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CISG CASE PRESENTATION

Netherlands 1 March 2006 District Court Arnhem (Skoda Kovarny v. B. van Dijk Jr. Staalhandelmaatschappij B.V.) [translation available]
[Cite as: http://cisgw3.law.pace.edu/cases/060301n1.html]

Primary source(s) of information for case presentation: Website of the Dutch courts

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Case identification

DATE OF DECISION: 20060301 (1 March 2006)

JURISDICTION: Netherlands

TRIBUNAL: Rb Arnhem [Rb = Rechtbank = District Court]

JUDGE(S): Boonekamp

CASE NUMBER/DOCKET NUMBER: Zaaknummer / rolnummer: 125903 / HA ZA 05-682

CASE NAME: Skoda Kovarny v. B. van Dijk Jr. Staalhandelmaatschappij B.V.

CASE HISTORY: 2d instance Rb Arnhem 19 July 2006

SELLER'S COUNTRY: Czech Republic (plaintiff)

BUYER'S COUNTRY: Netherlands (defendant)

GOODS INVOLVED: Steel products


Classification of issues present

APPLICATION OF CISG: Yes

APPLICABLE CISG PROVISIONS AND ISSUES

Key CISG provisions at issue: Articles 74 ; 75 ; 77 [Also cited: Articles 2(a) ; 7(2) ; 45 ; 64 ]

Classification of issues using UNCITRAL classification code numbers:

74A ; 74A1 ; 74A11 ; 74B [General rules for measuring damages: loss suffered in consequence of breach; Includes loss of profit; Computation; Outer limits of damages: foreseeabililty of loss];

75A [Substitute transaction after avoidance];

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

Descriptors: Damages ; Foreseeability of damages ; Profits, loss of ; Proof of damages ; Cover transactions ; Mitigation of loss

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Editorial remarks

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Citations to case abstracts, texts, and commentaries

CITATIONS TO ABSTRACTS OF DECISION

(a) UNCITRAL abstract: Unavailable

(b) Other abstracts

Unavailable

CITATIONS TO TEXT OF DECISION

Original language (Dutch): Website of the Dutch courts <http://www.rechtspraak.nl>

Translation (English): Text presented below

CITATIONS TO COMMENTS ON DECISION

Unavailable

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Case text (English translation) [second draft]

Queen Mary Case Translation Programme

District Court (Rechtbank) Arnhem

1 March 2006 [125903; HA ZA 05-682]

Translation [*] by Thorsten Tepasse [**]

Judgment in the dispute between

SKODA KOVARNY, a company under Czech law, seated in Pilzen, Czech Republic, hereinafter [Seller], Claimant in main claim, Respondent in (conditional) counterclaim, proxy Mr. H. van Ravenhorst, attorney Mr. W.A.J. Hagen, from Arnhem, The Netherlands,

vs.

B. VAN DIJK JR. STAALHANDELMAATSCHAPPIJ B.V. [*], a limited liability company under Dutch law, acting under the name Van Dijk Staal, seated in Arnhem, The Netherlands, with office in Heteren, municipality Overbetuwe, hereinafter [Buyer], Respondent in main claim, Claimant in (conditional) counterclaim, proxy Mr. J.C.N.B. Kaal, attorney Mr. H.C.M. van Haastert, from Arnhem, The Netherlands.


THE PROCEEDING

The process of the case so far:

   -    The interim judgment of 22 June 2005;
   -    The transcript of the hearing of 8 September 2005;
   -    [Buyer]'s memorandum with 15 exhibits and modification of claim;
   -    [Seller]'s memorandum;
   -    Subsequent memorandum of [Buyer].

A decision will be handed down.

An important fact to add is that [Seller] obtained on 11 March 2005, after permission, a third-party arrest in rem for the account of [Buyer] at the Coöperatieve Rabobank Betuwe U.A. [*], seated in Ingen, municipality Buren, with office in Heteren.

THE FACTS

1.1. [Seller] is a steel producing company. [Buyer] trades steel.

1.2. In the period from mid-2002 until March 2003, [Buyer] placed thirty-one orders of steel from [Seller]. [Seller] accepted these orders and processed them. The steel was delivered to [Buyer] in the period from December 2002 until March 2003 and was brought to account for [Buyer] at a total of 263,058.80 EURO. This is the sum from order numbers 38001333 to 38003212.

