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CISG CASE PRESENTATION

Finland 29 January 1998 Helsinki Court of Appeal (Steel plates case) [translation available]
[Cite as: http://cisgw3.law.pace.edu/cases/980129f5.html]

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

Case Table of Contents


Case identification

DATE OF DECISIONS: 19980129 (29 January 1998)

JURISDICTION: Finland

TRIBUNAL: Helsinki Court of Appeal (Helsingin hoviokeus)

JUDGE(S): Unavailable

CASE NUMBER/DOCKET NUMBER: S 96/1129

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

CASE HISTORY: Helsinki Court of First Instance (Judgment 17450) 18 July 1995 [affirmed]

SELLER'S COUNTRY: Finland (defendant)

BUYER'S COUNTRY: United Arab Emirates (plaintiff)

GOODS INVOLVED: Steel plates


Classification of issues present

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

APPLICABLE CISG PROVISIONS AND ISSUES

Key CISG provisions at issues: Articles 9 ; 36(1) ; 38 ; 67(1) [Also relevant: Article 35 ]

Classification of issues using UNCITRAL classification code numbers:

UNCITRAL codings provided by Prof. Tuula Ämmälä, Editor: CISG - Finland website

9A ; 9B [The rules, if the parties are bound by a usage];

36A [Seller's liability for lack of conformity which exists at the time the risk passes to the buyer but the lack of conformity becomes apparent after that time];

38A [Examination of the goods];

67A [Rules of passing the risk to the buyer]

Descriptors: Usages and practices ; Examination of goods ; Passage of risk

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Editorial remarks

EDITOR: Sanna Kuoppala

Excerpt from "The Application and Interpretation of the CISG in Finnish Case Law 1997-2005" (April 2009)

HELSINKI COURT OF APPEAL, S 96/1129 (29 JANUARY 1998)

5.1   Classification of the issues present
5.2   The nature of the transaction
        5.2.1   Facts of the case
        5.2.2   Decision on the nature of the transaction
5.3   Applicable rules
        5.3.1   Facts of the case
        5.3.2   Decision of the District Court
        5.3.3   Decision of the Court of Appeal
5.4   Determining the object of the sale
        5.4.1   Facts of the case
        5.4.2   Decision on the object of the sale
                    5.4.2.1   Decision of the District Court
                    5.4.2.2   Decision of the District Court analysed
                    5.4.2.3   Decision of the Court of Appeal
                    5.4.2.4   Decision of the Court of Appeal analysed
5.5   Examination of the goods
        5.5.1   Facts of the case
        5.5.2   Seller's liability for hidden defect
        5.5.3   Applicable usages
        5.5.4   Decision on the examination of the goods
                    5.5.4.1   Decision of the District Court
                    5.5.4.2   Decision of the District Court analysed
                    5.5.4.3   Decision of the Court of Appeal
                    5.5.4.4   Decision of the Court of Appeal analysed

[...]

5.1 Classification of the issues present

The case involved a sale of steel plates delivered from a Finnish Seller (the defendant) to a Buyer from the United Arab Emirates (the plaintiff). The questions in dispute included the examination of the goods and the Seller's liability for hidden defects. See below for English translation of this case by Jarno Vanto. The decision of the Court of Appeal affirmed the decision of the District Court of Helsinki, Judgment 17450 (18 July 1995).

5.2 The nature of the transaction

5.2.1 Facts of the case

The first issue to be resolved by the Court involved the legal relationship between the parties: was it a buyer-seller relation or a commission relation.

The Seller claimed that the legal nature of the relation between the parties had not been a sale, but one based on commission, namely a commission contract. In a purchase commission arrangement, the commission agent cannot be held responsible for the quality of the goods in the same manner as a sales partner in a trade relation. Consequently, a commission agent could not direct a claim against the defendant based on the alleged non-conformity of the goods.

In response the Plaintiff submitted an alternative claim for damages on the basis of the infringement of the duties imposed on the commission merchant by a purchase commission. The Defendant answered that the proceedings were not instituted within the time limit required by law, as according to Finnish sales law, the proceedings against the representative should be instituted at the latest after one year and one night after the completion of the commission relation.

5.2.2 Decision on the nature of the transaction

The District Court held that it was undisputed that there was a contract between the parties. The contract between the Defendant and the Plaintiff had been made using fax machines. The District Court further concluded that no written contract between the Defendant and the Plaintiff had been presented to the District Court. It had to be presumed that by this it was meant that there was no single document which combined the rights and obligations of the parties.

From the wording of the faxes that led to the contract, one could not draw a conclusion as to how this contractual relationship should be interpreted. Also the witness' statements were contradictory as to the nature of the transaction between the parties.

In deciding whether the contractual relationship between the parties should be seen as a commission contract or a sale, the District Court paid attention to the wording of the contract between Defendant and I Oy (a limited company from whom the Defendant bought the steel plates eventually sold to the Plaintiff) and faxes exchanged between the Plaintiff and the Defendant. It was held that it was not a question of a purchase commission but a sale. While considering the nature of the contractual relationship, the District Court additionally noted that the price was determined per ton, that the whole purchase price had been paid to the Seller and that the Seller had held the title to the steel plates bought from I Oy. Consequently, the Defendant had to be considered as a seller in relation to the Plaintiff.

The Court of Appeal affirmed the decision of the District Court in this respect.

5.3 Applicable rules

5.3.1 Facts of the case

In its claim, the Buyer referred to Finland's domestic Law on International Sale of Goods, i.e. the CISG. In relation to the conformity of the goods and the examination of the goods, the Seller did not specifically refer to any applicable law.

The CISG came into force in Finland on 1 January 1989. The United Arab Emirates is not part of the Convention.

5.3.2 Decision of the District Court

The District Court stated firstly that the Seller was from Finland and the Buyer from the United Arab Emirates. Secondly, the District Court referred to Section 1 of the Law Applicable to Sale of Goods of International Character (26 June 1964/387, as amended by the Act 27 May 1988/468): "this Act shall be applied to sale of goods of international character." According to the said law, Section 4, if the parties have not agreed upon the applicable law as defined in Section 3 of said law, the applicable law is the law of the country where the seller has his place of business when he received the order. If the order was received by a business owned by the seller, the applicable law is the law of the country where the business is located. Because there is no written contract, the applicable law of the contract is the law of the seller's country, i.e., the law of Finland.

Finally, the District Court referred to the applicable provisions of the Finnish law, surprisingly to the Finnish Sale of Goods Act not the CISG. No reference was made to the CISG. In Finland, the CISG came into force on 1 January 1989, thus more six year before the District Court gave its decision on 18 July 1995. The United Arab Emirates is not part of the Convention. However, CISG Article 1(1)(b) provides that the Convention is applicable if the rules of private international law lead to the application of the CISG. Thus, even if one of the parties to the sale of goods contract has his place of business in a non-Contracting State, the CISG may be applicable if the rules of private international law lead to the application of the law of a Contracting State. It seems that District Court has made a amateurish mistake when deciding on the applicable law.

5.3.3 Decision of the Court of Appeal

The Court of Appeal applied the CISG correctly. The Court of Appeal held that E Oy, held to be the Seller, had its place of business in Finland at the time of the execution of the sale. Finland has bound itself to comply with the CISG. CISG Article 1(1) states that this Convention is applicable to contracts concerning the sale of goods between parties whose places of business are in different Contracting States or when the rules of private international law lead to the application of the law of a Contracting State. Because the rules of private international law require that the law of a Contracting State is applicable to the sale between the Buyer and the Seller, the Convention is applicable to this sale instead of Finnish Sales Law.

The correct applicable law is important even though there seems not to be significant differences between the GISG and the Finnish Sale of Goods Act in relation to the conformity of the goods.

5.4 Determining the object of the sale

5.4.1 Facts of the case

The Buyer claimed that the Seller delivered non-conforming goods to the Buyer. The goods did not conform with the information and assurances given by the Seller and consequently with what had been agreed on. The Buyer also claimed that the goods were not fit for purposes the Buyer had ordered them for and the Seller had been aware of those purposes. Further, the goods were not fit for purpose that such goods were usually fit for. Nor had the parties agreed upon anything else. Buyer alleged that the non-conformity was of such quality that it amounted to a fundamental breach of contract.

The Buyer had trusted the assurances of the Seller concerning the quality of the steel in terms of its conformity with American and Japanese standards. The trust was based on a previous business relationship established in 1992 in which the Buyer proved to be trustworthy. Further, the Seller had delivered a certificate of origin and a certificate of quality to the Buyer that were signed by the Seller and an intermediary and confirmed by the Chamber of Commerce of Estonia.

The Seller claimed that it was unaware of the intended purpose for the steel plates. Further, the Seller had merely conveyed to the Buyer information concerning the standard according to which the steel was manufactured. The Seller had not given assurances concerning the quality of the steel or its conformity with any standards. The Seller's signature in the certificates concerning quality and origin of the goods had only one purpose: to witness the document for the official stamp of the Chamber of Commerce. The purpose of the signatures was not to hold the Seller liable for the quality and the origin of the goods as stated in the certificate. In addition, the Buyer was aware of the fact that the Seller had not checked the goods.

5.4.2 Decision on the object of the sale

5.4.2.1 Decision of the District Court

The District Court held that the Seller was not aware of the intended purpose of the steel. Firstly, the District Court referred to the fact that the type and quality of the goods are often easy to individualize through usage of certain type marking. An official standard is also useful to mention. By using this procedure, both the seller and the buyer know what requirements the goods must fulfil in terms of quality and other features. Secondly, the District Court pointed out that especially if it is not possible to individualize the type or the quality of the goods with enough precision, it is necessary to express clearly and provably the purpose of the goods.

The District Court held that the Seller has conveyed to the Buyer information according to which standard the steel was manufactured. It was also held that the signatures of the Seller in the certificates of origin and quality had only one purpose, which was to attest the documents for the official seal of the Chamber of Commerce. Through its signature, Seller had not bound itself to liability for the quality of the goods or their origin as stated in the certificates. Further, the Seller had not checked the goods and the Buyer was aware of this. The individualizations contained in the pro forma invoice of the Seller had been based on the information provided by its own seller, a matter which, according to the District Court, was known by the Buyer.

