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CISG CASE PRESENTATION

Finland 17 January 1997 Tampere Court of First Instance (Canned food case) [translation available]
[Cite as: http://cisgw3.law.pace.edu/cases/970117f5.html]

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

Case Table of Contents


Case identification

DATE OF DECISION: 19970117 (17 January 1997)

JURISDICTION: Finland

TRIBUNAL: Tampere Court of First Instance (Tampereen käräjäoikeus)

JUDGE(S): Unavailable

CASE NUMBER/DOCKET NUMBER: 95/11193

CASE NAME: Finnish case citations do not generally identify parties to proceedings

CASE HISTORY: 2d instance Turku Court of Appeal 12 November 1997 [affirming]

SELLER'S COUNTRY: Spain (plaintiff)

BUYER'S COUNTRY: Finland (defendant)

GOODS INVOLVED: Canned food


Classification of issues present

APPLICATION OF CISG: Yes

APPLICABLE CISG PROVISIONS AND ISSUES

Key CISG provisions at issue: Articles 35 ; 39(1) ; 50 ; 74 ; 78 [Also cited: Article 70 ]

Classification of issues using UNCITRAL classification code numbers:

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

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

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

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

78B [Rate of interest]

Descriptors: Conformity of goods ; Lack of conformity notice, timeliness ; Reduction of price, remedy of ; Damages ; Foreseeability of damages ; Interest

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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

Unavailable

CITATIONS TO TEXT OF DECISION

Original language (Finnish): CISG Nordic website <http://www.cisgnordic.net/970117FI.shtml>

Translation (English): Text presented below

CITATIONS TO COMMENTS ON DECISION

English: Larry A. DiMatteo et al., 34 Northwestern Journal of International Law & Business (Winter 2004) 299-440 at nn.567, 569, 664

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Case text (English translation)

Queen Mary Case Translation Programme

Tampere Court of First Instance 17 January 1997

Translation [*] by Jarno Vanto [**]

Pleadings
The [seller]'s claim
  -   The grounds for the claim
The [buyer]'s counterclaim
  -   The grounds for [buyer]'s counterclaim
  -   The price reduction with regard to the unpaid invoices
  -   Damages based on non-conforming goods
  -   [Buyer]'s right to refrain from paying the price
[Seller]'s response to [buyer]'s counterclaim
  -   The claim for price reduction
  -   The claim for damages
  -   The right to refrain from paying the purchase price
  -   On the notice of lack of conformity
[Buyer]'s reply; [seller]'s statement; [buyer]'s statement

Reasoning of the court
Governing law
The [seller]'s claim; the [buyer]'s counterclaim
  -   Timeliness of notice of lack of conformity
  -   The right to price reduction
  -   The conformity of the goods
  -   The amount of price reduction
  -   Damages

Ruling of the court

PLEADINGS

Claimant: JHPH SA, the Spain [seller]. Defendant F Oy, Finland [buyer]. Goods: Canned food.

[Seller] has presented a claim that [buyer] should be made to pay a total of 20,479,493 Spanish Pesetas added with lawful interest on arrears. Furthermore, the [seller] has demanded that the [buyer] should be made to pay its legal fees added with lawful interest in arrears after one month of the issuance of the ruling.

      - The grounds for the claim

The [seller] has issued invoices for Conservas Diamante [canned food] to the [buyer] totaling 20,479,493 Spanish Pesetas. The [buyer] has ignored the invoices even where notice was sent to request payment. The [buyer] stated that its clients had complained about the goods and that some of the consignments contained goods in an amount that was less than the contracted amount.

The [buyer] has not, however, alleged that the goods had not been delivered nor that the price had not been correct.

Claimant: F Oy, Ylojarvi, Finland [buyer]. Defendant: JHPH SA, Spain [seller]. Issue: Damages, etc. [Buyer] has presented a claim with the following content:

1. That the [seller] should be made to pay a total of 6,132,377.50 Spanish Pesetas as price reduction due to faulty items in the invoices already paid for;

2. That the [seller] should be made to pay a total of 9,868,856.50 Spanish Pesetas at the exchange rate of the date of payment with regard to the unpaid invoices mentioned in the claim of the seller;

3. That the [seller] should be made to pay a total of 12,000,000 Spanish pesetas as damages for the loss caused by the failure to perform on the [seller]'s part;

4. That the court should confirm that [buyer] has been entitled to non-payment of the invoices mentioned in [seller]'s claim because of [buyer]'s claims 1 - 3.

