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CISG CASE PRESENTATION

Germany 11 September 1998 Appellate Court Koblenz (Chemical substance case) [translation available]
[Cite as: http://cisgw3.law.pace.edu/cases/980911g1.html]

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

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Case identification

DATE OF DECISIONS: 19980911 (11 September 1998)

JURISDICTION: Germany

TRIBUNAL: OLG Koblenz [OLG = Oberlandesgericht = Provincial Court of Appeal]

JUDGE(S): Unavailable

CASE NUMBER/DOCKET NUMBER: 2 U 580/96

CASE NAME: German case citations do not identify parties to proceedings

CASE HISTORY: 1st instance LG Bad Kreuznach 12 March 1996 [affirmed]

SELLER'S COUNTRY: Germany (defendant)

BUYER'S COUNTRY: Morocco (plaintiff)

GOODS INVOLVED: Chemical substance (dryblend) used for production of plastic (PVC) tubes


Case abstract

GERMANY: Oberlandesgericht Koblenz 11 September 1998

Case law on UNCITRAL texts (CLOUT) abstract no. 285

Reproduced with permission from UNCITRAL

A Moroccan buyer, plaintiff, purchased raw material for manufacturing plastic PVC tubes (dryblend) from a German seller, defendant. When the buyer discovered that the dryblend was not suitable for use in its manufacturing facilities, the buyer claimed lack of quality and sued for damages.

The court dismissed the claim. It held that the buyer had lost its right to rely on the lack of conformity according to article 39(1) of the CISG. Giving notice to the seller three weeks after delivery was held as being too late. The court said that, if trial processing was necessary to examine the quality of the goods, a period of one week for examination and another week for giving notice would have been reasonable. As to the buyer's argument that it had been unable to examine the goods any earlier because the manufacturing facilities were still under construction, the court held that this did not constitute a reasonable excuse (article 44 CISG). Such an excuse demanded that the buyer acted with reasonable care in providing for prompt examination of the goods, which included the timely supply of machinery necessary for trial processing. The buyer failed to provide particulars that it had acted with such due care. Moreover, disorganisation on the part of the buyer was not an aspect to be considered in determining the period practicable in the circumstances (article 38(1) CISG).

Since the seller was found not to have been aware of the fact that the dryblend was not suitable for producing plastic tubes in the buyer's manufacturing facilities, as the buyer had failed to inform the seller of the kind of equipment in use, the seller did not lose its right to rely on late notification (article 40 CISG). The court said that, although there would be a loss of the right to rely on late notification if the seller had had a duty to warn the buyer or provide additional information about the goods delivered, in this case there had been no such obligation.

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Classification of issues present

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

APPLICABLE CISG PROVISIONS AND ISSUES

Key CISG provisions at issue: Articles 38 ; 39 ; 40 ; 44 [Also cited: Articles 35 ; 45]

Classification of issues using UNCITRAL classification code numbers:

38A [Buyer's obligation to examine goods as soon as practicable in the circumstances];

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

40A [Seller fails to disclose known non-conformity: not applicable in this case];

44A [Excuse for buyer's failure to notify: not applicable in this case]

Descriptors: Examination of goods ; Lack of conformity notice, timeliness ; Lack of conformity known to seller ; Excuse ; Waiver

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Editorial remarks

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Citations to other abstracts, case texts and commentaries

CITATIONS TO OTHER ABSTRACTS OF DECISION

English: [1998] Forum des Internationalen Rechts/The International Legal Forum (English language edition) 107-108; Unilex database <http://www.unilex.info/case.cfm?pid=1&do=case&id=300&step=Abstract>

CITATIONS TO TEXT OF DECISION

Original language (German): cisg-online.ch <http://www.cisg-online.ch/cisg/urteile/505.htm; [1999] Oberlandesgerichts-Rechtsprechungsreport (OLGR) Koblenz 49-51; [1998] Forum des Internationalen Rechts/The International Legal Forum 107-109; Unilex database <http://www.unilex.info/case.cfm?pid=1&do=case&id=300&step=FullText>

