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CISG CASE PRESENTATION

Hungary 5 December 1995 Budapest Arbitration proceeding Vb 94131 (Waste container case) [translation available]
[Cite as: http://cisgw3.law.pace.edu/cases/951205h1.html]

Primary source(s) for case presentation: Case text


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Case identification

DATE OF DECISION: 19951205 (5 December 1995)

JURISDICTION: Arbitration ; Hungary

TRIBUNAL: Arbitration Court of the Chamber of Commerce and Industry of Budapest

JUDGE(S): Roland Loewe, arbitrator

CASE NUMBER/DOCKET NUMBER: Vb 94131

CASE NAME: Unavailable

CASE HISTORY: Unavailable

SELLER'S COUNTRY: Hungary (claimant)

BUYER'S COUNTRY: Austria (defendant)

GOODS INVOLVED: Waste containers


Case abstract

HUNGARY: ARBITRATION 5 December 1995 Arbitration Court Budapest Chamber of Commerce and Industry

Case law on UNCITRAL texts (CLOUT) abstract no. 164

Reproduced with permission from UNCITRAL

The [seller], a Hungarian company, and the [buyer], an Austrian company, signed a contract for the sale of containers. The [buyer] paid for only a part of the delivered goods. The [seller] requested payment of the outstanding balance. The [buyer] refused payment owing to the poor quality of the goods.

The arbitral court applied the CISG since, in accordance with the contract between the parties, the law of the country of the [seller] was applicable. It was held that the [buyer] had to pay since it had failed to give notification about the defect of the goods (article 39(1)CISG). In addition, the arbitral court found that the [buyer] could not declare the contract avoided on the basis that the terms of delivery had not been established by the parties (article 49(1) CISG). As to the interest rate, the arbitral court, referring to article 7(2) CISG, held that it had to be adjusted taking into account the currency in which the contract price had been agreed upon.


Case abstract

Prepared by Camilla Andersen for commentary on notice issues under Article 39(1)

"The sole arbitrator assessed a time-frame of 32 days after discovery of non-conformity of waste containers in the light of Article 39(1). He considered 'the speed in which the parties were used to carry on their relationship under the contract,' and concluded that 32 days was not reasonable time as understood by Article 39(1). . . . [T]he arbitrator did not dismiss a period of about a month, but used the individual circumstances of the case to determine that notice should reasonably have been given sooner. The factor introduced to reduce the acceptable period of time was an entirely applicable one. The parties' reliance on previous speedy negotiations and communications was a valid concern when determining the reasonableness of a communicated notice, and thus should be considered in the light of Article 9(1)." Andersen, Review of the Convention on Contracts for the International Sale of Goods (1998) 144-145.

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Classification of issues present

APPLICATION OF CISG: Yes

APPLICABLE CISG PROVISIONS AND ISSUES

Key CISG provisions at issue: Articles 3(1) ; 9(1) ; 38 ; 39(1) ; 46 ; 49(1) ; 50 ; 71(1)(b) ; 74 ; 78 [Also cited: Articles 1(1) ; 7(2) ; 37 ; 44 ]

Classification of issues using UNCITRAL classification code numbers:

3A [Goods to be manufactured: buyer supplies 10% of materials];

9C [Practices established by the parties];

38A [Buyer's obligation to examine goods];

39A2 [Requirement to notify seller of lack of conformity: buyer must notify seller within reasonable time];

46C [Buyer's right to require repair of non-conforming goods];

49A [Buyer's right to avoid contract: grounds for avoidance];

50A [Buyer's right to reduce price for non-conforming goods];

71A12 [Grounds for suspension of performance by other party: conduct in performing or preparing to perform contract];

74A [Damages (general rules for measuring): loss suffered as consequences of breach];

78B [Interest on delay in receiving price: rate of interest (currency of payment taken into account)]

Descriptors: Material supplied by buyer ; Usages and practices ; Examination of goods ; Lack of conformity notice, timeliness ; Repair ; Reduction of price, remedy of ; Suspension of performance ; Damages ; Interest

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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=181&step=Abstract>; Forum des Internationalen Rechts/ The International Forum [English Language Edition] 1996, 211

German: Schweizerische Zeitschrift für Internationales und Europäisches Recht (SZIER)/ Revue suisse de droit international et de droit européen (1996) 141-142

Italian: Diritto del Commercio Internazionale (1997) 752-754 No. 168

Polish: Hermanowski/Jastrzebski, Konwencja Narodow Zjednoczonych o umowach miedzynarodowej sprzedazy towarow (Konwencja wiedenska) - Komentarz (1997) 294