5.4.2.2 Decision of the District Court analysed

It should be noted that the District Court applied the Finnish Sale of Goods Act. According to the Sale of Goods Act, Chapter 4, Section 17, the goods must conform with the contract in regard to description, quantity, quality and other properties and be contained or packaged in the manner required by the contract. According to Section 20, the buyer may not rely on a defect which he cannot have been unaware of at the time of the conclusion of the contract. Further, if the buyer has examined the goods before the conclusion of the contract, or without acceptable reason, failed to comply with the seller's request to examine the goods, he may not rely on a defect that he ought to have discovered in the examination unless the seller's conduct was incompatible with honour and good faith. The adopted approach is parallel to CISG Article 35.

Chapter 4, Section 18 of the Sale of Goods Act provides that the goods are also defective if they do not conform with information relating to their properties or use which was given by the seller or by a person other than the seller, either at a previous level of the chain of supply or on behalf of the seller, when marketing the goods or otherwise before the conclusion of the contract and that information can be presumed to have had an effect on the contract. However, the goods shall not be considered defective if the seller neither knew nor ought to have known of the information that was given by other than the seller. Further, the seller is not liable for information that has been corrected clearly and in time.

The CISG does not have a parallel provision. The fact that the seller is responsible for information not only given by himself but also for information given either at a previous level of the chain of supply or on behalf of the seller is especially important. If the buyer has received information relating to the goods and that information has influenced the sale, the seller is responsible for the correctness of that information. Surprisingly, the District Court held that the information given to the Buyer in the form of a certificate of quality and the origin of the goods, also signed by the Seller himself, was not binding on the Seller.

5.4.2.3 Decision of the Court of Appeal

The Court of Appeal held that the Seller was bound by the certificate. Section 18 of the Finnish Sale of Goods Act was not naturally applicable, as the correct applicable law was the CISG.

In connection with the sale, the Seller had delivered a certificate of quality concerning the composition of the steel plates. The certificate had been drafted at a company named RE in Tallinn. The certificate was also signed on behalf of the Seller. Consequently, the Seller had bound itself to liability for the quality of the steel plates sold. Because the Seller has committed itself to the Buyer to deliver steel that met certain quality requirements, the Seller must have been aware of the purpose of the steel sold. Thus the goods did not conform to the contract as required by Article 35(2)(b), i.e. the goods were not fit for a particular purpose expressly (or impliedly) made known to the seller at the time of the conclusion of the contract.

5.4.2.4 Decision of the Court of Appeal analysed

The Court of Appeal did not disclose how it had evaluated the evidence when reaching this conclusion. However, the conclusion seems to be in line with CISG Article 8. According to its paragraph (1), the statements made by and other conduct of a party are to be interpreted according to his intent where the other party knew or could not have been unaware what that intent was. In case of a conflict the parties of course often have conflicting opinions of the meaning and purpose of a specific statement. When evaluating the evidence, it is hard to give more weight to one testimony compared to the other. Without any further supporting evidence, the decision on the meaning of the statement or conduct must be based on paragraph (2), i.e. statements made by and other conduct or a party are to be interpreted according to the understanding that a reasonable person of the same kind as the other party would have had in the same circumstances.

5.5 Examination of the goods

5.5.1 Facts of the case

The Buyer submitted that it had fulfilled its duty of checking the goods immediately after the goods arrived at the port of destination. According to laws governing sales, i.e. Finland's domestic Law on International Sale of Goods, if transportation is involved in a sale, the buyer may legitimately check the goods at the port of destination. After discovering the non-conformity, the Buyer had notified the Seller within a reasonable time. Additionally, the Seller could not have been unaware of the non-conformity of the goods in the manner specified above and consequently has willfully given the Buyer wrong information about the quality of the goods, which had contributed to the decision making of the Buyer in the deal.

When the steel plates had been loaded to a vessel in Tallinn, an employee of the company that owned the vessel had been present in order to gain certainty of the fact that the goods were actually loaded onto the vessel. The employee was not authorized to check the quality of the goods and did not possess the necessary expertise to do that either. The representative of the vessel carrying the cargo had stated in the loading certificate that the cargo seemed to look proper, disregarding little damage resulting from rust. The representative in question was not in possession of such expertise to make him capable of detecting non-conformities. Due to the large amount of steel plates it would have been impossible to check all the plates. In addition, it would have been impossible to detect the non-conformities based on external examination.

The goods had arrived at Abu Dhabi in December of 1993 and had been transferred from the vessel to the Buyer's warehouse on 13 December 1993 - 17 December 1993. The Buyer had noticed the goods being of bad quality. When trying to bend the plates, the worst flaw was detected. The plates have fractured when bending or welding. The Buyer had immediately given notice of defect to the Seller. In its letter of 2 January 1994, the Buyer had referred to previous discussions over the phone. There had been negotiations from January 1994 until September 1994 concerning the quality of the defect, its likely reason and compensation to the Buyer, but without any results.

The Seller claimed that it was the duty of the Buyer to check the goods as the Seller had notified the Buyer about this. The Buyer was not entitled to check the goods only after the goods had arrived at the port of entry. In any case, the Seller denied the amount of faulty plates alleging that neither this non-conformity nor any other damages was supported by evidence. The significance of the investigation by the Buyer and its weight as evidence was denied, because the investigation was done in violation of the trade usage concerning checking of the goods and without giving the Seller an opportunity to be present during the investigation. The investigation by the Buyer was one-sided, and one cannot even know if the investigation concerns this steel consignment or another. The Seller had not negotiated with the Buyer about the Seller compensating the Buyer, nor had it promised any compensation for the Buyer.

5.5.2 Seller's liability for hidden defect

Article 36(1) provides the basic rule that the conformity of the goods to the contract is determined when the risk passes to the buyer

Article 36

(1) The seller is liable in accordance with the contract and the Convention for any lack of conformity which exists at the time when the risk passes to the buyer, even though the lack of conformity becomes apparent only after that time.
...

When reading Article 36(1), one has to keep in mind the obligation to examine the goods after the delivery. According to Article 38, the buyer must examine the goods within as short a period as is practicable in the circumstances in order to ascertain their conformity with the contract. The examination must be such as to disclose recognisable defects, taking into account, of course, all the circumstances of the case.[321] The seller's liability for a lack of conformity which becomes evident later is therefore to refer to those defects which could not have been detected through a normal examination.[322]The Secretariat Commentary points out the buyer may not always know about the non-conformity when the risk passes to the buyer, e.g. when the contract involves the carriage of goods and the buyer examines the goods only after they have arrived to the point of destination.[323]

Article 36 does not explicitly answer the question of who bears the burden of proof as to the conformity or non-conformity of the goods at the time risk passes.[324] Professor Bianca solves the question in accordance with the generally acknowledged principle of international trade practice that requires the complaining party to prove that the other party has not properly performed his obligations. Thus, the burden of proving that the goods did not conform with the contract at the time of the passage of the risk lies on the buyer. If the non-conformity affects the nature or the structure of the goods, it may be self-evident that the defect was already inherent at the moment of their delivery.[325]

The UNCITRAL Digest 2004 also discussed the issue of burden of proof.[326] There is no clear common approach as how the courts from different countries have solved the problem. One solution the courts have adopted can be characterised as a factual approach to the question. If the buyer accepts the goods without promptly notifying about the non-conformity, he has to prove that the goods did not conform to the contract at the time risk passed to the buyer.[327] On the other hand, if the essentially durable goods break down shortly after the delivery, it can be presumed that the defect existed already when the goods were shipped and the risk passed to the buyer.[328]

5.5.3 Applicable usages

The primary source in determining the relationship between the contracting parties is the underlying contract itself. The principle according to which the primary source of the rules governing the sales contract is party autonomy; this cannot be stressed too much. In determining the parties' rights and obligations, the first and primary source is always the contract between the parties. The primacy of the contract is promoted throughout the Convention but the most important provision in this respect is Article 6.[329] Article 6 provides:

Article 6

The parties may exclude the application of this Convention or, subject to article 12, derogate from or vary the effect of any of its provisions.[330]

An expression of party autonomy can also be found in Article 9 of the Convention. Article 9 gives direct effect to commercial usages and practices of the parties. Any applicable practice or usage has the same effect as a contract.[331] Article 9 provides:

Article 9

(1) The parties are bound by any usage to which they have agreed and by any practices which they have established between themselves.
(2) The parties are considered, unless otherwise agreed, to have impliedly made applicable to their contract or its formation a usage of which the parties knew or ought to have known and which in international trade is widely known to, and regularly observed by, parties to contracts of the type involved in the particular trade concerned.

The practices, which the parties have established between themselves and any usage to which the parties have agreed also override the provisions of the Convention. Further, the parties are considered to have impliedly made applicable to their contract a usage of which they knew or ought to have known and which in international trade is widely known to, and regularly observed by, parties to contracts of the type involved in the particular trade concerned.

In order for an international usage to be impliedly binding on the parties, it must be widely known and regularly observed and thus, it can be assumed to be a part of the expectations of the parties. The existence of a usage as such is thus not enough but the parties must have understood, at least impliedly, that a usage is a part of their contact.[332] In other words, a usage must on an objective basis be part of the contractual expectations of the parties.[333] The facts one "ought to have known" include those facts that would be disclosed by an investigation or inquiry that the party should make.[334]

Professor Bonell stresses that the concept of usages must be determined in an autonomous and internationally uniform way.[335] He states that Article 9 refers to usages in the widest possible sense, i.e., to any practice or line of conduct regularly observed within a particular trade sector or at a particular market place, irrespective of whether, according to some national law, it would fall within a national category of a usage. The trade may be restricted to be a certain product, region or set of trading partners.[336]

5.5.4 Decision on the examination of the goods

5.5.4.1 Decision of the District Court

It should be again remembered that the District Court applied the Finnish Sale of Goods Act to the case. The examination of the goods after the delivery is regulated in Chapter 6, Section 31. CISG Article 39 worked as a model for Paragraph 31;[337] hence, there are no big differences between the two. According to Section 31, when the goods have been delivered, the buyer must, as soon as is practicable in the circumstances, examine them in accordance with proper usage. If it is evident that the goods will be transported from the place of the delivery, the buyer may defer the examination until after the goods have arrived at their destination. According to the Government's proposal, the extent and the preciseness of the examination depends on, e.g. the qualities of the goods, the intended use of the goods, the packaging of the goods and the marketing stage of the goods.[339]

The District Court stated that it was undisputed that it was agreed that the goods were to be delivered on terms FOB Tallinn. Further, the District Court held that the duty to check the goods was within the Buyer's domain and that the Buyer had accepted the goods in the port of Tallinn. The Seller was not liable for hidden non-conformities because they were not within its sphere of influence. In connection with the examination after the goods arrived at the port of destination, the District Court held -- based on the witness' statements -- that the investigation was one-sided as the representative of the Seller was not even invited to the scene of the investigation and it could not be confirmed whether the investigation was done using the steel consignment sold by the Seller. Consequently, the District Court held that the investigation was carried out in breach of trade usage concerning checking of the goods and without giving the Seller an opportunity to be present during the checking. Additionally, it remained unproved that the goods did not conform with the contract (70% of the steel was sold or used) and that the Buyer had suffered loss because of loss of an order. The District Court dismissed all the claims and obliged the Buyer to pay the Seller legal fees with interest in arrears.

