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CISG CASE PRESENTATION

Finland 24 May 2005 Hovioikeus / hovrätt [Appellate Court] Turku (Radiated spice case) [Editorial analysis available]
[Cite as: http://cisgw3.law.pace.edu/cases/050524f5.html]

Primary source(s) of information for case presentation: Jarno Vanto

Case Table of Contents


Case identification

DATE OF DECISION: 20050524 (24 May 2005)

JURISDICTION: Finland

TRIBUNAL: HO Turku [HO = Hoviokeus / hovrätt = Appellate Court]

JUDGE(S): Unavailable

CASE NUMBER/DOCKET NUMBER: S 04/1600

CASE NAME: MP Mausepalvelu v. Omega Spice s.l.

CASE HISTORY: 1st instance District Court of Hämeenlinna (S 03/2166) 19 May 2004 [affirmed, damages increased]

SELLER'S COUNTRY: Spain (defendant)

BUYER'S COUNTRY: Finland (plaintiff)

GOODS INVOLVED: Paprika powder for use in spice mixes that was radiation treated, rather than steam treated to reduce microbe levels


UNCITRAL case abstract

FINLAND: Hovioikeus / hovrätt [Appellate Court] Turku 24 May 2005
(MP Mausepalvelu v. Omega Spice s.l.)

Case law on UNCITRAL texts [A/CN.9/SER.C/ABSTRACTS/122]
CLOUT abstract no. 1182

Reproduced with permission of UNCITRAL

Abstract prepared by Jarno J. Vanto

This decision by the Turku Court of Appeals is primarily concerned with damages under Articles 74 and 77 CISG.

The Spanish defendant (seller) entered into a contract with the Finnish plaintiff (buyer) for the sale of 40 tons of paprika powder (“powder”) for use in various spice mixes intended for onward sale. The contract specified that the powder needed to be steam-treated to reduce any microbe levels therein. However, laboratory sample tests established that the powder had been treated with radiation instead of steam. Under a European Union directive applicable to Finland and Spain, all consumer products treated with radiation must be marked as such in the packaging of the goods. According to the buyer, Finnish consumers do not wish to purchase products treated with radiation, rendering the powder useless for the purpose for which the buyer intended it.

The issues of the case were whether the buyer had given notice on time; whether the seller was in breach of contract because the powder was radiation-treated; if the seller was in breach of contract, did this cause damage to the buyer; what was the quantum of damages; and whether the seller is liable for such damage. Vis-ā-vis the conformity of the goods under Article 35(1) CISG, the court concluded that even though the contract specified steam treatment and did not specifically exclude radiation treatment, both the buyer and the seller were experienced operators in the field and the seller ought to have considered in the light of the Directive that even in the absence of a specific contractual exclusion radiation treatment was out of the question. Hence, the court concluded that the goods were not in conformity with the contract and the seller was in breach of the contract under Article 35(1).

On the buyer’s timely notice to the seller about the non-conformity of the goods, the court stated that because the buyer had contacted the seller immediately after having learned of the non-conformity, as established by a government test laboratory, the buyer had given notice within a reasonable time as required under Article 39(1) CISG.

On damages, the court, quoting Article 74 CISG, first concluded that in determining damages the starting point is the economic position where the aggrieved party would have been if the contract had been performed correctly. Hence, the court stated that the amount of damages can be higher than the face value of the contract. According to the court, the seller knew that the buyer would incorporate the powder into its own products that would be sold onwards to the buyer’s customers. Therefore, the seller must have understood at the time the contract was entered into that the buyer would not be able to deliver to its customers should the seller deliver non-conforming goods and that such a breach of the contract would cause damage to the buyer.

As damages, the buyer claimed compensation it gave to its own customers for pulling the tainted products from the market, expenses resulting from buying back the tainted products from its customers, expenses resulting from destroying the tainted goods and related inventory write-downs, and expenses relating to examining the issue including wages, travel expenses, freight costs, chemical analysis costs, and destruction costs. The court determined that each of the items claimed by the buyer is recoverable under Article 74 CISG.

The court went on to consider whether the seller’s failure to perform its obligations was due to an impediment beyond its control that the seller could not reasonably be expected to have taken into account at the time of the conclusion of the contract or to have avoided or overcome it or its consequences in the sense of Article 79 CISG.

The court concluded in the negative. Finally, the court considered whether the buyer could have mitigated its damages as required under Article 77 CISG. The Appellate Court, agreeing with the Court of First Instance and relying on the facts as established by the lower court, determined that the buyer had not failed to mitigate its damages.

As the exact amount of some of the items claimed by the buyer as damages could not be determined to a sufficient degree, the court, following the procedural rules of the forum, awarded reasonable damages to the buyer.

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Classification of issues present

APPLICATION OF CISG: Yes

APPLICABLE CISG PROVISIONS AND ISSUES

Key CISG provisions at issue: Articles 35 ; 39 ; 74 ; 77 [Also cited: Articles 48 ; 79 ]

Classification of issues using UNCITRAL classification code numbers:

35B [Conformity of goods to contract: requirements implied by law];

39A2 [Requirement to notify seller of lack of conformity: buyer must notify seller within reasonable time];

74A ; 74B ; 74C [General rule for measuring damages: loss suffered as consequence of breach: Outer limits of damages: foreseeability of loss; Other issues: proof of damages];

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

Descriptors: Conformity of goods ; Damages ; Foreseeability of damages ; Proof of damages ; Mitigation of loss

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Editorial remarks

EDITOR: Sanna Kuoppala

Excerpt from "The Application and Interpretation of the CISG in Finnish Case Law 1997-2005" (April 2009)

TURKU COURT OF APPEAL, S 04/1600 (24 MAY 2005)

10.1   Classification of the issues present
10.2   Applicable law
10.3   Conformity of the goods
         10.3.1   Buyer's claim in the District Court
         10.3.2   Seller's reply in the District Court
         10.3.3   Demands in the Court of Appeal
         10.3.4   Decision on the conformity of the goods
                     10.3.4.1   Contents of the contract
                     10.3.4.2   Lack of conformity of the goods
         10.3.5   Decision on the conformity of the goods analysed
10.4   Examination of the goods and the notice of non-conformity
         10.4.1   Facts of the case
         10.4.2   Decision on the examination of the goods and the notice of non-conformity
         10.4.3   Court's decision on examination and the notice analysed
10.5   Exemption for liability to pay damages
         10.5.1   Facts of the case
         10.5.2   Sphere of application of Article 79
         10.5.3   Conditions for exemption
         10.5.4   Decision on exemption
10.6   Damages
         10.6.1   Buyer's claim in the District Court
         10.6.2   Seller's reply in the District Court
         10.6.3   Demands in the Court of Appeal
         10.6.4   Mitigation of the damages
         10.6.5   Decision of the District Court on damages
         10.6.6   Decision of the Court of Appeal on damages
         10.6.7   Legal costs
         10.6.8   Decision on damages analysed
                     10.6.8.1   Foreseeability of damages and mitigation
                     10.6.8.2   Conciliation

[...]