CITATIONS TO TEXT OF DECISION

Original language (German): CISG online website ("http://www.jura.uni-freiburg.de/ipr1/cisg/urteile/text/163.htm"); Unilex database <http://www.unilex.info/case.cfm?pid=1&do=case&id=181&step=FullText>; Neue Juristische Wochenschrift-Report Zivilrecht (NJW-RR) 1996, 1145-1146 [part of text]; Forum des Internationalen Rechts/ The International Forum (1996) 211-212 [part of text]

Translation: Text presented below

CITATIONS TO COMMENTS ON DECISION

English: Ferrari, International Legal Forum (1/1998) 138-255 [188 n.429, 189 n.440 (analysis of Art.3(1)), 254 n. 1082 (interest issues)]; Honnold, Uniform Law for International Sales (1999) 58 [Art. 3], 280 [Art. 39(1) (timeliness of notice)], 340 [Art. 50]; Behr, 17 Journal of Law and Commerce (1998) 266-288 [abstracts and comments on 29 interest rulings from 10 countries (this case presented at 283)]; Thiele, 2 Vindobono Journal (1998) 3-35, citing this case [n.75, n.125, n.149, n.155] and 42 other interest rulings; for a survey of close to 100 judicial and arbitral rulings on Article 39(1), go to the 1998 Pace essay on this subject by Camilla Baasch Andersen; Koch, Pace Review of Convention on Contracts for International Sale of Goods (1998) 236-237 n.204 [fundamental breach (nature of contractual obligation): timely delivery]; Petrochilos, Arbitration Conflict of Laws Rules and the CISG (1999) n.89; Spanogle/Winship, International Sales Law: A Problem Oriented Coursebook (West 2000) [cure 207-213 (this case at 209-210)]; Kuoppala, Examination of the Goods under the CISG and the Finnish Sale of Goods Act (2000) 4.4.1.4 [analysis of related articles 38, 39, 40 and 44 (includes digests of relevant material in many CISG cases; also digests cases under a domestic sales code that is patterned, for the most part, after the CISG)]; 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 n.45; Liu Chengwei, Recovery of interest (November 2003) n.237; Larry A. DiMatteo et al., 34 Northwestern Journal of International Law & Business (Winter 2004) 299-440 at nn.627, 664-665; CISG-AC advisory opinion on Examination of the Goods and Notice of Non-Conformity [7 June 2004] (this case and related cases cited in addendum to opinion); [2005] Schlechtriem & Schwenzer ed., Commentary on UN Convention on International Sale of Goods, 2d (English) ed., Oxford University Press, Art. 3 para. 3a Art. 39 para. 16 Art. 78 para. 30; Schwenzer & Fountoulakis ed., International Sales Law, Routledge-Cavendish (2007) at p. 42; Spaic, Analysis of Fundamental Breach under the CISG (December 2006) n.275

German: Will, UN-Kaufrecht und internationale Schiedsgerichtsbarkeit (1999) n.14

Finnish: Huber/Sundström, Defensor Legis (1997) 747 [758 n.53]

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Case text (English translation) [second draft]

Queen Mary Case Translation Programme

Arbitration Court
Attached to the Hungarian Chamber of Commerce & Industry
5 December 1995

Translation [*] by Marko Maljevac [**]

Translation edited by Dr Loukas Mistelis [***]

AWARD

In case No. VB/94131 of the Arbitration Court of the Hungarian Chamber of Commerce and Industry between the [seller] B, Budapest, represented by attorney Dr. () and the [buyer] C., Vienna, represented by attorney Dr. () on the statement of claim by the [seller] for 370,284.05 sA [Austrian Schillings] and the set-off against it claimed by the [buyer] in the amount of 758,835 sA, interest and costs,

The sole arbitrator Dr. (), Vienna,

1. Has decided

The objection of the [buyer] concerning the lack of jurisdiction of this Arbitration Court is rejected.

2. Has ruled

REASONS

Ad. 1: [Jurisdiction of the Arbitration Court]

The [buyer] concluded a contract, with Company E on 8 March 1993 in Budapest. Paragraph D.1 of the contract states:

"Disputes:

The parties will permanently endeavor to resolve by mutual agreement any disputes arising out of the contract.

In the event that these disputes cannot be resolved amicably, the parties irrevocably agree:

All disputes arising out of the present contract will be finally settled according to the rules of procedure [rules of arbitration and or conciliation] of the Arbitration Court of the Federal Economic Chamber in Vienna or Budapest, by one or more arbitrators nominated according to these rules. The claimant will decide between jurisdictions, Vienna or Budapest. The law of the State to which the claimant belongs will be applicable.

The decision of this Arbitration Court is binding and it cannot be appealed."