Translation (English): Text presented below

CITATIONS TO COMMENTS ON DECISION

English: Akaddaf, Application of the CISG to Arab Islamic Countries (2000) nn.57-62; 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)]; Larry A. DiMatteo et al., 34 Northwestern Journal of International Law & Business (Winter 2004) 299-440 at n.396; 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); [2004] S.A. Kruisinga, (Non-)conformity in the 1980 UN Convention on Contracts for the International Sale of Goods: a uniform concept?, Intersentia at 71, 83, 108, 119; Henschel, The Conformity of Goods in International Sales, Forlaget Thomson (2005) 231

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Case text (English translation)

Queen Mary Case Translation Programme

Oberlandesgericht Koblenz 11 September 1998

Translation [*] by Todd J. Fox [**]

Translation edited by Ruth M. Janal [***]

FACTS OF THE CASE

The [buyer] is a Moroccan company that produces, among other things, plastic pipes. At the end of 1992, [buyer] purchased a used machine for the production of PVC-pipes from Company K. GmbH. The "extruder" machine was built in 1974. In addition, the [buyer] bought 55 tons of dryblend from the [seller] for the production of pressed PVC-pipes. According to the [buyer], the material arrived in the port of Casablanca on 15 December 1992. After setting up the extrusion machine, the [buyer] attempted to begin producing PVC-pipes on 18 January 1993. The production failed, since after a few minutes the PVC-material was badly burned at the pipe head. The [buyer] consulted the [seller] concerning the problem. From 13-15 February and 20-21 March 1993 representatives of the [seller] were with the [buyer]. However, afterwards the production of PVC-pipes was still not successful. The [buyer] sees the cause as defective raw material from the [seller] and is claiming damages. [Buyer] claims reimbursement of the purchase price for the 55 tons of dryblend in the amount of 85,800.00 DM [German marks], reimbursement of the related delivery costs of 12,100.00 DM, and reimbursement of costs in the amount of 51,648.73 DM spent in the consultation of workers of K. GmbH, the company that delivered the extruder machine.

The [buyer] maintains that the material from the [seller] is defective in that the temperature stability of the material is limited. [Buyer] asserts that the [seller] should have pointed that out, especially since the [buyer] indicated during the contract negotiations that it had acquired a complete used production line for the fabrication of pipes from Company K. This, [buyer] asserts, seemed not to interest the [seller] since [seller] did not inquire about details of the machine.

The [buyer] requested that the [seller] be ordered to pay 153,655.09 DM with 10% interest from 20 April 1994.

The [seller] requested that the claim be dismissed.

The [seller] considers its material to be free of defects and claims to have already delivered this material for many years to other customers without objection. Furthermore, the [seller] maintains that the trouble in the production of PVC-pipes comes from the use of the antiquated extrusion-machine. [Seller] asserts that before the [buyer]'s order he gave the [buyer] a specification sheet with the characteristics of the delivered PVC. Thereafter, the [buyer] ordered the standard PVC from the [seller] without mentioning the type of machine the PVC would be processed with. Furthermore, [buyer]'s compensation claims should, in any event, be rejected because the [buyer] did not meet its duty to examine and give timely notice according to Arts. 38(1) and 39(1) CISG.

After consulting an expert opinion, the District Court dismissed the [buyer]'s claim.

