Switzerland 30 August 2007 District Court Zug (GMS modules case) [translation available]
[Cite as: http://cisgw3.law.pace.edu/cases/070830s1.html]
DATE OF DECISION:
CASE NUMBER/DOCKET NUMBER: A3 2006 79
CASE HISTORY: Unavailable
SELLER'S COUNTRY: France
BUYER'S COUNTRY: Switzerland
GOODS INVOLVED: GMS Modules
SWITZERLAND: Cantonal Court of the Canton of Zug, 30 August 2007 (GMS modules case)
Case law on UNCITRAL texts [A/CN.9/SER.C/ABSTRACTS/93],
CLOUT abstract no. 938
Reproduced with permission of UNCITRAL
Abstract prepared by Thomas M. Mayer
The case under consideration concerned proceedings brought by a French firm in the electronics sector against a firm, based in Zug, operating in the same sector. The subject of the dispute was the plaintiff's claim for payment of the sale price in respect of an order for 5,000 GSM modules and other items. For its part, the defendant alleged defects in the modules, namely that they produced echoes and their sound volume was not adjustable.
The court deliberated at length on the contents of notice of a lack of conformity, in accordance with article 39 (1) CISG, and the admissible period for giving such notice, but concluded that the defendant had in any event failed to demonstrate that the defects had been reported and thus it could not rely on the lack of conformity of the goods.
As further justification, the court affirmed that the defendant could declare the contract avoided only if there was a fundamental breach of contract within the meaning of article 25 CISG. For such a breach to exist, it was not sufficient that the defect could not be remedied. Avoidance of the contract was admissible only insofar as any other use of the goods, which was consistent with normal business practice and linked to a reduction of the price, proved impossible or could not reasonably be demanded. That was not so in the present case, since the defendant could incorporate the modules in a simpler item of equipment without any adjustment of the sound volume.
Also, the defendant was unable to prove that it had made a declaration of avoidance within the meaning of article 26 CISG. The facts did not reveal any declaration by the defendant to the effect that it was no longer willing to perform the contract owing to a breach of contract.
Finally, the defendant had to pay the full sale price still outstanding. The defendant was not allowed any deduction of damages by way of set-off, since the defendant had not sufficiently detailed the alleged loss.
The court granted the plaintiff interest on arrears, computed from the due date of payment of the amount claimed, pursuant to article 78 CISG. In line with the prevailing opinion of the Swiss courts, the rate of interest was fixed pursuant to national law as determined by Swiss private international law, in the present case French law.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:
25B [Definition of fundamental breach]; 26A [Notification of avoidance: effective declaration of avoidance]; 35A [Conformity of goods: quality, quantity and description required by contract]; 39A11 ; 39A2 [Requirement to notify seller of lack of conformity: buyer must notify seller in reasonable time; Degree of specificity required]; 49A ; 49B [Buyer's right to avoid contract; Buyer's loss of right to declare avoidance after delivery: failure to avoid within period specified in art. 49(1)(a) and (b)]; 50A [Buyer's right to reduce price for non-conforming goods]; 78A [Interest on delay in receiving price or any other sum in arrears]
25B [Definition of fundamental breach];
26A [Notification of avoidance: effective declaration of avoidance];
35A [Conformity of goods: quality, quantity and description required by contract];
39A11 ; 39A2 [Requirement to notify seller of lack of conformity: buyer must notify seller in reasonable time; Degree of specificity required];
49A ; 49B [Buyer's right to avoid contract; Buyer's loss of right to declare avoidance after delivery: failure to avoid within period specified in art. 49(1)(a) and (b)];
50A [Buyer's right to reduce price for non-conforming goods];
78A [Interest on delay in receiving price or any other sum in arrears]
CITATIONS TO OTHER ABSTRACTS OF DECISION
CITATIONS TO TEXT OF DECISION
Original language (German): CISG-online.ch website <http://www.globalsaleslaw.com/content/api/cisg/urteile/1722.pdf>; SZIER (2008) 187-192
Translation (English): Text presented below
CITATIONS TO COMMENTS ON DECISION
UnavailableGo to Case Table of Contents
Queen Mary Case Translation Programme
30 August 2007 [A3.2006.79]
Translation [*] by Jan Henning Berg [**]
Edited by Institut für ausländisches und internationales
Privat- und Wirtschaftsrecht der Universität Heidelberg
Daniel Nagel, editor [***]
LEGAL MOTION OF [SELLER]
REQUESTS OF [BUYER] IN DEFENSE
By e-mail of 30 August 2004 ([Seller]'s exhibit 4), the former subsidiary of [Buyer] (domiciled in Neuhausen am Rheinfall, Switzerland; cf. [Seller]'s exhibit 22) ordered from [Seller] (domiciled in Paris) 7,000 GSM modules "MO110d" at a price of EUR 41 per module.