[Buyer's position]

The present claimant [seller], as legal successor of the original party to the contract, filed a claim on 31 August 1994. The [buyer] opposed the jurisdiction of the Arbitration Court with the following argument: The [seller's] succession of the original company, party to the contract, is not proven. Furthermore, conclusion of an arbitration agreement is a matter of trust, the [buyer] did not conclude such a contract with the present [seller]. Furthermore, the arbitration agreement has no legal effect because it does not finally stipulate which Arbitration Court is competent. Therefore, it is possible that statements of claim and counterclaim will be filed before different Arbitration Courts and also different substantive law could be applied in parallel proceedings.

[Seller's position]

The [seller] presented the original decision and unauthorized translation of the decision of the Budapest Metropolitan Court as the Court deciding on company names on 8 November 1994, No. 01-09-264787/26/I, and the confirmation of enforceability on 9 January 1995. The decision stated that the [seller's] company name was changed but the legal predecessor had been the original party to the contract. In the protocol to the arbitral proceeding of 20 September 1995, the [buyer] did not challenge the unauthorized translation and acknowledged that [seller] is the (universal) successor of the original party to the contract.

[Tribunal's reasoning]

The conclusion of the arbitration agreement is not conditional on a special relationship of trust between the parties. Also, a party cannot escape an agreement against the legal successor claiming that the successor is less trustworthy than the original party to the contract. The same is true for almost all parts of the contract; the opposite would lead to complete legal uncertainty. Entire libraries have been written about arbitration proceedings and arbitration agreements that come into play just when a party considers that a trust towards the other party has been broken. To the arbitrator's knowledge, there is no author or court decision that supported the nullity of an arbitration agreement because of the diminished trust of one of the parties toward the other party or its successor.

Agreements on elective [floating] jurisdiction of Judicial Courts and also Arbitration Tribunals are common; they are neither forbidden nor null either by Hungarian, or Austrian law - and probably by any other national law. The elective competence of Courts in different States is a result of jurisdiction rules. It is provided in all international treaties on jurisdiction, and above all in those on the enforcement of court decisions and necessary conditions (see at least twenty examples in Loewe, Zwischenstaatlicher Rechtsverkehr in Zivilrechtssachen, Manz Verlag Vienna 1984 and new additions in 1987). Article IV of the European Convention on International Commercial Arbitration of 21 April 1961, parties to which are also Hungary and Austria among twenty other States, sets forth the possibility for a claimant to choose, not directly among Arbitration Courts, but among persons or places that have to determine [or nominate] the arbitrator in international commercial proceedings. Many treaties among national chambers of commerce as well as the agreement between the Hungarian Chamber of Commerce and Industry in Budapest and the Federal Economic Chamber in Vienna of 1 March 1990, provide for an arbitration proceeding in which the appointing authority is the president of the chamber in the State in which a claimant does not have its seat. In all these cases, there is a possibility of parallel proceedings in different States in which - due to different rules of private international law - different substantive law is applicable. The [buyer's] fears apply to the entire setting of international legal cooperation. They do not offer a reason not to apply an arbitration agreement.

Because of that, the objection that this Arbitration Court has no jurisdiction is rejected.

Ad. 2: [Substantive issues]

The contract of 8 March 1993 was concluded in German. Almost all written or oral communications between the parties have been in that language. That is an indication that the arbitration proceeding is to be conducted in German. The Arbitration Court of the Hungarian Chamber of Commerce and Industry has decided accordingly by appointing a single Austrian arbitrator who has not mastered the Hungarian language. Mrs. Csikós Gyorgyné was an interpreter in the arbitration proceedings.

The said contract was a frame contract. It provided for the production and delivery by the [seller] of waste containers and bins; other relevant contractual provisions will be carefully considered below.

Hungarian law is applicable according to the arbitration agreement. Hungary (Regulation No. 20/1987, Official Journal No. 55/87) and Austria (Federal Official Journal 1988/96) are parties to the United Nations Convention on Contracts for the International Sale of Goods of 11 April 1980 [CISG]. This Convention is, as Hungarian law, applicable to contracts for the sale of goods between Hungarian and Austrian parties, according to Article 1(1)(a) and 1(1)(b) CISG, as long as parties did not exclude its application according to Art. 6, The parties have not excluded the application of this Convention. According to CISG Art. 3(1), contracts for the supply of goods to be manufactured or produced are to be considered sales contracts unless the party who orders the goods undertakes to supply a substantial part of the materials necessary for such manufacture or production. The [buyer] supplied metal and accessories necessary for production of containers and bins. The relation between the value of the materials supplied by the [buyer] and the value of those supplied by the [seller] is not necessarily relevant, but this relation can be a basis for the applicability of the Convention. The [buyer] has, for example, supplied material and accessories to the value of 23,000 sA for production of twelve containers. That is less than 2,000 sA per container. The average price of a produced container is between 12,000 sA and 20,000 sA. Therefore, one cannot say that was a substantial part. For some containers, [buyer] supplied more expensive materials, namely aluminium plates. It would not be reasonable to apply internal Hungarian law and to exclude the Convention only on the supply of these containers, because legally the contract is to be understood as a whole. At the hearing on 4 July 1995, it was agreed to apply the Convention to the entire contractual relationship.

