Italy 30 July 2007 Milan Arbitration proceeding (Machinery case)
[Cite as: http://cisgw3.law.pace.edu/cases/070730i3.html]
DATE OF DECISION:
CASE NUMBER/DOCKET NUMBER: Unavailable
CASE HISTORY: Unavailable
SELLER'S COUNTRY: Italy
BUYER'S COUNTRY: Ukraine
GOODS INVOLVED: Machinery
ITALY: Chamber of National and International Arbitration of Milan 30 July 2007
Case law on UNCITRAL texts [A/CN.9/SER.C/ABSTRACTS/123]
CLOUT abstract no. 1190
Reproduced with permission of UNCITRAL
Abstract prepared by Maria Chiara Malaguti, National Correspondent, and Valentina Renna
In 2002, a Ukrainian and an Italian company entered into a purchase agreement whereby the former was to buy a machinery manufactured by a German firm but overhauled and sold by the Italian company. Soon after the conclusion of the agreement divergences concerning its performance arose between the parties: delivery, installation and operation of the machinery turned to be very problematic.
The buyer complained about the delayed delivery and installation of the machinery, its non-compliance with the technical and quality standards agreed by the parties as well as its running defects.
The contract contained an arbitration clause referring to the Rules of the Chamber of National and International Arbitration of Milan and providing for the application of private international law, including the CISG.
The buyer thus initiated arbitration in August 2005 under the auspices of the Milan Chamber. It declared the agreement avoided for fundamental breach of the seller, thus it claimed reimbursement of the purchase price and compensation for damages due to the seller’s failure to comply with the agreed obligations, also considering that it did not provide any technical assistance.
The seller objected to all these claims; besides, it counterclaimed the reimbursement of a bank guarantee assuming its illegitimate collection by the buyer.
The Arbitral Tribunal applied the CISG to the case in compliance with the parties’ intention.
The arbitrators, also on the basis of the documentary evidences provided by both parties, found the buyer’s assumptions well grounded. The Arbitral Tribunal stated that a breach of contract actually occurred since at least for one year the buyer could not rely on the performance it was entitled to.
The seller assumed several obligations, particularly concerning the quality of the machinery, its complete overhaul, a final test to be carried out, providing also for the proper installation of the machinery. But it did not perform them in the right way or even at all: the alleged obstacles to the performance could actually be easily resolved. Under the arbitrators’ reasoning, the seller got to consider somehow burdensome the agreement and it did not want to perform this any longer.
Moreover, the objections raised by the seller were not sustainable as some of them were based on Italian law (Articles 1491 and 1495 of the Italian Civil Code), which was not applicable to the case, while others — referring to the CISG (Articles 38, 39 and 40) — were groundless.
Nonetheless, in the view of the Arbitral Tribunal, the failure to perform was not fundamental (Art. 25 CISG), though serious; thus it could not lead to a declaration of avoidance of the contract.
First, the buyer itself acknowledged that the machinery could operate to a certain extent; secondly, a long period of time elapsed before the arbitration was initiated (not a reasonable time, pursuant to Art. 49 CISG); finally, if the buyer really intended to avoid the contract it should have returned the machinery to the seller instead of still operating it and making profit out of it.
As for the buyer’s alternative claim, concerning a reduction of price on account of the defects (Art. 50 CISG), the Arbitral Tribunal stated it was grounded and assessed it together with the suffered damages (reducing the sum that the buyer had claimed). In its decision, the Tribunal took into consideration a technical report on the condition of the machinery (submitted in the proceedings) with an estimate of costs for its repair as well as other costs borne by the buyer. The Arbitral Tribunal denied the seller’s counterclaim.Go to Case Table of Contents
APPLICATION OF CISG: Yes
APPLICABLE CISG PROVISIONS AND ISSUES
Key CISG provisions at issue:
Classification of issues using UNCITRAL classification code numbers:
25A1 [Avoidance of contract (see arts. 49(1)(a) and 64(1)(a))]; 49A [Grounds for avoidance]; 50A [Buyer's right to reduce price for non-conforming goods (see art. 35)]
25A1 [Avoidance of contract (see arts. 49(1)(a) and 64(1)(a))];
49A [Grounds for avoidance];
50A [Buyer's right to reduce price for non-conforming goods (see art. 35)]
CITATIONS TO OTHER ABSTRACTS OF DECISION
CITATIONS TO TEXT OF DECISION
Original language (Italian): Unavailable
CITATIONS TO COMMENTS ON DECISION
UnavailableGo to Case Table of Contents