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CISG CASE PRESENTATION

Germany 19 May 2008 Appellate Court Köln (Pesticide case) [translation available]
[Cite as: http://cisgw3.law.pace.edu/cases/080519g1.html]

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

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Case identification

DATE OF DECISION: 20080519 (19 May 2008)

JURISDICTION: Germany

TRIBUNAL: OLG Köln [OLG = Oberlandesgericht = Provincial Appellate Court]

JUDGE(S): Unavailable

CASE NUMBER/DOCKET NUMBER: 16 U 62/07

CASE NAME: German case citations do not identify parties to proceedings

CASE HISTORY: 1st instance Landgericht Bonn (15 O 3/07) 8 November 2007

SELLER'S COUNTRY: [-]

BUYER'S COUNTRY: [-]

GOODS INVOLVED: Pesticide


UNCITRAL case abstract

GERMANY: Oberlandesgericht Köln 19 May 2008

Case law on UNCITRAL texts [A/CN.9/SER.C/ABSTRACTS/128]
CLOUT abstract no. 1231

Reproduced with permission of UNCITRAL

Abstract prepared by Ulrich Magnus and Jan Lüsing

In this decision, the Higher Regional Court of Cologne focuses in particular on the requirements of article 71 CISG and stresses the notion of functional reciprocity (i.e. synallagma), which, according to the court, the article refers to.

Both the plaintiff and the defendant commercially distributed chemical products for agricultural use and maintained a long-standing business relationship. The plaintiff, based in Italy, sued for payment of the purchase price of several shipments of pesticides and for transport costs. The defendant challenged some of the claims, setoff other claims against counterclaims or invoked a right to retention on the basis of the alleged counterclaims.

On first instance, the Regional Court largely granted the plaintiff’s claim accepting only one of the defendant’s objections and dismissing all counterclaims. Both parties appealed. The Higher Regional Court dismissed the appeals. With respect to the plaintiff’s appeal, the court found that the parties had agreed on a termination agreement concerning one of the shipments in question. Applying article 81(1) CISG the court considered the defendant released from its obligation to pay the purchase price under article 53 CISG. With respect to the defendant’s appeal, the court stated that the requirements for the set-off against the counterclaims were not met. As the CISG does not contain provisions regulating the right to set-off, the court fell back on article 1243 Italian Civil Code, which was applicable according to article 28(2) of German rules of private international law, in order to decide this question. The court also denied the right of retention, applying article 71 CISG. The court held that the right of retention aims to secure the claim and put pressure on the debtor to perform its obligation in due time. In the present case, however, the buyer was no longer interested in the performance of the seller, thus the connection between the seller performance and the buyer performance did not exist any longer. In addition, the court rejected a claim for damages for nonconformity of the goods delivered, because the defendant had failed to give notice of lack of conformity to the plaintiff within a reasonable time under article 39 CISG (according to the court a “reasonable time” should have been a period of 14 days).

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IHR headnote

Reproduced from Internationales Handelsrecht (1/2010) 26

"The law applicable to a set-off is to be determined by the conflict of law rules of the forum state as the set-off is – in contract to the right of retention – not ruled by the CISG."

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Classification of issues present

APPLICATION OF CISG: Yes

APPLICABLE CISG PROVISIONS AND ISSUES

Key CISG provisions at issue: Articles 4 ; 38 ; 39 ; 71 [Also cited: Articles 53 ; 81 ]

Classification of issues using UNCITRAL classification code numbers:

4B [Scope of Convention (issues excluded): set-off];

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];

71A1 [Suspension of performance: grounds for suspension]

Descriptors: Scope of Convention ; Set-off ; Examination of goods ; Lack of conformity notice, timeliness ; Suspension of performance

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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=1351&step=Abstract>

CITATIONS TO TEXT OF DECISION

Original language (German): CISG-online.ch database <http://www.cisg-online.ch/cisg/urteile/1700.pdf>; Unilex database <http://www.unilex.info/case.cfm?pid=1&do=case&id=1351&step=FullText>; Internationales Handelsrecht (1/2008) 26-27

