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CISG CASE PRESENTATION

France 25 February 2005 Appellate Court Paris (Computer motherboard case) [translation available]
[Cite as: http://cisgw3.law.pace.edu/cases/050225f1.html]

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

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Case identification

DATE OF DECISION: 20050225 (25 February 2005)

JURISDICTION: France

TRIBUNAL: Cour d’appel [Appellate Court] de Paris

JUDGE(S): M. Jacomet (president); MMe Collot, MMe Blum (conseillers); MMe Marteyn (greffière)

CASE NUMBER/DOCKET NUMBER: 03/21335; RG no. 200200832

CASE NAME: S.A. DIG... v. Société S...

CASE HISTORY: 1st instance Tribunal de Commerce de Bobigny 11 September 2003 [reversed]; 3d instance Cour de cassation 13 February 2007 [reversing and remanding]

SELLER'S COUNTRY: United States (defendant)

BUYER'S COUNTRY: France (plaintiff)

GOODS INVOLVED: Computer motherboards


Classification of issues present

APPLICATION OF CISG: Yes

APPLICABLE CISG PROVISIONS AND ISSUES

Key CISG provisions at issue: Articles 35 ; 36 ; 39 ; 40

Classification of issues using UNCITRAL classification code numbers:

35A ; 35B [Conformity of goods to contract: quality, quantity and description required by contract; Requirements implied by law];

36A2 [Time for assessing conformity of goods (conformity determined when risk passes to buyer): seller responsible when lack of conformity becomes apparent later];

39B [Requirement to notify seller of lack of conformity: cut-off period of two years];

40B [Seller's knowledge of Non-conformity (seller fails to disclose known non-conformity): seller loses right to rely on articles 38 and 39]

Descriptors: Conformity of goods ; Latent defects ; Lack of conformity notice, timeliness ; Lack of conformity known to seller ; Exculpatory clauses

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Editorial remarks

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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=1095&step=Abstract>

CITATIONS TO TEXT OF DECISION

Original language (French): CISG-France database <http://witz.jura.uni-sb.de/CISG/decisions/250205v.htm>; Unilex database <http://www.unilex.info/case.cfm?pid=1&do=case&id=1095&step=FullText>

Translation (English): Text presented below

CITATIONS TO COMMENTS ON DECISION

French: Revue trimestrielle de droit commercial et économique (2005) 639-640, obs. Phillippe Delebecque; Claude Witz, Recueil Dalloz (22 February 2007) 534

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Case text (English translation) [second draft]

Queen Mary Case Translation Programme

Court of Appeal of Paris

25 February 2005

Translation [*] by Andrea Vincze [**]

[...]

The Court heard the appeal, filed on 16 October 2003, against the judgment rendered by the Tribunal de commerce de Bobigny on 11 September 2003.

The primary subject of the lawsuit is the claim that [Buyer], a company [of France] engaged in integration of IT configurations, filed against [Seller], a company subject to US law, for compensation for losses resulting from the delivery of computer motherboards sold to [Buyer] by [Seller] that proved to be defective.

The Tribunal de commerce de Bobigny had ruled as follows:

   -    The mandate of the expert may not be extended;
 
   -    Officially accepted the report submitted on 15 October 2001, and the additional report filed with the final expert report on 31 December 2001;
 
   -    Accepted the principal claim of [Buyer], found it partially founded and partially granted relief;
 
   -    Ordered [Seller] to pay [Buyer] a sum of EUR 862,491, plus interest at the statutory rate from 12 January 1999;
 
   -    Ordered [Seller] to reimburse to [Buyer] the expert costs;
 
   -    Dismissed all other claims of the parties that are contrary to this judgment;
 
   -    Ordered provisional execution without constitution of a guarantee;
 
   -    Ordered [Seller] to pay to [Buyer] the sum of EUR 30,000 under Article 700 of the New Code of Civil Procedure; and
 
   -    Ordered [Seller] to pay the costs.

In support of its judgment, the Tribunal de commerce held, in particular, that no additional expert opinion may be obtained. This had already been rejected by the Court in its judgment of 27 June 2001, in a pre-trial decision. By this request, [Seller] had attempted to mitigate its initial misconduct during the expert meetings, the importance of which it had not realized. It is appropriate to accept the expert report submitted on 15 October 2001, and the final report of 31 December 2001. [Seller] acknowledged that it had been aware of the problems as early as October and November 1998.

The expert report indicated that:

   -    The real problem ... is inherent in the construction of the motherboard provided by the [Seller] that allows the flow of electric current necessary for its operation through a single connector, thereby causing too high consumption of electricity at the vital crossing point;
 
   -    The [Seller] did not inform the [Buyer] of this limited feature of the motherboard and this resulted in the malfunction detected;
 
   -    In that condition and despite the suggestions of the [Seller], no other practical and feasible solution exists other than replacing the motherboards, [because] the original 414 motherboards do not have the parts that would have prevented the overheating.

