Switzerland 5 July 2005 Obergericht [Canton Appellate Court] Zug (Diesel oil case) [translation available]
[Cite as: http://cisgw3.law.pace.edu/cases/050705s1.html]
DATE OF DECISION:
CASE NUMBER/DOCKET NUMBER: OG 2004/29
CASE HISTORY: 1st instance Kantonsgericht Zug (A 2 99 114) 21 June 2004
SELLER'S COUNTRY: Switzerland (defendant)
BUYER'S COUNTRY: Isle of Man (plaintiff)
GOODS INVOLVED: Diesel oil
Reproduced from Internationales Handelsrecht [3/2006] 112
"1. In cases where only one of the contracting parties of an international sales contract has his seat in a Contracting State of the CISG, the CISG applies if the conflict of law rules lead to the applicability of the law of the Contracting State. Art. 1(1)(b).
"2. When the parties have agreed that an impartial expertise, to be appointed by mutual consent, is to evidence the quality of the goods, the question of conformity of the goods to the contract depends on the findings of the expert.
"3. The parties are free to determine the number of experts, samples and the method of testing necessary for ascertaining the quality of the goods.
"4. It is not uncommon to pronounce goods to be of faultless quality based upon a single test result."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:
8A ; 8C [Intent of party making statement or engaging in conduct; Interpretation in light of surrounding circumstances]
8A ; 8C [Intent of party making statement or engaging in conduct; Interpretation in light of surrounding circumstances]
CITATIONS TO ABSTRACTS OF DECISION
(a) UNCITRAL abstract: Unavailable
(b) Other abstracts
CITATIONS TO TEXT OF DECISION
Original language (German): CISG-online.ch website <http://www.cisg-online.ch/cisg/urteile/1155.pdf>; Internationales Handelsrecht (3/2006) 112-114
Translation (English): Text presented below
CITATIONS TO COMMENTS ON DECISION
UnavailableGo to Case Table of Contents
Queen Mary Case Translation Programme
5 July 2005 [OG 2004/29]
Translation [*] by Jakob Heidbrink [**]
Edited by Mariel Dimsey [***]
[Seller] (Defendant and Appellant in the appeal):
|(1)||The previous decision of the District Court of the Canton of Zug, Second Division, of 21 June 2004 shall
be repealed; the position of the [Seller] in the appeal that the performance conformed to the contract is to
be accepted; and, thus, the original action of the [Buyer] is to be dismissed;
|(2)||Costs to be borne by the [Buyer].|
[Buyer] (Plaintiff and Respondent in the appeal):
|(1)||The judgment by the District Court of the Canton of Zug of 21 June 2004 (Docket No. A2 99 114),
challenged in the present proceedings, shall be affirmed in its entirety, dismissing the [Seller]'s appeal of
10 September 2004;
|(2)||Costs to be borne by the [Seller].|
1. A. ___ Ltd. [of Switzerland] (hereinafter: the [Buyer]) bought, by contract of 16 March 1999, from B. ___ Ltd. [of the Isle of Man] (hereinafter: the [Seller]) 58,000 metric tons (MT) of Diesel oil for a price of US $6,441,506.11. The parties agreed among other things, that the oil to be delivered was to contain a maximum of 0.5 percent sulphur. The Diesel oil was loaded from the "Shore Tank 82" of the R. ___ refinery in R. ___, Saudi Arabia, onto the vessel "MT T. ___" between 25 and 27 March 1999, and was carried to L. ___, Nigeria. Subsequently, the [Buyer] asserted that the Diesel oil delivered by the [Seller], contrary to the contract, contained more than 0.5 percent sulphur.
2. On 29 October 1999, the [Buyer] filed a claim against the [Seller] at the District Court of the Canton Zug, requesting that the [Seller] be ordered to pay to the [Buyer] US $1,379,452.38 plus interest at a rate of five percent from 5 May 1999.
The [Seller] requested the dismissal of the claim.