5.5.4.2 Decision of the District Court analysed

Provided that it was the Buyer's duty to examine the goods at the place of the delivery, i.e. in the port of Tallinn, it seems unnecessary to evaluate the examination at the port of destination. It should also be noted that the examination of the goods delivered does not imply that the buyer has accepted the goods in relation to defects which become apparent at a later stage. A failure to examine the goods or an insufficient examination has effect only on the buyer's right to rely on those defects he ought to have discovered in the normal examination.[339 The buyer has a right to rely on the latent defects if he gives notice to the seller of such defects within a reasonable time he actually discovered them or ought to have discovered them. Chapter 4, Section 21 of the Finnish Sale of Goods Act provides that whether the goods are defective shall be determined with regard to their properties at the time when the risk passes to the buyer. The seller is liable for any defect that existed at that time even if it did not appear until later.

What is meant by the District Court's statement that the Seller was not liable for hidden non-conformities because they were not within his sphere of influence seems unclear. The risk in respect of the goods had of course passed to the Buyer when the goods passed the ship's rail in Tallinn. The Buyer is responsible for any subsequent damage to the goods after the risk has passed, but not for defects already present but hidden when the goods were delivered.[340]

5.5.4.3 Decision of the Court of Appeal

The Court of Appeal stated that the Buyer had not checked the goods before closing the sale and not even when the Seller gave the goods in Tallinn for transportation to Abu Dhabi. Referring to the correct applicable law, the Court pointed out that if transportation of the goods is included in the contract, the examination of the goods can be postponed until the goods have reached their destination (CISG Article 38(2)). Consequently, the Buyer was entitled to check the goods not earlier than when they reached the port of destination, despite the fact that the goods were sold on the term FOB/Tallinn.[341]

As to the extent and the method of the examination, the Court of Appeal referred to Article 9. A trade usage on which the parties have agreed and any practices they have established between themselves are binding on the parties. Further, unless otherwise agreed, it is regarded that the parties have implied a trade usage to be applicable to their contract or its formation as long as the usage is widely known and regularly obeyed by parties to a certain trade and known by the parties (or the parties ought to have known about it).

The Court of Appeal affirmed the finding of the District Court that, according to trade usage concerning the checking of goods, the Buyer had to give the Seller an opportunity to be present while checking the goods. This was not denied by Buyer. The goods were checked twice by the Buyer, in March 1994 and again in September 1994. The Buyer had not even alleged having invited a representative of the Seller to the United Arab Emirates for checking of the goods. The Court of Appeal acknowledged that the statements concerning the results of the investigations supported the statement of claims, but it remained unclear whether the investigations were carried out using the steel consignment sold by the Seller and how large a part of the consignment was damaged. There had been flaws in carrying out the investigations, which weaken the credibility of the statements based on them. Consequently, the Buyer had not established the non-conformity of the goods sold by the Seller. The Court of Appeal affirmed the decision of the District Court: all of the Buyer's claims were dismissed.

5.5.4.4 Decision of the Court of Appeal analysed

The Court of Appeal stated that the Buyer had not established the non-conformity of the goods sold by the Seller, thus the burden of proof in relation to the non-conformity of the goods at the moment the risk passed to the Buyer was on the Buyer. The Seller had claimed that there was mishandling of the steel plates while unloading them at the port of destination.

Primarily, the method of examination is determined by the agreement. The parties may lay down more precise rules in relation to the examination of the goods than those provided for in Article 38. The method of examination may also follow form the usage or practice.[342] Also, the Secretariat Commentary stresses that the determination of the type and scope of examination required should be made in the light of international usages, because of the international nature of the transaction.[343] Had the Buyer invited the Seller to be present when the goods were being examined, some questions relating to the credibility of the examination might have been avoided.

The time of the examination and the timeliness of the notice were not discussed specifically in the decision. The Buyer itself claimed that it had notified the Seller about the non-conformity immediately the Buyer had discovered it and confirmed the notification by a letter within a month after the goods had reached their port of destination. The Court of Appeal referred to the examinations conducted in March and September, the first one three months after the delivery. One must conclude that the examination mentioned in the Court of Appeal's decision refers to a more specific examination required by the usage and required if the initial examination under Article 38 raises questions as to the non-conformity of the goods. In my opinion, an examination conducted after three months of the delivery could not be considered having revealed the non-conformities in time, which would mean that, consequently, the Buyer could not have been able to give a notice of non-conformity within a reasonable time as provided for in Article 39.[344]

[...]


FOOTNOTES

[...]

321. Text of Secretariat Commentary on article 36 of the 1978 Draft (draft counterpart of CISG Article 38); Bianca in Bianca & Bonell 1987, p. 298.

322. Honnold 1999, p. 258.

323. Text of Secretariat Commentary on article 34 of the 1978 Draft (draft counterpart of CISG article 36).

324. Bianca in Bianca & Bonell 1987, p. 287-288; Enderlein & Maskow 1992, p. 149-150.

325. Bianca in Bianca & Bonell 1987, p. 288. See also in relation to the burden of proof for fundamental breach of the contract Chapter 2.4.3.4 Burden of proof and in relation to the non-conformity of the goods Chapter 4.5.7 Burden of proof.

326. UNCITRAL Digest 2004, Article 36, Burden of proof regarding the time a defect arose.

327. In Landgericht (LG) Flensburg, 2 O 291/98 (24 March 1999) the Court held that the buyer was not entitled to reduce the purchase price under article 50 CISG for non-conformity of the goods. The case involved a sale meat. As the parties did not agree otherwise, the seller had to hand over the goods to the first carrier (article 31(a) CISG). The seller handed over the goods accordingly and therefore the risk passed to the buyer pursuant to article 36 and article 66 CISG. The Court left open whether the goods had been defective at this moment or not. As the buyer accepted the goods without objecting to its quality, it had to prove that the goods did not conform to the contract when the risk passed; however, the buyer failed to do so. The Court also left open the issue of whether the buyer lost his right to rely on a lack of conformity because of its failure to give notice within reasonable time (article 39 and 40 CISG).

328. In Cour d'appel de Grenoble, 94/0258 (15 May 1996) the French Court found Articles 35(2)(a) and 36 CISG to be applicable with regard to the defects of the refrigeration unit, noting that the unit had broken down within a short period of time after it was first operated and that it was up to the seller, presumed liable, to prove that it was not responsible for the defect. The decision was reversed on other grounds by Cour de Cassation, P 96-19.992 (5 January 1999). The Supreme Court referred to articles 1 and 4 of the Vienna Convention and noted that, in accordance with those provisions, the Convention applied to international contracts for the sale of goods and governed only the rights and obligations of the seller and the buyer arising out of any such contract. By not having established the existence, between the sub-purchaser and the initial seller, of a contract of sale governed by the Convention, the Court of Appeal had failed to observe the above-mentioned provisions.

329. Honnold 199, p.77.

330. Article 12 provides that the Contracting State may preserve its domestic rules that require writing in the formation or modification of the contract. (CISG Articles 11, 12, 29, 96).

331. Honnold 1999, p. 131.

332. Ruotamo & Ramberg 1997, 36-37.

333. Honnold 1999, p. 128-129; see also Bonell in Bianca & Bonell 1987, p. 107-108.

334. Honnold 1999, p. 260.

335. Bonell in Bianca & Bonell 1987, p. 111, see also Bout 1998, p. 3.

336. Text of Secretariat Commentary on article 8 of the 1978 Draft (draft counterpart of CISG article 9).

337. See further Chapter 1.2 CISG and the Finnish Sale of Goods Act.

338. HE 93/1986, p. 82.

339. Wilhelsom et al. 1998, p. 117.

340. According to Chapter 3, Section 13 of the Finnish Sale of Goods Act, the risk passes to the buyer when delivery of the goods takes place under the contract or Section 6 or 7. Section 12 provides that if the goods are at the risk of the buyer, he must pay the price even if the goods deteriorate or are destroyed, lost or diminished, provided that the loss or damage is not due to an act or omission of the seller. Similarly CISG Articles 67 and 66.

341. See further Chapter 4.4.4 Time of the examination.

342. Schwenzer in Schlechtriem & Schwenzer 2005, p. 450.

343. Text of Secretariat Commentary on article 36 of the 1978 Draft (draft counterpart of CISG Article 38);

344. See further Chapter 4.4.4 Time of the examination and Chapter 4.5.4 Time of the notice.

[...]

See entire text of Sanna Kuoppala, "The Application and Interpretation of the CISG in Finnish Case Law 1997-2005" (April 2009)

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Citations to case abstracts, texts, and commentaries

CITATIONS TO ABSTRACTS OF DECISION

(a) UNCITRAL abstracts: Unavailable

(b) Other abstracts

English: Unilex database <http://www.unilex.info/case.cfm?pid=1&do=case&id=490&step=Abstract>

CITATIONS TO TEXT OF DECISION

Original language (Finnish): CISG Nordic website <http://www.cisgnordic.net/980129FI.shtml>

Translation (English): Text presented below; see also Unilex database <http://www.unilex.info/case.cfm?pid=1&do=case&id=490&step=FullText>

CITATIONS TO COMMENTS ON DECISION

English: Kuoppala, Examination of the Goods under the CISG and the Finnish Sale of Goods Act (2000) 3.2.3.3, 3.4.3 [analysis of related articles 38, 39, 40 and 44 (includes digests of relevant material in many CISG cases; also digests cases under a domestic sales code that is patterned, for the most part, after the CISG)]; Graffi, Case Law on the Concept of "Fundamental Breach" in the Vienna Sales Convention, Revue de droit des affaires internationales / International Business Law Journal, No. 3 (2003) 338-349 at n.65; [2004] S.A. Kruisinga, (Non-)conformity in the 1980 UN Convention on Contracts for the International Sale of Goods: a uniform concept?, Intersentia at 75; [2005] Schlechtriem & Schwenzer ed., Commentary on UN Convention on International Sale of Goods, 2d (English) ed., Oxford University Press, Art. 9 paras. 20, 21; Henschel, The Conformity of Goods in International Sales, Forlaget Thomson (2005) 196

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Case text (English translation)

Queen Mary Case Translation Programme

Helsinki Court of First Instance 18 July 1995
Helsinki Court of Appeals 29 January 1998

Translation by Jarno Vanto [*]

CASE HISTORY

Helsinki Court of First Instance. Department 3. Pasilanraitio 11, 00240 Helsinki, Finland. Judgment 17450. Claim I. Claimant: A Transport & General Contracting Establishment [buyer]. Defendant: E Oy. Matter at issue: Reduction of the purchase price of goods. Proceedings instituted: 8 November 1994. Claim II. Claimant: A Transport & General Contracting Establishment [buyer]. Defendant: E Oy. Matter at issue: Damages. Proceedings instituted: 18 July 1995.

