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CISG CASE PRESENTATION

Switzerland 5 February 1997 Commercial Court Zürich (Sunflower oil case) [translation available]
[Cite as: http://cisgw3.law.pace.edu/cases/970205s1.html]

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

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Case identification

DATE OF DECISIONS: 19970205 (5 February 1997)

JURISDICTION: Switzerland

TRIBUNAL: HG Zürich [HG = Handelsgericht = Commercial Court]

JUDGE(S): Unavailable

CASE NUMBER/DOCKET NUMBER: HG 95 0347

CASE NAME: Unavailable

CASE HISTORY: Unavailable

SELLER'S COUNTRY: France (defendant)

BUYER'S COUNTRY: Germany (plaintiff)

GOODS INVOLVED: Sunflower oil


Case abstract

SWITZERLAND: Handelsgericht Zürich 5 February 1997

Case law on UNCITRAL texts (CLOUT) abstract no. 214

Reproduced with permission from UNCITRAL

A German plaintiff (buyer) had entered into a contract with a French defendant (seller) for the delivery to Romania of 2 to 4 million liters of sunflower oil per month at a specified price. Although the buyer had paid a timely instalment for the first delivery, the seller did not ship the goods to Romania. The buyer declared the contract avoided and sued the seller for restitution of the first instalment and for damages.

The court held that the buyer had a right to declare the contract avoided as the seller did not deliver the goods and this failure to perform its obligation gave reason to believe that a fundamental breach of contract was to be expected for further instalments (article 49(1)(b), 73(1) and (2) CISG). Therefore, the seller had to refund the price (article 81(2) CISG) of the first instalment. As the buyer had proved that it had the opportunity to resell the first delivery at a higher price per liter, the seller furthermore had to pay damages for profits the buyer could not realize as a consequence of the breach of contract (article 45(1)(b), 74 CISG).

The court also found that the buyer was not entitled to damages for losses it suffered because of the fluctuating rate of the currency the price had to be paid in. Although it was recognized that currency losses can be damages under article 45(1)(b) and 74 CISG, the claim for damages in this case was not granted by the court because, pursuant to a general principle (of Swiss tort law), damages for future losses can only be awarded when the amount at least can be estimated. However, the rate of interest the seller had to pay (article 84(1) CISG) was determined on the basis of the prevailing rate of interest at the seller's place of business.

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Classification of issues present

APPLICATION OF CISG: Yes

APPLICABLE CISG PROVISIONS AND ISSUES

Key CISG provisions at issues: Articles 4 ; 25 ; 45(1)(b) ; 49(1)(b) ; 73 ; 74 ; 81(2) ; 84(1) [Also cited: Article 78 ] [Also relevant: Article 6 ]

Classification of issues using UNCITRAL classification code numbers:

4A [Scope of Convention (issues covered): burden of proof (need to prove right to interest on loss of profit)];

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

45A [Buyer's right to claim damages for breach of contract by seller];

49A2 [Buyer's right to avoid contract (grounds for avoidance): fundamental breach (seller does not deliver or refuses to deliver];

73A ; 73B12 [Avoidance in installment contracts: fundamental breach with respect to installment; Refusal of future installments: when breach on one installment gives grounds to expect fundamental breach with respect to future installments];

74A1 ; 74C [General rules for measuring damages: loss suffered as consequence of breach including loss of profit; Damages suffered because of fluctuating rate of currency the price had to be paid in: not granted because of difficulty of estimating damages];

81C [Effect of avoidance on obligations: restitution by each party of benefits received];

84A [Seller bound to refund price must pay interest: set at prevailing rate of interest at seller's place of business]

Descriptors: Damages ; Profits, loss of ; Currency issues ; Avoidance ; Fundamental breach ; Installment contracts ; Restitution ; Scope of Convention ; Burden of proof ; Interest

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Editorial remarks

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Citations to other abstracts, case texts and commentaries

CITATIONS TO OTHER ABSTRACTS OF DECISION

English: Unilex database <http://www.unilex.info/case.cfm?pid=1&do=case&id=305&step=Abstract>; [1999] Transportrecht, Beilage "Internationales Handelsrecht" (TranspR-IHR) 12

German: 1 Schweizerische Zeitschrift für Internationales und Europäisches Recht (1998) 75-77

CITATIONS TO TEXT OF DECISION

Original language (German): cisg-online.ch <http://www.cisg-online.ch/cisg/urteile/327.htm>; Unilex database <http://www.unilex.info/case.cfm?pid=1&do=case&id=305&step=FullText>