3. By order of the Magistrate of 19 January 2004, the objection of the [Seller] that the goods conformed to the contract was made the object of an incidental ruling according to sec. 80 of the Court Organisation Act.
The District Court of the Canton of Zug, Second Division, in its judgment of 21 June 2004 dismissed this objection of the [Seller].
4. The [Seller], by way of the requests mentioned previously, appealed against the judgment at the Court of Appeal of the Canton of Zug. The [Buyer] requested the dismissal of the appeal.
5. The parties relinquished the right to a hearing in the appeal.
1. The local jurisdiction of the Courts of Zug in the present case is undisputed (Art. 2 Lugano Convention). The District Court, referring to Art. 117(1) and (3)(a) of the Federal Act on Private International Law (the Private International Law Act), declared the United Nations Convention on Contracts for the International Sale of Goods of 11 April 1980, the so-called "Vienna Sales Convention" to be applicable. Swiss law was to be applied in a supplementary manner.
Switzerland is party to the Vienna Sales Convention; the Isle of Man, however, is not. In their contract of 16 March 1999, the parties did not agree on the applicable law. The question as to what law is to be applied, therefore, must be answered in accordance with the Private International Law Act. Swiss private international law, in the absence of any choice on the matter, subjects the contract to the law of the State to which it has the closest connection. It is assumed that the closest connection will be to the State in which the party rendering the characteristic performance has its habitual residence, or, if the contract has been concluded in a professional or commercial capacity, where that party has its seat. As regards contracts for the transfer of property, the performance of the transferor is deemed to be the characteristic performance (Art. 117 of the Private International Law Act); in the present case, therefore, this is the delivery of the oil by the [Seller], which has its domicile in Zug. Art. 1(2) of the Private International Law Act contains an explicit proviso as to agreements under public international law. This concerns all international agreements which in any way may be of relevance in cross-border transactions under private law (Schwander, Einführung in das internationale Privatrecht, Volume I, 3. A, St. Gallen/Lachen 2000, § 22 N 590). The Vienna Sales Convention is applicable to contracts for the sale of goods between parties who have their places of business in different States, if these States are Contracting States, or if the rules of private international law lead to the application of the law of a Contracting State (Art. 1(1) of the Vienna Sales Convention; Schlechtriem/Ferrari, Kommentar zum Einheitlichen UN-Kaufrecht, 2 A., Munich 2000, Art. 1 N 62). The latter prerequisite is fulfilled by the reference of Art. 117 of the Private International Law Act to Swiss law. This leads to the application of Swiss law, and the Vienna Sales Convention, respectively, to the present case.
The parties have not objected to this in the appeal proceedings. The [Buyer] submits in its Statement of Claim that the parties have not excluded the application of the Vienna Sales Convention, and that the Convention, therefore, is applicable to the present contract of sale. In its Response of 13 March 2001, the [Seller] declared that it does not object to the application of Swiss law, including the Vienna Sales Convention. Due to what has been explained above, whether the parties hereby subsequently agreed on a choice of law may remain unresolved because this would not change the result.
2. In their contract of 16 March 1999 (KB 5), the parties agreed, under the heading "10. INSPECTION", that a jointly appointed independent inspector should ascertain the quality prior to loading, applying the latest standard methods of the American Society for Testing Materials, in conformity with the standard proceedings of the R. ___ refinery. The [Seller] submits that the sulphuric content of the goods delivered should be ascertained solely on the basis of the first analysis conducted by the jointly appointed independent inspector. The District Court, however, held that the contract clause mentioned could not be understood as limiting the number of samples that could be analyzed.
2.1. It is undisputed in the present proceedings that the quality of the oil was to be established prior to its loading onto the vessel. It is also undisputed that the loading of the oil commenced on 25 March 1999 at 7:40 p.m. As the lower court correctly found, only samples taken from the "Shore Tank 82" prior to 25 March 1999, 7:40 p.m., can therefore be deemed to be of relevance. Thus, the parties agreed that the ownership and risk in the goods should pass at the time the oil passed through the permanently installed hoses in the port of loading.
