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CISG CASE PRESENTATION

Denmark 3 May 2006 Højesteret [Supreme Court] (Casting moulds case)
[Cite as: http://cisgw3.law.pace.edu/cases/060503d1.html]

Primary source(s) of information for case presentation: CISG Nordic website

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Case identification

DATE OF DECISION: 20060503 (3 May 2006)

JURISDICTION: Denmark

TRIBUNAL: Højesteret [Supreme Court of Denmark]

JUDGE(S): John Lundum, Sigrid Ballund, Mogens Heinsen

CASE NUMBER/DOCKET NUMBER: U.2006.2210H

CASE NAME: Unavailable

CASE HISTORY: Earlier proceeding: Decision rendered by an (ad hoc) arbitral tribunal in Denmark on 10 November 2000

SELLER'S COUNTRY: Denmark

BUYER'S COUNTRY: Canada

GOODS INVOLVED: Casting mould machine designed to mass produce concrete slabs for pig sties


UNCITRAL case abstract

DENMARK: Ad hoc Arbitral Tribunal, 10 November 2000
(Construction Acton Vale Lteé v. KVM Industrimaskiner A/S)

Case law on UNCITRAL texts [A/CN.9/SER.C/ABSTRACTS/100],
CLOUT abstract no. 999

Reproduced with permission of UNCITRAL

Abstract prepared by Joseph Lookofsky, National Correspondent

A Canadian buyer instituted ad hoc arbitration proceedings against a Danish seller. The subject matter of the sale was a large block machine and mould designed for the production of cement pig slats, with the seller to install the machine in Canada and help the buyer start production there. As the buyer needed to produce pig slats normally used by pig farmers in Canada, it provided the seller with specifications for a mould larger than the one previously manufactured by the seller for use with a similar machine in Denmark. In this connection, an express term in the contract provided as follows: "The seller guarantees that the machine will function, however the seller does not warrant for the quality of the products made on the machine." The sales contract also incorporated the Nordic Standard Conditions of Delivery (NL) which, in the case of avoidance, limit the seller's liability to 15 per cent of the contract price, unless the seller's breach is attributable to gross negligence. The NL also provides for the arbitration of contractual disputes in accordance with the "law of the vendor's country".

Soon after the machine was installed on the buyer's premises and production commenced, the buyer complained about the quality of the slats produced and demanded that the seller repair or modify the machine. While offering to help the buyer produce slats of better quality, the seller maintained that the buyer's difficulties were attributable to the mould dimensions provided by the buyer and/or the ingredients in the concrete mix used by the buyer. After repeated failed attempts to remedy the problem, the buyer, claiming the seller had fundamentally breached its obligations to deliver a machine capable of producing pig slats in accordance with the contractual specifications, declared the contract avoided and demanded repayment of the price. When the seller refused to accept the buyer's avoidance, the buyer revoked its avoidance and took steps to secure the necessary repairs and modifications by third parties in Canada. Later, the buyer commenced arbitration proceedings in Denmark, demanding damages for both the cost of repairs as well as for lost production. In its reply, the seller denied that the machine was nonconforming, in this connection also referring to the contract clause disclaiming any warranty for the quality of products produced as well as to the NL liability limitation.

As regards the applicable law, the arbitral tribunal noted that the CISG was part of "the law of the vendor's country" (Denmark) and that the CISG was therefore applicable to the substance of the dispute. Due to Denmark's declaration under article 92 CISG, however, Danish domestic law would apply to issues relating to contract formation, as well as to validity issues regarding the NL liability limitation, article 4 CISG.

Having considered the testimony of experts, the tribunal concluded that the machine and mould delivered did not conform to the contract, since it could not produce products in accordance with the contractual specifications, article 35(1) CISG, and that it was unfit for ordinary purposes and the buyer's specific purpose, article 35(2)(a) and (b) CISG. The fact that the buyer had provided the seller with mould specifications could not relieve the seller of its obligation to deliver a machine and mould fit for these purposes, nor could the warranty disclaimer regarding the quality of the products manufactured reasonably be interpreted to have such an effect, article 8(2) CISG.

