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CISG CASE PRESENTATION

Germany 13 February 2006 Appellate Court Köln (Woolen cloth case) [translation available]
[Cite as: http://cisgw3.law.pace.edu/cases/060213g1.html]

Primary source(s) of information for case presentation: Case text

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Case identification

DATE OF DECISION: 20060213 (13 February 2006)

JURISDICTION: Germany

TRIBUNAL: OLG Köln [OLG = Oberlandesgericht = Provincial Appellate Court]

JUDGE(S): Unavailable

CASE NUMBER/DOCKET NUMBER: 16 U 17/05

CASE NAME: German case citations do not identify parties to proceedings

CASE HISTORY: 1st instance Landgericht Köln (5 O 435/03) [reversed]

SELLER'S COUNTRY: Italy (defendant)

BUYER'S COUNTRY: Germany (plaintiff)

GOODS INVOLVED: Woolen cloth


Case headnote

Reproduced from Internationales Handelsrecht [4/2006] 145

"As the CISG does not contain rules regarding the prescription period or the right to set-off, these questions are to be answered by the law applicable according to the forum state's conflict of law rules.

"Art. 1494 para. 3 of the Italian Codice civile enables the buyer to rely on remedies for non-conforming goods vis-à-vis the seller even when these are time barred. However, these defences may only be raised against the claim for the contract price and not by way of set-off against a claim from another contract."

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Case abstract

GERMANY: Oberlandesgericht Köln 13 February 2006

Case law on UNCITRAL texts [A/CN.9/SER.C/ABSTRACTS/80], CLOUT abstract no. 823

Reproduced with permission of UNCITRAL

Abstract prepared by Ulrich Magnus, National Correspondent, and Jan Lüsing

The claimant purchased from the defendant, an Italian textile supplier, woollen cloth for trousers, sport jackets and skirts. While processing the cloth, creases cropped up, which could not be fixed. The claimant complained about this defect in a letter to the defendant. It then tried to sell the processed cloth to its customers in vain, as they refused acceptance of the goods due to lack of conformity because of the creases. The claimant refused to pay for the defective goods and, also, for a delivery of conforming goods. It then sued the seller for damages resulting from the lack of conformity and from the failed resale. The defendant denied the alleged lack of conformity, raised the defence of time limitation and filed a counterclaim demanding the payment of the purchase price plus interest for a previous conforming delivery.

The court granted the claimant's claim. Upon the defendant's appeal, the appellate court reversed the lower court's decision, rejected the claimant's claim and granted the defendant's counterclaim.

The appellate court noted that the contract between the parties was governed by the CISG in principle, but pointed out that the CISG did not contain provisions on the limitation period and the right to set-off. Therefore, the limitation period was governed by the applicable national law according to the rules of private international law of the forum state. Italian law was thus applicable pursuant to the German rules of conflict of laws (EGBGB), subsidiary to the CISG. The court held that the buyer had complied with the requirements of articles 38 and 43 CISG and, therefore, was entitled to damages under article 74 CISG. However, the court found that the claimant's claim fell under the statute of limitations pursuant to Italian law. With regard to the defendant's counterclaim, the court held that the defendant was entitled to claim the full price for the conforming delivery. The court rejected the claimant's argument that relied on set-off for the time barred claim for the non-conforming delivery since the applicable Italian law (as the CISG did not regulate the matter of set-off) did not permit set-off.

Therefore, the court held that the claimant was not entitled to damages. On the contrary, the defendant was entitled to payment of the purchase price plus interest for the conforming delivery with the claim to interest based on article 78 CISG on its merits and the rate of interest based on Italian law.

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Classification of issues present

APPLICATION OF CISG: Yes [Article 1(1)(a)]

APPLICABLE CISG PROVISIONS AND ISSUES

Key CISG provisions at issue: Article 4 [Also cited: Articles 38 ; 43 ; 74 ; 78 ]

Classification of issues using UNCITRAL classification code numbers:

4B [Scope of Convention (issues excluded): statute of limitation, set-off]

Descriptors: Scope of Convention ; Statute of limitations ; Set-off

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Editorial remarks

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Citations to other abstracts, case texts and commentaries

CITATIONS TO OTHER ABSTRACTS OF DECISION

English: Unilex database <http://www.unilex.info/case.cfm?pid=1&do=case&id=1138&step=Abstract>

CITATIONS TO TEXT OF DECISION

Original language (German): CISG-online.ch website <http://www.cisg-online.ch/cisg/urteile/1219.pdf>; Unilex database <http://www.unilex.info/case.cfm?pid=1&do=case&id=1138&step=FullText> Internationales Handelsrecht (4/2006) 145-147

