Netherlands 28 June 2006 District Court Arnhem (Silicon Biomedical Instruments B.V. v. Erich Jaeger GmbH) [translation available]
[Cite as: http://cisgw3.law.pace.edu/cases/060628n1.html]
DATE OF DECISION:
CASE NUMBER/DOCKET NUMBER: Rolnummer 82879 / HA ZA 02-105
CASE HISTORY: Interim judgment of 10 September 2003
SELLER'S COUNTRY: Netherlands (plaintiff)
BUYER'S COUNTRY: Germany (defendant)
GOODS INVOLVED: Software
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:
3C ["Sale of goods": software held to be goods]; 25B [Definition of fundamental breach: substantial deprivation of expectation]; 35A [Conformity of goods to contract: quality, quantity and description required by contract]; 49A1 [Buyer's right to avoid contract (grounds for avoidance): fundamental breach of contract]
3C ["Sale of goods": software held to be goods];
25B [Definition of fundamental breach: substantial deprivation of expectation];
35A [Conformity of goods to contract: quality, quantity and description required by contract];
49A1 [Buyer's right to avoid contract (grounds for avoidance): fundamental breach of contract]
CITATIONS TO ABSTRACTS OF DECISION
(a) UNCITRAL abstract: Unavailable
(b) Other abstracts
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
UnavailableGo to Case Table of Contents
Case text (English translation) [second draft]
Queen Mary Case Translation Programme
28 June 2006 [82879; HA ZA 02-105]
Translation [*] by Thorsten Tepasse [**]
Judgment of 28 June 2006 in the dispute between
Silicon Biomedical Instruments B.V.[*] hereinafter referred to as [Seller], seated in Arnhem (the Netherlands), Plaintiff in main claim, Respondent in counterclaim
Erich Jaeger GmbH [*] hereinafter referred to as [Buyer], seated in Höchberg, Germany, Defendant in main claim, Claimant in counterclaim.
1. THE PROCEEDING
The proceeding has consisted of the following hearings and steps:
|-||An interim judgment of 10 September 2003;|
|-||The transcripts of the hearing of witnesses on 16 January 2004, 6 February 2004, 16 April 2004, 22 June 2004, 1 October 2004;|
|-||The pleading after hearing of witnesses;|
|-||The responding pleading, also containing a modification of the main claim;|
|-||The memoranda supporting the [Seller]'s main claim and supporting the [Buyer]'s Counterclaim;|
|-||The memoranda containing argument against the modification of the main claim and response to the modification of the counterclaim;|
|-||The pleadings including evidence brought forward.|
A judgment has been handed down.
2. THE MODIFICATION OF CLAIMS
2.1 The [Seller]'s main claim
[Seller] modified its claim so that it no longer requests fulfillment of the contract anymore, but asks the Court to rule that:
|-||[Buyer] did not have the right to cancel [avoid] the contract;|
|-||[Buyer] was obliged to abide by its contractual obligations; and|
|-||Due to [Buyer]'s breach of contract, [Buyer] is bound to pay compensation for the loss that occurred.|
Further, the [Seller]'s claim for reimbursement of extrajudicial costs was raised to 51,865.00 EURO, and the claim for compensation of damages to be determined by schedule (summary of damages) was replaced by a claim for damages in the amount of 19,473,000.00 EURO.
[Buyer] challenged the [Seller]'s modification of its claim in its entirety and also disputed the content of the modified claim.
The objection against the modification in its entirety is declared unfounded, since the modification does not violate procedural law. [Buyer] was given sufficient chance to react to the modification, which [Buyer] in fact did.
2.2 The [Buyer]'s counterclaim
[Buyer] modified its counterclaim to also request the Court to order [Seller] to pay compensation in the amount of 4,488,000.00 EURO for damaged reputation plus judicial interest plus compensation since the counterclaim was filed (23 March 2005). Further, [Buyer] requested payment of 32,250.00 EURO (excl. sales tax, BTW [*]) plus interest since 23 March 2005 plus costs for the counterclaim.
[Seller] disputed the modified counterclaim.