The parties filed their claims and defenses, respectively, and exchanged other written submissions. On 4 July, 20 September and 19 October 1995, oral hearings were held at the place of arbitration. The evidence was taken by inspecting the different written statements and by hearing witnesses H, J and G, as well as the [buyer's] manager K as a party. The parties did not insist on hearing other witnesses who were called but did not appear. The inspection and evaluation by an expert of individual containers that were delivered by the [seller] to the [buyer] could not contribute to the clarification of the situation. The parties did not make submissions on that. The arbitrator did not use the possibility of official request provided for in the Rules of Arbitration proceedings, 34 para. 5. That would cause relatively high costs because the containers are placed at different places (and perhaps they cannot be traced anymore). On the other hand, after using waste containers for a year and a half, or two years, it probably could not be precisely established whether they previously showed any lack of conformity at all, and even if they did, which ones did so. Because of that, the arbitrator had to freely establish, out of the whole contract, the amount of counterclaim, especially in cases where he was convinced that the [seller] caused damage, by breaching the contract, which [seller] has to reimburse or that he gave reasons to the [buyer] to use the reduction of price. That is in accordance with Hungarian Civil Procedure Law 206 para. 2 and with Austrian Civil Procedure Law 273 para. 1.

The [seller] sought the payment of invoices for delivered containers and their repair in the total amount of 370,284.05 sA. The [buyer] did not deny either the accuracy or the amount in the invoices, or the fact that he did not pay. On the other hand, [buyer] counterclaims a set-off against the amount of [seller's] claim in the amount of 758,835 sA. These counterclaims are to be calculated out of: the already paid or unpaid price (CISG Art. 50), any damages (CISG Art. 74), the contractually determined damages (penalties), the cost of delivery of the metal and accessories, and the amount already paid [by buyer] for a container never delivered and for other services.

According to paragraph E.2 of the contract, invoices conveyed to the [buyer] in the first half of the month had to be paid on the 15th day of the same month. Invoices conveyed [to buyer] in the second half of the month had to be paid by the last day of that month. Among the invoices not paid [by buyer] were ones in the amount of:

 -    180,783.00 sA, due on 15 December 1993;
 -      85,110.00 sA, due on 15 January 1994;
 -      44,000.00 sA, due on 31 January 1994;
 -      57,733.50 sA, due on 15 February 1994;
 -        2,657.55 sA (34,277.55 sA less 31,620 sA for two containers which were not delivered), due on 28 February 1994.

The [buyer] was allowed to deduct all costs caused by the lack of conformity in the goods from the current invoices, according to paragraph B.5(3) of the contract. The same is true for contractual penalties for delays in delivery, according to paragraph E.3(2) of the contract. The term "current" invoices is, according to this arbitrator, to be understood as all invoices that are not already paid. That is, counterclaims can be deducted from the earliest invoice or the earliest unpaid one - taking interest into account.

Therefore, the order of counterclaims in the arbitral award is irrelevant. Strict chronological order was not applied, for the sake of clarity. Instead, the order in which the [buyer] presented the counterclaims was used. Furthermore, [seller] has not presented the order of his unpaid invoices chronologically.

On 23 [November] 1993, [buyer] ordered from the [seller] three containers for Company Be. One of these containers was delivered on 9 December 1993, the other two on 17 December 1993. Paragraph E.3 of the frame contract provided for a maximum period of delivery of three weeks from the date of ordering. In the case of non-compliance to this period, it was stipulated to pay 1% per day, maximum 10% as contractual penalties. The invoice for the two containers delivered too late was in the amount of 44,000 sA. The [buyer] sought (only) 453.20 sA as penalties. This sum is awarded to him.

Those two containers had to be repaired afterwards. All witnesses, including G, formerly employed by the [buyer], confirmed that this was a consequence of [buyer's] poor instructions, not the [seller's] fault. One of the written communications from the [buyer] to the [seller] stated that the adjustment of the two containers was [buyer's] fault, and it was not necessarily a correction of a defect caused by the [seller].