10.1 Classification of the issues present

The case involved a sale of powdered paprika from a Spanish Seller (the defendant) to a Finnish Buyer (the plaintiff). The questions in dispute included:

   -    Whether the delivered paprika conformed with the contract and was there a lack of conformity in the goods?:
   -    Had the Buyer given notice of the non-conformity in time?; and
   -    Was the Seller liable for damages caused to the Buyer because of the defect?

The decision of the Court of Appeal affirmed the decision of the District Court of Hämeenlinna, S 03/2166 (19 May 2004) on its conclusions. The amount of damages was however increased. Another commentary of the case is available in Finnish by docent Tuula Ämmälä in Oikeustieto 1/2006.[567]

10.2 Applicable law

Neither the District Court nor the Court of Appeal analysed the issue of applicable law as such; the CISG was applied without any question. The Buyer's claim in the District Court simply stated that as there was no reference to the applicable law in the contract between the parties, the applicable law was the international sales law. In its reply the Seller simply referred to the applicable CISG provisions. In Finland the CISG came into force on 1 January 1989 and in Spain on 1 August 1991. By way of Article 1(1)(a), the CISG was applicable to the contract of sale in question as the parties to the contract of sale had their places of business in different Contracting States.

One specific weakness lies in the actual judgements of the case. Neither the District Court nor the Court of Appeal stated anywhere in the reasoning that the Seller, Omega Spice S.r.l. was a Spanish Company and the Buyer, MP-Maustepalvelu Oy, a Finnish Company. The places of businesses of the parties are clearly revealed by the written evidence examined by the courts and attached to the rulings but all relevant information should be referred in actual ruling as well.

In addition, when summarizing the Buyer's claim, the District Court informed that from thereon the reference to the CISG was to be 'kauppalaki', i.e. sales law. This is misleading as in Finland the term 'kauppalaki' is customarily used in connection with the Finnish Sale of Goods Act. The CISG, on the other hand, is referred to as UN Sales Law or International Sales Law.[568] In its summary of claims and reply, the Court of Appeal referred to the UN Sales Law and in its reasoning more specifically to the Convention on Contracts for the International Sale of Goods, which approach is more appropriate that the one adopted by the District Court.

As to the issues not covered by the CISG, i.e. the rate of interest and the conciliation, the reasoning of the Courts did not cover the problem of applicable law. The Finnish Interest Act was applied and also the rules on conciliation were applied. In Finland, the Act on the Law Applicable to the Sale of Goods of International Character determines the applicable law in relation to international sales of goods. According to that Act, Section 4, subsection 1, in the absence of a choice of law -- express or implied -- the sale shall be governed by the law of the State where the seller's business is situated. However, if the buyer placed the order in the State where the buyer owns a business and the seller or his agent received the order in said State, the sale shall be governed by the law of the buyer's State (Section 4, subsection 2). Whether the vourts applied the Finnish law in relation to the issues not covered by the CISG by way of agreement between the parties or by way of the rule provided for in Section 4, subsection 2 is unclear. Nor is the writer aware whether the result would have differed had the Spanish law been applied.

10.3 Conformity of the goods

10.3.1 Buyer's claim in the District Court

The Buyer demanded that the Seller br ordered to pay damages based on the contract in the amount of 161,098.07 euros with interest. The Buyer and the Seller had concluded a contract on 30 November 2000 according to which the Seller committed itself to deliver to the Buyer powdered paprika the amount of 40,000 kilos between 1 December 2000 and 30 November 2001. The powdered paprika was intended for the seasoning mixes the Buyer delivered to its own customers. According to the contract, the powdered paprika was to be treated with steam, for which the Seller was responsible under the contract. During the contract period, the Seller was the only party delivering paprika to the Buyer. However, the powdered paprika that was delivered was not in conformity with the contract, but it was radiation exposed paprika powder that caused damages to the Buyer. Thus there was a lack of conformity in the goods.

The Buyer had delivered seasoning mixes including the paprika powder acquired from the Seller to several of its clients. These clients had forwarded products where seasoning mixes were used to the market. Because of insufficient markings in the trade description, the clients were forced to withdraw the products from the market. European Union Directive 1999/2/EC that came into force on 20 October 2000 requires that products that are radiated must be labelled accordingly (according to the transitional provisions food stuffs radiated in accordance with the provisions in effect earlier were allowed to be sold until 15 March 2001).

The contract between the parties had no reference to the applicable law, but the law applicable to the contractual relationship was the international sales law. According to CISG Articles 35 and 45 the seller must deliver goods which are as required by the contract and, in case of the breach of contract, the buyer, is among other things, entitled to claim damages.

10.3.2 Seller's reply in the District Court

The Seller demanded that the claim be dismissed or at least that the demands be conciliated as unreasonable.

The Seller had delivered to the Buyer 31,000 kilos of powdered paprika as required by the contract. The Buyer had returned 4,210 kilos of the delivered paprika. Before the EU directive that came into force on 15 March 2001, the Seller had delivered 12,000 kilos of paprika on 3 November 2000, 25 November 2000, 8 February 2001 and on 9 March 2001. The powdered paprika the Seller had delivered to the Buyer had been treated with steam thus it was in accordance with the contract. The paprika had not been radiated. If the product had been radiated, the Seller had not radiated it itself nor was the Seller aware of the radiation.

As the EU Directive obliged only to label the product or its ingredient as radiated, there could not have been a lack of conformity in the goods at least in relations to the products delivered before the Directive came into force.

10.3.3 Demands in the Court of Appeal

The Buyer was awarded 90,000 euros in damages in the District Court. In its appeal, the Buyer demanded that the damages should be awarded as required in the original claim. The Seller demanded in its appeal that the Buyer's claim should be dismissed, that the Seller be released from all liability for damages, and that the Buyer be ordered to compensate the Seller's legal costs. As a subsidiary claim, the Seller demanded that the amount of damages, legal costs and expenses incurred by the persons interested should be decreased.

In the Court of Appeal, the claims of the parties were based mainly on the same arguments that were presented in the District Court. The Buyer stated that the contract between the Buyer and its own clients included a term according to which the seasoning mixes were not allowed to include radiated ingredients. On the basis of this, the Buyer had been liable for damages towards its own customers. The fact whether the goods delivered by the Seller had been suitable foodstuff had no relevance in relation to the damages. The Food Agency had ordered the local authorities to supervise that the companies using the powdered paprika delivered by the Seller before 20 September 2001 or seasoning mixes including that powder label the foodstuff produced on 15 November or later with radiation information. Foodstuff produced before 15 November 2001 did not require such labelling. This exception applied only in relation to the products already on sale in the stores that were impossible to track down. The products the Buyer had compensated to his own customers were not in stores but in its customers' warehouses. The Buyer's customers could not have sold products including the said powdered paprika until 15 November 2001 without changing the labels.

The Seller stated that the original contract had no mention of radiation. Even if part of the goods delivered had been radiated in addition to the steam treatment, this did not mean that the goods did not conform with the contract. There was no lack of conformity in the goods as provided for in Article 35. Before the entry into force of the Directive, the Buyer's own customers had no objections that their products included radiated ingredients. The radiation became a problem only after the Directive was changed so that the products were to be labelled with radiation every time they included radiated ingredients.

