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CISG CASE PRESENTATION

Belgium 10 May 2004 Appellate Court Gent (N.V. Maes Roger v. N.V. Kapa Reynolds) [translation available]
[Cite as: http://cisgw3.law.pace.edu/cases/040510b1.html]

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

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Case identification

DATE OF DECISION: 20040510 (10 May 2004)

JURISDICTION: Belgium

TRIBUNAL: Hof van Beroep [Appellate Court] Gent

JUDGE(S): H. Debucquoy, F. Deschoolmeester, G. Macours

CASE NUMBER/DOCKET NUMBER: 2003/AR/2026

CASE NAME: N.V. Maes Roger v. N.V. Kapa Reynolds

CASE HISTORY: 1st instance Rechtbank van Koophandel Kortrijk 3 June 1996

SELLER'S COUNTRY: France (plaintiff)

BUYER'S COUNTRY: Belgium (defendant)

GOODS INVOLVED: Plastic film


Classification of issues present

APPLICATION OF CISG: Yes

APPLICABLE CISG PROVISIONS AND ISSUES

Key CISG provisions at issue: Articles 39 ; 49 ; 74 ; 75 ; 77 [Also cited: Articles 35 ; 36 ; 38 ; 48 ; 78 ]

Classification of issues using UNCITRAL classification code numbers:

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];

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

75A2 [Damages established by substitute transaction after avoidance: repurchase by aggrieved buyer];

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

Descriptors: Lack of conformity notice, timeliness ; Avoidance ; Fundamental breach ; Damages ; Cover transactions ; Mitigation of loss

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Editorial remarks

Overview comments (CISG-Belgium database): "Application of CISG -- Convention on the Law Applicable to Contracts for the International Sale of Goods (Hague Conference, 15 June 1955) determines applicable law -- residence of seller -- France -- CISG as part of French law. Notice of non-conformity -- type of non-conformity only clear upon use of product -- notice in time. Remedy by seller -- not done. Fundamental breach -- buyer may avoid contract. Damages - loss of profit included. Interest."

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Citations to case abstracts, texts, and commentaries

CITATIONS TO ABSTRACTS OF DECISION

(a) UNCITRAL abstract: Unavailable

(b) Other abstracts

English: Unilex database <http://www.unilex.info/case.cfm?pid=1&do=case&id=1131&step=Abstract>

CITATIONS TO TEXT OF DECISION

Original language (Dutch): CISG-Belgium database <http://www.law.kuleuven.ac.be/ipr/eng/cases/2004-05-10.html>; Unilex database <http://www.unilex.info/case.cfm?pid=1&do=case&id=1131&step=FullText>

Translation (English): Text presented below

CITATIONS TO COMMENTS ON DECISION

Unavailable

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Case text (English translation) [second draft]

Queen Mary Case Translation Programme

Appellate Court (Hof van Hoger Beroep) Gent

10 May 2004 [2003/AR/2026]

Translation [*] by Thorsten Tepasse [**]

IN THE DISPUTE BETWEEN:

N.V. MAES ROGER [hereinafter referred to as Buyer], with its domicile in 8500 Kortrijk... and inscribed in the commercial register of Kortrijk ... Claimant in the appeal, represented by Mr. Rudy De Waele, lawyer with office in 8500 Kortrijk ...

vs.

N.V. KAPA REYNOLDS [hereinafter referred to as Seller], a company incorporated under French law, with its domicile in 92500 Rueil Malmaison (France) ..., and inscribed in the commercial register of Nanterre. ... Respondent, represented by Mr. Tillo Mestdagh, lawyer with office in 8500 Kortrijk...

The parties were heard in camera in a legal procedure and evidence was determined. The Appellate Court of Gent has handed down the following decision:

1. FACTS AND PLEADINGS

     1.1 On June 24th 1996 the Buyerfiled an appeal against the decision of the 4th Chamber of the Commercial Court of Kortrijk handed down on June 3rd 1996.

The Sellerpleads for refusal of the appeal as unfounded and reiterates its claim in the amount of 95,610.67 EURO (627,164.90 French francs [FRF]) based on an account, plus interest from the account's maturity until payment, of which the preceding judge has awarded an installment of 49,578.70 EURO (2,000,000 Belgian francs [BEF]) using Art. 19, 2 of the judicial code (gerechtelijk wetboek).

