CISG CASE PRESENTATION

UNCITRAL case abstract

SPAIN: Navarra Provincial High Court 30 July 2010

Case law on UNCITRAL texts [A/CN.9/SER.C/ABSTRACTS/115],
CLOUT abstract no. 1127

Reproduced with permission of UNCITRAL

The parties to a sales contract -- a British seller and a Spanish buyer -- were in dispute over the conformity of the goods with the terms of the contract. The contract concerned the sale of billets or steel rods used by the buyer to manufacture axle spindles through a forging and heat treatment process. Axle spindles are welded to the frames that form an integral part of the axle to which the wheels of industrial vehicles, lorries and buses are attached and are therefore important safety components. The seller was aware of their importance and of the fact that quality control of such components was very stringent.

The seller claimed that the buyer had not complied with the provisions of article 39 of CISG, since the buyer had given notice of the lack of conformity of the goods two months and seven days after they had been delivered. The court, however, considered that the buyer had in fact complied with the provisions of article 39(1) of CISG since the testimonies and expert opinions obtained proved that, while the billets had faults in the form of lamination marks which were easily noticeable, the faults were not caused by those marks but by superficial cracks that were hidden by the lamination marks and could not easily be seen. The court therefore considered that, on the basis of the special circumstances of the case, the more than two months taken to report the fault could not be considered unreasonable, given that the billets supplied needed to be used in the manufacturing process before the cause and nature of the fault could be determined. Furthermore, the court considered that the concept of "reasonable time" must be understood in relation to the time at which the lack of conformity was or ought to have been discovered and in relation to the need to specify the nature of the lack of conformity. The amount of time taken to report the lack of conformity must therefore be considered reasonable, particularly given the difficulty in identifying the cause of the fault and the need to carry out various tests.

In relation to the concept of fundamental breach of contract, the court considered in detail the object of the sales contract and the use for which the purchased goods had been intended. In that light, and following analysis of the expert evidence available, it considered that the billets supplied clearly had faults that rendered them unfit for their intended use, especially given that faults were not acceptable in the automotive sector and that it had been proved that the lack of conformity stemmed from the raw materials supplied.

Consequently, the court concluded that, since the goods had been unfit for their purpose, namely use in the manufacture of axle spindles for vehicles, it was clear, in view of the nature of the fault and the sector for which the goods were intended, that the breach had been committed by the seller and that that breach had deprived the buyer of what it was entitled to expect under the contract, namely non-defective steel rods suitable for producing automotive axle spindles, there being no grounds for exemption insofar as the seller could have foreseen such an outcome once the activity of the buyer was known to it. In that respect, the court based its decision on the Supreme Court judgement of 17 January 2008 (http://turan.uc3m.es/uc3m/dpto/PR/dppr03/cisg/espan67.htm) (CLOUT case No. 802) which stated that "fundamental breach corresponds to the rule […] of fundamental breach of contract […] and from it is derived a system of contractual liability based on a criterion of objective imputation, attenuated, however, by exceptions -- corresponding to the hypotheses of fortuitous events and force majeure under domestic law -- and by a parameter of reasonableness (article 25 in fine)"; accordingly, the Navarra Provincial High Court considered that it did not appear in the case in question that any such lack of predictability of the outcome would create a situation that could be regarded as a fortuitous event or one of force majeure. Consequently, the claim by the seller that the faults were not of such significance as to warrant termination of the contract also lacked foundation.