Translation (English): Text presented below

CITATIONS TO COMMENTS ON DECISION

Unavailable

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Case text (English translation)

Queen Mary Case Translation Programme

Appellate Court Cologne (Oberlandesgericht Köln)

13 February 2006 [16 U 17/05]

Translation [*] by Stefan Dietrich [**]

Edited by Todd Fox [***]

The 16th Civil Division of the Higher Regional Court of Köln, as Appellate Court, in the matter of Defendant-Appellant [Seller] of Italy against Plaintiff-Appellee [Buyer] of Germany in a lawsuit involving 15,423.38 Euros:

FACTS

I.  In July 2002 [Buyer] purchased from [Seller], an Italian textile supplier, 500 meters of woolen cloth for trousers, sport coats and skirts. [Buyer] retained a firm in Austria for further processing of the cloth. During the processing, irreparable creases appeared. [Buyer] notified [Seller] of this in writing on 26 July 2002. Nevertheless, [Buyer] subsequently delivered the finished articles of clothing to its customers. The customers returned them because of the defects.

[Buyer] refused to pay the invoice for this delivery of cloth in the amount of 6,907.67, and for another -- unobjectionable-- delivery of 10 June 2002, which is the subject of an invoice dated the same day for 12,117.82.

In the Court of First Instance [District Court], [Buyer] alleged that it suffered a total loss of 26,624.07 as a result of lost sales due to [Seller]'s defective delivery. [Buyer] also claimed a part of the sum thereof in the amount of 3,305.56 relating to business connections with customers P and M. [Seller], in turn, denied the alleged defects, raised a statute of limitations defense, and demanded the undisputed open amount from the invoice of 10 June 2002 in the amount of 12,117.82 by way of counterclaim.

Applying Italian law, the District Court ruled against [Seller] on the grounds that [Seller] did not sufficiently counter [Buyer]'s allegation of defective performance and did not sufficiently refute [Buyer]'s allegation of damages for lost profits. The District Court held that the statute of limitations did not bar [Buyer]'s claim, ruling that a buyer who is sued for breach of contract can always raise warranty claims, provided he gave timely notice of the defect of the goods -- as was done by [Buyer] in the present case.

[Seller] appeals this judgment and alleges that the District Court wrongly considered [Buyer]'s claim to be enforceable and wrongfully discounted [Seller]'s objections as to the damages. [Seller] alleged that, according to the applicable Italian law, [Buyer]'s claim is barred; the provision of Art. 1495 Codice civile [Cc = Italian Civil Code], which the District Court consulted to justify its contrary opinion, only applies if the seller sues the buyer for the purchase price, not however if the buyer itself is making a warranty claim, as in the present case.

Accordingly, [Seller] requests dismissal of the action under modification of the District Court's decision, and on [Seller]'s counterclaim that [Buyer] be ordered to pay [Seller] 12,117.82 together with 3.5 % interest since 10 June 2002.

[Buyer], in turn, requests dismissal of [Seller]'s appeal.

[Buyer] defends the appealed decision and in particular alleges that the District Court ruled properly that the claim was not time-barred. According to [Buyer], this would follow from Art. 1495(3) Cc [*], which would apply, according to the correct understanding, not only in an action by the seller for payment from the same order, but (at least within the scope of an ongoing business connection) also in an action from a parallel order -- here filed by way of counterclaim. Furthermore, the prescription period would also have been interrupted through the transmission of the jurisdiction agreement of 29 November/2 December 2002 -- which should be interpreted as reminder/demand -- and would have been suspended during the ongoing negotiations before transmission of the jurisdiction agreement.

This Court obtained an expert report from the Institute of International and Foreign Private Law at University L ___ regarding the question of the enforceability of [Buyer]'s warranty claims according to Italian law. Regarding the individual evidence questions, reference is directed to the evidence order of 29 August 2005 (GA 234) and with regard to the results of the taking of evidence, reference is directed to the expert report of 16 November 2005 (page 244 GA).

REASONS

II. [Seller]'s appeal was filed in a timely manner, complies with formal requirements, and is successful. [Buyer]'s warranty claims are no longer enforceable because they are barred under the statute of limitation. [Seller] is entitled to claim the invoiced amount of 12,117.82, which was asserted by way of counterclaim.

In detail, the following applies:

      1. With regard to the appraisal of [Seller]'s purchase price claims and their enforceability, Italian law is applicable (as the parties correctly presumed), since pursuant to Art. 28(2) EGBGB [*], in default of a jurisdiction agreement the contractual relationship of the parties is assessed according to the law at seller's domicile, and here [Seller] is domiciled in Italy. However, Italian law only applies secondarily. Primarily, the CISG applies to the contract concluded between the parties, as both parties have their places of business in different States and Italy and Germany are Contracting States to the CISG.