CLAIMS

In the statement of claims the claimant [buyer] has claimed the purchase price to be reduced by US $2,329,107.10, added to that 16% interest on arrears from 26 September 1993 onwards, plus damages of US $2,314,678.20, added to that interest on arrears from 2 February 1994 onwards, plus the restitution of legal fees of 312,491.97 FIM, added to that lawful interest on arrears.

GROUNDS

The defendant [E Oy] delivered non-conforming goods to the claimant [buyer]. The goods did not conform with the information and assurances given by the defendant and consequently with what had been agreed on. Neither were the goods fit for purposes the claimant [buyer] had ordered them for and of whose quality the defendant was aware, or to the purpose that such goods are usually fit for, adding that the parties had not agreed upon anything else. The non-conformity is of such quality that it amounts to a fundamental breach of contract.

The claimant [buyer] has fulfilled his duty of checking the goods immediately after the goods arrived at the port of destination. After discovering the non-conformity, the claimant [buyer] has notified the defendant within a reasonable time. Additionally, the defendant could not have been unaware of the non-conformity of the goods in the manner specified above and consequently has willfully given the claimant [buyer] wrong information about the quality of the goods, which has contributed to the decision making of the claimant [buyer] in the deal.

THE COURSE OF EVENTS

- The formation of the contract

The defendant [E Oy] has sent the claimant [buyer] offers during summer and early autumn 1993 concerning steel plates on the basis of previous business relations. The steel plates originated from Russia and Ukraine. The claimant [buyer] has needed steel plates of specific type and size in his business. The claimant [buyer] inquired from the defendant the availability of these plates and their conformity with American standard ASTM 36 and Japanese standard JIS 63 101. It was the intention of the claimant [buyer] to make trailers and container cars out of the ordered steel.

On 16 September 1993, the defendant has delivered to the claimant [buyer] a table of the chemical composition of steel conforming with Russian GOST standards and, in his fax of 8 September 1993, has assured the conformity of the steel with the demands of the claimant [buyer]. Additionally, the defendant has informed the claimant [buyer] that the steel is in conformity with the American standard and even better, which, according to the defendant, was confirmed by R Oy.


[Identification of parties:
- I Oy, original seller, had a transaction with defendant E Oy;
- RE drafted the certificates of quality and acted as an intermediary;
- E Oy had a transaction with claimant A Est. (buyer);
- The role of the firm R Oy, mentioned above, appears to have been simply to confirm the conformity of the steel to standards.]

[The court ultimately concluded that the steel plates were sold:
- I Oy to defendant E Oy; then
- E Oy (RE as an intermediary) to claimant A Est. (buyer).]

Because the plates offered by the defendant were the size needed by the claimant [buyer] and the claimant [buyer] has trusted the assurances of the defendant concerning the quality of the plates, the claimant [buyer] accepted the defendant's offer and ordered 14,635.195 tons of steel plates.

The claimant [buyer] established a letter of credit, number G2405/3440, for US $4,097,854.60. The terms of delivery have changed since the establishment of the letter of credit in a manner that finally the delivery was made on terms FOB Tallinn and the price of the plates has been US $238/ton, total US $3,486,749.50.

The defendant has pressured the claimant [buyer] to make a swift decision concerning the deal, because according to the defendant there was also another buyer for the goods. The defendant had not encouraged the claimant [buyer] to check the goods in any manner. Due to the urgency of the matter and the long distance between Tallinn and Abu Dhabi, the claimant [buyer] was unable to send his representatives to check the plates before signing the contract.

The claimant [buyer] has trusted the assurances of the defendant concerning the quality of the steel in terms of its conformity with American and Japanese standards. The trust was based on a previous business relationship established in 1992 in which the claimant [buyer] proved to be trustworthy. The claimant [buyer] has bought from the seller used construction machinery and mine cranes manufactured by Sisu and Lokomo.

The defendant has delivered a certificate of origin and a certificate of quality to the claimant [buyer], which were signed by the seller and RE, acting as an intermediary, confirmed by the Chamber of Commerce of Estonia.

The steel plates have been loaded to a vessel named Prabhu Daya in October 1993. The vessel is the property of Assured Line Ltd. The loading was finished on 27 October 1993. During loading an employee of Assured Line Ltd. was present, named S, with whom the defendant agreed on checking the amount of the cargo and the proper manner of loading. The amount of cargo was correct and to S, a person not familiar with steel business, the steel plates appeared to be of good quality.

S was not authorized to check the quality of the goods and he would not even have been able to do so, considering his lack of expertise.

The representative of the vessel carrying the cargo has stated in the loading certificate that the cargo seemed to look proper, disregarding little damage resulting from rust. The representative in question was not in possession of such expertise to make him capable of detecting non-conformities.

Due to the large amount of steel plates it would have been impossible to check all the plates. Some of the plates were in conformity and in some plates the non-conformity appeared in a manner which would have been impossible to detect based on external examination.

There are many qualities in the plates which are not in conformity: in major part of the plates the surface is grooved, uneven or undulated, in almost half of the plates the layers are separated from one another or the steel has been cracking while bending or welding, the edges are uneven, plates have become distorted, some of them are rusty, some have burning marks and some are torn. Plates cannot be cut with a blowtorch.

These non-conformities are mechanical in nature. The correspondence over the matter may give a picture that the agreement was reached over mechanical features only. However, the defendant has assured that the steel plates are in conformity with GOST 1050-88 and 380-88 standards. These standards contain references to other GOST standards concerning mechanical features. All the standards concerned are not usually listed in a purchase contract. It is a good trade usage that when a reference to a certain standard has been made, the product is in conformity with the mentioned standard(s). The steel sold was apparently not in conformity with applicable GOST standards and not in conformity with American and Japanese standards required by the claimant [buyer].

Tons of steel plates delivered by the seller were not in conformity and the claimant [buyer] had no use for them. The non-conformity of the steel plates could not have resulted from transport or loading. According to an investigation financed by the defendant, certain chemicals and impurities have concentrated in the middle of the plates during rolling and this has resulted in fractures while bending or welding the plates. This is clearly a factory flaw and has been in existence at the moment of the passing of risk and could not have been detected during loading.

Out of the plates about 12,878,971 tons are uneven on the surface in addition to other flaws. The unevenness of the plates, as well as the askew cut edges, distortions and uneven edges are a result of flaws in the manufacturing process. The flaws are of such quality that a person unfamiliar with steel business could not have detected them.

The results of the investigation show that some of the plates deviate from the applicable standards in terms of their chemical composition. The claimant [buyer] has been able to use only 1,756,224 tons of the plates and, even out of these, some have gone to waste, because the claimant [buyer] has had to cut the edges straight before being able to weld them.

The rest, 12,878,971 tons, has not been fit for the purposes of the claimant [buyer].

The goods arrived at Abu Dhabi in December of 1993 and have been transferred from the vessel to claimant's [buyer's] warehouse on 13 December 1993 - 17 December 1993. The claimant [buyer] has noticed the goods being of bad quality. When trying to bend the plates, the worst flaw was detected. The plates have fractured when bending or welding.

The claimant [buyer] has immediately given notice of defect to the seller. In his letter of 2 January 1994 the claimant [buyer] has referred to previous discussions over the phone. There have been negotiations from January 1994 until September 1994 concerning the quality of the defect, its likely reason and compensation to the claimant [buyer], but without any results.

The sales contract between RE and I Oy has been signed not earlier than 6 October 1993 considering that the letter of credit in favor of the seller was established already on 26 September 1993. According to the contract RE was supposed to take care of the loading of steel to the vessel provided by I Oy, during which I Oy was entitled to check the steel. Apparently the defendant E Oy did not check the steel and could not have been aware of the quality of the steel sold. There was no factual basis for information and assurances given by the defendant concerning the quality of the steel.

Not knowing better, the defendant has given statements concerning quality of the goods, even signing a certificate of quality. On the basis of previous business relationship the defendant has been aware of the nature of the business conducted by the claimant [buyer] and the claimant [buyer's] purposes for the steel purchased.

Through marketing and other actions the defendant has misled the claimant [buyer] concerning the quality of the goods and their fitness for the purposes of the claimant [buyer]. Consequently the conduct of the defendant has been at least grossly negligent.

It is the claim of the claimant [buyer]:

- That the purchase price for the completely useless steel plates and steel plates without resale value should be reduced with US $1,593,020.10 on the part of 6,693,362 tons of plates. The original purchase price was US $238/ton.

- On the part of 6,185,609 tons of steel plates that the claimant [buyer] has not been able to use due to bad quality, the price should be reduced by half, meaning US $736,087.40.

- Freight and insurance costs caused by transportation of the goods from Tallinn to Abu Dhabi amount to US $42/ton, total of US $614,678.20.

It was the intention of the claimant [buyer] to manufacture different kinds of trailers and containers out of the steel plates. It took over three months to obtain a replacement for the steel. Due to the delay, a deal of over 40 trailers had to be cancelled, causing a loss of US $1,700,000.

The defendant has taken a view, that he will not be held responsible for the non-conformity of the goods. The defendant has misled the claimant [buyer] by trying to make the claimant [buyer] sue the manufacturer, with whom the claimant [buyer] has been in no contractual relationship whatsoever. The defendant has clearly acted as a seller and not as an intermediary in relation to the buyer.

