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CISG CASE PRESENTATION

Netherlands 2 October 1998 District Court 's-Hertogenbosch (Malaysia Dairy Industries v. Dairex Holland) [translation available]
[Cite as: http://cisgw3.law.pace.edu/cases/981002n1.html]

Primary source(s) for case presentation: Case text


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Case identification

DATE OF DECISION: 19981002 (2 October 1998)

JURISDICTION: Netherlands

TRIBUNAL: Rb 's-Hertogenbosch [Rb = Arrondissementsrechtbank = District Court]

JUDGE(S): Unavailable

CASE NUMBER/DOCKET NUMBER: 9981/HAZA 95-2299

CASE NAME: Malaysia Dairy Industries Pte. Ltd. v. Dairex Holland BV

CASE HISTORY: Unavailable

SELLER'S COUNTRY: Netherlands (defendant)

BUYER'S COUNTRY: Singapore (plaintiff)

GOODS INVOLVED: Powdered milk


Classification of issues present

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

APPLICABLE CISG PROVISIONS AND ISSUES

Key CISG provisions at issue: Articles 4 ; 35 ; 71 ; 75 ; 77 ; 79

Classification of issues using UNCITRAL classification code numbers:

4B1 [Scope of Convention (issues excluded): validity under domestic law];

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

71A [Grounds for suspension of performance: no right to suspend as not proved buyer would not perform a substantial part of his obligations];

77A [Obligation to take reasonable measures to mitigate damages];

79B [Impediments excusing party: State regulations of which seller was aware prior to conclusion of contract held not to constitute impediment excusing party]

Descriptors: Standard terms and conditions ; Scope of Convention ; Validity ; Conformity of goods ; Suspension of performance ; Exemptions or impediments ; Mitigation of loss

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Editorial remarks

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Citations to case abstracts, texts, and commentaries

CITATIONS TO ABSTRACTS OF DECISION

(a) UNCITRAL abstract: Unavailable

(b) Other abstracts

English: Unilex database <http://www.unilex.info/case.cfm?pid=1&do=case&id=443&step=Abstract>

CITATIONS TO TEXT OF DECISION

Original language (Dutch): [1999] 17 Nederlands International Privaatrecht (NIPR) No. 70 [81-86]; Unilex database <http://www.unilex.info/case.cfm?pid=1&do=case&id=443&step=FullText>

Translation (English): Text presented below

CITATIONS TO COMMENTS ON DECISION

English: [2004] S.A. Kruisinga, (Non-)conformity in the 1980 UN Convention on Contracts for the International Sale of Goods: a uniform concept?, Intersentia at 134, 211; Henschel, The Conformity of Goods in International Sales, Forlaget Thomson (2005) 71, 138, 202

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Case text (English translation) [second draft]

Queen Mary Case Translation Programme

Rb 's-Hertogenbosch, 2 October 1998
Malaysia Dairy Industries Pte. Ltd. v. Dairex Holland BV

Translation by Yvonne P. Salmon [1]

Malaysia Dairy Industries Pte. Ltd. (Singapore) [the buyer], plaintiff in the principal action, defendant in the counterclaim, previous counsel O.N.P. Nijkamp, present counsel J. J. Allen, Esq. Attorney-at-Law

v.

Dairex Holland B.V. (Holland) [the seller], defendant in the first proceedings, plaintiff in the counterclaim, represented by A. P. J. M. Verbeek, Esq. Attorney-at-Law, and JHM Erkens, Procureur.[2]

[...]

2. Established facts

[...]

     a. In the period from October 1994 until April 1995, M.D.I. [The buyer] concluded with [the seller] seven sales contracts in total (the contract numbers ending respectively with 528, 544, 545, 575, 576, 577 and 607) for deliveries by [the seller] to [the buyer] for the total price of 2,262,400 USD.

     b. The parties agreed inter alia that [the seller] would supply milk powder with a maximum radiation level of 10 Bequerelles (BQ). The milk powder was to be delivered in Singapore.

     c. Since 1986 a prohibition had been imposed by the Singapore government - [more precisely by] the "Ministry of the Environment" (MOE) - on the import of foodstuffs contaminated with radioactive Iodine 131, Caesium 134, Caesium 137 and Strontium 90. What exactly should be understood by "contamination" with these substances according to the Singaporean measure is not established in these proceedings.

     d. [The seller] has not delivered the milk powder agreed upon despite several demands to do so.

