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CISG CASE PRESENTATION

Austria 27 October 1994 Supreme Court (Brushes and brooms case) [translation available]
[Cite as: http://cisgw3.law.pace.edu/cases/941027a3.html]

Primary source(s) for case presentation: Case text


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Case identification

DATE OF DECISION: 19941027 (27 October 1994)

JURISDICTION: Austria

TRIBUNAL: Oberster Gerichtshof [Supreme Court]

JUDGE(S): Unavailable

CASE NUMBER/DOCKET NUMBER: 8 Ob 509/93

CASE NAME: Fa. N. GmbH v. Fa. N. GesmbH & Co.

CASE HISTORY: 1st instance LGZ Graz 30 April 1992; 2d instance OLG Graz (2 R 184/92) 11 November 1992 [CISG not applied]

SELLER'S COUNTRY: Yugoslavia (plaintiff)

BUYER'S COUNTRY: Austria (defendant)

GOODS INVOLVED: Brushes and brooms


Case abstract

AUSTRIA: Supreme Court 27 October 1994

Case law on UNCITRAL texts (CLOUT) abstract no. 105

Reproduced with permission from UNCITRAL

An Austrian company ordered brushes and brooms in the former Yugoslavia. Under the contract, the Austrian [buyer] had to provide the Yugoslav [seller] with materials for the production of the goods ordered.

The court found that the Convention was not applicable because the party ordering the goods supplied a substantial part of the materials necessary for the production of the goods (Article 3(1) CISG) and the obligation of the party furnishing the goods consisted mainly in the supply of labour and services (Article 3(2) CISG).

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Classification of issues present

APPLICATION OF CISG: No

APPLICABLE CISG PROVISIONS AND ISSUES

Key CISG provisions at issue: Article 3

Classification of issues using UNCITRAL classification code numbers:

3A1 ; 3B [Goods to be manufactured: buyer supplies substantial part of necessary materials; Services preponderant part of obligation]

Descriptors: Scope of Convention ; Materials supplied by buyer ; Services

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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=131&step=Abstract>; Forum des Internationalen Rechts / The International Legal Forum [= Forum] (English language edition) 1 (1996) 13; Willibald Posch & Thomas Petz, an English translation of the German commentary cited below that has been published in 6 Vindobona Journal of International Commercial Law and Arbitration (2002) 1-24, at 7 [Go to this commentary in either its English or German text for an excellent comprehensive analysis of Austrian case law on the CISG.]

German: Schweizerische Zeitschrift für Internationales und Europäisches Recht (SZIER) / Revue suisse de droit international et de droit européen 1996, 50; Willibald Posch & Ulfried Terlitza, Internationales Handelsrecht (2001) 47-56, at the relevant page

Italian: Diritto del Commercio Internazionale (1996) 633 No. 106

Polish: Hermanowski/Jastrzebski, Konwencja Narodow Zjednoczonych o umowach miedzynarodowej sprzedazy towarow (Konwencja wiedenska) - Komentarz (1997) 264

CITATIONS TO TEXT OF DECISION

Original language (German): CISG online.ch website <http://www.cisg-online.ch/cisg/urteile/133.htm>; Unilex database <http://www.unilex.info/case.cfm?pid=1&do=case&id=131&step=FullText>; Zeitschrift für Rechtsvergleichung, Internationales Privatrecht und Europarecht (ZfRV) 36 (1995) 159-162

Translation (English): Text presented below

CITATIONS TO COMMENTS ON DECISION

English: Ferrari, International Legal Forum (4/1998) 138-225 [189 n.437 (analysis of Art. 3(1)]; Gillette/Walt, Sales Law Domestic and International (Foundation Press 1999) 37 [Art. 3(1) issues]; Honnold, Uniform Law for International Sales (1999) 58 [Art. 3]; Bonell/Liguori, Uniform Law Review (1996-1) 147 [151 n. 24]; T.S. [Simons], Forum (English language edition) (1996) 14-15; [2005] Schlechtriem & Schwenzer ed., Commentary on UN Convention on International Sale of Goods, 2d (English) ed., Oxford University Press, Art. 3 para. 3

German: Schlechtriem, Internationales UN-Kaufrecht (1996) 17 n.28; T.S. [Simons], Forum (1996) 14-15

Italian: Liguori, Foro italiano (1996-IV) 145 [154 n. 45]

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Case text (English translation)

Queen Mary Case Translation Programme

Federal Supreme Court of Austria (Oberster Gerichtshof)

27 October 1994 [8 Ob 509/93]

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

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

REASONING OF THE COURT

FACTS

The Plaintiff [Seller] is a company domiciled in Belgrade. [Seller] together with Production Company R, which is also seated in Yugoslavia, has been a business partner of the former Co-Defendant [Buyer], which trades brushes and brooms.

