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CISG CASE PRESENTATION

Czech Republic 29 March 2006 Supreme Court (Carpet case) [translation available]
[Cite as: http://cisgw3.law.pace.edu/cases/060329cz.html]

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

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Case identification

DATE OF DECISION: 20060329 (29 March 2006)

JURISDICTION: Czech Republic

TRIBUNAL: Supreme Court

JUDGE(S): Zdenek Des (Chairman), Katerina Hornochova and Miroslav Gallus (Judges)

CASE NUMBER/DOCKET NUMBER: 32 Odo 725/2004

CASE NAME: Unavailable

CASE HISTORY: 1st instance Municipal Court in Prague (28 Cm 420/99-59) 26 September 2003 [reversed]; 2d instance High Court in Prague (8 Cmo 3/2004-79) 26 February 2004 [sustained]

SELLER'S COUNTRY: [-] (plaintiff)

BUYER'S COUNTRY: [-] (defendant)

GOODS INVOLVED: Carpeting


Classification of issues present

APPLICATION OF CISG: Yes

APPLICABLE CISG PROVISIONS AND ISSUES

Key CISG provisions at issue: Article 35 [Also cited: Articles 8 ; 18 ; 50 ]

Classification of issues using UNCITRAL classification code numbers:

35A ; 35B1 ; 35B2 [Conformity of goods to contract: quantity, quality and description required by contract]; Requirements implied by law: fitness for purpose for goods of same description; Fitness for particular purpose made known to seller]

Descriptors: Conformity of goods ; Burden of proof

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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 (Czech): Click here for Czech text of case

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

Supreme Court of the Czech Republic

29 March 2006 [File No. 32 Odo 725/2004]

Translation by [*] árka Havránková [**]

THE CZECH REPUBLIC
JUDGMENT IN THE NAME OF THE REPUBLIC

The Supreme Court of the Czech Republic in the panel of judges composed of the Chairman Mr. Zdenek Des, and Judges Ms. Kateina Hornochov, and Mr. Miroslav Gallus has decided in the legal matter raised by the Claimant [Seller], a joint-stock company "K, a.s." against the Respondent [Buyer], a joint stock company "H. "P". P., a.s." before the Municipal Court in Prague concerning the payment of CZK [*] 156,420.30 with interest (File no. 28 Cm 420/99) on the extraordinary appeal of [Buyer] against the judgment of the High Court in Prague dated 26 February 2004 (File no. 8 Cmo 3/2004-79) as follows:

  1. The extraordinary appeal is dismissed.
  2. None of the participants has a right to reimbursement of costs of the extraordinary appeal proceedings.

REASONS FOR THE DECISION

[Ruling of the Court of First Instance]

On 26 September 2003, the Municipal Court in Prague dismissed (File no. 28 Cm 420/99-59) a claim for payment of CZK 156,420.30 with interest and ruled on the reimbursement of costs of proceedings. In these proceedings, the Court of First Instance found as follows.

On 20 January 1998, the [Buyer] placed an order for carpets. This order also contained a specification of carpets by price, quantity, and the purpose for which they were to be used (i.e., in hotel rooms, corridors, stairways). Carpets have been delivered to and taken over by [Buyer] who has not paid from the invoiced purchase price the amount that is subject to the proceedings. Due to irreparable defects of carpets that were identified by the [Buyer] after the delivery, the [Seller] has further reduced the price.

However, after the carpets were laid down, the [Buyer] identified additional defects. The nature of these defects was such that they caused the carpets to release fibers as a result of which they became increasingly worn out and less durable. [Buyer] had reported these defects to the [Seller] and initially claimed a 30 percent discount from the purchase price. Later, [Buyer] decided to decrease this amount for what is subject to the dispute. The quality of delivered carpets has been assessed in the expert statement submitted by the textile expert institute in the city of Brno. Based on this expert statement, the Court of First Instance ascertained that "the quality of the carpets delivered did not satisfy the standards set for carpets designed to withstand conditions of accommodation facilities' premises as required for class M3 in accordance with the technical standard SN EN 1307."