1.3. In the period of 23 December 2002 until 27 February 2003, [Buyer] also placed other orders for steel as named under 1.2 from [Seller]. Concerning these orders, [Seller] wrote to [Buyer] by fax of 17 April 2003 in English:

"We are very sorry, but we have officially inform you about unfortunate situation concerning our business. During a short time came to unexpected increase of input prices for production of steel and forgings. The price of scrap 30% increased, the prices of alloys 25% increased and the price of gas 10% increased. We regret indeed, but in this situation we can't produce and sell the material of your below mentioned orders of the prices, which we have confirmed to you in past. We would like you to agree to 5% increase of prices of orders which had already been confirmed. The list of orders is enclosed."

The list enclosed shows that fifty-one orders with order numbers 715832 to 715909 were affected by this fax at a total of 1,294,171.00 EURO.

1.4. By fax of the same date, [Buyer] responded that it was not willing to accept the price increase as suggested by [Seller]. [Buyer] further wrote:

"We ask you to confirm till 23-04-03 15:00 h. that all contracts will be executed and delivered at the terms as per our orders/originally confirmed by you.

"In case of no response from your side we will be forced to start buying elsewhere the material which has to be delivered in the next weeks, and charge you with the difference in price."

1.5. In response [Seller] wrote on 23 April 2003:

"We are very sorry, but in this case we really can't produce and deliver this material (...). So we have decided to cancel the orders specified in the enclosed list. With our proposal 5% increase of the prices as solution of this problem we have exhausted all our options for preventing the damage.

"We are aware, of course, that our decision would cause you some damage and therefore we are willing to negotiate about compensation of damage without any law-suit (...),"

1.6. By fax of 7 November 2003 sent to [Seller], [Buyer] asserted a claim for damages in the amount of 459,302.79 EURO as a consequence of contract termination.

1.7. [Seller] challenged [Buyer]'s calculation of damages by letter of 1 December 2003 and further asked for payment of the invoice amount named under 1.2. plus interest (s.a.).

THE DISPUTE

2. [Seller] requested the Court to order [Buyer] to pay a sum of 263,058.80 EURO plus judicial interest from the day of maturity until payment and additional costs of 4,000.00 EURO for extrajudicial costs. To support the claim, [Seller] filed the exhibits reflected above under 1.2.-1.7.

3. [Buyer] denied the claim as not well-founded. It declared a set-off with a claim for damages filed against [Seller] (filed as counterclaim) and invoked a right of retention at the same time.

In the event [Buyer] would be ordered to pay any compensation to [Seller], [Buyer] challenged enforceability upon providing security of the judgment. Given the case the judgment would be enforceable upon providing security, [Buyer] tried to connect enforceability with the provision that [Seller] has to provide a bank guarantee.

In its (conditional) counterclaim, [Buyer] requested the Court, after extension of its claim, to order [Seller] to pay compensation of damages in the amount of (466,256.32 EURO - 263,058.80 EURO =) 203,197.52 EURO and, in case set-off was not possible, payment of 466,256.32 EURO. For this purpose, [Buyer] filed the exhibits named above under 1.3.-1.6. and alleged that [Seller] failed to abide by its obligations under the contracts named under 1.3. [Buyer] further alleged that, since [Seller] did not fulfil the contract, it suffered loss in the amount named above.

4. [Seller] challenged the [Buyer]'s counterclaim as not well-founded.

JUDGMENT ON THE CLAIM AND COUNTERCLAIM

APPLICABLE LAW

5. First, the Court holds that the Vienna Convention (CISG) has to be applied to the instant case. Concerning this, there is no dispute between the parties. The case deals with a sale of goods, the parties have their seats in different States, and both States are party to the Convention. There is also no hint that the goods were bought for personal purposes (Art. 2(a) CISG). The dispute is therefore to be decided by the provisions of the CISG.

