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

CISG CASE PRESENTATION

Finland 30 June 1998 Helsinki Court of Appeal (Skin care products case) [translation available]
[Cite as: http://cisgw3.law.pace.edu/cases/980630f5.html]

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

Case Table of Contents


Case identification

DATE OF DECISIONS: 19980630 (30 June 1998)

JURISDICTION: Finland

TRIBUNAL: Helsinki Court of Appeal

JUDGE(S): Unavailable

CASE NUMBER/DOCKET NUMBER: S 96/1215

CASE NAME: EP S.A.v FP Oy

CASE HISTORY: Helsinki Court of First Instance (95/11481) 11 June 1995 [affirmed]

SELLER'S COUNTRY: Switzerland (plaintiff)

BUYER'S COUNTRY: Finland (defendant)

GOODS INVOLVED: Products for skin care


Classification of issues present

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

APPLICABLE CISG PROVISIONS AND ISSUES

Key CISG provisions at issues: Articles 25 ; 35 ; 38 ; 39(1) ; 49(1) and 49(2) ; 72(1) and 72(2) [Also cited: Article 73 ]

Classification of issues using UNCITRAL classification code numbers:

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

25A [Definition of "fundamental breach"];

35A [Rules for conformity of the goods];

38A [Buyer's obligation to examine goods: time for examining goods];

39A [Buyer's responsibility to notify seller within a reasonable time of lack of conformity of goods];

49A [Buyer's right to declare the contract avoided];

72A ; 72B [A rule for anticipatory breach; a party's responsibility to give reasonable notice if he intends to declare the contract avoided]

Descriptors: Conformity of goods ; Examination of goods ; Lack of conformity notice, timeliness ; Avoidance ; Anticipatory breach

Go to Case Table of Contents


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 96/1215 (30 JUNE 1998)

6.1   Classification of the issues present
6.2   Applicable law
6.3   Delivery of the goods
        6.3.1   Facts of the case
        6.3.2   Agreed procedure for delivery
                    6.3.2.1   Obligation to take delivery
                    6.3.2.2   Time for delivery
                    6.3.2.3   Interpretation of the contract
                    6.3.2.4   Battle of forms
        6.3.3   Decision on delivery
6.4   Conformity of the goods
        6.4.1   Facts of the case
        6.4.2   Particular purpose of the goods
        6.4.3   Sale by sample
        6.4.4   Buyer's knowledge of the non-conformity
        6.4.5   Fundamental breach of the contract
        6.4.6   Decision on the conformity of the goods
                    6.4.6.1   District Court's reasoning
                    6.4.6.2   District Court's reasoning analysed
6.5   Examination of the goods and notice of non-conformity
        6.5.1   Facts of the case
        6.5.2   Obligation to examine the goods
        6.5.3   Obligation to notify about the lack of conformity
        6.5.4   Exemptions from giving a notice
        6.5.5   Decision on the examination of the goods
                    6.5.5.1   District Court's reasoning
                    6.5.5.2   District Court's reasoning analysed
6.6   Buyer's right to declare the contract avoided
        6.6.1   Facts of the case
        6.6.2   Anticipatory breach
        6.6.3   Anticipatory breach in instalment contracts
        6.6.4   Decision on the avoidance of the contract

[...]

6.1 Classification of the issues present

The case involved a sale of skincare products delivered from a Swiss Seller (the plaintiff) to a Finnish Buyer (the defendant). The questions in dispute included:

   -    The time of the delivery;
   -    The conformity of the goods;
   -    The proper and timely examination of the goods and notice of non-conformity; and
   -    The Buyer's right to declare the contract avoided because of anticipatory breach of the contract.

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, Dept. 5, No. 19067, 95/11481 (11 June 1995) The Court of Appeal saw no reason to change the judgment of the the District Court and thus the judgment of the District Court remained unchanged.

6.2 Applicable law

The Seller stated that, due to the fact that the place of business of the Seller who accepted the order was in Switzerland, Swiss law was applicable to the contract. There was no agreement between the parties on applicable law. The Buyer stated, as did the Seller, that the CISG was applicable to the case.

The District Court did not make any reference as the applicable law as there was no dispute on the issue. However, it should be noted that the application of the CISG should have been derived from Article 1(1)(a). The CISG applies directly if the parties to a contract of sale of goods have there places of business in different Contracting States, independent of a different solution provided for by the rules of private international law. In Finland the CISG came into force on 1 January 1989, in Switzerland on 1 March 1991. Only if the CISG is not applicable by virtue of Article 1(1)(a), are the rules of private international law to be considered. By virtue of Article 1(1)(b), the CISG is applicable when the rules of private international law lead to the application of the law of a Contracting State.

In Finland, the Act on the Law Applicable to the Sale of Goods of International Character (26.6.1964/387, as amended by the Act 27 May 1988/468), provides that in the absence of a choice of law under Section 3, the sale shall be governed by the law of the State where the seller had his place of habitual residence when he received the order. If the order was received by a business owned by the seller, the sale shall be governed by the law of the State where the business is situated (Section 4, subsection 1). Only if the buyer places the order in the State where the buyer has his habitual residence or where he owns a business and the seller or his agent receives the order in said State, the sale shall be governed by the law of the buyer's State (Section 4, subsection 2).

Thus, the Finnish rules of private international law lead to the application of the Swiss law, in this case the CISG. However, the correct approach is to apply CISG by virtue of Article 1(1)(a). Even if the rules of private international law of the forum would lead to a non-Contracting State, the CISG applies if the parties are from Contracting States.

It should also be noted that Finland has ratified the CISG subject to a declaration under CISG Article 92 not to be bound by Part II of the Convention: Formation of the Contract. However, as noted earlier, this does not mean that Part II of the Convention would not be applied in Finland in some cases.[345] As far as Part II of the Convention, Finland is not a Contracting State as provided in CISG Article 1(1)(a). However, if the conflict of law rules as provided for in CISG Article 1(1)(b) point to the law of a country which has not made a declaration provided in CISG Article 92, Part II of the Convention would also apply. As Switzerland has not made any reservation to the Convention and due to the conflict of law rules the Swiss law is applicable to the case, also Part II of the Convention applies to the case. Part II of the Convention naturally also applies if the parties to a contract have agreed that the CISG is to be applied. As noted above, the decision of the District Court does not discuss the issue of the applicable law. The law applicable to the formation of the contract is nevertheless in any case the Swiss law, i.e. the CISG.

6.3 Delivery of the goods

6.3.1 Facts of the case

An order for the skincare products was placed by the Buyer on 26 February 1992. The Seller accepted the order on 5 March 1992, at the same time when the Seller had accepted an Order #9/92 of the same proportion. According to the order, the term of delivery was to be agreed upon at a later point in time. The terms of the sale also stated that samples of products were to be delivered to VTT (Technical Research Centre of Finland) for checking purposes. The order required the goods to be produced from one and the same raw material and the acceptance of the sample goods required that production of the goods be already finished before the checking of the goods at VTT.

After placing an order, the representative of the Buyer had confirmed by phone that the deliveries will be received during the months of May and August 1992. When the representative of the Seller had reminded the representative of the Buyer of this, he had not denied that. In addition, when placing the order, the Buyer had encouraged the Seller to expediently deliver all of the packaging materials.

The Buyer had informed the Seller that the samples had passed the VTT checking in fax messages dated 24 April 1992, 30 April 1992 and 6 May 1992. The goods had to be produced quickly in order to obtain sample goods.

According to the contract, the Seller could reasonably assume that the Buyer, soon after the sample goods were checked, would issue an order of shipment. Not until 15 September 1992, the Buyer had finally notified that "the goods can be shipped in December, so that they arrive in Finland at the earliest on 1 January 1993."

The Seller argued that the Buyer knew that even though the goods in question could have been preserved relatively long, at least thirty months, vitamins, perfumes and some other ingredients in skin care products are under a constant process of transformation and decomposition. These features of skin care products are generally well known, and further the other person representing the Buyer presumably was a chemist. Because the parties were mutually aware of these circumstances and because they wanted to avoid maturation of the products in Seller's warehouse, there were grounds to assume that the Buyer would soon enough send an order of shipment to the Seller. Because the delivery of the Order #9/92 was to take place on week 18, there was no reason for the Seller to assume that the Buyer would delay issuing of the order of shipment concerning Order #10/92 further than the end of May 1992. As a consequence of the delay in delivery, the Seller suffered storage and other expenses.

The postponement of the order of shipment from the point of time which Seller could have seen as being a probable point of time for issuing the order -- considering all the relevant circumstances and especially the guidelines given by the Buyer in the order -- was in itself grounds for breach of contract. Because the Buyer on 15 September 1992 had single-handedly placed additional terms for the time of shipment and delivery, according to which the goods were not to be shipped before the end of December and the goods were not to arrive in Finland before 1993, it was a question of terms contravening the terms of the contract of 5 March 1992 and consequently Buyer's breach of contract.

The Buyer denied Seller's allegations as unfounded, alleging that Orders #9/92 and #10/92 were totally separate orders. The raw material mixture was meant to be order-specific. In Order #10/92, the time of delivery had been purposefully left open because Buyer's partner L was at the time unable to estimate the sale of the goods.

The hastening of packaging material on 26 February 1992 concerned only Order #9/92. The Seller had through its own initiative, against Buyer's original aim and without Buyer's awareness of it, manufactured goods for Order #10/92 beforehand, together with the goods for Order #9/92. The Buyer could not be liable for these expenses under any contractual duty. It was a purpose of two separate orders that the goods could be manufactured separately. The product for the second order should not have been manufactured before 15 September 1992 when an order of shipment was issued. Concerning Order #10/92, the Buyer had taken all measures required to have the goods delivered.

6.3.2 Agreed procedure for delivery

6.3.2.1 Obligation to take delivery

According to Article 60 CISG, the buyer's obligation to take delivery consists of two separate elements. Firstly, the buyer must do all acts which can reasonably be expected of him in order to enable the seller to make delivery. Secondly, the buyer must take over the goods, i.e. physically accept them.[346] Obligations relating to the transmission of the goods, i.e. placing the order, are clearly covered by Article 60. Naturally, the acts the buyer could reasonably be expected to enable the seller to make delivery are usually specified in the sales contract, thus there is no need to refer to Article 60.

6.3.2.2 Time for delivery

According to Article 33 CISG, the seller must deliver the goods (a) if a date is fixed by or determinable from the contract, on that date or (b) if a period of time is fixed by or determinable from the contract, at any time within that period unless circumstances indicate that the buyer is to choose a date. The date for delivery is fixed by or determinable from the contract if it is fixed by or determinable from a usage made applicable to the contract by Article 9.[347] If the time for delivery is not fixed or determinable from the contract, according to paragraph (c), the seller must deliver within a reasonable time after the conclusion of the contract. Thus, Article 33 reinforces the general rule of the Convention, the primacy of the contract.

6.3.2.3 Interpretation of the contract

If the parties do not agree on the terms of the contract, the problem needs to resolved pursuant to the Convention's rules on interpretation of the contract, Article 8, supplemented by the rules on practices and usages, Article 9, if necessary.[348] The basic approach in Article 8 is the subjective approach. According to Article 8(1), statements made by and other conduct of a party are to be interpreted according to his intent where the other knew or could not have been unaware what that intent was. However, in practice, most problems of interpretation will be governed by the objective approach as provided for in Article 8(2). The second paragraph of Article 8 places the burden on the one who prepares a communication or drafts a contract to communicate it clearly to a reasonable person in the same position as the other party.[349] Under the objective test, the intent of the party making the statement will prevail if he can show that this would have been the understanding of a reasonable person of the same kind and in the same circumstances as the other party. A reasonable person in the same circumstances must be evaluated in the light of the kind of parties involved and their circumstances, taking into account, for example, parties' knowledge of prior dealings and negotiations between the parties.[350]

According to the third paragraph of Article 8, all the relevant circumstances are to be given due consideration in determining the intent of a party or the understanding a reasonable person would have had. Those circumstances include any practices, usages and any subsequent practice of the parties. The list in this paragraph is not exclusive. In applying Article 8, reference is to be made to the time that the conduct had its effect, not to the time of the dispute over its interpretation.

Any applicable practice or usage has the same effect as a contract.[351] According to Article 9, 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.[352] The facts one "ought to have known" include those facts that would be disclosed by an investigation or inquiry that the party should make.[353]

6.3.2.4 Battle of forms

Article 19(1) states the traditional accepted rule that a reply which purports to accept an offer but which contains modifications "is a rejection of the offer and constitutes a counter-offer."[354]

Article 19

(1) A reply to an offer which purports to be an acceptance but contains additions, limitations or other modifications is a rejection of the offer and constitutes a counter-offer.
(2) However, a reply to an offer which purports to be an acceptance but contains additional or different terms which do not materially alter the terms of the offer constitutes an acceptance, unless the offeror, without undue delay, objects orally to the discrepancy or dispatches a notice to that effect. If he does not so object, the terms of the contract are the terms of the offer with the modifications contained in the acceptance.
(3) Additional or different terms relating, among other things, to the price, payment, quality and quantity of the goods, place and time of delivery, extent of one party's liability to the other or the settlement of disputes are considered to alter the terms of the offer materially.

However, the acceptance does not need to be exactly corresponding to the offer; if the differences in the wording used in the acceptance will not change the obligations of the parties, the acceptance is binding.[355] Further, according to the second paragraph of Article 19, if a reply to an offer is expressed and intended as an acceptance but contains additional or different terms which do not materially alter the terms of the offer, the acceptance is binding unless offeror objects to the changes.[356] The third paragraph of Article 19 provides that certain terms are normally to be considered as material, one of which is the time of delivery.

It should be noted that the parties' practices or trade usage may imply an obligation. In these situations, an acceptance containing an additional term need not be considered to materially alter the terms of the offer.[357] If the acceptance subjects the original offer to the parties' established practices or the widely known and regularly observed usages, a reference to such practice or usage does not materially alter the terms of the offer but the practice or usage is incorporated into the contract.[358]

If the acceptance does include additional or different terms which materially alter the offer, the acceptance is merely a counter-offer. This does not mean that a binding contract cannot be concluded. Under Article 18(3), an offeree "may indicate assent by performing an act, such as one relating to the dispatch of the goods or payment of the price ...", provided that he does so by virtue of the offer or as a result of practices which the parties have established between themselves or of usage. The terms of the contract are in this case those of the counter-offer.[359] Further, according to Article 18(1) "a statement made by or other conduct of the offeree indicating assent to an offer is an acceptance." Even though Article 18(1) continues, that silence or inactivity does not in itself amount to acceptance, the silence or inactivity coupled with other factors which give sufficient assurance that the silence or inactivity of the offeree is an indication of assent, the silence or inactivity can constitute acceptance.[360] The terms of the contract are those provided by the offeror.

