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CISG CASE PRESENTATION

ICC Arbitration Case No. 8128 of 1995 (Chemical fertilizer case) [translation available]
[Cite as: http://cisgw3.law.pace.edu/cases/958128i1.html]

Primary source(s) for case presentation: Case text


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Case identification

DATE OF DECISION: 19950000 (1995)

JURISDICTION: Arbitration ; ICC

TRIBUNAL: Court of Arbitration of the International Chamber of Commerce

JUDGE(S): Unavailable

CASE NUMBER/DOCKET NUMBER: 8128 of 1995

CASE NAME: Case report does not identify parties to proceedings

CASE HISTORY: Unavailable

SELLER'S COUNTRY: Austria (respondent)

BUYER'S COUNTRY: Switzerland (claimant)

GOODS INVOLVED: Chemical fertilizer


Case abstract (applicability issue only)

Excerpt from Spanogle/Winship, International Sales Law: A Problem Oriented Coursebook (West 2000) [61-62]. Reproduced with the permission of the West Group. To order this text, go to the West Group on-line store "http://lawschool.westgroup.com". Once in the bookstore, enter the author's name "Spanogle" to jump to the correct location.

International Chamber of Commerce: Case No. 8128 (1995)

123 J. du Droit Int'l 1024 (1996) (Peter Winship trans.)

The parties' contract does not contain a clause designating the applicable law . . .

(...)

The different possibilities are Austrian law, which is where the Defendant (the seller) has its place of business, and Swiss law, which is where the Claimant (the buyer) has its place of business. Swiss law might also be applicable because the I.C.C. has designated Basel, Switzerland as the place of the arbitration. In addition, because the I.C.C. Court. of Arbitration has appointed a German arbitrator, German law could also be applied as a neutral law. One must likewise mention the possibility of applying Ukrainian law because the Claimant was required to send to the Ukraine the sacks which the Defendant wished to use to satisfy its obligation to deliver with the help of its Ukrainian supplier.

Switzerland, Austria, Germany, and the Ukraine are all signatories of the Convention on Contracts for the International Sale of Goods. In each of these countries the Convention had entered into force before the date the parties signed this contract.

. . . This contract is a sales contract because the parties have clearly designated themselves as buyer (the Claimant) and seller (the Defendant). Moreover, the preamble of the contract is unequivocal: "the seller sells and the buyer buys the following product subject to the following terms."

The contract signed by the parties satisfies the conditions of article 1(1)(a) of the Vienna Convention according to which the Convention applies to contracts of sale if the parties have their places of business in different States and these States are Contracting States. Accordingly, the Convention's provisions apply to the litigation subject to the present arbitral proceeding. . . .

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Classification of issues present

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

APPLICABLE CISG PROVISIONS AND ISSUES

Key CISG provisions at issue: Articles 6 ; 7(2) ; 25 ; 26 ; 49(1)(a) ; 51(1) ; 73 ; 74 ; 75 ; 78 ; 79(2) [Also cited: Article 47(1) ]

Classification of issues using UNCITRAL classification code numbers:

6B [Agreements to apply Convention (contract silent): Convention applied as rules of private international law lead to law of Contracting State];

7C22 [Recourse to general principles on which Convention is based; determination of rate of interest (also cited: UNIDROIT Principles Art. 7.4.9 and Principles of European Contract Law Art. 4.507)];

25B [Definition of fundamental breach: late delivery; failure to give buyer necessary instructions for correct packaging of goods also termed fundamental breach];

26A1 [Notification of avoidance: character of notice to other party that is required];

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

51A1 [Delivery of only part of goods: rules of Arts. 46-50 apply to part missing];

73A ; 73B [Avoidance in installment contracts: fundamental breach];

74A [General rules for measuring damages, loss suffered as consequence of breach: cost of sacks supplied by buyer];

75A2 ; 75B1 [Damages established by substitute transaction: repurchase by aggrieved buyer; Relationship between avoidance and substitute transaction: reasonable substitute transaction, illustration of];

78B [Rate of interest: calculation based on general principles of Convention];

79C [Impediment excusing party from damages, non-performance attributable to third-party contractor: seller termed responsible for non-delivery caused by its supplier as part of seller's risk]

Descriptors: Applicability ; Choice of law ; Fundamental breach ; Exemptions or impediments ; Intent ; Damages ; Cover transactions ; Interest ; General principles ; Unidroit Principles