|-||2,000 modules were to be delivered by 3 September 2004 and the remaining 5,000 modules
were to be delivered by 17 September 2004.
|-||According to [Seller]'s undisputed submission, these modules constitute electronic cards which contain certain components and software applications and which are used as an integrated part in devices for the transmission and reception of data by wireless communication.|
On 15 September 2004, [Buyer]'s subsidiary once again contacted [Seller] concerning another order of 4,000 "Pin Female MO110d" at a price of EUR 0.80 per item ([Seller]'s exhibit 7). 2,000 modules were delivered directly to [Buyer]'s subsidiary. Upon [Buyer]'s request, the remaining 5,000 modules were shipped by air freight to Mobiltech Ltd. in Hong Kong on 25 September 2004 ([Seller]'s exhibit 8).
By letter dated 22 September 2004, [Seller] invoiced against [Buyer]'s subsidiary the sum of EUR 205,000 with respect to the 5,000 modules which had been shipped to Hong Kong as well as EUR 3,200 for 4,000 items "Pin Female MO110d", thus constituting a total sum of EUR 208,200 ([Seller]'s exhibit 9).
After [Seller] had reminded [Buyer]'s subsidiary by e-mail of 28 September 2004 to pay EUR 82,000 for the delivery of the first consignment of 2,000 modules by 30 September 2004, [Buyer]'s subsidiary informed [Seller] on the same day that it would not be able to comply with this time limit due to the fact that some of its more important customers were in arrears, as well ([Seller]'s exhibit 10).
In its subsequent e-mail of 14 October 2004, [Seller] reminded [Buyer]'s subsidiary again to pay the first installment of EUR 82,000, especially with reference to the fact that the second installment of EUR 208,200 would become mature by 22 October 2004 ([Seller]'s exhibit 13).
In its response of 15 October 2004, [Buyer]'s subsidiary declared that it would be able to perform the respective payments only as soon as it was able to deliver its mobile phones to Vodafone, which -- in turn -- depended on [Seller]'s assistance concerning the selection of the correct hardware and on [Seller]'s offer of a software for "audi-tuning" ([Seller]'s exhibit 14). In the course of further correspondence, [Seller] continued to urge [Buyer]'s subsidiary to settle its claims.
Thereupon, the latter presented a payment schedule, which provided for payment of all unsettled claims by 15 February 2005 ([Seller]'s exhibit 14 and 15). [Buyer] failed to comply with this payment schedule. [Seller] requested enforcement of its claim for Sfr. 317,331, whereupon [Buyer] filed an objection on 6 October 2005 ([Seller]'s exhibit 17). By letter dated 10 October 2005, [Buyer] justified its objection and alleged that the modules delivered by [Seller] could not be (properly) used with the newly produced software applications ([Seller]'s exhibit 19).
POSITION OF THE PARTIES
Position of [Seller]
[Seller] filed an action before the District Court (Kantonsgericht) Zug on 26 September 2006 and made the legal applications mentioned above. It initially claimed the sum of EUR 203,600, which corresponded to Sfr. 317,331 and thus to the amount in which respect the objection had been filed before the Office for the Enforcement of Payment Claims in Cham (objection no. 2052050). [Seller] justifies its claim as follows:
|-||[Buyer] -- represented by its CEO and Administrative President Mr. Gerhard Pütter and by Mr. Petzold of the Development Department -- had signed an "Acceptance Document
Customer" with respect to the former version of module MO110d on 26 November 2003
and another one with respect to the current version of the module on 25 June 2004. These
documents confirmed that the customer would accept the product (device and software)
after testing procedures in the current configuration.
|-||Subsequently, [Seller] had solely delivered such modules to [Buyer]'s subsidiary which had undergone the testing procedures according to the abovementioned declaration and which it
had apparently considered appropriate for its purposes. [Seller] had therefore been
surprised by [Buyer]'s demand for an implementation of certain modifications with respect to
the modules in its e-mail of 15 October 2004 and by [Buyer]'s further demand for assistance
in implementing such modifications. Apparently, [Buyer] had merely sought to use its
inconsistent conduct in order to prevent the legal enforcement of the payment by [Seller].
|-||The modules in question would be distributed by a large number of different customers without any problems. It was for each individual buyer to adapt the code of its software application to the module and not vice versa. [Buyer] -- who had initially used a different module -- had been aware of the fact that it would have to adapt the code of its application in order to use the module which it purchased from [Seller].|
[Buyer] would be liable to pay the purchase price for the goods which had been delivered by [Seller] in accordance with the contract.
