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CISG CASE PRESENTATION

Netherlands 18 July 2006 Appellate Court Arnhem (Potting soil case) [translation available]
[Cite as: http://cisgw3.law.pace.edu/cases/060718n1.html]

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

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Case identification

DATE OF DECISION: 20060718 (18 July 2006)

JURISDICTION: Netherlands

TRIBUNAL: Hof Arnhem [Hof = Gerechtshof = Appellate Court]

JUDGE(S): Tjittes, Strens-Meulemeester, Steenberghe

CASE NUMBER/DOCKET NUMBER: Rolnummer 2005/1005

CASE NAME: Unavailable

CASE HISTORY: 1st instance Rechtbank Arnhem 8 December 2004 and 15 June 2005

SELLER'S COUNTRY: Netherlands (defendent)

BUYERS' COUNTRY: Germany (plaintiff)

GOODS INVOLVED: Potting soil


UNCITRAL case abstract

THE NETHERLANDS: Court of Appeals of Arnhem, 18 July 2006 (Potting soil case)

Case law on UNCITRAL texts [A/CN.9/SER.C/ABSTRACTS/94],
CLOUT abstract no. 941

Reproduced with permission of UNCITRAL

Abstract prepared by J. Smits, National Correspondent, and Bas Megens

The appellant is a company specialized in growing and cultivating conifers. In November 2001, the parties entered negotiations regarding the delivery by the defendant of a potting soil mixture containing, among other things, a certain amount of Baraclay. The defendant faxed the appellant an offer for the sale of potting soil mixture containing "3 per cent Bara-Ton fein" per cubic metre. The appellant did not accept it. The defendant then sent a new offer for the sale of a mixture containing "40 kg Baraclay" per cubic metre, which was accepted by the appellant. In May and June 2002 the defendant delivered seven batches of potting soil to the appellant. The "Lieferscheinen" signed by appellant each time indicated the potting soil to contain "3 per cent Bara-Ton fein". In July 2002 the appellant contacted the defendant informing it that using the potting soil had caused the conifers to develop growing disorders. The appellant claimed that the potting soil did not conform to what was agreed (40 kg of clay per cubic metre) and claimed damages for the conifers that were destroyed after being grown in the potting soil.

The Court of First Instance, determining that the dispute was to be decided by reference to the CISG dismissed the appellant's claim. The Court stated that this latter had not informed the seller of the nature of the lack of conformity within a reasonable time as required by article 39(1) CISG.

The Court of Appeals upheld the decision of the Court of First Instance as to the application of the CISG to the case. On the substance the Court noted the following: Article 35(1) of the Convention provides that the seller must deliver goods which are of the description required by the contract. The parties had agreed that the potting soil mixture would contain "40 kg Baraclay". The invoice for the first delivered batch of potting soil, dated 17 May 2002, however, indicated that the soil contained "3 per cent Bara-Ton fein". This in principle indicated that the delivered good did not conform to the agreed description, unless the appellant thought, and was reasonably entitled to think, that "3 per cent Bara-Ton fein" corresponded to "40 kg Baraclay". The defendant disputed this interpretation. The Court stated that if the appellant did not think and was not entitled to think that "3 per cent Bara-Ton fein" corresponds to "40 kg Baraclay", then the appellant should have given notice to the defendant on the day of delivery, when according to its signature on the delivery receipt, it discovered the discrepancy or at least should have discovered it. At the latest notice should have been given a few days after. The failure to do so entails that the appellant lost the right to invoke the non-conformity (article 39(1) CISG). As a matter of fact, giving notice to the defendant in July 2002, one and a half months after the first delivery, can't be considered a reasonable time to complain. Contrary to the appellant's argument it is not necessary for the commencing of the period for complaint that the appellant knew or should have known that the non-conformity would lead or could lead to the alleged damage. It is sufficient that one knew or should have known that non-conformity existed in order for an obligation to notify the seller to come into existence. The appellant thus was not entitled to wait and ascertain whether the difference between 3 per cent Baraclay and 40 kg Baraclay would actually create difficulties. In determining the length of the period for notification, the Court noted, in particular that the appellant processed the potting soil almost immediately upon delivery. This necessitated a quick notification. The appellant argued that it gave the defendant the opportunity to inspect the potting soil, to formulate an opinion as to the viability of the complaint by the appellant and to collect evidence in this regard, but the appellant did not state that it did so at the relevant point in time, namely at or around May 17 2002. It did so in July 2002 at the moment it became aware of the growing disorders of the conifers. Furthermore, the Court considered, if the appellant had respected its obligation to notify the seller, further non-conforming deliveries, which the appellant knew would take place, could possibly have been prevented. The obligation to notify enshrined in article 39 CISG aims to prevent all difficulties, regardless of whether these problems have in fact manifested themselves. Finally, in determining the reasonableness of the period during which the appellant was entitled to notify, the Court observed that the appellant was a professional and -- in light of the amount of damages claimed -- not a small undertaking.