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Editorial remarks

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Citations to other case abstracts, and texts, 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=207&step=Abstract>; Uniform Law Review (1997) 810-811

French: Uniform Law Review (1997) 810-811

Italian: [1998] Diritto del Commercio Internazionale 1094-1096 No. 198

CITATIONS TO TEXT OF DECISION

Original language (French): Journal du Droit international (1996) 1024-1028; Unilex database <http://www.unilex.info/case.cfm?pid=1&do=case&id=207&step=FullText>

Translation (English): Text presented below

CITATIONS TO COMMENTS ON DECISION

English: Koch, Pace Review of Convention on Contracts for International Sale of Goods (1998) 203 n.73 [application of UNIDROIT Principles to fill gaps in CISG]; Gillette/Walt, Sales Law Domestic and International (Foundation Press 1999) 232 [Art. 79 issues]; Ferrari, International Legal Forum (4/1998) 138-255 [247 n.1027, 252 n.1075, 253 n.1078 (interest issues)]; Honnold, Uniform Law for International Sales (1999) 110-111 [Art. 7(2) (general principles: determination of interest rate)], 215 [Art. 26], 344-345 [Art. 51], 470-471 [Art. 78], 489 [Art. 79(2)]; Berger, 46 American Journal of Comparative Law (1998) 129 [134-137]; Kizer, 65 University of Chicago Law Review (1998) 1279-1306 [comments on interest rulings in this case and other cases]; Petrochilos, Arbitration Conflict of Laws Rules and the CISG (1999) n.47; Spanogle/Winship, International Sales Law: A Problem Oriented Coursebook (West 2000) [when parties fail to designate the applicable law 52-68 (this case at 61-62), excused performance 217-235 (this case at 220-222)]; Bernstein & Lookofsky, Understanding the CISG in Europe, 2d ed., Kluwer (2003) §: 6-16 n.200; §: 6-29 n.341; Liu Chengwei, Recovery of interest (November 2003) nn.123, 249; [2004] S.A. Kruisinga, (Non-)conformity in the 1980 UN Convention on Contracts for the International Sale of Goods: a uniform concept?, Intersentia at 140, 141; [2005] Schlechtriem & Schwenzer ed., Commentary on UN Convention on International Sale of Goods, 2d (English) ed., Oxford University Press, Art. 25 paras. 7, 13 Art. 73 para. 17 Art. 78 para. 31a; Carla Spivack, 27 Pennsylvania Journal of International Economic Law (Fall 2006) n.169 [commentary on Art. 79 issues]; Schwenzer & Fountoulakis ed., International Sales Law, Routledge-Cavendish (2007) at p. 558; Spaic, Analysis of Fundamental Breach under the CISG (December 2006) n.272

French: Hascher, Journal du Droit International (1996) 1028-1030

German: Bonell, 15 Bulletin Association Suisse de l'Arbitrage (1997) 600 [603]

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Case text (English translation) [second draft]

Queen Mary Case Translation Programme

ICC Arbitration Award 8128 of 1995

Translation [*] by Serge Lapine [**]

The contract between the parties contains no provision on applicable law. [...] Therefore, the arbitrator must determine the applicable law according to the Rules of Arbitration of the ICC.

The possibilities are the following: Austrian law which applies in the place of business of the Respondent [the Seller]; Swiss law which applies in the place of business of the Claimant [the Buyer]. Swiss law can also be applicable because the ICC set up Basel as the place of arbitration. Besides, since the Court designated a German arbitrator, German law can be applicable as neutral law. It should be also mentioned that Ukrainian can apply as well because the [Buyer] had to deliver to the Ukraine the bags and the [Seller] [...] wished to complete the deliveries which he wanted to make with the help of its supplier.

Switzerland, Austria, Federal Republic of Germany and the Ukraine are all signatories of the UN Convention on Contracts for the International Sale of Goods (hereinafter - Vienna Convention 1980). In each of these countries the Convention entered into force before the conclusion of the contract by its parties.

[...] This contract is a contract of sale insofar as it clearly follows from the designation of the parties as the [Buyer] and the [Seller]. Besides, the preamble of the contract according to which "the Seller sells and the Buyer buys the following goods under the following conditions" is unambiguous.