The Court held that the delivered goods were not non-conforming since the evidence showed that the [seller]'s material was suitable for the production of PVC pressure pipes with extrusion machines. According to the expert's report, the [seller]'s material is employable on currently common and usual extrusion machines. The particularity of the present case is clearly that the [seller]'s material is not able to be processed in the [buyer]'s machine since, due to its age, it evidently develops higher temperatures which exceed the temperature resistance of the PVC material. However, that does not make the goods that [seller] delivered non-conforming goods. That would only be the case if the [buyer] had expressly or impliedly made known to the [seller] the particular purpose of the material, namely its processing in [buyer]'s machine. According to [buyer]'s own representations, the [buyer] did not give this express indication. [Buyer] simply mentioned during the negotiations that it had purchased a production line from Company K. GmbH. The [seller] must not have inferred from this that the machine is an older machine for which its standard mix is not suitable. The [buyer] wrongly accuses the [seller] of not showing a closer interest in [buyer]'s machine. It is the [buyer]'s responsibility to specify the particular purpose rather than merely order the offered standard mix.

The further explanations in the District Court's decision are considered.

In the appellate instance, the parties are further pursuing their first instance demands with supplementary and partially new statements. The [buyer] has reduced the amount of its claim.

The [buyer] asserts that the dryblend that [seller] delivered is defective. [Buyer] maintains that it is not even within the frame of temperature resistance that is normally required for plastic production. The dryblend can allegedly not even withstand temperatures of 160 degrees. [Buyer] maintains that it examined the goods and gave notice of the non-conformity in a timely manner. [Buyer] asserts that it did not receive the shipping papers until 22 December 1992. These were then given to customs, which did not release the goods until 28 December 1992. Due to the particularities of the used extrusion machine, a reliable examination of the suitability of the dryblend could only occur through a test-run in the machine purchased from Company K. The installation of the machine bought in Germany could not take place from one day to the next. It was not until 16 January 1993 that technicians could arrive to assemble the machine. On 17 January 1993, the extrusion machine was production ready. Directly after installation of the machine, the [buyer] attempted to produce PVC-pipes with the dryblend. The attempt failed. The [buyer] telephoned Mr. M. of the [seller] and informed it of the unsuccessful attempt. At first, they presumed that the problem was with the machine. However, the technicians from Company K. examined the machine until 3 February 1993 and ascertained that it operated correctly and that the reason for the failure must be because of the dryblend. On 3 February 1993, the [buyer] immediately informed M., the authorized officer of the [seller], of this finding. The [buyer] maintains that the [seller] knew of the non-conformity of the dryblend, or at least [seller] could not have been unaware of such non-conformity. Alternatively, the [buyer] claims that, upon a breach by the seller of a duty to warn and advise, the application of Arts. 38 and 39 CISG is ruled out. [Buyer] further claims that the [seller], knowing the place of use, should have indicated to the [buyer] that usage of the dryblend could cause problems in older machines.

The [buyer] requests, in amendment of the appealed decision, that the Court order the [seller] to pay 149,548.73 DM in addition to 10% interest since 20 April 1994; in the alternative, [seller]'s exemption from judicial execution to be guaranteed through the surety of a bank.

The [seller] requests that the appeal be dismissed.

The [seller] asserts that the delivered dryblend is not defective. Rather, it is a current and usual mixture that has proved itself over many years in the marketplace. The [seller] did not know, nor was it discernible, that the [buyer] intended to produce PVC-pipes with a used and completely obsolete extrusion machine. [Seller] further asserts that the suit should be dismissed because the notice of the alleged non-conformity was not timely. Notice of the non-conformity was given at the earliest on 3 February 1993, more than two weeks after the first failure in production. [Seller] contests that the machine was not production ready until 17 January 1993. If that was the case, the [seller] asserts this would not be a sufficient excuse for the delayed notice. The [buyer] should have created the necessary prerequisites for a prompt examination. The [buyer], however, did not do this. Rather, [buyer] allegedly just left the delivered goods lie during a relative long period of time. The [buyer] allegedly knew since 7 December 1992 that the bill of lading was at S. Express in Casablanca. It is therefore [buyer]'s own fault if, according to its claim, it did not receive the goods until 28 December 1992, as the goods had already arrived in the port of Casablanca on 15 December 1992.

For the details, the content of the briefs as well as the documents deposed with the Court are considered.