3. The dispute under the principal claim and the counterclaim

[...]

4.  Judgment of the claim and the counterclaim

[...]

Applicable law

      4.1. The Court is of the opinion that the General Conditions of [the seller] do not apply to the relationship between the parties, with respect to the contracts at issue. The Court adheres to the considerations under 3.2 in the interlocutory judgment dated 2 August 1996.

It is established and not contested, that the parties had been contracting with each other for years, and that the submitted contracts are revised versions of earlier agreements concluded between the parties. Given the existing legal relations between the parties and the fact that the contracts concerned are contracts revised in 1985 in connection with agreements concluded in 1991, it was up to [the seller] to inform [the buyer] in due time as to the existence of its new General Conditions, which came into effect as of 1 January 1995. As [the seller] omitted to do this, it should be held that [the seller] could not have deemed that [the buyer] had agreed to the General Conditions. As it cannot be deemed that an agreement between the parties was reached concerning the applicability of the General Conditions, these conditions should not be applied and general legal principles should be applied.

In light of Article 6:247 paragraph 2 of the Civil Code and the previous considerations, the call upon the application of Section 6.5.3 of the Civil Code and specifically Art. 6:232 of the Civil Code is rejected.[3]

      4.2. [The seller] has secondarily called upon the application of the MPC Conditions, apparently because reference was made to these conditions in the original agreements. Given, however, that [the seller] did not refer to the MPC Conditions in the revised contracts - with the exception of contract numbered 030/50607 - but to his own General Conditions - which, as has been established, are not applicable, likewise the MPC Conditions cannot be applied here.

In the contract numbered 030/50607 dated 3 March 1995, reference was made to the MPC Conditions. Moreover, the [the buyer] acknowledged that reference. Hence, with regard to this contract the MPC Conditions are applicable. In accordance with Art. 14 of these conditions, this contract is governed by Dutch law.

      4.3. As to the other contracts the parties did not make a choice of law. Application of Art. 4 of the Rome Convention on the Law Applicable to Contractual Obligations leads to the conclusion that Dutch law is the law applicable to those agreements given that [the seller], as the party making the most characteristic performance, is established in the Netherlands. However, the material law governing these agreements is the Vienna Sales Convention (CISG) on the basis of Art. 1(1)(b) of this Convention, as Singapore ratified the Convention on 1 March 1996 and hence after the date of the conclusion of the agreements concerned.[4]

This also applies to the contract mentioned above under 4.2., as the MPC conditions do not exclude the application of the Vienna Sales Convention. All of the contracts in question are therefore governed by the Vienna Sales Convention.

Nullity of the agreements?

      4.4. The Vienna Sales Convention does not deal with the validity of an agreement or the clauses contained therein (Art. 4 of the Convention) the validity of the agreements, is therefore determined by Dutch law.

      4.5. Taking as a hypothetical basis that the delivery of the milk powder with a maximum radiation level of 10 BQ/kg contravenes a measure taken by the Ministry of the Environment (MOE) of the Republic of Singapore - which is not established here in any way - the question has to be answered whether the agreements are void because of this violation on the basis of Art. 3:40 of the Civil Code.

      4.6. As was the case under Art. 1373 of the old Civil Code, with respect to Art. 3:40 paragraphs 2 and 3, it must be accepted - as is also confirmed implicitly in the Explanatory Memoranda [5] concerning this article - that the "violation of an obligatory provision of law" referred to therein only deals with the violation of a provision of Dutch law. The Singaporean measure in question does not fall under this provision, meaning that the contracts cannot be found to be void on the basis of Art. 3:40 paragraphs 2 and 3 of the Civil Code.

