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CISG CASE PRESENTATION

ICC Arbitration Case No. 7645 of March 1995 (Crude metal case) [English text]
[Cite as: http://cisgw3.law.pace.edu/cases/957645i1.html]

Primary source(s) of information for case presentation: Case text

Case Table of Contents


Case identification

DATE OF DECISION: 19950300 (March 1995)

JURISDICTION: Arbitration ; ICC

TRIBUNAL: Court of Arbitration of the International Chamber of Commerce

JUDGE(S): Unavailable

CASE NUMBER/DOCKET NUMBER: 7645 of March 1995

CASE NAME: Unavailable

CASE HISTORY: Unavailable

SELLER'S COUNTRY: Korea (claimant)

BUYER'S COUNTRY: Czechoslovakia (respondent)

GOODS INVOLVED: Crude metal


Classification of issues present

APPLICATION OF CISG: Yes [Article 1(1)(b); parties had chosen law of Austria, a Contracting State]

APPLICABLE CISG PROVISIONS AND ISSUES

Key CISG provisions at issue: Articles 4 ; 7 ; 8 ; 9 ; 26 ; 47 ; 49(1)(a), 49(1)(b) and 49(2) ; 58(1) ; 74 [Also cited: Articles 2 ; 6 ; 34 ; 45 ; 75 ; 81(1) ; 92 ; 95 ]

Classification of issues using UNCITRAL classification code numbers:

4B [Issues covered and excluded: issues excluded (penalty clauses)];

7A33 ; 7B1 [Interpretation of Convention (principles of interpretation); observance of good faith (applications of good faith standards); Materials for interpretation: international case law];

8A1 ; 8C3 [Interpretation of party's statement or other conduct: intent of party making statement or engaging in conduct (relevant if other party "knows" or "could not have been unaware); Interpretation in light of surrounding circumstances: usages];

9A ; 9B [International usages; Implied agreement on international usages];

25B [Definition of fundamental breach];

26A [Notification of avoidance: effective declaration of avoidance];

47A [Buyer's right to fix additional period for performance];

49A1 ; 49A2 ; 49B1 [Buyer's right to avoid contract (grounds for avoidance): fundamental breach of contract; Avoidance where seller does not deliver within additional period set under art. 47; Failure to avoid within periods specified in art 49(2)(a) and (b)];

58A [Time for payment: buyer to pay when goods placed at buyer's disposition];

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

Descriptors: Applicability of Convention ; Choice of law ; Scope of Convention ; Good faith ; Internationality ; Intent ; Usages and practices ; Incoterms ; Fundamental breach ; Avoidance ; Nachfrist ; Price ; Damages ; Burden of proof ; Penalty clauses

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Editorial remarks

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Citations to case abstracts, texts, and commentaries

CITATIONS TO ABSTRACTS OF DECISION

(a) UNCITRAL abstract: Unavailable

(b) Other abstracts

English: Unilex database <http://www.unilex.info/case.cfm?pid=1&do=case&id=455&step=Abstract>

CITATIONS TO TEXT OF DECISION

Original language (English): ICCA Yearbook Commercial Arbitration, Vol. XXVI-2001, 130-152 [this text is presented below]; ICC International Court of Arbitration Bulletin [ICAB], Vol. 11/No. 2 (Fall 2000) 34-46 [excerpt]; Unilex database <http://www.unilex.info/case.cfm?pid=1&do=case&id=455&step=FullText> [excerpt]

Translation: Unavailable

CITATIONS TO COMMENTS ON DECISION

English: van Houtte, ICAB (Fall 2000) 24 n.15 [choice of law], 26 n.37, 27 n.41 [CISG and complementary national law], 28 n.49 [intent], 28 n.50 [usages], 30 nn.63, 66 [avoidance], 31 n.69 [loss of profit], 33 n.86 [burden of proof]; Saidov, Damages under the CISG (December 2001) n.342, 358; Larry A. DiMatteo et al., 34 Northwestern Journal of International Law & Business (Winter 2004) 299-440 at nn.652-653

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Case digest

ICC Arbitration Case No. 7645 of March 1995
[Digest of presentation at ICAB, Vol. 11/No. 2 (Fall 2000) 34-46]

Digest by Albert H. Kritzer


-
Facts
- Usages and practices/Incoterms
- Intent/Hierarchies of rules to consider
- Interpretation: internationally recognized understandings
- Fundamental breach
- Avoidance/Nachfrist
- Declaration of avoidance/Further Nachfrist considerations
- Damages/Burden of proof
- Penalty clauses

Facts. Seller was to provide a quantity of crude metal. Payment was to be by letter credit (L/C) which specified 30 September 1991 as the latest date for shipment and 20 October 1991 as its expiry date. The contract called for a performance bond with a 3% penalty for delay of shipment over and in excess of the last day of the tolerance period allowed for shipment. The shipment and L/C dates were changed to 15 October and 31 October 1991 respectively, with the expiry date of the L/C further changed to 15 November but no modifications made to the 15 October shipment date. Uncertainties surrounded the actual date of shipment. There were discrepancies between the document negotiated by seller's bank and the conditions of the L/C. It later became clear that the goods were put on board ship on 20 October 1991. The vessel was involved in a collision, the ship grounded. Buyer cancelled/avoided the contract in January 1992. Seller initiated proceedings for payment of the purchase price.

Applicable law [art. 6]. The parties had chosen the law of Austria, a Contracting State. During the proceedings, the parties concurred that the CISG is the applicable law, to the extent provided in the Convention. [pages 34-35]

Usages and practices [art. 9] / Incoterms. In contract clause IV, under the heading "price" the parties referred to "CNF FO [port, country] (Incoterms 1990)". The Arbitral Tribunal stated:

Intent [Art. 8] / Hierarchies of rules to consider. The Tribunal reasoned through the intent of the parties and commented on hierarchies as follows:

Interpretation: internationally recognized understandings [art. 7]. For the meaning of the Incoterm intended, the Tribunal looked to a 1954 English case, stating: "Even though in the present case the contract was not a C.I.F. but rather a C.F.R. contract, and although the applicable law is not the English law but rather the Vienna Convention respectively Austrian law, the opinion in the mentioned English case may be taken as an expression of an internationally recognized understanding of the C.I.F. clause. The C.I.F. and the C.F.R. clauses being of the same nature under the aspect here under review, what has been said relating to the C.I.F. clause is valid also with regard to the C.F.R. clause." [page 37]

Fundamental breach [art. 25].Defendant [buyer] alleged that, as Incoterms are time-sensitive, any departure therefrom must be regarded as a fundamental breach. The Tribunal disagreed, stating:

Avoidance [art, 49] / Nachfrist [art. 47]. The Tribunal held that, prior to 20 October 1991, the Defendant [buyer] did not have the right to avoid the contract for delay. The Tribunal stated:

Declaration of avoidance [arts. 26, 49(2)] / Further Nachfrist considerations [art. 47]. By virtue of subsequent acts of Defendant [buyer], the Tribunal found an effective declaration of avoidance and an effective fixing of a Nachfrist. The Tribunal stated:

