Serbia 6 November 2005 Foreign Trade court of Arbitration attached to the Serbian Chamber of Commerce (Mineral water case) [translation available]
[Cite as: http://cisgw3.law.pace.edu/cases/051106sb.html]
DATE OF DECISION:
CASE NUMBER/DOCKET NUMBER: T-10/04
CASE HISTORY: Unavailable
SELLER'S COUNTRY: Serbia and Montenegro/Serbia (claimant)
BUYER'S COUNTRY: Germany (respondent)
GOODS INVOLVED: Mineral water
APPLICATION OF CISG: Yes
APPLICABLE CISG PROVISIONS AND ISSUES
Key CISG provisions at issue:
Classification of issues using UNCITRAL classification code numbers:
7C23 [Gap-filling by domestic law: referring to whether a notice of lack
of conformity has to be in writing as a gap in the CISG, the arbitrator
turned to domestic Serbian law to resolve this issue]; 39A ; 39C [Requirement to notify seller of lack of conformity: buyer
must notify seller within reasonable time; Other issues: whether
notification must be in writing]
7C23 [Gap-filling by domestic law: referring to whether a notice of lack of conformity has to be in writing as a gap in the CISG, the arbitrator turned to domestic Serbian law to resolve this issue];
39A ; 39C [Requirement to notify seller of lack of conformity: buyer must notify seller within reasonable time; Other issues: whether notification must be in writing]
CITATIONS TO ABSTRACTS OF DECISION
(a) UNCITRAL abstract: Unavailable
(b) Other abstracts
CITATIONS TO TEXT OF DECISION
Original language (Serbian): Click here for Serbian text of case
Translation (English): Text presented below
CITATIONS TO COMMENTS ON DECISION
Serbian:  Vladimir Pavic, Milena Djordjevic, Primena Becke konvencije u arbitraznoj praksi Spoljnotrgovinske arbitraze pri Privrednoj komori Srbije, Pravo i privreda br. 5-8/2008, cited at pp. 598-600Go to Case Table of Contents
Queen Mary Case Translation Programme
Award of 6 November 2005 [Proceedings No. T-10/04]
Translation [*] by Marko Jovanovi, LL.M.
Edited by Dr. Vladimir Pavic, Milena Djordjevic, LL.M. [**]
Claimant (Serbia and Montenegro) [Seller] v. Respondent (Germany) [Buyer]
Foreign Trade court of Arbitration attached to the Serbian Chamber of Commerce in Belgrade in the proceedings conducted by Professor ___ as sole arbitrator between [Seller] from Serbia and Montenegro as claimant and [Buyer] from Germany as Respondent, renders the following
|(1)||The [Seller]'s claim is granted and [Buyer] is ordered to pay to [Seller] the amount of EUR
2,328.48 within fifteen days from the day of receipt of this Award;
|(2)||[Buyer] is ordered to pay to [Seller] the interest for the amount referred to in paragraph (1) supra as of 12 September 2003 until the debt is fully settled, at 'domiciliary' interest rate, i.e., at the interest rate used by the European central Bank for deposits in Euros;
|(3)||[Buyer] is ordered to pay to [Seller] compensation for the costs of proceedings in the amount of Serbian dinars [RSD] 33,284.00 within fifteen days from the receipt of this Award.|
STATEMENT OF REASONS
The jurisdiction of this arbitration is provided for in Article 9 of the contract for sale of mineral water (Prolom voda) concluded between [Seller] and [Buyer] on 10 July 2003. The Parties have not challenged jurisdiction in the course of the arbitral proceedings.
2. Appointment of arbitrator
Since the Parties have not made any proposals with respect to the appointment of arbitrator within the time limit prescribed by the Rules of the Foreign Trade court of Arbitration attached to the Serbian Chamber of Commerce, the Chairman of the Arbitration court, acting pursuant to Article 27(3) of the Rules, appointed Professor ___ as sole arbitrator.