3. THE FURTHER EVALUATION
3.1 The [Seller]'s claim
The Court holds to the reasoning handed down in its interim judgment of 10 September 2003. Under para. 3.2 of the interim judgment, the Court held that Dutch law is applicable to the case. The Court elaborates on this point as follows:
|-||The choice of Dutch law does not exclude applicability of the CISG, if it is formally and
substantively applicable. This is the case, as the Netherlands and Germany are parties to the
Convention (Art. 1(1)(a) CISG);
|-||Software is goods in the sense of Art. 2 CISG (Bertrams, Enige Aspecten van het Weens Koopverdrag, Preadvies Vereniging voor burgerlijk recht 1995, p. 27 et seq). Also contracts concerning goods to be manufactured or to be produced are governed by the CISG (Art. 3(1) CISG).
|-||The CISG is applicable, unless the parties agreed otherwise in their contract. In this case, a relevant question is whether [Buyer] rightfully declared the contract avoided. The parties have a special provision for such case in their contract, namely Art. 13.2 (material breach) which departs (slightly) from Arts. 25 and 49(1)(a) CISG. Thus the Court will rule on the claim on the basis of Art. 13.2 of the parties' contract.|
In the interim judgment, [Buyer] was ordered to prove that the software delivered by [Seller] under the contract of 23 December 1999 was not in conformity with Art. 4(1) of the contract, which specified the software's functions ("functional products according the user manual and product description (see documents man 0013a.doc and man 0015a.doc of December 1, 1999"). In support of its position, [Buyer] called ten witnesses before the Court. In response, [Seller] called four witnesses.
The testimonies of witness showed - when weighing both sides against each other - that the software delivered by [Seller] did not work properly.
[Witness 1] stated "that stability problems occurred from on the beginning. It was very difficult to reproduce these problems. Namely the system was unstable when trying to retrieve data, but there were also other problems. Some errors were fixed by [Seller], but afterwards new errors occurred. The errors were of such manner that at unpredictable points in time data of patients was not saved, whereupon a hang-up of the system emerged. It was not foreseeable when or under which circumstances a hang-up would arise. Another problem was that data of completed measurements could not be loaded anymore. Afterwards, a diagnosis was only possible when the data was - at the cost of great privations on part of [Buyer] - called back." [Witness 1] declared, that he was totally engrossed by these problems. In Bad Mergentheim, they tried to solve the problems by replacing the server and network, with no effect. Another software was also installed on the same hardware, whereupon the errors did not emerge. Updates of [Seller]'s software only led to a partial solution of the errors: sometimes an update sorted a problem out, but it recurred when a newer update was brought in. The errors occurred among others in the hospitals of Bochum, Detmold, Meerbusch, Weiden and in some hospitals in the Netherlands. [Witness 1] could not exclude that the errors were caused by the instability of Windows 98, but he stated that likewise software did not cause abnormal ends of Windows 98.
[Witness 2] stated that the errors did not in fact become apparent when the software was installed in the hospitals and medical practices. The more installations were conducted, the more different, irreproducible errors appeared. The complaints concerned especially the facts that EEG data could not be loaded and that the system hung up when data was saved.
[Witness 3] declared that the hospital of Bad Mergentheim had problems with the system when archiving data from the beginning on. Opened data files could moreover not be used anymore and saved files could not be loaded. At any time, Viasys' hotline had to be called, whereupon a service assistant had to come to the hospital to make the system run once again. According to the hospital, the support had to be called in an unacceptable frequency. [Witness 3] stated further, that the system hung up especially when EEG tests were executed. This also happened during critical situations, such as emergencies. Updates were sent steadily, but when one problem was fixed, others occurred. The hospital of Bad Mergentheim changed the surroundings, upon the suggestion of Viasys - the network speed was increased and the database was placed on another server - but the system was still unstable. [Witness 3] was unable to tell, if there was a significant difference between the error frequencies before and after changing the server. According to [Witness 3], the Nicolet-system was initially used in a 10 Mbit network, whereas no data was lost in this surrounding.
[Witness 4] stated that [Buyer] had many problems and system crashes from the beginning on. Those reports came from customers. There were many complaints regarding instability of the system. Demonstrations of RDA functions nearly all failed, since the software was unstable. Namely in Delft and Boxmeer the problems lasted about one and a half years. The system was also run without any network surrounding in Antwerpen, but even there errors occurred and the system hung up. According to witness' assertion, the reactions of hospitals turned from tolerant in the beginning to vehement after some months.
