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CISG CASE PRESENTATION

ICC Arbitration Case No. 7531 of 1994 (Scaffold fittings case) [English text]
[Cite as: http://cisgw3.law.pace.edu/cases/947531i1.html]

Primary source(s) for case presentation: Text of case


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Case identification

DATE OF DECISION: 19940000 (1994)

JURISDICTION: Arbitration ; ICC

TRIBUNAL: Court of Arbitration of the International Chamber of Commerce

JUDGE(S): Case report does not identify presiding arbitrator(s)

CASE NUMBER/DOCKET NUMBER: 7531 of 1994

CASE NAME: Case report does not identify parties to proceedings

CASE HISTORY: Unavailable

SELLER'S COUNTRY: China (defendant)

BUYER'S COUNTRY: Austria (claimant)

GOODS INVOLVED: Scaffold fittings


Case abstract

ARBITRATION: ICC International Court of Arbitration case no. 7531 of 1994

Case law on UNCITRAL texts (CLOUT) abstract no. 304

Reproduced with permission from UNCITRAL

A Chinese seller, defendant, sold scaffold fittings to an Austrian buyer, plaintiff. The buyer claimed lack of conformity of the goods and declared the contract avoided. Subsequently, the buyer sold the goods and sued the seller for damages, as such goods had been sold only partially and at a lower price.

The arbitral tribunal determined the CISG to be applicable to the contract in accordance with article 1(1)(a) CISG).

The arbitral tribunal allowed the buyer's claim. It held that the seller had not delivered the goods in accordance with article 35(1), (2) CISG and that the lack of conformity of an important part of the delivered goods amounted to a breach of contract by the seller which, under article 25 CISG, was fundamental since the buyer had been deprived of substantially what it was entitled to expect under the contract. In view thereof, the arbitral tribunal found that the buyer was entitled to rely on articles 49(1)(a) CISG and 51(2) CISG for declaring the contract avoided, and that the seller was not entitled to supply substitute items after the delivery date specified in the contract without consent of the buyer.

Citing articles 86 CISG, 87 CISG and 88(1) CISG, the arbitral tribunal allowed as damages costs, expenses and losses related to the buyer's reasonable expenses for preservation of the goods. In addition, under articles 74 CISG and 75 CISG, the arbitral tribunal allowed all damages (except one, the travel costs of the buyer's customer) claimed by the buyer. The buyer's claim of cost of credit was held to be an element of the damages due according to article 74 CISG.

The arbitral tribunal further held that as the CISG was silent on the question of the maturity date of damage claims and taking into account that this element of the claim was undisputed, the buyer was entitled to receive interest from the date it communicated the amount of its claim to the seller by telex.

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Case abstract

Prepared by Robert Koch for commentary on fundamental breach

"The delivery of 80,000 scaffold fittings, which did not entirely conform to the sample, was the subject of an arbitration award in a Chinese-Austrian dispute. Stating that the estimated costs of sorting out the bad fittings from the good would have amounted to more than one-third of the purchase price, the tribunal found a fundamental breach on the grounds that 'an important part' of the 80,000 scaffold fittings did not conform to the sample." Koch, Pace Review of the Convention on Contracts for the International Sale of Goods (1998) 239-240.

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Classification of issues present

APPLICATION OF CISG: Yes [Article 1(1)(a)]

APPLICABLE CISG PROVISIONS AND ISSUES

Key CISG provisions at issue: Articles 1(1) ; 10 ; 25 ; 35(1) and 35(2) ; 48 ; 49(1)(a) ; 74 ; 78 ; 84(1) ; 86 ; 87 ; 88(1) [Also cited: Articles 44 ; 45 ; 51 ; 75 ]

Classification of issues using UNCITRAL classification code numbers:

1A1 ; 1B1 [Internationality, parties' places of business in different States: what constitutes place of business; Basic rules of applicability: parties in different Contracting States];