In its reply to the Seller's appeal, the Buyer pointed out that the contract specifically required steam treatment of the powdered paprika and no other treatments were allowed. During the contract period, the Buyer had specifically required a certificate from the Seller stating that the powdered paprika was not radiated at any case. All the damages had incurred in relation to the paprika delivered after this certificate was issued.

The goods delivered by the Seller had not included a label informing about the radiation even though the Directive required that. The fact who had radiated the products had no relevance to the issue. Later, it had been revealed that the Seller had delivered powdered paprika to the Buyer that had originated from Peru and Zimbabwe even though the Seller had informed the Buyer that it had delivered powdered paprika originating from Spain. The Seller had been passive in solving the issue on damages, thus the Buyer had been forced to gather information by itself. The damages incurred had been foreseeable and not distant and unusual. The contract period had been 1 December 2000 to 30 November 2001. The contract had been avoided silently. The value of the contract or the amount paid under the contract had no relevance to the issue. The actual purchase price had been 64,777.50 euros. There was no Article in the CISG that would allow the conciliation of damages.

10.3.4 Decision on the conformity of the goods

10.3.4.1 Contents of the contract

Firstly, the District Court referred to CISG Article 35 paragraph (1). The seller must deliver goods which are of the quantity, quality and description required by the contract and which are packaged in the manner required by the contract.

On 30 November 2000, the Buyer and the Seller had agreed that the Seller would deliver to the Buyer, among the other things, 40,000 kilos of steam treated powdered paprika packed in bags of 25 kilos between 1 December 2000 and 30 November 2001. According to this contract, before 18 September 2001, the Seller had delivered to the Buyer 31,000 kilos (33,000 kilos as corrected by the Court of Appeal) of powdered paprika of which the Buyer had returned to the Seller 4,120 kilos (4,210 kilos as corrected by the Court of Appeal). The Buyer had used the powdered paprika in the seasoning mixes it had produced in accordance with its customers' recipes.

The Buyer had not argued that the powdered paprika had not been steam treated but it had argued that in addition to the steam treatment the powdered paprika had also been radiated which was contrary to the contract. Both steam treatment and radiation were used in order to extend the preservation of foodstuffs by reducing the amount of microbes. However, only radiation was regulated exhaustively. In Finland, it had been allowed to radiate mainly dried spices but the radiation had had to be mentioned on the label of the spices. This standard of procedure could have been deviated only when the radiated spice had been used as an ingredient of the foodstuff. Thus, in these cases, it had not been necessary to label the goods with radiation as long as the amount of the ingredient did not exceed 5 percent (13 November 1987/844).[569]

The European Parliament and the Council issued on 22 February 1999 a Directive 1999/2/EC on the approximation of the laws of the Member States concerning foods and food ingredients treated with ionising radiation and a Directive 1999/3/EC on the establishment of a Community list of foods and food ingredients treated with ionising radiation. Finland ratified the Directives by the Decree of the Ministry of Trade and Industry on the processing of foods by ionizing radiation 852/2000. This ratification decree provided that the Directive concerning foods and food ingredients treated with ionising radiation came into force on 20 October 2000, but according to the transitional provisions food stuffs radiated in accordance with the provisions in force earlier were allowed to be sold until 20 March 2001 (15 March 2001 as corrected by the Court of Appeal). In effect, the Directive means that the labelling of the products has tightened in a way that the radiation of any of the ingredients has to be mentioned every time in the label regardless of the amount of the said ingredient. The radiation labelling must be attached in all products and documents relating to them sold to consumers, catering, industry or retail.

The Buyer's witness (the purchase manager Ulla Valkama) told that during 1999 the Seller contacted the Buyer and parties had negotiations in relation to delivering powdered paprika. At that time, the parties were aware of the regulations required by the Directive. Because of this, the steam treatment was specifically required. Furthermore, in Finland the consumers were not willing to buy products where the label stated that they had been radiated. Thus all the Buyer's own customers had required seasoning mixes that did not include spices that had been radiated. Because of this, the Buyer's customers had demanded assurance from the Buyer that the seasoning mixes did not include such spices. For this purpose, the Buyer itself had asked its own suppliers for similar accounts (written evidence number 7-16). When asking the Seller to deliver such a statement in the spring of 2001, the Seller was unable to provide one as Seller had a supplier in Zimbabwe that was not able to provide such a statement. The Seller provided the Buyer such certificate on 11 September 2001 (written evidence number 34).

The contract between the parties did not mention radiation but included a specific demand for steam treatment. Both the Seller and the Buyer were professionals in the field and had operated a long time. Both parties were bound by the regulations provided for in the said Directive. Because the steam treatment and the radiation were meant to achieve the same results, a professional in the field had to understand, taking into consideration the regulations of the said Directive, that the Buyer would not accept radiation at any circumstances even though this was not specifically stated in the contract. This view was supported by the fact that in the spring of 2001 the Buyer requested a certificate stating that the powdered paprika was not radiated at any case.

On the basis of the above, the District Court held that it had been proven that the powdered paprika did not conform with the contract if it was radiated instead of steam treatment.

10.3.4.2 Lack of conformity of the goods

Written evidence number 4 showed the consignments of the powdered paprika delivered to the Buyer -- including their suppliers, dates of delivery and specifically added purchase number which -- according to the Buyer's witness, Quality Manager Leena Ruponen, remained the same throughout the processing so that each consignment could be traced all the way to the recipes.

Written evidence number 3 showed a summary of the samples send to the Customs laboratory including information about the supplier, dates of delivery or dates of manufacturing of the spice mix and the laboratory results. In addition to these seasoning mixes, the Buyer had given the powdered paprika delivered by the Seller to the Buyer between 9 January 2001 and 30 August 2001 to be inspected. Also those instalments included an ingredient that had been radiated. At the same time, the Buyer had inspected several other seasoning mixes and spices that did not include powdered paprika delivered by the Seller, none of which included a radiated ingredient.

According to the Buyer's witness -- Quality Manager Leena Ruponen -- the written evidence number 6 showed that the only combining factor was the powdered paprika. It showed a list of seasoning mixes that included powdered paprika delivered by the Seller and that had been found to be radiated (written evidence number 3). The witness told further that the inspections could have been conducted as the Buyer habitually took a sample from each instalment delivery for possible inspections and the last two samples were stored. Samples from the instalments delivered by the Seller on 11 June 2001 and 30 August 2001 were still usable and also two bags from 20 June 2001 and from 30 August were recovered from the storage. No inspections had been conducted on the instalment delivered on 19 June 2001. The results from the inspections showed which instalments included radiated ingredients and which did not. The testimony of the said witness was considered trustworthy.

The Seller's CEO testified that the Seller had not radiated the used paprikas or the powdered paprika. The Seller did not own equipment needed for radiation. The equipment was expensive and there was no point in radiation in addition to the steam treatment. The powdered paprika was mainly produced from the paprikas delivered from Peru where the Seller had its own supervisors and there were no middlemen in the delivery process. The Seller's CEO was convinced that the paprikas delivered from Peru were not radiated. The Seller had also received paprikas for powdering from Zimbabwe. The CEO did not consider credible that there was radiation equipment in Zimbabwe. The equipment was expensive. A middleman delivered the paprikas from Zimbabwe to the Seller.