[Witness 5], an employee in the hospital of Boxmeer, stated that there were problems with the equipment right from the start. The problems were very complex. Files vanished from the screen, but pursuant to the database-administrator, data was still written but could not be modified. This error could not be erased but in the end, the files could be restored. The disappearance of files from the screen occurred in such frequency that the personnel was told how to restore the data. However, a professional examination of patients was impossible under these circumstances. Another problem appeared, when the computer was detached to be used offline. It was foreseen that data from the main computer could be loaded, when re-attaching the device, but often it did not work. Further, it could not be examined under which circumstances re-attachment was successful and under which circumstances it was not. Problems persisted the whole period the Cephalo Pro system was used. In Boxmeer, supervision of recordings from another room was not obtained, but this will now begin. The supervision from another place was not conducted before, since there were too many problems with the equipment.
[Witness 6], also working in the hospital of Boxmeer, stated that there were many failures of the devices and that there was great uncertainty among the personnel, since no one could foresee if the program would run stable. Sometimes it happened, when recording the screen froze, so that the employee could not comprehend what was happening. Yet, one could see because of the clock, that the system was still working. Consequently, when recording, no other examinations could be done with a patient, but when the recording was finished it could be loaded without problems. This failure occurred again and again, after [Witness 6] was consulted about four times per month at a record number of 45 per month. Another defect was that the system interlinked data of one patient with another patient who had the same name, even though a unique patient number was entered. This problem could not yet be fixed. A further mistake was that files were deleted irrecoverably when the device was detached to record data in the intensive care unit. It took a long time to restore the files, which was even worse in cases of emergency.
[Witness 7], a medical electronics engineer in the hospital of Boxmeer, stated that he was consulted several times because of problems with the EEG device. He declared that he went to the purchasing agent with a list of defects and asked him to phone the supplier. He further remembered that there were problems when two devices were in use at once. In such case, the data was written somewhere and it was not clear where the files were saved. Since that mistake was not structural, it was very difficult to solve.
[Witness 8], a lab assistant in Zoetermeer, declared that the channels were unstable and that the graphs were wafting over the screen. Once the picture was steady, another time it was not. It was totally unexplainable. Another problem was that when recorder and reader were running simultaneously and data was to be written to recorder, the data vanished. This problem could not be solved. Further, data was lost in an unaccountable way: After recording was finished, data was loaded and then seemed disappear. Even the company could not restore this data. One more problem was that data was applied to the wrong patient: e.g., deleted data was attached to a new record of the following patient. As Cephalo Pro was used, the company had to be called each week, since there were problems.
[Witness 9] made clear that the database was unstable and that linking the database with the EEG-data formed a serious problem. The link broke, e.g., if an EEG-analysis was conducted. Advancements by installing software updates could not be determined: the main problems remained, since they could not be solved effectively. The biggest problem was, according to [Witness 9], that the database hung up permanently. It was not possible to reveal the cause for this error. In Boxmeer, the program was installed on a huge file server, which specifications were far above those required, but despite that, the database errors still existed.
[Witness Michelbrink] stated that the Cephalo Pro-system did not seem to be stable. When it was used in the network it crashed too often, but it also crashed occasionally when it was run without network connection. The system mostly hung up since, during a measurement, data was loaded to another workstation. When loading the data an error message appeared and the whole job had to be done once again. According to [Witness Michelbrink], the errors were not fixed even in the last software version he used. The users became more and more impatient and the system totally stopped. When the workstation was detached from the network, e.g., to be used during an operation, the data could not be loaded properly. It was loaded to a certain location on the system and it was difficult to restore the data and attach it to the right patient later on. [Witness Michelbrink] recognized customers' displeasure after using the system for a few months and stated that this displeasure increased.