The Defendant, a limited company, formerly known as "H. Limited Company", has been the personally liable partner of the Co-Defendant [Buyer]. Both companies entered into insolvency proceedings after the start of the court proceedings. The proceedings were continued by [Seller] as a declaratory action with the insolvency administrator of [Buyer] as a new Co-Defendant.

POSITION OF THE PARTIES

[Seller] argued that [Buyer] had ordered goods -- in addition to a refinement contract (Veredelungsvertrag), which was concluded between the parties in cooperation with Company R -- worth 140,000 Austrian schillings [AUS] and had collected a partial amount worth 107,270 AUS but had not paid for it. As [Seller] could not be held liable for acts of Company R, a set-off with claims against the latter would not be possible.

[Buyer] stated that it had delivered raw material worth 200,000 AUS to Company R according to the refinement contract. Company R, however, had not fulfilled its obligations under the contract as it had neither processed the material nor handed it back. [Buyer] would therefore be entitled to a set-off. [Buyer] additionally declared a set-off with claimed damages due to a breach of contract in the amount of 1,000,000 AUS. [Seller] had signed the contract itself and had been acting as a on behalf of Company R. Hence, the breach of contract of the latter could be assigned to [Seller].

[Seller] contested this and extended its claim in respect to costs for the proceedings in the amount of 18,033.40 AUS and interest in the amount of 6\,791.87 AUS.

JUDGMENT OF THE COURT OF FIRST INSTANCE

The Court of First Instance held that [Seller] was entitled to claim 114,031.47 AUS from the bankruptcy assets and dismissed the remainder of the claim as well as the counterclaim. The Court of First Instance ascertained the facts as follows:

According to a contract concluded between the parties on 30 January 1989, [Seller] was supposed to act as an exporter within a contractual relationship between [Buyer] and Company R.

On 20 March 1989, an additional refinement contract was concluded between Company R as producer and [Buyer].

According to Art. 2 of this contract, Company R was obliged to produce 1,330,000 brushes and brooms per year for four years. [Buyer] had to deliver the raw materials, however, under retention of title. According to Art. 3 of this contract, [Seller] was obliged to promote the export of the goods as a foreign trade firm. According to Art. 10, claims for damages against Company R were to be addressed to [Seller], the defective material was to be retained and [Buyer] and Company R had to consider together whether the goods were actually defective. The purchase price of the goods had to be paid to [Seller].

The domicile of [Buyer] was agreed on as the forum in case of disputes. A choice of law -- in respect to Austrian law -- was not agreed on. It was necessary to mention [Seller] in the contract due to Yugoslavian law as Company R did not hold an export license. Company R appointed [Seller] as exporter and was obliged to pay for [Seller]'s services, which worked on a commission basis. [Seller] was hence entitled to invoice customers, to accept payments and to transfer them to Company R.

Within the scope of this contract, [Buyer] ordered further goods and delivered via [Seller] the necessary raw materials to company R together with a pro-forma invoice in the amount of 112,500 AUS and 3,748,.80 AUS respectively and further pro-forma invoices which contained the initial purchase price the [Buyer] had to pay plus the costs for transport. These invoices were addressed to [Seller]. [Buyer] asked [Seller] about the raw material after it had been sent, after it had passed the customs clearance and after it had been stored in the storehouse of company I in Yugoslavia. In the following there was a delay of delivery as [Seller] did not inform the carrier to forward it to Company R.

In addition to the refinement contract, [Seller] partially delivered goods (stiff brushes) to [Buyer] following a separate order worth 107,240 AUS as the carrier was not able to forward the whole order. [Seller] invoiced 107,240 AUS. The remainder was to be delivered together with deliveries following from the refinement contract.

Following differences between Company R and [Seller], Company R employed Company J to export the goods to [Buyer] -- as it had done on previous occasions -- and informed [Buyer] about this.

[Buyer] hence exclusively communicated with Company J as from autumn 1989. Finally, Company R stopped its deliveries to [Buyer] and failed to restore raw materials, which had been delivered by [Buyer] and stored in the storehouse of Company R according to an invoice of 1 August 1989.

At that time, [Buyer] had already entered a bank transfer in respect to the 107,240 AUS but cancelled it due to the stoppage of deliveries and the failure to restore the raw material.

In respect to the raw material which still was in the storehouse of Company R, [Buyer] had already entered into sales contracts with German companies. The latter, however, did not claim damages following the failure of the [Buyer] to fulfill its obligations.