The appellant did not argue that the defendant was or should have been aware of the non-conformity, something which could prevent the seller from invoking article 39 CISG. The buyer also did not object that it was reasonably excused for not having respected its obligation to notify, in which event it could have been entitled to claim price reduction and damages according to article 44 CISG. The appellant, however, argued that since the parties had attempted to arrive at a settlement and the defendant had not invoked the appellant's failure to comply with article 39 CISG prior to the proceedings before the Court of Appeal, this invocation by the defendant violated the obligation of good faith as required by article 7 CISG. The Court decided it could not consider the appellant's claim as it was only introduced during the oral arguments and the defendant had not unequivocally agreed to its being included in the dispute. The Court of Appeals therefore confirmed the judgment of the Court of First Instance.

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Classification of issues present

APPLICATION OF CISG: Yes

APPLICABLE CISG PROVISIONS AND ISSUES

Key CISG provisions at issue: Articles 38 ; 39 [Also cited: Articles 7 ; 35 ; 40 ; 44 ]

Classification of issues using UNCITRAL classification code numbers:

38A [Buyer's obligation to examine goods: time for examining goods];

39A2 [Requirement to notify seller of lack of conformity: buyer must notify seller within reasonable time]

Descriptors: Examination of goods ; Lack of conformity notice, timeliness

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Editorial remarks

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Citations to other abstracts, case texts and commentaries

CITATIONS TO OTHER ABSTRACTS OF DECISION

English: Unilex database <http://www.unilex.info/case.cfm?pid=1&do=case&id=1151&step=Abstract>

CITATIONS TO TEXT OF DECISION

Original language (Dutch): Website of the Dutch courts <http://www.rechtspraak.nl/>; Unilex database <http://www.unilex.info/case.cfm?pid=1&do=case&id=1151&step=FullText>

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

Court of Appeal (Gerechtshof) Arnhem

18 July 2006 [2005/1005; LJN: AY5784]

Translation [*] by Thorsten Tepasse [**]

Company [...] [hereafter referred to as Buyer], with its seat in ..., and [Second-named Buyer], living in ..., and B.V. [*] ... [Third-named Buyer], with seat in ..., Plaintiffs-Appellants, represented by Mr. J.H. van Vliet versus Company under German law [...] [hereafter referred to as Seller], with its seat in ... (Germany), Defendant-Appellee, represented by Mr. J.M. Bosnak.

1. The proceeding in first instance

For issues concerning the first instance proceeding, the Court refers to the decisions of 17 March 2004, 26 May 2004, 8 December 2004 and 15 June 2005 which the Rechtbank Arnhem handed down in the dispute between the [Buyer]s (hereafter together referred to as [Buyer]) and the [Seller]. A copy of the judgments of 8 December 2004 and 15 June 2005 is attached to this decision.

2. The appellate procedure

      2.1 [Buyer] announced appeal of the decisions of 8 December 2004 and 15 June 2005 by official document sent to [Seller] on 14 September 2005 and the summoning of [Seller] before this Court pursuant to Art. 10 of the "Council Regulation (EC) No. 1348/2000 of 29 May 2000 on the Service in Member States of Judicial and Extrajudicial Documents in Civil and Commercial Matters." The receipt of the letter by [Seller] was at the latest on 23 September 2005.