6.3.3 Decision on delivery

First of all, the District Court analysed what was the contractually agreed time for delivery for Order #10/92. The District Court affirmed that Orders #9/92 and #10/92 were made using two separate documents. In Order #9/92, the time of delivery was precisely determined ("latest week 18/92") and in Order #10/92 it was left open ("will be agreed later on"). Furthermore -- based on the wording used on the first page of both orders -- it was held that the Buyer had asked the Seller to hasten the ordering of packaging material in order to facilitate a quick delivery of the first order.

The Seller's reply to both of these orders had, however, been given in the same document. On those grounds, and considering also the correspondence between the parties during the summer of 1992, one cannot draw a conclusion that the term concerning time of delivery for Order #10/92 had changed from what it had been in the order letter of 26 February 1992. In the said Seller's reply, one talks about two separate deliveries. As far as the second delivery was concerned, there was a mention of a point of time until which a delivery could take place with the old price. Based on the reply, and considering the product amounts mentioned in it, it was clear that it did not concern only Order #10/92 even if there was a reference in the reply to that order. Consequently, the Seller's reply did not contain any changes to the terms of delivery in relation to Order #10/92 to which the Buyer should have reacted in some manner.

On the basis of the wording of the order documents concerning manufacturing of the products using the same ingredients, the Seller could not have drawn a conclusion that the production of the goods for both orders should have been finished already before the VTT tests. This is because statements concerning the mixture of ingredients had been written down separately on both orders and, as a consequence, it could not be interpreted as meaning more than that the goods for the order in question had to be manufactured using a single mixture of ingredients. Additionally, it had to be considered that the time of the tests was not determined in the orders and consequently one could not draw a conclusion that the tests concerning both orders should have been carried out simultaneously.

Considering that Order #10/92 was preceded by the delivery of Order #9/92, the District Court held that the order of shipment for Order #10/92 was issued within a reasonable time because it was issued within a year after the contract was concluded. Thus, the Buyer was not liable for Seller's willingness to interpret the time of delivery of Order #10/92 as being earlier than what the Buyer had factually committed himself to or what Buyer could have reasonably been regarded as being obliged to.

Unfortunately, the District Court did not refer to any Articles of the CISG when analyzing the contract. The Court's conclusion that the reference to the price alteration did not materially alter the terms of the original offer follows the reasoning of the French Supreme Court (Cour de cassation, 92-16.993) 4 January 1995, where the Court held that, despite a reference to the adjustment of the initial price in accordance with the market in the acceptance, the contract had been concluded.[361] As Finland has made a reservation under Article 92 not to be bound by Part II of the Convention, it would have been fruitful to refer to the CISG when analyzing the formation of the contract. Now it is unclear whether the Court applied the CISG or the Finnish Contracts Act.

According to Section 6 of the Finnish Contracts Act, a reply that purports to be an acceptance but which, due to an addition, restriction or condition, does not correspond to the offer, shall be deemed a rejection constituting a new offer, unless if the offeree has considered the reply to correspond to the offer and the offeror must have understood the same. If the offeror in that case does not wish to accept the reply, he/she shall, without undue delay, notify the offeree thereof; otherwise a contract shall be deemed concluded on the terms contained in the reply. Thus there is no distinct difference between the CISG and the Contracts Act in this respect but in order to preserve predictability and clarity, a reference to an applicable law would have been in place.[362]

The understanding of a reasonable person as provided for in Article 8 would have, in my opinion, led to the same conclusion as the Court reached. However, it is not clear what, if any were the practices between the parties and whether any applicable usages govern the sale of skincare products. It is unfortunate that the Court did not refer to the applicable law, any commentaries or other case law when determining the meaning of the contract.

6.4 Conformity of the goods

6.4.1 Facts of the case

The Seller argued that cancelling the orders and avoidance of the contract on 10 November 1992 was unfounded, firstly, because the goods subject to cancellation were in conformity with the sample goods checked and accepted at VTT (National Scientific Research Center) in April 1992. Secondly, the Buyer knew that even though the goods in question could be preserved relatively long, at least thirty months, vitamins, perfumes and some other ingredients in skin care products are under a constant process of transformation and decomposition. These changes are generally known in the field. And, thirdly, the seller was not liable for alleged non-conformity of the goods of which the Buyer was aware when drafting the contract.

The Buyer had referred to its message of 21 December 1990, where it was stated that "Shelf-life of our products is not shorter than 30 months". What was meant by shelf-life was that the product could be preserved when kept with due care in normal or reasonably anticipated circumstances and that, under those conditions, the product would not cause any danger to health and at the same time would be suitable for its original purpose. The notion did not contain any reference to maintenance of vitamin levels for the shelf-life period, thus there was no agreement between the Seller and the Buyer on whether the vitamin content in the skin care products should be permanent in nature.

Finally, the Seller argued that in any case, the decrease of vitamin content in two products could not amount to a fundamental breach of the contract.

The Buyer argued that, based on the results from VTT received on 8 October 1992 in relation to the goods delivered in August 1992 (Order # 9/92), it was apparent that the vitamin A content had decreased significantly below the lowest level agreed. The vitamin A content of the products was a central quality of the products. Consequently, the products did not possess qualities they should have possessed according to the Seller. The products were not fit for their purpose if they lacked necessary vitamin A content. The Seller had to understand that the Buyer regarded vitamin content as being the central quality of the products.

Because the Seller had guaranteed that the shelf-life of the products would be at least thirty months, the Buyer had grounds to assume that what was meant by shelf-life was that the products would preserve their essential qualities for at least thirty months.

Vitamin A content should have been within range 1000 - 3000 IU/g. The range was this wide because the Buyer had allowed for the fact that vitamin A content would decrease about 20 - 30%. The non-conformity could be regarded as fundamental.

6.4.2 Particular purpose of the goods

Article 35 states the standards by which the seller's obligation to deliver goods which conform to the contract is measured. The overriding source of the conformity is naturally the contract between the parties. According to paragraph (1) of Article 35, the seller must deliver goods which are of the quantity, quality and description required by the contract. Only if the parties have not agreed otherwise, does paragraph (2) come into play.[363]

If the buyer has made known to the seller the special use of the goods at the time of the conclusion of the contract, according Article 35(2)(b) the seller must comply with this request, unless the circumstances show that the buyer did not rely, or that it was unreasonable for him to rely on the seller's skill and judgement. The particular purpose of the goods of a general description must be known to the seller by the time of the conclusion of the contract so that the seller can refuse to enter the contract if he is unable to furnish goods adequate for that purpose.[364] Further, the buyer must be entitled to rely on the seller's skill and judgement.

Professor Honnold states that, firstly, the buyer must show that the seller knew of the buyer's particular purpose at the time of the conclusion of the contract and that the goods were unfit for that purpose. The seller, on the other hand, has the burden of proving that the buyer did not rely or that it was unreasonable for him to rely on the seller's skill and judgement.[365] If the seller makes known to the buyer that the goods ordered by the buyer would not be satisfactory for the particular purpose for which they have been ordered and the buyer still wishes to order the goods, he cannot claim that he relied on the seller's skill and judgement.[366] The circumstances in which the buyer may not rely on the seller's skill and judgement must be ascertained case by case.[367] As a general rule it can be said that it would be unreasonable for the buyer to rely on the seller's skill and judgement if the seller did not purport to have any special knowledge in respect of the goods in question or if a skill and judgement capacity is not common in the seller's trade branch.[368]

6.4.3 Sale by sample

Article 35(2)(c) provides that if the contract is negotiated on the basis of a sample or a model, the quality of the goods delivered must correspond to those presented by the sample or the model. Only if the seller indicates that the sample or model is different from the goods to be delivered in certain respects, he is not liable for such lack of conformity.[369]

Professor Bianca stresses that the submission of a sample taken from the goods to be delivered involves by itself the seller's promise to provide goods possessing the same qualities as those shown to the buyer as a sample and is a concrete way for the seller to specify his offer. The submission of a sample or a model is a factual description and, therefore, a contractual way to determine the kind and quality of the goods the buyer is entitled to. According to Professor Bianca, it follows that the reference to a sample or a model excludes the application of the criteria provided for in Article 35(2)(a) -- description and ordinary purpose -- and the criteria provided for in Article 35(2)(b) -- fitness for particular purpose.[370]

6.4.4 Buyer's knowledge of the non-conformity

Article 35(3) contains a confirmation of the principle that the buyer cannot demand remedy for non-conformity based on qualities of the goods that he knew or could not have been unaware of at the time of the conclusion of the contract. An obligation based on facts of which one "could not have been unaware" does not impose a duty to investigate; these are the facts that are before the eyes of one who can see.[371] In order to escape the liability, the seller must show that the parties have agreed that the goods shall be of a different quality than that stated explicitly in the agreement; in other words, the fact that the buyer knew of or could not have been unaware of the defect, and that those parts of the agreement which conflict with this cannot be relied on by the buyer.[372]

Article 35(3) does not affect those characteristics that are explicitly required by the contract as provided for in the first paragraph of Article 35. Even if at the time of the conclusion of the contract, the buyer knows that the seller will not deliver conforming goods as specifically required by a contract, the buyer can require full performance from the seller.[373]

6.4.5 Fundamental breach of the contract

The concept of fundamental breach is defined in Article 25. The basic criterion for a breach to be fundamental is that "it results in substantial detriment to the injured party." In addition, the relevant detriment is limited to what the party in breach foresaw or should have foreseen.[374]

Whether the injury is substantial to the injured party must be determined on a case-by-case basis.[375] The determination of the substantiality of the breach is at first based on the contract itself. Professor Magnus stresses that the benefit of the contract depends in the first place on the terms of the contract. It is not the objective weight of the breach as such that automatically counts as fundamental breach but the weight the parties have given it. For a breach to be considered a fundamental breach, it must nullify or essentially depreciate the aggrieved party's justified contract expectations, i.e. those expectations must be supported by a contract.[376] If nothing specific has been agreed upon, then the fundamentality of the breach is assessed against the standard of a reasonable person.[377]

Professor Honnold also suggests further that the fundamentality of the breach must be determined in conjunction with the seller's rightful offer to cure. As long as the cure is feasible and can be expected, a breach cannot be considered fundamental in sense of Article 25.[378] Professor Will is, however, of a different opinion.[379] He points out that the seller's right to cure is protected when the fundamental breach is determined by lack of conformity only, without having regard to cure, and the existing right to avoid the contract or require substitute goods is merely suspended when a rightful offer to cure arrives.[380]

6.4.6 Decision on the conformity of the goods

6.4.6.1 District Court's reasoning

The Court held firstly, that it was undisputed that in its Orders #9/92 and #10/92, the Buyer had required that the sample goods tested at VTT should possess the vitamin A content indicated by the order documents. It was also undisputed that the vitamin A content in the goods tested at VTT on 4 May 1992 was within the required range in all the five products.

Based on vitamin A content required in VTT tests and other evidence submitted by the Buyer, the District Court held that the Buyer regarded vitamin A content as a central quality of the products and that the Seller has to have become aware of this. Further, on the basis of witness' statement and because the Seller had not presented sufficient evidence to the contrary, the District Court held that the declaration given in Seller's fax message of 21 December 1990 concerning thirty-month preservation had also concerned the vitamin A content of the products. In addition, the District Court held that it could have been possible to manufacture product that would have preserved the minimum amount of vitamin A throughout the shelf-life. Even the Seller had managed to manufacture such products on the part of three products in the product series.

Considering the wide range allowed, not even the fact that vitamin A decomposes during time -- which was known by the Buyer and was also generally known in the field -- had no significance in this case. Not even the fact, that no requirement as to announcing the vitamin content in the list of ingredients had been made had significance. This conclusion could be drawn on the basis of witness' statements that the vitamin content was usually not announced but only the ingredients of which the product was composed were announced qualitatively. The Buyer had counted on the Seller's expertise in terms of how the Seller would reach the required vitamin A content and how the required preservation would be carried out.

On the basis of the test results, it could be held that concerning these products, the goods were non-conforming and that the said products had not been fit for the special purpose as required by the Buyer, which was known by the Seller with sufficient clarity. The level of vitamin A being under the agreed level had not even partly been Buyer's fault, because on grounds mentioned the Buyer could not be held as having delayed in carrying out Order #10/92 in breach of the term concerning time of delivery.

Because the vitamin A content had to do with central qualities of the products and because the vitamin A content of the mentioned two products was significantly below the required minimum content and because -- according to submitted evidence -- it was a question of a product series required by drugstores to be sold together as a single entity, the District Court held that the Seller was liable for fundamental breach of contract.

6.4.6.2 District Court's reasoning analysed

Unfortunately, the Court chose not to refer to any specific CISG Article in its reasoning. The basic idea. however, follows the CISG regimen.

First of all, the Court concluded the vitamin A-level of the products was explicitly required by the contract and that the Seller was aware of the particular purpose of the goods. The Buyer and the Buyer's customer already had sufficient selection of skin care product without the vitamin A. As a skin care product manufacturer, the Seller ought to have the skill and judgement to fulfil its contractual duties. The Buyer had no reason not to rely on the Seller's skill and judgement, especially because the product passed the tests conducted by an independent scientific research centre. Secondly, the Seller could not argue that the Buyer could not have been unaware of the lack of vitamin A at the conclusion of the contract, because Seller had specifically agreed to deliver goods that would keep their characteristics for 30 months. Thirdly, the Court held that the vitamin A-level was a central and important part of the contract. The Seller was aware of this and thus in a position where Seller foresaw the detriment the lack of conformity would cause to the Buyer.