Price, buyer's obligation to pay [art. 58(1)]. The Tribunal stated: "According to a basic rule of the law of contracts, the 'exceptio non ad impleti contractus', the purchaser is not bound to pay the purchase price as long as the seller has not performed or at least adequately tendered correct performance. This principle is specified by art. 58(1) of the Vienna Convention. Since Claimant [seller] could today, under the criterion of timeliness, no longer fulfil its contractual obligations, it would definitely have no longer any claim under the contract even if the contract had not been validly avoided by Defendant [buyer]." [page 44]

Damages [art. 74] / Burden of proof. The Tribunal stated: "[T]he purchaser can claim damages if the seller fails to perform any of his obligations under the contract. The damages payable are defined more in detail in art. 74 ss. of the Convention. The damage payable consists of a sum equal to the loss, including loss of profit, suffered by the other party which was not in breach of contract as a consequence of the breach by the other party. These provisions are in full concurrence with the general principles applicable under most national laws. Under general principles of law, applicable also under Austrian law, it is the procedural burden of the party claiming damages to specify and to prove, first, the existence as such of a damage, second, that the damage has been caused by the breach of contract of the other party, i.e., that there existed an adequate causal nexus between the breach of contract and the damage, and, third, the actual amount of damage suffered. Defendant [buyer] has not even alleged to have actually suffered a damage and has in no way substantiated any damage as it would have been his procedural duty had it wished to claim the compensation of damages actually suffered. Already on this ground the claim for damages, at least as far as it relates to damages actually suffered is to be rejected." [page 45]

Penalty clauses [art. 4]. The Tribunal stated: "Defendant [buyer] does further base its claim on the ground that the amount of the performance bond which corresponds to the amount of the counterclaim, was agreed as a contractual penalty with in the meaning of the German term 'Konvenionalstrafe' as it is known under Austrian law. A contractual penalty within said meaning can, if fact, be agreed validly. If validly agreed, the penalty can -- depending on the specific agreement -- be due by the party in breach also in cases where the diligent party has not actually suffered any damage or is unable to prove its damage. The question therefore is whether the parties have agreed such a contractual penalty for the case that the purchaser was to declared the contract avoided as a consequence of lack of due performance by the seller." [page 45] The Tribunal answered this question, No. [page 46]

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Case text

Interim award in ICC Arbitration Case No. 7645 of March 1995

Yearbook Comm. Arb'n XXVI, Albert Jan van den Berg, ed. (Kluwer 2001) 130-152. Copyright owner: The International Council of Commercial Arbitration (ICCA). Reprinted with permission of ICCA.[*]

Facts

Excerpt
I. Applicable Law

1. Does the CISG prevail over the national law applicable to the contract?
2. Application of Incoterms 1990 to the contract
II. The Documentary Nature of the Transaction
1. Contractual obligation to submit documents according to Incoterms CFR clauses
2. Did [buyer] waive contractual right to receive documents?
3. Did [seller]'s non-abidance of time limit to deliver documents constitute a breach of contract?
III. Legal Effects of Delay of Shipment
1. Extension of the contractual tolerance period
2. [Seller]'s default
3. Obligation of [seller] to give sufficient notice: Incoterms CFR A7
IV. Do Discrepancies in Documents Submitted by [Seller] Constitute Breach of Contract?
1. Requirement of clearly dated documents: Incoterms CFR A8
V. Avoidance of Contract
VI. Costs

Facts

[Buyer] contracted to purchase a quantity of goods from [seller]. The goods were to be shipped to [buyer] within a specified time limit. The contract specified a latest date of shipping and a maximum age of 20 years for the shipping vessel. [Seller] agreed to open a bank performance bond [L/C] payable in the event that shipping would be delayed for more than 15 days after the specified time limit. The contract and amending L/C indicated the documents to be submitted by the [seller], the most important document of which was a clean on board Bill of Lading [B/L].

[Seller]'s agents faxed [buyer] several documents requesting an extension for the latest date of shipping and a final expiration term. [Buyer]'s bank issued an amendment fixing a new expiration date without setting an extension of the latest shipping date. By the time [buyer]'s bank provided [seller] with a second amendment extending the latest date of shipping, the extension date had passed.

Actual shipment took place five days following the latest date of shipping. Although [seller] asserted that [buyer] was informed of the exact shipping date, no documentary evidence was provided to support this assertion. Several weeks after leaving port, the vessel collided with another vessel. [page 130] Efforts to save the vessel were unsuccessful; there was no balance of profit after salvaged cargo was liquidated at forced sale.

[Buyer] sent [seller] a communiqué stating that it was unable to accept the ship because the cargo was loaded after the latest date of shipping, the documents were not presented within the expiration date of the L/C and the B/L was undated. Furthermore, [seller] had concealed the age of the vessel and the true shipping date giving [buyer] the right to avoid the contract. [Seller] protested against the [buyer]'s avoidance of the contract and insisted on payment of the purchase price.

[Seller] initiated arbitration relying on the arbitration clause in the contract which provided for ICC arbitration. The contract provided that Austrian law was applicable to the dispute. Although disagreeing initially, parties later accepted the application of the United Nations Convention on Contracts for the International Sale of Goods (CISG).

Applying Incoterms 1990 as well as the CISG, the arbitral tribunal established that late shipment can cause two breaches of contractual obligations: no goods in conformity placed on board ship and no bill of lading. [Seller] was under an obligation to deliver documents within the prescribed time limits to [buyer] and to give sufficient notice that the goods had been delivered on board the vessel (Incoterms CFR A7). [Buyer] was also entitled to receive clearly dated documents. As these requirements had not been complied with, the tribunal found that [buyer] had validly avoided the contract, and thus [seller] had no right to claim payment of the purchase price. [Seller] was ordered to pay 96% of the costs of the arbitral proceedings and an indemnity for [buyer]'s costs.

EXCERPT

I. Applicable Law

1. Does the CISG Prevail over the National Law Applicable to the Contract?

[1] "The contract provided ... that it was to be governed by Austrian law.

[2] "This choice of law made by the parties was not disputed by either of them. In view of the autonomy of the parties in selecting the law governing their relationship the clause is to be regarded as valid and binding upon them.

[3] "In the initial phase of the proceedings the parties advanced conflicting opinions though as to whether this reference to Austrian law would lead to the applicability of the United Nations Convention on Contracts for the International Sale of Goods of 11 April 1980, signed in Vienna [CISG], or not. [page 131] In the later phase of the proceedings the parties concurred that the CISG was indeed applicable to the extent provided in the Convention itself.

[4] "Austria is amongst the countries having signed and ratified the CISG. No restricting declarations were made by Austria when ratifying the CISG, neither according to Art. 95 of the Convention, that it will not be bound by Art. 1(1)(b) of the CISG, nor according to Art. 92 that it will not be bound by Part II of the CISG or that it will not be bound by Part III of the CISG. In and for Austria the CISG is, therefore, applicable in its integrality.

[5] "According to Art. 1(1)(b) the Convention applies to contracts of sale of goods between parties whose places of business are in different States when the rules of private international law lead to the application of the law of a Contracting State. This rule, which seems to have been controversial when the CISG was negotiated, which was the reason why the CISG provided for the possibility of the Contracting States, in Art. 95, to declare the non-applicability of the clause, has been accepted by Austria and has, thereby, become applicable under Austrian law.