      2.2 In its written memorandum, [Buyer] has forwarded three reasons to challenge the judgments in the first proceeding and requests the Court to:

      -    Declare the former decisions null and void; and
      -    Enter a new decision enforceable upon providing security;
      -    Order [Seller] to pay [Buyer] a compensation of damages in the amount of 544,635.00 EURO plus judicial interest since 5 June 2003; and
      -    Order [Seller] to bear the costs of both (first instance and appellate) procedures.

      2.3 In its responding memorandum, [Seller] challenged [Buyer]'s argument, offered evidence and asked for confirmation of the judgment of 15 June 2005, if possible enforceable upon providing security and thus to order [Buyer] to bear the costs of the appellate proceeding.

      2.4 In the hearing of 17 May 2006, both parties pleaded their cases. [Buyer] was represented by Mr. F.W. van Dijk (lawyer from Wageningen) and [Seller] was represented by Mr. W.P. Wijers and Mr. J.P.D. van de Klift (lawyers from Amsterdam). Both parties also forwarded a written pleading in this trial.

      2.5 In the following, both parties forwarded evidence to support their positions.

3. Reasoning of appeal

The Court refers to [Buyer]'s memorandum for the content of the three reasons brought forward to support the appeal.

4. The facts laid down

The Court of First Instance has found the facts of the case as provided in the judgment of 8 December 2004 under paras. 1.1 - 1.11. Since those facts were not challenged in the memoranda, the Court will lay down these facts in this proceeding.

5. The reasons for this decision

      5.1 The case is as follows: [Buyer] manages a company that specializes in planting and producing conifers. On 21 November 2001, [Buyer] and [Seller] had contact concerning the delivery of a mixture of potting soil composed by [Buyer] containing, among other ingredients, clay Baraklei. [Seller] thereafter forwarded an offer to [Second-named Buyer] by fax for a mixture of potting soil priced at 49.00 EURO [*] per m. It stated that the mixture would contain "3% clay Baraklei (fine)". [Buyer] did not accept this offer. [Seller] sent another offer by fax to [Second-named Buyer] on 12 April 2002; this time, the price was 41.74 EURO per m. This offer contained a provision stating that the mixture of potting soil would contain "40 kg clay Baraklei per m". [Buyer] accepted this offer. On 17 May 2002, [Seller] delivered the first 69.70 m of potting soil to [Buyer]'s location. The delivery note signed by [Second-named Buyer] declares that the delivered soil contained "3% clay Baraklei (fine)". During the period from 22 May 2002 until 1 June 2002, [Buyer] was supplied with six deliveries of potting soil, approx. 80 m each. All delivery notes forwarded with the supplies stated, that the soil contained "3% clay Baraklei (fine)". On 1 July 2002, [Buyer] contacted [A.], one of [Seller]'s representatives, to complain that the potting soil delivered by [Seller] would cause problems for the conifers' growth (growth impairments, brown needles and dying off tops of the plants). [Buyer] alleges that the soil that was delivered was not in compliance with the soil as contracted for (40 kg clay Baraklei per m) and requests for this reason compensation for damages due to ruination of the conifers planted on that soil. [Seller] disputes the claim.

      5.2 The Court of First Instance ruled that this dispute has to be decided in accordance with the CISG and that [Buyer]'s claim has to be rejected, since [Buyer] did not - in short - give notice to [Seller] about the goods' lack of conformity within a reasonable time (i.e., the [Buyer]'s complaint should have taken place a short time after 17 May 2002) in the sense of Art. 39(1) CISG. [Buyer] challenges this ruling in the appeal.

      5.3 This Court concludes that the Court of First Instance rightfully held (and the parties did not contest), that the Vienna Convention on the International Sale of Goods of 11 April 1980 (CISG) is applicable to the instant case.

      5.4 Art. 35(1) CISG provides that the seller must deliver the goods in compliance with the description required by the contract. The parties agreed (by [Buyer]'s acceptance of [Seller]'s offer of 12 April 2002), that the mixture of potting soil should contain "40 kg clay Baraklei per m". The bill of receipt states that the first delivery included "3% clay Baraklei (fine)". Thus, it is a fact that the delivered goods (the potting soil) were from the beginning not in compliance with the description laid down in the contract, unless [Buyer] thought or had to draw the conclusion that "3% clay Baraklei" is equal to "40 kg clay Baraklei" (per m). [Seller] disputed this.

