Go to Database Directory || Go to CISG Table of Contents || Go to Case Search Form || Go to Bibliography
Search the entire CISG Database (case data + other data)

CISG CASE PRESENTATION

ICC Arbitration Case No. 8574 of September 1996 (Metal concentrate case) [English text]
[Cite as: http://cisgw3.law.pace.edu/cases/968574i1.html]

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

Case Table of Contents


Case identification

DATE OF DECISION: 19960900 (September 1996)

JURISDICTION: Arbitration ; ICC

TRIBUNAL: Court of Arbitration of the International Chamber of Commerce

JUDGE(S): Unavailable

CASE NUMBER/DOCKET NUMBER: 8574 of September 1996

CASE NAME: Unavailable

CASE HISTORY: Unavailable

SELLER'S COUNTRY: Unavailable (respondent)

BUYER'S COUNTRY: Unavailable (claimant)

GOODS INVOLVED: Metal concentrate


Classification of issues present

APPLICATION OF CISG: Yes

APPLICABLE CISG PROVISIONS AND ISSUES

Key CISG provisions at issue: Articles 25 ; 26 ; 49(2) ; 63 ; 64 ; 71 ; 72 ; 74 ; 75 ; 76 ; 77 [Also cited: Article 60 ]

Classification of issues using UNCITRAL classification code numbers:

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

26A [Effective declaration of avoidance: notice to the other party required];

49B1 [Buyer's loss of right to declare avoidance after delivery: failure to avoid within periods specified in art. 49(2)(a) and (b)];

63A [Notice fixing additional final period for buyer's performance];

64A [Seller's right to avoid contract: grounds for avoidance];

71A [Grounds for suspension of performance: apparent that a party will not perform a substantial part of obligations];

72A [Avoidance prior to date for performance: when clear that party will commit fundamental breach];

74A [General rules for measuring damages: loss suffered as consequence of breach];

75A2 [Damages established by substitute transaction (substitute transaction after avoidance): repurchase by aggrieved buyer];

76A [Damages based on current price: avoidance without purchase or resale under article 75];

77A [Obligation to take reasonable measures to mitigate damages]

Descriptors: Fundamental breach ; Nachfrist ; Avoidance ; Anticipatory breach ; Suspension of performance ; Damages ; Profits, loss of ; Cover transaction ; Mitigation of loss ; Burden of proof

Go to Case Table of Contents


Editorial remarks

Go to Case Table of Contents


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=521&step=Abstract>

CITATIONS TO TEXT OF DECISION

Original language (English): ICC International Court of Arbitration Bulletin [ICAB], Vol. 11/No. 2 (Fall 2000) 57-61; Unilex database <http://www.unilex.info/case.cfm?pid=1&do=case&id=521&step=FullText>

Translation: Unavailable

CITATIONS TO COMMENTS ON DECISION

English: van Houtte, ICAB (Fall 2000) 32 n.81 [cover transactions]; Saidov, Damages under the CISG (December 2001) nn.247, 359; Schwenzer & Fountoulakis ed., International Sales Law, Routledge-Cavendish (2007) at p. 537

Go to Case Table of Contents


Case digest

ICC Arbitration Case No. 8574 of September 1996
[Digest of presentation at ICAB, Vol. 11/No. 2 (Fall 2000) 57-61]

Digest by Amanda Waters

Facts

Respondent [seller] contracted to deliver an annual fixed quantity of metal concentrate to Claimant [buyer]. [Buyer] terminated the contract when [seller] failed to make delivery during the third year. [Buyer] referred the dispute to arbitration and sought damages for replacement purchases made, which were at higher prices. [Seller] asserted that it was relieved of its contractual obligations due to market condition changes during the third year. In addition, [seller] asserted that it was released from the contract by force majeure due to labor unrest and compulsory liquidation of one of its mines. [Seller] claimed it was justified in suspending deliveries because [buyer] refused to adapt the contract and withheld payment on a shipment, which [seller] sought to recover.

Applicable law

The Contract contained an arbitration clause that provided for ICC arbitration as follows:

"21. Applicable law and arbitration

"This Agreement shall be governed by and construed in accordance with the laws of Sweden. All disputes arising in connection with the Agreement shall be finally settled under the Rules of Conciliation and Arbitration of the International Chamber of Commerce ICC by one or more arbitrators appointed in accordance with the Rules. The arbitration will be conducted in Stockholm, Sweden, in the English language." [page 58]

Applicable CISG provisions

Articles 49, 71, 72 (avoidance due to anticipatory breach)

At issue is whether [buyer] was entitled to withhold payment of the last shipment, and, if not, was [seller] permitted to suspend deliveries of the goods.

Article 71 of the United Nations Convention on Contracts for the International Sale of Goods (CISG) allows the prejudiced party to either suspend or terminate his performance of a contract if he gives immediate or reasonable notice. According to Article 72, notice is not required only when "the other Party has declared that he will not perform his obligations." These requirements "which are a reflection of the rule of 'positive Vertagsverletzung' of German customary law [are] obviously motivated by a concern that the other Party is made clear of the position of its counter party, placing him in a position to provide assurance that he will in fact perform and thereby defeating the assumption of anticipatory breach and the concomitant threat to the orderly fulfillment of the contract." [page 58]

[Editorial note: Literally translated, the term positive Vertreagsverletzung means "positive breach of contract". It is a remedy based on case law that is available for all breaches of contract not provided for in the German Civil Code, i.e., the breach of accessory obligations and consequential damages.]