Translation (English): Text presented below

CITATIONS TO COMMENTS ON DECISION

Unavailable

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Case text (English translation)

Queen Mary Case Translation Programme

Appellate Court (Oberlandesgericht) Köln

19 May 2008 [16 U 62/07]

Translation [*] by Jan Henning Berg [**]

Edited by Institut für ausländisches und internationales
Privat- und Wirtschaftsrecht der Universität Heidelberg
Daniel Nagel, editor
[***]

JUDGMENT

Plaintiff [Seller]'s appeal as well as Defendant [Buyer]'s appeal against the judgment rendered on 8 November 2007 by the District Court (Landgericht) Bonn, 3rd Chamber for Commercial Matters (Case Docket 14 O 3/07) are dismissed.

[Buyer] bears 70% of the costs of the appellate proceedings and [Seller] bears 30%.

The judgment is provisionally enforceable.

The debtors may avert enforcement by the respective creditor against a security deposit in the amount of 110% of the enforceable amount, unless the respective creditor itself has already furnished a security deposit in the amount of 110% of the enforceable amount.

FACTS

[Seller] and [Buyer] are commercial distributors of chemical products for agricultural use and have entertained a long-standing commercial relationship.

In the course of the proceedings before the Court of First Instance, [Seller] has relied on claims for performance based on the delivery of plant protectants in the amount of EUR 661,156.54 as well as transport costs. [Buyer] has asserted that the District Court of Bonn lacked international jurisdiction, challenged the existence of some of the claims in question and, furthermore, declared a set-off with existing counterclaims.

By judgment of 8 November 2007, the District Court ordered [Buyer] to pay [Seller] EUR 477,356.54 plus interest and pre-trial costs, but dismissed the remaining part of [Seller]'s action. After a hearing of witnesses, the District Court denied [Seller]'s claim for payment of Invoice No. 44 (product "U") in the amount of EUR 165,000 and held that [Buyer] had successfully proved an agreement for cancellation of the order for these goods. The District Court further held that a deduction of EUR 16,800 applied to Invoice No. 45 ("B") because it concerned an excess delivery which had not been agreed upon. The District Court allowed [Seller]'s action for the remainder. Reference is made to that judgment (pp. 391 et seq. of the file) for the details of the District Court's factual findings, the requests submitted during the proceedings in the Court of First Instance, and the legal reasoning of the District Court.

Both parties have filed appeals against this judgment within the applicable time limit and in conformity with other formal requirements. Both parties have properly made the required reasoned submissions concerning their appeals.

POSITION OF THE PARTIES

Position of [Seller]

[Seller] challenges the manner in which the District Court evaluated the evidence insofar as the Court dismissed the part of the action concerning Invoice No. 44. [Seller] asserts that [Buyer] had failed to prove the existence of a cancellation agreement as the witnesses had made contradictory statements during the proceedings before the Court of First Instance. It is true that [Seller] has accepted the District Court's deduction of EUR 16,800; [Seller], however, initially claimed damages in the same amount during the appellate proceedings based on the allegation that [Buyer] had not been willing to return the goods delivered in excess despite requests to that effect by [Seller]. [Seller] has withdrawn this part of its action during the oral hearings.

[Seller] requests the Court to:

  1. Uphold the judgment rendered by the Court of First Instance and furthermore order [Buyer] to pay [Seller] another EUR 165,000 plus interest of 7% above the relevant rate of interest of the most recent main refinancing transaction executed by the European Central Bank since 29 August 2006; and

  2. Dismiss [Buyer]'s appeal.

Position of [Buyer]

[Buyer] requests the Court to:

  1. Repeal the judgment rendered by the Court of First Instance and dismiss [Seller]'s action in its entirety; and

  2. Dismiss [Seller]'s appeal.

[Buyer] also challenges the evaluation of evidence by the District Court insofar as it is to its own detriment. [Buyer] further challenges the District Court's legal reasoning insofar as it it held that [Buyer] had failed to comply with its duty to examine the goods and notify [Seller] of their non-conformity in relation to the delivery of "N". Moreover, [Buyer] claims that the set-off which it had declared during the first instance proceedings, and on which it had based its counterclaims in the amount of EUR 20,000 each against Invoice No. 68 "P" and Invoice No. 58 "Q", was to be re-interpreted as a right of retention. By way of precaution, [Buyer] now expressly relies on a respective right of retention in the appellate proceedings. With respect to [Seller]'s claim based on Invoice No. 68 "P", [Buyer] bases its right of retention on an alleged cover purchase in the amount of EUR 26,432. [Buyer] further claims a right of retention against [Seller]'s claim on the basis of the counterclaims which [Buyer] had asserted during the proceedings before the Court of First Instance in its written submission of 18 October 2007 (pp. 317 et seq. of the file).

Reference is made to the submissions of the parties as well as to the relevant documents.

REASONING OF THE COURT

The appeals filed by both parties are admissible and, in particular, comply with formal requirements and time limits. However, neither appeal is justified.

1. The District Court correctly assumed that German courts have international jurisdiction to consider the dispute. Neither of the parties in fact challenges this part of the judgment.

2. [Seller's appeal]

This Court takes the same position as the District Court, namely, that, according to the provisions of the CISG (which is applicable here), [Seller] is not entitled to a claim for payment in the amount of EUR 165,000 on the basis of Invoice No. 44 dated 31 March 2006 "U" (Art. 53 CISG). This is due to the fact that the parties have reached an agreement to cancel this contract which in turn means that [Buyer] was released from its obligation to pay the purchase price (Art. 81(1) CISG).

The District Court's evaluation of evidence is correct in respect to the assumption that the parties have agreed on the cancellation of the contract on 28 July 2006.

The District Court based its assessment primarily on the statements of witness I., who was the only witness who confirmed the existence of an agreement to cancel the contract as he stated that the parties had agreed "that the product shall be returned," that they needed further background information in order to prevent "such event from ever occurring again," and that there had been "mutual consent."

   -    The following documents contained in the file support that the witness has given a correct account of the facts: the e-mail of 30 July 2006, 13:28 h, sent by H. to I. and J. ("the goods are being returned, we seek to resolve the problems next week") and the e-mail of 30 July 2006, 19:00 h, sent by H. to I. ("please send U back to me as soon as possible").
 
   -    Insofar as the former e-mail refers to problems which were to be resolved by the following week, the statements made by witness I indicate that they referred to the furnishing of evidence (e.g., bills of delivery and receipts), which had been talked about on 28 July 2006, according to the witness. Moreover, even according to the statement made by witness H., an offer for return of the goods was presented to [Buyer] on 28 July 2006. In this respect, his statements correspond to those made by witness I.
 
   -    Insofar as witness H has further stated that witnesses J. and I. had not accepted this offer made by [Seller]'s CEO, this Court -- in the same manner as the District Court -- is not convinced that this account is correct. There is no obvious reason for such conduct of [Buyer]'s representative; in particular, it is not obvious that [Seller]'s CEO had made the offer for redemption of the goods dependent on a condition, e.g., payment of all unsettled invoices at that time.
 
   -    Moreover, no doubts arise as to the correctness of statements made by witness I. upon consideration of the statements made by witness J., who could not remember any negotiations about a return of the product, despite the fact that pursuant to his account "U" had been the main topic of the talks on 28 July 2006. It is evident that, in this respect, the witness just does not remember the events anymore. It has been established on the basis of statements made by witnesses I. and H. as well as in the e-mails mentioned above that there had been negotiations about the return of product "U", contrary to the statements made by witness J. However, the witness has also testified that negotiations "were supposed to be held "concerning product U after examination of the expert opinion." Yet, even this statement does not immediately indicate that there had been no agreement on a return of the goods. It is instead possible that the witness -- who could no longer recall the negotiations -- referred to the origin of the goods which was yet to be proven by [Seller].