Position of [Buyer]
In its statement of defense of 30 November 2006, [Buyer] requested the Court to dismiss [Seller]'s action and to order [Seller] to pay all costs of the proceedings. At the same time, [Buyer] requested the Court to order [Seller] to take back the 5,000 modules which had been delivered to Hong Kong. In eventu, namely if the Court should allow [Seller]'s action (in part), [Buyer] has requested the Court to be granted an appropriate time limit in order to specify the exact damage which it incurred as a consequence of [Seller]'s deliveries. In the alternative, [Buyer] has also requested the Court to dismiss [Seller]'s action concerning any claim in excess of EUR 195,400. [Buyer] justifies its requests as follows:
|-||[Seller] would conceal the fact that it had already delivered 5,000 modules to [Buyer] from 2003 until June 2004. These modules had contained a number of different defects, e.g., they
had not allowed stable audio playback. [Seller] had remedied the perceptible defects until
June 2004, which was the reason why [Buyer] signed the "Acceptance Document
Customer". It would be absurd to argue that the signing of this declaration constituted an
anticipated confirmation that future deliveries would be without any lack of conformity.
|-||The first 2,000 of all modules delivered on 30 August 2004 had been immediately tested by
[Buyer]. As these modules had as well been defective, [Buyer] had immediately notified
[Seller] of the defects. After a series of telephone calls, [Buyer] had confirmed this
notification in writing on 22 September 2004. On 4 October 2004, Mr. Gerhard Pütter and
Mr. Pysniak had visited the [Seller] in order to remedy the defects by way of a joint testing
procedure. [Buyer] would have been burdened with additional costs of Sfr. 43,000 for the
purchase of a testing device. Hence, it refrained from purchasing it.
|-||Thereupon, [Buyer] had also tested some of the modules which had been delivered to Hong
Kong and determined that they were defective as well. The software installed onto the
modules did not work in a stable manner. Moreover, the modules would not allow the user
to adjust the volume, which -- instead -- was preset by the software, despite [Seller]'s
express statement that the speaker volume could in fact be adjusted. Although the modules
were useless for [Buyer], [Seller] had firmly denied the possibility to return the modules.
|-||[Buyer] had installed 2,000 of the modules into another device without volume adjustment.
However, this had forced [Buyer] to apply a price reduction of EUR 34 per device. With
respect to the modules delivered before June 2004, [Buyer] had been forced to offer its
customers a recall and to install the modules of a competing manufacturer.
|-||Furthermore, [Seller] had claimed an excessive amount, because it had failed to consider two payments by [Buyer] of EUR 4,100 each.|
Additional submissions and case history
By letter of 6 December 2006, the officer of the District Court (Kantonsgericht) Zug asked [Buyer] whether it wanted to file a counterclaim. In that case, the value of the dispute would have to be determined in order to allow the Court to determine the advance on costs. By submission of 15 December 2006, [Buyer] refrained from the filing of a counterclaim.
In its counterplea of 5 March 2007, [Seller] declared to stick to its requests and made additional submissions as follows:
|-||[Seller] distributed its modules exclusively among professional customers. Among all
available products, these customers chose a certain module in accordance with their technical
and functional specifications. In this context, [Seller] offered an "evaluation kit", which
contained all devices necessary in order to evaluate the functionality. After this evaluation of
functionality, the customer would decide whether it intended to commence development on
the basis of the module so chosen and, if applicable, confirm its acceptance of the module
using the "Software Acceptance" contained in the "Acceptance Document Customer". This
procedure corresponded to an official acceptance.
|-||With respect to the integration of the ordered module into the respective final product, each customer would have to develop its own software and hardware. The development process
led to the production of an operational prototype. [Buyer]'s argument that its acceptance
would not be relevant for future deliveries was absolutely incorrect. There was no instability
of the software installed onto the modules. Contrary to [Buyer]'s argument, the e-mail of 22
September 2004 did not constitute any confirmation of a previous notification of a lack of
|-||This e-mail merely indicated [Seller]'s willingness to assist [Buyer] in the course of the
development of hardware and software for the integration of the module into the final
product, which however was [Buyer]'s own responsibility. The module itself was not
responsible for the problems set out by [Buyer]. Therefore, [Seller] had not offered [Buyer]
a device for the testing of the modules for Sfr. 43,000, but rather a testing device which
could be used to test mobile phones after production in respect to their conformity with the
GSM standard in terms of audio.
|-||Moreover, audio problems might be caused by a number of factors. [Buyer] had not relied on any lack of conformity of the delivered modules before [Seller] had authorized a debt collecting agency. [Buyer] had merely submitted commercial reasons for its non-payment of the invoices.|
[Buyer] let the time limit for the submission of another rejoinder elapse. Its request for a time extension of 10 April 2007 was submitted too late.