Translation (English): Text presented below

CITATIONS TO COMMENTS ON DECISION

English: Honnold, Uniform Law for International Sales (1999) 352 [Arts. 54, 73]; Bernstein & Lookofsky, Understanding the CISG in Europe, 2d ed., Kluwer (2003) § 6-11 n.114; § 6-15 n.172; Liu Chengwei, Recovery of interest (November 2003) n.193; Larry A. DiMatteo et al., 34 Northwestern Journal of International Law & Business (Winter 2004) 299-440 at nn.618, 753, 810; [2005] Schlechtriem & Schwenzer ed., Commentary on UN Convention on International Sale of Goods, 2d (English) ed., Oxford University Press, Art. 73 para. 23a Art. 84 paras. 13, 15a Art. 74 para. 17; CISG-AC advisory opinion on Calculation of Damages under CISG Article 74 [Spring 2006] nn. 41, 46 (related cases cited in addendum to opinion)

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Case text (English translation) [second draft]

Queen Mary Case Translation Programme

Commercial Court (Handelsgericht des Kantons) of Zürich

5 February 1997 [HG 950 347]

Translation [*] by Sabine Kossebau [**]

[FACTS OF THE CASE]

1. On 11 November 1994 the parties signed a purchase contract. The Plaintiff [Buyer] bought Italian sunflower oil from Joint Defendants [Seller 1] and [Seller 2]. It was to be delivered directly to Romania to a client of the [Buyer]. The contract envisioned that every month, over a period of twelve month, at least 2 million liters and at the most 5 million liters of sunflower oil were to be delivered to the [Buyer] at a price of United States dollars [US $] 0.94 per liter.

As a reduced start of delivery and as a test of the capacity capability of [Sellers 1 and 2], for the first four weeks, the parties agreed on a maximum weekly quantity worth US $300,800. At the purchase price of US $0.94 per liter, this amounted to a weekly delivery total of 320,000 liters of sunflower oil (act.1 p.5). After a transaction resulting in payment of 75 percent of the purchase price, [Sellers 1 and 2] were to load up the delivery within eight work days and to start the trucks in transit to the place of delivery in Romania (act.1 p.5 f. Para.10, act. 1, p. 11, para. 28 up; act. 4/4 p. 3, para. 8.1).

[Sellers 1 and 2] did not send the agreed upon amount of 320,000 liters within the period given. They only sent freight documents which showed that three trucks were loaded each with 19.000 kg (act. 1 p.7). The trucks, which should have left Italy on 1 December 1994 according to the CMR documents, never arrived in Romania (act. 1 p.8 up).

The [Buyer] called on the [Seller] in a letter of 12 December 1994 to perform within three business days by Wednesday, 14 December 1994. The [Buyer] then, in a letter of 13 December 1994, threatened to withdraw from the contract if the down payment and ten percent expenses would not be repaid by 15 December 1994 (act. 1, p. 8). By letter of 15 December 1994, the [Buyer] declared the contract avoided (act. 1, p.8, para. 21). After it had not proved possible for [Sellers 1 and 2] to fulfill even the reduced delivery quantity in the first four weeks of the contractual relationship, it was obvious to the [Buyer], that further deliveries also were not to be expected (act. 1, p. 9).

2. On 17 August 1995, the [Buyer]'s Statement of the Case and Directive were submitted (act 1 a. 3). The [Buyer] paid a procedural deposit amounting to Sf [Swiss francs] 35,000.- (Prot. p. 2f.; act. 6).

3. The Statement of the Case was informally delivered to the liquidator of [Sellers 1 and 2] on 6 June 1996 by use of mutual judicial assistance procedure with the required translation (act. 18/1 c).

4. The Commercial Court in Lyon started insolvency proceedings against the [Seller 1], seated in Lyon, on 31 January 1996. The liquidator was asked to draw up for the competent court a list of the declared outstanding debts with his recommendations about admission, dismissal or rejection of the declared demands within eighteen months of the publication of the decree (act.20, art. 100 de la loi relative au redressement et à la liquidation judiciaire des entreprises, JCP [*] 1985 III 56711; Dalloz, c.com, Paris 1995-1996, p. 1001ff.). If a liquidation is ordered, the debtor loses its disposal authorization to the court appointed liquidator. All outstanding debts mature. The liquidator has the job of satisfying any outstanding debts as much as is possible. The [Buyer] had already submitted its demands in these insolvency proceedings (act. 20). The legal action against [Seller 1] therefore at this time cannot be pursued any longer and is to be separated from these proceedings; it is to be pursued independently under Process No. HG970059.