The Court of First Instance held that the [Seller] and [Buyer] concluded a purchase agreement, the subject of which was the delivery of carpets to premises that require highly durable carpets. The goods delivered by the [Seller] were not of this nature. For this reason, the [Buyer] has resorted to a solution envisaged in Article 50 of the United Nations Convention on Contracts for the International Sales of Goods, promulgated by the Federal Department of Foreign Affairs under no. 160/1991 Coll. (further referred to as "CISG"), enabling the purchaser to reduce the purchase price in the same proportion as the value that the goods actually delivered had at the time of the delivery bears to the value that conforming goods would have had at that time.

[Seller's appeal and ruling by the Court of Second Instance, the High Court (Appellate Court) in Prague]

Upon [Seller]'s appeal, the High Court in Prague altered the ruling of the Court of First Instance on 26 February 2004 (File no. 8 Cmo 3/2004-79) in the following way.

The Appellate Court ordered the [Buyer] to pay the [Seller] CZK 156,420.30 [statement under I.a)], quashed the ruling on the payment of receivable interest and, to this extent, stayed the proceedings [statement under I.b)] and ruled on the reimbursements of costs of the proceedings [statements under II and III].

The Appellate Court confirmed the conclusion of the Court of First Instance that on the basis of [Buyer]'s order, in accordance with Article 18(3) of CISG, participants of the proceedings have concluded a purchase agreement and that, under this agreement, the delivered goods should have conformed to the requirements specified in the order (i.e., the draft purchase agreement) as to their quantity, quality, and description as provided in Article 35(1) CISG.

According to the order, [Buyer] sought ADOS carpets for the price of SKK [*] 590. In the specification attached to the order, [Buyer] mentioned how many ADOS carpets are needed and described the measurement of each carpet based on the measurement of the premises where these carpets would be located. As a part of the specifications, the [Buyer] also provided for rather detailed information about design, colors, embroidery, etc., for each individual carpet. The Appellate Court found that these documents constituted a proper offer to conclude a contract in which a quality requirement is clearly stated by a request for "ADOS type carpets." The Appellate Court ruled that identifying these carpets by their (business) name subsumes an exact specification of their quality. If ADOS carpets are not "durable carpets", then it cannot be argued that they should have satisfied conditions for carpets of this kind. Unlike the Court of First Instance, the Appellate Court was not of the opinion that the quality parameters of ADOS carpets had to be such so as to require them to "withstand" conditions of hotel premises.

The Appellate Court concluded that the specifications in which, under ADOS, the [Buyer] described how many square meters of carpets of particular design are sought (including a mention on stairways, etc.) indicates [Buyer]'s choice of carpets with regard to the size of the premises where they will be placed, not with regard to conditions of their suitability for a particular purpose. This argument is supported by the fact that in the summary of an order reference was made to requirements such as desired color, design, and width, without stating where these carpets are going to be placed. Therefore, the Appellate Court held that delivery of ADOS carpets that were not and could not be "durable carpets" did not constitute [Seller]'s failure to duly fulfil its contractual obligations.

In the light of further argumentation, the Appellate Court also considered whether or not the defense of the [Buyer] could be well-grounded with respect to the claim of a thread release from carpets that did not have to satisfy the "durable carpets" criteria. In this respect, the Appellate Court ruled that the [Buyer] has not submitted such evidence. Furthermore, while claiming non-conformity, [Buyer] did not ascribe the defect to an insufficient quality of ADOS carpets, in particular, but carpets that should have satisfied the requirements of hotel premises. During the appellate proceedings, [Seller] partly withdrew from its petition to commence the proceedings (in the extent of the claimed interest on late payment). Within the scope of [Seller]'s withdrawal, the Appellate Court quashed the decision of the Court of First Instance and stayed the proceedings (Article 222a of Act on Civil Procedure).

[Buyer's appeal to the Supreme Court]

The [Buyer] has filed an extraordinary appeal against the ruling of the Appellate Court, namely, statements under I a), and II, III for the following reasons.