      4.7. This does not mean that the agreements could not be void on the basis of Article 3:40 paragraph 1 of the Civil Code. The terms "good morals" and "public order" in this paragraph of the Article, refer to the norms of unwritten law that are deemed to be fundamental in Dutch society. It is the opinion of the Court, that this cannot be said of the Singaporean measure concerned - if this, as hypothetically accepted, prohibits the import of foodstuffs with a maximum radiation level of 10 BQ/kg. Taking into account, among other things, the norms used in this context in other countries (where radiation levels of 180 and 370 BQ/kg are acceptable, which was not contested in the pleadings of [the buyer]), it cannot be accepted that the Singaporean measure concerned is deemed to be fundamental in Dutch society. The agreements are therefore neither void on the basis of being contrary to good morals nor on the basis of public order considerations.

      4.8. [The seller] has stated that there are also grounds to conclude that the agreements are void on the basis of Art. 7 of the Rome Convention on the Law Applicable to Contractual Obligations. [The seller] refers to a decision of the Supreme Court [Hoge Raad] of 13 May 1966, NJ 1967, 3 (the Lanati judgment). In this context the Court considers the following.

Art. 7 of the Rome Convention on the Law Applicable to Contractual Obligations deals with exceptions in which a particular rule of obligatory law of a country with which the case is closely linked, can be applied if the nature and the scope of the rule, together with the consequences which would result from the application or non-application of this rule, can give cause for such application. Leaving aside at this stage whether there is reason to apply in this case the rule of the Singaporean government concerned, it must be held that the application of the rule concerned does not result in the agreement between the parties being void. As far as it is apparent to the Court from the exhibits - and in this respect [the seller] has not stated otherwise - the rule concerned only contains a prohibition on the import of foodstuffs contaminated with the above-mentioned substances. Agreements such as these are clearly not threatened by the measure. This reason as such is sufficient to conclude that the agreements are not void on the basis of Art. 7 of the Rome Convention on the Law Applicable to Contractual Obligations.

      4.9. In conformity with the above consideration, [the buyer] justly points out in its conclusion of rebuttal in the counterclaim, that if one wishes to conclude that the agreements concerned are void on the basis of the considerations of the Supreme Court in HR 13 May 1966, NJ 1967, 3 (the Alnati judgment), the measure of the Singapore government concerned must also threaten with nullity the agreements concluded in violation of the provisions of this measure. In that judgment, the Supreme Court refers to "taking account of the provisions of a foreign state" and "thus allowing those provisions to prevail over the law chosen by parties". Thus, the considerations stated under 4.8. can also be applied here. Likewise, it cannot be concluded that the agreements are void on the basis of the Alnati judgment.

      4.10. The Court concludes that the claim for the agreements to be declared void fails.

Party's failure to perform

      4.11. As [the buyer] has stated, the violation of the obligation to contract in conformity with all applicable national regulations is not to be considered as a failure to perform under the Vienna Sales Convention. In the context of the party's failure to perform, there would have to have been a violation of a contractual obligation by the buyer.

      4.12. [The seller] cannot benefit from Art. 71(1)(b) of the Vienna Sales Convention, as it is not established whether [the buyer] did not (or could not) perform a substantial part of his obligations, i.e., receipt of the milk powder and payment of the purchase price. Leaving aside the fact that [the buyer] was prepared to receive the milk powder in Singapore, and that it is in no way established that the Singapore authorities would have rejected milk powder with a (maximum) radiation level of 10 BQ/kg, [the seller] did not contest that [the buyer] had offered to receive the powder in the Free Trade Zone after [the seller] had informed [the buyer] of its concern over the possible destruction of the powder. In so doing, [the buyer] fulfilled its obligation to make the delivery of the milk powder possible. Therefore there is no failure to perform and no reason to fear that the other party will not perform a substantial part of his obligations as a result of his conduct in preparing to perform or in performing the contract.