2.2. The [Seller] admits that the written contract of 16 March 1999 does not explicitly set out the number of analyses the jointly appointed expert could conduct. However, [Seller] maintains that, according to usage and standard methods, the jointly appointed inspector should conduct only one binding analysis. If one of the parties should not be willing to accept the result, and in case that party requests a so-called umpire testing - an arbitral test - in order for this subsequent test to be valid, the consent of, and participation by the other party is required. This objection of the [Seller], which was not raised until these appellate proceedings, cannot be accepted due to the prohibition against the introduction of new material in sec. 205(1) of the Civil Procedure Rules; furthermore, the claim is unsubstantiated. In any case, and in agreement with the lower court, it can be established that the contract does not exclude the possibility for the Diesel oil to be analysed repeatedly by the jointly appointed independent expert, and that the results of the various analyses be assessed in accordance with the relevant rules.
2.3. Regarding the identity of the inspector, the parties agreed that the quality be tested by an independent inspector appointed by mutual consent (KB 5, No. 10). As established by the lower court, at the time of the conclusion of the contract, the parties had not yet appointed any independent inspector. On 24 March 1999, a sample of the Diesel oil was taken from tank no. 82. The tests were conducted in the laboratories of S.A. ___, by their staff and in the presence of an inspector of I.T. ___ (KB 6, p. 5; KB 10). On 25 March 1999, I.T. took an additional sample from tank 82 (KB 10). The [Seller] did not object to this measure. The District Court concluded that the [Seller] had impliedly accepted I.T. as an independent inspector within the meaning of clause 10 of the contract of sale. This is denied by the [Seller]. It had been agreed that the staff of the S.A. ___ R. ___ Refinery was to test the quality under the supervision of I.T. The [Seller] had only accepted the staff of S.A. ___ R. ___ Refinery as the jointly appointed inspector; the staff was to take the samples under the supervision of I.T.
According to Art. 8 of the Vienna Sales Convention, the statements and other conduct of a party are to be interpreted according to that party's intent where the other party knew or could not have been unaware what that intent was. Otherwise, the statements or the conduct of a party are to be interpreted according to the understanding that a reasonable person of the same kind as the other party would have had in the same circumstances. To establish the intent of a party, or the understanding of a reasonable person, due consideration is to be given to all relevant circumstances of the case including the negotiations, any practices which the parties have established between themselves, usages and any subsequent conduct of the parties.
In the contract of 16 March 1999, neither the number of samples to be analysed with binding effect, nor the identity of the inspector are detailed. The English original is unclear: "A jointly agreed independent inspectors shall witness the quality ..." (emphasis added by the court). The translation in the files states: "Im beiderseitigen Einvernehmen bestellte Inspektoren werden ...", against which translation the [Seller] has not objected. Following the written agreement, it cannot be said without doubt that the parties agreed on accepting only one sole inspector, or several inspectors, and it therefore cannot be clearly established beyond doubt whether they agreed on accepting only one or several samples. Practices between the parties are neither known to have existed, nor have such practices been relied on. It can be seen from the expert statement mandated by the court, it emerges that it is "not unusual" for a product to be cleared for loading after only one sample has been tested (KB 57, p. 6). It can be concluded that the taking of one, as well as several samples can be conceivable, and thus, that there are no trade usages by which the present questions could be answered. Therefore, the parties' conduct must be decisive for ascertaining the content of the parties' contract. According to the principle of good faith, their actual behavior is what determines the content of the contract (cf. Schlechtriem/Junge, Kommentar zum Einheitlichen UN-Kaufrecht, 3d ed., Munich 2000, N. 6 on Art. 8 of the Vienna Sales Convention). If the [Seller] maintains that it only accepted the staff of the S.A. ___ R. ___ Refinery as inspectors, it must face the counter-argument that it did not object to the taking of samples for the purpose of analysis by IT ___. The lower court correctly deemed this failure to object to amount to an implied acceptance of IT ___ as an independent inspector within the meaning of clause 10 of the contract of sale. According to the undisputed allegation of the [Buyer], the test accepted by the [Seller] originates from the laboratory of the refinery's (R. ___ Refinery) supplier. It may be doubted whether the laboratory of the supplier could be regarded as an independent inspector pursuant to the contractual agreement. The question does not need to be answered. Contrary to the submission of the [Seller], however, one must assume that the parties did not limit themselves in the contract to only one single taking of a sample, but that, in principle, it was acceptable that, prior to the loading of the oil onto the vessel, several samples could be taken and analyzed by one or several inspectors.