On the other hand, the third container showed a lack of conformity that was caused by the [seller]. A pointy hole appeared between the container's bottom and sidewall, requiring difficult repairs. The fault was notified on 29 December 1993, i.e., within reasonable time (Art. 39 CISG). Because of the lack of conformity, Company Be withdrew from its contract with the [buyer]. This container could be sold again, according to the credible statements of witness G and the [buyer's] manager K, but until now it has not been sold. According to witness G, the [buyer] would have been satisfied to dispose of the container for 20,000 sA. This is one of the few containers for which the [buyer] provided aluminium plates, the price of which for the [buyer] himself was 24,980 sA. Moreover, the [buyer] supplied metal in value of 1,211 sA and paid for the transport from Budapest to Austria valued at 3,500 sA.

According to [CISG] Art. 74, damages for breach of contract by one party include loss of profit that must be reimbursed to the other party. The container was to be sold to Company Be for 66,000 sA. If one appraises its value in the defective condition at 15,000 sA, the loss to be reimbursed by the [seller] is 51,000 sA. That is not more than the sum of 36,218 sA sought by the [buyer]. The sum of 20,000 sA, not paid to the [seller], was not taken into account. The [buyer] disputed the obligation to pay the price in a written communication. Later, by mistake, the [buyer] did not put this claim on the list of counterclaims.

On 20 October 1993, the [buyer] ordered two containers for Company R. They were delivered on 15 November 1993, i.e., five days too late. Therefore, 5% of the price of 62,143 sA, that is, 3,107.15 sA, as contractual penalty is awarded to the [buyer]. On 25 November 1993, a relatively minor defect was notified. It was a defect in the paint job that required 1kg of paint to be mended. At the same time, the [seller] was warned of unspecified, consequential losses. The [buyer] claimed severe damages evolved in production as well as in painting. After the notification, [seller] expressed its willingness to repair the damages. Witness J, [seller's] employee, said it was not obvious why the two containers had to be transported back to Hungary because of minor defects in paint. The problem was in the quality of paint. Also, there was a defect on the inner door, i.e., too thick a coat of paint which had attracted dirt and sealed the door. These defects were repaired, but it would have been less expensive to do that at the premises of the customer of the [buyer].

The [buyer] claims, besides the contractual penalties that belong to him for the late delivery, damages in the amount of 115,994.80 sA. These consist of: 16,701 sA for buying the paint from the Company Gr, Germany, plus 567 sA for the custom duties, 9,270 sA for the new paint job by the Company St as well as 60,840 sA for "its own services", i.e., travelling to R and examinations and conferences there that lasted for several days.

Also, an invoice of Company Gr was presented. It was in the amount of 1,961.90 DM [Deutsche Mark] (which is 14,000 sA, not 16,701 sA) for 180 kg of zinc-based paint and 40 kg of two-component lacquer not including hardener and other material.

According to the supplier's statement about viscosity (3.9 m/kg and 6.4 m/kg), one could use this quantity for a surface of 700m and 260m. It is obvious that two waste containers cannot have this surface. Also, the invoice of Company St raises doubts. It states "two pieces of cleaned containers 1-2 times" (?) "to brush-paint, and/or, to roller-paint." As was clearly stated in the description by Company Gr, the material delivered with this invoice cannot be used for brush or roller painting. It can only be sprayed by using different methods. By using a brush, the paint would probably dry on the brush before being applied. More surprising are the "[buyer's] own services" in the amount of 60,840 sA. They include twice the two days that manager K spent at the [buyer's] location inspecting containers and negotiating, and also twice the one day that [buyer's] Mr. Böhn spent there, always travelling back and forth in separate automobiles, etc. Manager K, who was examined as a party, has been so motivated by the expenses he calculated in the amount of 7,200 sA per day, that the company spent on him 100,000 sA per month including wages and other expenses. Moreover, he worsened [buyer's] position by his statements that only the inside layer of paint was too thin, after returning two containers from "repair" in Budapest, which Company St had to paint again. Witness G was more sincere: he does not understand technical points, he only had to perform his duties, but he can remember the issue in question as he ordered the painting materials. Surprisingly, Gr's invoice for already delivered materials was issued on 22 December 1993. That is the moment when the containers had been on the way to Budapest for repair (20 December 1993). They were returned on 20 January 1994. Only on 11 March 1994, did the [buyer] inform the [seller], in a letter that concerned other questions, that the inside coat of paint was too thin, as it was before, and that a company in Austria had to improve it.