Force majeure?

      4.13. The possibility to apply the defense of force majeure is to be rejected both under the Vienna Sales Convention (Art. 79) and under Dutch Law (Art. 75). Leaving aside the fact that it is to be accepted that [the seller] knew of the existence of the Singaporean measure concerned at the time of concluding the (revised) agreements (see following point), there was no factual obstacle (beyond its control) for [the seller] to fulfill its obligations arising from the agreements. The existence of the Singaporean measure cannot be deemed to be such an obstacle. On the basis of that measure, there was at worst a risk for the parties that the milk powder would be destroyed, which was not a force majeure for [the seller].

Unforeseen circumstances?

      4.14. By its facsimile message dated 7 September 1993, [the buyer] had already informed [the seller], "that the Singaporese standard for RA level for SMP is zero BQ/kg of powder",[6] which was repeated in the facsimile message of [the seller] of 14 September 1993 (exhibits 6 and 10 to the conclusion of reply in principal claim/answer in counterclaim). It must therefore be accepted that in September 1993 [the seller] already knew the nature of the (strict) demands of the Singapore government. Given that the agreements concerned were concluded at the end of 1994/beginning 1995, the defense of unforeseen circumstances on the basis of Art 6:258 Civil Code also fails.

Forfeit of a right / waiver of a right / unilateral amendments of agreements?

      4.15. The statement of [the seller], where he states that [the buyer] indicated in several facsimile messages that the delivery of milk powder should comply with "the local food regulations" (see inter alia facsimile message dated 2 February 1995, exhibit IVa to counterstatement/principal claim, facsimile message 29 March 1995, exhibit VII to counterstatement/principal claim, 7 April 1995, exhibit VIIIa to counterstatement/principal claim), and that [the buyer] indicated several times in her facsimile messages, that if the MOE should find the milk powder to be "RA contaminated" the powder would be destroyed and [the seller] would have to replace the milk powder without cost to [the buyer] is not contested. However, in a later stage [the buyer] said she took into consideration the objections of [the seller] against cost-free replacement if the milk powder was destroyed by the MOE, by informing [the seller] that she was negotiating with the authorities as to the possibility of re-exporting the milk powder if the radiation level was considered by them to be too high (see inter alia the facsimile message dated 26 April 1995, exhibit IX to Answer/principal claim). Furthermore [the buyer] informed [the seller] in that facsimile message, that she would open a letter of credit (L/C) in accordance with the contract and that [the seller] would have to ensure that the radiation level of the milk powder did not surpass the level agreed upon. ()

      4.17. From the foregoing it can be concluded that although the [the buyer] originally wanted to change the content of the agreement by demanding that [the seller] would deliver in conformity with "the food regulations" of the Singapore government - whatever that may involve - [the buyer] later diverged from that by only demanding conformity with the provision in the agreements, that milk powder with a radiation level of maximum 10 BQ/kg was to be delivered and by clarifying that if [the seller] was to deliver in conformity with that provision the risk of destruction would be borne by [the buyer]. After the facsimile message from [the buyer] dated 6 May 1995 the only issue that was still the subject of discussion between the parties was what the risk was that the MOE would destroy the milk powder due to an excessive radiation level if [the seller] failed to fulfil the contract by delivering milk powder with a radiation level of more than 10 BQ/kg, and what that would mean for the obligation of [the seller] to deliver.

      4.18. Permission was apparently not obtained from the MOE for the re-exportation of milk powder with an excessive radiation level. ()

      4.19. [The seller] has stated that by proposing to test the milk powder in the Free Trade Zone, [the buyer] tried to adjust the contractual conditions with regard to the testing of the milk powder. It was agreed that the milk powder was to be tested by the SGS [Société Générale de Surveillance (Nederland) B.V.] prior to departure and that payment would follow after the receipt of documentation, which was to include the certificate with respect to the radiation tests. According to [the seller] the parties did not reach an agreement as to this adjustment.