      5.5 If [Buyer] did not think or must not have thought, that "3% clay Baraklei" is equal to "40 kg clay Baraklei" (per m), [Buyer] knew or must have known since the day of the first delivery (17 May 2002), as it signed the bill of receipt, that there was a departure from the contract. Hence, it was [Buyer]'s duty to inform [Seller] of the difference in the description of that which was agreed upon and that which was in fact delivered a few days after receipt, otherwise, it would have lost its right as a buyer to rely on a lack of conformity of the goods pursuant to Art. 39(1) CISG.

      5.6 A reasonable time for [Buyer] to rely on the non-conformity would have been on or shortly after the day the division between the written contract and the goods delivered became or must have become apparent and not one and a half months later on 1 July 2002. [Buyer] knew or could have known that there was a difference between the goods contracted for and the goods actually delivered on the day it received the first receipt of delivery (which it signed): 17 May 2002. For the beginning of the time limit for relying on lack of conformity (Art. 39 CISG), it is not necessary, as [Buyer] wrongfully stated ([Buyer]'s Memorandum, para. 9), that [Buyer] knew or could have known, that the recognized division led to or could have led to the damage occurred. Merely the knowledge of or possibility to know of the non-conformity of the goods delivered is sufficient to let the time limit for a complaint begin. [Buyer] was not, as it wrongly alleges ([Buyer]'s Memorandum, p. 12 para. 4), entitled to wait to ascertain whether the difference between "3% clay Baraklei" and "40 kg clay Baraklei" would in practice lead to complications. The duty to give notice of lack of conformity is also not excluded, as [Buyer] alleges ([Buyer]'s memorandum, para. 4) and [Seller] challenges, due to the fact, that [Seller] delivered potting soil which contained less Baraklei than contracted for. The difference [Buyer] detected between the amount of Baraklei contracted for and the actual amount of Baraklei delivered was alone sufficient to give reason for [Buyer] to provide notice of lack of conformity.

      5.7 When determining the reasonable time for relying on the lack of conformity, it is of high relevance, that [Seller] processes the potting soil usually right after delivery (see memoranda). This very fact complicates the reasoning for and against development of the defect and its causality for the problems and compels [Buyer] to complain rapidly. [Buyer] put forward, that it gave [Seller] the possibility to examine the potting soil, to form an opinion regarding the justification of the complaint and to gather evidence, but [Buyer] did not argue, that it gave the possibility on the relevant moment: on or shortly after 17 May 2002 (the day the first delivery arrived). [Buyer] evidently states that it did so on 1 July 2002, the moment when the problems of the conifers' growth became apparent (see also [Buyer]'s memorandum, para. 12). The Court lays down, that, even when abiding by the duty to rely on the non-conformity, further wrong deliveries, which [Buyer] was aware of, could have taken place. Namely, [Buyer] did not submit that [Seller] would probably not have changed the mixture of the potting soil if [Buyer] had forwarded the notice, that there was potentially a difference between the soil contracted for and the soil delivered in time (on or shortly after 17 May 2002). Just as little [Buyer] brought forward, that [Seller] told [Buyer] after notice of defects, that 3% Baraklei would be the same as 40 kg Baraklei per m. The raison d'être of Art. 39 CISG is to prevent further typical difficulties (problems regarding proving the claim, further measures in the view of upcoming deliveries) from materializing. It is not relevant, if difficulties already occurred. When determining a reasonable time for notice of defects, it is finally relevant, that [Buyer] is a professional and - facing the amount of compensation requested - a large scale manufacturer.

      5.8 The burden of proof that a buyer relied on non-conformity of the goods in due time and form is on the buyer.

      5.9 [Buyer] argued that it had problems with the conifers' growth (growth impairments, brown needles and dying off tops of the plants) during 1998 and 2000, too. It detected that the reason for those problems was an unfit composition of the potting soil and it further found that "especially the proportion of Baraklei in the potting soil ... is of resounding importance". In experiments, [Buyer] discovered that a proportion of 40 kg Baraklei per m could hinder impairments in the growth. Also, plant breeder Potplanten Cultures B.V.[*] registered good experiences with this proportion in 2000 and 2001; and this proportion was recommended during a symposium on 20 November 2001. For these reasons, [Buyer] decided in 2002 to only use potting soils which consisted of "at least 40 kg Baraklei per m". Moreover, [Buyer] had requested offers of two suppliers other than [Seller] and made clear that it requested of all three firms to "enrich the potting soil with at least 40 kg Baraklei per m".