[6] "As it already has been seen, the choice of Austrian law by the parties as governing law of the contract is to be regarded as being valid and binding on them. By this reference to Austrian law the CISG became, based on the just discussed clause, applicable to the contractual relationship between the parties.

[7] "The CISG is applicable to contracts of sale of goods in general, with certain exceptions according to Art. 2 of the CISG. None of these exceptions do apply in the present case, so that the CISG is applicable also in view of the nature of goods covered by the contract.

[8] "According Art. 4 of the CISG, it governs only the formation of the contract and the rights and obligations of the seller and the buyer arising from such contract. The CISG is not concerned with the validity of the contract or of any of its provisions or of any usage. In the present case, the valid conclusion of the contract was not disputed. The issues relate to the interpretation of the contract, the obligations under the contract and the remedies available to the parties in case of breach of contract, all being topics covered by the CISG, especially in its Part III, and also in its Part I.

[9] "Depending on the doctrine followed in the relevant country relating to the nature and effect of public international law the provisions of an international treaty either are regarded as superior to the national law or are regarded as being integrated into national law. Irrespectively of the basic approach relating to this question it seems clear that the provisions of the CISG prevail over the provisions of the otherwise applicable national law. Art. 7 of the CISG expressly provides that questions concerning matters governed by the CISG which are not expressly settled in it are to be settled in conformity with the general principles on which it is based or, in the absence of such principles, in conformity with the law applicable by virtue of the rules of private international law. [page 132] Therefore, the issues in these proceedings have to be answered first based on express provisions of the CISG, second based on the general principles which may be deduced from the CISG, third by the provisions of Austrian law and only last and fourth based on general customs and usages of the trade."

2. Application of Incoterms 1990 to the Contract

[10] "In its Art. 9, the CISG specifically provides that the parties are bound by any usage to which they have agreed. In fact, if the parties refer specifically to any usage, the relevant rules become part of their contract by reference (or integration).

[11] "In the contract, the parties have, in the document schedule clause, under the heading 'price' referred to 'CNF FO ... Korea (Incoterms 1990)'.

[12] "The 'Incoterms' 1990 edition published by the International Chamber of Commerce in Paris, which became effective as of 1 July 1990, do not provide for a clause 'CNF'. The parties however concurred that the clause to which they intended to refer was the clause 'CFR' -- 'Cost and Freight (... named port of destination)'.[1]

[13] "It would, indeed, seem that the parties, although referring to the Incoterms 1990, had still in mind the designation used for such clause in the prior Incoterms, namely 'C+F' or 'C and F', in extended terms 'cost and freight'. The middle letter 'N' used in the clause in the contract would seem to have stood for the word 'and'. The arbitral tribunal, in conformity with the opinions expressed by the parties, holds that the reference in the contract was indeed a reference to the clause 'cost and freight' -- CFR -- of the Incoterms 1990. [page 133]

[14] "The letters 'FO' which were mentioned beside the letters CNF stood, in the opinion of the arbitral tribunal, for the words 'free out' which are used to qualify the term 'freight' under C.I.F. and C.F.R. contracts, and which mean that the expenses connected with discharging the goods from the vessel are included in the 'freight'.

[15] "... In concurrence with the opinion of the parties the arbitral tribunal holds that the reference to Incoterm clauses in one clause of the contract with no specification or restriction as to its bearing could be understood in good faith by both parties and had in fact to be understood to be a general reference, thus integrating the CFR clauses as a whole into the contract. The wording of the contract has therefore to be seen in conjunction with the provisions of the CFR clauses of the Incoterms 1990, which are held to have been integrated in their entirety into the contract. (...)

[16] "According to Art. 8 of the CISG statements made by a party are to be interpreted according to its intent where the other party knew or could not have been unaware what the intent was. This rule is basically equivalent to the general principle of law on contracts to the effect that manifestations of a party of its contractual intent have to be understood and interpreted as a counter-party in good faith had to understand them.

[17] "When parties have concluded a contract established by an extended wording, the agreement of the parties has to be analyzed in first instance by interpreting the wording of the contract itself. According to Art. 8(3) of the CISG usages of the trade constitute guidelines only to establish what a reasonable person had to understand in view of the wording of the contract.

[18] "As also seen already in [paras. [10]-[15]] above, the contract made specific reference, in its document schedule clause, to the Incoterms 1990, whereby the reference is to be understood to refer to the clauses 'CFR' (cost and freight ... named port of destination), and whereby further the reference was to be understood as a general reference to such clauses and not as a reference for defining the price only (see above [paras. [10]-[15]]). According to Art. 9(1) of the CISG the parties are bound by any usage to which they have agreed. The contractual agreement between the parties has therefore to be understood as it results from their written contract in conjunction with the CFR clauses of the Incoterms 1990.

[19] "Where the provisions of the contract and of the Incoterms clauses do not provide specific answers, the Rules of the CISG and, in a subordinated way, rules of its underlying principles and, even in a more subordinated way, the rules of Austrian law are determining for defining the mutual obligations of the parties based on their contract. [page 134]

[20] "According to Incoterms clause CFR A4 the seller must deliver the goods on board the vessel at the port of shipment on the date or within the period stipulated, and according to Incoterms clauses CFR A8 the seller has, unless otherwise agreed, to provide the buyer without delay with the usual transport document for the agreed port of destination. The Incoterms CFR clauses (as the CIF clauses) do actually provide for a dual obligation of the seller, first, the seller has to actually furnish the goods and arrange for their transport (which is to lead to the actual physical delivery of the goods to the purchaser or his successor), and, second, the seller has to deliver to the purchaser the relevant transport documents which enable the purchaser to actually dispose of the goods even while being transported.

[21] "In an English case (Kwei Tek Chao v. British Traders and Shippers Ltd., 1954, 2 Q.B. 459 at p. 480, as reported in Sasson's CIF and F.O.B. Contracts, 3rd ed. (1984) p. 28) the nature of the CIF contract was summarized as follows:

'A c.i.f. contract puts a number of obligations upon the seller, some of which are in relation to the goods and some of which are in relation to the documents. So far as the goods are concerned, he must put on board at the port of shipment goods in conformity with the contract description, but he must also send forward documents, and those documents must comply with the contract. If he commits a breach the breaches may in one sense overlap, in that they flow from the same act. If there is a late shipment ... the seller has not put on board goods which conform to the contract description. ... He has also made it impossible to send forward a bill of lading which ... conforms. ... Thus the same act can cause two breaches of two independent obligations.'

[22] "Even though in the present case the contract was not a CIF but rather a CFR contract, and although the applicable law is not the English law but rather the CISG respectively Austrian law, the opinion in the mentioned English case may be taken as an expression of an internationally recognized understanding of the CIF clause. The CIF and the CFR clause being of the same nature under the aspect here under review, what has been said relating to the CIF clause is valid also with regard to the CFR clause."