REASONS FOR THE DECISION

The [buyer]'s appeal is without success. The District Court had correctly decided and the [buyer]'s appellate pleadings do not lead to a different result.

I. The [buyer] cannot demand the payment of 149,548.73 DM and interest from the [seller].

     1. According to the correct reasoning of the lower decision, the United Nations Convention on Contracts for the International Sale of Goods (CISG) is applicable to the parties' contractual relationship.

     2. The [buyer] maintains that the goods are defective and therefore refers to non- conformity within the meaning of Art. 35 CISG. However, under Art. 39(1) CISG the [buyer] lost the right to rely on a lack of conformity.

According to Art. 39, a buyer loses the right to rely on a lack of conformity if [buyer] does not give notice to the seller specifying the nature of the lack of conformity within a reasonable time after it has discovered it or ought to have discovered it.

According to Art. 38, the buyer must examine the goods, or cause them to be examined, within as short a period as is practicable in the circumstances. After expiration of the examination period (Art. 38) together with the notice period (Art. 39), the total period to notify the non-conformity, the buyer loses the right to object to the defect.[1]

           a) The [buyer]'s notice of the claimed non-conformity was too late. It can remain undecided whether the notice did not take place at the earliest on 3 February 1993 when, according to the [buyer]'s statement, the [seller] informed the [buyer] that the production problems must be due to the dryblend. In any case, notice was not given before 18 January 1993. According to the [buyer]'s statement, the extrusion machine was not production ready until 17 January 1993. Directly after the installation, the [buyer] attempted production with the dryblend on 18 January 1993. The attempt was in vain. [Buyer] then informed the [seller] by telephone of the production failure. According to the [buyer]'s assertions, the [buyer] did not receive the goods until 28 December 1992. Taking the date of 18 January 1993 as a basis, the [buyer] consequently "demanded" almost three weeks for their examination. It therefore took a longer period of time than that which is usual. According to the [buyer], the dryblend could be examined in the extrusion machine. The fact that the production of PVC-pipes failed using the blend, which then caused the [buyer] to notify of the defect, could be quickly determined. The [buyer] itself claims that on 18 January 1993, one day after the machine was production ready, [buyer] informed the [seller] of the problem in production. Generally, a period of not more than one week is granted for the examination of the goods through a test-run.[2] Here three weeks had already gone by from the time the [buyer] claims to have received the goods (28 December 1992) to their examination (17/18 January 1993). This clearly exceeds the usual period of time for examination.

The [buyer] unsuccessfully argues that it could not have its machine, the only one with which it could test the dryblend, in working order before 17 January 1993. [Buyer] maintains with this argument that a longer examination period than usual was necessary. The [buyer], however, has the burden of showing this.[3]

A specific showing is lacking, so that it also cannot be determined whether the circumstances did not permit the goods to be examined directly after delivery. In knowledge of its duty to give notice, the [buyer] had the burden to carry out the examination of the blend as soon as possible after the arrival of the machine, which was allegedly the only means by which an examination could be made. [Buyer]'s duty to notify could at most be preserved if, due to circumstances for which the [buyer] is not responsible, notice was not possible. This, however, cannot be determined.

Details concerning the exact time of delivery are lacking. The [buyer] stated only that the machine was delivered at the end of 1992. Also lacking are concrete statements concerning when the [buyer] arranged for the installation, which [buyer] maintains could occur in one to two days with the presence of expert technicians.

In the view of the court, even with an assumed receipt of the goods on 28 December 1992, the total period for examination and notice already expired on 18 January 1993: measured upon an examination period of one week, an additional period of a week for giving notice seems reasonable, particularly since the [buyer] itself explained in its notice of defect - given immediately after the machine was production ready - that this was to be expected and therefore was reasonable.