Pursuant to Art. 7(2) CISG questions concerning matters governed by the CISG which are not expressly settled in it are to be settled in conformity with the general principles it is based on or, in the absence of such principles, in conformity with the law applicable by virtue of the rules of private international law. As a result of Art. 4 of the Rome Convention of 19 June 1980 [*], that is the law of the country with which the contract is most closely connected. Following Art. 4(2) Rome Convention, the contract is most closely connected with the country where the party who is to effect the performance which is characteristic of the contract, has, at the time of conclusion of the contract, his habitual residence, or, in the case of a body corporate or unincorporate, its central administration. The performance characteristic for the contract is in the instant case the delivery of steel, hence Czech law, as the law of the place where [Seller] is seated, has to be applied.

[SELLER]'S CLAIM

6. [Buyer] conceded that [Seller] is authorized to request payment of the sum due of 263,058.80 EURO in connection with steel deliveries named above under 1.2.. Hence, the sum requested in [Seller]'s main claim can be granted, unless the set-off declared by [Buyer] is successful. Concerning the last point, the Court rules that, since both parties act on the assumption that set-off is in general possible, that a set-off is possible for the case in which any account on part of the [Buyer] against is [Seller] is well founded. It is predominantly party autonomy to decide if (possibly exisiting) accounts can be charged against each other, apart from the prerequisites of a set-off pursuant to (in beginning applicable) Czech Law.

Concering compensation of costs for arrest, the Court holds that, pursuant to Art. 721 Rv. [*], which foresees strict prerequisites for third-party arrests (among others forwarding a copy of the proceeding to the third party), it cannot be granted that the arrest meets all judicial formalities and terms, since [Seller] failed to file such documents. [Seller] is offered the possibility to bring in the missing document in the proceeding.

[BUYER]'S CLAIM

7. [Seller] did not contradict the extension of claim by [Buyer], thus the Court will rule on the extended claim.

8. First, the Court holds that the following questions are to be decided on the basis of the CISG:

   -    Whether the contract was validly concluded (Part II CISG - Formation of the contract);
   -    If a fundamental breach of contract is at hand (Part III Chapter I CISG - General provisions) and which consequences evolve from a breach of contract (Part III Chapter II Section III CISG - Remedies for breach of contract by the seller)

9. [Seller] alleged, contrary to the letters of 17 and 23 April 2003 given under 1.3.-1.5., that there were, at the time of appearance before court, no definite orders placed yet, since order confirmations were missing in [Seller]'s records.

10. By memorandum after appearance, [Buyer] filed order confirmations for all order numbers in dispute (715832 - 715909, s.a. para. 1.3.) signed by/for [Seller]. [Seller] did not the challenge the validity of the order confirmations. Hence, it must be assumed that [Seller] accepted the orders placed by [Buyer] and that -- pursuant to the provisions of Part II of the CISG -- the contract between the parties has been established as filed by [Buyer].

11. The letters reproduced above show that [Seller] did not fulfil its contractual obligations, since the prices for (forged) steel rose after the contracts were concluded with [Buyer]. This is a risk [Seller] has to bear. Thus [Seller] did not have the right to neglect its duties and declare the validly concluded contract with [Buyer] unilaterally terminated. The termination was especially not rightful pursuant to the provisions of the CISG, since there is no hint that a case of Art. 64 CISG (which rules, under which circumstances the seller may declare the contract avoided) was at hand. The conclusion is that [Seller], since it refused to deliver the amount of steel for the price agreed upon, fundamentally breached the contract it had with [Buyer]. [Seller] is thus required to compensate the loss [Buyer] suffered as a result of the breach on the basis of Art. 45 and Arts. 74/77 CISG. Moreover a notice of default was not necessary under the CISG (and was superfluous, since [Seller] refused any delivery definitely on 23 April 2003).

12. The damages in the amount of 466,256.32 EURO claimed by [Buyer] are composed of:

   I.    Loss of profit: 104,800.96 EURO
   II. Loss suffered: 244,967.25 EURO
   III.    Loss of prospective profit:    116,488.11 EURO
Total:          466,256.32 EURO

LOSS ITEM SUB I

13. This compensation for lost profit derives from the fact that [Buyer] could not fulfil deliveries of steel in favor of its customers since [Seller] terminated the contract. [Buyer] filed a reckoning of the loss of profit per customer: price contracted for with customer minus purchase price minus transport costs, all per ton (1,000 kg), multiplied with the purchase/sale amount. The reckoning results in a total sum of 104,800.96 EURO. Evidence for the figures (i.e., the purchase price [Buyer] had to spend (to [Seller]) and the sale price achieved (towards [Buyer]'s customers)) was filed.