Furthermore, [buyer] claims that the above mentioned sums should be set-off against the sum total of 20,479,493 Spanish Pesetas mentioned in [seller]'s claim and, after the set- -off, the [seller] should be made to pay the buyer 7,521,841 Spanish pesetas at the exchange rate of the date of payment added with lawful interest on arrears from the date of issuance of the summons onwards. Also, [buyer] has claimed that the [seller] should be made to compensate its legal fees added with lawful interest on arrears.

5. [Buyer] claims, that the seller should be made to pay damages in the amount of 200,000 Finnish Marks based on losses resulting from a breach of an exclusive import agreement added with lawful interest on arrears from the date of issuance of summons onwards. Also, this sum should be used as a set off against the sums mentioned in the seller's claim in the event that the amounts mentioned in parts 1 - 3 do not suffice.

     - The grounds for [buyer]'s counterclaim

The counterclaim is based on the non-conformities of the canned food sent to the [buyer] in May 1995. The goods have not been in conformity with the high quality as agreed in the contract. The [seller] has issued four invoices. [Buyer] has paid the invoices in full. Only later did it become apparent that the contracted canned food was loaded with significant and noticeable non-conformities which entitle [buyer] to price reduction. Even though [buyer] has paid the whole price in full, it has not lost its right to price reduction in proportion to the non-conformity, the amount of which [buyer] deems as being 50% with regard to the already paid invoice items as far as the items cover non-conforming goods. The only conforming goods have been strawberry marmalade and canned strawberries. These items have not been met with complaints, so they are not subject to price reduction.

The picture of the product on the side of the can gives the buyer an idea of the contents of the can. Therefore, the contents must resemble the label. The Diamante products have not met this requirement. First and foremost, the mushroom, pear and clementine products have met with a lot of complaints both from consumers and retailers. The cans have contained many foreign objects including stones, cigarettes, snails, etc. Some of the cans have had deformities, rust and other faults. In tests carried out in a laboratory, it has become clear, that the some of the contents of the cans have not been suitable for human consumption because of their tin content. The leaking of tin into the contents of the can results in an undesirable metallic taste and high concentration of tin makes the contents inedible.

When estimating the amount of non-conforming goods, one has to keep in mind, that consumers generally are not in the habit of complaining about the contents of a 5 FIM (90 cent) mushroom can but instead throw it in the garbage and refrain from buying the same product in the future. And not all retailers convey their complaints to the firms from which they buy, but simply do not buy the product anymore.

      - The price reduction with regard to the unpaid invoices

The [buyer]'s counterclaim is based on the deliveries mentioned in [seller]'s original claim. These deliveries also contain non-conforming and inedible canned goods as described in the previous item. The amount of price reduction is 50% of the delivered and invoiced consignments as far as they cover the non-conforming goods. The only conforming items have been the canned strawberries and peach and strawberry marmalades.

Because the products mentioned in the previous item had received a significant amount of complaints, [buyer] did not pay the invoices, since it had an established cause for doubt as to these products also being of similar non-conforming nature as the earlier delivered consignments. Based on the complaints, this is undisputable. Furthermore, the tin content of the canned food exceeds the maximum tin content allowed by the Ministry of Commerce and Industry.

      - Damages based on non-conforming goods

The non-conforming goods have caused significant damage to [buyer]'s business activities, because many of the retail clients have quit their purchases and the profit margin of the company has been in a steady decline. For example, a major client, RM Oy, has singlehandedly returned a total of 19,103 cans of mushrooms. The goodwill of [buyer] as a supplier of quality canned food has suffered. Consequently, the re-establishment of that goodwill requires additional effort and marketing.

[Buyer] is a company engaged in import and sales of food supplies and canned food in particular. Since 1990, [buyer] has managed to create good business relations with retailers on a national level. The success of [buyer] has been based on the fact that it has taken utmost care of the high quality of the goods and has been diligent in carrying out its contractual duties. In December 1993, [buyer] signed an exclusive import contract with [seller] for exclusive sales rights of Diamante products in Finland. The contract bound [buyer] to sell only Diamante brand canned foods in Finland. [Buyer] deemed it correct to enter such a limiting contract because the seller emphasized the high quality of Diamante products and because the goods delivered earlier by Diamante had been of high quality and no complaints over them had been received. [Buyer] relied on [seller]'s assurances. The [seller] has assured the [buyer] that Diamante products are of top quality, meaning even better than Class I- products. The color, taste, smell, look and even the label have to be absolutely immaculate.