Taking into account contradictory, and hence less convincing, evidence of the [buyer], the arbitrator relied on the statement of witness J. A new and timely notification (Art. 39 CISG) of defects more significant than the defects in the painting, which were repaired by the [buyer], was not done. The [buyer] did not provide a reasonable excuse for this failure (Art. 44). Because of that, no counterclaims can be awarded to the [buyer] - except for already mentioned penalties.

On 7 January 1994, the [buyer] ordered two containers for Company O. On 21 January 1994, in due time, the [buyer] notified that these containers were not solid. According to the later request to Company P, which will be discussed below, only one of these containers was not solid.

The [buyer] requested from the [seller] that they together inspect the containers at Bruck an der Mur and that the [seller's] representatives come to the [buyer] on 1 February 1994 at 7:30 in the morning (!) They were late; manager K was already on his way to Bruck an der Mur. They followed him there but he left Bruck an der Mur for another place in Steiermark. The representatives convinced themselves of the damages and O and the [seller] agreed that the [buyer] should approach the [seller] for this reason, for there was no business relationship between O and the [seller]. The [seller] contacted the [buyer] and declared to be ready to repair under the condition that the containers are paid first; especially because of the fact that O had communicated to the representatives of the [seller] that he had already paid the [buyer]. Notwithstanding that, the [buyer] himself declared that he owed to [seller] 186,208.25 sA, on 1 March 1994, the payment for containers before they are repaired was refused. The Slovak Company F repaired according to [buyer's] instructions. The [buyer] wants to charge this to the [seller] in the amount of 42,158 sA. Out of this amount 2,574 sA went to Company P.

Improvement through repair was [seller's] duty. According to CISG Art. 71(1)(b), [seller] may suspend the performance of his obligations if, after the conclusion of the contract, it becomes apparent that the [buyer], as a result of his conduct in preparing to perform or in performing the contract, will not perform his obligations. According to CISG Art. 53, the buyer's obligations are to pay the price for the goods and to take delivery of them. All payments claimed were due at the time when the [buyer] refused to pay. In this arbitral proceedings, it was established that the debt was already well over 200,000 sA, without taking into account the price of the two containers delivered to O and possible connected counterclaims. The [seller] was led to believe that the [buyer] would not voluntarily pay, and could therefore refuse to do improvements according to CISG Art. 71(1)(b). Nevertheless, [seller] must accept reduction of price according to CISG Art. 50. Taking into account the price paid to Company P and the job done by the [buyer's] employees, it is appropriate to assess the diminishment in value in the amount of 15% of the price, i.e., 8,660 sA.

On 12 October 1993, the [buyer] ordered two containers for Company L. Taking into account the stipulated time of delivery that was three weeks, they had to be delivered on 2 November 993. In a meeting between the representatives of both parties, the date of delivery was set at 23 October 1993. The containers were actually delivered on 2 November 1993. Because of that, [seller] has to pay contractual penalties for nine days which is 9% of the price of 45,000 sA, i.e., 4,050 sA. The delivered containers showed significant damage in the paint job, as well as some minor defects. In a fax of 20 December 1993, within the reasonable time, the [buyer] complained about the defects and informed that his buyer will repair himself, which would cost between 20,000 sA and 30,000 sA. The [buyer] set a time limit of 24 hours (!) for a response. The fax was probably found or read by the [seller's] competent employees after the Christmas holidays. The time limit for a response was extremely brief. In general, the relationship between the parties evolved in a way that the [buyer] - sometimes in an arrogant way - set ultimata. Examples are the meeting at 7:30 at a place which is at least three hours, by car, away from Budapest or in an "instruction" in the Be case to be present at a certain hour by the highway exit Vorchdorf - five hours by car from Budapest, which request came to the [seller] just an hour before the appointment. The [buyer's] explanations, that the appointment was previously arranged, is illogical because even the memory of an appointment - if it was forgotten - that cannot be kept is futile.

During meetings that followed, the [seller] did not dispute defects in the paint job but did dispute other defects. This was in vain for the [seller]. According to CISG Art. 46, the buyer may require the seller to remedy a breach, but he is not compelled to. If [buyer] decides to do so, he can request that by a claim, taking into account conditions provided in the [CISG], especially setting a reasonable Nachfrist, [buyer] can avoid the contract. In any case, he can claim reduction of price and/or damages.

Company L performed repairs itself and served an invoice to the [buyer] in the amount of 25,000 sA. The [seller] finds these expenses too high (statement G) but does not offer any evidence to support his opinion. In contrast to previously considered cases of notification, the [buyer] did not support these counterclaims with uncertain invoices or unsupported invoices of his own services for which necessity, performance or real value were not proved. On the contrary, the [buyer] offered invoices that seem to be done according to correct calculations by his buyer and which amount was predicted. The [seller] had to prove these calculations were set too high with [buyer's] approval or that the [buyer] could have objected to these successfully.

