Spain 8 March 2012 Appellate Court Barcelona (Rotating bioreactors)
[Cite as: http://cisgw3.law.pace.edu/cases/120308s4.html]
DATE OF DECISION:
CASE NUMBER/DOCKET NUMBER: 123/2012
CASE HISTORY: Juzgado de Primera Instancia n. 31 de Barcelona 1018/2009
SELLER'S COUNTRY: Italy
BUYER'S COUNTRY: Spain
GOODS INVOLVED: Rotating bioreactors
SPAIN: Barcelona Provincial High Court, Section 14
[Judgement No. 123/2012] 8 March 2012
Case law on UNCITRAL texts [A/CN.9/SER.C/ABSTRACTS/142],
CLOUT abstract no. 1344
Reproduced with permission of UNCITRAL
The object of a contract between an Italian company — the seller — and a Spanish company — the buyer — was to construct, supply, transport, erect and start up four complete rotary bioreactors for the biofermentation and processing of organic and inorganic waste.
According to the information provided, various problems arose in connection with the assembling and setting up of the bioreactors, but the parties differed as to who was responsible for these problems. The seller considered that the defects in the bioreactors had been caused by errors and lack of skill on the part of the buyer’s staff, the poor conditions at the plant and the fact that work was being carried out by other firms, delaying the installation and causing alignment problems in two of the bioreactors. When the problems appeared, the seller attempted to remedy them (CISG arts. 50 and 51), but the buyer prevented it from remedying them by denying access to the installations and making a contract with third parties, who carried out incorrect work that damaged the four bioreactors. In the seller’s view, therefore, the buyer was liable to the full amount of the outstanding payment.
The buyer, for its part, denied that it was liable for the price and considered that the issue was a fundamental breach on the part of the seller (CISG arts. 49 (1)(a) and 25), since it had failed to comply with its obligations under the contract.
The parties were also in dispute about the value that should be placed on the specific obligations arising out of the contract and its subsequent amendment (alterations to electrical panels, the cost of dismantling and reassembling the discharge hopper of bioreactor No. 1, the cost of no-load tests of bioreactors Nos. 1 and 2 and the cost of repainting). They also disputed the total amount of damages, which included, among other items, the costs arising from the delay in starting up the equipment contracted for, the cost of relocating and accommodating the seller’s technical staff in the buyer’s facilities and the cost arising from the transport or import of materials that were stolen or disappeared from the buyer’s facilities.
The seller also claimed that it was entitled to a bonus for having delivered the equipment within the agreed time and to the recovery of interest since the expiry of the due date of the invoices, pursuant to CISG article 78. There was also a dispute about the applicable law: the Convention or else either Italian law, since the seller’s closest links were with Italy, or, as the buyer argued, Spanish law, and specifically the provisions of the Civil Code. The court of first instance decided in favour of Spanish law and ruled that, with the delay, the seller had breached the obligation to start up the equipment and that it was also responsible for the operating defects. Both parties appealed against the judgement.
Giving the appeal judgement, the Provincial High Court ruled that, in view of the fact that the parties made no reference in the contract to the applicable law, article 4 of the 1980 Rome Convention should apply. Ruling that the contract was a performance contract, the Court accepted the arguments of the judgement under appeal whereby Spanish law applied, given that the activities undertaken were aimed at ensuring the operations of the bioreactors in the Barcelona plant. As the lower court judgement had pointed out, however, the result would be the same either way, since there were similar rules in the two countries, and the same would be true if the Convention were applied. On that point, the Court based its view on a Supreme Court judgement of 31 October 2006 relating to the avoidance of a contract (CLOUT Case 736).
The judgement upheld the lower court’s conclusions to the extent of declaring that bioreactors Nos. 1 and 2, having passed the no-load tests, had been shown to be in conformity with the contract, but the same was not true of bioreactors Nos. 3 and 4, which had not passed either of the two tests. The Court also held that the costs of installing the bioreactors were the responsibility of the buyer, since that was clearly indicated in the contract. Since the rest of the contracted work had not been carried out by the seller, it could not now claim costs. Moreover, the Court held that it was a fundamental breach, in that two expert reports had shown that the defects were due to the design, that there had clearly been delays, that alignment problems had not been solved, that two of the bioreactors had not passed no-load tests and that the plant did not function as efficiently as promised. The fundamental breach of contract meant that the respondent was entitled not to pay for the unfulfilled part of the contract.
With regard to the extra costs, the Court dismissed some of the claims, on the basis that they had not been duly justified, but considered that others had been proved. It held that the costs arising from the delay in starting up the contracted equipment qualified as grounds for damages, despite a claim that article 77 of the Convention had been breached. Since it had been found that the breach was fundamental, and given the fact that, once the seller abandoned the job, there was no further possibility of its attempting to comply with the contract, the buyer could not be required to provide the seller with more opportunities, in the face of a completely uncertain outcome. Lastly, since the parties were mutually indebted, compensation must be paid, with the payment of legal interest from the date of the judgement of the court of first instance.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: Substantial deprivation of expectation, etc.]; 49A ; 49A1 [Grounds for avoidance ; Fundamental breach of contract (art. 49(1)(a))]; 50C ; 50C2 Buyer may not reduce price when: ; 50C2 Buyer refuses to accept seller's remedy under arts. 37 or 48)]; 51B ; 51B1 [Avoidance as to entire contract ; Must be based on fundamental breach of contract as a whole]; 77A [Obligation to take reasonable measures to mitigate damages]; 78A [Interest on delay in receiving price or any other sum in arrears]
25B [Definition: Substantial deprivation of expectation, etc.];
49A ; 49A1 [Grounds for avoidance ; Fundamental breach of contract (art. 49(1)(a))];
50C ; 50C2 Buyer may not reduce price when: ; 50C2 Buyer refuses to accept seller's remedy under arts. 37 or 48)];
51B ; 51B1 [Avoidance as to entire contract ; Must be based on fundamental breach of contract as a whole];
77A [Obligation to take reasonable measures to mitigate damages];
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 (Spanish): CISG-Spanish website <http://www.cisgspanish.com/wp-content/uploads/2013/07/sapbarcelona8marzo2012.pdf>
CITATIONS TO COMMENTS ON DECISION
UnavailableGo to Case Table of Contents