Austria 23 May 2005 Supreme Court (Coffee machines case) [translation available]
[Cite as: http://cisgw3.law.pace.edu/cases/050523a3.html]
DATE OF DECISION:
CASE NUMBER/DOCKET NUMBER: 3 Ob 193/04k
CASE HISTORY: 1st instance Landesgerichts Graz (GZ 16 Cg 170/97y-105) 12 January 2004; 2d instance Oberlandesgerichts Graz (GZ 2 R 52/04s-110) 3 May 2004 [affirmed]
SELLER'S COUNTRY: Italy (plaintiff)
BUYER'S COUNTRY: Austria (defendant)
GOODS INVOLVED: Coffee machines
AUSTRIA: Oberster Gerichtshof 23 May 2005
Case law on UNCITRAL texts (CLOUT) abstract no. 747
Reproduced with permission of UNCITRAL
Abstract prepared by Matthias Potyka
The seller sold coffee machines to the buyer, who resold it to its customers. The coffee machines were defective and several attempts to repair them were made in vain. The defects were so serious that the coffee machines had no commercial value at all. The buyer refused to pay the price, but it had lost the right to declare the contract avoided according to article 49 CISG, as it had not acted within reasonable time. Therefore, it argued that, pursuant to article 50 CISG, it was entitled to reduce the price to zero.
The Supreme Court ruled that article 50 CISG could be applied in cases were the buyer (in principle) could declare the contract avoided according to article 49 CISG and it allowed the buyer to reduce the price to zero if the goods had no value at all.Go to Case Table of Contents
APPLICATION OF CISG: Yes
APPLICABLE CISG PROVISIONS AND ISSUES
Key CISG provisions at issue:
Classification of issues using UNCITRAL classification code numbers:
40B [Seller's knowledge of non-conformity (sanction): seller loses right to rely on articles 38 and 39]; 50A [Buyer's right to reduce price for non-conforming goods]
40B [Seller's knowledge of non-conformity (sanction): seller loses right to rely on articles 38 and 39];
50A [Buyer's right to reduce price for non-conforming goods]
CITATIONS TO OTHER ABSTRACTS OF DECISION
English: Unilex database <http://www.unilex.info/case.cfm?pid=1&do=case&id=1040&step=Abstract>
CITATIONS TO TEXT OF DECISION
Original language (German): Austria Supreme Court website [go to <http://www.ris.bka.gv.at/jus/>, check "jus texte" box, enter "3 Ob 193/04k" as "suchworte", click "suche starten"]; Unilex database <http://www.unilex.info/case.cfm?pid=1&do=case&id=1040&step=FullText>; IHR 2005, 165; ÖJZ 2005, 761 and JBI 2005, 787
Translation (English): Text presented below
CITATIONS TO COMMENTS ON DECISION
English: Schwenzer & Fountoulakis ed., International Sales Law, Routledge-Cavendish (2007) at p. 395
French: Claude Witz, Recueil Dalloz (22 February 2007) 540Go to Case Table of Contents
Queen Mary Case Translation Programme
23 May 2005 [OGH Ob193/04k]
Translation [*] by Sabine Kossebau [**]
Translation edited by Stella Heyken [***]
The Supreme Court, sitting in a closed session as an Appellate Court, through the Chamber President of the Supreme Court Dr. Schiemer as Chairman, and Privy Councillors of the Supreme Court Dr. Pimmer, Dr. Zechner, Dr. Sailer and Dr. Jensik as further judges, rendered the following decision in the dispute between
Plaintiff [Seller] G***** S.r.l.[*] Italian, represented by Dr. Peter Schlösser and Dr. Christian Schoberl, attorneys in Graz,
Defendant [Buyer], M***** GmbH,[*] represented by Dr. Willibald Rath, Dr. Manfred Rath, Mag. Gerhard Stingl and Mag. Georg Dieter, attorneys in Graz
Concerning the sum of 10,173.03 EURO [*] plus interest and further expenses pursuant to the [Seller]'s appeal against the decision of the Oberlandesgericht [Appellate Court] of Graz of 3 May 2004, GZ 2 R 52/04s-110, in which, following the appeal of the [Seller] concerning the decision of the Landesgericht [District Court] of Graz of 12 January 2004, case no. GZ 16 Cg 170/97y-105, the decision of the District Court was upheld in the main points:
The [Seller]'s appeal is not granted.
The [Seller] is ordered to reimburse the [Buyer] for the expenses of the appellate proceeding in the amount of 572.58 EURO (including 95.43 EURO turnover tax) within fourteen days.
[GROUNDS FOR THE DECISION]
In the appellate proceedings, the application of the UN Convention for the International Sales of Goods of 11 April 1980, (hereinafter CISG), ratified on 1 January 1989 in Austria and on 1 January 1988 in Italy, is not in dispute anymore. The point at issue in the appeal is the admissibility of a reduction of price to zero in accordance with Art. 50 CISG.