     1.2 The outstanding issues concern the deliveries of plastic film from the Seller to the Buyer on May 10th, 19th and 31st 1995, which were declared seriously defective by the judicial appraiser - who was appointed by the preceding court on November 23rd 1995. As a result of the appraiser's report, the Appellate Court states the following relevant facts:

            1.2.1 Regarding the type of defect, the expert held that parts of the cores of the clingwraprolls - manufactured by AMPLAS LTD and sold by the Seller for the purpose of wrapping predried grass - were damaged and it was thus difficult or even impossible to place the rolls on the winder. Any employers consulted, their employees as well as farmers, mostly complained about the subsequent failings:

"The foil was too thin, too airy and tore under accepted usage; the foil was uneven in its density as well as color and resistance against disruption; while stretching, light-colored and fuscous areas alternated; while stretching, lenticular lines, more precisely: transparent stripes or holes, appeared, whereupon the foil tore."

During the inspection by the judicial appraiser, one out of five rolls tore, whereas another one showed the phenomenon of "windowing", which is the occurrence of bright and dark stripes when extracting the foil. Furthermore, small pieces of fabrics and other impurities were detected between two layers of foil while extracting it.

            1.2.2 The analysis, performed by BECETEL, Belgian Research Centre for Pipes and Fittings of the University of Gent, concerning the stretching attributes and the quality of the plastic film, traced the break of the foil back to impurities that came between the layers during the production process when the foil was furled.

            1.2.3 On the basis of the arranged interviews, determinations and statements at different locations, the results of the inspection and the survey by BETECEL, the judicial appraiser held the producer of the foil, AMPLAS Ltd., technically and factually responsible for the deficiencies.

            1.2.4 The judicial appraiser calculated the loss the Buyer suffered as a consequence of the slump in sales at 29,894.12 EURO (1,205,926 BEF) per annum caused by delivery of the defective goods and presented to the court the estimation of the years the Buyer sustained such slump in sales.

He moreover stated that, in addition to a compensation for five years for recovery of reputation, the Buyer also suffered damage in the three years during which the parties held negotiations about a friendly solution of the dispute (...).

In his "pre-report" he came to that calculation with the thought, that - as the quality of the goods was not met - the Buyer's customers did not pay for the foil delivered and that the Buyer thus could not sell a significant part of the clingwrap (32%).

As a consequence of the bad experience with the foil and the lack of a provision with the supplier, the Buyer was moreover unable to sell other products out of its traditional assortment or services to the displeased customers (e.g., seeds, plastic, other commodities, seeding of grassland) .

The trust of potential customers and especially regular customers of the Buyer was further seriously affected by the negative word-of-mouth advertising. The Buyer's salespersons could not realize sales and the quality problem led to cancelled or dismissed business relationships with the Buyer.

A commercial and financial catastrophe evolved particularly in the area of Wallonië, where the main part of the foil's customers was located and where the Buyer delivered clingwrap amounting to [4,169,024 - 1,386,738 - 319,869 =] 2,462,417 BEF on the basis of the standard price operated by the Seller. The average turnover during the years 1992-'93, 1993-'94 and 1994-'95 [(5,922,151 + 7,611,061 + 6,145,699) / 3 =] was 6,559,637 BEF compared to an average turnover since the last three years of [(1996-97-98: 2,117,431 + 1998-99: 1,252,567) / 3 =] 1,123,333 BEF, which means a slump in sales of [6,559,637 - 1,123,333 =] 5,436,304 BEF per annum; during the years 1993-'94, 1994-'95 and 1995-'96 the gross profit of the Buyerwas in the average 30.18% with regard to the purchase price and 23.18% with regard to the selling price. Together with the fall of the turnover (amounting to 5,436,304 BEF), it caused a deficit in the gross profit of [5,436,304 x 0.2318 =] 1,260,135 BEF, which is equal to 51.17% of the foil's purchase price [1,260,135 BEF loss, in comparison to the purchase price of 2,462,417 BEF of the foil sold in Wallonië].