In the oral hearing of 3 May 2007, [Seller] modified its legal motion (see above for the modified motion). [Buyer] has reiterated its requests for dismissal of the action and for an order against [Seller] to take back the 5,000 modules. Where necessary, the following reasoning makes reference to the arguments submitted by the parties before the Court.
REASONING OF THE COURT
1. The parties have their places of business in different Contracting States of the Lugano Convention (SR [*] 0.275.11). The territorial jurisdiction of the petitioned Court must be determined primarily according to this international treaty. However, Art. 2(1) Lugano Convention solely provides for an international jurisdiction of the courts of Switzerland. The application of Art. 2 IPRG [*] establishes territorial jurisdiction of the District Court (Kantonsgericht) Zug.
Since this dispute has an international dimension, the Swiss Federal Statute on the Conflict of Laws (IPRG, SR 291) would in general be the relevant body of law to determine the applicable substantive law. Art. 1(2) IPRG, however, contains a reservation with respect to international treaties. According to Art. 1(1)(a) United Nations Convention on Contracts for the International Sale of Goods of 11 April 1980 (CISG, SR 0.221.211.1), this Convention applies to contracts of sale of goods between parties whose places of business are in different Contracting States. Both Switzerland and France are Contracting States, to the effect that the present action must be assessed according to the CISG.
[Purchase price claim]
2. The present action deals with a purchase price claim asserted by [Seller] arising out of an order of 30 August 2004 concerning 5,000 GSM modules "MO110d" at a price of EUR 41 per module ([Seller]'s exhibit 4). Furthermore, the action deals with another order of 15 September 2004 of 4,000 items "Pin Female MO110d" at a price of EUR 0.80 each ([Seller]'s exhibit 7). [Buyer] does not contest that these deliveries have been performed in their entirety. However, [Buyer] does allege in its defense that the delivered modules had been defective. In particular, that there had been echoing sounds and that the volume could not be adjusted.
[Conformity of goods]
3. Pursuant to Art. 35(1) CISG, the seller must deliver goods which are of the quantity, quality and description required by the contract and which are contained or packaged in the manner required by the contract. The goods are not in conformity if they lack the characteristics agreed upon by the parties or -- in the absence of a particular agreement between the parties -- if they do not comply with the relevant objective minimum standard (Magnus, Kommentar zum UN-Kaufrecht, Berlin/Heidelberg/New York 1997, Art. 35 margin numbers 10 et seq.). The goods must be fit for all purposes for which goods of the same description would ordinarily be used by an average user (cf. Art. 35(2)(a) CISG). Moreover, the goods must be fit for any particular purpose expressly or impliedly made known to the seller at the time of the conclusion of the contract, except where the circumstances show that the buyer did not rely, or that it was unreasonable for him to rely, on the seller's skill and judgment (cf. Art. 35(2)(b) CISG). Goods must also possess the qualities of goods which the seller has held out to the buyer as a sample or model (Art. 35(2)(c) CISG).
If the seller delivers goods which are not in conformity with the contract, the buyer may (a) exercise the rights provided in Arts. 46-52 CISG and (b) claim damages as provided in Art. 74-77 CISG (cf. Art. 45(1) and (2) CISG). In order to exercise the rights provided in Arts. 46-52 CISG (avoidance of contract, reduction of the purchase price, et cetera), the buyer must examine the goods within as short a period as is possible and notify the seller of any lack of conformity within a reasonable time. The buyer loses the right to rely on a lack of conformity of the goods if he fails to give notice thereof or if he does not specify the nature of the lack of conformity (cf. Art. 39(1) CISG). The buyer remains obliged to perform all obligations under the contract, namely, to accept the goods with any defects and to pay the purchase price as a consequence therto (cf. Magnus, Art. 39 margin number 27).
In the following, the specific requirements of a sufficient notice of non-conformity must be determined and it must be assessed whether [Buyer] has properly notified the alleged defects of the modules delivered by [Seller].