During counter-questioning [Witness 10] declared, that [Seller] was not notified, that data was lost and thus this problem was not examined by [Seller]. [Witness 10] knew of two complaints concerning this error - the hospital in Bad Mergentheim and the hospital in Boxmeer - while one error (in Boxmeer) seemed to be caused by misuse. Following the witness' statement, [Seller] released an improved software version in June 2001, based on a list of problems made together with [Buyer]. In a phone call of 30 June 2001, [Witness 1] of [Buyer] told [Witness 10], that all bugs and items of the list were solved and that the new fields of application for the upgraded software did not cause errors. According to [Witness 10], [Witness 1] told him, that all customers were satisfied with the software that was used at that moment. Only three (German) hospitals of twenty-three, where the software was in use, were still reporting problems, but in two of those three cases the problems could be identified as hardware-related. [Witness 10] supposed, that the version of 2001 was not delivered to all users, since an attempt should be conducted with a copy of the database by [Seller] before and that happened in only six cases. The problems in the hospital of Bad Mergentheim were, in opinion of [Witness 10], caused by the server, but after replacement of it, there were only minor errors remaining. [Witness 10] declared, that [Seller] had only once direct contact to the customer, namely in Voorburg, where the problems were allegedly caused by a defective cooling of the server.
[Witness 11], who was working as a software developer for [Seller], stated, that the termination of the business relationship by [Buyer] was a huge astonishment for him. The steady contact held with [Witness 1] of [Buyer], gave no hint to expect such step. [Witness 11] had direct contact with the hospitals in Voorburg and Delft to solve the problems and he found, that the errors were not insolvable, but simple problems. During the contact, he had the impression that the hospitals were pleased with the system and that the software was getting better and better. According to [Witness 11], there were no serious problems in the software in July 2001. Moreover, he did not see it as a pertinacious defect, that data was lost in the system, since it was always easy find the lost data. Finally [Witness 11] declared, that, if there were grave defects, they were not communicated to [Seller].
[Witness 12], a lab assistant in the hospital of Voorburg, stated, that he had excellent experiences with [Seller]'s system. The hospital of Voorburg worked until June 2003 with Onyx in the beginning and later on with Cephalo Pro. The Cephalo Pro-procedure "Review during Acquisition" worked flawless and even loading data did not cause errors. The same positive experiences were, according to [Witness 12], also made in Delft.
[Witness 13], who has worked for [Seller] and later on for [Buyer], characterized the software as a good product. At that time, [Witness 13] had a close connection to [Seller]'s products and sold them to customers. To his mind, the termination of contract by the [Buyer] had nothing to do with the quality of software but with the company [Buyer] had just taken over. [Witness 13] remembered that there were problems, but in his opinion those were totally normal. It was for sure not the case that [Buyer] intended to avoid the contract for these reasons. [Witness 13] did not hear any rumors about that.
It became apparent that the hospitals had problems in the sphere of use of the system and with necessary upgrades. When executing an EEG, errors were seldom. A specific problem concerning storage of data, was, according to [Witness 13], to be attributed to the surrounding network and not to [Seller]'s software. The defects in Delft could as well be ascribed to the surrounding network and the problem in Zoetermeer, regarding downloading of data, was also caused by the network. The loss of data was not communicated as a problem to [Witness 13], as well as the error that data was allocated to the wrong patient.
When deliberating about this hearing of witnesses it becomes clear, that the software developed by [Seller] had a serious stability problem. The system could hang up in unsteady moments when loading data and saved data could regularly not be opened or restored. When trying to rebuild data, usually [Buyer]'s technical personnel had to be called. The problems occurred especially when the system was used in a network surrounding, but also stand-alone systems were affected. Another defect was that during an EEG, recorded data vanished from the screen, so that it could not be analyzed instantly. Witnesses further reported problems when a station was detached and later on attached once again. In these cases, data was lost. Also, data was allocated to wrong patients. These complaints named above cannot be regarded as minor or even smoothed out due to the fact, that errors were possibly not reported to [Seller] or that some customers were satisfied with the software.