The Defendant [Buyer], an Italian company with a branch in Austria, bought coffee machines for resale purposes from the Plaintiff [Seller], an Austrian company with a dependence in Italy, starting in early 1995. At first, the coffee machines were paid in cash; later on, dates for payment were granted. The resale to customers of the [Buyer] was at about cost-price. [Buyer]'s profit was to be made by also providing the customers with the coffee for the machines (which was also obtained from the [Seller]). This was known to the [Seller] from the beginning of the contractual relationship.
About a month after the installation of the first coffee machines at the [Buyer]'s customers, the first complaints were made; mainly short circuits and water loss were named. These technical problems were known to the [Seller] from the very beginning and were constantly criticized by the [Buyer]. Attempts by the [Buyer], as well as by the [Seller], to repair the machines did not deliver enduring results; the repaired machines became defective again after a short time.
Set-up and construction of the coffee machines are very simple. However, the safety contact switch for the level of water in the water tank does not correspond to the state of engineering. Furthermore the mechanical devices (levers, coffee tablet holder) are implemented with high tolerances for adjusting, so that leakages may occur after the shortest intended use, which does not allow a continuous use for coffee preparation. The malfunctions are primarily caused by a conductive connection between the heating coil and the bottom flange of the heating container. Heat and lime deposits are sufficient to lead to a leak in the gasket. The escaping water causes conductive connections on the inner exposed parts of the electronic connections, and thus short circuits. From a technical point of view, the elimination of the construction flaws would be possible. For a short-time repair of these leakages, one hour of work per machine would be needed. A machine, repaired like this, could be used for some time, but not indefinitely.
The relevant invoices regarding the matter in dispute are account no. 3501 of 7 February 1995 regarding ten coffee machines of the type Cialdina V220/50 totaling 3,325,000 Italian lire [LIT] and account no. 23301 of 2 October 1995 regarding 50 coffee machines of this type totaling 16,500,000 LIT.
Due to complaints, there was correspondence back and forth about the invoices in early 1996. In a letter of 13 March 1996, the [Buyer] pointed out that it would not accept the invoices because it had not received any satisfactory answer to its complaints.
By the end of 1996 and in early 1997, the [Buyer] decided to return to the [Seller] the broken machines as well as some unused and unpacked machines. However, after the delivery drive to Italy had already started, the [Buyer]'s employee was informed by the [Seller] by telephone that the machines would only be taken back if the invoices would be settled. After that, the machines were not returned.
There is no serious purchase interest in goods with such defects; because of that the machines are without value and unsalable.
The [Seller] demanded payment of the open invoices out of the sales contract concluded with the [Buyer] amounting to 139,984 Austrian schillings [As] = 10,173.03 EURO. The [Buyer] objected since the machines were faulty, not usable and therefore without value, the [Seller]'s demand was unjustified.
The Court of First Instance rejected [Seller]'s payment demand as well as [Seller]'s demand for restitution in the first legal procedure. This verdict was affirmed as a partial verdict (arisen into legal validity) by the Court of Appeal concerning the refusal of the demand for restitution; however, it cancelled the verdict concerning the demand for payment and returned the case to the Court of First Instance after procedural enhancements. This reversal decision was not challenged by the parties even though the right to appeal to the Supreme Court was granted.
The Court of First Instance again rejected the [Seller]'s payment demand in the second legal procedure; it laid down the facts presented in the beginning and stated regarding the opinion of law of the Court of Appeal in the reversal decision, that the defects of the machines made them valueless and unsalable which would as a result lead to a nonsuit. This leads to a dismissal of the [Seller]'s action to recover the price.
The Court of Appeal affirmed this verdict regarding the principal claim. It stated that the faults of the product -- which were known to the [Seller] from the beginning (cf. Art. 40 CISG) -- justified a price reduction according to Art. 50 CISG.
The relative calculation method ordered by Art. 50 CISG resulted in a reduction of the price to zero since the delivered goods were worthless. The CISG does not restrict the price reduction to insignificant or recoverable defects. There is also no contradiction with the right of avoidance, which is limited to a certain period of time (cf. Art. 49(2) CISG): A fundamental breach of contract might already be in place in the case of slight defects or delays if they were of a contractually manifested, basic importance for one of the contracting parties.
The decrease in value is tied to the objective value of the product. The reduction to zero therefore is -- in contrast to avoidance of contract -- only possible in extreme cases (like the one at hand). This justified the reduction even though the right to avoidance is excluded.
Granted according to Art. 48 CISG, sellers have a right to remedy their failure to perform their obligations. But, in accordance with the clear wording of Art. 50 CISG, the right to price reduction is only excluded, if the remedy was carried out or else not allowed by the buyer. This, however, has not been claimed here.
The appeal [revision] to the Supreme Court by the [Seller] - allowed by the Court of Appeal stating that there was no Supreme Court ruling regarding the possibility of a complete decrease in value to zero in accordance with Art. 50 CISG -- is permitted for the reason stated by the Court of Appeal.