3. Arbitral proceedings
Respondent [Buyer] failed to submit an Answer to the Statement of claim. The hearings were held on 9 May, 25 June and 21 September. At the first hearing, [Buyer] rejected all the claims.
At the hearing held on 25 June, the Parties accepted to attempt to reach an amicable solution to their dispute, which was acknowledged by the sole arbitrator. The attempt of settlement has, however, failed.
At the hearing held on 21 September, the arbitrator accepted the joint proposal of the Parties and decided to postpone the rendering of the award for fifteen days, in order to provide an additional opportunity to the Parties for amicable settlement of their dispute. At the same time, the arbitrator declared the closure of the hearings. As the Parties failed to settle within the time limit set by the arbitrator, the arbitrator rendered the award as stated above.
4. [Seller]'s claim and position of the Parties with respect to the facts of the case and the legal issues
In its Statement of claim dated 12 May 2004, [Seller] requested from [Buyer] the payment of the amount of EUR 2,328.48 for the performance of the contract for sale of mineral water (Prolom voda), as well as the interest on that amount as of 10 July 2003. [Seller] based its claim on the following facts:
On 10 July 2003, [Seller] concluded with [Buyer] a contract for the delivery of 100,000 liters of Prolom voda. According to the dispatch note of the same date, [Seller] delivered 15,120 liters and sent Invoice No. 1268 requesting the payment of the amount claimed for the delivered mineral water.
In addition to the contract and the Invoice, [Seller] also submitted the dispatch note signed by recipient, customs declaration and cMR (the two latter documents bearing signatures as well), as proof that the goods were delivered. The delivery was made to the business seat of [Buyer] on 12 July 2003.
Since [Buyer] has not paid for the goods received, the Statement of claim was submitted to Arbitration, [Seller] requests the Arbitration Tribunal to order [Buyer] to pay to [Seller] the main debt with interest as of the day on which the contract was concluded.
At the first hearing, [Buyer]'s legal representative - the [Buyer]'s owner -- denied the [Seller]'a claim. [Buyer] stated that [Seller] delivered non-conforming goods and that, consequently, [Seller] did not perform its contractual obligation. Namely, pursuant to the pertinent legislation in Germany, the country to which the goods were imported, each bottle of the delivered mineral water had to carry a label containing the mark of [Buyer] (as it is the importer and the distributor) along with other prescribed information. Instead of the mark of [Buyer], the labels on the delivered bottles contained the mark of another German company to which [Seller] was also delivering mineral water of the same brand. For this reason, [Buyer] could not place the delivered goods in circulation. [Buyer] therefore submits that since [Seller] has not performed its contractual obligation as it delivered goods which could not be used for their purpose, consequently, [Buyer] should also be released from the obligation to pay the price.
5. Applicable law
The Parties failed to include a choice of law clause in their contract. Pursuant to Article 46(2) of the Arbitration Rules, the sole arbitrator decided to apply the UN convention on contracts for the International Sale of Goods (Vienna convention) as the most suitable primary source of law for the case at hand. This convention was ratified by the countries of domicile of both Parties to the contract. Pursuant to Article 19 of the Law on Resolution of conflicts of Laws with Regulations of Other countries, which is in force in Serbia, the issues falling outside the scope of the convention shall be governed by the law of the place of seller, i.e., by the Serbian law.
6. Legal issues
It is undisputed between the Parties that [Seller] delivered 15,120 liters of mineral water (Prolom voda) to [Buyer] and that the amount indicated in the invoice corresponds to the price of a single item multiplied by the number of items delivered.
It is disputed, however, whether the delivered goods had the standard quality or the quality provided for by the contract regarding the content of labels required by the pertinent legislation of the country of import. If not, the question is then whether [Buyer] gave a proper notice of non-conformity, as required by law. In relation to this question, it should also be examined whether [Buyer] is exempt from paying the price or whether [Buyer] became entitled to certain rights on the basis of non-conformity of the goods, bearing in mind that it failed to return the goods to [Seller], and that the [Buyer] has not otherwise placed the goods at [Seller]'s disposal, nor has the [Buyer] fixed an additional period of time of reasonable length to [Seller] within which Seller] could remedy the lack of conformity.