Despite the testimony of the Seller's CEO, the District Court held that it was proven -- reference to the tracking system employed by the Buyer and the written evidence presented to the Court -- that the nine instalments of powdered paprika delivered by the Seller to the Buyer between 10 January 2001 and 30 August 2001 had included radiated powder. Thus the powdered paprika was not conforming with the contract as required by CISG Article 35 paragraph (1).

The Court of Appeal confirmed the decision of the District Court in relation to the conformity of the goods.

10.3.5 Decision on the conformity of the goods analysed

The position of the Court is well reasoned. According to CISG Article 35, the goods must conform with the quality and description required by the contract. The question lies, what had been agreed upon? As the Court stated, the parties were professionals acting in the same field of business and were aware of the requirements of the EU Directive. No specific mention was needed in relation to the radiation but both parties ought to have understood that radiation was not allowed.[570] The Court made no reference to the rules of interpretation of the statements or the conduct of the parties but the reasoning nevertheless follows all the aspects of Article 8.[571]

Further, the Buyer had proven that the goods did not confirm with the contract. The Seller, on the other hand, had not provided any evidence to support its claim that the paprika was not radiated. The Seller's arguments on the relevance of the radiation would be more fit in relation to the fundamentality of the breach. The Seller did in its appeal argue that the contract had not been avoided properly as required by Article 26. Because of this, the Seller has had a right under Article 48 to deliver substitute goods to replace the 4,210 kilos returned by the Buyer. According to Article 26, the declaration of avoidance of the contract is effective only if made by notice to the other party. In relation to this claim, the Court of Appeal pointed out that the Seller's CEO had during the court proceedings stated that after it had become clear that part of the goods had been radiated, the whole contract had been annulled. Based on this, the Court of Appeal held that the parties had in fact considered the contract avoided and the Seller's claim had no relevance to the issue. Further, the damages under Article 74 are not limited to cases of the avoidance of the contract (Article 45).

10.4 Examination of the goods and the notice of non-conformity

10.4.1 Facts of the case

In the District Court, the Buyer stated that it had given notice of the defects to the Seller by e-mail on 18 September 2001. Further, the Buyer had demanded compensation for the damages from the Seller in the letter posted on 31 December 2001.

The Seller, on the other hand, argued that the Buyer had not given a notice of the radiation within a reasonable time after the Buyer became aware of it. As the Buyer had become aware of the radiation in the summer of 2001 at the latest, the Buyer had lost its right to rely on the lack of conformity of the goods. Nor had the Buyer fulfilled its obligation under Article 38 to examine the goods. Before the Court of Appeal, the Seller argued further that the reclamation sent by the Seller on 18 September 2001 only stated that the Buyer would return 4,210 kilos of powdered paprika from its warehouse. As the reclamation did not mention other demands, the Buyer had lost its right to claim damages from the Seller.

10.4.2 Decision on the examination of the goods and the notice of non-conformity

The District Court held that the case involved a product on which the radiation could not be detected by external examination. The Buyer had a custom to take a sample from every instalment delivered. Those samples were stored so that the last two samples were kept. According to the Buyer's witness, the goods delivered to the Buyer were forwarded usually to the Buyer's warehouse LA 1 which meant that before the spices were used microbiological test were conducted to the spices. The radiation of the goods was never tested. According to the CEO of Seller, heard as the Seller's witness, the Seller did not conduct radiation tests on its products. Both parties had conducted only those tests that had guaranteed that the foodstuffs/spices were not injurious to health. The said tests could be considered sufficient examination of the goods. On these bases, the District Court concluded that the Buyer had fulfilled its obligation to examine the goods.

As to the timeliness of the notice of lack of conformity, the District Court held that the Buyer had given a notice of lack of conformity as required by Article 39. The Buyer had received a notice from its own customers on 11 September 2001 and immediately notified the Seller about radiation by phone. After the test results had been confirmed, the Buyer had notified the Seller about the defects by e-mail on 18 September 2001. The Court of Appeal confirmed the decision of the District Court.

10.4.3 Court's decision on examination and the notice analysed

The chosen treatment of the spices delivered was an essential term of the contract from the Buyer's point of view. The Court did conclude -- though not in specific terms -- that the Seller could not have been unaware of the essence of the term or that at least a reasonable person of the same kind would have interpreted the term as being essential as the goods were ruled to be non-confirming to the contract.

The question arises that if the non-radiation was that important to the Buyer, why weren't the goods examined in relation to that? Taking into consideration that the applicable EU Directive on the labelling of the radiated products did come into force during the contract period could have supported this view. The emphasis seems to have been on usages and practices of the parties in a certain field of business. The Court concluded that examination that did not reveal the radiation was sufficient as both parties did not conduct that kind of examination customarily. The Seller was ruled to be aware of the new requirements of the said Directive, thus the Seller had been liable for delivering non-conforming goods. The Buyer's obligation under Article 38 to examine the goods did not extend to too complex examination.[572]

In the light of the Court's conclusion, it is understandable that the Buyer was held to have fulfilled its obligation to give notice of the defects in time. If the Buyer had been held to not to have fulfilled its obligation to examine the goods properly within as short a period as was practicable in the circumstances the Buyer would have probably also lost its right to rely on the defects under Article 39.

10.5 Exemption for liability to pay damages

10.5.1 Facts of the case

The Seller argued that it could not be liable for -- according to Article 79 -- the factor beyond his control, i.e. for the fact that the party who delivered the goods to the Seller might have radiated the goods. The Seller renewed this argument in the Court of Appeal.

10.5.2 Sphere of application of Article 79

According to Article 79(1), a party is not liable to pay damages if he proves that a failure to perform any of his obligations was due to an impediment beyond his control and that he could not reasonably be expected to have taken the impediment into account at the time of the conclusion of the contract or to have avoided or overcome it or its consequences. Article 79(2) provides that if the party's failure is due to the failure by a third person whom he has engaged to perform the whole or a part of the contract, the exemption applies only if the party himself would be exempt under Article 79(1) and if the third party engaging in performance would also be exempt under Article 79(1). The third person referred to in Article 79(2) does not include suppliers of the goods or of raw materials to the seller.[573] If the party engaging in performance is not considered to be a third person within the meaning of Article 79(2), this party is part of the personal risk of the promisor. Because of the double standard of Article 79(2), in effect the exemption under 79(2) is even harder to acquire than the exemption under Article 79(1).[574]

Professor Honnold is of the opinion that the delivery of defective goods does not fall within the scope of Article 79. Article 79(4) requires that the non-performing party exempted under paragraphs (1) or (2) must notify the other party of the impediment and its effect on his ability to perform. In case of hidden defects, this requirement seems strange.[575] However, different opinions have also been presented, i.e. that Article 79 is also applicable in cases where the seller fails to supply conforming goods as required by Article 35.[576]

In German case law, the issue had been left open. In Bundesgerichtshof (BGH) VIII ZR 121/98 (24 March 1999) the German court confirmed the seller's liability without deciding whether or not article 79 was applicable, stating that even if it was applicable, it would not exclude the seller's liability since the defect in the vine wax in that case was not an impediment beyond the seller's control: Thus, the court left open the question of whether or not Article 79 could be raised as a defence against all kinds of non-performance, including the delivery of defective goods. The court however pointed out that the exemption provided under article 79 does not alter the allocation of risk. Liability of the seller resulted from his failure to comply with his obligation to deliver conforming goods; it made no difference whether the defect was the fault of the seller or his supplier: when the defects of the goods are caused by the seller's supplier, the seller is only exempt from liability under article 79 - if applicable at all -- if the failure to perform is due to an impediment beyond the control of the seller and the seller's supplier. Also in Bundesgerichtshof (BGH) VIII ZR 304/00 (9 January 2002), the court referred to Article 79. The court left open whether Article 79 can generally be applied to goods that do not meet the contractual requirements. However, the court further stated that in any case the seller had not shown that the causes for the inactive lipase of the powdered milk in that case were outside his sphere of influence; in effect suggesting that Article 79 might in fact apply in case of non-conforming goods.