The original reasoning of the Court is lengthy and lacks clarity and logic. This is partly due to the fact that the questions at stake relate mainly to valuation of the witness statements and other evidence. However, a more concise and clear reasoning could have been submitted if the reasoning had followed and referred to the applicable CISG provisions. It is not always the best solution to simply state the applicable provisions in the end of the Court's reasoning.

The Court seems to cover all the aspects relating to Article 35(1) and Article 35(2)(b) and Article 35(2)(c). Firstly, the Court seems to be of the opinion that the representation about 30 month self-life was part of the contract, i.e. the Seller had an obligation to deliver goods which were of the description required by the contract. Thus there would be no need to turn to Article 35(2)(b) according to which the goods must be fit for a particular purpose expressly or impliedly made known to the seller. The Court, however, held that the Seller was aware of the fact that the Buyer would sell the goods to its own customer who in part was in need for special skincare products containing vitamin A. In addition, the Court referred to sale by sample; i.e. the goods must possess the qualities held out to the Buyer as a sample in May 1992. However, if it is held that this was a case of sale by sample, there would be no need to refer to particular purpose made known to the Seller. A reference to a sample excludes the application of the criteria in Article 35(2)(b), fitness for particular purpose.[381]

Finally, in relation to Article 35(3) the Court simply stated that the Buyer had a right to rely on the Seller's expertise as to how to retain the required vitamin A level; the knowledge of the fact that the vitamin A decomposes during time had no significance in the case. What if the Buyer, at the time of the conclusion of the contract knew or could not have been unaware of the non-conformity relating to presumed implication from the contract as provided for in subparagraphs (a) to (d).[382] Article 35(3) does not affect those characteristics that are explicitly required by the contract as provided for in the first paragraph of Article 35.[383] Summa summarum, the Seller was liable for fundamental breach of the contract, not because the Seller failed to deliver goods that possessed the qualities held out as a sample, nor because the Seller failed to deliver goods that were fit for a particular purpose, but because the Seller failed to deliver goods that were of the quality and description required by the contract. Only this way it can be legitimately argued that the Buyer's established and recognised knowledge of the decomposition of the vitamin level A during time had no significance.[384]

6.5 Examination of the goods and notice of non-conformity

6.5.1 Facts of the case

The Seller argued that there was no basis to declare the contract avoided on grounds that the declaration of avoidance had not taken place within a reasonable time from the point where the Buyer should have carried out the acceptance inspection and further a notice of the alleged non-conformity. The Buyer had not been entitled to cancel the order based on a matter which could have been clarified when checking the sample goods.

In relation to Order #9/92, the Buyer had received the goods on 7 August 1992. The test results from VTT were received on 8 October 1992. The Buyer had notified on 22 October 1992 that the vitamin content had dropped below the amount where it should have been. The Buyer stated that it had given notice of the defects appearing from the test results as soon as the Buyer had received information of the said defects. Buyer had also requested additional clarification concerning the defects and on 16 October 1992 had requested a substitute delivery for the delivery of Order #9/92. The Buyer had no grounds to assume that the quality of the products would decrease in comparison to the test results in May. The non-conformity could not have been detected during acceptance inspection.

6.5.2 Obligation to examine the goods

Article 38 lays down a fundamental principle that requires the buyer to examine the goods delivered by the seller within as short period as is practicable in the circumstances.[385] Article 38 is linked to Article 39, which provides that if the buyer fails to notify the seller of the lack of conformity of the goods within a reasonable time after he has discovered it or ought to have discovered it, he loses the right to rely on it. Article 38 fixes the time when the buyer "ought to have discovered" the defect; this time, in turn, starts the running of the "reasonable time" within which the buyer must notify the seller.

Article 38

(1) The buyer must examine the goods, or cause them to be examined, within as short a period as is practicable in the circumstances.
...

Under the Convention, it is irrelevant whether the buyer examines the goods himself, through his employees or through other persons, e.g. customers.[386] The first paragraph of Article 38 provides that the buyer must examine the goods, or cause them to be examined. If the quality of the goods is an essential part of the contract, the parties are advised to agree on a neutral testing body. 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.[387]

In the absent of agreement or applicable practice or usage, the rules for examination must be developed from the CISG itself. In general, it must be concluded that the examination is that which is "reasonable" in the circumstances.[388] The buyer must examine the goods in a manner which takes account of their nature, amount, packaging and all other circumstances. For example, when the goods are too complex or too numerous the buyer is not bound to undertake a thorough examination of every single good nor of every single part.[389] The examination must be such as to disclose recognisable defects, taking into account, of course, all the circumstances of the case. The buyer is normally not required to make an examination which would reveal every possible defect and would involve complex technological analysis.[390]

Generally, the criterion for adequate examination is objective. However, subjective factors can be taken into account if the seller knows them or he should have been aware of them. Where the buyer has the relevant experience, he must carry out an expert, thorough examination. Further, if the buyer is aware that the seller has previously had problems in manufacturing the goods, he cannot examine the goods superficially relying on the fact that the seller bears the risk of the lack of conformity in any case.

The CISG requires examination "within as short a period as is practicable in the circumstances." The appropriate period is hard to establish with certainty. The examination within a few days after the delivery is certainly appropriate and if the buyer follows this rule he should be on the safe side. When determining the duration of the period, the circumstances of the individual case and the parties' reasonable opportunities must be considered.[391] In general, it may be said that goods of more sophisticated technology and those of complex composition need a longer "reasonable" time to be examined.

The third paragraph of Article 38 clarifies that if the goods are redirected in transit or redispatched, then in certain circumstances the period for examining the goods begins only when the goods have arrived at their new destination. However, a mere resale without additional carriage does not fall under Article 38(3). The fact that the goods are resold without the buyer having a sufficient opportunity to examine the goods should, however, be taken into account in the context of Article 38(1) both as regards the form of examination and, above all, the length of the period allowed for the purpose. The goods can be contained or packaged in such a way that normally their examination is brought about by the consumer. The buyer does not always have a reasonable opportunity to examine the goods before their resale.[392]

The CISG Advisory Council has assembled an overview of reported case law relating to the extent and timeliness of examination (Article 38).[393] In general, it can be concluded that the buyer's duty is a strict one as it can eventually lead to loss of the right to rely on the lack of conformity because until the buyer is aware of the non-conformity, he cannot give a timely and proper notice of it to the seller.[394]

6.5.3 Obligation to notify about the lack of conformity

Article 38 states the period within which the buyer must examine the goods. These rules are given legal effect by Article 39, which cuts off the buyer's right if he fails to notify the seller of a non-conformity within a reasonable time after he "ought to have discovered" it. Under Article 39(1), any lack of conformity which the buyer has established or should have established upon a proper examination of the goods and any subsequent lack of conformity discovered, must be notified to the seller. The notice must specify the nature of the lack of conformity.

Article 39

(1) The buyer loses the right to rely on a lack of conformity of the goods if he does not give notice to the seller specifying the nature of the lack of conformity within a reasonable time after he has discovered it or ought to have discovered it.
...

The buyer must give to the seller notice of the lack of conformity within a reasonable time after he has discovered it or ought to have discovered it. When determining the reasonableness of the period for giving a notice, the contract between the parties is of course the starting point. International trade usage and usage established between the parties are to be considered also. If the underlying sales contract or the usages do not resolve the problem whether the notice was given within a reasonable period, other factors can be taken into consideration.[395]

Excessive differences in interpretation are likely to occur because of the different traditions of the Contracting States. In order to promote uniformity in the application of the CISG, a rough average has been proposed. Professor Schwenzer proposes a period of one month as an appropriate starting point.[396] The problem with this approach is, of course, establishing the "typical situation" which represents the norm.[397] Despite this, the approach has already gained support among courts.

It should be stressed that that it is the factors and considerations of each individual case that determine the timeliness of a notice. The individual circumstances and considerations may reduce the period of notice to be "reasonable" for each case and in some circumstances adapt a period to be even longer than a "noble month".[398] Article 39(1) provides an essentially flexible period, which should remain as such in the interest of fairness.[399]

The buyer bears the consequences of a defective examination in the sense that due to the defective examination, the buyer is likely to fail to provide proper and timely notice to the seller.

6.5.4 Exemptions from giving a notice

Article 40 relieves the buyer of the examination and notice requirements when a lack of conformity relates to facts of which the seller knew or could not have been unaware. No one is to benefit from his own wrongdoing. The seller has no reasonable bases for requiring the buyer to notify him of the facts he knew of or which he could not have been unaware of and which he did not disclose.[400] However, the seller's awareness of the defects is not always easily proven, it is for the buyer to prove the seller's knowledge.[401]

Under Article 44, the buyer who has a reasonable excuse for his failure to give the required notice as provided for in Article 39 will be afforded some limited remedies, i.e. the reduction of the price (Article 50) and recovery of damages other than loss of profit (Article 74).[402] Although Article 44 does not refer to Article 38, the protection afforded in cases of "reasonable excuse" is extended to comprise the buyer's failure to inspect the goods on time.[403] A buyer's conduct, although not in itself correct and in accordance with the required standard, is excusable if in the circumstances of the specific case it deserves to be accorded a degree of understanding and leniency.[404] It has also been stressed that Article 44 needs to be understood and applied in the light of its legislative history.[405] The use of the expression "a reasonable excuse" indicated the applicability of more individualised considerations than would otherwise be relevant under the main rule provided in Article 39(1). Finally, it should be noticed that even where the late notice is excused under Article 44, the seller retains the right to cure the defect by delivering substitute goods or by repairing the defects. By doing so, the seller may avert a price reduction and the buyer's damages claim.[406]

The seller may also waive the objection that the notice was not given in time or not correctly given. Whether there is a waiver depends on the circumstances of the case. If the seller unreservedly acknowledges the defect, he waives his right to object the timeliness or correctness of the notice. However, if the seller at the same time demands payment of the price in full, his agreement to repair the goods does not automatically mean that he is waiving his rights.[407]

6.5.5 Decision on the examination of the goods

6.5.5.1 District Court's reasoning

Firstly, the District Court stated that it was of utmost importance in evaluating the acceptability of declaring the contract avoided in relation to Order #10/92 to think whether the Buyer, based on the information it had received at the end of June 1992, i.e. that the products for both of the orders had been manufactured using the same ingredients, should have checked the goods immediately after the Buyer had received the second consignment of Order #9/92 and whether the Buyer should have notified the Seller.

The District Court stated that the Buyer has relied on Seller's expertise in terms of how the Seller would reach the required vitamin content and the preservation of that content. Furthermore, based on VTT tests of spring 1992, the Buyer had had no reason to doubt that the vitamin content of the day crème would drop below the agreed minimum. The Seller's task as a manufacturer of the product was to attend to the vitamin content remaining within the agreed range. Further, the Buyer had had to rely on Seller's ability to carry out this task one way or the other. The District Court held that only on the basis of very low level of vitamins in the liposome gel sample the Buyer had no reason to take random samples right after a partial delivery of Order #9/92 on 7 August 1992. This being the case, the District Court held that the Buyer, in a fax message of 15 October 1992, had given notice within a reasonable time because the test results from VTT indicating the low vitamin levels only arrived on 15 October 1992. Thus, the Buyer was entitled to declare the contract avoided in relation to Order #10/92 and that this avoidance was not against CISG rules.

6.5.5.2 District Court's reasoning analysed

The Court based its decision on the fact, that the Buyer had a right to rely on the Seller's ability to provide conforming goods. The fact that the goods conformed with the contract in May was enough assurance for the Buyer. The Buyer was not allowed to neglect the examination altogether, but was allowed to postpone it until the goods had been delivered fully.

The question was whether the Buyer had examined the goods within as short a period as is practicable in the circumstances and in effect given a timely notice of the non-conformity. The UNCITRAL Digest of case law on the CISG concludes that the analysis of the case law shows that the time period has been applied in a strict fashion in several cases.[408] However, the Digest further states that several decision have recognized the flexibility of the term "practicable in the circumstances", one of these the decision of the Helsinki Court of the Appeal (reasoning by the District Court) currently under discussion. The purpose of Article 38, combined with the notice requirement of Article 39, is to provide the seller with the information whether or not he has fulfilled his obligation. If there is a discrepancy in the goods, at the earlier state the seller can ascertain more easily whether the buyer's claim is justified and take necessary steps to meet the buyer's complaint.[409] In my opinion, the strict application of the period "as short as is practicable" should be promoted. If this leads to fundamental injustice, the buyer can have recourse from Article 44. If the buyer had a reasonable excuse not to notify the seller within a short a period, the buyer could still reduce the price or claim damages.

Thus, it is worth considering whether the Buyer would have had a reasonable excuse for its failure to give notice of the lack of conformity in time as provided for in Article 44,[410] even though the Buyer did not raise this issue. The excuse provision of Article 44 does not preserve all of the buyer's remedies, only reduction of the price (Article 50) and recovery of damages other than loss of profit (Article 74). Thus it does not provide recourse for the buyer who wishes to avoid the contract. Although Article 44 does not refer to Article 38, the protection afforded in cases of "reasonable excuse" is extended to comprise the buyer's failure to inspect the goods on time.[411] Could satisfactory test results relating to goods be considered as a reasonable excuse not to examine the goods and notify about the lack of conformity in time?

In I.C.C. International Court of Arbitration, 9187 (1 June 1999),[412] the Tribunal held that due to the provisions in the contract the buyer's notice of non-conformity was timely. Before the goods were loaded for delivery, an independent inspector, appointed jointly by both parties had issued a certificate of analysis. The erroneous certificate of analysis gave the buyer a reasonable excuse for the delay in notifying about the subsequently discovered non-conformity: because the certificate was the product of an independent body appointed by both parties, the buyer was not bound by it or responsible for its errors, and thus could invoke article 44. In general, the buyer must also bear the consequences of the defective examination of a third party. However, if the parties have agreed upon a neutral third party or if the seller even insisted upon examination being effected by a particular third party, the buyer cannot bear the risk for defective examination. Nor is the buyer generally responsible for the consequences of a defective examination by official bodies; in any event, the buyer ought to have a reasonable excuse for not giving a required notice (Article 44).[413] This opinion of Professor Schlechtriem was also cited in the above decision of the I.C.C. Tribunal.