The defendant has alleged that the goods were not defective because the quality of the goods was not specified, that they were in conformity with GOST standards, and that the defendant was unaware of the intended purpose for the steel. Additionally, the defendant has alleged that the representative of the claimant [buyer] during loading, S, had accepted the steel as such on behalf of the claimant [buyer]. Additionally, the claimant [buyer] has alleged that the defects were the result of unloading in Abu Dhabi.

COUNTER STATEMENT

Claims

The defendant [E Oy] has claimed, that the suit should be dropped in its entirety and the claimant [buyer] made to pay the legal fees of the defendant added with lawful interest on arrears.

- Grounds for denial

The statement of claims was based on the presumption that there has been a legal relationship, i.e., a trade relation based on a sales contract between the parties concerning the steel plates.

The legal nature of the relation between the parties has not been a sale, but one based on commission, namely a commission contract. In a purchase commission, the mandatory can not be held responsible for the quality of the goods in a similar manner as a sales partner in a trade relation. Consequently, the buyer may not direct a claim towards the seller based on the alleged non-conformity of the goods.

The suit of the claimant [buyer] should be dropped in its entirety as unlawful.

Because the nature of the legal relation between the defendant and the claimant [buyer] is of such significance in this case, the issues of general character of the activities of the parties, general features of purchase commission arrangements and matters concerning the content and the commencement of the legal and business relation between the parties shall be dealt with below.

The claimant [buyer] is a conglomerate having its place of business in the United Arab Emirates and operates in the fields of engineering and steel industry, among others, and has significant expertise and experience of steel industry at its disposal. The claimant [buyer] has previous experience of buying steel plates from Eastern European countries.

The defendant is a corporation having its place of business in Finland, whose field of operation is import, export, marketing and rental of construction machinery. It had no previous experience of selling steel plates and no expertise of steel trade.

According to jurisprudence, representation can be direct or indirect. Direct representation operates under the principal's name and on his account; whereas indirect representation operates under the representative's own name but on the principal's account.

Commissions are divided into sales commissions and purchase commissions. Legally, a commission contract is a representation contract, to which Finnish law on sales 18 on agency is applicable.

Commissions can be further divided into trade commissions and civil commissions.

The business relation between the defendant and the claimant [buyer] began in 1992. The general manager of the claimant [buyer] corporation, named Y, has been interested in the contact made by the defendant and has paid a visit to Helsinki. During the visit Y has expressed satisfaction concerning the condition of the construction machinery, and has commissioned the defendant to buy the machinery on his behalf. Y has assigned the defendant to act as claimant's [buyer's] purchase agent in acquisitions of machinery or materials in the future.

The Chief Executive Officer of the claimant [buyer], named W, has met the representative of the defendant, named N, in 1993. During the meeting, an agreement was made that the defendant look into the possibilities of purchasing materials and goods from Eastern Europe and Russia on behalf of the claimant [buyer]. Special attention was to be paid to the availability of steel plates, aluminum and steel beams.

As commissioned, the defendant has been in search of the materials and equipment requested and from time to time has informed the claimant [buyer] about these. The commission relationship becomes apparent also from the correspondence between the defendant and the claimant [buyer] during 1993.

According to the defendant, the correspondence indicates that the claimant [buyer] and the defendant had a clear understanding of the defendant's position as an indirect representative of the buyer.

According to the defendant, the steel plate deal covered by the suit has been carried out in a manner similar to the previous construction machinery deals.

The claimant [buyer] has established a letter of credit G 2045/3440 in favor of the defendant on 26 September 1993. The terms of the letter of credit were slightly altered beyond that point in time.

The defendant has requested Postipankki to transfer US $3,073,390.95 from the letter of credit established by the claimant [buyer] in favor of I Oy and to notify the secondary beneficiary about the transfer through KOP Helsinki.

The defendant [E Oy] and I Oy have undersigned a sales contract on 19 October 1993. According to the provision 3. of the contract, I Oy will sell the defendant E Oy the steel products located in Maardu, Estonia, who will purchase the mentioned steel products on intention that he will sell them from Estonia directly to the final buyer acting as an intermediary.

The defendant has given the following statement concerning loading of the steel plates in Tallinn on 18 October - 27 October 1993 and the alleged non-conformity of the goods:

- While checking the goods before loading them, minor flaws were detected in the steel plates. A part of the steel plates in the warehouse had been damaged during transportation. The damaged plates were replaced with undamaged plates. Because of rain some plates had suffered minor superficial rust damage.

- M and S have supervised the whole process of loading together. According to them the loading of the plates was carried out professionally and with due care and no damage whatsoever was caused to the steel plates during loading.

- S has notified the defendant about the loading in writing.

- The steel plates have been transported to the port of Abu Dhabi in a vessel. From the harbor the plates were transferred to a warehouse in Mussafah. According to M the steel plates have been unloaded from the vessel without adequate lifting equipment and longer plates have been moved on the ground using only a forklift, because of which some of the plates are distorted or bent.

- S was not allowed to follow the process of unloading and transfer to Mussafah, even if he requested.

- M has stated, that G, who supervised the unloading had told Y after the unloading that the steel plates were damaged in the vessel already before the unloading took place.

- S has received information by phone concerning allegations about the condition of the steel plates on 12 January 1994. S has sent two faxes to W, Y and M on the same day, in which he has clarified the content of the contract between S and the buyer and further has stated that not one of the steel plates was damaged during loading and further has clarified the used methods of loading and the adequacy of those methods.

- In another letter, aimed to support his statements, S has sent a copy of the bill of lading signed by the captain, in which it is stated that the captain received the goods in good shape, commenting only on the rustiness of some of the plates, the fact which was specifically accepted by the claimant [buyer].

- The claimant [buyer] has notified several instances and the content of these notices has varied noticeably.

- First the claimant [buyer] blamed the port of Tallinn and the sea transport company for what had taken place. In a letter addressed to the sea transport company, dated 28 December 1993, the company is held liable for the damage to goods. At the same time the blame for the damage has been put on the manufacturer. In a fax dated 2 January 1993 a request was made to the defendant to deliver to the manufacturer a message, where the representatives of the manufacturer were asked to check the steel plates in Abu Dhabi. Demands have been placed also on S, who oversaw the loading.

- It is of significance that no notice whatsoever was given to the defendant, instead the claimant [buyer] requested defendant's assistance in the matter.

- The first time that there were oral discussions between the representatives of the defendant and the buyer concerning the alleged damage was at the end of December 1993. At that point it was brought to the attention of the defendant, that the harbor of Tallinn had loaded the steel plates incorrectly into the transport vessel.

The incidents cited above indicate that there is an ongoing commission agreement between the claimant [buyer] and the defendant, according to which it was the duty of the defendant to search for material and goods and report about them to claimant [buyer].

It was not until the claimant [buyer] had made a decision about a purchase and was given a separate commission for purchase of a designated consignment that the defendant had to make a deal concerning the designated consignment.

- The formation of the contract.

Claimant's [buyer's] allegation, that the defendant E Oy was in a position of a seller, is denied. As appears from the correspondence, the defendant has acted as a representative of the claimant [buyer] according to the commission agreement between the claimant [buyer] and the defendant. There is no factual basis for claimant's [buyer's] allegation that it was only after the institution of these proceedings that the defendant appealed to his position as an indirect representative of the claimant [buyer]. This appears from the evidence in writing submitted by the defendant.

- Conveyance of information before the sale of goods

The defendant was unaware of the intended purpose for the steel plates. The defendant has conveyed to the claimant [buyer] information concerning the standard according to which the steel was manufactured. Furthermore, the defendant has not given assurances concerning the quality of the steel or its conformity with any standards.

The signatures of the defendant in the certificates concerning quality and origin of the goods had only one purpose: to witness the document for the official stamp of the Chamber of Commerce. The purpose of the signatures was not to hold the defendant liable for the quality and the origin of the goods as stated in the certificate.

The defendant had not checked the goods, of which the claimant [buyer] was aware. The claimant [buyer] knew, that checking the steel by R Oy could not have been possible (the order was made within two days after discovering the steel consignment) and the defendant has not even alleged that the goods were checked by R Oy.

The fax, where R Oy appears, is a reply to the question whether GOST standards are equivalent to ASTM standards. The standards are equivalent to each other in a manner described in Stahlschlüssel handbook.

- The acts leading to authorization of order

The defendant has not pressured the claimant [buyer] into closing the deal. The nature of steel trade requires swift decision-making. Defendant had given information to the claimant [buyer] concerning the steel consignments and schedules.

Before authorizing the order, the defendant has been cognizant of the quality of the steel, its price/quality ratio and the quality risks involved.

The claimant [buyer] has been informed about the seller of the steel consignment, named RE, from whom the title to the steel consignment was transferred straight to the claimant [buyer].

It was known by the person checking the goods for the claimant [buyer] before goods were transferred on board, that RE was the seller (it appears from the fax sent by S that the certificates of origin and quality must be obtained from RE).

The items on the pro forma invoice of the defendant are based on the information provided by the seller, of which the claimant [buyer] was aware.

- Letters of credit

In the sale agreed previously between the claimant [buyer] and the defendant the claimant [buyer] had established a letter of credit worth US $1.7 million and commissioned the defendant to look for goods. The same procedure was applied in the sale currently before the court.

- Checking of the goods

It was the duty of the claimant [buyer] to check the goods and not of the defendant. The defendant had notified the claimant [buyer] about this. The claimant [buyer] had sent his representative to the loading dock and the defendant knew about this. On the other hand, the claimant [buyer] knew that the defendant was not going to check the goods. The claimant [buyer] was not entitled to checking the goods only after the goods had arrived at the port of entry.

- The alleged non-conformity of the goods

The defendant denies liability for the alleged visible and hidden non-conformity of the goods. It was the duty of the claimant [buyer] to check the goods and it has to be considered that the defendant accepted the goods in the port of Tallinn. The defendant is not liable for the hidden faults, because they are not within defendant's sphere of influence.

In any case, the defendant denies the amount of faulty plates as not supported by evidence.

- The investigation by the claimant [buyer] concerning non-conformity of the goods

The defendant denies the significance of the investigation by the claimant [buyer] and its weight as evidence, because the investigation was done in violation of the trade usage concerning checking of the goods and without giving the defendant an opportunity to be present during investigation. The investigation by the defendant is one-sided, and one cannot even know if the investigation concerns this steel consignment or another.