[Seller] brought forward an appraiser's report against the testimonies named above. In the report, testimonies were analyzed together with the errors experienced and it was concluded that the Cephalo Pro-software was in conformity with the standards it should meet. [Appraiser 1] held that no witness built a connection between the "User Manual of the Product Description" and the occurring errors and further that there were no errors on the bug list which prevented efficient use of Cephalo Pro-software. Moreover, according to [Appraiser 1], Cephalo Pro was used at three locations without problems and the errors appeared only incidentally in other hospitals, whereas they were not examined in an adequate analysis there. [Appraiser 1] stated that he could not judge severity of the failures, since he did not have enough information. He assumed that the problems were not that serious, as the errors were not placed on the bug list, the equipment was still used for a long time and [Buyer] did not take the initiative to eliminate the errors (e.g., to ask for the source code of the software). Asked for the actual source of the defects, [Appraiser 1] could not give an answer due to, as he said, a lack of information. According to him, there were many possible reasons for the failures. He took it for plausible that the cause for errors was not Cephalo Pro but the (configuration) of the network. In this context, he challenged the technical knowledge of network supervisors in some hospitals. According to him, it must have been clear for an automation expert that if errors are irreproducible and emerge more often in network surroundings, the reason can very likely be found outside the application software.
[Seller] followed [Appraiser 1]'s argumentation and submitted further that none of the witnesses had enough (IT-) knowledge to judge the suitability of the software. Just as little, witnesses conducted own tests to rate the capability of the software. Further, [Seller] argues that the statements prove that no customer insisted on replacing the software by another; in fact the software was still intensively used for a long period of time.
Further, [Seller] pointed out that Art. 7.1. of the contract reads: "Supplier does not warrant that operation of the Products will be error free or uninterrupted or that all non-conformities can be corrected." According to [Seller], this passage should mean that only substantial defects would allow avoidance of contract, which would also result from the kind of software produced. [Seller] argues that the defects mentioned were not acute at the time avoidance was declared and that many of the problems named by witnesses occurred after the contract was terminated. Finally, the last software version in use would be decisive, when judging justification of avoidance.
[Seller] brought forward another appraisal report by [Appraiser 2] of Nucletron B.V.[*] (which is a subcompany of Delft Instruments Group). [Appraiser 2] analyzed the bug list for defects that could, pursuant to medical standards, be a threat to the lives of patients. He concluded that no serious errors could occur with the software on the basis of the bug list handed over.
In its pleading, [Buyer] brought forward a report of [Appraiser 3] of TNO. The appraiser tested the Cephalo Pro-software in various test runs, if it fulfilled the specifications named in the "User Manual" and "Product Description". The result of this examination was that during the tests with various hardware configurations - which were all in compliance with the User Manual, Product Description and Minimum Specifications - a number of errors occurred. According to [appraiser 3] these errors could be either solely accredited to the Cephalo Pro-software or to the combination of the Cephalo Pro-system with other software (Windows NT, Windows 98, Word 2000), while [appraiser 3] remarked that usually manufacturers of special software correct known errors of third-party software in their own programme. The defects found vary, according to [Appraiser 3], from "dangerous for the patient" to "troublesome for the user." The problems occurred during typical clinical use and on any hardware configuration used. The longer the tests lasted, the more errors evolved. Further, it was possible that there were no errors during a first test run, but errors appeared when running the test for a second time. Finally there were defects, which could be reproduced and defects which could not.
[Buyer] further filed a report of [Appraiser 4], who commented on the reports by [Appraiser 2] and [Appraiser 1]. According to [Appraiser 4], [Appraiser 2] misjudged that an EEG device is used in a therapeutical surrounding and not in a diagnostic surrounding as he alleges. Further, [Appraiser 4] alluded to the fact that in a busy medical surrounding one cannot operate with "work-arounds" and that there is also no possibility to install the software in another system. An error such as attaching data to the wrong patient was from his point of view a serious defect and not - as [Appraiser 2] stated - a "modest fault". In contrast to [Appraiser 1], [Appraiser 4] held that in network surroundings irreproducible errors are often caused by application software, which cannot sufficiently deal with specific problems arising from a multi-user environment. Also, the distinction between the failures made by [Appraiser 1] in his report is to [Appraiser 4]'s mind not just and standard. Further, mistakeable and confusing definitions were used - various statements by [Appraiser 1] were according to [Appraiser 4] wrong. Finally, [Appraiser 4] stated that software and especially medical software must consider the possibility of misuse by users. It was further, pursuant to him, inacceptable that data - no matter in which amount - vanished.
Furthermore some other reports were filed, which contained several different opinions of other experts.