The Court is convinced that the expert opinion referred to by the witness (which can only mean the opinion of Company K. of 28 June 2006) was handed over to [Seller]'s CEO on 28 July 2006 due to the corresponding statements made by witnesses I and J. [Seller]'s assertions that this opinion was first presented to [Seller] during the present proceedings by letter of 11 April 2007 cannot be accepted. In particular, [Buyer] has already raised complaints as to the quality of the goods by e-mail of 12 June 2006, and [Seller] has itself submitted that in the context of the talks held on 28 June 2006 it had made an offer for return. It is hardly comprehensible that any such offer would have been made on the mere basis of a vague assumption concerning the quality of the goods on the part of [Buyer].

Taking the result of the taking of evidence as a whole, the factual submissions by the parties and the documents presented into account, this Court is convinced - in accordance with the District Court - that the parties have reached an agreement on the return of product "U" on 28 July 2006.

The District Court, whose reasoning is referred to, has correctly held that [Seller]'s claim for the purchase price has expired because of the parties' cancellation agreement (cf. for the application of Art. 81 et seq. CISG by analogy: Schlechtriem / Schwenzer, CISG, 4th ed., Art. 81-84 paras. 5 with further references; Münchener Kommentar / Huber, CISG, 4th ed., Art. 81 para. 2 with further references).

3. [Buyer's appeal]

      a) [Seller]'s claim for the purchase price under Invoice No. 68 of 30 May 2006 "P" is not subject to a deduction in the amount of EUR 20,000 because of an alleged counterclaim on the part of [Buyer], which the latter had asserted by referring to an alleged agreement for performance of lump-sum damages due to short delivery and damages due to costs accrued from a cover purchase.

The legal requirements for a set-off are not fulfilled in this case. As the CISG does not govern issues relating to set-offs, recourse to the law applicable according to the private international law of the forum state has to be made (Art. 28(2) EGBGB [*]). Italian law differentiates between so-called "statutory set-offs" (Legalaufrechnung) and "set-offs in court" (gerichtliche Aufrechnung). In the case at hand, a statutory set-off is not possible due to the fact that the counterclaim cannot be raised, which in turn is required under Art. 1243(1) Cc [*]. In this context, the leading doctrine states that a counterclaim may not only be raised if it is undisputed or determined by a court with definitive legal effect, but also in case of objections raised by the other party if this can be qualified as abusive behavior. Italian jurisprudence, in turn, only assumes such abuse where an objection appears plainly unjustified and to serve for the sole purpose of delaying adjudication of the dispute (cf. OLG [*] Köln, judgment of 13 February 2006, case docket 16 U 17/05, in: IHR [*] 2006, 145 et seq.). However, this is not the case at hand. A set-off in court pursuant to Art. 1243(2) Cc, which applies if the counterclaim cannot be raised, requires that both claims are enforceable at the time when the situation for a set-off is judicially determined, and that the counterclaim is quickly and easily determinable, which means that the dispute can be adjudicated without much additional effort. These requirements are not present in this case, as well.

Insofar as [Buyer] -- in the appellate proceedings -- seeks to rely on a right of retention because of alleged counterclaims, it is provided in Art. 71 CISG that this provision overrides Art. 1460 Cc (cf. Schlechtriem / Schwenzer, Art. 71 para. 25a; Staudinger / Magnus, CISG, 2005, Art. 71 para. 40; Münchener Kommentar / Huber, Art. 71 paras. 25 et seq.).

However, even the requirements of Art. 71 CISG are not fulfilled in the present case, under Art. 71 CISG, a party may suspend the performance of his obligations if, after the conclusion of the contract, it becomes apparent that the other party will not perform a substantial part of his obligations. The provision expresses the so-called functional synallagma (funktionelles Synallagma). The right to retention inter alia seeks to secure the claim and to exercise pressure on the debtor to perform his obligation in due time. In the case at hand, [Buyer] is no longer interested in the performance of [Seller] as it has made cover purchases, which means that the necessary synallagmatic connection between performance and counter-performance does not exist.