Furthermore, as the seller had not repaired the machine within a reasonable time, as it could have by modifying the mould, the seller had breached its repair obligations under both NL and article 46(3) CISG. In this respect, the seller had committed a fundamental breach of its obligations under both the NL and the CISG, thus entitling the buyer to avoid, articles 25 and 49(1)(a) CISG. But as the seller had unjustifiably refused to accept the buyer's avoidance, the buyer was entitled to revoke its avoidance in accordance with CISG general principles, articles 7(2) and 16(2)(b) CISG. The buyer was then entitled to repair the machine and recover damages for the expenses incurred, article 74 CISG.

As to the NL liability limitation, the seller was not guilty of gross negligence, but the tribunal held that the limitation should be narrowly interpreted: when the seller failed to repair in accordance with its NL and CISG obligations and then unjustifiably refused to accept buyer's avoidance, the buyer was placed in an untenable position and thus a situation for which the NL liability limitation had hardly been designed. As a consequence, the seller was held liable for the buyer's loss, including the price of repairs and (documented) loss of profits. However, the tribunal reduced the amount of damages to some extent, since the buyer's failure to promptly inform the seller of its decision to revoke its termination and initiate its own repairs prevented the seller from reassessing its position, thus constituting a failure by the buyer to fully mitigate its loss. In addition, the tribunal reduced sums otherwise payable for foreseeable loss, article 74 CISG, by reference to the Danish Liability Act which authorizes the limitation of liability for disproportionate loss, as this provision reflects a principle similar to the prohibition against unfair contract terms pursuant to the validity rules of the Danish Contracts Act.

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Classification of issues present

APPLICATION OF CISG: Yes

APPLICABLE CISG PROVISIONS AND ISSUES

Key CISG provisions at issue: Articles 7 ; 16 [Also relevant: Articles: 8 ; 25 ; 35 ; 49 ; 77 ]

Classification of issues using UNCITRAL classification code numbers:

7C22 [Gap-filling (recourse to general principles on which Convention is based): estoppel]

Descriptors: General principles ; Estoppel

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Editorial remarks

EDITOR: Joseph Lookofsky

Decision by the Danish Supreme Court (Højesteret), 3 May 2006, as reported in UfR 2006.2210 (H), including excerpts from the award rendered by an (ad hoc) arbitral tribunal in Denmark on 10 November 2000.

In the dispute underlying these proceedings, which involved the interpretation of the relevant CISG rules, as well as Nordic standard terms of agreement (Nordiske Leveringsbetingelser), a Danish seller (S) had supplied a large machine (designed to mass-produce concrete slabs for pig sties) to a Canadian buyer (B). The machine delivered proved unfit (Article 35(2)(a-b)), and after S's failure to repair, B declared the contract avoided. When S refused to acknowledge its (fundamental) breach, B revoked (tilbagekaldte) its declaration (and pursued other remedies, including damages). In these circumstances, the arbitral tribunal held B entitled to revoke: see id., p. 2219.

Although the extract of the award included in the Supreme Court judgment (at id., rejecting a malpractice claim by S against its attorney) includes neither the tribunal's own reasoning nor references to secondary sources of CISG law on the revocation issue, Professor Schlechtriem has persuasively argued that the "matter" of whether a declaration of avoidance is binding upon the declaring party is "governed but not settled" by the Convention and that "estoppel," a CISG general principle, can be used to "settle" it: see Schlechtriem in Schlechtriem & Schwenzer, Commentary, Art. 27, para. 14; accord Müller-Chen, id., Art. 45, para. 15(bb).

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Citations to other abstracts, case texts and commentaries

CITATIONS TO OTHER ABSTRACTS OF DECISION

Unavailable

CITATIONS TO TEXT OF DECISION

Original language (Danish): CISG Nordic website <http://www.cisgnordic.net/060503DK.shtml>; see also UfR 2006.2210 (H)

Translation: Unavailable

CITATIONS TO COMMENTS ON DECISION

Unavailable

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Pace Law School Institute of International Commercial Law - Last updated September 30, 2013
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