However, in Oberlandesgericht (OLG) Jena, 8 U 166/97 (266) (26 May 1998),[414] the German Court held that the Buyer was not entitled to rely on the certificate of inspection issued by a veterinary surgeon before the delivery of the goods in order to permit importation of the fish, but the Buyer had an obligation to examine the goods or cause them to be examined even in the case of a latent defect. The Court interpreted the buyer's duty to examine the goods as a strict obligation. The Court held that the buyer had not presented a reasonable excuse for its failure to give required notice. The Court also held that the requirements of Article 40 had not been met as the buyer had not produced any evidence that the seller could not have been unaware of the non-conformity of the goods. The decision seems to contrary to the above approach. Not only was the buyer late in giving the notice, but it was also held that the buyer had no reasonable excuse for being late.

In this case, the Buyer could have carried out sample test immediately after the delivery of the goods without any difficulties. An alleged reasonable excuse present in the form of the certificate of inspection before the delivery should not have been used to extend the period for examination. The only reasonable way to give significance to this certificate would have been to conclude that it was an reasonable excuse for the Buyer not to conduct random test after delivery.

6.6 Buyer's right to declare the contract avoided

6.6.1 Facts of the case

The Seller argued that it was not clear at the time when the Buyer had declared the contract avoided that the Seller would be liable for a fundamental breach of contract within the specified time of delivery, meaning the beginning of January 1993. If it was a question of two separate orders, an anticipated breach of contract as defined in Article 73 was not applicable. Even if it was held that this was a matter of delivery in instalments, the Buyer had no grounds to assume that the forthcoming partial delivery would amount to a fundamental breach of contract.

The Seller had a right to cure the non-conformity of the goods. The Seller had notified the Buyer on 28 October 1992 that it would do everything in its power to satisfy the customer, i.e., the Buyer, meaning that the Seller had been prepared to fix the products of Order #9/92 and additionally to deliver the goods of Order #10/92. The Buyer had refused to accept the Seller's efforts to reach an amicable solution which would have led to acceptance of the delivery.

Neither was there basis to declare the contract avoided on grounds that the declaration of avoidance had not taken place within a reasonable time from the point where the Buyer should have carried out the acceptance inspection and to notice the alleged non-conformity. The Buyer had not been entitled to cancel the order based on a matter which could have been clarified when checking the sample goods.

The Buyer pointed out that the Seller had manufactured the goods for Order #10/92 already in April when Seller had manufactured the goods for Order #9/92 using the same mixture of ingredients. After the test results from VTT came on 8 October 1992, it was clear that also the goods for the Order #10/92 were non-conforming in a manner similar to the goods for Order #9/92.

Consequently, the Buyer notified the Seller on 10 November 1992 that the Buyer would declare the contract avoided in relation to Order #10/92. The Buyer has given prior notice of this to the Seller, as required in Article 72(2). Through non-conforming delivery, the Seller had given the Buyer grounds to assume that also the forthcoming deliveries in instalments would constitute a fundamental breach of contract. In addition, the Buyer was clearly entitled to declare the contract avoided as defined in CISG Article 73. Giving of prior notice of avoidance was not required in Article 73.

Because the said non-conformity was a result of a lack of essential quality features in the products, Seller's breach of contract clearly fulfilled the preconditions for fundamental breach of contract as defined in Article 25 of the Convention. It was also clear that the Seller understood that the goods were non-conforming on the basis of the test results. However, it was apparent that the Seller had not seriously even aimed at manufacturing products which could fulfil the set quality requirements. The Seller could not have been capable of fixing the goods in a manner required by Article 37 of the Convention without causing the Buyer excessive harm or uncertainty. It would not have been reasonable to oblige the Buyer to accept the uncertainty connected with allowing the Seller to fix the goods.

6.6.2 Anticipatory breach

Article 72 provides that in special circumstances the other party can immidiately declare the contract avoided even before the date for performance.

Article 72

(1) If prior to the date for performance of the contract it is clear that one of the parties will commit a fundamental breach of contract, the other party may declare the contract avoided.
(2) If time allows, the party intending to declare the contract avoided must give reasonable notice to the other party in order to permit him to provide adequate assurance of his performance.
(3) The requirements of the preceding paragraph do not apply if the other party has declared that he will not perform his obligations.

In order for the other party to have a right to avoid the contract because of the anticipatory breach of the contract, Article 72 requires that it be clear that the fundamental breach of contract will occur. Because the avoidance of the contract is a drastic measure, the requirements are fairly strict.[415] Complete certainty is not required but there must be a very high probability of the fundamental breach.[416]

If the time allows, the party indending to declare the contract avoided must give reasonable notice to the other party in order to permit him to provide adequate assurance of his performance. In the modern days of communications such a notice does not restrict the aggrieved party's freedom of choice.[417] In addition, if the other party does not provide adequate assuarance of performance, it is more easily concluded that in fact it is clear that a fundamental breach of contract will be commited.[418]

Avoidance of the contract before the agreed time for performance should be exercised with caution. If at the time of the performance no fundamental breach would in fact occur, the declaration of avoidance itself would be void and the party who attempted to avoid would be in breach of the contract for his own failure to perform.[419] On the other hand, if the other party declaeres that he will not perform his obligations, this empowers the aggrieved party to declare the contract avoided. The aggrieved party does not need to worry whether the other party will change his mind and perform by the due date.[420]

The provision is useful in circumstances where the suspension of performance is not enough to protect the aggrieved party's rights. The other party may for example be in need of goods in order to maitain his own production. The existing contract needs to be avoided before another can be entered into.[421] Further, where it is in fact clear that a fundamental breach of contract will occur, the duty to mitigate the loss as provided for in Article 77 may require the party who will rely upon that breach to take measures to reduce his loss, including loss of profit, resulting from the breach, even prior to the contract date of performance.[422]

6.6.3 Anticipatory breach in instalment contracts

Article 73 covers the avoidance of the contract because of anticipatory breach where the contract calls for the delivery of the goods by instalments. The first paragraph authorizes a party to declare a contract avoided in respect of a single instalment where the other party has committed a fundamental breach in respect of that instalment. The last and third paragraph of Article 73 provides that if the instalments are interdependent a buyer can declare also deliveries already made or future deliveries avoided at the same time he declares one specific delivery avoided because of the fundamental breach of the contract.

The second paragraph considers the situation where the failure of one party to perform any of his obligations under the contract in respect of any instalment gives the other party good grounds to conclude that a fundamental breach will occur with respect to future instalments, i.e. a situation of an anticipatory breach. In such a case, he may declare the contract avoided for the future, provided only that he declares the avoidance of the future performance within a reasonable time of the failure to perform.

Article 73
...
(2) If one party's failure to perform any of his obligations in respect of any instalment gives the other party good grounds to conclude that a fundamental breach of contract will occur with respect to future instalments, he may declare the contract avoided for the future, provided that he does so within a reasonable time.
...

It should be noted that Article 73(2) permits the avoidance of the contract in respect of future performance of an instalment contract even though it is not "clear" that there will be a fundamental breach of the contract in the future as would be required by Article 72. In Schiedsgericht der Börse für Landwirtschaftliche Produkte - Wien (Arbitral Court of the market for farm products-Vienna), S 2/97 (10 December 1997), the Court submitted that the term "good grounds" means a high probability of breach but need not to be as severe as the test required by Article 72.[423] The test of the right to avoid under article 73(2) is whether a failure to perform in respect of an instalment gives the other party good reason to fear that there will be a fundamental breach in respect of future instalments. The test does not look to the seriousness of the current breach. This is of particular significance where a series of breaches, none of which in itself is fundamental or would give good reason to fear a future fundamental breach, taken together do give good reason for such a fear.[424]

6.6.4 Decision on the avoidance of the contract

The District Court held that neither Seller's fax of 28 October 1992 nor other circumstances gave any guarantees to the Buyer that the Seller would be able to deliver conforming goods within the agreed time or that the Seller would to be able to guarantee the preservation of vitamin A within the agreed range.

Due to these circumstances, the District Court held that in a manner required by Article 72 CISG, it was clear already before the delivery of Order #10/92 that the Seller would be liable for fundamental breach of contract. Because the fax of 28 October 1992 had not given the Buyer any guarantees of Seller's ability to deliver, it could not have meant an agreement between the parties. The Buyer had notified the Seller in a reasonable manner of its intention to declare the contract avoided, as required by Article 72. Due to this and because the Seller's inability to deliver conforming goods was evident, it bears no significance whether it was a question of successive deliveries as defined in Article 73 of CISG in relation to orders 9/92 and 10/92.

In effect, the Court stated that the Buyer had a right to declare the contract avoided because of the anticipatory breach in the single sale as provided for in Article 72 or because of the anticipatory breach in the future instalments as provided for in Article 73(2). Provided that the requirements for the avoidance are fulfilled, the aggrieved party may act under either Article where the parties have on-going relations.[425]

The reasonable time to exercise the right to avoid the contract as provided for in Article 73(2) is not necessarily identical to the reasonable time for notifying about the lack of conformity under Article 39. The notice of non-conformity has to be prompt so that the seller can secure evidence on the non-conformity or perhaps try to prepare the non-conformity. Avoidance of the contract is a drastic measure which releases both parties from their contractual obligations, subject to damages of course. The aggrieved party ought to have more time to consider whether to demand damages or to avoid the contract. It can be argued that this also benefit the party in breach. This approach is supported by the above mentioned case Schiedsgericht der Börse für Landwirtschaftliche Produkte - Wien (Arbitral Court of the market for farm products-Vienna), S 2/97 (10 December 1997).[426] The Austrian Arbitral Court held that even if the buyer fails to give timely notice of lack of conformity with regard to the delivered instalments, it does not lose the right to declare the contract avoided with respect to the future instalments according to Article 73. A late notice of lack of conformity can well be used as evidence for the probability of a similar breach by the seller in the future.

In essence, this would mean that even if the Buyer would have been held to have been late in notifying the lack of conformity, the Buyer still would have had a right to declare the contract avoided under Article 73(2). This would have of course required that the Court would have stated that the two contracts were in fact a unitary transaction as did the Austrian Arbitration Court in the case under its scrutiny. The Arbitration Court first observed that the two separate contracts concluded by the parties were to be considered a unitary transaction from an economic point of view and represented therefore a contract for the delivery of goods in instalments according to Article 73(2): the contracts had been concluded on the same day; they provided for the delivery of the same kind of goods in instalments during the period January to June and were subject to similar terms.

Finally, it should be noted that that Article 72 does not require, at least in express terms, that the declaration of the contract must be made within a reasonable time.[427] It does provide that the party intending to declare the contract avoided must give the other party a reasonable notice in order to permit him to provide adequate assurance of his performance. As it was held that the Buyer had given the Seller a reasonable notice of the avoidance in order to permit him to provide adequate assurance of his performance, it could be argued that even if the Buyer had failed to spot and notify the Seller about the lack of conformity in relation to Order #9, the Buyer would have still had a right to declare Order # 10 avoided because of the clear anticipatory breach of contract.

[...]


FOOTNOTES

[...]

345. See further Chapter 2.2.4 CISG and the Nordic Countries.

346. See Chapter 2.3.3. Buyer's obligation to take delivery.

347. Text of Secretariat Commentary on article 31 of the 1978 Draft [draft counterpart of CISG article 33].

348. Bianca in Bianca & Bonell 1987, p. 272; Honnold 1999, p. 256.

349. Honnold 1999, p. 118.

350. Farnsworth in Bianca & Bonell 1987, p. 99.

351. Honnold 1999, p. 131.

352. See Chapter 5.5.3 Applicable usages.

353. Honnold 1999, p. 260.

354. Text of Secretariat Commentary on Article 17 of the 1978 Draft [draft counterpart of CISG article 19]; Honnold 1999, p. 184.

355. Text of Secretariat Commentary on Article 17 of the 1978 Draft [draft counterpart of CISG article 19].

356. In Cour d'appel de Paris, 92-000 863 (22 April 1992), sustained, Cour de Cassation, 92-16.993 (4 January 1995) A German seller claimed that the contract had not been formed because of alteration of the initial order which had led to disagreement between the parties, and invoked for that purpose Article 19 CISG. A French buyer had ordered goods from the German seller. The buyer had accepted the price previously stated by the supplier but had requested its reduction in accordance with the drop in prices on the market. In his acceptance of the order, the seller had replied that the prices could be adjusted upwards or downwards, as agreed, in accordance with the market, but that various specific items could not be delivered. Regarding the formation of the contract, the Court of Appeal held that the contract had been validly formed by virtue of the consent of the parties to the object at issue and the price and that it had become effective on receipt by the buyer of the seller's acceptance of the order in accordance with article 23 CISG. In the Supreme Court the buyer asserted that the contract had not been formed. The Supreme Court dismissed the appeal. The Supreme Court agreed with the ruling of the lower courts on the question of the existence of an agreement between the parties regarding the object at issue and the price, including the part of the agreement relating to an adjustment of the initial price in accordance with the market and the alterations made in the content of the order. The Supreme Court made no reference to any provisions of the CISG.

357. Honnold 1999, p. 187;

358. Farnsworth in Bianca & Bonell 1987, p. 181.

359. Honnold 1999, 188; Farnsworth in Bianca & Bonell 1987, p. 181, Illustration 3.

360. Text of Secretariat Commentary on Article 16 [draft counterpart of CISG article 18].

361. See further footnote 313, p. 150.

362. The most important difference between the CISG and the Contracts Act is the time when the acceptance becomes binding even though this is not relevant in relation to this case. According to Section 7 of the Contracts Act an offer and an acceptance can be revoked if the revocation reaches the person to whom it is addressed before, or at the same time as, the offer or acceptance comes to his/her attention. Under CISG Article 23 the contract is concluded at the moment when an acceptance of an offer becomes effective, i.e. at the moment the indication of assent reaches the offeror (Article 18(2)). There is no need to inform oneself as the contents of the reply; it is enough that the reply reaches the offeror.

363. Text of Secretariat Commentary on article 33 of the 1978 Draft (draft counterpart of CISG Article 35). See further Chapter 4.3 Conformity of the goods.

364. Text of Secretariat Commentary on article 33 of the 1978 Draft (draft counterpart of CISG Article 35).

365. Honnold 1999, p. 258.

366. Text of Secretariat Commentary on article 33 of the 1978 Draft (draft counterpart of CISG Article 35).

367. Bianca in Bianca & Bonell 1987, p. 275.

368. Text of Secretariat Commentary on article 33 of the 1978 Draft (draft counterpart of CISG Article 35); Bianca in Bianca & Bonell 1987, p. 275-278.