3.1 The requirement that the nature of the lack of conformity be specified is intended to put the seller in a position to understand the asserted lack of conformity and to take the necessary steps to gather any required evidence for possible future legal proceedings about the question of conformity, to initiate either a substitute delivery or a repair of the goods, and finally to take recourse against its own supplier. On the other hand, the required standard for the specification of the lack of conformity must not be set too high. In order to describe the duty of the buyer, a standard of both objective and subjective elements must be applied. This standard takes the positions of both the buyer and the seller in their commercial transaction into account, any possible cultural differences as well as, in particular, the nature of the goods. Possibly, an expert can be expected to give a more specific account of a lack of conformity than a layman. Under the CISG, any general complaints ("not alright", "inadequate characteristics", "wrong delivery", "poor quality", "bad construction") as well as any general statements of dissatisfaction ("not according to our expectations") are clearly insufficient notices. The buyer will be expected to identify whether and to which extent he relies on an insufficient delivery, which specific deviations in terms of quality are complained about, and in what respect the delivered goods form a mere aliud compared with the goods owed under the contract. If the buyer has carried out an examination of the goods, he will have to inform the seller about the main results. However, in case of machinery and technical equipment, the buyer can only be expected to give an account of the symptoms but not of their respective causes. The notification does not require any specific form, so that a notification over the telephone may be appropriate. With regard to the applicable time limit, the circumstances of the individual case must be considered, including any trade usages and established practices between the parties. If the buyer wants to keep the goods and merely claim damages or claim a reduction of the purchase price, the time limit may be longer compared with a case where the buyer seeks to reject the goods. Since a variety of different opinions exists with respect to the question of a "reasonable time" throughout the Contracting States of the CISG, a rough average duration of one month should be assumed. The period commences as soon as the buyer has become aware of the lack of conformity of the goods (cf. Schlechtriem, Kommentar zum einheitlichen UN-Kaufrecht, 3rd ed., Munich 2000, Art. 39 margin number 6 et seq.).
3.2 According to [Buyer]'s own account, it immediately tested the first consignment of 2,000 out of 7,000 modules after the delivery had been performed on 31 August 2004. It should be noted that the payment of the purchase price for these modules is not a subject of the present action. [Buyer] stated that it had identified the lack of conformity of these modules prior to 22 September 2004 and that it had notified [Seller] of the defect over the telephone. Allegedly, the notification had been confirmed in writing on 22 September 2004. However, the e-mail submitted by [Buyer] of 22 September 2004 (defendant's exhibit 1) is not sufficient to prove such confirmation. Mr. Bruno Letellier (employee of [Seller]) only stated in this e-mail that he would make the relevant documents for the revision of the software available and that he would also furnish basic information for audio testing. It follows from the overall context that the "software to be revised" apparently does not refer to the software which was installed on [Seller]'s modules, but to software which was to be developed by [Buyer] itself for the purpose of integration of the module into its final product (mobile phones). For instance, this could be derived from [Buyer]'s e-mail of 15 October 2004 ([Seller]'s exhibit 14), where [Buyer] requested [Seller] to supply the necessary information for the selection of the correct hardware and to make an offer for an "audio-tuning software". This was even more apparent on the basis of [Buyer]'s letters of 22 and 25 April 2005 ([Seller]'s exhibit 24), where [Buyer] justified its non-payment with reference to the fact that there had been delays with the initial development of its software. In any event, [Seller]'s willingness to supply [Buyer] with information for a revision of its software could not constitute an admission of the defectiveness of [Seller]'s software. Even fully functional software needed to be revised from time to time, especially if it did not conform to the user's needs. However, it was obviously for [Buyer] to identify this. [Buyer] was allowed to test the modules and, subsequently, it signed a declaration according to which it accepted the software in its current configuration ([Seller]'s exhibit 6). [Seller]'s e-mail of 14 June 2004 ([Seller]'s exhibit 6) originates from the time prior to the respective evaluation phase. Despite the fact that it had not been fully resolved at the time whether the audio problems of [Buyer]'s final product had been caused by the software, [Seller]'s "audio settings" or by [Buyer]'s hardware or software, [Buyer] -- which decided to purchase the modules at a later point in time-- was not relieved from its duty to track any possible audio problems as soon as possible and to give [Seller] an account of all, including solely assumed defects.