[Appraiser 1] of [Seller] criticized the report forwarded by TNO ([Appraiser 3]'s report]. According to him, TNO did not keep in mind that errors occur more often in network environments than in other surroundings. The Court rules that this objection is unfounded. The TNO report shows that tests were conducted in a configuration with a network server. But, the report also shows that [Seller]'s software produced errors even though the running system had no network contact. This proves that the errors were not only caused by the network. The criticism concerning availability of "work-arounds" for several errors is also unsubstantiated, since this fact does not repel the conclusion that the software itself did not work as foreseen in the "User Manual". The actuality that TNO did not consider any failure in detail is also no surprise, since TNO only examined which errors could occur during normal use and not how all these errors could evolve. Further, the Court does not agree with [Appraiser 1] that an error in the software, which can be adjusted by the user, has to be taken as an application error. Finally, the Court does not agree with [Appraiser 1], who stated that TNO unlawfully tested the single user version only, since this argument was convincingly rebutted by [Buyer].
The Court holds that the tests conducted by TNO ([Appraiser 3]) support the impression resulting from witnesses' statements. The various tests which were performed on configurations that met the system requirements as provided for in the "User Manual", "Product Description" and "Minimum Specifications", show that usual use of the software caused failures. The errors found by [Appraiser 3] partly concur with those named by witnesses and which were on the bug list, but sometimes depart from those found so far. TNO's report included errors like impossibility of a new EEG recording, impossibility of reviewing the last record, attaching records to a wrong patient as well as loss of data, which can be crucial for a diagnosis. Witnesses stated that data were not recorded due to system hang-ups and that data of sessions finished could not be loaded ([Witness 1], [Witness 2], [Witness 3]), frequent abnormal system ends ([Witness 4]), impossibility to receive data ([Witness 5], [Witness 8]), vanishing information from the screen during a recording, which made proper medical examinations nearly impossible ([Witness 5], [Witness 6], [Witness 8]), loss of data during offline use ([Witness 5], [Witness 6], [Witness Michelbrink]), attachment of data to wrong patient ([Witness 6]) and saving data in an unknown place ([Witness 7], [Witness Michelbrink]).
The Court rules that the defects named above (attaching data to wrong patient, unattainability of data, abnormal system ends) are so serious that normal and elementary use of the software for the purpose it was designed for (use in a busy medical environment) was prevented. Insofar the software is not functional as described in the "User Manual" and in the "Product Description". Pursuant to the "User Manual" the Cephalo Pro-software should perform recordings and make review of the recorded data (during or after recording) possible. The tests and testimonies proved that this was repeatedly impossible. Although the Court finds that it has to be tolerated that new developed software may have "teething troubles" or "start-up problems" in the beginning - this is how the Court interprets Art. 7.1 of the contract which reads "Supplier does not warrant that operation of the Products will be error free or uninterrupted, or that all non-conformities can be corrected" - it must be possible to use the software in a normal way from the beginning on. The testimonies proved that this was not the case, as there were frequent interferences and as data could not be found or loaded without consulting a technical clerk.
The Court does not agree with [Appraiser 1], who stated that the failures detected were not caused by [Seller]'s software, but by the network and surrounding system. The tests performed by TNO demonstrated that the errors evolved, although the hardware of test systems met all requirements which were written down in the "User Manual", the "Product Description" and the "Minimum Specifications". TNO checked its own equipment before the test, hence it cannot be assumed that there was misuse or anything similar on part of the equipment. Software is expected to run properly in the hardware environment it was developed for. It can further be expected that software works without problems on a Windows 98-system - since this operating system is named in the "Minimum Specifications" - as well as with the networksoftware - which was also named in specifications. Even if the failures do not only derive from mistakes in Cephalo Pro-software itself, but from using the software together with an operating system and/or networksoftware, this problem can, to the Court's opinion, also be seen as a defect. The user of software can at least expect that the software works as foreseen, without modifications - those not named in the "User Manual" - in an environment which fulfills the system requirements as requested. On the other hand, one cannot misjudge that there were also satisfied customers (proven among others by [Witness 12]). Though, one must keep in mind that subjective experiences are not decisive, but rather those objective failures that appeared when using the software and that lowered functionality of the software.
The conclusion is that the Court finds that [Buyer] proved as well-founded [Buyer]'s allegation that the software did not comply with the prerequisites as they were foreseen in the contract.