The total period for examination and notice would clearly be expired if the goods had already been at the [buyer]'s disposal. This is the case here. According to the [buyer], it did not receive the goods until 28 December 1992. However, it is uncontested that the goods were at the port of Casablanca at least from 15 December 1992. Since the [seller] notified the [buyer] on 7 December 1992 that the bill of lading was with S. Express in Casablanca, the [buyer] was put in the position to receive the dryblend from customs upon its arrival and the goods could have been at its disposal from this point in time. It was the [buyer]'s responsibility to timely acquire the shipping papers required for customs from S. Express so that the [buyer] could have received the goods upon their arrival instead of on 28 December 1992. The [buyer] did not sufficiently show that this would have been impossible despite the [seller]'s advance notification on 7 December 1992 containing two call numbers for S. Express, and the [buyer]'s inquiry over the express shipping service, allegedly unknown in Morocco. With over one month of time gone by, the total period of time for examination and notice, which should regularly be approximately fourteen days,[4] was plainly exceeded here.

          b) The requirements of the exception provision under Art. 44 CISG are not present here. The buyer who relies on this provision has the burden of showing that the actual requirements for its application, especially those concerning reasonable excuse, have been met.[5] A sufficient showing is missing in the case at hand. For [buyer]'s excuse that the goods were not examined until 17/18 January 1993, the [buyer] unsuccessfully relies on its arguments that it could not acquire the blend until 28 December 1992 and that [buyer] was not able to set-up the machine from one day to the next. A prerequisite for a reasonable excuse is always that the buyer acted with the care and diligence required under the circumstances; that [buyer] reasonably reacted within the scope of its concrete possibilities.[6] However, as shown above in section a), it can neither be determined that it would not have been possible for the [buyer] to already acquire the goods upon their arrival at port, nor that the installation of the machine on 17/18 January 1993 was still within the scope of acknowledged care and diligence under the circumstances. The [buyer] had not even stated exactly when it disposed over the machine in 1992 and when it arranged for the installation of the machine through Company K. The mere statement that an earlier date than 16 January 1993 for the arrival of Company K. technicians was not possible does not permit, for example, the determination of acknowledgeable business organization difficulties. As the purchaser of material intended for production of goods for which [buyer] knew that the material's examination required a test-run on a particular production machine, the [buyer] had the responsibility to make sure that the machine was timely prepared. This duty readily follows from the duties to examine and give notice which are for the protection of the seller and also include that the buyer properly organize the necessary test-run.

The lack of a proper organization of the test-run examination pursuant to Art. 38 is inconsistent with the requirement that the buyer examine the goods within as short a period as is practicable in the circumstances: the buyer's lack of organization is not to be taken into consideration with regards to the wording of the statutory duty to examine "within as short a period as is practicable in the circumstances". In this case, a proper organization of the examination of the goods cannot be determined; when and how the [buyer] organized the installation of the machine remains open. Accordingly, it cannot be determined that the [buyer] just "let the machine lie" for a particular period.

          c) The [seller]'s reliance on Arts. 38 and 39 CISG is precluded when Art. 40 CISG applies. However, the [buyer] did not sufficiently substantiate its assertion that the [seller] knew of the dryblend's low temperature stability and that the use of the dryblend in older machines could cause problems. [Buyer]'s claim that the [seller] knew or could not have been unaware of the lack of conformity was therefore also not substantiated. Along with its assertion that the [seller] knew of the low temperature stability, the [buyer] merely evinces the [seller]'s knowledge of the blend's mixture, which was delivered to the [buyer] as ordered. The [buyer]'s conclusion, from its assertion concerning the [seller]'s alleged knowledge of possible problems connected with the blends use on older machines, that the [seller] therefore knew of the lack of conformity is without foundation. The [buyer] itself stated that it had only informed the [seller] that [buyer] had acquired a complete production line for the fabrication of PVC-pipes from Company K. The [seller] allegedly did not show interest in further details about the machine and did not inquire the [buyer] about it. The [buyer] later stated that it had informed the [seller] that the machine was second hand. The [seller] disputes this. However, even if the [seller] knew that the [buyer] wished to produce PVC-pipes with a used machine in Morocco, that does not mean that the [seller] imagined that the [buyer] intended production on an older machine, where the use of the dryblend could cause problems because of the machine's age. The [seller] is also not required to come to such a conclusion. As the District Court correctly explained, the [buyer] wrongly blames the [seller] for not having shown further interest in the machine. It was the [buyer]'s responsibility to specify the particular purpose and not merely order the offered standard mixture.

