liu Chengwei, Recovery of interest (November 2003) nn.87, 103, 289

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Case text (English translation) [second draft]

Queen Mary Case Translation Programme

Canton Court (Kantonsgericht) Zug
12 December 2002 [A3 2001 34]

Translation [*] by Ruth M. Janal [**]

[PARTICULARS OF THE CASE]

Composition of the Court: Judge at the Canton Court Dr. Meyer (President); Judges at the Canton Court lic. iur. Ulrich and Scherer; Court Clerk lic. iur. Renggli.

Request of the [seller]: claimant and defendant of the cross-action

  1. To order the [buyer] to pay to the [seller] a sum of US $46,814.94 plus interest at a rate of 10.5% from 23 January 2001;
  2. To repeal the [buyer]'s legal objection and grant the [seller] final entitlement regarding enforcement no. 20010256 of enforcement office B. of 30 January 2001 in the amount of Sf [Swiss francs] 77,712.80 plus interest at a rate of 10.5% from 23 January 2001.
  3. The [buyer]'s cross-action is not to be entered into.
  4. In the alternative, the cross-action is to be dismissed.
  5. The [buyer] is to bear the costs of the proceedings and to reimburse the [seller] for [seller]'s expenses.

Request of the [buyer]: defendant and claimant of the cross-action

  1. The claim is to be dismissed;
  2. The [seller] is to be ordered to pay to the [buyer] US $64,442.08;
  3. The [seller] is to bear the costs of the proceedings and to reimburse the [buyer] for [buyer]'s expenses.

FACTS OF THE CASE

1. On 13 October 2000 the [seller] and the [buyer] concluded a sales contract for 1,000 mt [metric tons] MTBE [methyl tertiary-butyl ether] at a fixed price of US $386.- per mt. The [buyer] committed to take over the goods by the end of November 2000 at the latest. Subsequently, the [buyer] refused to take delivery of the goods by pointing to an alleged counterclaim, which was disputed by the [seller]. After an additional period of time for acceptance of the goods fixed by the [seller] had expired, the [seller] declared the contract avoided and sold the goods to Company E.B.V.

2. With action of 27 April 2001, the [seller] filed a claim with the Canton Court Zug against the [buyer] for payment of US $46,814.94 as well as accessory claims. [Seller] essentially argued that it suffered losses as a result of [buyer]'s breach of contract, which amounted to a sum of US $46,814.94, after the [buyer]'s partial payment of US $1,671.67 had been subtracted.

3. In the statement of defense and counterclaim of 10 September 2001, the [buyer] made the requests cited above and essentially based them on the following reasons:

     3.1 The damages claimed by the [seller] were not substantiated.

     3.2 The [buyer] asserted and declared a set-off with counterclaims. In case and to the extent that the Court considered the [seller]'s objection to be correct that the parties had excluded the possibility of a set-off, the [buyer] raised its counterclaims by way of cross-action.

     3.3 By contract of 31 July 2000, the [buyer] bought from the [seller] 10,000 mt Methyl, fob [*] Constanza. When the ship was loaded in Constanza, the tie-up time of the ship had been exceeded by "74.233 h." For this reason, the [buyer] was charged by the ship owner an amount of US $36,188.75. [Buyer] submits that the [seller] has to reimburse the [buyer] for this demurrage because the [seller] exceeded the agreed tie-up time.

     3.4 [Buyer] furthermore submits that in connection with the same contract, the [seller] instructed the [buyer] to commission one of the agents nominated by the [seller] on the spot in Constanza, instead of commissioning the agent usually called in by the ship owner. The [buyer] only agreed to this on the condition that the [seller] would reimburse the [buyer] for any additional costs. These costs amounted to US $9,000.

     3.5 Based upon a further sale agreed between the parties for roughly 4,000 mt Methyl ex port Rotterdam [Netherlands], [buyer] asserts that it is entitled to a further demurrage claim in the amount of US $19,253.33.