However, the quality of the products began to gradually deteriorate and no longer corresponded to the assurances of the seller. After Finland joined the European Union (1995), the border inspections of food imports were done away with. This made it possible for the [seller] to lower the quality of the goods and the [seller] subsequently made use of that possibility. The lower quality of the goods will only belatedly surface in the canned food trade. The non-conforming goods have caused losses to [buyer] in various forms. [Buyer] has had to compensate its clients for faulty goods and has lost numerous major clients possibly for good. The non-conformities in the goods are a direct result of the negligence of the Spanish producer in the manufacturing process. Furthermore, the Spanish manufacturer has given misleading information about the products when marketing them while being fully aware that the products do not meet the quality requirements placed on high quality canned food.

      - The right to refrain from paying the price

Because of the non-conformities in the goods and the resulting losses, [buyer] has been entitled to refrain from satisfying the invoices mentioned in the [seller]'s claim. [Buyer] has claims that may be set-off against [seller]'s claims and because the prerequisites for set-off are in existence, [buyer] has had the right to refrain from paying the invoices. The [seller] was informed of the non-payment as soon as sufficient information of the non-conformity had been received.

[Seller] has refused to accept the [buyer]'s claims and demanded that they be denied because the claims are unfounded and unproven. Furthermore, [seller] alleges that the amount of the claims is unclear and no notice has been given about the non-conformities.

      - The claim for price reduction

[Buyer] has not had the right to price reduction, since it has sold the goods and has received the price for the goods but has not paid the invoices. The goods have been sent from Spain to [buyer] who then sold them to different retailers. [Buyer] has received the full price from the retailers. Therefore complaints from individual consumers have no significance in the relation between [seller] and [buyer]. No clarification has been submitted as to whether [buyer] had compensated the consumers or retailers in any manner or that it had had to supply conforming goods as a replacement.

[Buyer] has estimated that the value of the delivered goods had been circa 50% of the value of conforming goods at the time of delivery. Consequently [buyer] has demanded a price reduction of 50% insofar as the goods were faulty or non-conforming to the contract. The value of the delivered goods has been what [buyer] has received when the goods were sold further. The non-conformity of the goods is denied also on the basis that insofar as the complaints received by [buyer] are concerned, [buyer] has not returned the goods to Spain nor has [buyer] provided samples based on which the non-conformity of the goods could have been evaluated.

The Spanish company and [buyer] have not agreed that the products would be of Calidad Extra- quality. The fax message submitted by the buyer, dated 28 September 1992, is not a contract but an offer that all the goods are of the same quality. [Buyer]'s claim concerning the alleged non-conformity does not entitle it to price reduction. Not one of [buyer]'s complaints was based on the wrong quality classification of the goods but, for example, on such things as swollen packaging, etc. [Buyer] has been under the duty to check the goods in order to ascertain that the goods are of the contracted quality class. In any case, [buyer] has sold the non-conforming goods, which serves as additional grounds for denying [buyer]'s claim for price reduction.

      - The claim for damages

No grounds for the claim have been submitted. The Spanish company could not have foreseen, that the alleged consequences could have been caused by their actions, since the goods have been examined in Spain and the analyses based on those examinations have not shown any non-conformities in the products. The damages claim is based on the allegation that the retailers have stopped buying products from [buyer]. No evidence to this effect, however, has been submitted by the [buyer]. A questionnaire has pointed out that some of the retailers have either stopped or decreased their purchases but this has not been because of Diamante-products but because of other reasons.

      - The right to refrain from paying the purchase price

[Buyer] has not had the right to refrain from paying the purchase price. It is also under a duty to pay the required interest on all sums in arrears. If it is held that the [buyer] was entitled to refrain from paying the price, the [buyer] must be made to pay interest from the date of issuance of summons onwards.

One must pay attention to the fact that when one talks about the remedies of breach of a sales contract, one mentions, e.g., avoidance or damages. In the normal course of business, the matters proceed in such a way that the buyer presents a claim for compensation to the seller. The relationship between this [seller] and [buyer] has been different. [Buyer] is a wholesaler and it has sold the goods further and has received the price for them. [Buyer] has not had the right to leave the seller's invoices unpaid.