In 1990, [Buyer] declared avoidance of all contracts with Company R via Company J. [Buyer] unsuccessfully sought damages from J in respect to the raw material. No proceedings were initiated in Yugoslavia.

The Court of First Instance held that [Buyer] was obliged to pay 107,240 AUS to [Seller] plus 6,791.87 AUS interest according to the sales contract which was governed by the CISG. It dismissed the remainder as costs of the proceedings could not be a part of the claim.

The Court of First Instance held in respect to the counterclaim that this claim was to be directed against Company J, as the latter had replaced [Seller] in its function as exporter. Apart from that, [Buyer] had failed to substantiate its damages.

JUDGMENT OF THE COURT OF APPEAL

The Court of Appeal allowed the appeal, partially dismissed the judgment of the Court of First Instance and referred the case back to the Court of First Instance. It allowed further appeal against its judgment and stated that the appellate proceedings only concerned the counterclaim. The parties had expressly agreed on the applicability of Austrian law in respect to the legal assessment of the contractual basis of this claim.

According to Art 1298 ABGB, the party relying on an impediment beyond its control causing its failure to perform its obligation has to bear the burden of proof.

[Seller] failed to bring such proof during the initial proceedings. It had only stated that it could not be regarded as an agent of Company R and therefore could not be held liable for breaches committed by Company R. Neither the entry of Company J into the contract nor the exclusion of [Seller] was proven. It therefore had to be assumed that [Seller] was one of the contracting parties and hence obliged to restore the delivered raw materials. This could be inferred from Art. 3 of the refinement contract which clearly stated that [Seller] was responsible for the complete foreign trade activity.

Therefore, [Seller] could be held liable according to the written contract (annexe 1). As the contract had been avoided before the insolvency proceedings had been initiated and as the [Seller] had not contested the avoidance of the contract, the insolvency administrator was entitled to claim damages due to breach of contract. The existence of damages of [Buyer] were obvious in contrast to the findings of the Court of First Instance as [Buyer] had delivered raw material but which had not been restored. [Buyer], however, was not entitled to claim the amount as stated in the pro-forma invoices as the value of the raw material could not be compared to the value of the finished material.

Even if the raw material was still on the premises of Company R and even if an action for restitution could hence only be filed against Company R (according to Art. 366 ABGB), it could not be ruled out that [Buyer] was entitled to claim damages (according to Arts. 305, 1323, 1331 et seq. ABGB).

The Court of First Instance hence had to assess the value of the raw material, which entailed a further taking of evidence. The claim of the [Seller] had then to be reduced in respect to the result of the assessment. There could not be a formal judgment on the claim and counterclaim as only a declaratory action was present.

POSITION OF THE PARTIES IN THE SUPREME COURT (OGH) PROCEEDINGS

[Seller] seeks the appellate judgment to be dismissed and the judgment of the Court of First Instance to be upheld. It states that after the delivery of the raw material in dispute to Company R, all negotiations had only taken place between Company R, Company J and [Buyer]. The contracts which had been concluded during these negotiations had been avoided in mid-1990. [Buyer] had only requested Company R to restore the raw material. The exclusion of [Seller] from the refinement contract in 1989 and the inclusion of Company J would amount to a novation according to 1376 ABGB. It had been agreed that '[Seller] be excluded from the contract and that Company J entered into the contract'. This could be seen from the fact that [Buyer] had never addressed [Seller] in respect to the raw material. A liability of the [Seller] could not be inferred from the original contracts. These should be interpreted in the way that there was no liability of the exporter in respect to quality, quantity and refinement of the products and that the exporter was to be considered as a carrier. It hence could not be inferred from the contracts of 20 March 1989 and 30 January 1989 that [Seller] could be held liable for the delivered raw material. [Buyer] was only entitled to an action for restitution against Company R. A replacement of this action with a claim for damages was not possible due to a lack of comparability of the claims. As the claim of [Seller] could in no way be compared with the claim of [Buyer] there should be a separate judgment in respect to the [Seller]'s claim due to a lack of connection.

JUDGMENT OF THE OGH

The appeal is admissible but not justified.

[Buyer] ordered goods (brushes and brooms) from [Seller] worth 107,240 Austrian schillings which were then delivered and invoiced by [Seller] (exhibits B and H) according to the findings of the Court of First Instance. This contract is completely separated and independent of the refinement contract between [Buyer] and Company R.