14. First, it has to be determined, whether the loss suffered was foreseeable in the sense of Art. 74 CISG. [Seller] knew or ought to have known that [Buyer], as it is a habit for steel traders, would use the steel bought from [Seller] for resale to third parties. [Seller] did not forward any proof that this fact has to be judged differently in the instant case.

Further, [Seller] did not challenge the allegation that [Buyer] lost profit, but it rejected the calculation of transport costs and that [Buyer] did not consider considerable general costs. [Buyer] calculated its transport costs at 26.04 EURO, 27.29 EURO and 31.00 EURO per ton. It filed invoices of the shipper [name] of September 2002 and two invoices of 24 February 2003 and 12 March 2003 concerning shipments of steel from Pilzen to Germany (Krefeld), respectively, the Netherlands (Zwijndrecht/Barendrecht).

The consequence is that the transport costs -- on the basis of an undisputed capacity of 24 tons per truck -- equal those accounted by [Buyer].

[Seller] alleged that the transport costs were averaging 35.00 EURO but it did not file any evidence to prove this assumption. Further, [Seller] did not even file the evidence announced in a memorandum and, moreover, did not offer substantiation of the allegation by witnesses. Finally, [Seller] "offered" evidence in the way that it would file documents showing that the transport costs estimated by [Buyer] were too low. However, at this moment, the point in time to do so has passed, since [Buyer] supported its position with appropriate documents and [Seller] failed to respond to those documents.

Although [Seller] rejected [Buyer]'s accounts as insufficient, these costs are the basis for further reckonings. Any later production of evidence is void.

[Seller] requested that general (overhead) costs also have to be considered to calculate lost profit. This request fails. Overhead costs always occur, even though certain orders are not performed. The character of general costs is that they do not (or only in a small amount) depend on the fact whether an order was performed or not. In contrast, direct costs (as transport costs) only occur if an order was actually performed. The general costs are therefore, contrary to (variable) transport costs, not to be considered from on the beginning as costs that mitigate the loss (or recompense lost profit). [Seller] did not substantiate why the case at hand should be judged differently. Further, it is neither alleged nor proven that [Buyer] saved any variable costs other than transport costs. At this point, compensation for lost profit can thus be awarded as requested in the amount of 104,800.96 EURO. The sum can still be reduced if [Seller]'s plea concerning mitigation of damages is founded. This issue will be discussed below (see paras. 29 to 31).

LOSS ITEM SUB II

15. This item is related to the issue that [Buyer]'s customers suffered damages as a result of termination of the contract by the [Seller]. The customers were forced to conduct cover purchases from suppliers other than [Buyer] for higher prices. [Buyer] is held responsible by its customers for the price difference suffered.

16. It is very likely to assume that the breach of contract by [Seller] caused [Buyer]'s failure to comply with its contractual obligations and therefore [Buyer]'s customers were forced to conduct cover purchases and charge [Buyer] with the additional costs.

Under these circumstances, it has to be assumed that these damages were also foreseeable (for [Seller]). Thus [Buyer] can in general -- since the contract was avoided because of a breach of contract on part of [Seller] -- request compensation for the difference between the price [Buyer] agreed upon with its customers and the price for the cover purchases concluded by the customers pursuant to Art. 75 CISG. The cover purchase must have also been concluded in a reasonable manner and a reasonable time after avoidance. For the latter, in the instant case nothing was alleged or even proven to assume that this prerequisite is not met. Regarding the reasonable manner of the cover purchases the Court rules as follows:

17. The sum requested by [Buyer] consists of

      (a) 226,599.97 EURO for claims already pending; and
      (b) 18,367.28 EURO for claims expected.

To prove this sum and claim [Buyer] forwarded the following documents:

      -    The orders placed by [Buyer] upon [Seller] (exhibit 6);
      -    Orders placed by [Buyer]'s customers, who should be supplied with the steel ordered from [Seller] (exhibit 5);
      -    Invoices/letters from [Buyer]'s customers which show the damage suffered as a result from cover purchases and which contain a request for compensation of damages from [Buyer] (exhibit 8).