The occasional difficulties suffered by [Buyer] because of the defective motherboards were and are very important, and after the servers became defective, several companies decided to discontinue their business relationships with the [Buyer] and turned to another supplier.

The loss can be evaluated as follows: Loss of clients: between French francs [f] 21,757,750 and 30,757,750, excluding taxes; Internal disruption: f 7,146,400, excluding taxes; Technical interventions: between f 1,214,504 and 1,278,904, excluding taxes.

Regarding the loss of actual and future clients as well as the estimated loss of revenue, and also considering the number of defective motherboards is 49 out of 440, 12% of the compensation requested should be retained, that is, EUR 457,347 (loss of actual clients), EUR 91,470 (expected loss of clients), EUR 128,057 (internal disruption), while the actual costs (EUR 22,318) and costs of the technical interventions (EUR 182,939) should be awarded 100%. Thus the loss amounts to EUR 862,491, plus interest at the statutory rate calculated from the date when the lawsuit was first filed on 12 January 1999. [Buyer] cannot prove any harm other than late payment.

[Seller], the Plaintiff on the principal appeal and Defendant on the counter-appeal, requested the following in its summary arguments dated 27 October 2004:

   -    To grant the appeal of [Seller] and to declare that all claims are founded;
 
   -    To order dismissal of the claims submitted by [Buyer] under no. 38 and 57, entitled "The report of LCA in light of the observations of the expert";
 
   -    To rule that the judgment was unfounded by law, that it contains factual and calculation errors and contradictions, and that it does not respond to the claims of [Seller];
 
   -    Consequently, to reverse the judgment in all aspects.

[Seller] submits as a new, primary claim a request to the Court to rule that:

   -    The Vienna Convention of 11 April 1980 on the International Sale of Goods applies;
 
   -    The one year contractual warranty clause applies;
 
   -    The warranty period for the original motherboards in dispute expired;
 
   -    The claim of [Buyer] is time-barred;
 
   -    The claims of [Buyer] must be dismissed;
 
   -    The liability exoneration clause included in the contractual documents is applicable;
 
   -    The [Seller] is not liable to [Buyer] under the contractual clause exonerating its responsibility; and
 
   -    All claims, conclusions and arguments of [Buyer] are rejected.

Alternatively, to rule that:

   -    [Seller] did not commit any default towards [Buyer] concerning either lack of conformity of the goods delivered or failure to give information;
 
   -    The motherboards delivered by [Seller] were not defective;
 
   -    The tolerance limits of the motherboards have never been reached by the configurations set up by [Buyer], consequently, advice on this issue was impracticable and useless;
 
   -    In any event, [Seller] did not have any obligation to inform [Buyer] about the tolerance level of the motherboards; and
 
   -    [Buyer] did not prove that it had suffered actual, specific and direct harm, that its claim for indemnification is fixed, and that such claim is based merely on the losses estimated and never actually suffered on that day.

Consequently, [Seller] requests the Court to:

   -    Declare and rule that [Seller] is not liable; and
   -    Dismiss all claims, conclusions and arguments of [Buyer]

Also, alternatively, to order the appointment of a forensic expert in order to:

   -    Determine the cause of the alleged burns on the power connectors on 21 or 144 of the motherboards in dispute;
 
   -    Obtain information regarding: the 21 or 144 motherboards in dispute; the origin and return date of and the reasons for returning the 21 or 144 of the motherboards in dispute; rules and standards for the assembly method used while preparing the configurations by [Buyer]; the 21 or 144 female connectors that were installed in the 21 or 144 motherboards when the connectors burned; proof of the purchase and date of delivery of each of the female connectors as well as proof that they were adapted to the 21 or 144 motherboards in dispute; the brochures and documentations of the manufacturers of the female connectors; to examine each of the female connectors built in the connectors and to determine their brand, their type and their capacity; to determine the type of contact on the connectors for the male connector fixed on the motherboards of [Seller]; to determine whether any traces of oxidation exist, in a general way to conduct any tests that allow reproduction of all the technical conditions leading to the defects identified, and finally to be able to determine very precisely the cause that lead to damage of the power connector fixed on the motherboards.

In any event, the Court should;

   -    Order [Buyer] to pay to [Seller] the sum of EUR 100,000 under Article 700 of the New Code of Civil Procedure; and
   -    Order [Buyer] to pay all costs of the first instance proceedings and the appeal.