Moreover, in his report the appraiser held that in Vlaanderen - where, beside the difference that only two customers were supplied with the pastic film (amount: 319,869 BEF), similar circumstances and reckonings were assumed -- a loss of the gross profit of [319,869 x 0.5117 =] 163,677 BEF was caused.

To calculate the overall loss caused by the defective foil, the appraiser discounted the costs saved due to the recission of the turnover from the slump in sales. He stated that the effect of the defect on the costs was difficult, but not impossible, to determine. In equitable discretion, he therefore reckoned 217,886 BEF as reduced costs.

As a result, he came to a total loss of [Wallonië: 1,260,135 BEF + Vlaanderen: 163,677 BEF - reduced costs: 217,886 BEF =] 1,205,926 BEF or 29,894.12 EURO per annum and set the duration of the damage at eight years, or 9,647,408 BEF [= 239,153.00 EURO], calculating that the Buyer lost three years due to the negotiations between the parties and that a period of five years was necessary to recover reputation.

            1.2.5 Furthermore, the appraiser held, that the Buyerwas not obliged to pay for the defective plastic film and that it was thus entitled to reclaim the money paid for all invoices of the Seller.

The expert found that the Buyer could demand compensation for all damages, except:

  1. Some excess expenditure for which no proof had been submitted; an
  2. Claims of customers for compensation of damages, evolving from the delivery of the defective foil.

He assumed in his "pre-report" that until now, neither customer of the Buyer complained about damages the customer suffered because of the defective plastic film, but if such claims would arise, the distributors of the foil would be held liable for the compensation of any damages.

     1.3 On the basis of the appraiser's report, the Buyer seeks:

     1.4 The Seller challenges the Buyer's claim, since the Buyer accepted the deliveries on May 10th, 19th and 31st 1995 and only complained about the quality on August 7th 1995 - after selling 71% of the unpaid goods for which a rentention of title was agreed upon.

Seller asks for payment for its goods, plus default interest since payment date under Art. 78 CISG, which is the law applicable between the parties according to Art. 3 of the Hague Convention of June 15th 1955.

Seller furthermore alleges that, pursuant to Arts. 38, 39 CISG, Buyer has lost its right to rely on non-conformity of the delivery.

In the alternative, Seller denies the validity of the Buyer's claim for damages plus interest. The Seller states that the judicial appraiser's judgment is arbitrary and not sufficiently founded; moreover, the Buyer failed to mitigate the loss - as provided for in Art. 77 CISG - which was its duty.

2. REASONS FOR THE DECISION

     2.1 The Vienna Convention on Contract for the International Sale of Goods of April 11th 1980 (CISG) is applicable to the dispute between the parties:

    -   The Rome Convention on the Law applicable to Contractual Obligations of June 19th 1980 does not prejudice the applicability of international conventions, to which a Contracting State is party (Art. 21 Rome Convention).
 
    -   Belgium was party to the Convention of the Hague of June 19th 1955, and resigned on September 1st 1999. Thus the reference rules have to be applied to disputes regarding sales contracts, which were agreed upon before cancellation (see also B.S. of June 30th 1999).
 
    -   The Belgian Buyer (ROGER MAES NV) and the French Seller (KAPA REYNOLDS NV) did not identify the governing law in their contract. Thus, pursuant to Art. 3(1) of the Hague Convention, the relationship between the parties is governed by the domestic law of the Seller at the time the order by the Buyer was received.
 
    -   In France the Vienna Convention of April 11th 1980 came into force on January 1st 1988 and is consequently applicable to the contract.

     2.2 As a result of the appraiser's report, it is certain that the clingwrap was not fit for the purposes of which goods of the same description would ordinarily be used (Art. 35(2)(a) CISG).

     2.3 As laid down in Art. 36(2) CISG, the Selleris responsible for any lack of conformity of the foil with the contract which occurred after the risk passed to the Buyer, if that lack is due to a breach of any of Seller's obligations, including a breach of any guarantee that for a period of time the goods will remain fit for their ordinary purpose.

     2.4 Also, the Buyer has anot lost its right to rely on a lack of conformity of the goods pursuant to Art. 39 CISG, since it:

Moreover, the ripping of the foil was not a defect occurring at the time of arrival of the goods at the Buyer's location; it first appeared when the foil was used.

