Greece 2006 Decision 63/2006 of the Court of Appeals of Lamia (Sunflower seed case) [editorial analysis available]
[Cite as: http://cisgw3.law.pace.edu/cases/060001gr.html]
DATE OF DECISION:
CASE NUMBER/DOCKET NUMBER: 63/2006
CASE HISTORY: Unavailable
SELLER'S COUNTRY: Bulgaria (defendant)
BUYER'S COUNTRY: Greece (plaintiff)
GOODS INVOLVED: Sunflower seeds
APPLICATION OF CISG: Yes [Article 1(1)(a)]
APPLICABLE CISG PROVISIONS AND ISSUES
Key CISG provisions at issue:
Classification of issues using UNCITRAL classification code numbers:
72D1 Avoidance prior to date for performance (party has declared it will not perform): no need for advance notice under art. 72(2)]; 74A ; 74B [General rules for measuring damages: loss suffered as consequence of breach; Outer limits of damages: foreseeability of loss]; 75A2 [Damages established by substitute transaction after avoidance: repurchase by aggrieved buyer]; 77A [Obligation to take reasonable measures to mitigate damages]; 79B ; 79G [Impediments excusing party from liability for damages; Other issues: hardship]
72D1 Avoidance prior to date for performance (party has declared it will not perform): no need for advance notice under art. 72(2)];
74A ; 74B [General rules for measuring damages: loss suffered as consequence of breach; Outer limits of damages: foreseeability of loss];
75A2 [Damages established by substitute transaction after avoidance: repurchase by aggrieved buyer];
77A [Obligation to take reasonable measures to mitigate damages];
79B ; 79G [Impediments excusing party from liability for damages; Other issues: hardship]
EDITOR: Dionysios P. Flambouras [*]
A Greek company [buyer] and a Bulgarian company [seller] concluded a contract for the sale of 3,000 tons of sunflower seeds which would be produced in Bulgaria. It was agreed that delivery would be performed at the end of September / beginning of October of 2001. The seller, via a facsimile transmission (19 September 2001), refused to perform the contract by the delivery of the agreed quantity, invoking changes in the market and certain other impediments. The buyer repeatedly notified the seller requesting the delivery of the agreed quantity of sunflower seeds, but the seller continued to refuse. In view of this situation, the buyer, in order to cover the needs of its oil-industry, proceeded to a cover contract and purchased a quantity of sunflower seeds from another supplier at a higher price than the one agreed upon between it and the seller. The relevant court action included a claim of the buyer for damages that corresponded to the difference between the price it had initially agreed with the buyer and the higher price it paid to a third supplier under a substitute (cover) transaction.
The seller, in order to be exempted from the above liability for damages, pleaded before the court that its failure to deliver the quantity of sunflower seeds sold to the buyer was due to:
(a) prolonged dryness, which resulted to the destruction of a large quantity of the current harvest of sunflower seeds in Bulgaria and consequently reduction of production and availability of this product; and
(b) the lowering of the level of the river Danube; thus the seller was unable to load the goods on a ship in a river port which was located in its premises and furthermore it was obliged to use a port located in the Black Sea; however, the necessity to load the goods in a sea port entailed increased transportation costs for the seller to that port, a fact that rendered the initially agreed price highly inexpedient for the seller.
Accordingly, the seller claimed that the above were impediments beyond the seller's control which it did not take into account during the conclusion of the contract neither it could avoid them and overcome their effect; therefore, pursuant to CISG art. 79(1), it was exempted from the liability to pay damages to the buyer (CISG art. 45(1)(b), and arts. 74-77).
2.1 Application of the CISG
The court applied CISG by virtue of CISG art. 1(1)(a) since the seller and buyer each had its place of business in a country (Greece and Bulgaria) that is a Contracting State.
2.2 Exemption from liability for damages due to impediments beyond control - change in economic background (hardship)
The court rejected the arguments of the seller since: (a) it was proved that the seller was aware that the production and offer of sunflower seeds would be limited for the specific year due to dryness; and (b) the lowering of the level of the river Danube was an impediment within the control of the seller which should have been taken into account to avoid it, since the same event had occurred several years ago and, in view of this previous experience, the seller should have alternatively proposed an increased price for the goods, where due to the lowering of the level of the river Danube, the need for the transport of the goods from a port of the Black Sea would emerge (instead of the closest river port); otherwise, it should not have proceeded with the execution of the sale contract.
The court additionally supported its judgment for the non-exemption of the seller from its liability for failure to deliver, by accepting that CISG art. 79 does not entitle the promissor to be released from his contractual obligations due to change of the economic background on which the parties relied for the conclusion of the contract, since, in this case, the commencement of transportation by ship could be performed at a sea port (instead by a river port), although this would entail higher costs for the seller.
Furthermore, the court accepted that the buyer observed its obligation under CISG art. 77; in particular, in order to reduce its loss from the failure of delivery of the agreed quantity of sunflower seeds, the buyer acted promptly and adopted reasonable measures by concluding in due time a substitute (cover) contract, i.e., it purchased the quantity of sunflower seeds which was required for the needs of its oil-industry business from another supplier.