In its summary argument of 29 October 2004, [Buyer], defendant on the primary appeal and plaintiff on the counter-appeal, requested the following of the Court:

   -    To rule that the [Seller] failed to perform its contractual obligation, its basic and essential duty to inform as set out in Articles 1604 and 1615 of the Civil Code, when it failed to inform its buyer about the risk caused by a very strong flow of electric current through the motherboards delivered with a single connector, that the risk can be mitigated by giving a clear warning but no such warning was given, and that the above-mentioned essential contractual obligation was not subject to any limitation period, except a 30-year limitation period;
 
   -    To rule that, under such circumstances, [Seller] did not deliver the goods in conformity with the requirement to deliver motherboards with two connectors;
 
   -    Consequently, to confirm the appealed judgment in that [Seller] is fully liable, both for failure to perform the duty to inform [the other party] that the motherboards delivered had only one connector, and for failure to deliver conforming motherboards fixed to contain two connectors; and [regarding the ruling that] a lawsuit filed on any of the latter grounds is not time-barred both by application of Article 40 of the Vienna Convention and for actually being filed on alternative basis;
 
   -    To declare and rule that it must be all the more so because it was proved that [Seller] had been aware of the problem well before the serious incidents occurred, at a time when [Seller] could have prevented the serious problems and set things straight in its relations with third parties rather than with [Buyer], after which [Seller] had expressly and specifically acknowledged its default, proposed ridiculous and impossible solutions to be implemented, as it had been noted by the expert;
 
   -    To declare and rule that the Vienna Convention, maliciously truncated by [Seller], is totally unrelated to the duty to inform and assist, and that consequently in the written submissions of [Seller] Article 40 of the latter Convention is implied, that prevents [Seller] from arguing that the lawsuit was allegedly filed too late;
 
   -    To declare and rule consequently that the warranty period that [Seller] unsuccessfully tried to assert [i.e., contest] in the US proceedings cannot be upheld, regardless of the proceedings pending in France, [receiving, then, a deserved lesson];
 
   -    To declare and rule, in addition, regarding non-conforming delivery of the motherboards that all warranty limitations are excluded, as [Seller] is a professional, and that any clause for limitation of liability, that does not make any reference to [Seller], fails due to lack of the basic specifications, the double connection and basic advice that should have been furnished, and because under Article 40 of the Vienna Convention, that is serious, if not, harmful misconduct of the seller company;
 
   -    To declare and rule that the alleged limitation is also contrary to Article 36 of the Vienna Convention according to which "the seller is liable in accordance with the contract and this Convention for any lack of conformity which exists at the time when the risk passes to the buyer, even though the lack of conformity becomes apparent only after that time."
 
   -    In addition, to declare, and reject the relating argument of [Seller], that the expert opinion was prepared in an exemplary manner, the expert remained consistent in his explanation up until and including his additional report, the explanations in which are not hypothetical, and correspond to the acknowledgements of [Seller], both the one expressed at the beginning of the judicial debate and the one appearing from the steps taken after the facts, such as, for instance, the one regarding the necessity to modify the input of electric current;
 
   -    To declare that by resorting to the worst methods, like filing the lawsuit in the USA, [Seller] managed to delay the present proceedings for years that further aggravated the harm caused to [Buyer];
 
   -    To declare and rule that the harm suffered by [Buyer], as described below, is directly linked to the burning of the motherboards because of the prejudice against the assembler/seller of high quality computer configurations that broke down.

Regarding the extent of the harm suffered by [Buyer] and condemning the abusive and malicious conduct of [Seller], the [Buyer] requested the Court to:

   -    Declare that, in any case, and since the expert finished his examination, the number of defective and broken motherboards rose from 31 to 144;
 
   -    Declare and rule that the harm suffered by [Buyer] increased when it became impossible to fulfill new demands, as a result of losing very important clients, one of them did not hesitate to blacken the selling methods of [Buyer], whereas [Buyer] remained a victim of the fault of [Seller];
 
   -    Declare and rule by updating the losses based on new data, supposing that it should be considered, taking into consideration everything regarding the loss of clientele and the internal disorganization that entailed high expenses and the necessary technical intervention, that [Buyer] shall receive a sum of EUR 2,032,815 for the above-mentioned reasons, plus the amount corresponding to the harm resulted by the abusive and malicious conduct of [Seller] before and during the proceedings, as a result of which [Buyer] lost its position on the French market (it was [Seller]'s choice), and the latter caused at least EUR 2,000,000 damage;
 
   -    Order [Seller] to pay the total sum mentioned above, i.e., EUR 4,032,815 plus interest at the statutory rate from the date of filing the lawsuit, and that such interests are allocated as additional damages and interest if necessary, and payable under Article 1154 of the Code Civil; and
 
   -    Order [Seller] to pay all costs of the first instance proceedings and the appeal, including the expert expenses.

In its new submission dated 2 November 2004, [Buyer] requests the Court:

   -    To rule that the [Seller] failed to perform its basic and essential duty to inform, as set out in Articles 1604 and 1615 of the Code Civil, when it failed to inform the buyer about the risk that very strong electric current flowing through may harm the motherboards delivered with only one connector, that the risk can be mitigated by giving a clear warning about it but no such warning was made, and the above-mentioned essential contractual obligation is not subject to any limitation period other than the 30-year limitation period;
 
   -    To rule that under these conditions [Seller] failed to deliver conforming motherboards with two connectors;
 
   -    Consequently, to confirm the appealed judgment to the extent that it had found [Seller] to be fully and entirely liable both because of breach of the duty to inform the other party that the motherboards delivered contain only one connector and because the lawsuit filed on any basis is not subject to any limitation period by virtue of Article 40 of the Vienna Convention and for actually being filed on alternative basis;
 