18. When ruling on this claim, it is first important that [Buyer] demonstrated sufficiently that nearly the entire steel ordered from [Seller] was foreseen to be resold and should have been delivered to [Buyer]'s customers. It is well true, as [Seller] alleges that sometimes orders by [Buyer] were not in total placed upon orders of its customers, but the difference is quite marginal. Exhibit 6 shows that [Buyer] had ordered (rounded down) 2,390.00 tons of steel from [Seller], while exhibit 5 shows that [Buyer] had contracted for delivery of 2,245.00 tons of steel to its customers. [Buyer] resold and should have delivered to third parties 94 % of the steel ordered from [Seller]. This point will also be elaborated on in para. 22.

19. The documents filed as exhibit 8 reveal the following:

      (a) A notice of 4 October 2005 by Stahlschmidt GmbH [*] in which Stahlschmidt requests [Buyer] on basis of its general terms to pay 85,151.62 EURO due to "costs occurred as result of avoidance of existing orders". On verso of this letter ([Buyer]'s) order numbers are listed along with the amount of steel/type of steel and with the additional charge for cover purchases that Stahlschmidt conducted. In all, thirty-six orders are listed with an amount of 945 tons of steel and an additional charge of 50.00 EURO to 300.00 EURO per ton.

      (b) A letter of 22 July 2003 written by Stahlschmidt in which [Buyer] is requested to pay 3,555.20 EURO for cover purchases concerning order numbers E1446 and E1507. The amount of steel is 26,861.00 kg and the additional charge 50.00 EURO to 200.00 EURO per ton.

      (c) A letter written by Wittfeld GmbH [*] (Krefeld, Germany) on 23 May 2003 in which it asks [Buyer] to compensate an additional charge of 244.00 EURO per ton for 3,330.00 kg of steel (sum: 812.52 EURO). The letter refers to order number E1395.

      (d) Two letters of Delta GmbH [*] (Dortmund, Germany) written in 15 and 23 September 2003. [Buyer] is charged for 2,211.30 EURO for "subsequent annealing costs".

      (e) A letter from Gussstahl GmbH [*] (Unna, Germany) of 28 August 2003. [Buyer] is requested to pay 4,000.00 EURO due to a cover purchase concerning order number E1450. The amount of steel is 100 tons and the additional charge 40.00 EURO per ton.

      (f) A letter by Thyssen Krupp Materials Nederland of 10 November 2003. In this letter, Thyssen Krupp Materials requests compensation either from [Buyer] or [Seller] ("depending on how the proceeding before Court ends") for the cover purchases it had to make since [Buyer]/[Seller] did not deliver the steel. The cover purchases deal with order numbers E1475, E1476, E1478 and E1493. The amount of steel is 174,440.00 kg and the additional charge 248.00 EURO to 314.00 EURO, resulting in a sum of 50,656.36 EURO.

      (g) An invoice of Hoselmann GmbH [*] (Hannover, Germany) of 17 September 2005 in which Hoselmann asks [Buyer] for payment of "additional costs due to cover purchases" in connection with order numbers E1481 and E1482. The amount of steel is 205.54 tons with an additional charge of 364.00 EURO to 404.00 EURO, resulting in a sum of 80,212.96 EURO.

The sums named under para. 19 (a) to (g) amount to 226,599.97 EURO as requested by [Buyer].

20. Both notices by Delta of 15 and 23 September 2004 (para. 19 (d)) deal with "subsequent annealing costs". [Buyer] did not substantiate how these costs are connected with the costs for cover purchases, in fact the notices refer to the processing of the steel named in the notices. Thus [Buyer]'s claim has to be rejected in the amount of (1,666.71 EURO + 898.40 EURO =) 2,211.30 EURO.

The other letters/notes named under para. 19(a) to (c) and (e) to (g) are sufficient to assume that [Buyer]'s customers charged [Buyer] for the additional costs for the cover purchases. This ruling is also not affected by the fact that, among others, Thyssen Krupp signified that it would (depending on the outcome of this proceeding) also charge [Seller] and reduce its claims towards [Buyer].

21. [Seller] also alleged that [Buyer] -- by only filing notices and letters -- did not substantiate that the compensation its customers requested for damages was justified and lawful. According to [Seller], [Buyer] is obliged to prove that its customers in fact purchased the steel elsewhere and paid the prices named in the letters above.