      5.10 On 22 November 2001, [Buyer] received the first offer by [Seller], including (among other provisions), the statement that [Seller] could deliver potting soil with 3% Baraklei. [Buyer] replied (see first claim, para. 15), that it was not comfortable with that percentage of Baraklei. Thus, this was a major topic in the negotiations between the parties in the period between 22 November 2001 and 11 April 2002. The amount of Baraklei was discussed in detail and [Buyer] again made clear that the proportion was of "resounding importance". [Seller]'s offer that was sent to [Buyer] on 12 April 2002 stated that, due to [Buyer]'s wish, the potting soil would contain (among other ingredients) 40 kg Baraklei per m. During the oral proceedings, the [Second-named Buyer] stated:

"At the request of [Seller]'s representative [A.], [Seller] forwarded the first offer on 22 November 2001. It contained a proportion of 3% Baraklei. Because of this offer. I asked [A.] to request another offer on the basis of 40 kg Baraklei per m. A percentage is a percentage by volume and that can be something completely different than kilos. I wanted to avoid any misapprehension."

      5.11 In view of the developments described under 5.9 and 5.10, from the formation of the contract until the order of 12 April 2002, which foresaw delivery of potting soil with 40 kg Baraklei per m, it becomes clear that this weight per m was such an important factor that it caused [Buyer] to change [Seller]'s original offer which provided for 3% Baraklei per m. [Buyer] asked explicitly for an offer containing 40 kg Baraklei per m. This leads to the result, that [Buyer] could not draw the conclusion that 3% Baraklei is equal to 40 kg Baraklei per m. [Second-named Buyer] declared that expressly in the oral proceeding: A percentage is a percentage by volume and that can be something completely different than kilos; he wanted to avoid any misapprehension in the offer by putting in the expression "40 kg Baraklei per m" instead of "3% Baraklei per m". This goes with the fact, that the components of the potting soil (besides 'Baltischer Weisstorf 10-22 mm, '50 g Spurenelemente' en '2 kg Osmocote Low Start 8-9 M') differed between the offer of 12 April 2002 (in brackets) and 22 November 2001 (without brackets): 30% Irischer Weisstorf 5-25 mm (30% Iers 0-25), 30% Baltischer Weistorff 0-40 mm (33% Baltisch 0-35), 7% Cocopor (4% Cocopor) en 2 kg Osmocote 8-9 Exact Standard (-). This difference can certainly not lead to the result, that 3% Baraklei is the same as 40 kg Baraklei per m.

      5.12 Moreover, the Court has found, that it was not proven that [Seller] told [Buyer] before 17 May 2002, that 3% is equal to 40 kg Baraklei per m. This question arose during the testimony of witnesses (and also in [Buyer]'s memorandum, para. 5). Only [A.] stated that such notice was given between the two offers (22 November 2001 and 12 April 2002). All other witnesses testified that the relevant notice was given by or in the name of [Seller] on 17 May 2002. [Buyer] did not put forward any evidence on this issue in the appeal. To support its position, the Court refers to the following testimony:

            5.12.1 [Second-named Buyer] declared during the oral proceedings: "When the first delivery had arrived and was unloaded and I saw that the bill of receipt did not contain 40 kg but 3% Baraklei. I phoned [A.] and called this to [A.]'s attention." [Second-named Buyer] bore testimony to this declaration.

            5.12.2 [B.], administrator of [Third-named Buyer], stated as a witness that [Second-named Buyer] showed him a bill of receipt on 18 May 2002 and that he promptly recognized that it contained 3% Baraklei instead of 40 kg Baraklei per m. Moreover he declared, that [Buyer] told him that it had called [A.] one day before and that [A.] said that 3% would be equal to 40 kg.