   -    To declare and rule that it must be all the more so because it was proved that [Seller] had been aware of the problem well before the serious incidents occurred, at a time when [Seller] could have prevented the serious problems and set things straight in its relations with third parties rather than with [Buyer], after which [Seller] had expressly and specifically acknowledged its default, proposed ridiculous and impossible solutions to be implemented, as it had been noted by the expert;
 
   -    To declare and rule that the Vienna Convention, maliciously truncated by [Seller], is totally unrelated to the duty to inform and assist, and that consequently in the written submissions of [Seller] Article 40 of the latter Convention is implied, that prevents [Seller] from arguing that the lawsuit was allegedly filed too late;
 
   -    To declare and rule consequently that the warranty period that [Seller] unsuccessfully tried to assert [i.e., contest] in the US proceedings cannot be upheld, regardless of the proceedings pending in France, [receiving, then, a deserved lesson];
 
   -    To declare and rule, in addition, regarding non-conforming delivery of the motherboards that all warranty limitations are excluded, as [Seller] is a professional, and that any clause for limitation of liability, that does not make any reference to [Seller], fails due to lack of the basic specifications, the double connection and basic advice that should have been furnished;
 
   -    To declare and rule that the limitation of liability is against Article 40 of the Vienna Convention, that is the serious, if not, harmful misconduct by the seller company;
 
   -    To declare and rule that the alleged limitation is also contrary to Article 36 of the Vienna Convention according to which "the seller is liable in accordance with the contract and this Convention for any lack of conformity which exists at the time when the risk passes to the buyer, even though the lack of conformity becomes apparent only after that time."
 
   -    In addition, to declare, and reject the relating argument of [Seller], that the expert opinion was prepared in an exemplary manner, the expert remained consistent in his explanation up until and including his additional report, the explanations in which are not hypothetical, and correspond to the acknowledgements of [Seller], both the one expressed at the beginning of the judicial debate and the one appearing from the steps taken after the facts, such as, for instance, the one regarding the necessity to modify the input of electric current;
 
   -    To declare that by resorting to the worst methods, like filing the lawsuit in the USA, [Seller] managed to delay the present proceedings for years that further aggravated the harm caused to [Buyer]; and
 
   -    To declare and rule that the harm suffered by [Buyer], as described below, is directly linked to the burning of the motherboards because of the prejudice against the assembler/seller of high quality computer configurations that became out of order.

Regarding the extent of the harm suffered by [Buyer] and sanctioning the abusive and malicious conduct of [Seller], the [Buyer] requests the Court:

   -    To declare that, in any case, and since the expert finished his examination, the number of defective and broken motherboards rose from 31 to 144;
 
   -    To declare and rule that the harm suffered by [Buyer] increased when it became impossible to fulfill new demands, as a result of losing very important clients, one of which did not hesitate to blacken the selling methods of [Buyer], whereas [Buyer] remained a victim of the fault of [Seller];
 
   -    To declare and rule by updating the losses based on new data, supposing that it should be considered, taking into consideration everything regarding the loss of clientele and the internal disorganization that entailed high expenses and the necessary technical intervention, that [Buyer] shall receive a sum of EUR 2,032,815 for the above-mentioned reasons, plus the amount corresponding to the harm resulted by the abusive and malicious conduct of [Seller] before and during the proceedings, as a result of which [Buyer] lost its position on the French market (it was [Seller]'s choice), and the latter caused at least EUR 2,000,000 damage;
 
   -    To order [Seller] to pay the total sum mentioned above, i.e., EUR 4,032,815 plus interest at the statutory rate from the date of filing the lawsuit, and that such interests are allocated as additional damages and interest if necessary, and payable under Article 1154 of the Code Civil; and
 
   -    To order [Seller] to pay all costs of the first instance proceedings and the appeal, including the expert expenses.

The order of closure was rendered on 3 November 2004.

In its conclusions dated 4 November 2004, [Seller] requested that the arguments presented in its previous written submissions be rejected, while, on the same day, [Buyer] argued that they are admissible.

Regarding the facts, the procedure, and the grounds and arguments submitted by the parties, the Court refers to the findings on trial and on appeal.

REGARDING THE LATTER

The written submissions of [Buyer] dated 2 November 2004 can only be excluded from the proceedings, therefore, first, the parties must exchange their pleadings before the closure under the conditions present prior to the closure, through honest discussions; second, that this is not the case with arguments made on the day prior to the actual closure, not paginated modifying arguments submitted a few days before by the same party, and adding a few paragraphs in the reasoning.

The arguments submitted by [Seller] on 8 October and 27 October 2004 may not be rejected, therefore, on the one hand, the arguments dated 8 October 2004 were mostly presented before the actual closure but also before the date scheduled for the closure, i.e. 21 October 2004; on the other hand, that regarding the second one, the closure was scheduled for 28 October 2004, but was postponed to 3 November 2004, and SARL Dig. could file its response.