5. The Statement of the Case and order of the court of 18 September 1995 were by way of mutual judicial assistance forwarded to France three times for delivery to P.C. [Seller 2]. The solicited government agency in its letter of 7 November 1995 (act.7/2 c) explained that P.C., the manager of company E, had been subpoenad twice to appear before the agency. The subpoenas were issued on 18 October 1995 and 24 October 1995. One subpoena was sent to his place of residence. He did not comply with the subpoena nor did he get in contact with the agency. Nonetheless, the agency did have confirmation through an employee of the company that he knew very well about the reasons for the subpoena.

It is questionable whether that letter is sufficient as proof of delivery. Nonetheless, this does not need to be checked more closely, because the domestic public notification replaces the personal notification in every case, if the proof of notification cannot be provided (GVG [*] 183 para. 2). The period for defense answer was published in the Gazette of the Canton of Zürich on 25 November 1995 (act.11). [Seller 2] did not answer the claim within the appointed period of time neither in reference to the notification by way of mutual judicial assistance nor in reference to the public notification. Therefore, it is to be concluded that there exists an acknowledgement of the actual causes of action and a waiver of objections (ZPO [*] 130). The factual allegations of the [Buyer] therefore are to be considered acknowledged.

On 6 January 1997, the [Buyer] declared to forego a replication (Prot. p.19). Thus the claim is to be rejected without difficulties regarding the points where the allegations of the [Buyer] do not justify his claim because of legal considerations (Sträuli/Messmer, No. 2, 131 ZPO).

[GROUNDS FOR THE DECISION]

1. The [Buyer]'s place of residence is Germany. The place of residence of [Seller 2] is France. The [Buyer] in regard to the local competence of court refers to an agreement concerning the place of jurisdiction. Art. 12 of the contract reads as follows (act 4/4, p.4):

"The parties to this Contract agree that all disputes arising in connection with this Contract shall be settled amicably by negotiation and that, should no amicable settlement be reached, either party may resort to litigation in a Swiss court of Law, under Swiss jurisdiction."

The [Buyer] has submitted its claim in Zürich. It justifies the local choice of venue on the grounds that it had advised its bank in Zürich to render an advance to the Defendant [Sellers]. This would establish a sufficient connection to get to the courts of Zürich (act. 1, p.3).

Art. 17 LugU [*] - as opposed to the provision of the IPRG [*] - allows the prorogation of jurisdiction not only to one specific court, but also to the courts of a Contracting State. If the stipulation of international jurisdiction is sufficient according to LugU, then it is a matter of the Contracting States, and therefore also of Switzerland, to regulate the domestic jurisdiction in such cases (Botschaft betreffend das Lugano-Übereinkommen vom 21. Februar 1990, Sonderdruck, p. 46, No. 4; vgl. ferner: Killias, Die Gerichtsstandsvereinbarungen nach dem Lugano-Übereinkommen, Zürich 1993, p. 112; Kropholler, Europäisches Zivilprozessrecht, Heidelberg 1993, p. 211 f.).

In accordance with IPRG Art. 3, the Swiss courts at the place with which the facts of the case are sufficiently connected shall have jurisdiction, if the Code does not provide for jurisdiction in Switzerland and if proceedings abroad are impossible or cannot reasonably required to be brought. A bank account in Zürich alone does not lead to a sufficient connection. In this case there exists a loophole, which is to be filled according to ZGB [*] Art. 1. Kilias (loc. cit., p. 112 et seq.) suggests that the choice of the court to have local jurisdiction be left to the Plaintiff. In the existing proceedings, there is no obvious impediment to that. With the commencement of the action, the Plaintiff [Buyer] has exercised his right to choose. Therefore, the Commercial Court of Zürich has local jurisdiction.

2. The parties had agreed on the application of Swiss law (act. 1, p. 10). In accordance with CISG [*] Art. 1(1)(b), the Vienna Convention is applicable when the places of business of the parties are in different States and the rules of private international law lead to the application of the law of a Contracting State. Belonging to these rules is also the conflict of laws principle of a choice of law (IPRG Art. 118 para. 1 in connection with Art. 2 para.1 of The Hague Convention of 15 June 1955 on the Law Applicable to the International Sales of Goods). Therefore, the requirement is fulfilled even when the contracting parties have agreed on the appliance of the law of a contracting party ( v. Caemmerer/Schlechtriem, Commentary on CISG, 2d ed., Munich 1995, Art. 1, No. 38 with further references). The Vienna Convention therefore has to be applied to the sales contract. In the absence of a provision, Swiss law is applicable.

3. Both defendants as sellers are joint debtors. (Statement in claim: act. 1, p.2). [Seller 2] therefore is liable for the whole on its own (OR [*] Art. 144 para. 1).