- Notice

The claimant [buyer] has not given notice to the defendant before RM became the CEO of the claimant [buyer]. As it appears from the correspondence between the defendant and the claimant [buyer], the claimant [buyer] has requested the defendant to take care of the notice for him. N may be heard as a witness in deciding whether the defendant was acting on behalf of the claimant [buyer]. The claimant [buyer] knew the seller and the manufacturer and, according to the defendant, could have sued RE, possibly together with the defendant.

- Negotiations over compensation

The defendant has not negotiated with the claimant [buyer] about defendant compensating the claimant [buyer]. It was RM who placed a demand on the defendant to compensate the claimant [buyer], and this demand was denied.

Neither has the defendant promised any compensation to the claimant [buyer] from the seller.

The defendant has promised to contribute when the claimant [buyer] places demands on the seller or the manufacturer.

- The amount of the price reduction and the alleged damage to the goods

Claimant [buyer's] claims directed at the defendant concerning reduction of the price of the goods and damages are denied, both in terms of their factual basis and the amount. The claim for price reduction, the claim for expenses caused by replacement steel and the claim for compensation for damage caused by allegedly canceled deal are all denied due to lack of evidence. The claim concerning transportation costs is denied as unspecified.

- Defendant acting as a representative

The defendant has practiced due care while acting as a representative. The defendant has protected the interests of his principal by finding a steel consignment and handling the necessary paper work. The defendant has encouraged the principal to check the goods as soon as it has been possible. Defendant has given no false information concerning his expertise. Neither has he given false statements concerning the quality of the goods or the features of the goods (defendant has checked the information he gave concerning the standards).

CLAIMS

The claimant [buyer] has represented the following claims in his statement of claims, dated 18 July 1995:

(1) The court should try this case at the same time with the civil dispute 94/45165;

(2) The court should oblige the defendant [E Oy] to pay damages of US $4,643,785.30 and an annual interest on arrears from 2 February 1994 onwards; and

(3) The defendant should be made to pay the legal fees of the claimant [buyer] added with lawful interest on arrears starting from one month after the rendering of the judgment.

GROUNDS

- Consolidation of actions

The claimant [buyer] has sued the defendant [E Oy] in a statement of claims, dated 7 November 1994, on grounds that the defendant has sold the claimant [buyer] a consignment of steel plates, which contained fundamental flaws. On these grounds, the claimant [buyer] has claimed damages and reduction of price.

In his answer, dated 18 May 1995, the defendant has denied the claims on grounds that he has acted in a position of an indirect sale representative and that it was a purchase commission arrangement. As a commissioned representative, the defendant cannot be held liable for the non-conformity of the goods.

If the court considers that the defendant acted as an indirect representative and further considers that, in the proceedings instituted prior to this point, the grounds were only the alleged role of the defendant as a seller and if this should constitute an unlawful reversal of action, then the claimant [buyer] should institute these claims as secondary in relation to the first claims.

Due to economic reasons, it would be reasonable to consolidate these actions. The material grounds are the same.

The claimant [buyer] has purchased a consignment of steel plates and considers the defendant to be the seller of the consignment, even though the defendant has alleged his position as being one of an indirect representative.

The steel plate consignment was non-conforming with what had been agreed upon in terms of information received by the defendant, the certificates and assurances. Furthermore, the goods were not fit for purposes they were ordered for and of whose quality the defendant as a representative has been aware of. The non-conformity of the goods has been of such quality that it constitutes a fundamental breach of contract from the claimant's [buyer's] viewpoint.

In claimant [buyer's] opinion, the defendant has willfully given the claimant [buyer] wrong and unfounded information and assurances concerning the quality of the goods, which has affected claimant [buyer's] decision making concerning the sale.

Claimant [buyer] has fulfilled his duty to check the goods as soon as the goods arrived at the port of destination and, after detecting the non-conformity, has notified the defendant, whom he considered to be the seller, in a reasonable time. At no point has the defendant directed the claimant [buyer] to notify someone other than him. This may cause a loss of rights to the claimant [buyer] in the sense that a notification done later may be considered to be done too late.

Before the proceedings were instituted, the defendant had given no information to the claimant [buyer] concerning the source of the steel consignment and additionally has acted in a manner of a seller. The defendant must have known that the claimant [buyer] considered him to be the seller and not a representative. At no point has the defendant made an effort to correct this conception.

What comes to chain of events, the nature of non-conformity, defendant's awareness of non-conformity, the amount of damages and the details of legal expenses, the claimant [buyer] refers to his statement of claims on 7 November 1994 and his oral statement of 14 July 1995.

- The legal characteristics of representation

It is characteristic for representation that the representative acts on behalf of someone else in relation to a third person. The legal consequences of representation require that representation is authorized, that the representative operates under the name of the represented party, and that the power to represent has been properly given. In a sale, representation is legal.

In relation to the instance that sold the steel to defendant, the defendant has acted under his own name, which does not fulfill the criteria of direct representation.

A right to represent someone may be based on law or authorization. There is a difference between authorization and competence, which defines the extent of the acts that the representative may do on behalf of the principal. In cases of sales representation a representation agreement is made. Generally a written agreement is made on sales representation, even though representation agreement can also be implied.

- On indirect representation

In cases of indirect representation, one acts on account of someone else. In indirect representation the representative, however, acts under his own name; whereas in direct representation the representative acts under principal's name.

The term commission merchant refers to a trader who has made an agreement between himself and the principal binding him to act on behalf of the principal but under his own name, making decisions concerning sale or purchase agreements by himself. A commission merchant does not make a deal under the principal's name but under his own name. The contract comes into existence between the commission merchant and a third person. This means that the duties stemming from the contract are directed at the commission merchant and not the principal, which is the case with agreements made by a direct representative.

- The duties imposed on the commission merchant by a purchase commission

It has been pointed out in jurisprudence that a sales representative has the following duties: to promote selling or buying, to take care of the principal's interests, to act dutifully and honestly, to obey the directions given by the principal, to obey the duty to inform, to obey to duty of professional secrecy. Negligence in following these duties results in damages.

- On defendant's infringement of his duties

The defendant has not attended his principal's interests as a representative. He has not checked the quality of the steel, neither has he made sure that the steel would be of such quality as requested.

If the defendant did not possess any expertise on steel industry, he should not have given the claimant [buyer] the impression that he did. The defendant should not have given statements concerning the quality of the steel and he should not have signed a quality certificate; furthermore, he should not have made unfounded allegations concerning examination of the steel.

The defendant has not disclosed the intermediary in the sale, who has made a lot of money in the deal without claimant's [buyer's] awareness of his existence. I Oy is the factual seller if [defendant] A's role is seen as one of a representative.

The defendant has been in breach of dutifulness and honesty when he has not disclosed the identity of the factual seller and has pretended to have bought the steel from an Estonian company, whose name was not disclosed to the claimant [buyer]. In order for the authorizer to have any rights in relation to a third person, the existence of a third person has to be known by the authorizer.

The defendant has made allegations of having negotiated with RE and the manufacturer. The defendant is not known at RE. Additionally, the defendant has alleged that the experts of R Oy have examined the steel consignment. It has not been confirmed that R Oy has done any investigation on the steel consignment whatsoever requested by the defendant or I Oy.

Defendant's actions cannot be seen as honest or dutiful and it is on breach of good business usage.

- On indirect representative's relation to the principal

In a purchase commission, the representative acts under his own name. A contractual relationship comes about only between the principal and the representative and the other party and his representative. The representative does not become an outsider and no legal relationship exists between the principal and the other party. Only in exceptional circumstances can a principal claim rights in relation to the other party, such as in the event of a bankruptcy of the representative.

The claimant [buyer] is in a legal relationship only with defendant acting as an indirect representative and therefore cannot claim compensation from anyone else. In relation to the claimant [buyer], the defendant is liable for the quality of the goods delivered.

By signing the quality certificate, the defendant has bound himself to being liable for the quality of the steel.

The claimant [buyer] and the defendant have not agreed on a price range or a fee percentage. According to jurisprudence, the price range remains under the principal's control. The essential elements of commission relation are not fulfilled.

If the defendant is seen as a representative, he is liable for assurances concerning the quality and other features of the goods that he has made and which are not given by the manufacturer. Due to the fact that certificates of origin and quality were signed by the defendant, the claimant [buyer] has come under the impression that the defendant has bound himself to be liable for the goods accordingly. R Oy has a separate liability from the defendant.

- The duty to check the goods

According to laws governing sales [Finland's domestic Law on International Sale of Goods], if transportation is involved in a sale, the buyer may legitimately check the goods at the port of destination.

S was present while loading the goods in order to gain certainty of the fact that the goods were actually loaded in to the vessel and to avoid the re-occurrence of an incident in connection with another contract made with Russians where the goods were never delivered even though the price for the goods had been paid.

S had no authorization to check the goods for the claimant [buyer] and S did not possess the necessary expertise to do that either.

According to jurisprudence (Palmgren - Olsson), the commissioned instance must check the goods. Defendant's representative was present while loading the goods.

Statement: The proceedings were not instituted within the time limit required by law.

Claims: The defendant has alleged that the claims should not be tried or at least should be dismissed, and that the claimant [buyer] should be made to compensate the defendant on the legal fees accumulated in response to these claims, added with lawful interest on arrears from the date of issuance of the judgment onwards.

GROUNDS

According to Finnish sales law, the proceedings against the representative should be instituted at the latest after one year and one night after the completion of the commission relation.

The commission of the defendant [E Oy] has consisted of purchasing a steel consignment for the claimant [buyer]. The commission has been carried out and the commission relation has been completed after the steel consignment has been delivered and payment has been made.

If it was regarded that the commission relation had partly continued after the above mentioned time, the commission relation between the claimant [buyer] and the defendant has ended no later than 10 July 1994, when the claimant [buyer] begun presenting claims against the defendant.

The statement of claims of the claimant [buyer] has been signed on 14 July 1995 and consequently the proceedings could not have been instituted within the time frame required by the Finnish law on sales.

- Statements concerning discontinuation of the time limit

The Finnish law on sales, chapter 18, section 6, applicable in Action II, sets a one year and one night time frame to institute proceedings which was not discontinued by instituting the principal action. The period within which the action must be brought could have started at the earliest when the goods were loaded and the documents were issued, meaning 23 October 1993. On the basis of Action I, claims in Action II cannot be made because the legal relation as grounds for claims is different.