[Seller] requests the Court to dismiss exhibits nos. 38 and 57 submitted by [Buyer], which are presented as a document prepared by Mr. L. on 12 May 2003 based on the document of LCA, but in reality it is a montage of the report of the latter, in which are integrated extracts from the report of the forensic expert, Mr. D., and these extracts were accompanied, in the second exhibit [no. 57], by the writing "integrated by [Buyer]".

Notwithstanding the risk of misunderstanding caused by such a practice, which was not actually realized, such submissions cannot be dismissed, because it is mentioned on the first page of this submission that such a misunderstanding may be avoided because it is clearly and precisely stated and it is reproduced in full here:

"Report of LCA review in light of the observations of the forensic expert

The observations made in the report of Mr. L., forensic expert, are included by [Buyer] in this document of LCA, prepared by [Seller] and authorized:

Summary note regarding the expert opinion prepared by Mr. D. and the need to order additional expert assessment during the judicial proceedings, that is contrary to the opinion of [Buyer] and [Seller].

NB: the original document of LCA was scanned and cut so that the observations made in the report of the forensic expert can be included. The text of the original document was not modified in any way."

In criticizing the judgment regarding the orders of the Court against the [Seller], the [Seller] alleges on the merits that the claim is inadmissible, arguing the following:

   -    In any case, [Seller] is justified to raise the argument of non-delivery, as a result of the expiry of the seller's warranty that is limited to one year. The lawsuit is governed by the Vienna Convention on the International Sale of Goods that provides for a two-year warranty period in Article 39(2) that the parties may freely adjust and reduce, and after which a lawsuit against the [Seller] is time-barred.
 
   -    The reduction to a one-year warranty period, appearing on the orders, was known and accepted by [Buyer], while such period had expired for purposes of the litigation, and it was found that the sales took place between 21 May 1996 and 22 April 1997, with the exception of ten motherboards sold on 1 December 1997 the connectors of which did not burn off; and the complaints had been filed since October 1998 while the lawsuit was filed in January 1998.
 
   -    To avoid this estoppel, [Buyer] cannot meaningfully change the legal basis of its claim after the limitation period expires.
 
   -    Supposing that the provisions in Article 1615 of the Code Civil apply, which is not the case as this is an international sale, the duty to inform related to that issue and set forth in Articles 1604 et seq. of the Code Civil, is within the limitation period for contracts under French law.
 
   -    [Buyer] can no longer meaningfully refer to the provisions in Article 40 of the Vienna Convention, excluding the application of the limited warranty, when the [Seller] knew the facts before the sale took place, as the [Seller] refers to the declarations of [Seller] that the first version [of the goods] was commercialized on 30 April 1996, that the second version was not commercialized and that the first models of the third version were made on 18 November 1990, upon request of the clients, and considering the low cost entailed by installing an additional connector, as well as the fact that this last version came out way after the last order dated 22 April 1997.

[Buyer] made the following arguments on the merits:

   -    [Seller] cannot meaningfully refer to the provisions in Articles 38 and 39 of the Vienna Convention by way of abstracting those from Article 40 of the Convention which excludes the application thereof, when the non-conformity lies in facts that [Seller] had known or could not have been unaware of and which it failed to disclose to the [Buyer].
 
   -    It had raised two legal bases for this before the Court: first, breach of the duty to inform regarding motherboard P6DNF equipped with one connector, second, the failure to perform the obligation to deliver conforming P6DNF motherboards with two connectors.
 
   -    Breach of the duty to inform that the law imposes on the manufacturer, even towards a professional buyer, results from the acknowledgement by [Seller] in October and November 1998 that it had long been aware of the problems communicated by [Buyer], such as the absence of any recommendations or warnings.
 
   -    The breach of the duty to deliver [conforming] goods results from the fact that non-conforming motherboards were delivered and the likelihood of this is based on Article 36 of the Vienna Convention that sets forth the seller's liability even if the defect appears after the risk is transferred [to the buyer].
 
   -    In addition to violation of Articles 1604 and 1605 of the Civil Code and the fact that the Vienna Convention does not set forth any deadline regarding the duty to inform, the provisions in Article 40 of the Convention prevent [Seller] from relying on Article 38 or 39 of the Convention.
 
   -    Since 1996, [Seller] had been aware of the non-conformity of its motherboards but concealed it from [Buyer], and it immediately proceeded with the repair without being able to rely on the opinion which would have allowed to have its own technician repair its own default. Nor was it under any duty to provide any information to [Buyer], since the latter, if it was a professional buyer, was merely assembling the parts and could not have known that a single connector is insufficient to receive a specific amount of electric current, noting that the duty to inform applies throughout the performance of the contract.