As with the District Court, this Court presumes that the prerequisites of a damages claim pursuant to Art. 74 CISG are generally at hand, as [Seller] did not deliver goods in conformity with the contract and [Buyer] fulfilled its duty of examination and notification according to Arts. 38, 43 CISG. The latter is undisputed according to [Buyer]'s express submission in the brief on appeal; the deficiencies themselves follow from the expert report of Research Institute J___ of 17 September 2002, already presented by [Buyer] in the First Instance. However, this damages claim is no longer enforceable since [Seller] properly invoked the statute of limitations defense for [Buyer]'s claim.

As the CISG does not contain provisions regarding limitation and set-off, the prescription period is not based upon the CISG but upon the additionally applicable Italian Codice civile. Art. 1495(3) of the Cc sets a prescription period of one year for warranty claims, which commences with delivery of the goods; thus here on 15 July 2002 with the pickup of the cloth by [Buyer] in N ___. Accordingly, [Buyer]'s warranty claim expired on 15 July 2003.

The prerequisites for an interruption of the limitations period are not present -- as can be ascertained from the expert report of the Director of the Institute of International and Foreign Private Law of the University of L ___. A first possible cause for interruption is the filing of the action (Art. 2943 Cc), which in the present case was not until after the expiration of the prescription period, namely by service to [Seller] on 20 November 2003. For the same reason also, the writing from [Buyer]'s legal counsel dated 30 August 2002 (page 60 GA), even if one would understand it as a delay-causing reminder/demand in terms of Art. 1219 Cc, would not have made [Buyer]'s claim enforceable. The tolling interruption caused thereby would have ended at the latest with the expiration of the fixed deadline, i.e. on 17 September 2002, and the claim would have -- again pursuant to Art. 1495(3) Cc - expired on 17 September 2003 before the filing of the action.

In the jurisdiction agreement of 29 November/2 December 2002 (page 20 GA) no delay-causing (and thus pursuant to Art. 1219 Cc limitation-interrupting) reminder/demand of [Buyer] can be found, since it does not contain a request for performance directed to the obligor, but merely a means of settling a difference of opinion which emerged between the parties at that time. Finally, it follows from the legal opinion obtained by the Court that, unlike German Law ( 203 BGB [*]), negotiations over the claim contested between the parties have no influence on the running of the statute of limitations. Italian law contains no corresponding tolling or interruption elements.

Contrary to [Buyer]'s opinion, the application of Art. 1495(3) Cc also does not lead to the enforceability of its claims. That provision allows a buyer to assert warranty claims against the purchase price claim of its contractual partner even if they are already barred, provided notice was timely given. From the convincing expert reports, it follows that according to the wording as well as a systematic interpretation of the provision and Italian legal practice, this provides merely an objection, which can accordingly be asserted as a counter-right against a claim for payment of the purchase price brought by the contractual partner; however it cannot be brought as an active claim. Moreover, this applies only to the concrete contract: A claim for payment out of another legal relationship has no influence on this. Therefore, the fact that [Seller] asserts a purchase price claim out of the further order of 11 March/13 March 2002 cannot lead to another result. Art. 1495(3) Cc is to be narrowly interpreted as providing an exception to the general effect of the statute of limitations and according to its meaning and purpose, it works to preserve otherwise expired warranty claims only within the context of a specific contract. Exceptions to this, in the sense of transferability to actions of the contractual partner from other deliveries, even with ongoing business relationships, are not justified. [Buyer] could only further enforce its warranty claims if, unlike the case under consideration, [Seller] asserted its claims from this contract by way of filing an action.

Thus it can be left open whether [Buyer]'s damages calculations are correct for the full claim or only concerning the claimed amounts from the transactions with customers P and M. The fact that the District Court dealt with [Seller]'s denial in this connection as being unsubstantiated also does not change the result. [Buyer]'s alleged facts in this regard are exclusively out of its own business area, one in which [Seller] neither had nor could have had any insight; for this reason [Seller] was undoubtedly entitled to deny these facts as unknown pursuant to 138(4) ZPO.