As a proof of existence of the [Buyer]'s obligation to pay the price [Seller] submitted the contract for sale of Prolom voda. [Seller] also submitted the dispatch note signed by the recipient, customs declaration and cMR (the latter two documents bearing signatures as well), as proof that the goods were delivered. [Buyer] did not object to the authenticity of these documents.
Denying [Seller]'s claims, [Buyer] first presented a bottle of Prolom voda with a label containing the name of the other importer of the said mineral water, but failed to produce any evidence of its submission that the presented bottle was actually a part of the delivery in question. At the hearing, [Buyer] stated that, after it had discovered that the label was non-conforming, it gave a notice of non-conformity by phone to a representative of the Serbian Chamber of Commerce, with whom [Buyer] was already acquainted. [Buyer] further explained that it called the representative of the Serbian Chamber of Commerce since this institution was competent to hear disputes arising out of the contract concluded with [Seller].
At a later stage, in an attempt to prove that [Buyer] had objected to the quality of the goods in a timely manner, [Buyer] presented a copy of the fax-message allegedly sent by [Buyer] to [Seller], containing a notice of non-conformity of the delivered goods.
The counsel for [Seller] objected to the validity of this proof and stated that [Seller] never received the fax-message in question. He pointed out that the copy of the fax-message contained a notice that it was actually sent to [Buyer] and that the indication that the message was previously (on 15 July 2003) sent to [Seller] was contained in a part of the message where such a notice should not usually stand. [Seller] suggested that [Buyer]'s employees should be summoned to the proceedings in the capacity of witnesses who would confirm that before the claim was brought [Buyer] asked to postpone the payment of the price. At a later point, [Seller] requested the [Buyer]'s head of the import department to be summoned as a witness. The fact that [Buyer] asked for postponing the payment time should imply that it received the goods without objecting to its conformity and that it subsequently invented a reason for avoiding the payment. counsel for [Seller] emphasized that it was not until the first hearing that the fax-message containing the alleged notice of non-conformity appeared, and that the [Buyer] explicitly said that, in respect to the notice of non-conformity, it did not contact [Seller] but the Chamber of Commerce.
[Buyer] held to the position that the fax-message was authentic. [Buyer] did not object to the suggestion made by the counsel for [Seller] to summon witnesses (who were not named at the time). However, [Buyer] requested that the witnesses be faced with [Buyer].
When questioned by the arbitrator on the further development of the situation regarding the delivered goods at the hearing held on 25 June 2005, [Buyer] was not able to offer any position. At the hearing held on 21 September of the same year, [Buyer] submitted that, when making the notice of non-conformity of the delivered goods, [Buyer] offered to [Seller] to handle the goods according to its instructions. The goods were later destroyed. With respect to [Buyer]'s submission that it made a notice of non-conformity to the chamber of commerce, [Buyer] stated that [Buyer] made such a submission due to its lack of legal knowledge.
The arbitrator did not accept the suggestion to produce evidence by hearing the witness, as the witness could only indirectly testify about the facts relevant for the case at hand. Furthermore, the costs of producing such evidence, along with the costs of facing the witness with [Buyer], would considerably exceed the amount claimed by [Seller].
Assuming that the delivered goods really had the deficiencies described above, the crucial question for the outcome of this dispute is whether [Buyer] made a proper notice of non-conformity and whether its further actions were in accordance with the law. If the relevant notice was properly made, two issues need to be examined. First, it should be decided whether the notice was justified, i.e., whether [Buyer]'s claims regarding the lack of quality are well founded. Second, in case that a lack of conformity really existed, it should be determined what rights has [Buyer] acquired due to the lack of conformity and if it acted in compliance with these rights.
It is the view of the arbitrator that the following facts have a particular relevance for the assessment of the presented evidence:
First, when receiving the goods, [Buyer] signed the accompanying documents without any objections, even though the alleged lack of conformity was easily noticeable.