The Tribunal de Commerce de Bobigny had held that:

      Contrary to what [Seller] states, the Court officially accepts the forensic expert opinion, noting that the latter did not inform [Buyer] about the limitations regarding the motherboards which caused the above-mentioned malfunction, and the Court confirms that the misconduct of [Seller] had indeed occurred when it failed to give information and warning about the motherboards containing only one connector, and due to its breach of the duty to deliver conforming goods when it failed to deliver motherboards that conform to the requirements of functional use and contain two connectors.

      [Seller] unsuccessfully pleaded that [Buyer] invoked a new legal basis regarding the provisions in Article 565 of the New Code of Civil Procedure.

      The warranty period has nothing to do with the breach of the duty to inform as it is clear that [Seller], who was the only one who knew about the conditions of use and. despite these motherboards were designed for that specific buyer, knew that [Buyer] integrated the motherboards into server systems and workstations.

      Moreover, the instructions of the manual makes reference to "SUPER P6 DNF / P6 SNF", it does not mention anywhere [Seller]'s M. COMPUTER INC. with which only [Buyer] had contracted.

      In addition, the exoneration clause precludes direct damages inconsistent with the provisions of the Code Civil, while it cannot evade liability, under penalty of being held non-existent by the judge, and a debtor who committed a serious or fraudulent default cannot refer to the clause.

      In this case, [Seller] has engaged in fraudulent conduct when it indicated blatantly in its e-mail of 25 November 1998 that it did not discover the problem until 15 months after launching the P6DNF motherboard. Then, first, on 15 October 1998 it indicated that it had installed J 208 and J 31 connectors on the motherboard that increased the amount of electric current that could flow through the motherboard. Second, it had told the expert that it has been working on modifying the motherboards since 1996 and developed three further versions, the second of which was not commercialized and the third one contains a second connector and it is featured in the 1996 catalogue for [Seller]'s motherboards. [Seller] indicated that it manufactured the latter motherboards since 1996 at the same time delivering to [Buyer], concerning which it had made hidden modifications to the first-generation motherboards throughout the year 1997.

The Court of Appeal of Paris ruled that, based on the evidence submitted:

   -    [Buyer], which is engaged in making IT solutions including IT components, ordered for its own clients from the [Seller] several hundred computer motherboards that were delivered between May 1996 and December 1997.
 
   -    In October 1998, following complaints by its clients, [Buyer] complained to its supplier because in certain motherboards the connectors burned.
 
   -    An expert assessment was ordered following the order of the President of the Commercial Court of Bobigny on 16 February 1999.
 
   -    After submission of a preliminary report on 3 November 1999, Mr. D. forensic expert submitted his report on 15 October 2001, upon which the President of the Commercial Court of Bobigny requested an additional report that was submitted on 31 December 2001.

The report of 15 October 2001 includes the following, in particular:

   -    If only certain motherboards are defective and their connector burned and caused malfunctioning of the equipment, all motherboards should be replaced and, in particular, those several hundreds of motherboards that are still in service, because of the risk that may occur.
 
   -    The reason for the defect is that [Seller] did not communicate the limitations regarding use of the motherboards, and in particular, the maximum power input that the connector can withstand, therefore, the connector burned which caused failure of the motherboard and stopped the power.
 
   -    It is possible that the configurations used in France are using more power than those used in the United States, and this has not been sufficiently taken into account, but the problem persisted concerning all configurations where [Buyer] had installed the motherboards.

In his report of 31 December 2001, the forensic expert declared the following:

   -    Based on the examinations, it appears that it has been shown that [Buyer] purchased in May 1996 and January 1998 a set of 45 motherboards, in 21 of which the connector burned down.
 
   -    This incident surprised both [Seller] and [Buyer] The latter had not been informed about limitations regarding the power input in the [Seller]'s motherboards.
 
   -    The only limitation it had been warned of was that the AT standard had to be adhered to regarding both the female part of the connectors and the power input. [Buyer] adhered to all these requirements.

The expert assessment showed another limitation regarding the fact that the single connector installed by [Seller] in the motherboards consisted of four pins, neither of which could withstand more than 25 watts. Yet, the configurations prepared by [Buyer] needed [to withstand] a consumption of up to 73.5 watts.

It also appears that the electric consumption is split between the four pins of the connector, so the connector can withstand up to 100 watts without being damaged, as had been the case with 411 motherboards out of the 445 motherboards purchased.

On the other hand, if there is no equal distribution on the four pins, the danger of burning occurs and this is probably what happened to the motherboards the connectors of which burned down and which are subject to the dispute. Now we understand the concerns that [Buyer] may have regarding the need to improve the configurations of its clients.

Finally, we must also recall that the solution suggested by [Seller] itself was to add a second connector to the motherboards in order to divide the electric current input and also minimize the risk of burning the connectors.

Within the framework of the expert assessment, [Seller] had commissioned technical examination and, in particular, a report by EXPONENT, a laboratory in California (report of 4 August 1999), by the LCA agency (reports of 4 February and 12 April 2000 and 27 December 2001), and by laboratory ISEP.

The obligations of the parties, in this case, arise out of the Vienna Convention of 11 April 1980 as an international sale of goods is involved between two signatory countries of the Convention that is undisputed, resulting that any reference to the Civil Code is inappropriate.