4. In [seller]'s reply and answer to the cross-action of 26 November 2001, the [seller] objected to the counterclaim, essentially arguing as follows:

     4.1 It had obviously been the intention of the parties to view the claims resulting from different deliveries independently of each other. Otherwise, there would have been too high a risk that the enforcement of justified claims was impeded or delayed by the assertion of hair-raising claims. For this reason, the parties had not only excluded the raising of claims by way of set-off, but also the raising of claims by way of cross-action.

     4.2 The cross-action was therefore not admissible. Furthermore, the counterclaims were not submitted in a substantiated way.

5. In [buyer]'s reply of 30 January 2002 and [seller]'s reply of 15 April 2002, the parties insisted on their views.

6.With reporter's order of 27 May 2002, the proceedings were limited to the subject of the claim as well as the [seller]'s request that the Court not enter into the cross-action.

7. During the main proceedings of 24 October 2002, the [seller] modified its legal requests to the version cited above. The [buyer] held on to its requests.

CONSIDERATIONS

1. The [seller]'s domicile is in Germany; the [buyer] is domiciled in Switzerland. Consequently, there are international circumstances of fact in the meaning of Art. 1(1) IPRG [*]. Under Art. 1(2) IPRG, international conventions take precedence. Following Art. 2(1) LugÜ [*] in connection with 9(1) GOG [*], the Canton Court possesses jurisdiction over the present case. The claims raised are based upon a sales contract. Therefore, the United Nations Convention on Contracts for the International Sale of Goods, the so-called "Vienna Sales Law" (CISG) applies.

2. The proceedings were limited to the matter of the claim as well as the [seller]'s request that the cross-action not be entered into. Consequently, the substance of the cross-action is - at least currently - not to be considered.

3. On 13 October 2000, the parties concluded a sales contract for 1,000 mt MTBE at a price of US $386.- per mt, and the [buyer] committed to take delivery of the goods by the end of November 2000 at the latest. By letter of 30 November 2000, the [seller] fixed an additional period of time for performance by the [buyer] of its obligations until 5 December 2000. The [buyer] undisputedly did not take delivery of the goods within the period so fixed. By letter of 6 December 2000, the [seller] declared the contract avoided.

     3.1 In case the buyer does not perform one of its contractual obligations, the seller may declare the contract avoided - if the buyer's non-performance of its contractual obligation amounts to a fundamental breach of contract - and the seller may claim damages (Art. 61(1) in connection with Art. 64(1)(a) CISG). If the contract is avoided and if, in a reasonable manner and within a reasonable time after avoidance, the seller has resold the goods, it may recover the difference between the contract price and the price in the substitute transaction as well as any further damages recoverable under Art. 74 (Art. 75 CISG).

     3.2 In the present case, the [buyer] failed to accept delivery of the goods bought and thereby committed a fundamental breach of contract. The [seller] is therefore entitled to claim damages from the [buyer]. The loss to be compensated consists of the difference between the contractual price agreed with the [buyer] and the price agreed in the contract with Company E.B.V. The damages claimed by the [seller] can be calculated as follows:

Amount: 951,190 t
 
Proceeds: $ 320,360.79
Freight costs: $      1,688.06
 
Net proceeds: $ 318,672.73 fob [*] Rotterdam

Therefore, the claim amounts to:

Agreed purchase price ($ 386.00/t): $ 367,159.34 fob Rotterdam
Less net proceeds: 318,672.73
Less payment of 8 December 2000: $     1,671.67
 
Balance in favor of the [seller]: $   46,814.94

     3.3 The [buyer] objects that the [seller] was aware since 27 November 2000 that the [buyer] would not take delivery of the goods bought. If the [seller] had immediately entered into a substitute transaction, instead of waiting for almost another two weeks, the [seller] would have reached a considerably better price, that is. US $354.50 per ton. The loss would only have amounted to US $29,974.45. This objection is without success. Contrary to its submission, the [buyer] did by no means declare in its fax of 27 November 2000 that it would do without the goods bought. Rather, the [buyer] raised counterclaims and noted that it would wait with the acceptance of the goods until the tiresome affair (with the counterclaims) was closed. It was not until 6 December 2000 that the [seller] knew with certainty that [buyer] would not take delivery of the goods. The [seller] found a new buyer two days later. The [seller] can therefore by no means be accused of waiting too long before entering into a substitute transaction. The [seller] cannot be held responsible for the fact that the market price of MTBE fell in the meantime. Moreover, there is no indication that the [seller] gained direct or indirect further proceeds for the said goods from Company E.B.V.