While [Buyer] maintains that it had given an oral notice of non-conformity, it fails to provide any evidence in this regard. [Buyer] does not even submit the content of the telephone conversation with [Seller] and of the talks which had taken place in Paris. Therefore, it cannot be determined whether [Buyer] would have sufficiently substantiated any possible notice of non-conformity. In its e-mail of 15 October 2004 ([Seller]'s exhibit 14), (a timely notice was still possible by that date), [Buyer] did not even impliedly accuse [Seller] that the delivered modules did not comply with the contractual specification or that they could not be put to use. Any conceivable charge against [Seller] deals with the fact that -- contrary to its promise -- it had not furnished the required information for the enhancement of its hardware as well as the "audi-tuning software", which would be the reason why the 5,000 modules delivered to Hong Kong could not be used in the meantime. Moreover, the subsequent correspondence between the parties does not indicate that [Buyer] has held [Seller] responsible for the audio problems which occurred in its final product. Instead, the content of the e-mails dated 15 October 2004 ([Seller]'s exhibit 14) and 22 and 25 April 2005 ([Seller]'s exhibit 24) leads to the conclusion that [Buyer] had identified its own old software as the source of any problems. It is incomprehensible why [Buyer] should have kept the [Seller] waiting with its payment of the purchase price and why it should have even presented a payment schedule ([Seller]'s exhibit 15 and 23-25) if it had actually been convinced that the goods lacked conformity with the contract. Under normal circumstances, a buyer who is confronted with non-conforming goods will exercise his rights, i.e., he will reject the goods, demand rectification of the defects, rely on a price reduction or claim damages. For a long time, [Buyer] has failed to act in that manner. While in its e-mail of 15 October 2004 ([Seller]'s exhibit 14), [Buyer] proposed that [Seller] took back the 5,000 modules which had been delivered to Hong Kong, it did not refer to any alleged lack of conformity but to the fact that they could not have been put to any use because [Seller] did not offer its assistance to enhance the hardware and to deliver the audi-tuning software. [Buyer]'s assertion that [Seller]'s modules would not function in the supposed manner was first raised in [Buyer]'s letter of 10 October 2005 ([Seller]'s exhibit 19), which is more than one year after delivery. Given these circumstances, it cannot be argued that any notification on the part of [Buyer] would have complied with the requirements of Art. 39 CISG in terms of time and content. This means that [Buyer] may not rely on the alleged lack of conformity of the 5,000 modules in question. It is thus obliged to pay the purchase price of EUR 205,000 in total which has arisen out of the order dated 30 August 2004 ([Seller]'s exhibit 4), irrespective of the fact whether a lack of conformity could actually be proven.
4. Even in case that -- contrary to the above reasoning -- [Buyer] had properly notified [Seller] of the alleged lack of conformity within the required time, [Buyer] would nevertheless not be able to succeed with its defense against [Seller]'s claim for payment.
4.1 Art. 49(1)(a) CISG provides that the buyer may declare the contract avoided only if the failure by the seller to perform any of his obligations under the contract or this Convention amounts to a fundamental breach of contract. A breach of contract committed by one of the parties is fundamental if it results in such detriment to the other party as substantially to deprive him of what he is entitled to expect under the contract, unless the party in breach did not foresee and a reasonable person of the same kind in the same circumstances would not have foreseen such a result. A defect which cannot be rectified will not always amount to a fundamental breach of contract, because the term "fundamental" also includes an assessment of the fact whether the expectations of the buyer can be fully satisfied by means of a damages claim or a reduction in price, or the fact whether the buyer is in a position to make limited use of the defective goods in combination with a price reduction or damages claim. In these cases, it may be appropriate not to grant the buyer those remedies which are dependent on the existence of a fundamental breach (Schlechtriem, Art. 25 para. 20). Thus, there will be no objective and grave non-conformity if the goods can be put to a different use in the course of normal business without causing any unreasonable commercial detriment upon the buyer (Schlechtriem, Art. 49 para. 8).
4.2 [Buyer] itself has declared in its statement of defense that it had actually installed part of the modules into another device which did not contain a volume adjustment feature, which, however, led to a price reduction of EUR 34 per item. Hence, it can be assumed that [Buyer] did not suffer a fundamental breach of contract and is thus not entitled to avoid the contract of sale, to return the modules and to refuse payment of the purchase price in its entirety. In any event, [Buyer] has never declared the avoidance of the contract, at least not within due time. Under Art. 26 CISG, a declaration of avoidance of the contract is effective only if made by notice to the other party. The mere existence of a fundamental breach of contract will as such never cause the avoidance of the contract by itself. This principle has been adopted by the CISG without any room for exceptions. In this context, Art. 49(2)(b)(i) CISG states that in cases where the seller has delivered the goods, the buyer loses the right to declare the contract avoided unless he does so in respect of any breach other than late delivery, within a reasonable time after he knew or ought to have known of the breach. The declaration of avoidance is not bound to any form requirement. Avoidance may be declared orally and even impliedly through the buyer's conduct, where such conduct is sufficiently clear. The wording ("cancellation", "avoidance", "rescission", "annulment", "revocation") is irrelevant. The buyer only needs to express unambiguously that he is no longer willing to perform the contract as a consequence of the breach of contract. It is not appropriate to demand any specific terms to be used for this declaration. The crucial factor is that the seller be in a position to understand that he can no longer expect the buyer to perform the contract. The buyer bears the burden to prove that he has transferred the declaration of avoidance with the necessary content. There is no reason to apply an unreasonably short period of time for the declaration of avoidance. On the other hand, the buyer may not be allowed to unreasonably postpone his decision on a declaration of avoidance. Therefore, the time period referred to in Art. 49(2)(b)(i) CISG should be interpreted in a way that the buyer may declare the contract avoided within a reasonable time after he has notified the seller of the lack of conformity (cf. Schlechtriem, Art. 49 margin numbers 28 et seq.).