10A [Which of multiple places of business is relevant (liaison office not counted)];

25B [Definition of fundamental breach: substantial deprivation of expectation, etc.];

35A ; 35B [Conformity of goods to contract: quantity and description required by contract; Requirements imposed by law];

48A1 [Cure by seller after date for delivery: seller's right to remedy any failure to perform (examples: delivery, repair, providing substitute goods)];

49A1 [Buyer's right to avoid contract: grounds for avoidance (fundamental breach of contract)];

74A ; 74B [Damages (general rules for measuring): loss suffered as consequence of breach; outer limits of damages (foreseeability of loss)];

78A ; 78B [Interest on delay in receiving price or any other sum in arrears; Rate of interest];

84A [Seller bound to refund price must pay interest];

86A [Buyer's duty to preserve goods: duty of buyer who has received goods and intends to reject];

87A [Preservation of goods by deposit in warehouse];

88A [Party obliged to preserve goods may sell them]

Descriptors: Applicability ; Business, place of ; Internationality ; Conformity of goods ; Avoidance ; Fundamental breach ; Examination of goods ; Preservation of goods ; Storage of goods ; Damages ; Foreseeability of damages ; Interest

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Editorial remarks

EDITOR: Albert H. Kritzer

CISG issues ruled upon:

Applicability/Internationality. The contract was concluded between a seller from China and a buyer from Austria at a time when the CISG was in effect in both countries. The internationality requirement of Article 1(1) was deemed satisfied (contracting parties with their relevant places of business in different States) notwithstanding the fact that buyer's liaison office in China may have been involved in the negotiating process. The CISG was held applicable pursuant to Article 1(1)(a).

Conformity of goods. The contract involved 80,000 scaffold fittings delivered to buyer's customer in England. The tribunal found there was a lack of conformity of an important part of the goods. The tribunal stated: "Under Article 35(1) of the Convention the seller must deliver goods which are of the quality required by the contract. According to Article 35(2) the goods do not conform with the contract unless they are fit for the purposes for which goods of the same description would ordinarily be used and possess the qualities of goods which the seller has held out to the buyer as a sample."

Fundamental breach. The tribunal stated: "The lack of conformity of an important part of the goods supplied amounts to a breach of the contract which, under Article 25, is fundamental since the buyer is deprived of substantially what he was entitled to expect under the contract."

Avoidance. The tribunal stated: "According to Articles 49(1)(a) and 51(2) of the Convention [buyer] may declare the contract avoided."

Two possible defenses to avoidance were raised and rejected. They had to do with:

Preservation of the goods. The tribunal stated: "Under Article 86 the buyer is entitled to have his reasonable expenses for preservation of the goods reimbursed by the seller; he may deposit the goods in a warehouse at the expense of the seller if the expense is not unreasonable (Article 87); and he may sell the goods by appropriate means if there has been an unreasonable delay by the seller in taking possession of the goods (Article 88(1))."

Without elaborating on the manner in which these provisions apply to the facts (other than to indicate that buyer was able to resell part of the goods: at a lower price), the tribunal appears to have allowed as damages costs, expenses and losses associated with the above, commenting further:

Damages, foreseeability of. Citing Article 45(1), the tribunal stated that "under Article 75 [buyer] becomes entitled to damages equal to the loss, including loss of profit, to the extent the loss was, or ought to have been, foreseen by the seller." Although Article 75 is the provision so cited, Article 74 appears to have been the provision intended, as Article 75 applies to the purchase of replacement goods by buyer and the opinion does not refer to any such replacement purchase by buyer.

Only one item of damages claimed by buyer was disallowed. The tribunal stated: "I cannot find that the amount claimed for the travel costs of Mr. X -- an employee of [buyer's] customer -- are such as could reasonably have been foreseen and accordingly [seller] should not be liable therefor."