- Claimant [buyer's] statement on defendant's answer

The claimant [buyer] has made a reference, concerning defendant's allegation that proceedings were not instituted within the time limit allowed by law and defendant's reference to Finnish sales law chapter 18, section 8, to Finnish sales law, chapter 18, section 9, where it is stated that proceedings against a representative must be brought within one night and one year after the resignation of the representative. Because the defendant has not regarded the legal relation as being a commission relationship, the alleged claim of 10 July 1994 is not a termination of a commission relation. The defendant has not declared a resignation from the alleged assignment as a representative and has not rendered an account required by Finnish sales law.

The claimant [buyer] has instituted the proceedings before the passing of one year and one night after the termination of alleged commission relationship on 10 July 1994. The proceedings were based on the legal relation the claimant [buyer] and the defendant had between them. The proceedings instituted consisted of claims to price reduction and claims for damages based on seller's liability.

Even if it was regarded that the claimant [buyer] was late in instituting the proceedings, the defendant could not plead to limitation of action, because he has, through his own actions, apparently willfully caused this delay.

The reply given by the defendant concerning damages supports claimant [buyer's] view, that there has been no commission relationship between the parties but that it was a sale.


THE RULING OF THE COURT OF FIRST INSTANCE

A steel sale was made, in which steel was delivered to defendant [E Oy]. The claimant [buyer] established a letter of credit in favor of the defendant covering the whole purchase price.

When loading the steel in Tallinn, M and S were present on behalf of the claimant [buyer] at least part of the time.

The steel was transported from Tallinn to Abu Dhabi on FOB terms with a vessel named Pradhu Daya. The transportation was organized by the claimant [buyer].

The defendant was not expressly invited to check the goods in the United Arab Emirates.

S and M are not experts in the steel business.

Disputed facts

- Was the legal relationship between the defendant and the claimant [buyer] a buyer-seller relation or a principal-mandatory relation?

- Has the defendant received remuneration from the claimant [buyer]? Had they agreed on remuneration or a commission percentage? Was the defendant entitled to receive a part of the price limit as a commission?

- If the defendant is seen as a representative, has he fulfilled the duties of a representative in relation to his principal?

- If the defendant is regarded as a representative, has the claimant [buyer] given him guidelines or directions, and if he has, has the defendant acted accordingly?

- What was the relevance of the usage developed earlier between the claimant [buyer] and the defendant in relation to the steel delivery now in dispute?

- Was the delivered steel non-conforming? If it was, in what manner?

- Is the defendant liable for the possible non-conformity in relation to the claimant [buyer], and if he is, on what grounds?

- If the goods were in fact non-conforming, has the claimant [buyer] given a timely notice to the defendant?

- Was the defendant aware of the quality requirements, purposes and fitness for welding, as required by the claimant [buyer] in terms of steel suitable for purchase?

- Was the claimant [buyer] entitled to trust that the steel purchased met those standards that it was promised to meet, or should the claimant [buyer] have checked the goods despite the fact that they met the standard? Had the claimant [buyer] promised or assured the [defendant] that the steel met the standard as required by the defendant?

- Was the defendant's signature on the certificates of quality and origin an indication of committing to liability for quality indicated by the certificate and the content of the certificate or just an attestation?

- What features are covered by GOST standards? Chemical and mechanical or just chemical?

- Who had the duty to check the goods and when? While loading/at the port of destination/other?

- Was the investigation of the goods that was carried out by the claimant [buyer] done properly?

- What was the role of S while loading the goods in Tallinn? Just a supervisor of loading and the amount of goods on behalf of the claimant [buyer]? Or also a person authorized to check the goods more extensively on behalf of the claimant [buyer]? Did the claimant [buyer] accept the steel loaded, and if he did, to what extent?

- Was the investigation of the steel organized by the claimant [buyer] carried out by an unbiased instance or an instance chosen by the claimant [buyer] and is the investigation reliable or biased?

- Was the investigation of the goods carried out properly by giving all the parties an opportunity to be present?

- Was the claimant [buyer] aware that the defendant possessed no expertise of steel business?

- Does the sales contract between RE and I Oy have such a significance that the defendant is a legal representative of I Oy?

- Has the claimant [buyer] been aware of RE's role in the steel sale, and if he was, when did claimant [buyer] become aware of it? Was the claimant [buyer] aware or should the claimant [buyer] have understood RE's role when a contract was signed between the claimant [buyer] and the defendant?

- The amount of damage to the steel.

- The amount of price reduction.

- Has the claimant's [buyer's] right to bring proceedings passed the period of limitation concerning the secondary statement of claims on the basis of Finnish Sales Law, Chapter 18, section 9?

- Have there been any negotiations concerning compensation, and if so, between which parties? Has the defendant acted as a representative of the claimant [buyer] in possible compensation negotiations?

CONCLUSIONS DRAWN BY THE COURT OF FIRST INSTANCE

CLAIM I: Part I

- Applicable rules

Defendant, seller E Oy is from Finland and the buyer A from the United Arab Emirates.

According to CISG section 1 "this law is applicable in sale of goods with an international character." According to Finland's domestic law governing the international sale of goods, if the parties have not agreed upon the applicable law as defined in section 3 of this law, the applicable law is the law of the country where the seller has his place of business when he received the order. If the order was received by a business owned by the seller, the applicable law is the law of the country where the business is located.

Because there is no written contract, the applicable law of the contract is the law of the seller's country, i.e., the law of Finland.

According to the Finnish Sales Law, chapter 4, section 7, the goods must correspond to what can be considered as agreed in terms of their type, quantity, quality, packaging and other features. According to the Sales Law, section 18, goods are non-conforming if they do not correspond to the information given by the seller concerning the features of the goods or their use while the seller was marketing the goods or otherwise informed the buyer before concluding the sale and this information can be considered to have had an effect on the sale. Additionally, goods are not in conformity if they do not correspond to information given by some other party than the seller, for instance, information given by a wholesaler while marketing the goods where such information can be considered to have had an effect on the sale. However, goods are not deemed to be non-conforming if the seller did not know about, or should not have known about, this information. According to Sales Law, chapter 4, section 20, a buyer cannot plead non-conformity where he must have been presumably aware of it while buying the goods, or if the buyer has checked the goods before buying them, or, without an acceptable reason, has been derelict in following seller's request to check the goods. Additionally, buyer cannot plead non-conformity if he should have discovered the non-conformity while checking the goods, unless the seller acted in bad faith.

- On the contractual relationship and the coming about of the contract

When making a sale of goods, legally the buyer and a seller enter into a contractual relationship. When entering into a contract for the sale of goods, the buyer and the seller can do this simply by agreeing on what is sold and how much it costs. The sale becomes final when one party provides the goods and the other party pays the price.

It is undisputed in this case that there is a contract between the parties. Usually a definite form of a contract is not required in a sale of goods. Consequently, an oral contract made during a phone call constitutes a legitimate contract. In cases of oral contracts, one comes to a situation where the clauses in the contract and their validity depend on the unanimity of the parties concerning the content of the clauses and the matters deemed applicable to the clauses, which have not been written down to any faxes or other material serving as a basis for oral contract. To avoid disputes, it is often the case that contracts made orally are confirmed later in a letter or in a telegram. The minimum requirements of a contract are clauses concerning the object of the sale, price and terms of delivery. The law applicable to the contract is usually not included in the contract. This issue must be resolved according to the rules of private international law, if there is a disagreement.

- [Defendant] E Oy - I Oy

[Defendant] E Oy has made a sales contract with I Oy on 19 October 1993 in which the seller of steel has been I Oy. The buyer has been [defendant] E Oy. [Defendant] E Oy had purchased the steel on intention to resell and act as an agent for steel products which were in Estonia at the moment of the signing of the contract and to resell the steel products to a foreign buyer which, in the contract, was called the final buyer. The final buyer in that contract has been A, the claimant [buyer] in this case.

The sales contract between I Oy and [defendant] E Oy did not govern the contractual relationship between [claimant] A [buyer] and [defendant] E Oy.

- [Defendant] E Oy - A [buyer]

The contract between [defendant] E Oy and [claimant] A [buyer] has been made using fax machines. From the wording of the faxes that led to the contract, one cannot draw a conclusion as to how this contractual relationship should be interpreted.

[Claimant] A [buyer] informed [defendant] E Oy on 18 September 1993 of his willingness to order the steel plates offered by [defendant] E Oy. After being commissioned to purchase the steel plates, [defendant] E Oy placed an order to I Oy concerning the steel plates. The sales contract between I Oy and [defendant] E Oy was signed on 19 October 1993.

- Conclusions

No written contract between [defendant] E Oy and [claimant] A [buyer] has been presented to the Court of First Instance. [Defendant] E Oy has purchased the steel from I Oy on intention to resell the steel, as an agent, directly to a foreign buyer which, in the contract, was referred to as the final buyer.

As a concerned party heard as a witness, W has told the court that it was a question of a sale, where [defendant] E Oy was a reseller, and where [claimant] A was [defendant] E Oy's buyer. [Another witness] has told on his behalf that [defendant] E Oy had acted as a purchase agent. These testimonies are contradictory. The Court of First Instance sees that one witness cannot be seen as more reliable than the other. Through hearing witnesses, one has not been able to find out whether it was a question of sale or representation.

In trying to decide whether the contractual relationship should be seen as a purchase commission or a sale, the Court of First Instance has paid attention to the circumstance that on the basis of the wording of the contract between [defendant] E Oy and I Oy and faxes exchanged between the claimant [buyer] and the defendant, it is not a question of a purchase commission but a sale. While considering the nature of the contractual relationship, the Court of First Instance has additionally noted that the price was determined per ton, that the whole purchase price has been paid to the defendant company and that [defendant] E Oy has held the title to the steel plates bought from I Oy. Consequently, [defendant] E Oy has to be considered as a seller in relation to [claimant] A [buyer].

- Determining the object of the sale

The seller and the buyer have to, through contractual clauses, unambiguously determine the object of the sale by expressing the quality, quantity, type and purpose of the goods. The type and quality of the goods are often easy to individualize through usage of certain type marking that the seller has given to the goods to be used as their name in combination with a series of letters or numbers. Together, they separate the goods from other goods of the same type or quality. If it is a question of goods with a confirmed official standard, it is of use to mention the standard while determining the goods. By using this procedure, both the seller and the buyer know what requirements the goods must fulfill in terms of quality and other features.