369. Text of Secretariat Commentary on article 33 of the 1978 Draft (draft counterpart of CISG Article 35); Enderlein & Maskow 1992, p. 147.

370. Bianca in Bianca & Bonell 1987, p. 276.

371. Honnold 1999, p. 260.

372. Henschel 2004, p. 9-10.

373. Text of Secretariat Commentary on article 33 of the 1978 Draft (draft counterpart of CISG Article 35); Enderlein & Maskow 1992, p. 149; Henschel 2004, p. 9-10; Bianca in Bianca & Bonell 1987, p.279-280.

374. Honnold 1999, p. 207. See further Chapter 2.4.3 Fundamental breach of the contract.

375. Text of the Secretariat Commentary on article 23 of the 1978 Draft (draft counterpart of CISG Article 25).

376. Magnus in Ferrari et al. 2004, p. 601; Honnold 1999, p. 207.

377. Magnus in Ferrari et al. 2004, p. 322.

378. Honnold 1999, p. 210, 321. Also the Secretariat Commentary seems to suggest this approach. Text of Secretariat Commentary on article 44 of the 1978 Draft (draft counterpart of CISG article 48)

379. Will in Bianca & Bonell 1987, p. 356-357, see further See further Chapter 2.4.3.2 Substantial detriment.

380. Will in Bianca & Bonell 1987, p. 357-358.

381. Bianca in Bianca & Bonell 1987, p. 276.

382. Article 35(2), subparagraph (a): description and ordinary purpose, subparagraph (b): particular purpose, subparagraph (c): sale by sample or model or subparagraph (d): packaging.

383. Text of Secretariat Commentary on article 33 of the 1978 Draft (draft counterpart of CISG Article 35); Enderlein & Maskow 1992, p. 149; Henschel 2004, p. 9-10; Bianca in Bianca & Bonell 1987, p.279-280.

384. See also brief commentary on the case in Di Matteo et al. 2004, p. 399.

385. See further Chapter 4.4 Examination of the goods.

386. Bianca in Bianca & Bonell 1987, p. 297.

387. Schwenzer in

388. Lookofsky 1996, p. 60.

389. Bianca in Bianca & Bonell 1987, p. 298.

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

391. Schwenzer in Schlechtriem & Schwenzer 2005, p. 453.

392. Schwenzer in Schlechtriem & Schwenzer 2005, p. 457; Bianca in Bianca & Bonell 1987, p. 302-303.

393. CISG Advisory Council Opinion No.2.

394. For relevant case law, see further Chapter 4.4.5 Decision on the examination of the goods, footnote no 215.

395. Baasch Andersen 1998, section V, paragraph 3.1.

396. Schwenzer in Schlechtriem & Schwenzer 2005, p. 468. For more detailed discussion on scholarly determination on reasonableness, Baasch Andersen 1998, section II, paragraph 3.

397. Baasch Andersen 1998, section II, paragraph 3.

398. Baasch Andersen 1998, section VI, paragraph 2.

399. Baasch Andersen 1998, section VI, paragraph 3.

400. Text of the Secretariat Commentary on article 38 of the 1978 Draft (draft counterpart of CISG Article 40).

401. Baasch Andersen 1998, section II, paragraph 1.4.

402. See further Chapter 4.5.10 Excuse from giving a notice.

403. Lookofsky 1996, Editorial analysis. See also Honnold 1999, p. 284. See also UNCITRAL Digest 2004, Article 44, Scope of Article 44.

404. Huber/Schwenzer in Schlechtriem & Schwenzer 2005, p. 513.

405. Honnold 1999, p. 283. Also Professor Lookofsky suggests that the legislative history should be taking into account when determining what a reasonable excuse is. Lookofsky 1996, Editorial analyses.

406. Huber/Schwenzer in Schlechtriem & Schwenzer 2005, p. 517.

407. Schwenzer in Schlechtriem & Schwenzer 2005, p. 475.

408. UNCITRAL Digest 2004, Article 38, Time period for examination. For relevant case law see especially footnote no 44.

409. Honnold 1999, p. 272.

410. See further Chapter 4.5.9 Exemption for failure to notify within reasonable time.

411. Lookofsky 1996, Editorial analysis. See also Honnold 1999, p. 284.

412. See also UNCITRAL Digest 2004, Article 44, "Reasonable excuse" requirement: application.

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

414. See footnote 270.

415. The requirements for suspend one's performance are more lenient that those for avoidance of the contract because of the anticipated breach of contract under Article 72. According to Article 71 a party may suspend the performance of his obligations if it becomes apparent that the other party will not perform a substantial part of his obligations as a result of the deficiency in his ability to perform or in his creditworthiness or as a result of his conduct in preparing to perform or in performing the contract. In order to suspend one's performance, it does not have to be clear that the other party will not perform substantial part of his obligations; it is enough that non-performance becomes apparent. Professor Honnold stresses that subjective fear will not justify suspension but there must be objective grounds showing substantial probability of non-performance. Secondly, a party may suspend performance where the other party's breach, while substantial, may not be sufficiently fundamental to justify avoidance. Finally, Article 71 enables suspension of performance without a requirement of prior reasonable notice to the other party. According to the third paragraph the notice of a suspension must however be given to the other party immediately after the suspension action has been taken. If the other party provides adequate assurance of his performance, the suspending party must continue with performance. See further Honnold 1999, p. 429-430, 437-438; Bennett in Bianca & Bonell 1987, p. 519.

416. UNCITRAL Digest 2004, Article 72, Preconditions for avoidance. In Landgericht (LG) Berlin, 99 O 123/92 (30 September 1992) the German Court that the seller had the right to declare the contract avoided under Art. 72(1) and (2) CISG, since even before the delivery of the goods it was clear that the buyer would not pay the purchase price and thereby commit a fundamental breach of contract. The Court held that the probability of a future breach of contract has to be very high and obvious to everybody, but did not require almost complete certainty. In the case at hand, there was reason to believe that the buyer would breach the later contract since at the time when delivery should have occurred the buyer had not yet performed under the prior contract.

417. Honnold 1999, p. 440.

418. Bennett in Bianca & Bonell 1987, p. 528.

419. Text of Secretariat Commentary on article 63 of the 1978 Draft (draft counterpart of CISG article 72). Bennett in Bianca & Bonell 1987, p. 528.

420. Honnold 1999, p. 438.

421. Bennett in Bianca & Bonell 1987, p. 527-528.

422. Text of Secretariat Commentary on article 63 of the 1978 Draft (draft counterpart of CISG article 72).

423. The case involved a sale of barley. In analyzing Article 73(2) the Court held that a lack of conformity of the first two instalments would amount to a fundamental breach of the contract by the seller, rendering highly probable that such a breach would occur with respect to future instalments, in the absence of contrary declarations or measures on the part of the seller (such as for example a commitment to change producer or agent). However, after examining the evidence the Court rejected the buyer's claim that the goods were defective thus the buyer could not rely on Article 73(2). The seller on the hand the right to declare the contracts avoided according to Article 64(1)(b). See also Chapter 6.6.4 Decision on the avoidance of the contract.

424. Text of Secretariat Commentary on article 64 of the 1978 Draft (draft counterpart of CISG article 73); Bennett in Bianca & Bonell 1987, p. 534-535.

425. UNCITRAL Digest 2004, Article 72, Article 72.

426. See Chapter 6.6.3 Anticipatory breach in instalment contracts.

427. Bennett in Bianca & Bonell 1987, p. 537.

[...]

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

Go to Case Table of Contents

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=491&step=Abstract>

CITATIONS TO TEXT OF DECISION

Original language (Finnish): CISG Nordic website <http://www.cisgnordic.net/980630FI.shtml>

Translation (English): Text presented below; see also Unilex database <http://www.unilex.info/case.cfm?pid=1&do=case&id=491&step=FullText>

CITATIONS TO COMMENTS ON DECISION

English: Kuoppala, Examination of the Goods under the CISG and the Finnish Sale of Goods Act (2000) 3.4.1 [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)]; Bernstein & Lookofsky, Understanding the CISG in Europe, 2d ed., Kluwer (2003) §: 4-9 n.142; CISG-AC advisory opinion on Examination of the Goods and Notice of Non-Conformity [7 June 2004] (this case and related cases cited in addendum to opinion); Henschel, The Conformity of Goods in International Sales, Forlaget Thomson (2005) 157

Go to Case Table of Contents

Case text (English translation)

Queen Mary Case Translation Program

Helsinki Court of First Instance 11 June 1995
Helsinki Court of Appeals 30 June 1998

Translation by Jarno Vanto [*]

PROCEEDINGS BEFORE THE HELSINKI COURT OF FIRST INSTANCE, DEPT. 5

Judgment: Civil dispute
Issued at: The office of the Court Clerk on 11th of June at 13.00 95/11481
Claimant: EP S.A., A Swiss corporation [Seller]
Defendant: FP Oy, A Finnish corporation [Buyer]
Matter at issue: Damages based on contractual breach and collection of outstanding debts

Clarification of the issues

[ - Seller's claims: summarized]

The statement of claims:

The [seller] has placed a demand in its statement of claims against the [buyer] that the [buyer] should be made to pay the [seller] primarily:

1. 774,224.20 Finnish Marks, 22,771.60 Swiss Francs and 19,800 German Marks; or

2. According to an alternative calculation of damages 263,787.50 German Marks and 130,000.46 Swiss Francs with lawful interest on arrears added thereto.

Additionally the [seller] has placed a demand that the [buyer] should be made to pay the legal fees of the [seller] added with lawful interest on arrears after six months of the issuance of judgment onwards.

[ - Seller's claims: particularized]

As grounds for the statement of claims the [seller] has presented the following:

The specification of the primary demand; the calculation of damages and the grounds for these damages:

1/1. Damages of 654,250.90 FIM due to unlawful avoidance of a sale of goods with specific qualities based on order of 26 February 1992, acceptance of 5 March 1992 and shipment order of 15 September1992.

Concerning the primary claim, the [seller] has requested the court to confirm that the [buyer] has unlawfully cancelled an order he placed on 26 February1992, on the basis of which the [seller] gave his acceptance on 5 March 1992 and a contract was formed, and that because the [buyer] was not entitled to refuse to accept the delivery, the [buyer] has to pay the purchase price and manufacturing costs totaling 671,450 FIM as agreed and to accept the delivery and to fulfill his duty of paying damages to the [seller].

In case the [buyer] is not required to pay the agreed purchase price, the claim 1/1 consequently assumes the meaning to the [seller] of being a cancellation of an order and respectively an unlawful avoidance of the contract resulting in damages of 654,250.90 FIM.

In case the [buyer] is required to accept the goods involved in the sale, [seller] will drop the claim concerning the expenses resulting from destroying the goods. If the goods remain in the possession of the [seller] to his loss, the [buyer] has to be made to pay for the expenses of destroying the goods.

The purchase price of the Order #10/92 was 604,900 FIM, as agreed in the contract dated 5 March 1992, subject to the reservation that the price was in force until 30 June 1992. After [buyer's] inquiry concerning new prices on 11 May 1992, the [seller] had given the [buyer] the price information on 12 May 1992 as requested. Had the delivery been allowed to take place, the purchase price concerning Order 10/92 would have been 654,250.92 FIM.

Due to the fact that the purchase price included seller's expenses resulting from CIP-term which were saved because of the avoidance of the contract, the value of these expenses has to be deducted from the purchase price. The [buyer] has to pay the [seller] the remaining sum of 654,250.90 FIM.

1/2. The unilateral postponement of issuing an order of shipment, a part of buyer's duty to contribute to the sale, resulted in a loss of 66,196 FIM. Throughout the fall of 1992 the [buyer] had been informed of the loss resulting from the postponement of the order of shipment when the [buyer] had notified that due to "bookkeeping" the delivery could not take place before the beginning of 1993. The loss was brought to the attention of the [buyer] in a calculation dated 31 December 1993.

The exchange rate of the Finnish Mark in relation to the Swiss Franc developed in the following manner according to Schweizerische Kreditanstalt:

February 1992 100 FIM = CHF 33.25
July, the 2nd half 100 FIM = CHF 32.67
October, the 2nd half 100 FIM = 28.83
January 1993 100 FIM = 27.29

The [seller] is entitled to compensation for the loss suffered by him as a result of [buyer's] actions. It is noteworthy, that the exchange rate of the currency of payment has decreased in relation to the currency of the [seller's] country.

1/3. A restitution covering storage costs of the seller for 41 palettes from the period 1 May 1992 - 31 December 1994, the cost for each palette being 7 CHF per month, totaling 9,184 CHF.

1/4. Annual interest on capital mentioned in items 1 - 3 from the following periods; 7 August 1992 - 31 December 1994:10.8 %; 1 January 1993 - 31 December 1993: 9.5%; and from 1 January 1994 until the date of the payment: 7%.

1/5. Necessary expenses resulting from arrangement of a coverage sale, collection of outstanding claims and preparation of mediation, totaling 13,587.60 CHF added with interest on arrears from one month after the issuance of the judgment onwards.

1/6. Expenses resulting from destruction of goods no longer eligible for sale, totaling 19,980 DM added with 7% interest on arrears one month after the issuance of judgment has expired.

- An alternative calculation of [seller's] claim 1/1

As an alternative calculation of damages concerning claim 1/1 the [seller] has demanded compensation for:

2/1 acquisition costs totaling 523,657.45 FIM; and
2/2 administration costs totaling 115,204.74 FIM

- More specific grounds for [seller's] claims

The issue in this case has been goods manufactured for the buyer and packed according to the instructions provided by the buyer. First, the [buyer] had postponed the delivery and then later, after issuing an order of shipment, declared the contract avoided in circumstances in which the goods had already been manufactured and samples of the goods had been accepted.

Due to the fact that the place of business of the seller who accepted the order is in Switzerland, Swiss law is applicable to the contract. There was no agreement between the parties on applicable law.