22. It is, of course, very likely that the customers conducted cover purchases because of [Seller]'s breach of contract (s.a. para. 16), but it is not certain. Since [Seller] demands certainty, [Buyer] is ordered to file the orders upon which the letters named under para. 19(a) to (c) and (e) to (g) are based, i.e., those orders the customers sent to their suppliers for the cover purchases and the order confirmations sent by the suppliers. The case will then be set on the schedule again.

Further, the Court holds that if the documents filed by [Buyer] in the near future reveal that the customers conducted the cover purchases as alleged under para. 19, the claim of [Buyer] can be awarded, unless [Seller]'s defense concerning [Buyer]'s duty to mitigate the loss (which will be discussed in the following) succeeds. Beside the points to be discussed, it is not [Buyer]'s duty to prove in detail that all claims by its customers are justified and lawful. In a typical case, as in the case at hand, it is a natural chain of causation that [Buyer] breached its obligations towards its customers as a result of [Seller]'s breach of contract and is thus obliged to pay compensation. If [Seller] asserts that [Buyer] is not responsible or is not fully responsible for the damages [Buyer]'s customers suffered, it is [Seller]'s duty to prove that [Buyer] can, towards its customers, rely on any judicial defense or a duty to mitigate the damage on part of [Buyer]'s customers. [Seller] did not forward anything regarding this point.

On the other hand, it is true, as [Seller] rightfully alleges, that the duty to compensate loss ends with the amount of steel [Buyer] originally ordered from [Seller]. Exhibits 5 and 6 filed by [Buyer] show that in some cases customers bought a larger amount than agreed upon elsewhere. This point will be discussed in detail later on in this proceeding. Finally, the following is important concerning Thyssen Krupps's claim: If [Buyer] can prove that Thyssen Krupp really bought the steel named in the letter, this does not mean that the sum is automatically awarded to [Buyer]. The order documents (E1475, E1476, E1478 and E1493, exhibit 5) show that the orders were placed by Smitfort-Staal B.V. [*] and not Thyssen Krupp. [Buyer] is thus also ordered to clarify the situation.

23. Regarding the loss due to "expected claims" in the amount of 18,367.28 EURO, [Buyer] has filed two letters by Wittfeld of 23 May 2003 and 4 February 2004, as well as a "visit-report" of a visit at Delta of 8 August 2003. Without further explanation, which is missing, the conclusion that a claim will be filed cannot be drawn from the letter from Wittfeld of 4 February 2004. The letter by Wittfeld of 23 May 2003 is the same as named under para. 19(c). The sum named in this letter is thus related to a claim already pending. The content of the "visit-report" is finally insufficient to justify awarding the claim. It is unclear if Delta conducted cover purchases for the prices named in this document and, if so, if Delta is about to charge [Buyer] for the damages resulting from the cover purchases. This argument is even more effective since right now two and one-half years have passed since the "visit-report" and until now -- this has to be assumed -- no claim of Delta has been brought before a court against the [Buyer]. Thus, the claim fails.

LOSS ITEM SUB III

24. This item is based on [Buyer]'s allegation that several customers declared, as a result of [Seller]'s termination of contract and the following non-delivery by [Buyer], that they were no longer willing to do business with [Buyer]. Following this, [Buyer] requests compensation for future loss of profit. [Buyer] fixed the future loss to one year for the product "forged round steel bars". On the basis of the years 2001 and 2002, the loss is accounted with 116,488.11 EURO.

25. To support its position, [Buyer] filed a schedule of all incoming orders in the period between 1 April 2003 and 31 March 2004 as exhibit 12. It is true that certain customers cannot or can only seldomly be found on the list, but this fact does not prove anything. Acting under the assumption that the schedule is complete (this is in contest), this schedule alone cannot lead to the conclusion that certain customers stopped doing business with [Buyer] as a result of [Seller]'s breach of contract. Further, [Buyer] filed the following documents as exhibit 13:

      (a) A letter of Stahlschmidt to [Buyer] of 4 October 2005;
      (b) A letter of Hoselmann to [Buyer] of 26 September 2005;
      (c) A letter of Delta to [Buyer] of 17 November 2003; and
      (d) A "visit-report", written after a visit of [Buyer] at ODS on 6 April 2005

26. The letter named sub (c) does not contain any hint that Delta stopped doing business with [Buyer] or that it did not place orders because of [Seller]'s breach of contract. The latter is also at hand for the "visit-report". Although the report contains a passage stating that ODS will not place any new orders in favor of [Buyer], it is not proven that this was a result of [Seller]'s breach of contract. In contrast, the reason given in the report for breaking up the business relationship was that [Buyer] did not forward proper information about the outstanding deliveries in time.