It is also applicable in this regard that [Buyer]'s e-mail of 15 October 2004 ([Seller]'s exhibit 14) does not constitute a declaration of avoidance in terms of Art. 49 CISG because the proposal for restitution of the 5,000 modules which had been delivered to Hong Kong has not been based on any purported lack of conformity, but on the fact that [Buyer] was not able at the time to put the modules to any use, as long as the required information was not provided by [Seller] (cf. above at 3.2 with reference to the notice of non-conformity). In its e-mail of 22 April 2005 ([Seller]'s exhibit 24), [Buyer] reiterated its proposal for restitution by saying that it was not able to pay the purchase price for the modules within the following four months due to a lack of financial assets. After these four months, it would be in a position to purchase the 5,000 modules from [Seller]. Until 10 October 2005 ([Seller]'s exhibit 19), [Buyer] had never mentioned anything about an avoidance of the contract based on a failure on the part of [Seller] to perform the contract. The proposal which has been made by [Buyer] in this letter - namely, that it had requested [Seller] to take back the goods because they did not operate properly -- is not supported by any previous correspondence. Moreover, [Buyer] has neither sufficiently substantiated nor proven that there had been any deviating oral agreement between the parties. On 10 October 2005, it would in any event no longer be possible to declare the contract avoided, even in case there had been a fundamental breach of contract. [Buyer] is not entitled to wait for more than one year following the identification of the alleged lack of conformity and, only then, inform the seller that it did not want to adhere to the contract.
[Price reduction issues]
In a case where a lack of conformity has been notified within the required time but avoidance has been declared too late, [Buyer] would only be able to exercise its right to a reduction of the purchase price (Art. 50 CISG) and claim damages. The calculation of damages includes all losses which have been incurred as a consequence of the breach of contract. However, the purchase price (if already paid) cannot constitute a loss in this respect when there is no right to avoid the contract. On the other hand, the right to a reduction of the purchase price may in extreme cases lead to a "reduction to zero" if the goods have become completely useless. A claim for damages on the part of the buyer is a counterclaim and may thus be put to a set-off against the seller's claim for the purchase price. It is true that [Buyer] alleges that it had suffered damages as a result of [Seller]'s delivery of deficient goods, however, it has not provided any calculation or estimation of a specific amount of the losses and has failed to indicate the precise nature of the losses. In the same manner, [Buyer] has failed to make any submission concerning the amount of a possible purchase price reduction. Instead, it is evident that the modules are not completely useless as [Buyer] has put them to an alternative use. Thus, [Buyer] may not rely on a reduction of the purchase price.
5. Therefore, it may be concluded that [Buyer] is still bound by the contract which is based on its order of 30 August 2004 ([Seller]'s exhibit 4). [Buyer] is obliged to pay the purchase price of both this order and the other order of 4,000 items "Pin Female MO110d" of September 2004 ([Seller]'s exhibit 7), as it has failed to notify any alleged lacks of conformity within the required time and as -- in case it had done so, it has failed to declare the contract avoided in due time. In addition, [Buyer] has neither given any account of a possible reduction of the value of the goods, nor of any possible damages which it had suffered as a consequence of the breach of contract.
[Ruling on Seller's claim for purchase price plus interest]
After a deduction of three payments of EUR 8,700 in total (EUR 500 + 2 x EUR 4,100, cf. defendant's exhibit 7), the remaining purchase price claim amounts to EUR 199,500 (EUR 205,000 + EUR 3,200 EUR 8,700). It is true that [Seller] has argued during the oral hearing that it received only payments of EUR 8,200 (2 x EUR 4,100), nevertheless, it has to be taken into account that its initial claim amounted to EUR 203,600. This means that EUR 4,600 (EUR 4,100 + EUR 500) had been subtracted. On these grounds, it may be assumed that the payment of EUR 500 has in fact been made as argued by [Buyer] and that [Seller] erroneously did not consider in its statement of claim the second payment of EUR 4,100 of 31 May 2005. Thus, [Seller]'s action will be allowed in the amount of EUR 199,500.