II. The Documentary Nature of the Transaction

[23] "It is widely admitted in published judgments and in the doctrine that the CIF -- or CFR -- contracts are of a documentary nature (see for others Sasson's CIF and F.O.B. Contracts, 3rd ed. (1984) p. 27 et seq.). [page 135] For example, in an old English case of 1914 reported in Sasson's (p. 27) the judge declared:

'I am strongly of the opinion that the key to many of the difficulties arising in c.i.f. contracts is to keep firmly in mind the cardinal distinction that a c.i.f. sale is not a sale of goods, but a sale of documents relating to goods. It is not a contract that goods shall arrive, but a contract to ship goods complying with the contract of sale, to obtain, unless the contract otherwise provides, the ordinary contract of carriage to the place of destination, and the ordinary contract of insurance of the goods on that voyage, and to tender these documents against payment of the contract price.'

[24] "Sasson, also with reference to a precedent, describes the contract as a contract for the sale of goods to be performed by the delivery of documents, and emphasizes that the seller must tender documents and cannot claim performance of a CIF contract by tendering, in lieu thereof, the goods themselves at the port of destination unless of course the buyer waives compliance with the terms of the agreement (Sasson's p. 28). The documentary nature of CIF contracts is also emphasized by Schmitthoff, Clive M., Schmitthoff's Export Trade, 8th ed. (London 1986) p. 29/30. [Seller], in concurrence with the prevailing opinion, expressly acknowledged the documentary nature of the transaction.

[25] "There can be no doubt that, in accordance with Incoterms clauses CFR A8, [seller] had to deliver to [buyer] a clean on board bill of lading (B/L), and that this constituted -- besides the actual shipping of the goods -- a main obligation of [seller].

[26] "It remains to be seen what was the significance of the schedule of documents to be submitted by seller under the L/C as provided in the document schedule clause of the contract. This contractual clause provided that payment should occur by an irrevocable at sight letter of credit to be opened in favour of seller under which the seller would have to submit and deliver a specified number of documents.

[27] " ... [Seller] sustains that this clause of the contract related only to the means and ways of payment of the purchase price and did not define obligations of the seller to actually submit such documents. According to [seller]'s view he could have chosen not to make use of or rely on the L/C opened by [buyer] at all and could, instead, have chosen to send the documents representing the goods and giving the power of [buyer] to dispose of the goods also directly, without going through the bank. [page 136]

[28] "It is true that the heading of the L/C clause of the contract reads 'payment' and that the L/C clause deals with the L/C to be opened by the purchaser and the documents to be submitted under the L/C exclusively. It is also true that parties to a contract can, in their contract, provide for alternative options for the seller to either make use of a L/C to be opened by the purchaser by presenting all the documents provided under the L/C or to furnish the relevant documents required by the contract (which do not necessarily need to be identical with those required under the L/C directly, without going through the banks, and without making use of the L/C (Cf. e.g. Eisemann, Frederic, and Eberth, Rolf, Das Dokumenten-Akkreditiv im Internationalen Handelsverkehr, 2nd ed. (Heidelberg 1979) p. 144, with further references). If the contract provides for such alternative possibilities the seller simply waives, when he chooses to submit the documents directly, the advantages it would have had under the procedure with the L/C. By delivering the relevant documents directly to the buyer, the seller then acquires a simple claim against the buyer for the purchase price, not guaranteed by any bank, which becomes usually due upon delivery of the relevant contractual documents."

1. Contractual Obligation to Submit Documents According to Incoterms CFR Clauses

[29] "However, when parties to an international sales contract do relate to the Incoterms clauses CFR they, in principle, accept conceptually the documentary nature of the transaction, as has been seen already. If parties in such a transaction define specified documents to be presented under a L/C in addition to the B/L to be delivered according to Incoterms clauses CFR A8,[2] this constitutes a strong element in support of their intention to the effect that it becomes also a contractual obligation of the seller to submit not only the transport document provided in Incoterms clauses CFR A8 but also the further documents to be presented under the L/C as specified in the contract. [page 137]

[30] "In other words, the parties then by agreement add to the main document to be submitted under Incoterms clauses CFR A8 additional documents considered to be relevant for the purpose of giving to the purchaser the assurance that he is receiving goods in compliance with the contractual agreement and suitable for the purchaser to dispose of the goods effectively based on and with the documents being delivered to him. Especially if the goods which are object of the sale are goods being frequently traded on the international markets, a seller must be aware, when entering into the contract, that the purchaser may possibly not be interested so much in actually receiving and using the goods purchased for its own purposes but might rather be interested to trade them on. Since the documents become extremely relevant in such circumstance it would appear that the specification of documents to be submitted under an L/C to obtain payment usually is meant to also constitute a contractual obligation of the seller to deliver the documents as specified, and all such documents, to the purchaser.

[31] "The arbitral tribunal is of the opinion that there is a presumption to such effect in international sales transactions and that a contractual agreement to the contrary, namely to the effect that the documents specified need to be submitted only if the seller chooses to make use of the L/C, would have to be set out specifically in the contract. If in a written contract with extended wording no distinction is being made between the documents to be submitted under the L/C provided for in the contract, it must therefore be taken that the documents mentioned under the L/C clause are meant to have to be submitted to the purchaser in any event, irrespective of whether the seller wants to take advantage of the L/C or not.

[32] "The arbitral tribunal holds that this is how the contract between the parties had to be understood irrespectively of the fact that the documents were mentioned in a clause with the heading 'Payment' only and with relation to the L/C only. In other words, the seller had the contractual obligation to deliver timely to the purchaser all the documents as specified in the L/C clause of the contract. (Incidentally, this does not necessarily mean that the seller would also have been under an obligation to actually make use of the L/C for obtaining payment. [page 138] The seller might, depending on the understanding between the parties, still have been free to choose either to make use of the L/C or to deliver directly to the purchaser the relevant documents, not passing through the banks and not presenting them under the L/C. But the seller would, if he had chosen not to make use of the L/C, nevertheless have had to submit all the documents, as they have been specified for the L/C, to the purchaser.)" (...)

2. Did [Buyer] Waive Contractual Right to Receive Documents?

[33] "It is [seller]'s case that [buyer], by its behaviour and by its communications, waived the contractual right to receive the documents and, accordingly, waived compliance with the terms of the agreement, and agreed to accept the physical delivery of the goods purchased at the port of destination instead of insisting on receiving the documents. [Seller] goes on sustaining that he discharged his obligation to deliver the goods (in the right quantity and of the contractual quality) by shipping the goods on the [vessel name] ... Without specifying much on what facts such waiver by [buyer] has to be assumed, [seller] seems to base its assertion on the fact that contracts occurred between the parties in December and over the Christmas days and that on such occasion [buyer] allegedly had stated, shortly before the end of the first week in January that it would not be able to accept the cargo if the vessel would not leave Greece within four days. At most, such a statement, if it had been actually made and communicated officially, might have constituted a waiver by [buyer] to draw the legal consequences from a possible delay of shipment, provided that the vessel would actually leave Piraeus within four days. Such statement could even be interpreted, in a certain way, as the fixing of a very last additional period of time for performance by the purchaser to the seller.