In Tribunal de Commerce de Besançon 97 009265 (19 January 1998) a French court has applied an exemption provided for in Article 79 to a seller that delivered non-conforming goods. The case involved a sale of judo-suits between a Swiss buyer and a French seller. After receiving complaints from its own customers by reason of the excessive shrinking of the goods during washing, the buyer gave notice to the seller of the defect and eventually commenced a legal action for avoidance of the contract and damages. The court held that the buyer had given notice of the lack of conformity within the two-year limit provided for by Art. 39(2) CISG. The Court also concluded that the buyer was entitled to avoid the contract (Art. 49 CISG) and be awarded damages. In determining the amount of damages, however, the Court observed that the buyer had not proved that all goods received were defective and he had made a profit out of at least a part of the goods. It further pointed out that the seller's failure to perform was due to an impediment beyond his control since the goods had been manufactured by a third party and there was no evidence that the seller had acted in bad faith (Art. 79 CISG). The court specifically stated that the manufacture and elaboration of the fabrics were beyond seller's control. The Court ordered a reduction of the purchase price by 35% and therefore ordered the seller to reimburse the buyer accordingly. The court did not state whether the exemption was granted by Article 79(1) or by Article 79(2) If the manufacture of the goods acted as a third person as provided for in Article 79(2) the court ignored the fact that in order for the seller to be exempt under Article 79(2) also the third person must be exempt under Article 79(1). The court's reasoning in estimating the damages by conciliating them by way of referring to Article 79 is also unacceptable. When the seller is exempt under Article 79 it is true that the buyer can still recourse to any other remedies available under the CISG (Article 79(5)), including the reduction of the price under Article 50. Neither of these provisions was apparently discussed.

10.5.3 Conditions for exemption

The impediment which precludes a party from performing his obligations must be beyond his control, unforeseeable and unavoidable.[577] Thus the impediment -- such as war or natural catastrophe -- must fall outside the promisor's sphere of control.[578] If the promisor ought to have foreseen the existing impediment or likelihood of the impediment at the time of the conclusion of the contract, the promisor is not exempt under Article 79.[579] Further, if it is possible and reasonable for the promisor to overcome the effects of the impediment, the exemption does not apply.[580] A party who is under an obligation to act must do all in his power to carry out his obligation.[581] In relation to suppliers, the seller normally bears the risk that the Seller's suppliers will breach.[582]

10.5.4 Decision on exemption

The District Court stated that the sales agreement between the Seller and the Buyer bound both parties. In addition, the Seller had been aware of the regulations required by the said EU Directive, i.e. also the Seller itself was required to label the products if they had been radiated. The Seller was obligated to deliver goods that were in conformity with the contract and thus the Seller was liable for the fact that the goods were radiated. It was not a question of an impediment beyond the Seller's control as required by Article 79(1). The Court of Appeal confirmed the decision of the District Court. The Seller had not shown that the failure to perform its obligations was due to an impediment beyond its control.

The reasoning of the courts follows the rule according to which the seller normally bears the risk for his own suppliers. However, in light of the Tribunal de Commerce de Besançon 97 009265 (19 January 1998), the Seller's claim could have succeeded. Taking into consideration that the buyer seldom has a contractual relationship with the seller's supplier, the approach that the seller would not be liable for his supplier's breach seems harsh to the buyer.[583] The impediment in sense of Article 79 ought to be defined strictly to unpredictable events outside the sphere of influence of the party in breach.

Thus, it is easy to concur with the conclusion of the courts. However, the argumentations of the courts are surprisingly short and do not go deep into the problems of Article 79. The courts dismissed the Seller's claim on its merits not because the exemption under Article 79 was not applicable in case of hidden defect. Can it be concluded from this that the courts took the position that exemption under Article 79 was applicable even though the case involved a breach of contract due to Article 35. Or did the courts take a position that the exemption under Article 79 did not apply to non-conforming goods? Neither the District Court nor the Court of Appeal paid any attention to this issue.

Further, the courts did not refer to the second paragraph of Article 79(2); nor did the Seller in his claim. In case of a third person engaging in performance a double standard of impediments must be fulfilled. In this case, the Seller's supplier of the paprika should have shown that the radiation of the paprika was also beyond its control and it could not have taken the radiation into account. As a producer of the goods, providing proof on this argument would be very difficult. As the steam treatment and the radiation were both used in the market in question, the most probable reason why radiated paprika was delivered could be that the Seller and his suppliers simply did not pay any attention to the treatment of the paprika.

10.6 Damages

10.6.1 Buyer's claim in the District Court

The contract between the Buyer and its own customers required that seasoned mixes be delivered and that the powdered paprika included in them must be treaded with steam. Because of the breach of contract committed by the Seller, the Buyer had been liable under its own contracts to compensate one of its customers with 72,103.85 euros for the products withdrawn from the market and to other seven customers all together 31,302.88 euros as a compensation for the products the Buyer redeemed back. Further, the Buyer had been forced to destroy all the products in its own warehouse and book them as a deficit. The amount of damages and compensations the Buyer had been liable towards its own customers, the deficit of the Buyer's warehouse and the cost incurred when gathering the information amounted all together to 161,098.07 euros.

10.6.2 Seller's reply in the District Court

The Seller argued that the Buyer had not taken any measures to mitigate the loss. Instead of withdrawing the products from the market and destroying them, the Buyer or his clients should have labelled the products as required by the Directive. By acting in that manner, no damages would have occurred or at least the damages would have been less than caused by destroying the products. According to Article 77, the Buyer had a duty to mitigate damages. In any case, the Buyer had no right to destroy the powdered paprika or products including it that were still in his warehouse. These products could have been sold after labelling them correctly and thus the damages would have been reduced.

The Buyer had not given the Seller a chance to mitigate the damages, for example, by discussing alternative ways of dealing with the problem. Nor could the Buyer have agreed to bind the Seller to an agreement with a third party about damages exceeding that which would be provided for under the law.

In addition, the Seller argued that the damages claimed by the Buyer were from the Seller's point of view totally unforeseeable. According to Article 74, the damages may not exceed the loss which the Seller foresaw or ought to have foreseen at the time of the conclusion of the contract. The Buyer's actions, the withdrawal of the products from the market and destruction of the goods, were unforeseeable and oversized. The original purchase price had been only slightly over half of the damages claimed. The damages claimed were in any case unreasonable. Thus at least the damages ought to be conciliated.