The Vienna Convention contains provisions in Section II on "Conformity of the goods and third party claims."

Article 35

(1) The seller must deliver goods which are of the quantity, quality and description required by the contract and which are contained or packaged in the manner required by the contract.

(2) Except where the parties have agreed otherwise, the goods do not conform with the contract unless they:

(a) are fit for the purposes for which goods of the same description would ordinarily be used;

(b) are fit for any particular purpose expressly or impliedly made known to the seller at the time of the conclusion of the contract, except where the circumstances show that the buyer did not rely, or that it was unreasonable for him to rely, on the seller's skill and judgement;

(c) possess the qualities of goods which the seller has held out to the buyer as a sample or model;

(d) are contained or packaged in the manner usual for such goods or, where there is no such manner, in a manner adequate to preserve and protect the goods.

(3) The seller is not liable under subparagraphs (a) to (d) of the preceding paragraph for any lack of conformity of the goods if at the time of the conclusion of the contract the buyer knew or could not have been unaware of such lack of conformity.

Article 36

(1) The seller is liable in accordance with the contract and this Convention for any lack of conformity which exists at the time when the risk passes to the buyer, even though the lack of conformity becomes apparent only after that time.

(2) The seller is also liable for any lack of conformity which occurs after the time indicated in the preceding paragraph and which is due to a breach of any of his obligations, including a breach of any guarantee that for a period of time the goods will remain fit for their ordinary purpose or for some particular purpose or will retain specified qualities or characteristics.

Article 39

(1) The buyer loses the right to rely on a lack of conformity of the goods if he does not give notice to the seller specifying the nature of the lack of conformity within a reasonable time after he has discovered it or ought to have discovered it.

(2) In any event, the buyer loses the right to rely on a lack of conformity of the goods if he does not give the seller notice thereof at the latest within a period of two years from the date on which the goods were actually handed over to the buyer, unless this time-limit is inconsistent with a contractual period of guarantee.

Article 40

The seller is not entitled to rely on the provisions of articles 38 and 39 if the lack of conformity relates to facts of which he knew or could not have been unaware and which he did not disclose to the buyer.

Whatever is the technical cause of the malfunctioning of the motherboards, as alleged, this is linked to the question whether the motherboards are affected by a lack of conformity regarding the motherboards sold, in light of the Vienna Convention.

It is not contested that all invoices referring to orders regarding the motherboards placed between 21 May 1996 and 1 December 1997 reduce the term of the warranty to one year regarding parts and repair work.

It is not contested that [Buyer] had known at the time of the order about such limitation of the warranty period, and since further orders were placed, the limitation could not have been unknown to it at the time of the second delivery.

It is not disputed that ten motherboards were delivered on 1 December 1997, and they were not among those the connectors of which had burned, previous deliveries took place in April 1997 and the first complaint came in October 1998.

The instructions manual for SUPER P6DNF / P6SNF was provided in the proceedings.

It was unsuccessfully argued that the manual does not make any reference to [Seller] since it is undisputed that the indication SUPER P6 DNF / P6 SNF refers to the motherboards in dispute that were manufactured by [Seller]

It is not contested that the instructions manual for SUPER P6DNF and SUPER P6 SNF provided with the first delivery contained a warranty limitation clause in English language, but its translation by [Seller] was not disputed and it included the following provision:

"In any case, the seller is not liable for direct, indirect, special, incidental or immaterial damages resulted by the use or non-conformity of the product or the documentation, even if it had been informed of such damage ..."

The breach of the duty to inform, as alleged by [Buyer], manifested, first, in failure to give information during the first orders regarding the limitations of the motherboard, and, second, in the failure to communicate regarding future orders the discovery of this limitation and the corrections made by developing the motherboards through adding an additional connector. Such defaults, in this case, relate to the obvious lack of conformity in the sense of the Vienna Convention that encompasses technical defects, as set forth in the provisions cited above. Consequently, the duty to inform relates to and is inherent in the lack of conformity itself, as also acknowledged by [Buyer] itself, because it describes this duty as being accessory to the duty to deliver. Based on the latter, the warranty periods defined in Article 39 of the Convention with the restriction included in Article 40 of the Convention apply to this obligation. This confirms that pre-fixed periods start to run when the goods are handed over to the buyer.

By application of the Vienna Convention, the clauses limiting the term of the warranty period or liability exoneration clauses apply between professionals, which is not necessarily contrary to the argument of [Buyer] which pleads merely the applicable French legal provisions and jurisprudence.

In light of the Convention, both companies are proved to be professionals. The seller company is a commercial company engaged in manufacturing computer motherboards and [Buyer] is a commercial company implementing IT solutions using those components.

In its opposing argument regarding the above-mentioned clause, [Buyer] refers to the fraudulent conduct committed by and resulting from the fact that [Seller] was aware of the [defective] electrical design.