[34] "[Seller] wants also to interpret the telefax of [buyer] of the end of January as a waiver by [buyer] to receive the documents, but the arbitral tribunal cannot see anything in this document which would suggest that [buyer] would have been prepared to accept the cargo being on the ship without regard to the documents, or as an admittance to the effect that such agreement had occurred before. To the contrary, para. 2 of this fax clearly confirms the intention to cancel the contract, announcing, as a consequence, the return of the shipping documents. Even if talks did take place about the conditions under which [buyer] would be prepared to accept the cargo despite of the suspicion about a delay in shipment and the criticized defects in the documents, this cannot be seen to have implied an agreement of [buyer] to change the structure of the transaction." [page 139]

3. Did [Seller]'s Non-abidance of Time Limit to Deliver Documents Constitute a Breach of Contract?

[35] "The contract dealt with the time frame, within which the shipment had to take place ... [Two] clauses specified the time requirements with regard to the shipment only and did not deal specifically with time requirements for delivering the documents. The contractual clauses use the terms 'loading' and 'shipment'. It was explained by the parties and not contested that according to the usage of the trade the expression 'loading' stands for the activity of placing the goods in the harbor on the pier in a way suitable and ready for being carried on the ship by appropriate means, while the term 'shipping' or 'shipment' stands for the actual stowing of the goods in the appropriate manner on and in the vessel. The time limit agreed for the 'shipment' therefore refers to the time when the stowing of the goods on and in the vessel has been completed in an appropriate manner for sailing. The periods defined in clause V of the contract therefore referred to the time when the sold goods had actually to be stowed on respectively in the vessel in the sailing port. This has not been challenged by [seller].

[36] "Art. 34 of the CISG provides that in cases in which the seller is bound to hand over documents relating to the goods, he must hand them over at the time and place and in the form required by the contract. If the seller has handed over the documents before that time, he may, up to that time, cure any lack of conformity in the documents, if the exercise of this right does not cause the buyer unreasonable inconvenience or unreasonable expense.

[37] "Incoterms clauses CFR A8 specify that the transport document has to be provided 'without delay'. Since the contract did not specifically determine a time limit for delivering the documents, the contract has to be understood in the manner that the documents had to be handed over respectively delivered without delay, or within reasonable time after the time limit determined for the shipment. An indication of what might have to be understood as reasonable time in the trade could be seen in Art. 47 of the old Uniform Customs and Practice for Documentary Credits (UCP) (1983 revision in force as from 1 October 1984, which were those still applicable at the time of the conclusion of the contract). This article provides that banks should refuse documents presented to them later than 21 days after the date of issuance of the transport document.

[38] "It is left open for the time being what legal implications the determining of the expiry date of the L/C in the L/C itself might have had with regard to the contractual time limit available for the seller to deliver the documents. It should be remembered that the expiry date of the original L/C (before its amendment) was ... the twentieth day after the latest date allowed for shipment. [page 140]

[39] "The contract provided that shipment had to take place, in case of loading in the Black Sea, which was the case, during [that month]. The latest date allowed for shipment therefore was [the last allowed date of shipment]. The performance bond clause of the contract, however, contained provisions relating to a performance bond which was to become payable in the event that the shipment was to be delayed more than 15 days after the latest shipment time allowed in the contract.

[40] "[Buyer] sustains that every sale under the Incoterms clauses CFR is to be regarded as a 'fixed term' contract within the meaning of the term as it is used in the legal terminology in many countries, to the effect that the time limit defined in the contract is of essence and that the non-abidance by this time limit constitutes 'ipso facto' a fundamental breach of contract within the meaning of Art. 49(1)(a) of the CISG.[3] [Buyer] submits some opinions of judiciaries and learned authors in support of this theory. However, the principle can, in this generalized form, not be recognized. The Incoterms clauses CFR do not provide anything to this effect. It is true that Incoterms clauses CFR A4 provide that the delivery of the goods on board the vessel at the port of shipment has to be made by the seller on the date or within the period stipulated. The Incoterms clauses CFR do not, however, specify that the abidance within the time limit is an obligation of especially essential importance or that the non-abidance by the time limit gives to the purchaser unconditionally the right to avoid or terminate the contract or that the contract automatically becomes void in any case where the time limit for shipment is not respected. [page 141]

[41] "Even though there might exist a usage of the trade to the effect that in the absence of provisions to the contrary in the relevant contract, a CFR contract has to be understood as a fixed term contract, -- which can be left open --, such usage of the trade would certainly not prevent the parties from providing to the contrary in their specific contractual agreement. When the parties have entered into an agreement in writing (within a broad sense of the word) also the question at stake here has to be determined primarily based on the wording of the agreement and the manner in which such wording had to be understood in good faith by both parties. With a view to this, the bearing of the time frame clauses of the contract has to be analyzed, and the time frame determined in [the first time frame clause] can certainly not be looked at without regard to the provisions of the L/C clause which are significant for determining the issue.

[42] "The performance bond clause of the contract determined an obligation of the seller to provide for a performance bond by its bank. It is easily understandable from the wording of the contract that this performance bond was to give to the purchaser the right to be paid a penalty in case of a delay of shipment by the seller. The amount of the performance bond was, however, to become payable only in the event that the shipment would be delayed more than 15 days after the latest shipment time allowed in the contract. This is a clear indication, in the opinion of the arbitral tribunal, that the last date of shipment allowed in the [first time frame] clause in the contract was not to be understood as a fixed term, the non-avoidance by which would have constituted a fundamental breach of contract within Art. 49(1)(a) of the CISG. To the contrary, the provision indicates that the purchaser was prepared to tolerate a delay up to 15 days.

[43] "Further, the provision does not say in any way that in the case the delay of shipment would have lasted more than 15 days, the contract was to become void automatically or the purchaser had the right to avoid the contract immediately. If something to such effect had been intended by the parties it is probable that they would have specified it in view of the fact that the question of a possible delay of shipment had obviously been the subject of considerations when the contract was negotiated.

[44] "This leads to the conclusion that the non-abidance by the last shipment date allowed by the contract was not to be considered as a fundamental breach of contract according to the prior mentioned provision of the CISG and that, accordingly, the purchaser would, as a consequence of a delay of shipment, not have been authorized to declare the contract avoided according to Art. 47 in conjunction with Art. 49(1)(b) of the CISG were applicable with regard to the question of delay of shipment." [page 142]

III. Legal effects of Delay of Shipment

[45] "In view of the double or twofold obligation of the seller, on the one hand to ship the goods timely, on the other hand to deliver the documents without delay, a delay in performance can occur either with regard to the shipping of the goods or with regard to the delivery of the documents. As to the time of shipment, and elaborating on what has just been said, the wording of the contract and the facts around the issuance and the extension of the L/C suggests the following analysis of the situation as to the time of the shipment:

[46] "As seen, the contract provides as the last allowed date of shipment [the last allowed date of shipment]. However, the purchaser had conceded right from the outset in the contract to tolerate a delay of 15 days, i.e. through [the tolerated delay date]. This extended time limit has to be regarded as pre-agreed tolerance. Consequently, the shipment would not have been late if it had occurred latest on [the tolerated delay date]. Based on the contract, and without regard to any extension which might have been agreed, the seller would have been in default as from [the day following the tolerated delay date] as a consequence of the delay of shipment. Had the purchaser known about the delay he would have had the possibility to proceed in accordance with Art. 47 of the CISG [4] fixing an additional period of time of reasonable length to the seller for providing for the shipment. (...)