10.6.3 Demands in the Court of Appeal

In the Court of Appeal, the Seller again argued that CISG Article 74 had been applied incorrectly. The Article does not extent the causality between the breach of contract and the damages but limits it. Not one of the Buyer's claims was related only to the products delivered by the Seller but also to the end products, where the Seller's products were used as an ingredient. The claims against the Buyer had no relevance in relation the contract of sale between the Buyer and the Seller.

The damages claimed were not foreseeable to the Seller, thus there was no liability for damages. The largest amount of damages paid by the Buyer to its own customers (72,103.85 euros) consisted of damages for ground meat steaks manufactured for deep-freezer storage. These products could have been sold and the selling could have continued even after 15 November 2001, if the products had been put for sale. The products had been manufactured already in the summer of 2001 and thus before 15 November 2001. The third largest amount of damages (31,302.88 euros) consisted of damages for products returned to the Buyer by its own customers. It had remained unclear why the products had been returned instead of selling them. The selling of the products would have reduced the damages the Buyer had paid to its own customers. The Seller had aimed to negotiate in order to agree on the issue between the Seller and the Buyer. The Buyer's liability towards its own customers was based on the breach of contract, not on damages incurred. The amount of damages could be at the most the actual purchase price 62,527.50 euros. In any case, the damages must be conciliated.

In relation to the legal costs, the Seller stated the case had been unclear in relation to the basis and the amount of damages and taking into account the circumstances that had led to the litigation, it was unreasonable if the Seller was ordered to compensate the legal costs and expenses incurred by the Buyer in full.

The Buyer insisted that it had had negotiations with the Seller and offered the Seller a chance to take part in gathering the information in relation to the problem. The Seller had had a chance to influence the amount of damages. Further, the Buyer stated that the damages incurred had been foreseeable and not distant and unusual. In addition, the contract value or the amount paid under the contract had no relevance to the issue. Nor was there an Article in the CISG that would allow the conciliation of the damages. As to the avoidance of the contract, the Buyer stated that the contract had been avoided silently.

10.6.4 Mitigation of the damages

Under Article 77, the injured party must take adequate preventive measures to mitigate his loss. These appropriate measures include the buyer obligation to remedy the hidden defects of the goods delivered to him by the seller, provided that such measures are not excessive.[584]

In the light of the case law, the buyer's proposition to reduce the price of the future sale has been a sufficient way to mitigate the losses. In I.C.C. International Court of Arbitration, 8786 of January 1995, the arbitral panel held that the seller did not offer any evidence which would suffice to hold that the buyer did not take necessary measures to mitigate damages. The evidence revealed that before the date for delivery the buyer's agent learned that the seller would have difficulty making timely delivery. Accordingly, the buyer's agent forwarded a proposal to buyer's sub-agent to accept late delivery from the seller for a reduction in price of 10%. The seller's own admission that a reduction in sale price would be warranted where seasonal goods (in this case clothes) were sold at the end of the season would seem to imply that such a proposal would have been acceptable to the seller. Thus, there was insufficient evidence that the buyer failed to take measures to mitigate damages and therefore his recovery would not be reduced pursuant to Article 77 CISG.

The fact that the buyer has not attempted to find a replacement for the defective goods outside the local region has been found not to have fulfilled the duty to mitigate. In Oberlandesgericht (OLG) Celle, 3 U 246/97 (2 September 1998) the German court found that the buyer had failed to mitigate the loss under article 77, as he had made only efforts to effect replacement purchases in his region, without taking into account other suppliers in Germany or abroad.

10.6.5 Decision of the District Court on damages

The District Court concluded that the question was whether the damages claimed by the Buyer included such damages that were so remote and exceptional that the Seller could not be held liable for them. The case involved two companies that both operated in the same field of business. Both parties were bound by the EU Directive on the radiation of the food ingredients; according to which also the Seller should have mentioned the radiation in its own packaging. The District Court held that the Seller ought to have understood that if the powdered paprika was radiated contrary to the contract, the selling of the radiated products might cause damages to the other party.

The basic principle underlying the law on damages states that the injured party should try to prevent the damage occurring and should try to mitigate the loss. In these cases, one has to consider whether it is reasonable to require certain measures for preventions. The injured party must act in a reasonably diligent manner in preventing the damage. In this particular case, one must consider whether the Buyer could have mitigated the losses by negotiating with its own customers. The District Court saw that it was plausible that the Buyer's customers were not willing to renew the packaging information at any point. The only possibility for the Buyer to mitigate the losses was therefore the possibility to sell the seasoning mixes to an outsider. The Seller did not want the seasoning mixes. The seasoning mixes were produced in accordance with the Buyer's customers' recipes. The Buyer and the Seller had had negotiations about the problem without reaching a solution.

The burden of proof in relation to the Buyer's opportunity to prevent or mitigate the loss or part of it lied on the Seller. The Seller had not actually been able to prove that the Buyer could have in some way prevented or mitigated the loss. It remains guesswork whether the Buyer and his customers who had produced minced beef patties for the freezer could have acted differently in order to mitigate the losses. The customer would have had a possibility to sell the product at least until 15 November 2001. The Buyer's own witness had given testimony that in September 2001 the Food Agency had given permission that the goods including the Buyer's seasoning mixes did not have to be withdrawn immediately from the market, but those goods could be sold until 15 November 2001 without changing the labels. Despite what had been mentioned, the District Court held that the Buyer had not acted contrary to the requirements set out in Article 77.

Finally, the District Court gave a judgement on the amount of damages. The original contract value of the powdered paprika had been 90,000 euros. Thus the damages claimed were almost the double the amount compared to the contract value. Taking into consideration that the non-conforming goods were not unsuitable to consume as foodstuffs but the non-conformity was related to the labelling of the goods, the Buyer's customers had been given more than a month's time to sell the goods despite the incorrect labelling, the consumers and foodstuff manufactures had different attitudes towards the radiation in different countries, the Seller had no opportunity to influence the contents of the contracts about the damages between the Buyer and his customers, the District Court held that the damages claimed exceeding the contract value, were unreasonable. On these grounds, the District Court awarded the Buyer 90,000 euros in damages.

10.6.6 Decision of the Court of Appeal on damages

Firstly, the Court of Appeal stated that the starting point in relation to the damages is that the injured party is to be placed on the same position he would have been had the contract been fulfilled properly. Thus, the amount of damages may exceed the contract value of the sales contract.

The Court of Appeal also acknowledged that the Seller had been aware of the fact that the Buyer had acted as an intermediate, i.e. the Buyer had sold the products delivered by the Seller further to its own customers. In these circumstances, the Seller ought to have understood already at the time of the conclusion of the contract that if the goods delivered to the Buyer did not conform with the contract the Buyer might not be able to fulfil its contractual duties towards its own customers and that this might cause damages to the Buyer. The amount of damages the Buyer claimed consisted of compensation paid by the Buyer to its customers because the goods were withdrawn from the market, compensation paid for redeemed goods, cost for destroying the powdered paprika in the Buyer's warehouse, cost for booking the powdered paprika as deficit, labour- travelling- and cargo costs incurred in investigating the matter, cost for analysing and destroying the goods. All the damages claimed by the Buyer ware of such nature that could be compensated under CISG Article 74. In relation to Article 77 and the mitigation of the damages, the Court of Appeal confirmed the decision of the District Court.