     3.4 Based upon the above considerations, the [buyer] owes the [seller] an amount of US $46,814.94.

4. The [seller] furthermore claims interest at a rate of 10.5% from 23 January 2001. During the main proceedings, the [seller] argued that the interest on arrears of 10.5% corresponded to the interest on debts which the [seller] had to pay at the time concerned for [seller]'s US Dollar account with the UBS bank in Geneva. If a party fails to pay the price or any other sum that is in arrears, the other party is entitled to interest on it, without prejudice to any claim for damages recoverable under Art. 74 (Art.78 CISG). Consequently, the fact that a sum is in arrears is the only requirement for interest on arrears; a culpable delay in the meaning of Swiss law with all its prerequisites is not necessary (cf. v.Caemmerer/Schlechtriem, Kommentar zum Einheitlichen UN-Kaufrecht, 3rd ed., Munich 2000, Art. 78 n. 7 et seq.). The [seller]'s claim was due by the latest on 23 January 2001. The [seller] claimed interest from 23 January 2001, which is why the interest is to be granted from this point in time onwards. The "Vienna Sales Law" does not provide for the applicable interest rate. Therefore, the interested rate determined by the respective national law is owed (cf. v.Caemmerer/Schlechtriem, op. cit., Art. 78 n. 26 et seq.). The interest rate in the present case is determined by German law (Art. 117(1) and (3)(a) IPRG [*]). Under 352(1) HGB[*], the interest on arrears for commercial transactions is 5%. A higher interest is only owed if the creditor proves that [seller] was in fact - due to the debtor's delay - obliged to pay interest on debts at this rate, or that it lost this amount in interest on investments (cf. Baumbach/Hopt, Handelsgesetzbuch, 29th ed., Munich 1995, 352 HGB n. 5). The [seller] asserts that the interest on arrears claimed at the rate of 10.5% corresponds to the interest on debts payable at the time for [seller]'s US Dollar account with the UBS bank in Geneva. The [buyer] did not dispute this submission. Therefore, the interest rate payable on the [seller]'s claim from 23 January 2001 lies at 10.5%.

5. Regarding the enforcement no. 20010256 of the enforcement office B., the [buyer]'s legal objection was repealed according to the request.

6. Finally, it needs to be considered whether the cross-action is to be entered into. The [seller] submits - and the [buyer] disputes - in this respect that the parties in their sales contract excluded both the assertion of claims by way of set-off and by way of cross-action.

     6.1 In the sales contract, the parties agreed upon payment of the purchase price "without offset or counterclaim" respectively "without any withholding, deduction, set-off or counterclaim". The [buyer] does not dispute that the parties excluded the right to set-off. However, [buyer] maintains that the exclusion of the enforcement of a claim by way of cross-action is an extensive intervention and therefore requires a clear and unambiguous provision. In the [buyer]'s opinion, the stereotyped term "without counterclaim" is insofar not sufficiently definite, and its extent was not foreseeable for the [buyer]. Consequently, there was no binding exclusion of the procedural right to enforce a claim by way of cross-action. It furthermore had to be considered that the [buyer] was entitled under Art. 5(1) LugÜ [*] to rely upon the legal venue of Zug for [buyer]'s cross-action. Under these circumstances, there was no reason why the [seller] could be interested in not having the claim adjudged by way of a cross-action. Moreover, the Court would be entitled to unite an action separately filed by the [buyer] with the [seller]'s claim for reasons of procedural economy.