          d) The loss of the right to rely on the lack of conformity of the goods would also apply if the non-conformity were based upon the breach of a duty to warn or advise by the seller. It cannot be found here that the non-conformity of the blend asserted by the [buyer] is based upon a [seller]'s breach of a duty to warn or advise. As shown above, the [seller] had no reason to advise or to warn. The mere knowledge of the [buyer]'s intention to use the blend on a used machine is not enough to impose a duty to advise during a purchase of standard mix. This is even more so the case in that the [seller] dealt with the [buyer] who is a producer. It cannot be determined that the [seller] had reason to know that the [buyer] was not at least as technically competent as itself.[7]

          e) The exceptional case of a waiver of compliance with the notice provisions is discernibly not at hand here. Such a waiver is possible under the Convention.[8] Within the CISG's sphere of application, special circumstances of the individual case must show an obvious waiver.[9] The [buyer] in the present case did not show such circumstances. Such circumstances are also not to be found in the admitted documents of the parties. It does not constitute a waiver when the seller merely inspects the goods or has conversations with the buyer in order to determine the legitimacy of a notice of defects, or when the seller does not immediately reject a notice as being too late.[10] Such was the case here. [Seller]'s workers were sent to the [buyer] in February and March 1993 in order to determine the legitimacy of the notice of defects. During this time, the [seller] wanted to oblige the [buyer] and help it to get production going. In doing this, the [seller] continuously considered the machine, and not the blend, to be the reason for the failure in production.

     3. The loss of the right to rely on the lack of conformity of the goods leads to a dismissal of the claim since the [buyer] cannot successfully assert any of the Art. 45 CISG remedies.

II. The decision on costs is guided by 97(1) ZPO [German Code of Civil Procedure].
The decision on the provisional enforceability is based on 708 No. 10, 711 ZPO. The sum in dispute in the appeal and the [buyer]'s request for relief is in the amount of 149,548.73 DM.


FOOTNOTES

* All translations should be verified by cross-checking against the original text. For purposes of this translation, the Plaintiff of Morocco is referred to as [buyer]; the Defendant of Germany is referred to as [seller]. Amounts in German currency (Deutsche Mark) are indicated as [DM].

** Todd J. Fox is an Associate of the Institute of International Commercial Law of the Pace University School of Law. He received his LL.M. summa cum laude from Albert-Ludwig-Universität Freiburg.

*** Ruth M. Janal, LL.M. (UNSW) is a Phd. Candidate at Albert-Ludwig-Universität Freiburg.

1. See Staudinger - Magnus, BGB, Art. 38 CISG Rn. 1; Art. 39 Rn. 30 (13 ed.).

2. See OLG (Regional Court of Appeals) Karlsruhe, Recht der Internationalen Wirtschaft (1998) 235, 236; Staudinger - Magnus, BGB, Art. 38 CISG Rn. 50.

3. See Staudinger - Magnus, BGB, Art. 38 CISG Rn. 65.

4. See id. at Art. 39 CISG Rn. 49.

5. See id. at Art. 44 CISG Rn. 27.

6. See id. at Art. 44 CISG Rn. 12.

7. See id. at Art. 35 CISG Rn. 35.

8. BGH (Federal Supreme Court), Wertpapier-Mitteilungen (1997) 2313.

9. See OLG Karlsrue, Recht der Internationalen Wirtschaft (1998) 235, 237.

10. See Staudinger - Magnus, BGB, Art. 39 CISG Rn. 18.

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