Generally, it is in accordance with the idea of CISG Art. 50 to set a reduction of price in accordance with the price level at the place where the goods are being directed that the seller knows of; or in accordance to the price level at the place where the buyer is situated (Loewe, Internationales Kaufrecht, Manz Verlag Wien 1989, p. 73). In this case, the [buyer] has a total counterclaim in the amount of 29,050 sA.

On 20 September 1993, a container was ordered for the Company Hö. The time of delivery was 11 October 1993. In a meeting record of 12 October 1993, the date of accepting the delivery was set at 18 October 1993, i.e., the time limit was prolonged. A truck sent to Budapest on 19 October 1993 could not take the container because it was not ready for transportation. Only on 26 October 1993, was the container loaded on a truck from Linz. The expenses of another truck that had to be used were 7,000 sA, the penalties for seven days were 7% of the container's price of 40,550 sA, i.e., 2,838.50 sA. The [buyer] alleges that Company Hö discovered a set of defects only in April when emptying the container. The following were presented as evidence: largely unreadable photocopy of the record of a meeting that perhaps was made by the [buyer's] employee, notification of defects on a [buyer's] form with his confirmation of acceptance, dated 18 March 1994, also unsigned, and a proforma invoice for remedying the defects in the amount of 8,292 sA. On that evidence, witness J stated that [seller] got only the information about remedying the defects on 19 April 1994, but did not understand what it was about.

Neither the [buyer] nor Company Hö found defects when the containers were delivered. The contract, in its paragraph B.6 Z.4, contains an unintelligible sentence: "The [seller] is bound for six months for non-conformity except for hidden defects." Obviously, the parties did not intend that the [seller] is not responsible for hidden defects or, to the contrary, that [seller] is responsible for them without time limits; the sentence should be understood as if the words "except for hidden defects" were not written. Therefore, the [seller] is responsible for defects which existed at the time of delivery, but showed up only afterwards. CISG Art. 39(1) is applicable not only for lack of conformity discovered immediately, i.e., during examination according to Art. 38, but also on a lack of conformity that appeared afterwards. The [buyer] knew of the defects since 18 March 1994. The [seller] was notified for the first time on 19 April 1994 by pro forma invoices; in any event, previous notifications cannot be proved. If one considers that, in general, business between the parties proceeded promptly, this period of time was too long; therefore, the [buyer] lost the right to rely on lack of conformity according to Art. 39 CISG. The third part of paragraph B.5 of the contract provides that, for any lack of conformity that the [buyer] discovers later, the [seller] accepts all resulting expenses and that those expenses can immediately be deducted from unpaid invoices. It cannot be interpreted in a manner that the [seller] declined timely notifications of defects, and certainly not that he was bound to accept alleged expenses without proving their sustainability. As a result, only already established counterclaims in the amount of 9,838.50 sA are awarded to the [buyer], resulting from the delivery of a container for Company Hö.

The [buyer] provided metal and accessories, in the value of 22,994.40 sA, sufficient for twelve containers that were never delivered to the [buyer]. Witness J declared that he did not know of this, but witness G confirmed these facts. He added that the list of prices for individual components provided by the [buyer] was conveyed to all of the suppliers. These components were delivered for all the containers delivered to the [buyer], without costs. In the event they got lost or were not used according to their purpose, appropriate prices had to be paid.

Even if one accepts this statement, it would not be beneficial in this procedure for the [buyer]. Notwithstanding the fact that it is not confirmed whether the [seller] agreed to those prices or conditions, the [buyer] neither claimed nor proved the loss or inappropriate handling of those components. Perhaps those objects are still with the [seller]. The [buyer] may at any time, within the applicable limitation period, request them. That has not happened during this arbitral proceeding.

Furthermore, the [buyer] requests 15,810 sA paid for one container (E 108/93 of 28 July 1993 for a storage order of containers), which container is still at the [seller]. Also, the [buyer] requests expenses in the amount of 400 sA for sealing the container intended for Company Be, and expenses for adjustment of faulty sealed parts of two containers for domestic waste which were intended for companies U or A.

The [buyer] did not avoid the contract as to containers that are, according to him, still with the [seller], in any event, not according to Art. 49 CISG. Therefore, it is still possible to request the delivery of these containers, but not repayment of price through set-off. The [seller] was informed in time of the other two expenses. Improvements by the [seller], i.e., transport to Budapest or sending [seller's] employees would be economically irrational. An invoice by Company Sch over adjustment of stability is irrelevant. The [buyer] has compensatory claims of 400 sA and 2,400 sA.