27. The letters named under (a) and (b) read, as far as important:

(Stahlschmidt - in German)

"Enclosed is a schedule of additional costs, resulting from avoidance of orders based upon offers by [Seller].

[...]

Until clarification of the situation and payment of the costs, which only occurred since [Seller] terminated valid orders, the business relationship with [Buyer] lies in idle."

(Hoselmann - in German)

"We confirm that we have stopped the business relationship with your company due to termination of the orders based on offers by [Seller]. The termination was causal that we did not place further orders in favor of [Buyer]."

Hence, it follows, in relation to exhibit 12, that these two customers did not want to deal anymore with [Buyer] as a result of the non-delivery of steel due to the cancellation of the contract by [Seller]. Since the letters date from September/October 2005, it has to be assumed that this situation now lasts for more than two years. [Seller] did not challenge the content of the letters but brought up that the letters showed that the customers did not want to trade with [Buyer], since they wanted to wait to see how and if the damage they suffered was compensated. According to [Seller], [Buyer] (as well as [Seller]) could have avoided the damage by simply paying compensation. The Court does not follow [Seller]'s argument. It cannot be that [Seller] requests [Buyer] to pay compensation for the damages [Seller] caused in advance, while [Seller] disputed and still disputes responsibility for the damages towards [Buyer]. All in all, the Court comes to the conclusion that [Seller] is obliged to compensate the future loss as requested, as far as the compensation concerns the relationship to Stahlschmidt and Hoselmann. The damage was also foreseeable to [Seller]. [Seller] knew or ought to have known (as discussed above) that [Buyer] resold the steel it ordered to third parties. [Seller] could thus foresee at the time of contract conclusion that a non-delivery by [Seller] would lead to the result that [Buyer] would be unable to fulfil its obligations towards its customers and that the business relationship between [Buyer] and its customers could be disturbed. Reliability regarding abiding by obligations is simply the essence of trade relations.

28. Concerning the amount of damages, the Court holds:

      [Buyer] filed a list of all affected customers and their orders of "forged round steel bars" for the years 2001 and 2002 and calculated the loss at 116,488.11 EURO (exhibit 11). The list shows how much steel was sold to each client on which date. Further, the profit margin is written down. The profit margin for Stahlschmidt averaged 8% and the profit margin for Hoselmann averaged 6%. [Seller] rejected the figures named in the schedule as such. It argued that the documents the reckonings were based upon were missing and that thus the figures were insufficiently clear. That is in general correct. This list is lacking an overview over reduction of profits as a result of the contract breach. The reduction must have taken place in the years 2003/2004. [Buyer] is thus granted to forward an overview over resales of forged steel to its customers Stahlschmidt and Hoselmann of the years 2001 to 2004, which shows the amount and price of the steel sold as well as the profit made. Further, [Buyer] shall be obliged to file the documents connected with the overview, potentially consolidated. The case will then be reset on schedule.

29. [Seller] finally alleged that [Buyer]'s claim has to be rejected, since it did not comply with its duty to mitigate the loss. [Seller] stated that:

      (a) [Buyer] could have agreed to process the orders as suggested by [Seller], namely, at a price increase of 5 %; in that case, the total loss would have been restricted to (5 % of 1,294,171.00 EURO =) 64,708.55 EURO;

      (b) At the end of 2002, [Buyer] had a considerable stockpile of steel (namely a value of 252,479.00 EURO, as it appears on the balance sheet). Therefore, [Buyer] could have satisfied its customers at least with the amount of steel in stock.