[Buyer] alleges that the decision of the Appellate Court:

   -    Is affected by a flaw that could have led to an incorrect decision on the merits of the case [the reason for the extraordinary appeal according to Article 241a section 2 letter a) of the Act on Civil Procedure];
 
   -    Is based on an incorrect legal consideration of the subject matter [the reason for the extraordinary appeal according to Article 241a section 2 letter b) of the Act on Civil Procedure]; and,
 
   -    According to the contents of the file, ensues from factual findings that are not supported by the evidence undertaken before the Court [the reason for the extraordinary appeal according to Article 241a section 3 of the Act on Civil Procedure].

In the [Buyer]'s view, the proceedings were flawed because the Appellate Court based its ruling that the carpets need not have been of "durable" nature merely on the testimony of [Seller]. In any case, it cannot be inferred that when the [Buyer] ordered the ADOS carpet, [Buyer] had ordered a "non-durable" carpet and that [Buyer] was already aware of that fact when placing the order.

As regards the circumstances of concluding the contract, [Buyer] alleges that if [Buyer] had wanted to express that [Buyer] wanted merely a certain number of square meters of goods, as the Appellate Court has ruled, then [Buyer] would not have stated in the order where the carpets should be placed and for which purpose they were to be used. By the same token, the conclusions of the Appellate Court ensuing from the fact that the order was recapped are, according to the [Buyer], also flawed. What is decisive, in [Buyer]'s view, is the fact that the order contained a specification of where the carpets would be placed. It was, therefore, apparent for which purpose the carpets were going to be used.

In this context, the [Buyer] has referred to Article 8(3) of CISG, which states that in determining the intent of a party or the understanding a reasonable person would have had, due consideration is to be given, among other things, to any subsequent conduct of the parties. Applying this principle to the case at hand, it is important to note that, after the delivery of the carpet, the [Buyer] called the [Seller]'s attention to the carpet's defect, namely, the excessive thread release. While denying such defect as justified, [Seller] has asserted that it was caused when the carpets were laid down but never objected that the carpets are unsuitable for use on a hotel premises.

From these and other circumstances, it is inferable that the [Seller] was well aware where the carpets were to be placed and, therefore, it was apparent that the [Buyer] did not order carpets unsuitable for hotel premises. The [Buyer] interprets Article 35(2) of CISG to the effect that the burden of proof as to the defect of goods passes to the seller, which is equally applicable to section 35(2)(b) of this provision which states that the goods do not conform with the contract unless they are fit for any particular purpose expressly or impliedly made known to the seller at the time of conclusion of the contract.

It was, therefore, [Seller]'s obligation to prove that [Seller] has delivered goods that fit the purpose made known to the [Seller] through the order. Mistaken interpretation of the correct norm, disregarding who should bear the burden of proof as to the defect of goods, as well as the failure of the Appellate Court to consider, when interpreting the manifestation of will, all circumstances relevant to the conclusion of the contract, its contents, and other material findings constitute, according to the [Buyer], an incorrect legal consideration of the matter. The [Buyer], accordingly, has requested that the Appellate Court's ruling be quashed and the legal matter returned to that Court for further proceedings.

[Seller] has not expressed its opinion on the extraordinary appeal.

[Ruling of the Supreme Court]

The Supreme Court of the Czech Republic (further merely "Supreme Court") as a court of extraordinary appeal (deciding on recourses against decisions of regional or high courts being courts of appeal) (Article 10a of the Act on Civil Procedure) having ascertained that the [Buyer]'s extraordinary appeal has been duly filed by a competent person and is according to Article 237 section 1 a) of the Act on Civil Procedure (further merely "ACP") admissible, reviewed the contested decision in accordance with Article 242 section 1 and 3 ACP and holds that there is no legal ground for the '[Buyer]'s extraordinary appeal.

The Supreme Court first examined whether the proceedings suffer from defects referred to in Article 229 section 1, 229 section 2 a) and 229 section 3 ACP or other defects that could have caused an incorrect decision in this matter. The Court has proceeded in this manner with regard to its obligation ensuing from Article 242 section 3 ACP to consider such defects and also with respect to [Buyer]'s invoking the objection that the proceedings suffer from defects that could have caused an incorrect decision on the merits of the case.