Interest (right to, accrual of, rate of). In assessing interest under the CISG, support for a creditor's right to interest is encountered under several provisions of the Chapter on Provisions common to the obligations of the seller and the buyer:

Referring only to Article 74, the tribunal stated: "The damages suffered by [buyer] includes the cost of credit which has been stated by [buyer], undisputedly, at 11% per annum and which should be compensated at that rate as an element of the damages due according to Article 74."

The tribunal also stated: "The Convention is silent on the question of the maturity date of damage claims. . . . [Buyer] claims interest from the date when it communicated the amount of its claim to [seller] by telex. . . . [Since] this particular aspect of the claim is . . . undisputed, interest should be granted from the date claimed by [buyer]."

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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=139&step=Abstract>

French: Bulletin de la Cour Internationale d'Arbitrage de la Chambre de Commerce Internationale (November 1995) 66

Italian: Diritto del Commercio Internazionale (1996) 636 No. 109

CITATIONS TO TEXT OF DECISION

Original language (English): ICC International Court of Arbitration Bulletin (November 1995) 67-68; Unilex database <http://www.unilex.info/case.cfm?pid=1&do=case&id=139&step=FullText>

Translation (French): Bulletin de la Cour Internationale d'Arbitrage de la Chambre de Commerce Internationale (November 1995) 66-67

CITATIONS TO COMMENTS ON DECISION

English: Mullis, Avoidance for Breach under the Vienna Convention: Critical Analysis of Some of the Early Cases (1998) nn.87, 100; Koch, Pace Review of Convention on Contracts for International Sale of Goods (1998) 239-240 [fundamental breach (gravity of consequences of breach): contract's overall value and monetary loss suffered by aggrieved party]; Gillette/Walt, Sales Law Domestic and International (Foundation Press 1999) 208 [criticism of fact that "tribunal has intimated, without citing Article 48, that the seller's right to cure after delivery is contingent on the buyer's consent"]; Ferrari, International Legal Forum (4/1998) 138-255 [157 n.175 (liaison office not "place of business"), 244 n.998 (reference to Art. 44)]; Honnold, Uniform Law for International Sales (1999) 34 [Arts. 1(1), 10 (place of business: sojourn during negotiations)]; for analysis of the remedy of avoidance citing this and other cases, go to Kazimierska, Pace Review of the Convention on Contracts for the International Sale of Goods (1999-2000) n.215; Koneru, 6 Minnesota Journal of Global Trade (1997) 105 [123-124 n. 85]; Kizer, 65 University of Chicago Law Review (1998) 1279-1306 [comments on interest rulings in this case and other cases]; Petrochilos, Arbitration Conflict of Laws Rules and the CISG (1999) nn.78, 113; DiMatteo, The Law of International Contracting, Kluwer (2000) 240-241; Graffi, Case Law on the Concept of "Fundamental Breach" in the Vienna Sales Convention, Revue de droit des affaires internationales / International Business Law Journal, No. 3 (2003) 338-349 at nn.72, 87; Liu Chengwei, Recovery of interest (November 2003) n.21; Larry A. DiMatteo et al., 34 Northwestern Journal of International Law & Business (Winter 2004) 299-440 at nn.647, 708, 756, 812; [2005] Schlechtriem & Schwenzer ed., Commentary on UN Convention on International Sale of Goods, 2d (English) ed., Oxford University Press, Art. 48 para. 9; Spaic, Analysis of Fundamental Breach under the CISG (December 2006) n.287

Finnish: Huber/Sundström, Defensor Legis (1997) 747 [749 n.8]

German: Will, UN-Kaufrecht und internationale Schiedsgerichtsbarkeit (1999) n.28

Spanish: Perales, Cuadernos Jurídicos 3 (1996) No. 43, 5 [7 n. 29, 8 n. 42, n. 43] [commentary on Article 78: determination of rate of interest under the CISG (review of case law)]

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Pace Law School Institute of International Commercial Law - Last updated March 20, 2007
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