In February of 1994, [buyer] began making cover purchases, which leads to the assumption that there was an ipso facto avoidance of the contract rather than a suspension of avoidance under Article 71. "However, CISG does not recognize the concept of ipso facto avoidance, see, e.g. Documentary History of the Uniform Law for International Sales, Kluwer (1989):

"The contract is avoided as a result of the Buyer's breach only if "the Seller declare(s) the contract avoided", /-/ Automatic or ipso facto avoidance was deleted from the remedial system in this Convention because it led to uncertainty as to whether the contract was still in force or whether it had been ipso facto avoided. Under Article 60 of [CISG] the contract is still in force unless the Buyer has affirmatively declared it avoided." [page 58-59]

Pursuant to CISG Article 72(2), [buyer] was required to give notice of its intent to declare the contract avoided and "issue a subsequent declaration of avoidance." [Buyer] gave a declaration of avoidance in a letter dated 23 January 1995. However, this declaration "was clearly not within a reasonable time after the circumstances giving right to avoidance had occurred and therefore inconsequential (Article 49(2) CISG)." In order to avoid a contract by reason of anticipatory breach, it must be "clear" that the other party will fundamentally breach the contract (Article 72(1) CISG).

"From the witness statements dealing with the events of the 16 December 1993 Meeting only the one issued by Mr. [X] addresses these [with] some specificity. In Mr. [X]'s written witness statement - which is in essential respects confirmed in his examination at the final hearing - it appears that Mr. [Y] - representing the [seller] at the meeting - only expressed his wish to discontinue deliveries to the [buyer] and that - in the face of Mr. [Z]'s objection - the 'Parties agreed to continue negotiations early 1994 as at this particular moment concentrate market price for 1994 was not yet fixed.' In the opinion of the Sole Arbitrator this outcome of the meeting hardly constituted any alarming development in the Parties' relationship tantamount to any 'clear' indication of anticipatory breach. And in fact, further negotiations did take place not only on 10 March and 14 April 1994, but also on subsequent occasions throughout 1994. At no time is there any mention from either of the Parties of an avoidance of the Agreement throughout 1994 but, on the contrary, a request for performance of the Agreement was directed to the [seller] in the [buyer's] letter of 10 May 1994."

In the absence of "clear" reasons to assume anticipatory breach, the Arbitrator concluded "that [buyer] breached the Agreement by withholding payment for the Last Shipment." [page 59]. However, the Arbitrator held that this was not a fundamental breach of contract.

[Seller's] failure to comply with CISG Article 64

If the buyer breaches the contract, the seller has two options according to Article 64 of CISG. The seller may either declare the contract avoided immediately if the breach is fundamental or he may fix an additional period (so-called "Nachfrist") for performance by the buyer of his obligations according to Article 63 of CISG. [Seller] failed to adopt either of these options. [page 59-60]

CISG Articles 74-77 (damages)

Articles 74-77 of CISG deal with the recovery of damages for breach of contract. An aggrieved party may seek damages for breach of contract after the contract has been performed or, in cases of avoidance, before contractual obligations are fully performed.

Article 74 provides that "damages for breach of contract by one party consist of a sum equal to the loss, including loss of profit, suffered by the other party as a consequence of the breach. Such damages may not exceed the loss which the party in breach foresaw or ought to have foreseen at the time of the conclusion of the contract, in the light of the facts and matters of which he then knew or ought to have known, as a possible consequence of the breach of contract."

"Article(s) 75 and 76 of CISG address the situation where a contract has been avoided and where damages are based on factual or hypothetical substitute transactions, respectively, while Article 77 imposes a general duty for the prejudiced party to mitigate its damages."

[Buyer] requested damages in the amount of the price difference between the contract price and the price of the substitute purchases that were made.

These damages can only be recovered if the contract was properly avoided in accordance with the provisions of CISG. Article 75 of CISG states:

"Article 75 (Damages in case of avoidance and substitute transactions). If the contract is avoided and if, in a reasonable manner and within a reasonable time after avoidance, the buyer had bought goods in replacement or the seller had resold the goods, the party claiming damages may recover the difference between the contract price and the price in the substitute transaction as well as any further damages recoverable under article 74."

The contract was avoided on 23 January 1995, and "no substitute transactions undertaken prior to a reasonable time after that date can be taken into account for purposes of establishing a duty of indemnification based on substitute transactions."

[Buyer] cannot recover damages under CISG Article 76. "[A]part from the requisite that a declaration of avoidance must have been made - "a party that has entered into a substitute transaction within the meaning of Article 75 [] must proceed under that provision and cannot claim damage under Article 76" (Flechtner, "Remedies under the Convention", 8 J.L.& Com. 101 (1988))."

Therefore, the Arbitrator concluded that [buyer] could invoke neither Article 75 nor Article 76 as a basis for damages.

"However, it remains to be explored whether or not damages cannot be awarded on the basis of the fundamental provisions relating to damages pursuant to Article 74 CISG, i.e. based on the assumption which has to be made in the absence of a declaration of avoidance from either party, i.e. that the Agreement was still in force during the year of 1994." [page 60]

If [buyer's] purchase of metal concentrate in substitute transactions was a measure undertaken to mitigate damages pursuant to Article 77 CISG, the following argument could be made:

However, it is the responsibility of "the party who argues that the aggrieved party has not taken appropriate steps to prevent unnecessary damage from occurring which carries the burden of proof for his allegation in this regard. In this arbitration it has not been argued that there would have been any alternative course of action open for the [buyer] which would have produced a less costly outcome than the one actually chosen by the [buyer]."

Therefore, the arbitrator concluded that the price difference between what was agreed upon in the contract and what was paid in the substitute purchases "must be relevant for purposes of establishing the indemnifiable damages suffered by the [buyer]." [page 61]

Go to Case Table of Contents
Pace Law School Institute of International Commercial Law - Last updated February 15, 2007
Comments/Contributions
Go to Database Directory || Go to CISG Table of Contents || Go to Case Search Form || Go to Bibliography