Second, in its oral submission before this Arbitration, [Buyer] explicitly stated that it gave the notice of non-conformity by phone, to the Serbian Chamber of Commerce. More specifically, it called an employee of the Chamber, with whom [Buyer] has already been acquainted. The fact that [Buyer] (a trade shop and its owner) lacks legal knowledge can hardly be considered as a reason for confusion with respect to the identity of the party it has contacted in relation to the notice of non-conformity -- the Chamber or the seller. Arguably, the lack of legal knowledge could be a reason for making a notice of non-conformity to the wrong person, but that mistake cannot affect the outcome of the dispute.
Third, it is not possible to establish the existence and timeliness of the notice of non-conformity on the basis of the copy of the fax-message submitted in the course of proceedings.
Finally, [Buyer] was not able to make an unambiguous and verifiable statement with respect to the further situation of the delivered goods, which is the decisive element in determining what rights it acquired due to the lack of conformity of the goods.
For all these reasons, and especially since the only "evidence" suggested by [Buyer] is in collision with all the other evidence, the sole arbitrator could not accept [Buyer]'s subsequent submission that it made the notice of non-conformity by fax.
8. Legal opinion taken in the decision
Pursuant to Article 39 CISG, buyer loses the right to rely on a lack of conformity of the goods if he does not give notice of non-conformity to the seller without delay. The CISG does not specify the form of the notice of non-conformity, but the fact that the notice has to be sent, as well as the provisions on its content logically suggest that the notice should be in the written form. It is a standard procedure in foreign trade that objections should be made in the written form and that any oral objection should be immediately confirmed in writing. Pursuant to the Serbian Law on contracts and Torts which, according to the relevant provisions of the Serbian Law on Resolution of conflicts of Laws with Regulations of Other countries, governs the issues falling outside the scope of the CISG, a notice specifying the nature of the lack of conformity should be sent by registered mail, by telegram or by other reliable means.
It is the arbitrator's legal opinion that [Buyer] has not made the notice of non-conformity in an appropriate and timely manner.
Since it has not made the notice of non-conformity in an appropriate and timely manner, [Buyer] lost the right to rely on a lack of conformity of the goods. [Buyer] is therefore ordered to pay the price of the goods as specified in the invoice.
By deciding to grant [Seller]'s main claim, the arbitrator partially granted the claim regarding the payment of interest. [Seller] is entitled to interest as of the day on which the obligation to pay the price became due and that is, pursuant to the contract, 60 days following the "day on which the creditor-debtor relationship between the parties was created", i.e., the day on which the goods were received, according to Article 6 of the contract. Bearing in mind the aforementioned arguments, the arbitrator made the decision as stated above.
Since almost all [Seller]'s claims were granted, except for a minor part of the claim concerning the interest, the arbitrator ordered [Buyer] to pay to [Seller] the compensation for the costs of the arbitral proceedings. [Seller] submitted a specification of costs, according to which it requested from [Buyer] the reimbursement of the registration fee, arbitration expenses as well as the costs of its legal representation. Since [Seller]'s legal representative is a lawyer employed at [Seller]'s company, the sole arbitrator holds that the reimbursement of costs of legal representation should not be granted. consequently, the sole arbitrator made the decision as stated above.
Pursuant to Article 54 paragraph 1 of the Rules of the Foreign Trade court of Arbitration attached to the Serbian Chamber of Commerce, this award is final.
Belgrade, 6 November 2005
* All translations should be verified by cross-checking against the original text. For purposes of this translation, claimant of Serbia and Montenegro/Serbia is referred to as [Seller] and Respondent of Germany is referred to as [Buyer].
** Marko Jovanovic, LL.M. (U. of Belgrade) is a Doctorate student at the University of Paris 1 - Pantheon Sorbonne and at the University of Belgrade. Dr. Vladimir Pavic is an Associate Professor in Private International Law and Arbitration, and Milena Djordjevic, LL.M. (U. of Pittsburgh) is a Lecturer in International commercial Law at the University of Belgrade Faculty of Law.Go to Case Table of Contents