Moreover, the Court points out that the District Court, which has taken evidence in relation to the counterclaim presented by [Buyer] as a means to rely on a set-off, has correctly reasoned on the basis of the evidence obtained and correctly held that [Buyer] failed to bring sufficient proof for its submissions.

      b) [Buyer] is not entitled to a counterclaim in the amount of EUR 20,000 because of an alleged agreement on the return of the product against [Seller]'s claim for payment of Invoice No. 58 of 26 April 2006 ("Q"). Again, a set-off is not possible pursuant to Art. 1243 Cc. The right of retention, which has now been claimed, does not exist due to the provision of Art. 71 CISG. In this context, the necessary synallagmatic connection is missing, as well.

Furthermore, the evaluation of evidence by the District Court, which held that [Buyer] failed to bring sufficient proof for its submissions, is accepted.

      c) The same legal reasoning applies in relation to the counterclaim in the amount of EUR 518,400 which has been raised by [Buyer] in proceedings before the Court of First Instance on the basis of non-performance in relation to product "N SCX 5". Once again, [Buyer] may not successfully rely on any right of retention in this context.

In addition, this Court confirms the legal reasoning enunciated by the District Court (denying a claim for damages on the part of [Buyer] on the grounds of a breach of the duty to examine and notify under Arts. 38, 39 CISG). It is undisputed that the goods have been delivered in February 2006 and, according to [Seller]'s submissions, complaints have been raised on 28 July 2006 for the first time. [Buyer] asserted during the appellate iproceedings that it had been impossible to examine any delivered goods and to determine the identity of goods by using the reference method. This is in contradiction to the submissions which it made during the proceedings before the Court of First Instance, namely, that an examination was to be carried out in an external laboratory which takes one month on average and that a reasonable time limit for notification of fourteen days was to follow that period. [Buyer] had the quality of "Q" examined for its identity with the original product "T" by way of an expert opinion prepared by company K.

      d) Insofar as [Buyer] seeks to rely on additional counterclaims in its written submission of 18 October 2007, which the District Court did not consider according to § 296a ZPO [*], the provision of § 533 ZPO is relevant for the admissibility of considering these counterclaims in the appellate proceedings. A retention which has been justified on the basis of a monetary claim against another monetary claim in fact constitutes a declaration for a set-off, wherefore § 533 ZPO applies instead of § 531 ZPO (cf. Zöller / Gummer / Heßler, 26th. ed., § 533 para. 17 with further references).

It may remain unresolved whether the counterclaim is procedurally admissible in this respect, because this right cannot be exercised due to substantive reasons.

In its written submission of 18 October 2007, [Buyer] (Translator's note: typing error in the original text of the judgment) inter alia relies on counterclaims because its customers -- which had been provided with product "U" -- were called upon by manufacturer E. in court because of an alleged infringement of patent rights. Accordingly, the customers were burdened with costs of legal proceedings which [Buyer] was liable for on the basis of the existing contractual relationship. A set-off with these counterclaims is inadmissible under Italian law (Art. 1243 Cc), as well. Art. 71 CISG provides that there is no right of retention.

4. The decision on costs is based on § 92(1) ZPO. The decision on provisional enforceability is based on §§ 708 No. 10, 711 ZPO.


FOOTNOTES

* All translations should be verified by cross-checking against the original text. For purposes of this translation, Plaintiff is referred to as [Seller] and Defendant is referred to as [Buyer]. Amounts in the uniform European currency (Euro) are indicated as [EUR].

Translator's note on other abbreviations: Cc = Codice civile [Italian Civil Code]; EGBGB = Einführungsgesetz zum Bürgerlichen Gesetzbuche [German Code on the Conflict of Laws]; IHR = Internationales Handelsrecht [German law journal]; OLG = Oberlandesgericht [German Regional Appellate Court]; ZPO = Zivilprozessordnung [German Code on Civil Procedure].

** 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.

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