[Seller]'s interest claim will be allowed for the time since 22 October 2004, due to the fact that the obligation to pay interest arises pursuant to Art. 78 CISG as soon as the respective claim for payment has become mature. There are no further requirements. In general, a claim becomes mature at the point in time which has been designated by contract or by the CISG. In the absence of a particular agreement, the claim for the purchase price becomes mature when the goods are being put at the buyer's disposal (Magnus, Art. 78 margin numbers 8 et seq.). In its invoice dated 22 September 2004, [Seller] granted [Buyer] a period of thirty days to make payment. Since the modules had already been at [Buyer]'s disposal before that date, it may be assumed that the claim for the purchase price became mature by 22 October 2004 at the latest. Interest must be paid as of that date. According to the leading dioctrine, the interest rate as such must be determined with recourse to the domestic law which is applicable to the contract by virtue of private international law (Magnus, Art. 78 margin number 12). In the present case, this leads to an application of French law (cf. Art. 118 IPRG [*] in conjunction with Art. 3(1) Convention on the Law Applicable to International Sales of Goods of 15 June 1955 (SR [*] 0.221.211.4)). In France, the interest rate is annually determined by official decree (cf. Schlechtriem, Art. 78 margin number 37 and footnote 48). The interest rate was set at 7.27% for 2004, at 7.05% for 2005 and at 7.11% for 2006. With effect as of 1 January 2007, the interest rate is set at 7.95%. The average interest rate for the time since 22 October 2004 therefore clearly exceeds the interest rate of 5% which has been claimed by [Seller]. Thus, interest may be awarded on the basis of an interest rate of 5%. [Buyer] is obliged to pay [Seller] EUR 199,500 plus 5% interest since 22 October 2004. Moreover, the Court orders that [Seller] may continue the debt enforcement proceedings (no. 2052050) before the Debt Enforcement Office in Cham over Sfr. 310,940.70 (= EUR 199,500 on the basis of an exchange rate of 1.5586, cf. [Seller]'s exhibit 18) and may claim interest of 5% since 22 October 2004 (cf. Art. 79 SchKG [*]).
6. [Buyer]'s request, according to which [Seller] should be ordered to take back the 5,000 modules which had been delivered to Hong Kong, cannot be allowed, because any counterclaim must be submitted before the Court together with the statement of defense at the latest (cf. § 84(4) ZPO [*]). Upon inquiry by the Court Officer of 6 December 2006, [Buyer] expressly declared in its statement of 15 December 2006 that it did not want to file a counterclaim. [Buyer] is bound by this statement. In any event, a hypothetical counterclaim would not be justified. [Buyer] has neither proven that it had ever had a right to avoid the contract nor that it had declared avoidance of the contract within the time required (cf. 4.2 above).
7. Given this outcome of the legal proceedings on the merits, [Buyer] is obliged to bear the costs and to compensate [Seller] for any expenses incurred (cf. §§ 38(1) and 40(1) ZPO). The basic honorarium of an attorney, which is subject to an increase of 20% pursuant to § 5(1) No. 2 AnwT [*], amounts to Sfr. 19,876.80 on the basis of a value of the dispute of about Sfr. 328,200 (EUR 200,000 according to the current exchange rate of 1.64104). After another increase of 3% as a lump sum for expenses, a reasonable compensation of Sfr. 20,473.10 must be paid by [Buyer]. Since [Seller] is domiciled abroad, this sum is not subject to value-added tax.
JUDGMENT OF THE COURT
* All translations should be verified by cross-checking against the original text. For purposes of this translation, Plaintiff of France is referred to as [Seller] and the Defendant of Switzerland is referred to as [Buyer]. Amounts in the uniform European currency (Euro) are indicated as [EUR]. Amounts in the currency of Switzerland (Swiss francs) are indicated as [Sfr].
Translator's note on other abbreviations: AnwT = Anwaltstarif [Swiss Statute on Attorney's Fees]; IPRG = Bundesgesetz über das Internationale Privatrecht [Swiss Code on the Conflict of Laws]; SchKG = Bundesgesetz über Schuldbetreibung und Konkurs [Swiss Law on Debt Enforcement and Insolvency]; SR = Systematische Sammlung des Bundesrechts [Official database of Swiss federal legislation]; ZPO = Zivilprozessordnung des Kantons Zug [Code on Civil Procedure of the Canton Zug].
** Jan Henning Berg has been a law student at the University of Osnabrück, Germany and at King's College London. He participated in the 13th Willem C. Vis Moot with the team of the University of Osnabrück. He has coached the team of the University of Osnabrück for the 14th Willem C. Vis and 4th Willem C. Vis (East) Moot.
*** Ph.D. candidate Daniel Nagel has studied law at the University of Heidelberg and at the University of Leeds.Go to Case Table of Contents