In relation to the conciliation of the damages, the Court of Appeal stated that the CISG did not include any provisions according to which the damages could be conciliated or amended for reasons of equity. However, as the proof in relation to the amount of damages suffered by the Buyer was hard to acquire, the Court had a right to estimate reasonable damages as provided for in the Finnish Code of Judicial Procedure Chapter 17, Section 6.[585] The Court of Appeal estimated that the amount of damages caused to the Buyer amounted to 150,000 euros.

10.6.7 Legal costs

Both parties claimed damages for the legal and other cost incurred. The District Court ordered the Seller to compensate the legal cost of the Buyer. The Buyer's claim was only partially upheld but the part of claim that was not upheld, i.e. the amount of damages concerned solely a matter of discretion.[586] The Court of Appeal stated that there were no grounds to change the ruling of the District Court in relation to the legal costs. In relation to the legal costs incurred in the Court of Appeal, the Court of Appeal stated that the Buyer had won on the appeal and the Seller had lost. Thus the Seller was liable for compensating the Buyer's legal costs in the Court of Appeal.

10.6.8 Decision on damages analysed

10.6.8.1 Foreseeability of damages and mitigation

Consequential losses, such as loss of profit and the loss suffered by the buyer as a result of being held liable to a third party are compensable in the light of the foreseeablity rule if the seller knew or a reasonable person in the same position and with the same knowledge ought to have known the relevant circumstances influencing the situation.[587] In Landgericht (LG) Landshut, 54 O 644/94 (5 April 1995) the seller had breached his own contractual obligations by delivering sportware that shrank disproportionately. The German court held that the buyer could claim damages -- among the others -- based on the price reduction given by the buyer to its own customers, the expenses resulting from the measures for processing the claims from the consumers, the expenses for crediting the returned goods and the cost for affecting a resale of the defective goods. The court's decision in relation to damages compensable to the Buyer follows the above ruling.

The conclusion that the Buyer had not breached its duty to mitigate the loss is however more controversial. Because of the said EU Directive, the goods that did not include a notice of radiation were not allowed to be sold. Especially in relation to the beef patties, the question arises as to the amount of damages had the labels been changed or a new market outside the European Union had been found?[588] Furthermore, as noted, for a certain period the goods could have been sold without any changes to the labels. In the light of the knowledge on the Finnish consumers and their attitude towards radiation, this would not perhaps been possible in fear of losing the good will value of the goods and the producer, but, however, this possibility and its consequences on the amount of damages ought to have been considered and evaluated.

10.6.8.2 Conciliation

There is no specific provision in the CISG on conciliation. If the parties have made no indication to the conciliation, can the Court supplement the contract or have recourse to the rules of domestic law on conciliation by way of the rules of international law?[589]

Article 7 provides that in the interpretation of this Convention regard is to be had among the others to the observance of goods faith in international trade. In addition Article 7(2) provides that the questions concerning matters governed by this Convention which are not expressly settled in it are to be settled in conformity with the general principles on which it is based on. The notion of good faith was, however, specifically left to concern only the interpretation of the Convention and it cannot be applied directly to individual contracts.[590] Further, even if a standard of good faith in international trade could be established in relation to conciliation, this does not mean that it would override clear decisions embodied in provisions of the CISG.[591] Article 74 embodies the principle of full compensation.[592] No domestic rules on conciliation are allowed to be applied.[593]

Reference should also be made to Article 8. According to Article 8 on interpretation, the determination of contract content is based on the actual, common intent of the parties. If only one party's intent is determinable, the other must be aware what the intent was. If no such intent is determinable, the objective approach is adopted and the contract is interpreted according to the understanding that a reasonable person of the same kind as the other party would have had in the same circumstances.[594] Article 8 also has a function in supplementing contacts.[595] Also in this respect it has been held that the Convention does not permit one to strike out unfair contract terms based on good faith and Article 8. Nor can the reduction of a contractual penalty on grounds of equitableness be supported by Article 8.[596]

The solution of full compensation adopted in the CISG is in itself limited by the foreseeability required by Article 74 and further by the mitigation requirements set out in Article 77.[597] The party in breach is only liable for damages he foresaw or ought to have foreseen at the time of the conclusion of the contract, in the light of the facts and matters of which he then knew or ought to have known, as a possible consequence of the breach of contract. The basic approach is that the foreseeablity of the damages is judged objectively by way of referring to a reasonable person in the same circumstances. However, if at the time of the conclusion of the contract the party that eventually is liable for the breach of contract has some special knowledge of the unusual risk, the liability may be extended.[598]

Professor Lookofsky has raised a controversial question whether the foreseeability limitation in Article 74 would function as a sufficient surrogate for other domestic law standards designed to prevent compensation for "disproportionate" loss.[599] As Professor Lookofsky has stressed, the courts ought to be cautious in taking into consideration the conceptions of the domestic law.[600] Article 7 itself requires that in interpretation of the Convention regard is be had to its international character and to the need to promote uniformity in its application. Further, it can be argued that the duty to mitigate and the references to reasonableness lead to the conclusion that conciliation of excessive damages is an issue governed by the CISG but not expressly settled in it and thus must be settled in conformity with the general principles on which it is based.

According to the Finnish Sale of Goods Act, Section 70 paragraph (1), the injured party must take reasonable measures to mitigate his loss. If he fails to do so, he must bear the corresponding part of the loss himself. Paragraph (2) provides for adjustment of damages: the amount of damages payable to the injured party may be adjusted if the amount is unreasonable taking into account the possibilities of the breaching party to foresee and prevent the loss as well as other circumstances. In conciliating the damages, all the relevant circumstances of the individual case must be taken into consideration, including the nature of the sale, the reason for the breach of contract, the extent of the damages and who the parties to the contract were. Conciliation is a clear departure from the principle of full compensation of damages and it should be applied exceptionally.[601] Most importantly, the CISG does not include a similar provision on conciliation.[602]

It seems that the District Court stumbled into a classical error. It applied the domestic law on conciliation without a blink of an eye even though the CISG was applicable. The Court of Appeal took the correct approach in this respect. As noted above, there is no rule on conciliation of damages in the CISG above the rule on foreseeability. However, as to the proof of damages, the decision of the Court of Appeal is questionable. The burden of proof in relation to Article 74 lies on the party who is claiming damages. The damaged buyer has the burden of proving the objective prerequisites of his claim for damages, i.e. the damage, the causal link between the breach of contract and the damage, as well as the foreseeability of the loss.[603] It has also been argued that in order to discharge the burden of proof the party in breach has to substantiate the amount of loss he suffered. Purely domestic rules which allow the abstract calculation of damages or presume that a loss has occurred should not be allowed when applying the CISG.[604]

[...]


FOOTNOTES

[...]

567. Ämmälä 2006, p. 2-8.