2.4. As regards the technique to be employed, the parties agreed that the quality of the oil be ascertained according to the latest standard methods of the American Society for Testing Materials in accordance with the standard method of the R. ___ Refinery (KB 5, No. 10). The lower court undisputedly established, having regard to the expert statement mandated by the court of 11 June 2003, that the method of analysis "ASTM D 4294-10995" is a completely adequate and generally accepted way of ascertaining the amount of sulphur contained in Diesel oil. According to the correct explanations of the lower court, to which reference can be made (sec. 79(2) of the Court Organization Act), four additional analyses and test results may, in principle, be taken in account in assessing whether the consignment of oil conformed to the contract. Based on these analyses and testing results, the expert concluded that the average content of sulphur of the consignment was above 0.5 percent, and that the delivery, therefore, was not in conformity with the contract. The analysis the [Seller] regards as binding is not invalid. According to the explanations in the expert statement mandated by the court, however, this one analysis does not establish the product's conformity with the contract. "Repeated analysis, conducted by the same person on the same material with the same equipment, will yield a number within the range of repeatability limits (and thus fully acceptable), but nevertheless outside the range of the specification." In any case, in accordance with the explanations above, in any case, one must use the average value, which - as stated - is above 0.5 percent. The expert statement mandated by the court has, correctly, not been challenged by the parties. Thus, the appeal, is unfounded and must be dismissed.
3. Given this result of the proceedings, the [Seller] is also liable for the costs of the appeal proceedings. The value of the dispute is around US $1,380,000.--. In ascertaining the costs, regard must be had to the fact that the present incidental ruling only concerned the conformity of the delivery with the contract. The basic fees in the present case are CHF 35,200.--, of which one to two-thirds are admissible in the appeal proceedings (CHF11,733.-- to CHF 23,466.--). There are no grounds for additions, and the fees are therefore to be fixed at CHF 15,000.--; to this are added reimbursements for moneys paid in the amount of CHF 150.-- are added to this amount.
4. Under the prerequisites provided in Art. 50 of the Federal Act for the Administration of Justice, this judgment may be challenged by appeal to the Swiss Federal Court.
THE COURT OF APPEAL DECIDES
1. The appeal is dismissed, and the judgment of the District Court of the Canton of Zug, Second Division, of 21 June 2004 is upheld.
2. The costs for the appeal are to be paid by the [Seller]:
3. The [Seller] is to reimburse the [Buyer] for the appeal proceedings by payment of CHF15,150.--.
4. Within 30 days of delivery, a written appeal can be lodged against this judgment in duplicate, at the Appeal Court and addressed to the Federal Court, in accordance with Art. 43 et seq. of the Federal Act for the Administration of Justice (OG). The appeal must contain substantiated requests.
5. Notice sent to the parties, the District Court of Zug, Second Division (handing back the files when this judgment cannot be appealed against anymore), the court caashier
* All translations should be verified by cross-checking against the original text. For purposes of this translation, Defendant-Appellant of Switzerland is referred to as [Seller] and Plaintiff-Respondent of the Isle of Man is referred to as [Buyer]. Amounts in the currency of the United States (dollars) are indicated as [US $]; amounts in the currency of Switzerland (Swiss francs) are indicated as [CHF].
** Jakob Heidbrink, LL.D. M.Jur. (OXON), Lecturer in Law at Jönköping International Business School.
*** Mariel Dimsey, LL.M., is a Research Assistant and Teaching Assistant at the University of Basel, Switzerland.Go to Case Table of Contents