[Buyer] had placed an Order #10/92 concerning manufacturing and acquisition of five Avecos- product line skin care products on 26 February 1992. [Seller] had accepted the order on 5 March 1992 at the same time when he had accepted an Order #9/92 of the same proportion. Due to these circumstances, a binding contract had been formed between the parties.

The purchase price in the Order 10/92 was 604,900 FIM. The seller, however, had reserved himself the right to increase the prices from 1 July1992 onwards. The term of payment was 60 days from delivery.

According to a marking in the order, the term of delivery was to be agreed upon at a later point in time (no more than three weeks from L's request). In a letter dated 26 February 1992 accompanying the order, the [buyer] had encouraged the [seller] to expediently deliver all of the packaging materials.

The sale assumed a nature of an order sale, where it was the duty of the seller to manufacture the goods for the buyer.

According to the terms of the sale, samples of products were to be delivered to VTT (National Scientific Research Center) for checking purposes. After the samples had passed the checking procedure, the buyer was supposed to give an order of shipment, after which the seller would deliver the goods on term CIP-Vantaa. In his fax messages dated 24 April 1992, 30 April 1992 and 6 May 1992, the [buyer] had informed the [seller] that the samples had passed the VTT checking before shipment.

The [seller] consequently had to produce and deliver the skin care products. In order for the [seller] to be able to fulfill his duty to deliver, the buyer's duty was to inform the seller about when the goods were allowed to be shipped. [Seller's] receipt of the purchase price depended on the time of the delivery.

There was a specific order concerning bottling and packaging of the products in packages suitable for retail sale. It was the task of the [seller] to attach labels naming the marketer of the products to bottles, cans and product packages serving as vessels for the said skin care products.

- [Buyer's] breach of contract: his negligence in
   fulfilling buyer's duty to contribute to the sale

After the sample goods were accepted at VTT, the [buyer] did not issue an order of shipment. In his message dated 9 July 1992, the [buyer] told the [seller] specifically not to deliver the goods in the beginning of August 1992. At that point, the second consignment of the Order 9/92 postponed by the [buyer] was supposed to arrive in Finland.

In his message dated 15 September1992, the [buyer] had finally notified that "the goods can be shipped in December, so that they arrive in Finland at the earliest on 1 January 1993".

According to the contract the [seller] could reasonably assume that the buyer, soon after the sample goods were checked, would issue an order of shipment. This state of affairs resulted from the following circumstances:

- After placing an order on 26 February 1992 the representative of the [buyer] had confirmed by phone that the deliveries will be received during the months of May and August 1992. When the representative of the [seller] had reminded the representative of the [buyer] of this, he had not denied that. Instead, he had stated that the term of delivery was "Auf Abrub innerhalb 1992", which was not supported by any documents.

- When placing the order the buyer had specifically encouraged the seller to acquire the packaging materials as soon as possible. The packaging materials came with product information, markings naming the manufacturer and the marketer (H Oy L) and information on ingredients, as requested by the [buyer].

- The goods had to be produced quickly in order to obtain sample goods; additionally the [buyer] had requested the [seller] to pay attention to the delay caused by the checking procedure at VTT.

- Due to the fact that the order required the goods to be produced from one and the same raw material, the acceptance of the sample goods required that production of the goods be already finished before the checking of the goods at VTT.

- Because the goods were originally not packed for retail sale, the goods had to be bottled and packed after VTT checking. Due to the fact that the delivery term required the delivery to take place after three weeks following L's request, the product packages with L's name on them had to stand ready for shipment while waiting for the order of shipment.

- The buyer knew that the manufacturing of the goods takes a while, at least ten weeks. The buyer also knew that even though the goods in question can be preserved relatively long, at least thirty months, vitamins, perfumes and some other ingredients in skin care products are under a constant process of transformation and decomposition. As time passes the materials go through different kinds of decomposition and maturation phenomena, which are parts of certain maturation process of the product. Even though these features of skin care products are generally well known, it can be said that the other person representing the [buyer] presumably is a chemist.

- The [buyer] had informed the [seller] on 22 January 1992 of the changes affecting the products already after a few months. These changes could not be avoided. Because the parties were mutually aware of these circumstances and because they wanted to avoid maturation of the products in [seller's] warehouse, there were grounds to assume that the [buyer] would soon enough send an order of shipment to the seller. Because the delivery of the Order #9/92 was to take place on week 18, there was no reason for the [seller] to assume that the [buyer] would delay issuing of the order of shipment concerning Order #10/92 further than the end of May 1992.

- These circumstances had forced the [seller] to quickly produce the goods in order to fulfill his contractual duties. The sale represented a significant sum to the [seller]. The [buyer] was aware of this. The [seller] was obliged to finance production, bottling and packaging with a bank loan. This had caused interest and other financing expenses.

Later after issuing the shipment order on 15 September 1992, the [buyer] had not allowed immediate shipping as defined in the terms of the sale. The [buyer] had demanded, that the shipment of the goods should not take place until December 1992, meaning at least three months later. According to a notice of the [buyer], the goods were to arrive in Finland at the earliest on 1 January 1993.

As a consequence of the refusal to accept the delivery on 9 July 1992, [seller] suffered additional storage expenses. These could not have been anticipated by the [seller] while drafting the contract. In addition, the capital tied to the production of the goods had needed some looking after, which caused interest expenses.

The postponement of the order of shipment from the point of time which [seller] could have seen as being a probable point of time for issuing the order, considering all the relevant circumstances and specially the guidelines given by the [buyer] in the order, was in itself grounds for breach of contract.

Because the [buyer] on 15 September 1992 had single-handedly placed additional terms for the time of shipment and delivery, according to which the goods were not to be shipped before the end of December and the goods were not to arrive in Finland before 1993, it was a question of terms contravening the terms of the contract of 5 March 1992 and consequently [buyer's] breach of contract.

[Buyer's] actions were unanticipated and in breach of the contract. The following circumstances were a direct consequence of [buyer's] actions:

- [seller's] storage costs;

- because the term of payment was simply "60 days" and according to usage applied by the parties this was meant to be understood as meaning 60 days from the point of time when the seller had transferred the goods to the possession of an independent freight liner, the interest on capital tied to production had increased because of non-payment;

- the losses caused by depreciation of the agreed currency of payment, Finnish marks.

Due to these circumstances the [buyer] has to compensate the [seller] for expenses and losses caused by [buyer's] breach of contract.

- [Buyer's] unlawful avoidance of the contract

Roughly two months from the date of the order of shipment, the [buyer] cancelled all undelivered orders on 10 November 1992.

Since the middle of October 1992, the [buyer] had let it be known, that the amounts of Vitamin A in the goods delivered on the basis of Order #9/92 had significantly decreased in comparison to what they were in spring and below the amount of what they had been in April when sample goods had been checked. This was shown in the VTT study carried out on behalf of L.

[Buyer] had received the goods checked in October on 7 August 1992. This was notified by the [buyer] on 15 December 1992. The splitting in two of that delivery and the postponement of the second delivery until August 1992 were based on [buyer's] request. In connection with neither of the deliveries, was any notice whatsoever given of the non-conformity of the goods with the checked sample goods. Instead, the [buyer] had notified on 22 October 1992 about the goods received in August. The notice concerned the results of the checking carried out on behalf of L, according to which the vitamin content had dropped below the amount where it should have been in April 1992 when checking the goods.

Cancelling the order and avoidance of the contract on 10 November 1992 was unfounded due to following reasons:

- The goods subject to cancellation were in conformity with the sample goods checked and accepted at VTT in April 1992. The [buyer] had never even stated that the goods would be non-conforming.

- When issuing the order, the [buyer] knew that the A-vitamins would be absorbed into liposomes. In a similar manner, the [buyer] knew about chemical and other transformations taking place in materials with vitamin content. On the basis of the results of tests carried out by VTT, the [buyer] knew about the vitamin content being within the range agreed on in the contract. As mentioned before, [buyer] had conveyed information based on L's experience that already within a few months liposomes absorb a noticeable share of the vitamins amounting to 20 - 30% of A-vitamins. Being aware of the characteristics of the vitamins and the goods in general, the [buyer] did not want to attach any markings on the product packages stating the vitamin content of the products.

- The seller is not liable for the alleged non-conformity of the goods, of which the buyer was aware when drafting the contract.

It had been clear from the beginning, that the longer the [buyer] postponed the time of allowing the goods to arrive in Finland, the longer the liposomes would absorb vitamins and the vitamin content of the goods would decrease. The goods had been in Germany ready for shipment since the spring and from then on the time of delivery had been postponed based on [buyer's] orders.

In skin care products, as in many cosmetics and health care products, chemical changes take place as time goes by. For example, some perfumes, vitamins and chemicals may decompose slowly. These changes are characteristic to these products and such changes connected to the maturation process of the products, generally known in the field, do not reduce the usability of the products to their normal purposes.

Knowing that these changes cannot be prevented and that they cannot be regarded as non-conformity, the [buyer] had requested the [seller] to increase the vitamin content in his letter of 22 January 1992. The [seller] had complied with the request and when the sample goods had passed VTT checking, the [buyer] had issued the order of shipment concerning Order # 9/92.

The [seller] had not committed himself to, or been aware of, the contractual terms between the [buyer] and L Oy and this contract does not bind the [seller].

The [buyer] has not given the [seller] any reason as to why the vitamin A content should remain on a particular level.

In any case, the decrease of vitamin content in two products could not amount to a fundamental breach of the contract.

Additionally, it was not clear at the time when the [buyer] had declared the contract avoided that the [seller] would be liable for a fundamental breach of contract within the specified time of delivery, meaning the beginning of January 1993. If it was a question of two separate orders, as notified by the [buyer], an anticipated breach of contract as defined in CISG Art. 73 is not applicable. Even if it was held that this was a matter of delivery in installments, the buyer had no grounds to assume that the forthcoming partial delivery would amount to a fundamental breach of contract. The [buyer] should have had to consider the chance that the non-conformity, as alleged by the [buyer], meaning the preservation of vitamin content, could be fixed before the time of delivery specified by the defendant. The [seller] had notified the [buyer] on 28 October 1992 that he would do everything in his power to satisfy the customer, i.e., the [buyer], meaning that the [seller] had been prepared to fix the products of Order #9/92 and additionally to deliver the goods of Order #10/92. The [seller] had the right to fix concerning Order #10/92 even after the delivery of the goods. At the time the [seller] had a method in his use with which the amount of vitamin A could be maintained on a level requested by the [buyer].

Even if it was held that the [buyer] fulfilled his duty to give prior notice, he still was not entitled to declare the contract avoided because the parties had reached an agreement concerning removal of the unsatisfactory state of affairs as experienced by the [buyer].

Neither was there a basis to declare the contract avoided on grounds that the declaration of avoidance had not taken place within a reasonable time from the point where the [buyer] should have carried out the acceptance inspection and to notice the alleged non-conformity. The [buyer] had not been entitled to cancel the order based on a matter which could have been clarified when checking the sample goods.

After the [buyer] had called for a replacement delivery on 16 October 1992 and on 22 October 1992, the [seller] had replied on 28 October 1992 requesting the [buyer] to notify L a.s.a.p. that the [seller] will make the goods to withstand oxidization. [Seller] had been prepared for far-reaching concessions so that the sale, which was expensive for the [seller], would not fail.

After the [seller] had on 12 November 1992 represented the said offer, the [buyer] had repeatedly refused to accept it on 13 November 1992. It was included in the offer that the seller would replace two product in the consignment, namely Avecos Tagescreme and Liposomengel, with product that would maintain their vitamin A content in the best manner possible allowed by the current state of science.

[Seller's] reply on 28 October 1992 to [buyer's] request on 22 October 1992 calling for actions to be taken was based on elimination of a defect in the products. The [buyer] was not entitled to breach the reached agreement.

The [buyer] had refused to accept [seller's] efforts to reach an amicable solution

which would have led to acceptance of the delivery.

Consumer protection laws had no relevance because it was not a question of a consumer sale.

The [buyer] had referred to his message of 21 December 1990, where it was stated that "Shelf-life of our products is not shorter than 30 months". In his reference to the mentioned citation, [buyer] had brought out that the [seller] had guaranteed not only the shelf-life of the products but also the preservation of vitamin content in connection with an order over a year later where the said content was strictly specified while checking the sample goods. There was no agreement between the [seller] and the [buyer] on whether the vitamin content of Avecos - skin care products should be permanent in nature. What is meant by shelf-life is that a product can be preserved when kept with due care in normal or reasonably anticipated circumstances and without causing any danger to health and at the same time being suitable for its original purpose. The notion does not contain any reference to maintenance of vitamin levels for the shelf-life period.

- Consequences of [buyer's] declaration of avoidance

The [seller] could not have anticipated [buyer's] actions declaring the contract of 5 March 1992 avoided. This course of action caused direct harm to the [seller]. The [buyer] should have understood the consequences of his actions to the [seller].

The [buyer] has to pay damages for unlawful avoidance of the contract, including both loss of agreed price and loss of restitution, resulting from the fact that repeated postponements of the order of shipment in breach of the contract had caused the payment of the sale price to take place at a time when the currency of payment, due to floating of the currency, had devaluated seller's currency by over 20%, meaning that this is a matter of paying damages due to a loss caused by buyer's breach of contract.

Because the seller had to attach markings to the skin care product bottles and product packages stating that the marketer of the products is H Oy L, it was not possible to reduce seller's losses through compensatory sales. The only way to get rid of the products in seller's storage was to destroy them. This caused following losses:

- sale price of the products (including but not limited to production and manufacturing costs, selling costs including seller's coverage) less expenses of which the seller is responsible for according to CIP-term amounting to 4,200 CHF;

- the loss caused by devaluation of currency because of delay on buyer's side in issuing the order of shipment;

- the expenses resulting from maintenance of the goods including storage costs;

- the expenses caused by seller's efforts to arrange coverage sale, to collect outstanding claims from the buyer and costs of mediation caused to the seller;

- the expenses resulting from destroying the goods.

- Relevant laws

Article 35(3) of the CISG contains a confirmation of the principle that the buyer can not demand remedy for non-conformity based on such qualities of the goods as determined on the basis of sample goods, if at the time of the conclusion of the contract the buyer knew or could not have been unaware of such lack of conformity. This rule does not concern only factual information but also circumstances that the buyer could not have been unaware of. What is meant by the addition is a situation where it is very likely that the buyer was aware of such a circumstance but no clear evidence can be presented.