      - On the notice of lack of conformity

The buyer has the duty to give notice of lack of conformity. The representative of [buyer] has received complaints about the products but not any of these have been forwarded to Spain. The first document that can possibly be regarded as notice was a letter sent to [seller]'s counsel by counsel of [buyer] on the 19 January 1996. The grounds for the claims have been entirely insignificant complaints and not until the preparatory stage of this litigation was it brought forward that 19,000 cans were returned by a large retailer.

The fax message of 28 September is from the time before the exclusive sales contract was concluded. The fax message brings forth that the Diamante brand was the best and if lower quality was delivered, it would come under a different brand name. The exclusive sales contract was done specifically because the Spanish company assured [buyer] that the quality of the products was high. The counterclaim is based on the non-conformity of the goods. The fax message is a response to a quality questionnaire and it is not even alleged that it would be a contract. However, it points out what can be regarded as agreed on between the parties in terms of quality and what [seller] has told to [buyer] about the quality.

The fact that [buyer] has sold the goods further does not take away the right to price reduction even though [buyer] had not yet extensively compensated its own clients for the non-conformities. New claims are being received constantly and [buyer] is responsible for its own clients even if was not able to reduce the price. The extent of loss has been foreseeable to the [seller] immediately after having acted against its contractual duties. The [seller] has marketed its products as high quality European canned food but has delivered a different kind of product. Furthermore, [buyer] has imported the goods to Finland and [buyer] has placed its bets on this product. Admittedly, it is difficult to fully determine the whole extent of the loss. The complaints and returned goods indicate, however, that the goods have been non-conforming. When a consumer buys a bad product, the most common reaction is that he no longer buys the same product. The complaints are received months after the goods have been delivered. Before Finland joined the EU only a few complaints were received. After the accession of Finland to the EU, the amount of complaints has increased since the Customs Laboratory exams have been cancelled altogether. The complaints received by [buyer]'s representative have prompted [buyer] to contact [seller] in Spain by phone several times -- to no avail.

According to the analysis statement of the Vegetable Canned Food Industry Research Association, the tin content of the mushroom cans has been 40 when leaving the factory. This makes one wonder how high the tin content is in a store when the last purchase date can be years away. In the analysis, one can per consignment was examined. Some of the products were not intended for [buyer]. The average metal content is presented and the study is carried out to measure health risks of these products.

It becomes clear from [buyer]'s statement that, to a great extent, the demand for price reduction is based on complaints possibly received in the future and subsequent compensation paid out to the customers. Such a remedy in this context is not known to the CISG except in the context of late delivery. The claim is premature insofar as the price reduction is based on future complaints. As a piece of written evidence, we submit a control list of each of the invoices mentioned in buyer's counterclaim. By comparing the codes in the control list to the analysis of the above mentioned research institute, one can confirm the extent to which the goods sent to [buyer] have been analyzed in Spain. From that, one can draw a conclusion that every invoice contains goods that have been analyzed. According to the analyses all the goods have been conforming.

The list of the invoices made out to [buyer] tells about the development of business relations between the parties. [Buyer]'s purchases have increased towards the end and in the year 1995 they have been enormous. [Buyer] has submitted a new order only one week after the first of the unpaid invoices had become past due.

Based on the written evidence relating to the business relationship between [buyer] and a company A SA, it is clear that [buyer] has owed money to A SA. Because of this "minor difference in opinions", L representing [buyer] has refused to meet the representatives of A SA at a trade fair and has told that he is unable to take part in the fair. Instead, L has met the representative of [seller] because he has deemed their relationship as being unproblematic. The same view is reflected in the order submitted the following fall.

In the fax of the 15 November 1995, a reference has been made to the complaints concerning the mushrooms. [Seller] has insurance that covers certain defects in the goods and damage such defects may have caused. In the fax, a request has been made to [buyer] that they provide samples and clarification so that the insurance company may determine whether the defect is of such nature that it can be compensated by the insurance company. [Buyer] did not respond to this or provide samples, raising doubts about the existence of any non-conformities.

