Australia 20 April 2011 Federal Court (Castel Electronics Pty Ltd v Toshiba Singapore Pte Ltd)
[Cite as: http://cisgw3.law.pace.edu/cases/110420a2.html]
DATE OF DECISION:
CASE NUMBER/DOCKET NUMBER: VID 1080 of 2010
CASE HISTORY: Appeal from Castel Electronics Pty Ltd v Toshiba Singapore Pte Ltd  FCA 1028
SELLER'S COUNTRY: Japan (respondent)
BUYER'S COUNTRY: Australia (appellant)
GOODS INVOLVED: Color television receivers
AUSTRALIA: Federal Court of Australia (Castel Electronics Case) 20 April 2011
(Castel Electronics Pty Ltd v Toshiba Singapore Pte Ltd, FCAFC 55)
Case law on UNCITRAL texts [A/CN.9/SER.C/ABSTRACTS/116],
CLOUT abstract no. 1132
Reproduced with permission of UNCITRAL
This case involved an Australian distributor and a wholly owned subsidiary of a large corporation incorporated in Singapore. The parties entered into an agreement of distributorship of the manufacturer’s electronic products. As a result of the updated way of digital television broadcasting in Australia, however, the set-top boxes, a kind of high-tech equipment designed by the manufacturer to convert digital signals onto analogue television receivers, caused problems. After the release of the goods for sale in the Australian market, the distributor received numerous complaints about their performance and functionality. Although the defective products had been reworked, the distributor continued to encounter serious technical problems. The parties thus agreed to terminate the distributorship agreement and entered into a termination agreement to resolve a number of outstanding issues. The agreement, however, preserved the right of the parties to take further action as might be available to them. Eventually the distributor initiated proceedings against the supplier.
Referring to CISG and Australian laws, the distributor alleged that the supplier had breached the terms of the sales contract and claimed damages for the costs it incurred because of the breach (i.e. “expectation damages”) as well as damages for lost opportunity by not becoming a distributor of another electronic manufacturer (i.e. “reliance damages”).
The supplier denied both types of damages as well as the applicability of the CISG. In the case the Convention would apply, however, the supplier invoked the application of article 74 CISG in relation to the “expectation damages”. Therefore, the damages could not exceed the loss which the supplier foresaw or ought to have foreseen at the time of the conclusion of the contract in light of the facts and matters which it then knew or ought to have known as a possible consequence of the breach of contract. Further, the supplier made a cross-claim for overpayment and other costs incurred due to the buyer’s obligations.
The judge confirmed the application of the CISG, because Australia and Singapore were Contracting States and applied article 35 of the Convention with reference to the supplier’s breach of contract. The judge did not upheld the distributor’s request of “reliance damages”, because had nothing to do with the supplier’s performance of the contracts.
Although the judge awarded the distributor the damages related to the supplier breach of contract, the amount awarded was reduced. The judge rejected the assertion that the distributor’s administrative costs should be taken into account in calculating the distributor’s profit if the products had not been defective. The judge held that there was not enough evidence to found the assumption that the supplier’s breach of contract caused extra expenses.
Both parties appealed to the Federal Court of Australia. The court dealt with the CISG articles argued by the supplier in its cross appeal. As to article 35(3) CISG, the supplier had objected that at the time of the conclusion of each contract the distributor knew, or could have not been unaware, of a lack of conformity of the products. The court considered that the supplier failed to establish that the defects which gave rise to the lack of conformity of the goods were known to the distributor at the time each batch of goods was ordered. Therefore, this aspect of the respondent’s cross appeal was rejected.
The court also rejected the respondent’s argument concerning the failed application of article 74 CISG in the First Instance. The Court noted that, contrary to the seller’s argument, when “Article 74 speaks of consequences which ‘ought to have been foreseen’ it refers ‘to consequences which [are], objectively speaking, foreseeable by the breaching party’” and not to circumstances that can only be proved by evidence from the manufacturer’s employees. According to the judge of first instance, it “was foreseeable at the time of the formation of each of the relevant sales contracts that recurrent failures, recalls and delays in supplying replacements of the ‘epidemic’ products would have had a repercussive effect in reducing [the distributor’s] margins of profit”. The Court considered evident that the judge of first instance used the word “foreseeable” to refer to what “ought to be foreseen” and upheld his decision on this matter.
The supplier’s argument for the application of article 77 CISG, which the judge of first instance had not considered, was also rejected by the Court. The Court noted that such article “[affords] the party in breach ‘a claim’ for a reduction in the damages…” but “absent a successful claim by the party in breach… the other party will be entitled to recover ‘the damages’”. “… Since the manufacturer did not … prove its claim for a reduction of the damages payable by it”, article 77 could not be applied.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:
35 [Conformity of Goods to Contract]; 35C [Exception to seller's liability for non-conformity]; 74 [Damages - General Rules for Measuring]; 77 [Mitigation of Damages]
35 [Conformity of Goods to Contract];
35C [Exception to seller's liability for non-conformity];
74 [Damages - General Rules for Measuring];
77 [Mitigation of Damages]
CITATIONS TO OTHER ABSTRACTS OF DECISION
CITATIONS TO TEXT OF DECISION
Original language (English): Australia-CISG <http://www.business.vu.edu.au/cisg/cases.asp#1>
CITATIONS TO COMMENTS ON DECISION
UnavailableGo to Case Table of Contents