The fraudulent conduct of [Seller] must be evaluated in the present case in light of the provisions of Article 40 of the Vienna Convention, cited above, regarding the situation when the lack of conformity is based on facts the seller knew or could not have been unaware of and which he did not disclose to the buyer. While the Vienna Convention does not impose any presumption of knowledge of the lack of conformity on professional sellers, the burden of proof is on the buyer to prove that the seller had knowledge of both the use and the destination of the product purchased and of the lack of conformity alleged.

In an e-mail on 15 October 1998, the technical service of [Seller] mentioned in response to the questions of [Buyer] that:

"The AT P6 and P9 connectors of the input block and the J 20 input connector on the motherboards support only 15 amperes continuously without overheating and generating the problems you mentioned. Several extensions can be added to the P6 DNF and, with the dual processor design of the motherboard, such limitation regarding the electric current can be overcome in a system containing several units.

"This is why we installed the J 208 and J 31 connectors on the motherboard, which allows for increased flow of electric current through the motherboard. J 208 is an input connector withstanding 5 more volts, which, when used together with P8 and a P9, increases the input power of 5 volts by 75%."

In a communication addressed to the expert on 1 September 1999, [Seller] indicated that, and this does not contradict the contents of the e-mail cited above.

The production history of the P6DNF type motherboards reveals that two generations of motherboards from the type P6 DNF were commercialized.

   -    P6 DNF REV 1. The first models of the motherboard were manufactured on 30 April 1996.
 
   -    P6 DNF REV 2. This motherboard remained in prototype phase and was never commercialized.
 
   -    P 6 DNF REV 3. The first models of this motherboard were manufactured on 18 November 1996.

Following demands from the clients and OEMs [Original equipment manufacturers], and wishing to implement specific configurations for high power, [Seller] had prepared the drawings for motherboard P6 DNF providing on the printed circuit board a place allowing to build in an additional input connector.

This connector could be built in from the manufacturing phase if [Seller] had given the instruction, or by the service technicians of [Seller] if the client had requested it subsequently.

In order to rationalize production and marketing, given the low unit cost of the power connectors, [Seller] decided to build in this connector starting from the second half of 1997, and it was optional until then.

[...]

In fact, the prototypes of the P6 DNF REV 3 motherboards were made in July 1996: even if their production had commenced after that date, they have consistently served well to illustrate the catalogue that [Seller] prepared for COMDEX that received it in November 1996.

In the present case, the fraudulent conduct was not described because:

      On the one hand, for each delivery, [Buyer] limited itself to orders based on the catalogue without asking for specific advice from the [Seller], while such orders subject to fast technological evolution took place throughout a relatively long period, so it was incumbent upon the [Buyer] to inquire, if only by obtaining the latest catalogue, about the conditions of the latest products by [Seller];

      Second, it is not shown in any document that during the production of the first-version motherboards and the first deliveries that [Seller] knew of the limitations regarding use of the motherboards;

      Third, it cannot be inferred from the fact that certain clients requested motherboards suitable for use with higher power, that [Seller] knew that there was a risk for those boards to burn;

      Fourth, no conclusion can be drawn from the fact that a second-version prototype motherboard was manufactured because of the risk [associated with the motherboard];

      Fifth, if a third version of the motherboards, equipped with two connectors, was commercialized in November 1996, this version was not kept covert from this date on, [Buyer] had reported no incidents and the new version was displayed in the 1996 catalogue.

Consequently, because of the clause limiting the warranty period as well as the liability exoneration provisions, all claims of [Buyer] must be dismissed.

Equity mandates to order [Buyer] to pay a sum of EUR 9,000 to [Seller] under Article 700 of the New Code of Civil Procedure.

[Buyer] is ordered to pay all costs of the first instance proceedings, including the costs regarding the forensic expert, as well as the costs of the appeal, added up. The judgment is reversed relating to the costs.

FOR THE ABOVE REASONS

The Court reverses the judgment, making new rulings and adding that:

   -    All claims of [Buyer] are inadmissible;
   -    Orders [Buyer] to pay a sum of EUR 9,000 to [Seller] under Article 700 of the New Code of Civil Procedure;
   -    Orders [Buyer] to pay the costs of the first instance proceedings, including the costs of the forensic expert and the costs of the appeal; and
   -    Grants SCP B.G. the right set forth in Article 699 of the New Code of Civil Procedure


FOOTNOTES

* All translations should be cross-checked against the original text. For purposes of this translation, Defendant of the United States is referred to as [Seller] and Plaintiff of France is referred to as [Buyer]. Amounts in the former currency of France (French francs) and indicated as [f], amounts in European currency (Euro) are indicated as [EUR].

** Andrea Vincze is a Fellow of the Institute of International Commercial Law of Pace University School of Law. She received her law degree from the University of Miskolc, Hungary, and her LL.M. at Pace Law School. She is working on her Ph.D. on ICSID arbitration, and is researching international commercial law and ADR.

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Pace Law School Institute of International Commercial Law - Last updated January 5, 2010
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