568. Confirming Ämmälä 2006, p. 3.

569. Decree on the processing of foods by ionizing radiation.

570. Similarly in Landgericht (LG) Ellwangen, 1 KfH O 32/95 (21 August 1995) the German Court held that the seller was responsible for the performance of his contractual obligations as the seller was aware of the specific requirements of food stuffs in the buyer's country. A Spanish seller and a German buyer concluded an instalment contract for the sale of paprika. After delivery of the second instalment, the buyer was officially informed by a German association of spice traders that paprika imported from Spain could contain traces of ethylen-oxyd in a quantity greater than the levels admitted by German law, a fact which was later confirmed by an examination of the paprika delivered by the seller. The buyer gave immediate notice to the seller thereof. The seller accepted to take back the goods admitting that they were non-conforming to German law on food and to deliver substitute goods within the period of time fixed by the buyer. Two weeks after the expiration of such a period, the buyer declared the contract avoided and did not pay the price. The seller commenced legal action to recover the balance of the price. In his counterclaim the buyer asked for damages. The Court found that the buyer was not bound to pay the price. In the Court's opinion the parties, also in the light of their previous commercial relationships, had impliedly agreed that the goods should comply with the standards required by the German law on food. Accordingly, the seller could not invoke lack of knowledge of such provisions. The delivery of paprika containing substances in a quantity greater than the levels admitted by German law amounted to a fundamental breach as it deprived the buyer of what he was entitled to expect from the contract (Arts. 35(1) and 25 CISG). See footnote 582.

571. See further on Article 8 Chapter 9.3.4 Decision on the contents of the contract analysed.

572. See Chapter 4.4.3. Method and degree of the examination.

573. Text of the Secretariat Commentary on article 65 of the 1978 Draft (draft counterpart of CISG Article 79); Honnold 1999. p. 488-489; Tallon in Bianca & Bonell 1987, p. 585-586.

574. Lookofsky 2000, p. 165. Stoll-Gruber in Schlechtriem & Schwenzer 2005, p. 819-822.

575. Honnold 1997, p. 477-479.

576. Stoll-Gruber in Schlechtriem & Schwenzer 2005, p. 810-111, 828. See also UNCITRAL Digest 2004, Article 79, Breaches for which an exemption is available: exemption for delivery of non-conforming goods; Tallon in Bianca & Bonell 1987, p. 577.

577. Stoll-Gruber in Schlechtriem & Schwenzer 2005, p. 812.

578. Stoll-Gruber in Schlechtriem & Schwenzer 2005, p. 814-815.

579. Stoll-Gruber in Schlechtriem & Schwenzer 2005, p. 817.

580. Stoll-Gruber in Schlechtriem & Schwenzer 2005, p. 817.

581. Text of the Secretariat Commentary on article 65 of the 1978 Draft (draft counterpart of CISG Article 79).

582. In Oberlandesgericht (OLG) Hamburg; 1 U 167/95 (28 February 1997) the German Court held that the the seller bears the risk of himself receiving delivery of the goods from his own supplier. Only if goods of an equal or similar quality were no longer available on the market would the seller be exempted from liability. Furthermore, the court held that it was incumbent upon the seller to bear the risk of increasing market prices at the time of the substitute transaction. Although the market price had risen to an amount triple the price that had been agreed at the time of the conclusion of the original contract, this did not amount to a sacrificial sale price, as the transaction was said to be highly speculative. Similarly in I.C.C. International Court of Arbitration, 8128 of 1995 the arbitration panel held that the seller was not exempted from performance pursuant to Art. 79 CISG, since the seller is responsible for non delivery caused by his supplier, as part of the seller's risk (Art. 79(2)). In Landgericht (LG) Ellwangen, 1 KfH O 32/95 (21 August 1995) the German Court held that the seller was responsible for the performance of his contractual obligations (Art. 79 CISG) independently of whether the goods (paprika) were contaminated with ethylene oxide through a treatment in the plant of the seller or in any different way. In the latter case, the seller was able to examine the goods before delivering them to the buyer. See footnote 570. But note that in Tribunal de Commerce de Besançon 97 009265 (19 January 1998) a French court has applied an exemption provided for in Article 79 to a seller that delivered non-conforming goods because the seller had acted in good faith. Discussed earlier in relation to the applicability of the Article 79 exemption in case of non-conforming goods in chapter 10.5.2 Sphere of application of Article 79. See further UNCITRAL Digest 2004, Article 79, Treatment of particular impediments: breach by suppliers.

583. See especially Honnold 1997, p. 478.

584. Knapp in Bianca & Bonell 1987, p. 560.

585. The Finnish Code of Judicial Procedure, Chapter 17, Section 6 (571/1948) provides: "If the issue relates to the quantum of damages and no evidence is available or if evidence can only be presented with difficulty, the court shall have the power to assess the quantum, within reason.

586. According to Code of Judicial Procedure, Chapter 21, Section 1 the party who loses the case shall be liable for all reasonable legal cost incurred by the necessary measures of the opposing party, unless otherwise provided by an Act. Section 3 provides that firstly that if several claims have been made in the same case and some of them are decided in favour of one party and some in favour of the other party, the parties shall be liable for their own legal costs, unless there is a special reason for rendering a party liable, in part, for the legal costs of the opposing party. If the claim that a party loses has only little significance in the case, he/she shall be entitled to full compensation for his/her legal costs. Section 3 provides further that the provisions in paragraph (1) apply correspondingly, when the claim of a party is only partially upheld. In this event, however, full compensation of the legal costs of that party may be ordered also if the part of the claim that has not been upheld concerns solely a matter of discretion which has little bearing on the amount of the legal costs.

587. Stoll-Gruber in Schlechtriem & Schwenzer 2005, p. 767-768.

588. See also Ämmälä 2006, p. 7.

589. See also discussion in Chapter 8.4.1 Applicable law, especially footnote 483.

590. Schlechtriem in Schlechtriem & Schwenzer 2005, p. 94-95.

591. Schlechtriem in Schlechtriem & Schwenzer 2005, p. 100.

592. CISG Advisory Council Opinion No.6.

593. Stoll-Gruber in Schlechtriem & Schwenzer 2005, p. 746; Lookofsky 2000, p. 154.

594. Schmidt-Kessel in Schlechtriem & Schwenzer 2005, p. 120-121.

595. Schmidt-Kessel in Schlechtriem & Schwenzer 2005, p. 117.

596. Schmidt-Kessel in Schlechtriem & Schwenzer 2005, p 124.

597. And even further, the damages are limited by the exemption available to the party in breach as provided for in Article 79.

598. Stoll-Gruber in Schlechtriem & Schwenzer 2005, p. 765.

599. Lookofsky 2000, p. 154.

600. Lookofsky 2000, 49-50, 154.

601. Ämmälä in Saarnilehto et al. 2001, p. 878-879.

602. Ämmälä in Saarnilehto et al. 2001, p. 879; Routamo-Ramberg 1997, p. 534-536.

603. Ferrari 2000-2001, p. 2-3. Saidov 2001, section II, paragraph 7. See also Knapp in Bianca & Bonell 1987, p. 541; Stoll-Gruber in Schlechtriem & Schwenzer 2005, p.771-772. Burden of proof is discussed further in Chapter 2.4.3.4 Burden of proof.

604. Stoll-Gruber in Schlechtriem & Schwenzer 2005, p. 772.

[...]

See entire text of Sanna Kuoppala, "The Application and Interpretation of the CISG in Finnish Case Law 1997-2005" (April 2009)

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Pace Law School Institute of International Commercial Law - Last updated January 14, 2014
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