The Court of First Instance rightfully qualified the transaction between [Seller] and [Buyer] as an international commercial sale of goods. There has been no express or implied choice of law by the parties ( 35(1) IPRG [*]), nor is Yugoslavian law applicable as the seller's law under 36 IPRG. Instead, the contract would appear to be governed by the CISG according to its Art. 1(1)(a). The CISG entered into force for Austria on 1 January 1989 (BGBl [*] 1988/96); Yugoslavia is a signatory to the Convention as well (see BGBl 1988/96, p. 1572). [Seller], having sold the goods to [Buyer], is therefore entitled to the purchase price rather than Company R. However, with respect to the contract for the refinement of brushes and brooms (exhibit 1), even though it mentions the Yugoslavian exporter as "seller" and the Austrian importer as "buyer", that contract is not governed by the UN Sales Convention (CISG). Under Art. 3(1) CISG, contracts for supply of goods to be manufactured or produced are to be considered sales unless the party who orders the goods undertakes to supply a substantial part of the materials necessary for such manufacture or production but, according to its Art. 3(2), the Convention does not apply to contracts in which the preponderant part of the obligations of the party who furnishes the goods consists of the supply of labor or other services. Under these circumstances, the contract for the refinement of brushes and brooms cannot be considered as a sales contract governed by the CISG. That contract, for which the parties expressly called upon Austrian law, provides for performance of refinements. These refinements are, in accordance with 4(1)(d) AußHG [*] 1984, not subject to the compulsory allowance of 3 AußHG 1984 as they constitute an export of goods and import of foreign materials under customs law and rules of priority transactions (cf. Schwank/Straberger, Handkommentar zum österrreichischen Außenhandelsgesetz 1984, note 29 to 4).

This can be inferred from Art. 3 of the refinement contract which speaks of a 'temporary import and export'. According to Art. 2 of this contract. Company R was obliged to refine brushes and brooms for four years and [Buyer] had to deliver the raw materials under retention of title. According to Art 9, pro-forma invoices have to be attached to the deliveries, but the goods remain the property of the [Buyer] and hence no payments have to be effected. Further documents indicate as well that only refinement works as well as pro-forma invoices were agreed on.

This is affirmed by the statements of K.N., the director of [Buyer] who stated that the raw material was delivered under retention of title. No customs had to be paid and invoices only referred to the work of Company R. Witness E.N., the director of the Defendant, affirmed that the raw materials had been delivered under retention of title and that pro-forma invoices had been necessary in order to list the goods for the reservation. The pro-forma invoices had always been sent to [Seller], which had been responsible for the export and for the customs clearances.

The applicable statute for customs stated that goods that are only temporarily exported are not subject to customs duty in case the requirements for the passive reservation proceedings are met. [...]

Company R and [Seller] were obliged to perform the refinement for four years according to Art 2 of the refinement contract. [Seller] had been included in the contract due to Yugoslavian law as Company R did not hold an export license. [Seller] was hence liable to perform under Art. 2 of the refinement contract. This is in conformity with Art. 3 which states that [Seller] was responsible for the complete foreign trade activity. [Seller] is hence at least obliged to deliver the refined products. It has failed to prove an impediment beyond its control causing its failure to perform its obligation. Hence, [Seller] can be held liable for damages. These damages can be set-off against the [Seller]'s claim for the purchase price.

A novation as alleged by [Seller] is not present. A novation consists of a change of a contractual obligation without a change of the contractual partners.

There is no proof fof a cession of the contract. The additional allegations of the [Seller] have not been substantiated as well. A separate judgment is not necessary and according to Art 391 (3) ZPO at the court's discretion.

As the value of the raw material has not been assessed yet, the appeal has to be dismissed.

The decision on costs is based on 52 ZPO [*].


FOOTNOTES

* All translations should be verified by cross-checking against the original text. For purposes of this translation, Plaintiff of Yugoslavia is referred to as [Seller] and Defendant of Austria is referred to as [Buyer]. Amounts in the former currency of Austria (Austrian schillings) are indicated as [AUS].

Translator's note on other abbreviations: AußHG 1984 = Außenhandelsgesetz von 1984 [Austrian Code on External Trade of 1984]; BGBl = Bundesgesetzblatt [Austrian Federal Law Gazette]; IPRG = Bundesgesetz über das Internationale Privatrecht [Austrian Federal Code on the Conflict of Laws]; ZPO = Zivilprozessordnung [Austrian Code of Civil Procedure].

** Jan Henning Berg is a law student at the University of Osnabrück, Germany and participated in the 13th Willem C. Vis Moot with the team of the University of Osnabrück.

*** Daniel Nagel has been a law student at Heidelberg University since October 2002 and an exchange student at Leeds University in 2004/2005.

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