      2. [Seller]'s counterclaim is permissible. Contrary to [Buyer]'s opinion, and also contrary to the (non-binding) remarks contained in the expert report, German courts have international jurisdiction here. Despite 513(2) ZPO [*], [Buyer] is permitted to raise the jurisdiction objection in appellate proceedings as well because this provision does not apply to international jurisdiction (BGH NJW 2003, 426; BGHZ 157, 224; Zöller, Kommentar zur Zivilprozessordnung [Commentary on the Code of Civil Procedure], 25th ed. 2005, 513 ZPO para. 8). However, the jurisdiction of German courts follows from the fact that [Buyer] is domiciled in Germany (Art. 2(1) EuGVVO [*]), and from [Buyer]'s answer without objection to the counterclaim in the First Instance. In this respect according to common opinion Art. 24 EuGVVO applies -- also for the counterclaim (see Geimer/Schütze, Europäisches Zivilverfahrensrecht [European Law of Civil Procedure], 2nd ed., Art. 24 EuGVVO para. 11 and references). [Seller]'s purchase price claim arising from the delivery performed in June 2002 asserted with the counterclaim is undisputed; [Buyer] defends against this merely with the warranty claims, which according to its opinion, permit a set-off to claims from the underlying supply contract.

However, this set-off is impermissible, as can be ascertained from the expert report, which is persuasive in this respect. As the CISG contains neither provisions regarding the question of limitation, nor provisions regarding the question of a set-off, then pursuant to Art. 28(2) EGBGB [*], Italian law is authoritative for judgment of these questions. Under Italian law a differentiation is made between a so-called "legal set-off" and the judicial set-off.

The liquidity of the counterclaim, which is necessary in this connection for a legal set-off pursuant to Art. 1243(1) Cc, is missing here -- as the expert convincingly demonstrates. According to the authoritative prevailing opinion in Italian law, a counterclaim is liquid in this sense not only if it is undisputed or judicially ascertained, but also if it is legitimately disputed by the opponent. Such a dispute is deemed illegitimate or misused in Italian jurisprudence only if it appears to be obviously unfounded and apparently only serves the purpose of delaying the decision of the lawsuit. This is not the case here:

   -    First -- as shown -- it was neither possible nor reasonable for [Seller] to contest the amount of damages claimed by [Buyer] in any more substantiated way as was done.
 
   -    Second, [Buyer]'s list of damages appears to be, in consideration of the unusually high profit margin of about 100%, at least at first glance not clearly evident so that for this reason as well [Seller]'s dispute does not appear to be in any way abusive of law, but rather served the realization of legitimate procedural interests.

As for the judicial set-off (Art. 1243(2) Cc), the restriction of the application of Art. 1495(3) Cc again applies, which does not override the provision of Art. 1243(2) Cc as special provision and which then has no claim-conserving effect if -- as in the case under consideration -- it is not a matter of mutual claims from the same contractual relationship. Contrary to [Buyer]'s view, there is nothing indicating an agreed upon set-off in the present case.

      3. The claim for interest is based on Art. 78 CISG and, regarding its extent, on Art. 1284(1) sentence 2 Cc in conjunction with the Ministerial Decree of 11 December 2000.

The order as to costs is based on 91 ZPO [*]; the decision on provisional enforceability is based on 708 No. 10, 713 ZPO.

The amount in dispute is 15,423.38.

There is no reason to allow a further appeal ( 543(1) No. 1, (2) ZPO). The legal matter has neither fundamental importance nor do interests of the development of the law or of the protection of a uniform jurisprudence require a decision of the Federal Supreme Court.


FOOTNOTES

* All translations should be verified by cross-checking against the original text. For purposes of this translation, the Defendant-Appellant of Italy is referred to as [Seller] and the Plaintiff-Appellee of Germany is referred to as [Buyer].

Translator's note on abbreviations: BGB = Bürgerliches Gesetzbuch [German Civil Code]; Cc = Codice civile [Italian Civil Code]; EGBGB = Einführungsgesetz zum Bürgerlichen Gesetzbuch [German Code on Private International Law]; EuGVVO = Verordnung über die gerichtliche Zuständigkeit und die Anerkennung und Vollstreckung von Entscheidungen in Zivil- und Handelssachen [Council Regulation of December 2000 on Jurisdiction and the Recognition and Enforcement of Judgments in Civil and Commercial Matters]; ZPO = Zivilprozessordnung [German Code of Civil Procedure].

** Stefan Dietrich, Dipl. iur University of Bochum, LL.M. University of London (2004/2005). His fields of law are International Commercial Law and Corporate Law. Since January 2006 articled clerk with the Higher Regional Court (OLG) Hamm.

*** Todd Fox received his J.D. from Rutgers University and his LL.M. summa cum laude from the University of Freiburg, Germany. A member of the Bar of the State of Pennsylvania, he is an Associate of the Institute of International Commercial Law.

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