     2.5 The Sellerdid not remedy the failure to perform its obligations pursuant to Art. 48(1) CISG - within reasonable time and without causing the Buyer unreasonable inconvenience or uncertainty of reimbursement by the Seller of expenses advanced by the Buyer. Seller rejected the Buyer's complaint concerning the quality of the plastic film on August 10th 1995 and did not take any measures even after further complaints of the Buyer on August 30th, September 4th and October 12th 1995; the Seller stated in its letter of October 17th 1995 that in its eyes the foil was in full compliance with the contract ('Nous confirmons notre jugement que l'état de la plastique recouvrant les balles était satisfaisant'), whereafter, the Buyersaw itself forced to consult an appraiser on October 20th 1995.

     2.6 In accordance with Art. 49(1)(a) CISG, the Buyer was allowed to declare the contract avoided due to a fundamental breach of the contract, as it follows from the appraiser's report. The avoidance was moreover declared within a reasonable period of time, since the buyer claimed the credit note of August 7th 1995, as the plastic film could not be sold anymore (Art. 49(2)(b)(ii) CISG).

     2.7 The Buyer is, on the one hand, entitled to damages under Art. 74 CISG, including loss of profit, as far as the Seller could foresee or ought to have foreseen such damages as a result of a breach of contract at the time of conclusion of the contract, given the facts the Seller knew or must have known; on the other hand, the Buyer has to take reasonable measures to mitigate the damages (Art. 77 CISG), including the loss of profit, so that the Seller can demand a reduction of the compensation to the amount with which the loss could have been limited. It can be expected from a businessman that he affronts interferences with his business relationships, e.g., due to delivery of defective goods lasting for more than one month, in an appropriate way.

    -   Because of a fundamental breach, the Buyerdeclared the contract avoided on August 7th 1995 and did not insist on foil in replacement. The last fact is comprehensible, since Buyer did not know the exact reason for the defect and the fundamental breach. Thenceforward, the Buyer would have had the right to claim the difference between a cover purchase price and the purchase price of the foil it had to pay to the seller.
 
    -   The Buyerwas, with respect to its own Belgian customers, liable for damages it had detected or recognized. As Buyer knew that not conducting a cover purchase would severly burden its relationship with its customers and that Buyer could not fulfill its obligations with the delivered plastic film, the damage suffered due to loss of good reputation or as a consequence, that the clientele sustained damages because of missing replacement foil, are attributed to the Buyer and limited to the amount of a possible cover purchase.
 
    -   The Buyer had, or it has to be assumed the Buyer had, enough capital to do so, since - after it paid the first account of 12,201.27 EURO (80,035.10 FRF) - it did not pay the three following accounts in the amounts of 10,551.00 EURO (69,210.00 FRF), 46,051.80 EURO (302,080.00 FRF) and 51,222.87 EURO (336,000.00 FRF); the fact, that the Buyer neither conducted a cover purchase nor paid the Seller's accounts, allows the educated guess that it gained an unlawful credit at the expense of the Seller, which was undoubtedly assumed by the preceding court, when it ordered the Buyer on June 3rd 1996 to pay an installment of 49,578.70 EURO (2,000,000 BEF).

The slump in sales, for which the defective deliveries by the Seller were held responsible without any further reasoning by the judicial expert, can as a result not be compensated, pursuant to Art. 77 CISG.

     2.8 Furthermore, in his report, the appraiser did not in any way concern himself with other reasons for the fall of the turnover. For the calculated loss of customers, he solely called the delivery of defective goods by the Seller to account, even though it was clear that first negotiations regarding the disputed deliveries are to be limited to approximately half a month and not further.

And the appraiser did not determine other facts, such as the accurate business and organization of the Buyer, or its solvency and assets, or the proportion of capital resources and debts. Concrete facts that could strengthen the assumption that the contested deliveries are to blame for the notable losses of the FY 1997/1998 and 1998/1999 are missing as well as any precise evidence that the salesmen canceled the vending in autumn 1996 because of these deliveries.