If the buyer does not notify the seller about the non-conformity within a reasonable time after detecting it or after he should have detected it and does not specify the nature of non-conformity, he loses his right to claim non-conformity (CISG Art. 39)

Article 53 of the Convention places two kinds of duties upon the buyer. The buyer must pay the price for goods and take delivery of them. It may often follow from the contract between the buyer and the seller that the buyer also has other duties. The content of these duties is not regulated in the Convention. Instead, rules concerning buyer's breach are also applicable to other duties which have been agreed on or which can be regarded as agreed on.

According to Article 60 CISG, the buyer's obligation to take delivery consists of doing all the acts which could reasonably be expected of him in order to enable the seller to make delivery. This buyer's duty to contribute to the sale also involves other procedures he must carry out so that the goods can be delivered to him.

If the terms of the sale indicate that the buyer has to give a signal or some other indication of the time when the goods can be shipped or otherwise delivered in order to facilitate seller's performance, this procedure initiating the shipment belongs to buyer's duty to contribute. Other procedures included in buyer's duty to contribute can be guidelines and acceptances the buyer has to give to the seller while manufacturing the goods.

What is meant in Article 60 CISG is such contribution that takes place before the delivery and which is a prerequisite to seller's ability to perform. This kind of contribution is usually needed when the goods involved in the sale are to be manufactured or ordered based on buyer's order.

According to Article 61 CISG, the seller can claim damages based on Articles 74 - 77 when the buyer fails to fulfill his contractual duties or his duties under the Convention.

If the seller has demanded the buyer to perform, according to Article 61 CISG the seller does not lose his right to claim damages. The seller is entitled to rely on the contract and to demand that buyer perform.

According to Article 74 CISG, the damages for breach of contract by one party consist of a sum equal to the loss, including loss of profit, suffered by the other party as a consequence of the breach.

[Buyer's] reply

The [buyer] has denied the statement of claims in its entirety as to its grounds and to its amount in a manner appearing below.

Additionally, the [buyer] has demanded that the [seller] should be made to pay the legal expenses of the [buyer] with interest on sums in arrears added thereto.

The [buyer] has stated, as did the [seller], that the CISG is applicable to the case.

- The alleged delay in issuing the order

[Seller's] allegation that [seller] had grounds to assume that soon after checking of the sample goods the buyer would issue an order of shipment is unfounded and the [buyer] had not caused any delay in the delivery of the goods.

Orders # 9/92 and #10/92 were totally separate orders. The [seller] has based most of his allegations to circumstances connected to Order #9/92.

In the Order #10/92 which the [buyer] made to the [seller], the time of delivery had been purposefully left open because [buyer's] partner L was at the time unable to estimate the sale of the goods. Because there was no agreement whatsoever of the time of delivery, the [buyer] could not have been liable for a delay in issuing the order of shipment, as alleged by the [seller]. The [buyer] bears no responsibility in relation to the [seller] for [seller's] own misjudgments and the expenses those misjudgments may have caused.

The [seller] had through his own initiation, against [buyer's] original aim and without [buyer's] awareness of it, manufactured goods for the Order #10/92 beforehand, together with the goods for the Order #9/92. At that moment, the [seller] had taken a risk concerning possible storage and capital costs resulting from his actions and consequently is responsible for his own expenses. The [buyer] cannot be liable for these expenses under any contractual duty.

The [buyer] could not have known that the [seller] had to finance the manufacturing of the goods by means of a bank loan. Financing of production is not a responsibility of a contracting party; neither is it a risk such party might assume. The [buyer] did not know that the orders had represented a significant sum to the [seller].

It was a purpose of two separate orders that the goods could be manufactured separately. It was not clear to the [buyer] until the reception of a fax on 30 June 1992 that the [seller] had already in the summer of 1992 manufactured the product for both orders. The product for the second order should not have been manufactured before 15 September 1992 when an order of shipment was issued.

In a phone call of 26 February 1992 there was no agreement on the exact time of delivery on [buyer's] behalf. The hastening of packaging material concerned only Order #9/92. The raw material mixture was naturally meant to be order-specific. The ten week delivery time as demanded by the [buyer] concerned only Order #9/92. Not even the circumstances in general had obliged the [seller] to manufacture goods for the Order #10/92 quickly. Concerning Order #10/92, the [buyer] had taken all measures required to deliver the goods.

- Non-conformity of the goods

The second consignment of the Order #9/92 arrived in Finland in August 1992.

The test results from VTT were received on 8 October 1992.

Based on the results it was apparent that vitamin A content had decreased significantly below the lowest level agreed, that being 1000 IU/g. Of the five products, two had qualities which did not conform with what had been agreed on in the contract.

The vitamin A content of the products was a central quality of the products. Consequently, the products did not posses qualities they should have possessed according to the seller. The products were not fit for their purpose if they lacked necessary vitamin A content.

On the basis of order documents, correspondence and phone calls, the [seller] had to understand that the [buyer] regarded vitamin content as being the central quality of the products.

Because the [seller] had guaranteed that the shelf-life of the products is at least thirty months, the [buyer] had grounds to assume that what was meant by shelf-life was that the products would preserve their essential qualities for at least thirty months.

The [seller] had misled the [buyer] by manufacturing products which, when tested beforehand, fulfilled the quality requirements but which quickly began losing their qualities. The [seller] had not acted out [buyer's] requirements to add vitamin A in order to assure necessary vitamin content.

Vitamin A content should have been within range 1000 - 3000 IU/g. The range was this wide because the [buyer] had allowed for the fact that vitamin A content would decrease about 20 - 30%.

The ointments and gels delivered by the [seller] did not conform with what had been agreed on in the contract. Instead the delivered goods were non-conforming because they did not conform with the quality requirement laid down in the contract concerning minimum vitamin content and because the said non-conformity could be regarded as fundamental.

Vitamin A and E contents were the only quality features of the products specifically agreed on in the contract.

The [seller] had manufactured the goods for the Order #10/92 already the same year in April when he had manufactured the goods for the Order #9/92 using the same mixture of ingredients. After the test results from VTT came on 8 October 1992, it was clear that also the goods for the Order #10/92 were non-conforming in a manner similar to goods for the Order #9/92. The goods were meant to be delivered to the [buyer] towards the end of the same year, when it was already clear that vitamin A content of the ointments would have dropped below the tested levels. Due to these circumstances it was clear that goods for the Order #10/92 would not conform with the quality requirements laid down in the contract. Consequently, the [buyer] notified the [seller] on 10 November 1992 that he would declare the contract avoided in relation to Order #10/92. The [buyer] has given prior notice of this to the [seller], as required by CISG Article 72.

It is the understanding of the [buyer] that also Article 72(2) CISG is applicable in this case. Through non-conforming delivery, the [seller] has given the [buyer] grounds to assume that also the forthcoming deliveries in installments would constitute a fundamental breach of contract. The [buyer] was clearly entitled to declare the contract avoided as defined in CISG Article 73. Giving of prior notice of avoidance is not required in Article 73. Because the said non-conformity was a result of a lack of essential quality features in the products, [seller's] breach of contract clearly fulfils the preconditions for fundamental breach of contract as defined in Article 25 of the Convention. It is also clear that the [seller] understood that the goods are non-conforming on the basis of the test results. However, it is apparent that the [seller] had not seriously even aimed at manufacturing products which could fulfil the set quality requirements.

The circumstances of the case did not allow the [buyer] to give the [seller] an opportunity to fix the sale instead of declaring the contract avoided. It took years of efforts to reach the agreed quality requirements. Still the [seller] failed to meet all the expectations. The [buyer] had no grounds to assume that the [seller] could or seriously would aim at fulfilling the quality requirements. The [seller] offered to alter the product just after having received a prior notice of avoidance of the contract on 22 October 1992. The [seller] could not have been capable of fixing the goods in a manner required by Article 37 of the Convention without causing the [buyer] excessive harm or uncertainty. It would not have been reasonable to oblige the [buyer] to accept the uncertainty connected with allowing the [seller] to fix the goods.

A new composition of the goods would have required new testing of at least thirty months. The [buyer] could not have accepted untested products.

The [buyer] had given notice of the defects appearing from the test results as soon as he had received information of the said defects. He had also requested additional clarification concerning the defects and on 16 October 1992 had requested a substitute delivery for the delivery of Order #9/92. At this stage, the [buyer] and L had hoped that the [seller] could be able to deliver goods which would meet the quality requirements. At the time avoidance of the contract did not seem necessary. The [buyer] had given prior notice of avoidance concerning the Order #10/92 on 22 October 1992. The [buyer] had confirmed the avoidance on 10 November 1992, because avoidance of the contract was the only reasonable way for the [buyer] to react. The parties would have been unable to reach a mutual agreement because the [seller] had no substitute for the non-conforming goods. In connection with the checking of the goods in April/May of 1992, the [buyer] had grounds to assume that the [seller] had managed to manufacture conforming goods in terms of vitamin content and total wastage. Consequently, issuing the order of shipment on 15 September 1992 was a natural act because the test in May gave flawless results. The [buyer] had no grounds to assume that the quality of the products would decrease in comparison to the test results in May. The non-conformity could not have been detected during acceptance inspection.

- [Buyer's] statement concerning the required sums

Concerning the sums mentioned in the statement of claims, the [buyer] represents the following:

- claims 1/1 and 1/2 have been admitted as to their sum total;

- claim 1/3 is in dispute, because no clarification has been received as to whether expenses concerning Order 9/92 were not included and because the manner in which the palettes were counted was not disclosed;

- the [buyer] has not disputed the claim for interest in the claim 1/4 as to its amount;

- the [buyer] has admitted the claim 1/5 totaling 10,307.60 CHF;

- the [buyer] has disputed the claim 1/6 as to its amount, because the goods had not been destroyed and because no clarification of the expenses has been represented;

- the [buyer] has disputed claims 2/1-2 as to their amount, these being unclarified.

Grounds [Ruling of the Helsinki Court of First Instance]

- Alleged delay in issuing the order of shipment concerning Order #10/92

As to the alleged negligence of the [buyer] in contributing to the sale on grounds that the [buyer] had delayed in issuing the order of shipment for Order #10/92, the Court of First Instance holds that the orders were made using two separate documents. In the Order #9/92 the time of delivery was precisely determined ("latest week 18/92") and in the Order #10/92 it was left open ("will be agreed later on"). Furthermore, it can be stated that according to the wording used on the first page of both orders, the [buyer] asks the [seller] to hasten the ordering of packaging material in order to facilitate a quick delivery of the first order.

The [seller's] reply to both of these orders has, however, been given in the same document. On those grounds, and considering also the correspondence between the parties during the summer of 1992, one cannot draw a conclusion that the term concerning time of delivery for the Order #10/92 could have changed from what it had been in the order letter of 26 February 1992. In the said [seller's] reply, one talks about two separate deliveries. As far as the second delivery is concerned, there is a mention of a point of time until which a delivery can take place with the old price. Based on the reply, and considering the product amounts mentioned in it, it is clear that it did not concern only the Order #10/92 even if there was a reference in the reply to that order. Consequently, the [seller's] reply did not contain any changes to the terms of delivery in relation to Order #10/92 to which the [buyer] should have reacted in some manner.

On the basis of wording of the order documents concerning manufacturing of the products using same ingredients, the [seller] could not have drawn a conclusion that the production of the goods for both orders should have been finished already before the VTT tests. This is because statements concerning the mixture of ingredients have been written down separately on both orders and, as a consequence, it cannot be interpreted as meaning more than that the goods for the order in question had to be manufactured using a single mixture of ingredients. Additionally, it has to be considered that the time of the tests was not determined in the orders and consequently one cannot draw a conclusion that the tests concerning both orders should have been carried out simultaneously.

Considering the conflicting testimonies of B and R, there is no evidence that R would have confirmed by phone to B the time of delivery for the second order as being August 1992 or other specified point of time.

Based on the statements of R, N and A, it can be held that at the time of making the order, the [buyer] and L had been unable to estimate the sale of the products in a manner that would have allowed the determination of an exact time of delivery for the second order.

Considering that the Order #10/92 was preceded by the delivery of Order #9/92, the Court of First Instance holds, that the order of shipment for the Order #10/92 was issued within a reasonable time because it was issued within a year after the contract was concluded.

Based on the above mentioned circumstances, the Court of First Instance holds that the [buyer] is not liable for [seller's] willingness to interpret the time of delivery of the Order #10/92 as being earlier than what the [buyer] has factually committed himself to or what he can reasonably be regarded as obliged to.

- The alleged non-conformity of the goods

It is undisputed in the case, that in his Orders #9/92 and #10/92, the [buyer] had required that the sample goods tested at VTT should possess the vitamin A content indicated by the order documents. It is also undisputed that the vitamin A content in the goods tested at VTT on 4 May 1992 was within the required range in all the five products.

The [seller] has regarded the central qualities of the products as being their suitability for skin care and their inclusiveness of the ingredients mentioned in the list of ingredients. The evidence submitted on behalf of the [buyer] by R, N and A supports the view that the [buyer] had specifically wanted to order vitamin ointments and no other skin ointments, which L already had plenty of in his product selection. Based on the statements of the said persons and submitted documents, it is also clear that the [seller] knew that L Oy was the final buyer and that the orders took place under its guidance. In terms of seller's liability, the information given to consumers or drugstores by L Oy or the [buyer] without seller's knowledge bears no significance.

Vitamin A and E content was the only quality requirement included in the order documents. The fax message from the [seller] to the [buyer] on 13 August 1991, concerning a delivery in 1991 and [buyer's] fax message to the [seller] on 22 January 1992, where the [buyer] has drawn [seller's] attention to both the absorption of vitamin and the need to add vitamins, indicate that the [buyer] has already earlier drawn [seller's] attention to the vitamin content of the products.

Based on vitamin A content required in VTT tests and other above mentioned evidence the Court of First Instance holds that the [buyer] regarded vitamin A content as a central quality of the products and that the [seller] has to have become aware if this.