     6.2 The translation of [buyer]'s confirmation which was presented by the [seller] and which the [buyer] also relied upon during the main proceedings, translates the passage in question as follows: "Ohne Zurückhaltung, Abzug, Verrechnung oder Gegenansprüche" ("without any withholding, deduction, set-off or counterclaim"). The point of such a clause could only be that the parties intended to exclude the possibility that the payment of the purchase price could be delayed by raising objections of set-off or by asserting counterclaims - no matter whether by way of set-off or cross-action. In the dictionary of legal and business language by Alfred Romain, "counterclaim" is translated with "Widerklageforderung" ("cross-action claim"). In the dictionary of commercial, finance and legal language by Robert Herbst and Roman Ammann (5th ed., Thun 1998), "counterclaims" are translated as "Anträge zur Widerklage" ("motions for cross-actions"). Therefore, it is clear the parties excluded the possibility of a cross-action in their sales contract. Contrary to the [buyer]'s opinion, this exclusion does not constitute a severe interference with the other party's legal position, since that party is free to enforce its claim by filing a separate action. Finally, the [seller] certainly possesses a legitimate interest in the exclusion of the cross-action, because it is thereby able to enforce its proven claim in a faster fashion. It is possible that a hearing of evidence would be necessary if the cross-action was adjudged. The [buyer], e.g., requested the hearing of witnesses who are domiciled in Norway. This would delay the enforcement of the claim. In view of these circumstances, the [buyer] could moreover not count upon the unification of the trials, if [buyer] tried to enforce its counterclaims by filing a separate action.

7. Based upon the above considerations, the [seller]'s claim is granted and [buyer]'s cross-action is not entered into. In view of this outcome, the [buyer] bears the cost of the proceedings ( 38(1) ZPO [*]) and has to reimburse the [seller] adequately for [seller]'s procedural expenses ( 40(1) ZPO). In view of the required effort, a surcharge of only 30% to the basic fee is adequate. Value added tax is not owed for foreign clients.

JUDGMENT

  1. The [buyer] is ordered to pay to the [seller] US $46,814.94 plus interest at a rate of 10.5% from 23 January 2001. Regarding the enforcement no. 20010256 of the enforcement office B., the [buyer]'s legal objection is denied.

  2. The cross-action is not entered into.

  3. The costs of the proceedings amount to Sf [Swiss francs] 4,000 court fee; Sf 80.- office costs; and Sf 90.- expenses; total: Sf 4,120.- and are to be borne by the [buyer].

  4. The [buyer] has to reimburse the [seller] for [seller]'s expenses with Sf 15,875.60.

  5. This decision may be appealed under 201 ZPO [*] within 30 days of receipt of the decision by submitting two copies of a written appeal with reasoning to the office of the High Court of the Canton Zug.

  6. To the extent that the decision is not appealed regarding the substance of the claim, a request for relief (in writing, two copies, with reasoning and attachment of the appealed decision) may be filed with the justice commission of the High Court of the Canton Zug within ten days regarding no. 2, 3, and 4 of the decision.

  7. Notification of the parties' representatives.


FOOTNOTES

* All translations should be verified by cross-checking against the original text. For purposes of this translation, the Plaintiff of Germany is referred to as [seller]; the Defendant of Switzerland is referred to as [buyer]. Amounts in the currency of Switzerland (Swiss francs) are indicated as [Sf].

Translator's note on other abbreviations: fob = Incoterms Free on Board; GOG = Gesetz über die Organisation der Gerichtsbehörden [Code on the Organization of Courts of the Canton Zug]; HGB = Handelsgesetzbuch [German Commercial Code]; IPRG = Gesetz über das Internationale Privatrecht [Swiss Code on Private International Law]; LugÜ = Luganer Übereinkommen [EC EFTA Convention on Jurisdiction and the Enforcement of Judgments in Civil and Commercial Matters - Lugano, 16 September 1988]; ZPO = Zivilprozessordnung [Code of Civil Procedure of the Canton Zug].

** Ruth M. Janal, LL.M. (UNSW), a Ph.D. candidate at Albert-Ludwig-Universität Freiburg, has been an active participant in the CISG online database of the University of Freiburg.

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