In its letter of 11 April 2001, [Buyer] illustrated all complaints regarding the software and finally requested [Seller] to make the software stable and functional in the sense of the "User Manual" no later than end of week 26/2001. Finally [Buyer] declared the contract avoided by letter of 27 July 2001. The Court holds that the defectiveness of the software - which was, pursuant to [Appraiser 3]'s report and testimonies, still present after end of week 26/2001, so that [Seller] was from then on in arrears - was so severe that one cannot assume that the software can be described as a "functional product according to the user manual and product description". This defect does not only justify termination, but also liberation from the contract. The defect was a "material breach" as provided for in Art. 13.2 of the contract. Further, by setting a period of grace in its letter of 11 April 2001, [Buyer] gave [Seller] the possibility to perform, by which [Buyer] complied with the provision in Art. 13.2 of the contract. Thus, it has to be assumed that [Buyer] lawfully and effectively terminated [avoided] the contract with its letter of 27 July 2001. Since this date, [Buyer] was freed from its obligations under the contract.
Pursuant to Art. 4.1 of the contract, the duty to accept the goods in the sense of Appendix 8 is void, if resale delays are a result of defectiveness of the software. The Court holds that the latter is the case, since during maturity of contract serious problems with the software evolved. This means that [Seller]'s request has to be rejected, as far as its basis is the obligation to accept the goods.
The damages claimed by [Seller] in the amount of 19,473,000.00 EURO are based on the assumption that [Buyer] unlawfully avoided the contract and that thus [Seller] went bankrupt. This compensation cannot be awarded since [Buyer] substantiated that it rightfully avoided the contract. Hence, [Buyer] is not responsible for anything occurring with [Seller]'s company after termination of contract.
Since no compensation for damages can be claimed by [Seller], the costs for determination of damages can also not be awarded to [Seller].
The declaration requested by [Seller], that [Buyer] was not allowed to avoid the contract on 27 July 2001, that it was thus bound to its contractual obligations until 12 December 2002 and that it violated its obligations under the contract by avoiding it on 27 July 2001 cannot be granted, since [Buyer] terminated the agreement for good and lawful reasons.
Finally, [Seller] requested the Court to find, that [Buyer] failed to meet its obligations before 27 July 2001 and that it must thus pay compensation for damages to [Seller]. As far as this request is based on the fact that [Buyer] did not accept the goods as it was obliged to, the Court holds to its position. Since [Seller] did not deliver "functional products", there was no obligation for [Buyer] to accept the goods foreseen in the contract.
As far as [Seller] alleges that the breach of contract on part of [Buyer] consists in selling competing products during the maturity of contract and against prohibition of competitive behavior as provided in Art. 2.3 of the contract, the Court holds: [Seller] argued with a declaration of Schwind Medizintechnik of 16 October 2001, which contains a passage stating that [Buyer] bought competing software of Schwind Medizintechnik from November 1999 until October 2000 and resold it to its customers. According to [Buyer], those deliveries have to be seen as maintenance supplies for systems that [Buyer] already delivered in former times. This was challenged by [Seller] insofar as the deliveries in question of 17 December 1999, 20 December 1999, 21 December 1999, 4 January 2000, 21 February 2000 and 31 August 2000 contained, according to Schwind Medizintechnik, so-called "Neugeräte Komplettsoftware" (i.e., software for brand new systems). The Court holds that this activity does not violate the prohibition of Art. 2.3 of the contract. Selling the products with another software does not constitute a case of selling "competing products" as provided for in Art. 2.3 of the contract, since [Seller] did not challenge the allegation that it provided [Buyer] no earlier than 21 July 2000 with a certified version of software [Buyer] could use at the market. It is absurd to assume that with the prohibition of Art. 2.3 of the contract, the parties intended to make it impossible for [Buyer] to supply its customers before [Seller] managed to release software fit for the market.
Also, the reference to competing products developed by Nicolet next to [Buyer]'s products (equipped with [Seller]'s software) in a brochure by parent company Viasys released in April 2001 does not contravene the prohibition of competitive behavior. No evidence was submitted that [Buyer] in fact sold any Nicolet-software to any of its customers before termination of contract between [Seller] and [Buyer]. In contrast, according to testimonies it still took a long period of time after avoidance of contract until [Buyer] supplied its customers with Nicolet-systems.