The contract signed by the parties conforms with the conditions of Article 1(1)(a) of the Vienna Convention 1980 according to which it applies to contracts of sale between parties whose places of business are in different States when the States are Contracting States. Therefore, the provisions of the Vienna Convention 1980 are applicable to the present dispute [...].

Under Article 49(1)(a) of the Vienna Convention 1980, the buyer may declare the contract avoided 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. A fundamental breach of contract is defined in Article 25 of the Vienna Convention 1980 [...]. The [Seller] is accused of several fundamental breaches of contract in the sense of Articles 49(1)(a) and 25 of the Vienna Convention 1980. According to the declaration of the Director General [of the supplier], the bags provided by the [Buyer] to the [Seller] were not consistent with technical rules of production used in the chemical industry of the Ukraine. They could not be observed by the [supplier] [...]. One of the essential obligations of the [Seller] was to give instructions which would have allowed for the [Buyer] to produce the bags which could be filled by the [supplier of the chemical fertilizers]. The [Seller] violated this obligation

The [Seller] committed another fundamental breach in the sense of Articles 49(1) and 25 of the Vienna Convention 1980 choosing a supplier who could not for technical reasons fill correctly with the chemical fertilizers the bags produced under its instructions. Accordingly, the [Seller] could not perform the contract correctly and within the due terms to the detriment of the [Buyer].

[...] The [Seller] maintains that the faulty performance of the contract is not imputable to him. According to him, he could not reasonably know the motives which hindered the performance of the contract at the moment of conclusion of the latter. He alleges that he could not overcome the circumstances which impeded the performance himself [...]. This objection is not justified. The [Seller] is not exempt from liability due to a failure to perform on the part of his supplier in accordance with Article 79(2) of the Vienna Convention 1980 [...].

If the Seller gives instructions on package to the Buyer and if the Seller calls on a supplier, the Seller is under an obligation to ensure in advance that his supplier can use package which he prescribed. The [Seller] clearly failed to enquire of his supplier. However, even if he enquired of the supplier and the latter submitted false information this would have not exempted the [Seller] from his obligation.

The [Seller] who has chosen the supplier to perform his contract with the [Buyer] must be held responsible for the behavior of the latter. This follows from Article 79(2) of the Vienna Convention 1980 because the seller's responsibility for his supplier is an integral part of the general risk of supply of goods. A serious delay of delivery constitutes another fundamental breach under Article 49(1) of the Vienna Convention 1980. A simple delay does not however constitute a fundamental breach under Article 25 of the Convention because the buyer is usually obliged to fix an additional period of time of reasonable length for performance by the seller of his obligations in conformity with Article 47 of the Convention. Only if the seller does not deliver the goods until expiry of this period of time that the buyer has the right to declare the contract avoided by virtue of Article 49(1)(a). A delay may however constitute a fundamental breach of contract in particular circumstances of a specific case of which the buyer must be aware. An excessive omission of the date of delivery, even if no additional period of time is granted may entitle the buyer to avoid the contract. In particular, this is the case when the buyer gave on the agreed date of delivery a notification known for the buyer. [...] This is the case of the present dispute.

The [Seller] knew already due to what was printed on the bags that the chemical fertilizers were not intended for the [Buyer] but for the latter's client. The [Seller] knew due to the letter sent to him by the [Buyer] that the latter was, because of the [Seller]'s delays, threatened by his client that he is to pay contractual penalties and additional costs following from the purchase of surface dressing. The claim to the seller to perform the contract without delay had a particular weight. It transformed the delay of delivery into a fundamental breach of contract after receipt of the [Buyer]'s letters.

It does not matter that the [Buyer] really declared the contract concluded with the [Seller] avoided in its entirety. The [Buyer] declared the contract avoided at least for the first deliveries of [X] tons for which the bags that he supplied were intended.

Under Article 51(1) of the Convention a partial cancellation of the contract is possible. The contract between the parties is a contract for delivery of goods by installments [...]. A partial cancellation is possible in case of a contract for delivery of goods by installments if there is a fundamental breach with respect to an installment as it is stated in Article 73 of the Vienna Convention 1980.