            5.12.3 [C.], a department manager working for [Buyer], declared as a witness, that one of [Buyer]'s employees came to him with the bill of receipt and told him that the bill set forth 3%. [C.] could not explain that figure, whereas the employee left for a telephone call to clarify the situation. Some time later, he came back and announced that [Buyer] was told that 3% was equal to 40 kg per m.

            5.12.4 [A.], [Seller]'s representative, declared as a witness that the offer of 22 November 2001 contained 3% and that [Buyer] explicitly asked for 40 kg Baraklei per m. [A.] then called [Seller]'s branch in Germany and he was told that 3% would be approximately the same as 40 kg Baraklei per m. [A.] discussed that with [Buyer] and an offer on the basis of 40 kg was sent on 12 April 2002.

      5.13 As an intermediary result, [Buyer] knew or could have known since the first delivery that 3% is not equal to 40 kg Baraklei per m. As elaborated above, from this difference [Buyer]'s duty evolved to contact - a representative of - [Seller] on or a few days after the first delivery of potting soil to inform it, that the bill of receipt mentioned 3 % Baraklei while the contract called for 40 kg Baraklei per m. As laid down - see para. 5.15 - [Buyer] did not do so.

      5.14 This leads to the issue whether [Buyer] notified [Seller] or its representative [A.] of the lack of conformity of the goods on or shortly after 17 May 2002, i.e., that the bill of receipt announced a different mixture of the potting soil. The Court of First Instance ruled, after hearing of witnesses, that [Buyer] did not prove that important fact. The argument [Buyer] puts forward in its memorandum, cannot, in the opinion of this Court and [Seller] (see responding memorandum, para. 18), override the consideration of evidence by the Court of First Instance.

It is thus a fact that [A.] did not declare to [Buyer] on 17 May 2002 that 3% Baraklei is the same as 40 kg Baraklei per m. In its memorandum, [Buyer] argues only, that it must be presumed due to the testimony of witnesses, that [Buyer] thought at the moment of the first delivery that 3% Baraklei was equal to 40 kg Baraklei per m (see [Buyer]'s memorandum pp. 9-10, paras. 5-8). The Court has not accepted this reasoning under 5.12.

      5.15 [Buyer] did not put forward, that [Seller] knew or could have known the defectiveness (Art. 40 CISG), which could prevent [Seller] from relying on Art. 39 CISG. Further, [Buyer] did not submit that it had a reasonable excuse for not giving notice of the lack of conformity, in which event it could have had a right to a reduction of price or compensation of damages (except for loss of profit) pursuant to Art. 44 CISG.

      5.16 [Buyer] further put forward that the parties only now discussed a settlement and that [Seller] did not rely on a violation of Art. 39 CISG in earlier proceedings. This would contravene the principle of good faith, evolving from Art. 7 CISG. The Court holds, that this demur is a new issue and that [Seller] - as far as important - did not explicitly agree to incorporate it in this proceeding at this point of time. This fact alone leads to rejection of [Buyer]'s objection.

      5.17 As a result of the above reasoning, the argument brought forward in appeal fails or does not have to be discussed anymore.

6. Conclusion

The reasons brought forward fail. The challenged decisions have to be affirmed. [Buyer] bears the costs, since it lost this appeal.

7. The decision

The Court hands down the following decision in the appellate proceeding:

   -    Confirms the challenged judgments of the Court of First Instance Rechtbank Arnhem of 8 December 2004 and 15 June 2005;
 
   -    Orders the [Buyer] to pay the costs for the appeal, on part of [Seller] 5,731.00 EURO expenses and 11,685.00 EURO attorney's fee;
 
   -    Declares the decision on the costs enforceable upon providing security.

This judgment handed down by judges Tjittes, Strens-Meulemeester and Steenberghe in presence of the recording clerk in a public proceeding on 18 July 2006.


FOOTNOTES

* For purposes of this translation, Plaintiffs-Appellants of Germany are referred to as [Buyer]; Defendant-Appellee of the Netherlands is referred to as [Seller]. Amounts in European currency are indicated as [EURO].

Translator's note on other abbreviations: B.V. = Besloten Vennootschap [Limited liability company under Dutch 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.

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