For these reasons, the Court rejects [Seller]'s request to find that [Buyer] violated the non-competition clause in the contract before 27 July 2001. Hence, the claim for damages fails.
Since [Seller] wrongly filed the claim, [Seller] is ordered to bear the costs of this proceeding. The costs on part of [Buyer] are numbered so far as follows:
|-||Costs for service of process||0.00||EURO|
|-||Costs for hearing of witnesses||167.20||EURO|
3.2 Regarding the [Buyer]'s counterclaim
Following the argument on the [Seller]'s main claim, the Court holds that [Buyer] rightfully avoided the contract on 27 July 2001. The declaration requested by [Buyer] that avoidance was lawful can thus be granted.
The result of termination of contract is that [Buyer] is released from any debt towards [Seller]. This finding is also upheld by the Court.
Concerning the requested security, the Court lays down that the requirement that [Buyer] is ordered to pay any sum to [Seller] does not apply. Thus, the Court does not have to rule on this point of the claim.
[Buyer] requested the Court to award compensation of damages in the amount of 4,488,000.00 EURO. This amount concerns direct as well as indirect damages (consequential harm caused by a defect). [Seller] argued that Arts. 7, 8 of the contract excluded such claims. The Court follows [Seller] on this point. Art. 7 of the contract limits [Seller]'s ("the supplier's") responsibility to production of conforming software. Any other responsibility is excluded. Art. 8 of the contract expressly excludes any responsibility of [Seller] for consequential damages. Contrary to [Buyer]'s allegation, it cannot be assumed in the instant case that relying on this limitation of liability would contravene the principles of equity and good faith. The provision was drafted exactly for a case as occurred, where the product is defective and the parties agreed upon this provision. The [Buyer]'s claim for damages has thus to be rejected.
Finally, [Buyer] requests the Court to order [Seller] to pay the costs incurred due to determination of damages and argument against [Seller]'s loss adjustment. This damage amounts to 32,250.00 EURO paid on the basis of bills by ESJ accountants. The bills and work charged are not separated to those belonging to the argument in the main claim and those belonging to the counterclaim. Since only the former can be compensated, the Court will not award the whole sum. For equitable reasons, [Buyer] is awarded half the sum, or 16,125.00 EURO.
Since both parties partly wrongly filed the claim, the costs of the counterclaim are cleared against each other, meaning that each party bears its own costs.
3.3 Annotation to claim and counterclaim
One of the judges, who attended the proceedings, could not hand down this judgment, since he was appointed to another Court.
4. THE DECISION
Concerning the main claim, the Court:
|-||Rejects the claim; and|
|-||Orders [Seller] to pay the [Buyer]'s legal costs in the amount of 34,303.70 EURO.|
Concerning the counterclaim, the Court:
|-||Holds that [Buyer] lawfully avoided the contract and that it is hence liberated from its obligations under the contract;
|-||Orders [Seller] to pay [Buyer] the sum of 16,125.00 EURO plus judicial interest as foreseen in Art. 6:119 BW [*] regarding the outstanding amount from 23 March 2005 until day of payment;
|-||Declares the judgment temporarily enforceable upon providing security;
|-||Clears the costs of this proceeding against each other, i.e., both parties bear their own costs; and
|-||Rejects any claim going beyond this ruling.|
This judgment was handed down by Mr. De Vries, Mr. Noordraven and Mr. Lagarde in public on 28 June 2006.
* All translations should be verified by cross-checking against the original text. For purposes of this translation, Plaintiff-Appellant of the Netherlands is referred to as [Seller]; Defendant-Appellee of Germany is referred to as [Buyer]. Amounts in European currency are indicated as [EURO].
Translator's note on other abbreviations: BTW = Belasting op de Toegevoegde Waarde [sales tax]; B.V. = Besloten Vennootschap [Limited liability company under Dutch Law]; BW = Burgerlijk Wetboek [Dutch Civil Code]; GmbH = Gesellschaft mit beschränkter Haftung [Limited liability company under German law].
** 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.Go to Case Table of Contents