[47] "In other words, [seller] would have had a period of twenty days (one day less than the longest period allowed of twenty-one days according to Art. 47 of the old UCP) for presenting the documents to its bank, as the L/C provided the expiry date with reference to this bank. [page 143]

[48] "When [seller's agent], requested, on [the last allowed date of shipment], [buyer] to extend the terms of the L/C by providing [the tolerated delay date] as new latest allowed date for shipment and the end of October as new date for expiry of the L/C, this was in concurrence with the provisions of the contract. In fact, seller benefited of a tolerance period until [the tolerated delay date] for shipping. By the extension of the L/C as requested by the seller, the purchaser would simply have acknowledged the fact of the existing tolerance period, and such extension would not have pre-supposed an amendment of the contract. The seller would have had the time until [specific date two weeks later] to present the documents to its bank, now showing a date of shipment not subsequent to [the tolerated delay date]. Seller would have had, in other words, two weeks as from the shipment to present the documents to its bank.

[49] "In other words, when [seller] was requesting the extension of the last date allowed for shipping in the L/C, it did that within the frame of the contract, and no amendment to the contract was necessary, and [buyer] did, by providing for the extension, not concede anything it was not obliged to anyway."

1. Extension of the Contractual Tolerance Period

[50] "[Seller] sustains that at the time when the parties were in contact relating to the extension of the relevant dates in the L/C and agreement was reached to the effect to amend the contract by shifting the last date allowed for shipping from ..., with the effect that the period of tolerance of 15 days provided in the performance bond clause of the contract was also automatically extended to [specific date]. [Buyer] contests this view and sustains that at the time it was agreed to extend the relevant date in the L/C, but that this never meant to extend also the contractual tolerance period for shipping.

[51] "The factual allegations of both parties relating to their contracts at that time are rather vague.

[52] "In the documents submitted nothing can be found in support of the position of [seller] to the effect that the contractual dates would have been extended by an amendment of the contract. To the contrary, the fax messages of [seller]'s agent], to [buyer], ... clearly referred to the extension of the dates in the L/C and did not mention in any way whatsoever a change of the relevant dates by amendment of the contract. Also in view of what has been said above, that the extension of the relevant dates in the L/C was requested by [seller] within the frame of the contract, strongly supports the assumption that at that time [seller] thought of the L/C and of the L/C only, because there was no need to amend the contract. [page 144] The arbitral tribunal cannot follow the theory of [seller] to the effect that there would have been, at the time, an agreement of the parties to extend not only the dates in the L/C but rather the relevant dates in the contract." (...)

2. [Seller]'s Default

[53] "When, therefore, [seller] did not the ship the goods by [the tolerated delay date], but later only, it was actually in default. At that time, [buyer], had it known about the delay, could have fixed to the seller an additional period of time of reasonable length for providing for the shipping and for handing over to the purchaser the relevant documents within the meaning of Art. 47(1) of the CISG.

[54] "However, [buyer] did not know about the delay of shipment until much later." (...)

3. Obligation of [Seller] to Give Sufficient Notice: Incoterms CFR A7

[55] "Incoterms clauses CFR A7 [5] provides specifically for the obligation of the seller to give the buyer sufficient notice that the goods have been delivered on board the vessel. It was, consequently, a contractual obligation of the seller to give to the purchaser notice of actual shipment, in the meaning of completion of the stowing of the goods on the vessel in a way enabling the vessel to sail. [Seller] has not alleged to have ever given such notice to [buyer] and [buyer] was, actually, never advised on the real and actual date of shipment. [Buyer] has alleged that it repeatedly inquired about the situation but never received a clear and specific answer. It cannot be excluded that [seller] did, in fact, purposely not give the notice which it contractually was bound to give in the fear that the disclosure of the actual shipping date, having occurred after [the tolerated delay date] only, might be detrimental to its legal position. [page 145]

[56] "Nevertheless the delay of shipment alone and by itself would not have given the right, in the opinion of the arbitral tribunal, to [buyer] to declare the contract avoided, based on the following considerations.

[57] "Had [buyer] known on [the day following the tolerated delay date] that shipment did not take place by [the tolerated delay date] [buyer] could have fixed to [seller] the additional period of time for shipment, in accordance with Art. 47(1) of the CISG, as seen above. ... Such period of time, which had to be of reasonable length, could certainly not have been less than four days. In other words, the end of the additional period could not have been before [four days following the tolerated delay date], the day on which shipment actually occurred. As a result, the seller has in fact shipped the goods within the additional period which could hypothetically have been fixed to it. This excludes the possibility to declare the contract avoided, since Art. 49(1)(b) gives the right to avoid the contract only if the performance did not take place within the additional period."

IV. Do Discrepancies in Documents Submitted by [Seller] Constitute Breach of Contract?

[58] "As considered above, the documents to be submitted by [seller] were those listed in the L/C clause of the contract, as amended by the L/C, which required two more documents.

[59] "Among the documents to be provided, the most important and crucial one was obviously the clean on board Bill of Lading, which was due to be delivered also irrespectively of the L/C clause of the contract and directly based on Incoterms clauses CFR A8.

[60] "It has to be seen whether [seller] has delivered the documents in accordance with the contract, and has thereby abided by its contractual obligations, as it sustains, or not, as is sustained by [buyer].

[61] "... [T]he question here is only whether the documents fulfilled the requirements of the contract. Nevertheless, one may look at the Uniform Customs and Practice for Documentary Credits as an auxiliary guidance as to what requirements certain documents have to fulfill according to the usages of the international trade. Obviously, the relevant UCP would be those in force at the time, which were the old UCP, 1983 revision in force as from 1 October 1984 (the new UCP, 1993 revision, having become effective on 1 January 1994 only).

[62] "The B/L submitted by [seller] was, as a matter of principle, a clean on board Bill of Lading, as was required by the contract, which has not been contested by [buyer]. [page 146]

[63] "[Buyer] has, however, criticized various alleged defects of the B/L."

[64] The most serious defects in the B/L alleged by [seller] were: a discrepancy in the contract number on the B/L and the contract number marked on the commercial invoice; an incomplete description of goods in the B/L; the B/L contained no date of issue."

1. Requirement of Clearly Dated Documents: Incoterms CFR A8

[65] "Incoterms clause CFR A8 specifically and clearly requires that the transport documents must be dated within the period agreed for shipment.

[66] "The contract having referred to the Incoterms clauses CFR, it was, consequently, a contractual obligation of [seller] to provide the purchaser with a dated bill of lading, or more specifically with a bill of lading evidencing the date of issue.

[67] "This date is in fact a relevant information in so far as the B/L is, according to correct procedures, always issued only when the activity of physical stowing of the goods on the vessel is completed and the goods are shipped. The date of issue is therefore evidence for the fact that the shipment of the goods has taken place on or before the date of issue. Since the date of shipment is in most cases an important element under international sales contracts providing for shipment of the goods by sea it is obvious that the date of issue on the B/L is a highly important element.

[68] "The date of issue of a B/L appears also to be relevant in practice for the further trading of goods. As a matter of fact, it is often the case that a purchaser and beneficiary of a bill of lading trades on the goods, possibly even before the goods have been shipped to him. In such further trades, the date of shipment very often is again an important element of the contract. It is therefore of great relevance for the purchaser to be able to deliver to its further purchaser a bill of lading showing the date of issue, because only in such a way is he able to clearly fulfill his contractual obligations.