[Buyer] has not notified the seller in a timely fashion or in detail. According to CISG Article 39(1), the notice must be given within a reasonable time after the lack of conformity has been discovered. [Buyer] has sent a fax message in August 1995 where a detailed notice has been given, because a snail was found in one of the cans, etc. [Buyer] has received an enormous amount of goods, whereas the notice only applies to only a small amount. Consequently, it does not have any significance. Phone conversations have been held and there L has brought forward the issue of non-conformity, but only a small amount of goods was mentioned. Therefore, [buyer] has not given timely or detailed notice.

The business activities with A SA have no connection to the issue at hand. L had not had the time to meet the representatives of the company and had, for business reasons, told them that he had not been to the fair at all.

Based on the mentioned faxes, [buyer] has given timely notice. The non-conformities have been discussed on the phone but only bigger non-conformities ensued. After the first complaint received by the [buyer] an order was submitted because the extent of the non-conformities was not yet known to the [buyer].

It was not until the preparations for the trial had begun that the [seller] introduced the above-mentioned analyses. It is not the intent here to claim that they were made post-facto, but it is cause for concern that such an introduction had not taken place earlier. The invoices still contain products that have not been analyzed. As far as the mushrooms go, the tin content is significantly higher than what is the case with, e.g., canned fruit.

REASONING OF THE COURT

The parties have agreed that the CISG is applicable in the case. Additionally, the Finnish Code on Interest is applicable.

[Seller] has delivered the consignments to [buyer] that [buyer] ordered and has sent invoices totaling 20,479,493 Spanish Pesetas. [Buyer] has not paid the invoices.

      - Timeliness of notice of lack of conformity

[Seller] has brought forward that [buyer] has lost its right to rely on the non-conformities, since it has not given a timely or detailed notice.

According to written exhibits submitted, [buyer] has sent a fax message to [seller] on 18 August 1995, stating that little stones had been found in mushroom cans and pea cans, clams had been found in mushroom cans and a cigarette butt had been in a spinach can. Statement had also been made in the fax to the effect that the quality should be the best. In a fax message dated 10 November 1995 [seller] was notified, that one of [buyer]'s customers had returned 1,008 boxes of sliced mushrooms because the customer did not think they were of the best quality. Additionally, a notice had been given to the effect that consumers had discovered foreign articles in the cans and the cans had been rusty. [Buyer] has also informed the [seller] on the phone about the non-conformities and the decrease of quality. Exhibit # 8 brings forth that the [seller] has received the notifications.

The goods in the case are of such nature that they are distributed among consumers in small amounts and non-conformities are detected only when the consumer begins using the product. Therefore the complaints from consumers begin coming in gradually and possibly after a long period of time after the goods have been received by the importer. The court holds that the buyer has given notice within a reasonable time after he has discovered it and in sufficient detail.

      - The right to price reduction

According to CISG Article 50, the buyer has the right to price reduction if the delivered goods do not conform with the contract. The right is independent of whether the buyer has sold the goods further and at what price or whether the buyer has been subject to complaints or demands for compensation.

These issues may, however, have an effect on the amount of price reduction. When considering whether [buyer] is entitled to price reduction, it is decisive to determine whether it has received non-conforming goods. Whether claims for compensation have been presented or will be presented in the future does not bear any significance to the right to price reduction. The [buyer]'s claim is by no means premature.

      - The conformity of the goods

On 16 December 1993 [buyer] and [seller] entered into an exclusive import agreement. In paragraph 3 of the contract, [seller] guarantees that the products it manufactures are of good quality and fulfill the European Union requirements set for the type of products. As to the quality of the goods, nothing else has been agreed. Canned foods have no quality classifications in Finland.

Witness L has told that at the time of the conclusion of the contract and before that, Diamante products were known as products of good and even quality and were regarded as top quality canned food. Based on the quality, [buyer] was willing to sign the exclusive import contract. After Finland joined the EU, the level of quality begun to drop and during 1995 [buyer] received over a hundred complaints about various defects in the products.

According to witness A, the initial quality was good and they did not receive complaints. The supermarket chain sold Diamante fruit and mushroom products for over four years. At some point, the quality begun to deteriorate and, in the fall of 1995, customers begun complaining. They said that the products were dark in color, soft and bad. The witness himself had opened cans of pear and cherries and noticed the same thing. [Buyer] has compensated the chain with several thousand Finnish marks to settle the issue.