The contract of 8 March 1993, which was to be in force for the period 1 April 1993 till 1 April 1994, in paragraph C.1, provided for delivery and acceptance of seven to eight pieces of containers and seven to eight pieces of bins per week. According to paragraph B.2 of the contract, the delivery was to be made only following an order. During the entire period, instead of 345 containers and bins, only 88 containers and two bins were ordered and delivered. Out of that, the [buyer] calculated for his benefit penalties in amount of 457,900 sA, taking that the average value of each container was 12,000 sA and that of each bin 3,500 sA. These amounts are reached by multiplying the above mentioned delivery quantities and missing pieces and by requesting the highest possible penalties of 10% according to paragraph E.3 of the contract. It is obvious that this is not legal: the [seller] did not have to, nor was [seller] allowed to deliver unless [seller] was so ordered. According to [buyer's] manager K, who was accepted as a party, the fact that there were no orders is a consequence of the fact that the [seller] could not deliver the stipulated quantity or, in any case, could not deliver in time. Notwithstanding the fact that during this procedure it was not established that there had been many delays in delivery and that most of them were not too long, the chain of causality is complete. The [buyer] was allowed in this situation to take legal measures to avoid orders if he needed the goods and thought, notwithstanding the stipulated quantity, that he could not get them from the [seller]. Therefore this compensatory claim cannot be considered as in accordance with the law.

From the above results a set-off against [seller's] claims in the amount of 104,906.23 sA. The [buyer] is to compensate 265,377.82 sA to the [seller].

CISG Art. 78 provides that, if a party fails to pay the price or any other sum that is in arrears, the other party is entitled to interest on it, since the time the sums were due.

CISG Art. 78 is silent on the amount of interest rate (see Loewe, p. 95). It is accepted as a problem that it is neither logical nor fair to apply rules of one State on a sum that is expressed in the currency of another State if the currency of one of the States is stable or the influence of inflation is minor and the currency of the other State continuously diminishes in value. In Austria, the inflation rate in 1994 and 1995 was on the average 3%, in Hungary 20%. Commenting on an award of the Court of International Arbitration of the Austrian Federal Economic Chamber in Vienna, Schlechtriem, in Recht der Internationalen Wirtschaft 1995 pp. 593/94, proposed three ways of establishing the interest rate:

  1. via the application of the lex contractus;
  2. via the autonomous establishment of the interest rate by the Court or Arbitration Tribunal through comparison of criteria for different bank rates;
  3. in conformity to private international law according to Art. 7(2) CISG, preferably taking into consideration the State of the currency.

Schlechtriem advocates the last solution; the arbitrator agrees. Therefore, the interest rate is to be established according to Austrian law; according to 352 para.1 of the Commercial Code, the rate is 5% for bilateral commercial activities. The [seller] has neither asked nor proved that credits should have been taken into account, which became more expensive since the Ft [Hungarian Forint] diminished in value 5% per year compared to the sA [Austrian Schilling].

The arbitration tribunal of the Hungarian Chamber of Commerce and Industry establishes the costs of arbitral proceeding in the amount of 35,613 sA. The [seller] paid in Ft; taking into account the relevant exchange rate, 17,924 sA, the [buyer] paid 17,689 sA. The [seller] succeeded approximately in 72%, the [buyer] approximately in 28%. The [buyer] has to repay 7,952 sA of procedural costs to the [seller].

The [buyer] has to bear himself the expenses he had through participation in the proceedings, and has to pay 44% of the expenses that the [seller] had. The [seller] sought expenses for his legal representation, in value of 5% of the claimed amount plus interest that was due, i.e., for approximately 450,000 sA, that is 22,500 sA, which is altogether appropriate. The [buyer] has to pay 44% of this amount to [seller], which is 9,900 sA.

Budapest, 5 December 1995.


FOOTNOTES

* All translations should be verified by cross-checking against the original text. For purpose of this translation, the claimant of Budapest, Hungary, is referred to as [seller]; the defendant of Vienna, Austria, is referred to as [buyer]. Monetary amounts in Austrian Schillings are indicated by [sA], amounts in Hungarian Forint by [Ft], amounts in German Marks by [DM (Deutsche Mark)].

** Marko Maljevac is a Research Assistant at the Law Faculty, University of Rijeka. The second-iteration redaction of this translation was by Dr. John Felemegas of Australia.

*** Loukas Mistelis is Clive M Schmithoff Senior Lecturer in International Commercial Law at the School of International Arbitration and the Chair, Graduate Studies Committee, School of Law, Queen Mary, University of London.

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