[69] "The importance and essential nature of the dating of the B/L under the Incoterms is also stressed in two publications on Incoterms, (i) Eisemann, Frédéric and Melis, Werner, INCOTERMS Ausgabe 1980, Kommentar (Vienna) p. 149, and, (ii) Eisemann, Frédéric and Ramberg, Jan, Die INCOTERMS Heute und Morgen, 2nd ed. (Vienna 1980) p. 176 and esp. p. 178.

[70] "The CISG does, understandably, not address the question of the importance of the date of a B/L. But the Austrian law, in the Austrian Handelsgesetzbuch -- HGB --, which was enacted by taking over the German Handelsgesetzbuch, and is therefore identical with the latter, does deal with the requirement of dating of a B/L. [page 147] In the fourth book on maritime trade (Viertes Buch: Seehandel, Sect. 476 et seq.), Sect. 643 HGB specifies in its sub-sect. 10 the indication of the place and the day of issuance as one of the legal elements of a B/L (Konossement). The learned authors in their commentaries on the HGB do mention that the date is not an essential requirement for the validity of the B/L as a negotiable instrument, but nevertheless stress the importance of the date especially with a view to the abidance by contractual obligations.[6]

[71] "The arbitral tribunal holds, that [buyer] was entitled under the contract to receive a B/L showing the date of issue and with an unambiguous wording fully concurring with the contract and that the B/L as presented and delivered by [seller] did not fulfill these requirements.

[72] "Since the Bill of Lading was the most essential document to be furnished by the seller, the existence of non purely trivial defects in such document was of such importance that the tender of the B/L as it was, is to be regarded as a lack of performance by [seller]. (...)

[73] "The importance and relevance of all the asserted discrepancies respectively defects in the documents need not be further analyzed in view of the fact that the defects in the bill of lading alone did render the set of documents unsuitable as means of performance by [seller].

[74] "According to Art. 34 of the CISG [7] the seller could have cured these defects before the end of the relevant time period. However, [seller] did not submit any new bill of lading later on."

V. Avoidance of Contract

(...)

[75] "[Buyer] sustains that the declaration of avoidance of the contract was justified, timely and effective, while [seller] sustains that it was unjustified and without legal effect. [page 148] [Seller] mainly argues that [buyer] could not declare the avoidance of the contract before having fixed to [seller] an additional term for performance according to Art. 47(1) of the CISG, that further the declaration of [buyer] was contradictory with subsequent communications of [buyer] and that, thirdly, the declaration of [buyer] was too late and therefore ineffective according to Art. 49(2) of the CISG.

[76] "[Buyer] alleged that [seller], by its behaviour, committed a fundamental breach of the contract. So [buyer] sustains that [seller] has purposely caused the shipping documents to be marked with a wrong date, that by this and by not advising [buyer] about the true shipping date it purposely intended to deceive [buyer], that by such behaviour it prevented [buyer] to call timely the performance bond, that it selected and used a vessel which was older than what the contract had allowed, that the vessel selected and used was not seaworthy and in addition, that the ship was too small to carry the contractual quantity of the goods and was overloaded. (...)

[77] "As to the delay of shipment it has been seen that it was [seller] who did create a situation of uncertainty by submitting shipping documents with a wrong shipping date and by not advising [buyer] about the true shipping date as it would have been its obligation according to Incoterms clauses CFR A7. It has also been seen that irrespectively of these circumstances and of the delay of shipment of five days [buyer] could not have declared avoided the contract based on the delay of shipment alone, because the shipment occurred within the hypothetical additional period of time for performance which [buyer] would have had to fix to [seller] had [buyer] immediately known about the delay.

[78] "As to the delivery of the documents, there has been not only a delay but a lack of performance on the part of [seller]. ... In other words, [seller] had been made aware of the fact that the documents did, in the opinion of [buyer]'s bank, not comply with the L/C. Since the conditions of the L/C corresponded to the contractual provisions (with the adding of two additional documents) [seller] was aware at that time that [buyer] would almost certainly not accept the documents as they were.

[79] "If one were of the opinion that at that time [buyer] would have had to fix to [seller] an additional period of time of reasonable length within the meaning of Art. 47(1) of the CISG for delivering a set of documents complying with the contractual specifications, such period would have had to be of ten or fourteen days and would, in other words, have ended some time around mid-December. [Seller] might have had legally the possibility to cure the lack of conformity in the documents in accordance with Art. 34 of the CISG by recalling the set of documents submitted and by re-delivering a new set of documents with the indication of the true shipping date and complying also otherwise with the contractual conditions. [page 149] But [seller] did not endeavor to replace the defective set of documents and [seller] has neither alleged to have offered to [buyer], during the contracts which occurred in that period between the parties through their agents, to replace the challenge documents by new ones.

[80] "In view of the fact that [seller] had been made aware by [buyer]'s bank that the documents submitted were not in order and that contacts between the parties during the period took place and that the situation was obviously discussed amongst them, it would, in the opinion of the arbitral tribunal, be an overly formalistic approach to have required [buyer] to formally fix an additional period for performance to [seller] at that time and to deny the possibility of [buyer] to declare the contract avoided as a consequence of not having fixed the additional period of time.

[81] "As from about [the permitted avoidance date], the hypothetical additional period of time which might have been at the disposal of [seller] to cure the lack of conformity in the documents had elapsed without [seller] having advised by that time [buyer] about the true shipping date, as it contractually would have been obliged to do, nor submitted a new set of documents or offered to do so. Therefore, the arbitral tribunal holds that at least after [the permitted avoidance date], [buyer] was entitled, according to the principles underlying the rules of Art. 49 of the CISG, to declare the contract avoided.

[82] "When [buyer] did so ..., this was done timely. As to the [seller]'s argument, that the declaration of avoidance by [buyer] was late and is therefore to be disregarded according to Art. 49(2) of the CISG, it is again to be considered that the situation of uncertainty as to the shipping date and consequently the truthfulness of the documents submitted was due to the behaviour of [seller] and to a clear breach of [seller]'s obligations under Incoterms clauses CFR A7. According to the general rules on good faith the argument of the delay of the declaration of avoidance could not be heard since the delay, had it occurred, would have to a substantial extent been caused by the behaviour of [seller] itself. (...)

[83] "The declaration of avoidance by [buyer] ... had as a consequence that the contract ended and [buyer] automatically became entitled to damages suffered by the breach of contract by [seller], all in accordance with Art. 81(1) and Art. 74 [8] et seq. of the CISG. [page 150]

[84] "Since the contract was validly avoided by [buyer], and the contract terminated accordingly, there is no basis for [seller] to claim the payment of the purchase price from [buyer]. This is an obvious conclusion but is also clearly established by Art. 81(1) of the CISG stating that the avoidance of the contract releases both parties from their obligations under it, subject to any damages which may be due.