Witness V has told that the supermarket chain he represents had bought about 100,000 cans of sliced mushrooms from [buyer] on 9 June 1995 and 23 October 1995. Customers complained about the products and samples were sent for analysis. According to the statement, the product was darkened and it had an aftertaste. The witness himself opened a few cans and compared them with competing products. Diamante was darkened and looked uninviting and did not meet the requirements for a top quality product. The supermarket chain returned about 19,000 cans for which compensation was demanded from [buyer].

Witness V has submitted that, in the spring of 1995, their supermarket bought a consignment of 5,000 cans of sliced mushrooms that were sold to them as top quality mushrooms. They received an exceptional amount of complaints because the product did not look like what the customers thought that sliced mushrooms ought to look. Bad taste or other nuisances were not detected. The complaints dealt with how the mushrooms were in the cans in one piece and with stems and not sliced like they were supposed to have been. In all the cans that the witness saw opened, the product looked uninviting.

According to witness R, their manufacturing process results in darker than usual mushrooms but mushrooms retain their taste better.

The customer complaints submitted as written exhibits bring forth that all kinds of foreign articles, such as plastic gloves and small stones were found inside the cans. According to a report by a municipal research laboratory, the orange marmalade had a bad smell and taste.

According to [buyer], the products have not been conforming because, among other reasons, the contents of a can do not correspond to the label. According to witness R, the same label is attached to all the cans with the same content. Consequently, it cannot always correspond with the contents as far as color or shape are concerned. The court holds that the label does give the buyer information about the contents. Perfect correspondence cannot be required and it is not relevant in terms of conformity with the contract.

[Buyer] is of the opinion, that Diamante products do not fulfill the agreed requirements because, among other things, the tin content of the products has been significantly high. According to the standard set by the Ministry of Industry and Commerce, a product packaged in a metal can may have a tin content of 100 milligrams/ kg when imported and 150 milligrams/ kg when sold at retail.

Based on the laboratory analyses submitted as written exhibits, it is apparent that the Diamante products analyzed -- including mushrooms, pear halves, red peppers and spinach -- have had a tin content of over 100 milligrams/ kg with the exception of spinach. This has been the case even if the sell-by date is years away. According to an analysis carried out by a municipal research laboratory, the clementine cans have had a metallic taste even with a tin content of 51 milligrams/ kg. Witness RE has confirmed that these analyses have been carried out and that the results are correct. This witness states that the products themselves do not have tin in them but that the can leaks the metal. Such leaking is a normal phenomenon but usually the tin content stays below 100 mg/ kg. The amount of leakage is affected by the thickness of the tin layer, the acidity of the contents and the time the product is in the can. The structure of the Diamante cans was not exceptional in comparison to other cans.

Witness R has submitted that the technicians closely monitor each stage of the manufacturing process. When the product is finished, chemists take samples of it. Each day the goods produced that day receive their own codes. Finished goods are stored for a minimum period of 21 days while they are monitored for any changes. The production rate of mushrooms is about 60,000 cans per day. Products manufactured on the same day as the product that were sold to [buyer] have also been sold to other buyers. No complaints about those products have been received. The factory has strictly adhered to the standards set by the European Union and Spain in the manufacturing process of these products. The goods have been of good quality as promised. The exports to Finland have been important to the company and the image of Diamante products has been worth protecting. In Spain, the best quality canned food is called Extra. This name is given to only a few canned fruits. The next class is called Primera. In this class, only the best, selected ingredients are used. Pears and whole mushrooms usually belong to that class. Sliced mushrooms belong to 1A class because sometimes slightly deformed mushrooms are used for that product class. There is also the II-class, but that is not delivered under the Diamante name. The selection of ingredients takes place during the manufacturing process. The statement of the Spanish research institute brings forth that the samples taken from each of the consignments, one can per each consignment, have had an average tin content of 50 mg/ kg or over. Because the tin content has an effect on the taste, it has relevance in terms of the quality of the products.

There is no reason to doubt the validity of the statements of the witnesses. Witnesses R and L are slightly biased which must be considered in weighing their statements. During the business relationship between [seller] and [buyer], R and L have not been doing business with one another but with other people. Therefore R does not have detailed information about the notifications of [buyer]. The written exhibits from the Spanish laboratory do not seem entirely credible since none of the samples ever produced less than good results. Of the daily produced cans that may amount to 60,000 cans, only one can has been analyzed. Consequently, one cannot draw a conclusion that non-conforming goods had not been exported to Finland.