In response to the issue whether some requirements concerning preservation of vitamin A have become parts of contracts governing Orders 9/92 and 10/92, it can be stated, that the [buyer] has appealed to [seller's] fifteen-part reply dated 21 December 1992 concerning [buyer's] inquiry and especially to part 2 of that reply where the [buyer] has told that the shelf-life of his products is at least thirty months. As such, it cannot be excluded, that all the products may have preserved some of their vitamin A content for thirty months. It can also be held as clarified, that the products would have remained suitable for skin care throughout the duration of their shelf-life.

The [seller] regards the term "shelf-life" as meaning that the product is preserved when duly kept in normal or reasonably anticipated circumstances and that the product fulfils its original purpose without causing any danger to health.

According to the [seller], announcing the shelf-life of the product did not contain announcement of preservation of vitamin content throughout the said period. The [buyer] has regarded that announcing the time the product stays preserved means that the product meets the central requirements throughout the whole period of shelf-life.

No evidence has been submitted concerning the content of the notion "shelf-life" under Swiss Law or practice.

As a witness to the [seller] M, a German citizen, has told as his view on the content of the notion in Switzerland, that during the announced shelf-life the product may not change in terms of its preservation or qualities. During further questioning, M has submitted that a product meets the shelf-life requirement if it is suitable for its original purpose even when it is supposed to contain an undetermined amount of vitamins.

Witness M has stated as his understanding that what is meant by shelf-life is the time that all the central qualities of the product are preserved and the announcement of which is based on tests carried out by the manufacturer.

Witness A has stated as his understanding that announcing the time the product is preserved concerns physical, microbiological and chemical preservation. Consequently, according to A, announcing the shelf-life as being at least thirty months has also meant that the product maintains its vitamin A content at least for the duration of the shelf-life of the product.

Furthermore, A has stated that it is typical for the trade that shelf-life announcement of cosmetics concerns all the qualities of the products.

A is responsible for the product development of L Oy and he must have been aware of the international content of the shelf-life concept. On the basis of A's statement and because the [seller] has not represented sufficient evidence to the contrary, the Court of First Instance holds that the declaration given in [seller's] fax message of 21 December 1990 concerning thirty month preservation has also concerned the vitamin A content of the products.

Because the [seller] has not even alleged having given any other information concerning the shelf-life of his products, the Court of First Instance holds that through the shelf-life declaration, the [seller] had committed himself to delivering products whose vitamin A content would remain within the range required by the [buyer] throughout the shelf-life period. The [buyer] has alleged that also the [seller] should have understood that preservation of vitamin A content is a central requirement to the [buyer]. The fact that the [seller] has been unable to bring forward sufficient grounds as to why the [buyer] would have been satisfied with vitamin A content appearing in the tests before the deliveries and not paying attention to maintenance of vitamin A content on the same minimum level during the time of use of the product supports [buyer's] allegation. Statements by R, N and A bring additional support to the allegation in the sense that, according to them, products with vitamin content are more expensive than regular skin care products.

Considering especially the statements by N and A, the Court of First Instance does not, only on the basis of M's statement, hold that it would not have been possible to manufacture products that would have preserved the minimum amount of vitamin A throughout the shelf-life.

Additionally, the range was so wide and even the [seller] had managed to manufacture such products on the part of three products in the product series.

Considering the range allowed, not even the fact that vitamin A decomposes during time, which was known by the [buyer] and was also generally known in the field, bears no significance in this case. Not even the fact, that no requirement as to announcing the vitamin content in the list of ingredients had been made had significance, when a conclusion can be drawn on the basis of A's and R's statements that the vitamin content is usually not announced but only the ingredients of which the product is composed are announced qualitatively.

Based on the above and when considering the [seller's] assurances that it is able to reach the required levels of vitamin content, it was not the business of the buyer to find out as to how the seller will take care of the manufacturing. This being the case, it appears that the buyer counted on the seller's expertise in terms of how the seller reaches the required vitamin A content and how the required preservation is carried out.

The vitamin content of two products subject to the contract, namely day creme and liposome gel, had dropped according to the VTT test results of 8 October 1992 in a manner that vitamin A content of day creme was only 750 IU/g and liposome gel had only 340 IU/g of vitamin A. Consequently, it can be held that concerning these products, the goods were non-conforming and that the said products had not been fit for the special purpose as required by the [buyer], which was known by the [seller] with sufficient clarity.

The so-called minimum rule connected to law of property is not applicable in this case because based on what has been mentioned above there is no dispute as to what has been agreed on in this case.

The level of vitamin A being under the agreed level has not even partly been [seller's] fault, because on grounds mentioned above the [buyer] cannot be held as having delayed in carrying out the Order #10/92 in breach of the term concerning time of delivery.

Because the vitamin A content had to do with central qualities of the products and because the vitamin A content of the mentioned two products was significantly below the required minimum content and because according to submitted evidence here it was a question of a product series required by drugstores to be sold together as a single entity, the Court of First Instance holds that the [seller] is liable for fundamental breach of contract.

When the test results in October 1992 indicated that the goods were in non-conformity with what had been agreed on and when in July 1992 the [buyer] had been informed that also the Order #10/92 had been made out of the same mixture of ingredients, the [buyer] had concluded that under CISG Article 73 he had grounds to assume that also the Order #10/92 would be non-conforming.

Even if the said Article concerning successive deliveries was held inapplicable, the [buyer] is of the opinion that it was clear in a manner required by Article 72 that the [seller] would be unable to deliver goods by the beginning of January 1993 that would conform with the order of 14 September 1992.

In his fax message of 28 October 1992, the [seller] has notified the [buyer] of his ability to reach and maintain an optimal level of vitamin A with help from H-La R and by changing the recipe. According to M, the changing of recipe would have meant that the product had exactly the same chemical composition with the exception of a different form of vitamin A. Furthermore, M has stated that changes brought about by the change of a recipe are marginal in nature. The tests required by such changes can, according to M and B, be carried out within a few days.

However, based on what has been said above the products should have preserved the minimum level of vitamin A throughout the whole shelf-life period. Based on the statements of R, N and A, a conclusion can be drawn that guaranteeing the preservation of vitamin A would have meant tests lasting almost the whole shelf-life period. According to N, the time of testing can be shortened by testing in higher temperatures. Even then the tests would last at least fifteen months. M's statement does not support the view that with the time the [seller] had in his hands he would have been able to manufacture new goods or change the old goods so that the preservation of vitamin A would have been guaranteed. Neither [seller's] fax of 28 October 1992 nor other circumstances gave any guarantees to the [seller] that the [seller] would be able to deliver conforming goods at the end of the year 1992 or to be able to guarantee the preservation of vitamin A within the agreed range. The [seller] had no reason to assume that the [seller] would be able to deliver conforming goods within the agreed time. Due to these circumstances, the Court of First Instance holds, that in a manner required by Article 72 CISG, it was clear already before the delivery of the Order #10/92 that the [seller] will be liable for fundamental breach of contract. Because the fax of 28 October 1992 has not given the [buyer] any guarantees of [seller's] ability to deliver, it could not have meant an agreement between the parties either.

- The procedure of avoidance of the contract

The submitted documents indicate, that the [buyer] had first informed the [seller] of the results of the tests carried out by VTT during the fall. Then he had asked the [seller] for a substituting delivery concerning the Order #9/92 and furthermore on 22 October 1992 had notified that L demands disclosing of the vitamin content of the goods intended for the next delivery within the near future. Furthermore, in the fax of 22 October 1992 the [buyer] has informed the [seller] that if the vitamin content of the products is not on the required level, L will cancel the order and demand damages.

As mentioned above, based on the circumstances of the case the [seller] has been aware of the fact that L Oy was the final buyer and that the orders were to take place under its guidance. Taking this into consideration and the content of the fax of 22 October 1992, the Court of First Instance holds that the [buyer] had notified the [seller] in a reasonable manner of his intention to declare the contract avoided, as required by Article 72 of CISG. Due to this and because the [seller's] inability to deliver conforming goods was evident, it bears no significance whether it was a question of successive deliveries as defined in Article 73 of CISG in relation to orders 9/92 and 10/92.

- The duty to examine the goods and to give notice

It is of utmost importance in evaluating the acceptability of declaring the contract avoided in relation to Order #10/92 to think whether the [buyer] should have taken action already earlier in order to make sure that the goods for both of the orders would be conforming. This is particularly important considering that in the tests that took place in the spring, the vitamin content of the liposome gel had been 1200 IU/g and the respective content in day-creme was 2400 IU/g and that towards the end of June it had become clear to the [buyer] that the products for both of the orders had been manufactured using the same ingredients. Additionally, it has to be considered that in a fax message of 22 January 1992 the [buyer] had notified the [seller] that liposomes absorb 20 - 30 % of the vitamins within a few months, when vitamin A becomes less discernible in tests and that the [buyer] had also otherwise notified that vitamin A decomposes at a rate of 20 - 30%. It is also of significance that, to the [buyer], preservation of vitamin content was a central quality of the products. The question here is then, whether based on the information he had received at the end of June 1992 the [buyer] should have checked the goods immediately after he had received the 2nd consignment of the Order #9/92 and whether he should have notified the [seller].

As to this, we can state that referring to the non-conformity of the goods the buyer has relied on seller's expertise in terms of how the seller would reach the required vitamin content and the preservation of that content.

Furthermore, based on VTT tests of spring 1992, the [buyer] had had no reason to doubt that the vitamin content of the day creme would drop below the agreed minimum. As far as the liposome gel is concerned, a 20 - 30% drop in vitamin content after the tests would have meant that vitamin A content would have dropped 40 - 160 IU/g below the agreed level. In a fax of 22 January 1992, L's request to add vitamins is mentioned. N, who has undersigned the said fax, has witnessed that notification of 20 -30% absorption of vitamin was not based on studies but on a rule of thumb and that the [buyer] had presumed that the [seller] knew how this was. Furthermore, the said fax was not connected to the orders of the year 1992 but to the order in 1991. In addition, based on what has been presented in the case, there are so-called inhibitors which slow down the decomposition of vitamins.

On these grounds and especially because the task of the [seller] as a manufacturer of the product was to attend to the vitamin content remaining within the agreed range and because the [buyer] had had to rely on [seller's] ability to carry out this task one way or the other and because the [buyer] could have presumed that the [seller] had other means in his possession to guarantee the preservation of vitamin content than just adding vitamins, the Court of First Instance holds, that only on the basis of very low level of vitamins in the liposome gel sample the [buyer] had no reason to take random samples right after a partial delivery of the Order #9/92 on 7 August 1992, because the levels were above the allowed minimum level in the tests of the spring. This being the case, the Court of First Instance holds that the [buyer], in a fax message of 15 October 1992, has given notice within a reasonable time because the test results from VTT indicating the low vitamin levels only arrived on 15 October 1992.

Based on the above mentioned grounds, the Court of First Instance holds, that the [buyer] was entitled to declare the contract avoided in relation to the Order #10/92 and that this avoidance was not against CISG rules.

- Ruling of the Court of First Instance

The action is dismissed. The [seller] is ordered to pay the legal expenses of the [buyer] amounting to 162,185.50 FIM added with interest on arrears from one month after the issuance of the judgment onwards. The interest on legal expenses is 7% over the currently enforced interest rate of the Bank of Finland.

- The applicable laws

CISG Articles 35, 49 and 72

Law on legal procedure 21 section 1

PROCEEDING BEFORE THE HELSINKI COURT OF APPEALS 30 JUNE 1998

The judgment on appeal: Helsinki Court of First Instance, Dept. 5. 11 June 1995 no. 19067 (95/11481)
Matter at issue: Damages for contractual breach
Appellant: EP S.A. Switzerland [Seller]
Defendant: FP Oy, Espoo [Buyer]

- The appeal

[Seller] has renewed its statement of claims and has placed a primary demand that the Court of Appeals confirm that [buyer] has unlawfully cancelled an order it placed on 26 February 1992 and that [buyer] be made to accept the delivery and to pay the price of 671,450 FIM.

[Seller] placed a secondary demand that if [buyer] is not directed to pay the price, [buyer] be made to pay damages of 654,250.90 FIM; or, on the basis of an alternative calculation of damages in Part 2 in the judgment of the Court of First Instance. 523,657.45 FIM as acquisition costs and 115,204.74 FIM as administrative costs.

Additionally, [seller] has demanded that [buyer] should be made to pay the amounts mentioned in parts 1/2 to 1/6 of the judgment of the Court of First Instance. In case that [buyer] is required to accept the goods, [seller] is willing to give up the claim concerning destruction costs amounting to 19,980 FIM, which was mentioned in part 1/6 of the judgment of the Court of First Instance.

Additionally, [seller] has demanded that [buyer] be required to pay [seller's] legal expenses from the Court of First Instance, amounting to 279,740.68 FIM, and from the Court of Appeals amounting to 24,100 FIM.

- Reply

[Buyer] has replied and demanded compensation for expenses resulting from the reply, which amount to 13,908 FIM.

- Additional statements

[Seller] has produced two additional statements to the Court of Appeals on 17 July 1996 and on 18 July 1997. In the later letter it has requested that on oral hearing should be carried out in order to hear witnesses.

[Buyer] has replied to this and demanded 27,084 FIM for expenses resulting from the reply.

- The judgment

The said additional statements have been received by the Court of Appeals after the time limit for appeal has expired. There is no special reason to take them into account. Therefore these statements and their attachments are disregarded, with the exclusion of clerical errors mentioned in the letter of 17 July 1996 and carrying out of an oral hearing mentioned in the letter of 18 July 1997.

Because no such information is available which would necessitate hearing witnesses, the request for an oral hearing is denied.

There is no reason to change the judgment of the Court of First Instance. Therefore, the judgment of the Court of First Instance remains unchanged.

[Buyer] is directed to pay [seller] a reasonable amount of 8,000 FIM to compensate for the expenses resulting from the replies to the Court of Appeals. Interest on arrears is to be paid after one month after the issuance of the judgment onwards. The annual interest on arrears is the currently enforced interest rate of the Bank of Finland with 7% added thereto.

- Right to appeal

This judgment can be appealed to the Supreme Court if the Supreme Court grants a writ of certiorari.


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.

Go to Case Table of Contents
Pace Law School Institute of International Commercial Law - Last updated January 14, 2014
Comments/Contributions
Go to Database Directory || Go to CISG Table of Contents || Go to Case Search Form || Go to Bibliography