It does not matter that the [Buyer] did not expressly declare the contract partly avoided. To interpret the declarations and the conduct of a party there is a need to establish its real intent if the other party knew it at all. The guide for this interpretation is the manner in which a reasonable person would have understood this declaration or this conduct in the same circumstances. On the basis of a reasonable interpretation the [Buyer] declared the contract partly avoided in his letter of [...] unless he receives before [...] a firm undertaking of the [Seller] indicating when the delivery will be made. In the same letter, the [Buyer] sought a definitive answer from the [Seller] and clearly indicated that otherwise he will purchase the surface dressing from another supplier [...]. In his letter of [...], the [Seller] gave no definitive answer only saying that he could not yet give definitive information. Thus, the condition put forward by the [Buyer] became real and the contract was partly avoided [...]. The [Seller] maintains that the [Buyer] suffered no damage from the delivery of the bags. According to him, the bags remained free and ready to be filled at any moment. Hence, the [Buyer] did not prove the fact of bearing unnecessary costs. This argument is inconsistent with the principle of good faith enshrined in Article 7(1) of the Vienna Convention 1980.

[...] The [Buyer] can claim damages in the form of costs borne with respect to the bags that he supplied in accordance with Articles 49(1), 74 and 75 of the Vienna Convention 1980 [...]. The [Buyer] can also claim additional costs necessary to buy goods in replacement from [a third party]. The buyer can buy goods in replacement in the absence of performnce or in case of a deficient performance of the contract by the seller. However, by virtue of Article 75 of the Vienna Convention 1980 this entails avoidance of the contract in its entirety or, in case of a contract for delivery of goods in instalments, avoidance of the contract with respect to one or several deliveries as stated in Article 73(1) of the Convention.

The buyer may claim the costs following from purchase of goods in replacement as damages if the transaction is reasonable in conformity with Article 75 of the Convention. The buyer concludes such a contract if he behaves as a careful and prudent businessman undertaking in this purchase of surface dressing. The first condition for this is that the goods in replacement are of the same type and quality. [...] The specifications of the chemical fertilizers in the purchase in replacement are slightly different from the contractual specifications. They concern purety and water content. But the differences are minor and are not important [...].

The buyer who has to buy goods in replacement does not have an obligation to conduct a deep investigation in order to get the most advantageous goods (in the present case - surface dressing). [...] In the present circumstances, the price of the purchase in replacement is reasonable in the sense of Article 75 of the Convention. A purchase in replacement, which must be made in a very short period of time so that the goods can be delivered to the client within the terms of contract, justifies a price higher than that agreed upon when there was enough time [...]. Consequently, the [Buyer] can obtain from the [Seller] the recovery of additional costs following from the purchase in replacement (Articles 49(1)(a), 73(1) and 75 of the Convention).

The [Buyer] can also, under Article 78 of the Vienna Convention 1980, claim interest on overdue payments from the [Seller]. The claim to recover the costs of the bags appears at the moment of partial cancellation of the contract. The interest must be calculated beginning from this date. Additional costs resulting from the purchase in replacement begins from the moment when [the bank] paid the price of goods in replacement to [a third party] on behalf of the [Buyer]. Thus, the interest on these costs began on this date.

The interest rate is not considered by Article 78 of the Vienna Convention 1980. No agreement on this point could be established by the draftsmen of the Convention. Thus, the determination of the rate was not included. It is admitted that it is possible, in the framework of Article 78 of the Vienna Convention 1980, to apply an international interest rate such as LIBOR which is applicable to interbank operations in London market. The UNIDROIT Principles provide in Article 7.4.9 (2) that the interest rate corresponds to the average bank short-term lending rate to prime borrowers. This corresponds to Article 4.507 (1) of the PECL adopted by the Commission on European Contract Law [...].

The arbitrator considers it justified to apply to the dispute identical rules contained in the UNIDROIT Principles and the PECL as general principles in the sense of Article 7(2) of the Vienna Convention 1980.

The interest rate LIBOR plus 2% which is claimed by the [Buyer] corresponds to the bank short-term lending rate to companies. The [Buyer] is thus granted this interest rate.


FOOTNOTES

* All translations should be verified by cross-checking against the original text. For purposes of this translation, the Claimant of Switzerland is referred to as [Buyer] and the Respondent of Austria is referred to as [Seller].

** Serge Lapine is a 5th year student at the Law Faculty of Nizhny Novgorod and at the same time at the Interpreters' Faculty of Nizhny Novgorod Linguistic University.

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