4. The [Buyer] asserts a claim arising out of avoidance of the contract. In accordance with CISG Art. 73(1) and (2) in connection with CISG Art. 49(1)(b), the [Buyer] was able to avoid the contract. The [Sellers] did not deliver the goods within the time period given by the [Buyer]. The failure to perform in respect to the installment delivery gave the [Buyer] good grounds to conclude that a fundamental breach would occur in respect to future installments.

Therefore, [Seller 2] is to be held to pay to the [Buyer] US $254,424.05 together with six percent interest on US $225,624.05 since 1 December 1994. In all other respects the complaint is to be rejected.

With this conclusion of the proceedings, [Seller 2] has to carry 9/10 and the [Buyer] has to carry 1/10 of the costs (ZPO 64 para. 2 and 68 para. 1 ). The court fee is to be computed in accordance with 3 para. 1 and 2 as well as 5 para 2. of the regulation on court fees. The procedural deposit is to be used for recovery of all costs of the proceedings. Regarding the share of costs allotted to [Seller 2], the [Buyer], in reliance upon ZPO 67 para. 3, may take recourse to the opponent. Ninety percent of the usual process reparations are furthermore to be awarded to the [Buyer]. Because the [Buyer]'s place of residence is Germany, no added value tax is owed.

Therefore the court decides:

  1. The proceedings against [Seller 1] are split off and are independently continued as Proc. No. HG970059.

  2. The costs caused by the complaint against [Seller 1] amounting to Sf 1,099.30 are to be charged to those proceedings.

And judges furthermore:

  1. [Seller 2] is held to pay the [Buyer] US $254,424.05 together with six percent interest on US $225,624.05 since 1 December 1994.

  2. The court costs are determined to be Sf 26,400.-- , the further costs amount to:

          Sf 507.50 clerical costs
          Sf 209.-- delivery and postage
          Sf 73.50 cost of publication
          Sf 2,487.50 translation costs.

  3. a) The costs of the proceedings are to be imposed 9/10 on [Seller 2] and 1/10 on the [Buyer] and are covered by the procedural deposit made by the [Buyer];
    b) Regarding the share of costs to be paid by [Seller 2], the [Buyer] may take recourse against [Seller 2].

  4. [Seller 2] is held to pay the [Buyer] a process reparation in the amount of Sf 15,600.-- (incl. 9/10 of the cost of commission).

  5. Notice in writing to the [Buyer] with acknowledgement of acceptance, to [Seller 2] with translation by way of mutual judicial assistance, to [Seller 1] by deposition in the records of the split off proceedings as well as to the commercial court cashiers office.

  6. Against this decision:
    a) in accordance with ZPO 281, a plea of nullity can be lodged with the Court of Cassation of the Canton of Zürich within 30 days upon receipt of this decision according to ZPO 288; and
    b) an appeal to the Federal Court of Switzerland can be lodged at the Commercial Court of the Canton of Zürich within 30 days upon receipt of this decision because of violation of federal law according to OG Art. 43 by a submission in accordance with OG Art. 55.


FOOTNOTES

* All translations should be verified by cross-checking against the original text. For purposes of this translation, the Plaintiff of Switzerland is referred to as [Buyer] and the Joint Defendants of France are referred to as [Seller 1] and [Seller 2]. Amounts in the former currency of Germany (Deutsche Mark) are indicated as [DM]; amounts in Swiss currency (Swiss francs) are indicated as [Sf]; amounts in United States of America currency (United States dollars) are indicated as [US $].

Translator's note on other abbreviations: BGE = Entscheidungen des Bundesgerichts [Official Reporter of Cases of the Swiss Supreme Court]; CISG = United Nations Convention on Contracts for the International Sale of Goods; GVG = [Civil Procedure Act of the Canton of Zürich]; IPRG = Bundesgesetz über das Internationale Privatrecht [Swiss Federal Act on Private International Law (Swiss Code on the Conflict of Laws)]; JCP = La Semaine Juridique: Juris Classeur Periodique; LugU = Lugano Convention, [EC/EFTA Convention on Jurisdiction and Enforcement of Judgments in Civil and Commercial Matters]; OG = Bundesgesetz über die Organisation der Bundesrechtspflege [Swiss Federal Code on Court Organization]; OR = Bundesgesetz betreffend die Ergänzung des Schweizerischen Zivilgesetzbuches (Fünfter Teil: Obligationenrecht) [Swiss Civil Code]; ZGB = [Swiss Civil Code]; ZPO = Zivilprozessordnung [Swiss Code of Civil Procedure].

** Sabine Kossebau, student of law at the University of Hanover, Germany.

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