2.2 Substitute sale - calculation of damages
As mentioned above, the buyer requested as damages for the seller's failure of delivery of the agreed quantity of sunflower seeds, the difference between the price agreed upon in the sale contract and the price set out in the substitute purchase contract concluded with the third supplier. However, despite the fact that according to the above the buyer had concluded a substitute transaction (substitute purchase) for the acquisition from another supplier of the quantity not delivered, the court did not calculate the damages in accordance with CISG art. 75. On the contrary, having applied the general provision of CISG art. 74, the court:
|(i)||On one hand, refused to allow the total amount of the damages claimed, i.e., the amount by which:
(1) the price in the substitute purchase (US $323.50 per metric ton), exceeded,
(2) the price initially agreed upon (US $230 per metric ton), i.e., US $93.50 per metric ton,
considering that the amount of the damages claimed exceeded the loss which the breaching party
(the seller) foresaw or ought to have foreseen as possible in view of the facts and conditions of
which it was aware or should have been aware; and
|(ii)||On the other hand, it proceeded with, a rather innovative, abstract calculation of the loss and, on the basis of this calculation, granted as damages to the buyer the amount by which:
(1) the price which, someone should pay as an average in order to purchase sunflower seeds from various suppliers in September 2001 (US $280 per metric tone) exceeded,
(2) the price initially agreed upon (US $230 per metric ton), i.e., US $50 per metric ton,
since, the court judged that this was the amount which the seller could have foreseen as a possible consequence of its breach at the time the contract was concluded (i.e., the additional average price, which the buyer should pay in order to purchase sunflower seeds from other suppliers).
From the text of the judgment it cannot be safely concluded whether the buyer avoided the contract and claimed damages or whether it claimed damages without having previously avoided the contract. However, by reason of the fact that the court did not calculate the amount of damages in accordance with CISG art. 75 (which presupposes avoidance of the contract), but in accordance with CISG art. 74 (which is of general application and governs any claim for damages under the CISG regardless of previous avoidance), it can be concluded that the court either accepted that the buyer claimed damages without having previously declare the contract avoided  or it did not examine at all the question of previous avoidance.
2.3 Criticism - Anticipatory breach?
The above solution (paragraph 2.2) is correct judging from its outcome, but from a methodological point of view it cannot be characterized as complete.
More specifically, it would have been preferable if the court had examined whether the buyer had avoided the contract and also claimed damages (see CISG art. 45(1)(a), 45(2) or whether the buyer claimed damages without having previously avoided the contract (see CISG art. 45(1)(b)).
In particular, the court should have examined whether the buyer avoided the contract in accordance with CISG art. 72(1) which provides that "If prior to the date for performance of the contract it is clear that one of the parties will commit a fundamental breach of contract, the other party may declare the contract avoided." Under the facts, CISG art. 72(1) appears to apply, since it become clear prior to the expiration of the deadline (end of September / beginning of October 2001) (via a facsimile sent by the seller on 19 September 2001), that the seller would commit a fundamental breach of contract (definite denial to deliver the goods sold). Indeed, due to the above declaration of the seller that it would not perform its obligation, the buyer, in accordance with CISG art. 72(3), was not required to proceed with a notice to the seller of its intention to avoid the contract in compliance with CISG art. 72(2). This conclusion is further enhanced by the fact that, in view of the definite denial "before expiration" of the seller to perform its obligation and the ineffective notices of the buyer, the latter proceeded with a substitute contract for the purchase from another supplier of the quantity of sunflower seeds that was necessary for its oil-industry customers, a behavior from which it can be concluded that the buyer believed that it was no longer bound by the contract.
If the court had according to the above accepted that the buyer avoided the contract of sale, then it could further accept that, in view of the existence of the substitute purchase contract, the buyer could at first claim as damages the difference between the price agreed upon in the contract and the price of the substitute purchase contract pursuant to CISG art. 75 (specific calculation for the amount of damages); however, even in this case, damages claimed by the buyer (which would be specifically calculated in accordance with CISG art. 75) could, in the end, be reduced by the court by virtue of CISG art. 77: in particular, damages claimed could be reduced since it is clear that the buyer's loss could have easily been mitigated by the purchase (by the buyer) of sunflower seeds from another supplier at a lower price, an action with which the buyer did not proceed (since it purchased the quantity of sunflower seeds necessary for its oil-industry from a specific supplier for a higher price).
2.4 Other citations
Excerpt from commentary by Dionysios P. Flambouras "Case Law of Greek Courts for the Vienna Convention (1980) for International Sale of Goods" (publication forthcoming in the Nordic Journal of Commercial Law)
* Adjunct Lecturer (PD 407) in Civil Law, University of Athens (Dep. of Economics); Advocate of the Athens Bar, Solicitor in England & Wales; Member of M. & P. Bernitsas Law Offices. LL.M. (Brist.), M. Stud. (Oxon), Dr. Jur. in Civil Law (Athens).
1. The court clearly follows the view that the CISG does not release the promisor from his liability in case of change of the economic background on which the parties relied on, upon conclusion of the contract, neither does it grant him the right to renegotiate the terms of the contract in case of change of the actual facts or in case of economic inability. Similarly cf. D. Flambouras, The Doctrines of Impossibility of Performance and Clausula rebus sic stantibus in the 1980 Convention on Contracts for the international sale of goods and the Principles of European Contract Law - A Comparative Analysis, Pace International Law Review (13) 2001, 289-293.
2. That is, the court accepted that the buyer who was entitled to damages due to contractual breach by the seller, is obliged, pursuant to CISG art. 77, to conclude in due time a purchase agreement with another supplier for the immediate cover.
3. It is accepted in terms of interpretation that damages can be separately claimed, without previous avoidance: cf. P. Schlechtriem, Damages, avoidance of the contract and performance interest under the CISG, § 1(a) and (b) (electronically published in <http://www.cisg.law.pace.edu/cisg/biblio/schlechtriem21.html>).Go to Case Table of Contents
CITATIONS TO ABSTRACTS OF DECISION
(a) UNCITRAL abstract: Unavailable
(b) Other abstracts
CITATIONS TO TEXT OF DECISION
Original language (Greek): Click here for Greek text; see also Commercial Law Survey [Episkopisi Emporikou] (2006) 1108
CITATIONS TO COMMENTS ON DECISION
UnavailableGo to Case Table of Contents