30. Pursuant to Art. 77 CISG, a party which relies on a breach of contract must take reasonable measures in the given circumstances to mitigate the loss evolving from the breach of contract, including loss of profit. The Court rules that the measure requested by [Seller] under para. 29 (a) cannot be seen as a reasonable measure in the sense of Art. 77 CISG. The party in breach of the contract cannot demand from the other party to accept performance under different (mostly worse) prerequisites to mitigate the loss for the breaching party. In other words, [Buyer] cannot be ordered to mitigate the loss resulting from the breach by [Seller] by accepting the higher prices unilaterally offered by [Seller].

It can also not be assumed that [Buyer] was able to supply its customers (beginning/middle 2003) with steel from its own stock and therefore could have mitigated the loss. The sole fact that [Buyer]'s stock balance was noted with a value of 252,479.00 EURO at the end of 2002 is not sufficient to confirm this assumption. Acting on the assumption that the stock equals the value of steel, the amount of steel in stock was by far not sufficient for [Buyer] to comply with its duties to deliver steel (the outstanding deliveries had a value of 1,294,171.00 EURO). Further, it has to be considered that all steel in stock was foreseen for immediate and mostly already agreed resale. From the beginning, [Buyer] made clear that this is [Buyer]'s mode of business. This is also proved by exhibits 5 and 6 filed by [Buyer]: The steel ordered from [Seller] was to be resold to customers nearly totally (approx. 94 %) and instantly (s.a. para. 19). Thus, the conclusion has to be drawn that [Buyer] was not able to supply its customers with steel in stock after termination of the contract by [Seller], since the steel in stock was by far not sufficient.

31. [Seller] alleged that [Buyer] violated its duty to mitigate the loss by not conducting cover purchases itself. As [Buyer] let its customers do the cover purchases, the damage grew, since, according to [Seller], the steel prices were at the point in time [Buyer] could have performed the cover purchases not higher than 5 % above the price agreed upon. The Court holds: The documents filed by [Buyer] as exhibit 14 show that [Buyer] placed 121 queries to five suppliers of steel in the time between 24 April 2003 and 2 May 2003, i.e., directly after termination of the contract by [Seller].

In May 2003, [Buyer] received offers from two different suppliers from Poland and the Czech Republic (see exhibit 15). These offers show that the steel prices were at this time not only higher than the price agreed upon plus 5 % (as alleged by [Seller]), but also even higher than those prices [Buyer]'s customers paid for their cover purchases. Further, [Seller] did not object to the testimony of [Buyer]'s manager during the proceeding that he forwarded both offers named above to [Seller], whereupon [Seller] replied that these prices were far too high and that it would itself look for another cheaper steel source. As this chance was unsuccessful, [Seller] suggested that the best option would be to let [Buyer]'s customers watch out for other steel suppliers. Moreover, the definite price can be drawn from the documents [Buyer] is obliged to file as provided under para. 22. [Seller] may therefore bring up this argument at another point in time.

32. Any further decision is at this point on hold.

THE JUDGMENT

The Court holds in [Seller]'s main claim and [Buyer]'s counterclaim:

   -    The case is postponed for four weeks to give the parties the possibility to bring in the documents as named in paras. 6, 22 and 28 and to give [Buyer] the possibility to clarify the situation as provided for in para. 22;
 
   -    Any further decision is not handed down at this point.

Judgment handed down by Mr. R.J.B. Boonekamp in public on 1 March 2006.


FOOTNOTES

* All translations should be verified by cross-checking against the original text. For purposes of this translation, Plaintiff of Czech Republic is referred to as [Seller]; Defendant of the Netherlands is referred to as [Buyer]. Amounts in European currency are indicated as [EURO].

Translator's note on other abbreviations: B.V. = Besloten Vennootschap [Limited liability company under Dutch Law]; Coöperatieve U.A. = Coöperatieve met uitgesloten aansprakelijkheid [coalition of (legal) persons with similar interests under Dutch law; the members are not liable for legal actions of the coöperatieve]; GmbH = Gesellschaft mit beschränkter Haftung [Limited liability company under German Law]; Rome Convention of 19 June 1980 = Covention on the law applicable to contractual obligations (80/934/EEC); Rv. = Wetboek van Burgerlijke Rechtsvordering [Dutch Civil Prodecure Code].

** Thorsten Tepasse is a law student at the University of Osnabrück, Germany and participated in the 12th Willem C. Vis Moot with the team of the University of Osnabrück.

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