Expressing the purpose of the goods is necessary especially when it is not possible to individualize the type or the quality of the goods in the contract with enough precision. When agreeing on the sale, the buyer has to express clearly and provably the possible special purpose for the goods and this way assure that the goods are delivered fitting exactly this purpose.

[Defendant] E Oy has conveyed to the claimant [buyer] information about according to which standard the steel was manufactured.

Referring to the statement of S, the signatures of the defendant in the certificates of origin and quality had only one purpose, which was to attest the documents for the official seal of the Chamber of Commerce. Through his signature, E Oy the defendant [seller] had not bound himself to liability for the quality of the goods or their origin as stated in the certificates. The defendant had not checked the goods, of which the claimant [buyer] was aware. The order had been placed within two days after the steel consignment had been found.

Witness M has stated that the defendant had not exerted pressure on the claimant [buyer] or tried to hasten claimant's [buyer's] decision making concerning the steel consignment. The nature of steel trade usually requires swift decision making. W has told that he knew the steel was Russian, Ukranian or Polish. M has stated that the price had been low. The claimant [buyer] has been notified of the seller of the steel consignment, RE, from whom the title to the steel consignment was transferred directly to the claimant [buyer]. The person who checked the goods on behalf of the claimant [buyer] knew that RE sold the steel to [defendant] E Oy before the goods were moved on board. The individualizations contained in the pro forma invoice of the defendant have been based on the information provided by the seller, a matter which, according to the Court of First Instance, was known by the claimant [buyer].

The Court of First Instance held that the defendant was not aware of the intended purpose of the steel.

- Checking of the goods and the investigation carried out by the claimant [buyer] concerning the non-conformity of the goods

Buyer is, and he should also be interested in what kind of goods the seller has delivered to him. The manner and the extent of checking the goods depends on the type and quality of the goods. It is of essential importance to the legal protection of the buyer to check the goods. After the goods have been delivered, he has to make sure that the goods are in conformity with what has been agreed on. If it is not so, he has to notify the seller immediately on the non-conformity and possible demands

It is undisputed in this case that it was agreed upon that the goods were to be delivered on terms FOB Tallinn. It is the duty of the seller to check the goods before loading.

Witness M has stated that W had expressly refused to check the goods, regarding it as unnecessary. Both S and M represented the claimant [buyer]. W has told that they had accepted the goods even if there was a slight amount of rust on them. Consequently, the Court of First Instance held that the duty to check the goods was within the claimant's [buyer's] domain and that the claimant [buyer] had accepted the goods in the port of Tallinn. Defendant E Oy was not liable for hidden non-conformities because they were not within his sphere of influence.

Witness M has stated that the steel was unloaded at the port of destination within three days and, during the unloading, the steel has been damaged. The Court of First Instance has received items 8-10, which contain an investigation of the non-conformity of the goods.

W has stated that, according to his knowledge, the representative of [defendant] E Oy was not invited to the scene of the investigation. This was confirmed also by M.

M has stated that he had been present during the investigation. The investigation had been carried out using so-called "production site" steel and two steel plates had been painted white.

M did not know whether the investigation was carried out using the steel delivered by [defendant] E Oy. M had no knowledge of other investigations done to the steel plates.

The investigation done by the defendant is one-sided as appears from M's statement and it cannot even be concluded if the investigation was done using the steel consignment sold by [defendant] E Oy.

Consequently, the Court of First Instance held that the investigation was carried out in breach of trade usage concerning checking of the goods and without giving the defendant an opportunity to be present during checking. Additionally, taking into account M's statement that over 70% of the steel consignment was either used to refining or sold, it remains unproved that the goods did not conform.

The demand for price reduction must be dismissed.

Claim II

Claim II has been based on claimant's [buyer's] allegation that due to the quality of the faulty steel, the claimant [buyer] has lost an order of at least 40 container cars and that it has suffered a loss of over 40 million US dollars.

Witness M has stated that the claimant [buyer] did not have the alleged order and that the claimant did not suffer any loss whatsoever.

Based on M's reliable statement, the Court of First Instance held that it remains unproved that the claimant [buyer] had lost an order or that he had suffered any losses. Consequently, the claim must be dismissed.

Second statement of claims

Because the contract has been tried as a sale, the secondary claim of the claimant [buyer] to make the defendant compensate based on a commission agreement is dismissed.

RULING

All claims are dismissed.

A Transport & General Contracting [buyer] is obliged to pay [defendant] E Oy's legal fees amounting to 409,039.62 Finnish Marks with interest on arrears from 29 June 1996 onwards. The interest on arrears is 7% more than the interest rate of the Bank of Finland.


HELSINKI COURT OF APPEALS, Judgment No. 257, 29 January 1998, S 96/1129

The appealed ruling: Helsinki Court of First Instance 29 May 1996. Matter: Price reduction in a sale of goods, etc. Appellant: A Transport & General Contracting Establishment [buyer], Abu Dhabi, United Arab Emirates. Defendant: E Oy, Helsinki.

APPEAL

By repeating the demands represented in the Court of First Instance, A Est. [buyer] has demanded that E Oy should be made to pay an amount of US $2,329,107.10 as a price reduction added with 16% interest on arrears from 26 September 1993 onwards and damages of US $2,314,678.20 added with 16% interest on arrears from 2 February 1994 onwards and additionally as a compensation for legal fees from the Court of First Instance 312,491.97 FI and from the Court of Appeals 10,000 FIM, both sums added with interest on arrears. In addition, [An oral hearing was requested] in the Court of Appeals to hear two witnesses already heard in the Court of First Instance again.

Reply

E Oy has given a reply to the appeal and demands compensation for legal fees of 14,810.80 FIM.

Oral hearing

The Court of Appeals has decided to have an oral hearing on 16 October 1997. The parties to the case have, however, requested a postponement of the hearing in order to engage in settlement negotiations. This request was granted by the Court of Appeals. The Court of Appeals has carried out an oral hearing, of which a separate record was made.

The parties to the case have requested compensation for their legal expenses resulting from the oral hearing. A Est. [buyer] requests for 8,000 FIM and E Oy 20,531.93 FIM. E Oy has demanded that Law Firm K Oy together with Est. Oy should be made to pay jointly and severally legal fees up to 5,000 FIM.

The parties have not heard any persons as witnesses in the Court of Appeals.

THE STATEMENT OF THE COURT OF APPEALS

- Applicable law

E Oy has had its place of business in Finland at the time of the execution of the sale. Finland has bound itself to comply with the CISG, also known as the UN trade law. The first article of the CISG states that this Convention is applicable to contracts concerning the sale of goods between parties whose places of business are in different Contracting States when the rules of private international law lead to the application of the law of a Contracting State. Because the rules of private international law require that the law of a Contracting State is applicable to the sale between A Est. company [buyer] and E Oy [held to be seller to claimant A Est., buyer], the Convention is applicable to this sale instead of Finnish Sales Law.

- The checking of the goods and their quality

In connection with the sale, E Oy [seller] has delivered a certificate of quality concerning the composition of the steel plates. The certificate has been drafted at a company named RE in Tallinn. N has also signed the certificate on behalf of E Oy [seller]. Consequently, E Oy [seller] has bound itself to liability for the quality of the steel plates sold. Because E Oy [seller] has committed itself to delivering steel that meets certain quality requirements to A Est. [buyer], E Oy [seller] must have been aware of the purpose of the steel sold.

A Est. [buyer] has not checked the goods before closing the sale and not even when E Oy [seller] gave the goods in Tallinn for transportation to Abu Dhabi. According to the CISG, the buyer must check the goods as soon as it is possible considering the circumstances. If transportation of the goods is included in the contract, checking of the goods can be postponed until the goods have reached their destination. The goods, 14,650,208 tons of steel plates, have been transported to the United Arab Emirates from Tallinn by ship. Consequently, A Est. [buyer] was entitled to check the goods not earlier than when they reached the port of destination, despite the fact that the goods were sold on term FOB/Tallinn.

In Article 9 of the CISG, it is stated that a trade usage on which the parties have agreed and any practices they have assumed are binding on the parties. Unless otherwise agreed, it is regarded that the parties have implied such trade usage to be applicable to their contract or its formation. This trade usage must be known by the parties or they should have known it, and it must be widely used in international trade in the field in question and widely known and regularly obeyed by parties to such contracts. The Court of First Instance has held that, according to trade usage concerning checking of goods, the buyer has to give the seller an opportunity to be present while checking the goods. This was not denied by A Est. [buyer] The goods were checked twice by A Est. [buyer], in March 1994 and again in September 1994. A Est. [buyer] has not even alleged having invited a representative of E Oy [seller] to the United Arab Emirates for checkings of the goods. The statements concerning the results of the investigations, however, support the statement of claims, but it remains unclear whether the investigations were carried out using the steel consignment sold by E Oy [seller] and how large a part of the consignment was damaged. Consequently, there have been flaws in carrying out the investigations, which weaken the credibility of the statements based on them. Consequently, A Est. [buyer] has not established the non-conformity of the goods sold by E Oy [seller].

- Legal expenses

In an oral hearing, E Oy [seller] has demanded that Law Firm K Oy, an attorney for A Est. [buyer], should be made to pay the legal expenses of E Oy [seller] jointly and severally with A Est. [buyer] because the said attorney has lengthened the proceedings unnecessarily by requesting an oral hearing and consequently has willfully or at least negligently caused expenses to E Oy [seller].

When the Court of Appeals announced that an oral hearing will be organized, both of the parties have separately told the Court of Appeals about their willingness to engage in settlement negotiations. For this reason, the Court of Appeals has decided to postpone the oral hearing. The negotiations, however, did not result in a settlement and an oral hearing was carried out on 4 November 1997. E Oy [seller] has not established that Law Firm K Oy had acted in breach of its duties, willfully or negligently causing lengthening of the proceedings and expenses to E Oy [seller].

On these grounds, the Court of Appeals has given the following ruling.

RULING

The outcome of the ruling of the Court of First Instance remains.

A Est. [buyer] shall be made to pay E Oy [seller] 25,000 FIB as compensation for legal fees accumulated during the Court of Appeals hearings.

The case being so, A Est. [buyer] shall not be compensated for its legal fees.


FOOTNOTE

* 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.

All translations should be verified by cross-checking against the original text.

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