Based on the submitted evidence, the Court of First Instance holds, that a significant amount of the products have been of quality that cannot be deemed as good in general terms. Furthermore, some of the cans have contained foreign articles and consequently have been non-conforming. The parties to the case have had dealings between themselves already before the exclusive import contract. In a fax message dated 28 September 1992, [seller] has informed [buyer] that he has been in the habit of sending products that are better than Class I products under the Diamante brand. Diamante has entered the Finnish market specifically because of its good quality. Even though the exclusive import contract does not specifically touch upon quality issues, it is apparent that a prerequisite for entering into the contract has been the good quality of the product. Based on the above-mentioned circumstances, the Court of First Instance holds that the goods have not been conforming to the contract and that the buyer is entitled to price reduction.

      - The amount of price reduction

Based on the amount of customer complaints one can draw a conclusion that this has not been a case of a few but instead numerous non-conformities. It is believable that many of the consumers have not complained because the loss in financial terms has been insignificant. There is no way one is able to figure out the actual amount of non-conforming products. Because [buyer] has received the price also for the non-conforming goods and the compensation demands from retailers have not been many, the Court of First Instance holds that a reasonable reduction of price is 30% of the invoiced consignments insofar as they apply to non-conforming goods. According to the communication from [buyer], strawberry marmalade, strawberry cans and peach marmalade have been conforming.

      - Damages

Witnesses statements are credible and they establish that [buyer] has lost several clients. The reason has been that the goods have not been of the promised high quality. The Spanish party has breached the contract as far as quality is concerned. The evidence insofar as the decrease in quality is concerned was discussed above in connection with price reduction. [Buyer] has suffered loss as a result of losing clients. Furthermore, regaining the reputation and credibility and creation of new customer networks has required extra effort and expenses.

The loss caused to [buyer] has been foreseeable at the time of the conclusion of the contract, as required by article 74 of the CISG. [Buyer] had concluded the exclusive import contract because it was assured about the quality of the products delivered by the [seller]. The [seller] knew that the products had been accepted to the Finnish market because of their quality and that their competitiveness was dependent on their quality. Consequently, the business activities of [buyer] rested on the shoulders of Diamante products. Because trading between the Spanish Company and [buyer] was extensive and increasing, the Spanish party could have foreseen the economic consequences that a breach of contract would cause to [buyer]. On these grounds the court holds that [buyer] is entitled to the damages it has claimed

The CISG does not contain a rule that would entitle the buyer to refrain from paying the purchase price even if it had a claim based on non-conformity of the goods. Exemption from liability is dealt with in article 79, the application of which is not possible in these circumstances, because the non-payment was not based on external impediment. The Court of First Instance holds that the buyer was not entitled to non-payment even on those grounds that it had an off-setting claim. The non-conformities have surfaced in part only after the due date of the invoices. It has been clear that not all the goods have been non-conforming. There are no grounds for non-payment.

     - CISG Articles 39(1), 50, 74, 78; Finnish Code on Interest Sections 4(1) and 5(1)

[Buyer] is required to pay [seller] a grand total of 20,479,493 Spanish Pesetas added with interest on arrrears.

[Seller] is required to pay [buyer] a total of 21,604,025.40 Spanish Pesetas consisting of price reduction and damages.

- [Buyer] has the right to use the awarded amount added with interest on arrears against the principal and interest awarded to [seller] in the following manner:

- The first item to be set off is [seller]'s interest on arrears followed with the principal as long as [buyer]'s principal suffices.

- The rest of the principal [buyer] will have to pay to [seller] added with interest on arrears.

- The interest in all cases is 7% above the rate set by the Bank of Finland.

Both parties bear their own litigation costs.


FOOTNOTES

* All translations should be verified by cross-checking against the original text. For purposes of this presentation JHPH SA of Spain, Claimant and Defendant to the counterclaim, is referred to as [seller] and F Oy of Finland, Defendant and Counterclaimant, is referred to as [buyer].

** Jarno J. Vanto holds a Bachelor of Laws-degree and a Master of Laws-degree from the University of Turku and an LL.M. degree from the New York University School of Law. He is a member of the New York Bar. Mr. Vanto has authored a number of articles on data protection law and on international commercial agreements. He is the Editor-in-Chief and co-author of the International Privacy Guide and Co-Editor and co-author of the International Contract Manual, both published by West, a Thomson-Reuters Business.

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Pace Law School Institute of International Commercial Law - Last updated January 14, 2014
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