Contrary to [Buyer]'s mistaken conclusions, the reasoning of the Appellate Court about what has been concluded between the parties as a subject of delivery in the purchase agreement cannot be considered a defect in the above mentioned sense. Although the [Buyer] expressly referred to Article 241a section 2a ACP and mentioned that the proceedings suffered from a defect that could have caused an incorrect decision in this matter, [Buyer]'s extraordinary appeal focuses exclusively on doubting the legal argumentation of the Appellate Court, i.e., doubting the reason for extraordinary appeal laid down in Article 241a section 2, letter b of ACP according to which an extraordinary appeal may be filed for the reason that the decision is based on an incorrect legal consideration of the case.

Further, the [Buyer] has also invoked the reason for extraordinary appeal as set forth in Article 241a section 3 ACP. From the structure, wording, and according to the entire composition of [Buyer]'s submission, it is apparent that the [Buyer] also refers to the reason for extraordinary appeal being an incorrect legal consideration of the matter. The consideration of the case is deemed incorrect when an appeal court applies an incorrect legal norm to a given case or applies the correct legal norm but misinterprets it or applies it wrongly to a given case.

In this matter, the Court of Appeal has concluded that the purchase agreement between the participants of the proceedings was made according to Article 18 of CISG when the [Buyer] specified the subject of delivery in the [Buyer]'s order and the [Seller] then acceded to this order in that the [Seller] has sent the desired goods to the [Buyer]. The quantity, quality, and description of goods in a sense of Article 35 of CISG were specified in the above-mentioned order. The [Buyer] has further specified that [Buyer] requested ADOS carpets, which implied an exact quality of the carpet. Regarding the fact that it has not been either claimed or evidenced during the proceedings that participants of the proceedings would have negotiated on different quality than that requested by the [Buyer] in the order where [Buyer] specified measurement of particular carpets for each room, corridor, and stairway for which the carpet was intended, the Appellate Court has reasoned that if ADOS carpets are not "durable" carpets, then it cannot be concluded that they should meet the standards required for that type of carpets.

The Supreme Court agrees with this reasoning of the Appellate Court. In the given case, parties have, in the purchase agreement that according to Article 18(3) of CISG was concluded when the requested goods were provided to the purchaser, agreed on delivering ADOS carpets for the price of SKK 590 per square meter. Thereby, according to Article 35(1) CISG, the quality of the goods was agreed upon. Carpets of such quality were delivered to the [Seller]. Article 35(2) of CISG is not applicable in this case since the seller is not liable for any lack of conformity provided that the purchaser has determined the particular type of goods or parameters that goods should have. By the same token, the purchaser is not entitled to claim any discount from the purchase price according to Article 50 CISG.

Since the Supreme Court came to the conclusion that the decision of the Appellate Court is correct, it has dismissed [Buyer]'s extraordinary appeal in accordance with Article 243b section 2 ACP. The Court has decided on the costs of proceedings in accordance with Article 243 b, section 5, 224, section 4, 151 section 1, and 142 section 1 CAP reflecting the fact that [Buyer] has not been successful with [Buyer]'s claim in extraordinary appeal proceedings and the [Seller] has not incurred any expenses.

This decision shall be final.

In Brno on 29 March 2006

JUDr. Zdenek Des, v.r.
Chairman of the panel


FOOTNOTES

* All translations should be verified by cross-checking against the original text. For purposes of this translation, Claimant-Appellee is referred to as [Seller] and Respondent-Appellant is referred to as [Buyer]. Amounts in the currency of the Czech Republic (Czech koruna) are indicated as [CZK]; amounts in the currency of the Slovak Republic (Slovak koruna) are indicated as [SKK].

** árka Havránková is a trainee lawyer in an independent law firm located in Prague practicing mainly in areas of arbitration, merges and acquisitions, and public procurement prior to qualifying for the bar exams of the Czech Bar Association. She has participated as a member of the team at the 12th Willem C. Vis International Commercial Arbitration Moot 2004/2005.

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