[85] "However, even if the avoidance declared by [buyer] had been unjustified or ineffective because the declaration was late or for any other reason, the claim of [seller] could still not be upheld. The contract would then still be continuing, but [seller] would nevertheless have no justification to claim the purchase price, since it never did adequately perform under the contract. In fact, [seller] did not deliver to the purchaser, either through the bank or directly, a bill of lading and other documents being in compliance with the contract. According to a basic rule of the law on contracts, the 'exceptio non adimpleti contractus', the purchaser is not bound to pay the purchase price as long as the seller has not performed or at least adequately tendered correct performance. This principle is specified by Art. 58(1) of the CISG. Since [seller] could today, under the criterium of timeliness, no longer fulfill its contractual obligations, it would definitively have no longer any claim under the contract even if the contract had not been validly avoided by [buyer].

[86] "The claim of [seller] is, therefore, to be rejected." (...)

VI. Costs

[87] "According to Art. 20 of the [ICC] Rules the arbitral award is to fix the costs of the arbitration and decide in what proportions the costs shall be borne by the parties.[9] In accordance with basic procedural principles followed in arbitration, the costs of the arbitration have to be borne by the succumbing party. [page 151] If none of the parties prevails totally with its requests, the costs must be apportioned in proportion of the degree in which each party prevailed and/ or lost with reference to the relevant amounts. (...)

[88] "... Since both, claim and counterclaim, are being rejected, [seller] succumbed with roughly 96% while [buyer] lost with roughly 4%. The cost of the arbitration is to be allocated in the same proportion. (...)

[89] "According to Art. 20 of the ICC Rules and the procedural principles prevailing in arbitration generally and also applicable in France, which was the seat of the arbitration, the succumbing party must indemnify the prevailing party for its expenses and costs in relation to the arbitration. The arbitral tribunal has to determine the relevant amount. In their mutual requests, both parties have specifically requested that the other party be ordered to reimburse all costs of or related to the arbitration. (.)

[90] "... The arbitral tribunal in assessing the amount of compensation to be adjudicated, has considered the amount in dispute and the characteristic of the case. The tribunal has also taken into account that [buyer] has not unreasonably requested the assistance of counsel not only in its home country but also of another counsel in Austria which has added to its expense and justifies a somewhat larger indemnity than usual. The tribunal noted also that [buyer] did not prevail entirely in its claim and this would justify a reduction in the indemnity for legal costs even if only of modest proportions." (...) [page 152]


FOOTNOTES

* For purposes of this presentation, Claimant is referred to as [seller]; Defendant is referred to as [buyer].

1. Cost and Freight CFR according to the ICC Incoterms 1990 is defined as:
"'Cost and Freight' means that the seller must pay the costs and freight necessary to bring the goods to the named port of destination but the risk of loss of or damage to the goods, as well as any additional costs due to events occurring after the time the goods have been delivered on board the vessel is transferred from the seller to the buyer when the goods pass the ship's rail in the port of shipment.

The CFR term requires the seller to clear the goods for export.
This term can only be used for sea and inland waterway transport. When the ship's rail serves no practical purpose, such as in the case of roll-on/roll-off or container traffic, the CPT term is more appropriate to use.

2. Incoterms CFR A 8 reads:
"Proof of delivery, transport document or equivalent electronic message
The seller must: unless otherwise agreed at his own expense provide the buyer without delay with the usual transport document for the agreed port of destination.

This document (for example, a negotiable bill of lading, a non-negotiable sea waybill or an inland waterway document) must cover the contract goods, be dated within the period agreed for shipment, enable the buyer to claim the goods from the carrier at destination and, unless otherwise agreed, enable the buyer to sell the goods in transit by the transfer of the document to a subsequent buyer (the negotiable bill of lading) or by notification to the carrier.
When such a transport document is issued in several originals, a full set of originals must be presented to the buyer. If the transport document contains a reference to a charter party, the seller must also provide a copy of this latter document.
Where the seller and the buyer have agreed to communicate electronically, the document referred to in the preceding paragraphs may be replaced by an equivalent electronic data interchange (ED!) message."

3. Art. 49 of the CISG reads:
"(1) The buyer may declare the contract avoided:
(a) if the failure by the seller to perform any of his obligations under the contract or this Convention amounts to a fundamental breach of contract; or
(b) in case of non-delivery, if the seller does not deliver the goods within the additional period of time fixed by the buyer in accordance with paragraph (1) of Art. 47 or declares that he will not deliver within the period so fixed.
(2) However, in cases where the seller has delivered the goods, the buyer loses the right to declare the contract avoided unless he does so:
(a) in respect of late delivery, within a reasonable time after he has become aware that delivery has been made;
(b) in respect of any breach other than late delivery, within a reasonable time:
(i) after he knew or ought to have known of the breach;
(ii) after the expiration of any additional period of time fixed by the buyer in accordance with paragraph (1) of Art. 47, or after the seller has declared that he will not perform his obligations within such an additional period; or
(iii) after the expiration of any additional period of time indicated by the seller in accordance with paragraph (2) of Art. 48, or after the buyer has declared that he will not accept performances."

4. Art. 47 of the CISG reads:
"(1) The buyer may fix an additional period of time of reasonable length of performance by the seller of his obligations.
(2) Unless the buyer has received notice from the seller that he will not perform within the period so fixed, the buyer may not, during that period, resort to any remedy for breach of contract. However, the buyer is not deprived thereby of any right he may have to claim damages for delay in performance."

5. Incoterms CFR A7 reads:
"Notice to the buyer
The seller must: Give the buyer sufficient notice that the goods have been delivered on board the vessel as well as any other notice required in order to allow the buyer to take measures which are normally necessary to enable him to take the goods."

6. "See, Schlegelberger, Franz, Seehandelsrecht (Berlin/Frankfurt 1959) p. 409 et seq.; Schaps, Georg and Abraham, Hans Burgen, Das Seerecht in der Bundesrepublik Deutschland, 4th ed. (Berlin/New York 1978) p. 762 et seq.; Prussmann, Heinz and Rabe, Dieter, Seehandelsrecht, 2nd ed. (Munich 1983) p. 497 et seq."

7. Art. 34 of the CISG reads:
"If the seller is bound to hand over documents relating to the goods, he must hand them over at the time and place and in the form required by the contract. If the seller has handed over documents before that time, he may, up to that time, cure any lack of conformity in the documents, if the exercise of this right does not cause the buyer unreasonable inconvenience or unreasonable expense. However, the buyer retains any right to claim damages as provided for in this Convention."

8. CISG articles in Section II on Damages.

9. Art. 20 of the ICC Rules of Conciliation and Arbitration reads:
"Decision as to costs of arbitration
(1) The arbitrator's award shall, in addition to dealing with the merits of the case, fix the costs of the arbitration and decide which of the parties shall bear the costs or in what proportions the costs shall be borne by the parties.
(2) The costs of the arbitration shall include the arbitrator's fees and the administrative costs fixed by the Court in accordance with the scale annexed to the present Rules, the expenses, if any, of the arbitrator, the fees and expenses of any experts, and the normal legal costs incurred by the parties.
(3) The Court may fix the arbitrator's fees at a figure higher or lower than that which would result from the application of the annexed scale if in the exceptional circumstances of the case this appears to be necessary."

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Pace Law School Institute of International Commercial Law - Last updated February 15, 2007
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