Pursuant to established practice of the courts (SZ [*] 69/251; RIS-Justiz RS0042991 [*]), revision and reasons for revision are not in themselves restricted because the possibility given by the Court of Appeal to call on the Supreme Court earlier had not been used. But in the opinion of the Second Instance, the question could be raised if this view can be upheld in the face of the successive restriction of admissibility of appeals in the civil proceedings amendments until 1997 and especially in the face of the provisions to expedite procedures in the civil procedure amendments of 2002. It would be against the amendments underlying goal to concentrate procedures to give parties a "second chance" when they previously had failed to bring about the expressly enabled clarification of the legal position. From that, it would be possible to deduce a bond of the parties to the unchallenged legal position. In that case, the existence of a substantial question of law would have to be denied.
The codified provisions provide no basis for these kinds of considerations. Under current legal rulings, the failure to use the permitted redress to the Supreme Court given by the Court of Appeal against its ruling does not lead to a limitation concerning the contest by appeal against the revision-ruling that is then made in the Second Instance. The [Seller]'s appeal is nonetheless not justified.
The assessment of the legal consequences concerning the delivery of the worthless goods has to be done in accordance with CISG Art. 50, because - as it is likewise not contested in the revision proceedings - the [Buyer] failed to avoid the contract because of a fundamental breach within a reasonable time as imposed under CISG Art. 49(2)(b). The [Buyer] bases its position in the appeal proceedings therefore only on CISG Art. 50, whose first sentence reads:
The CISG does not set a period of time for the buyer's desire to reduce price (Posch in Schwimann, ABGB2 Art. 50 CISG para.4). In contrast to § 932 ABGB [*], it is not the date at which the contract was concluded that is crucial for reduction of price but date of delivery (Posch, as before, CISG Art. 50, para. 6). At hand, the goods delivered by the [Seller] were at that date absolutely worthless and unsaleable.
The question is whether CISG Art. 50 entitles the [Buyer] to reduce the price to zero when the goods are absolutely worthless.
In case of an evident complete worthlessness of the goods, the enforceability of a price reduction is therefore excluded from the start. Because of the systematic precedence of the right to avoidance, the buyer in such cases could only have the legal remedy of avoidance at its disposal. CISG Art. 83 would not oppose this, as the right to a price reduction never existed in the first place and therefore could not "go on" existing after the loss of the right to avoidance.
The buyer's right to reduction of price in accordance with CISG Art. 50 is not subordinate to the right to avoid the contract according to CISG Art. 49. Even a - in this case only suggested - "systematic precedence of the right to avoidance", as Schnyder/Straub (s.a. para. 46) see it, could in no way lead to the result that a buyer of goods that are totally worthless because of a defect is worse off than a buyer of goods that are grossly defective but anyway have some minor worth. This is because CISG Art. 50 gives the buyer the right to reduce the price even with an insignificant defect. The circumstance that CISG Art. 50 does not provide for the return of the worthless goods to the seller is not relevant in this case, as the [Seller] never demanded the return of the worthless goods in return against the reimbursement of the contract price. Only if such a demand existed, i.e., if the return of the generally totally worthless goods would be a matter of importance (exceptionally) for the seller, could the demand for a return of the contract price on the legal grounds of price reduction to zero in accordance with CISG Art. 50 be dependent on the return of the totally worthless goods to the seller.
The CISG creates substantive law (Welser in Koziol/Welser, Grundriss 12 I, 170 and FN 91) and is to be interpreted autonomously in accordance with CISG Art. 7. Therefore, discussions on the Austrian legal situation (cf. case no. 3 Ob 130/97g et al.) have to be omitted and it is to be primarily interpreted by its literal sense (Posch s.a. CISG Art. 7 para. 9; Kramer, Uniforme Interpretation von Einheitsprivatrecht - mit besonderer Berücksichtigung von Art. 7 UNKR in JB1 1996, 137 et seq., 142).
The legal remedy pursuant to CISG Art. 50 is, according to its text, not restricted to certain cases. Summarizing, this Court, the recognizing Chamber of the Supreme Court, comes to the following conclusion:
As far as the [Seller] in its appeal questions the total worthlessness of the delivered goods, the [Seller] is removing itself from the facts found by the previous instances to which the Supreme Court nonetheless is bound. The appeal of the [Seller] is without success.
The decision on costs is based on §§ 41, 50 ZPO [*].
* All translations should be verified by cross-checking against the original text. For purposes of this translation, the Plaintiff of Italy is referred to as [Seller] and the Defendant of Austria is referred to as [Buyer]. Amounts in the former currency of Austria (Austrian schilling) are indicated as [As]; amounts in the former currency of Italy (Italian lire) are indicated as [LIT]; amounts in the currency of the European Union are indicated as [EURO].
Translator's note on other abbreviations: ABGB = Allgemeines Bürgerliches Gesetzbuch [Austrian Civil Code]; GmbH = Gessellschaft mit beschränkter Haftung [limited liability company]; RIS-Justiz = Rechtsinformationssytem Justiz [Austrian law information system]; S.r.l. = Societa a responsibilita limitata [limited liability company]; SZ = Amtliche Entscheidungssammlung [Official Austrian decision database]; ZPO = Zivilprozessordnung [Austrian Civil Procedure Code].
** Sabine Kossebau, student of law at the University of Hanover, Germany, member of 2004/5 University of Hannover Willem C. Vis Moot team.
*** Stella Heyken is a law student at the University of Osnabrück, Germany.Go to Case Table of Contents