    -   From those sparse facts which were given to the expert, it follows that the Buyer suffered a loss of 113,351.64 EURO (4,572,594 BEF) in the FY 1993/1994 followed by a profit of 1,726.13 EURO (69,632 BEF) in the FY 1994/1995. In contrast to that, Buyer suffered a loss of only 1,154.27 EURO (46,563 BEF) in the FY 1995/96, in which the consequences of the defective delivery must have become manifested, since every FY finishes on June 30th, the purchase was performed in May and the height of the sales season took place in the summer months of the ensuing FY. In the FY 1996/1997, the Buyer gained another profit of 3,053.30 EURO (123,170 BEF) - for good measure the highest asset submitted - whereas in the FY 1997/1998 and 1998/1999, the buyer suffered heavy losses, respectively, 50,111.48 EURO (2,021,492 BEF) and 41,804.96 EURO (1,686,408 BEF). The appraiser attributes those losses to the delivery of the defective foil, which only took place in May 1995.
 
    -   The Court cites the following sections from appraiser's report

"The subscriber assertsthat only very little information can be gathered from the available accounting documents of ROGER MAES NV to frame a substantiated and closing answer on the questions the court posed. On the other hand, the profit and loss statements of the consecutive fiscal years are difficult and delicate to be interpreted and they must be judged with the necessary discretion, to prevent over-hasty and incorrect conclusions.

[...]

"Due to this, numerous lawyer's questions cannot be answered and the subscriber can only rely on a limited number of facts. The reckoned key data and indications build the basis for the order in the supplementary report' (see above item 1.2.4 which contain the relevant data for this point).

[...]

"To answer Mr. Deleu's question, it is among others not possible to split turnover by product under these circumstances.

[...]

"Since the salesmen withdrew in the autumn of 1996, the vending in Wallonië stopped more or less."

    -   The Court finds, that the expert did not substaniate and accredit his conclusions regarding the slump in sales and the recovery of reputation that should have happened during the years 1998/1999 to 2003/2004 as well as the loss of three years of expertise. The Buyerdid not prove its damage on the basis of the presented facts.

     2.9 Thus, the Court calculates the loss the Buyer suffered to:

    -   The amount of the goods paid in May 1995, that is, 11,774.94 EURO (475,000 BEF), plus interest from June 1st 1995 until payment;
 
    -   A slump in sales by 10% of 1,205,926 BEF or 2,987.19 EURO (120,503 BEF), plus interest from June 1st 1995 until payment, which compensates the loss of 1,154.27 EURO (46,563 BEF) the Buyer suffered in 1995/1996 to a great extent.

     2.10 The Court orders the Buyer to pay 1/3 of the costs for the expert, since it did not substiantiate and/or prove its claim for damages - which was determined by the appraiser.

3. DECISION

On objection and attention to Art. 24 of the law on parlance in legal matters of June 15th 1935, the Court:

    -   Holds the appeal admissable and partially founded;
 
    -   Annuls the appealed judgment; and holds the claim of the Buyer admissable and founded for 14762.03 EURO, plus interest until lis pendens and from then on followed by the judicial interest until payment.
 
    -   Directs the Seller tobear 2/3 of the expert costs of 9,322.23 EURO, i.e., 6,214.82 EURO and any other lawsuit costs, that the Court determined on the side of the Buyer:

-  Summons costs for interim injunction 228.24 EURO
-  Idem:   56.92 EURO
-  Administration of justice interim injunction:        99.16 EURO
-  Administration of justice, preceding court: 297.47 EURO
-  Role rights 185.92 EURO
-  Reimbursement of expenses: to be announced
-  Administration of justice in the appeal: 456.12 EURO


FOOTNOTES

* All translations should be verified by cross-checking against the original text. For purposes of this translation, Plaintiff in the appeal of Belgium is referred to as [Buyer]; Defendant in the appeal of France is referred to as [Seller]. Amounts in European currency are indicated as [EURO]. Amounts in the former currency of Belgium (Belgian francs) are indicated as [BEF]. Amounts in the former currency of France (French francs) are indicated as [FRF].

Translator's note on other abbreviations: N.V. is for Naamloze Vennootschap (= incorporated company); FY is for fiscal year.

** Thorsten Tepasse is a law student at the University of Osnabrück, Germany.

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