The Court rejects this defense. The proposal of [the buyer] to test in the Free Trade Zone is clearly linked to her attempt to reduce the risk that the MOE would order the destruction of the milk powder on the basis of an excessive radiation level. Nothing, including the agreements in question, was to prevent [the buyer] from performing her own test in order to reduce that risk. Such testing has no bearing on the agreements between [the seller] and [the buyer] and does not amend them in any way. [The buyer] never said that she would not comply with the original conditions in the agreements, namely the payment conditions. [The buyer] was prepared to open a letter of credit, the text of which was sent in a facsimile message of 29 May 1995, so that payment would be ensured. [The seller] has stated that [the buyer] wanted to subject her payment to the result of the tests in the Free Trade Zone. According to [the seller], this is made apparent in the proposal of a text for the L/C in the facsimile message of 29 May 1995. This, however, is in no way apparent from that text. Nor is any of this evident from other facsimile messages.

      4.20. [The seller] has also submitted that the facsimile messages of [the buyer] dated 26 April 1995 and 27 April 1995 (exhibit 9 to counterstatement/principal claim) and 4 and 6 May 1995 (exhibit 11 to reply/counterstatement and respectively 10 to rejoinder/reply) must be considered to be a recognition on the part of [the buyer], that [the seller] did not have to deliver if the permission of the MOE to re-export the milk powder was not obtained because of an unacceptable level of radiation.

This point of view is rejected. The statement of [the buyer] in her facsimile message of 6 May 1995:

"We therefore accept [the seller's] decision to divert or to withold shipment even [if] our factory has to face sudden shortage of raw materials and cut down production. [The buyer] has to purchase all available SMP at expensive price for immediate shipment. [The seller] can be assured that the loss we incur is much higher than that of [the seller]."[7]

could not be considered by [the seller] as a waiver of the right to delivery on the part of [the buyer], nor did [the buyer] forfeit the right to delivery with this statement) as [the seller] has submitted. Under the circumstances, i.e., taking into account the sentence in the facsimile message preceding it, this statement cannot be considered as anything other than the acceptance of the fact that [the seller] had suspended the planned delivery due to the risk of destruction on the order of the MOE, because it ([the buyer]) took into consideration that [the seller] bore the risk although [seller] would only earn a commission of between 2 and 3%.

In the facsimile message in which it was stated that [the buyer] was in the process of obtaining the permission of the authorities to re-export the milk powder if the radiation level was found to be too high, [the buyer] indicated that she was trying to mitigate this risk. [The seller] could not however deduce from these statements and those in the other facsimile messages mentioned that [the buyer] had waived her right to delivery as long as the intended permission of the MOE was not obtained or as long as the risk existed that the milk powder would be destroyed on the order of the MOE.

[The seller] could deduce from the statements in the facsimile message of 6 May 1995, that [the buyer] understood that [the seller] found it "unfair" to bear such a risk for a relatively low commission, and that [the buyer] was going to try to do something about this "unfair" situation. After the requested permission of the MOE was apparently not obtained, [the buyer] (substantially) reduced the risk of destruction with her proposal to test the milk powder in the Free Trade Zone prior to its import. If, and in so far as, [the buyer] is to be deemed to have reduced her right to delivery by the abovementioned statements, after the last proposal by [the buyer] [the seller] could not raise that in defense (any longer).

      4.21. [The seller] furthermore claimed that [the buyer] acted contrary to reasonableness and fairness by demanding that [the seller] would bear the risk of the destruction of the milk powder. The Court rejects this defense. In this respect it considers the following.

    4.21.1. The point of departure for answering the question whether [the seller], under the circumstances of this case, should have fulfilled its obligation to deliver, is that the risk of destruction of the milk powder was to be borne solely by [the seller] if it did not fulfil his contractual obligations. It is certain that the impossibility to return the delivered milk powder to [the seller] if it was to be destroyed on the order of the MOE due to an excessive level of radiation, was not due to an act or omission on the part of [the buyer].

    4.21.2. The Court understands that [the seller] would suffer a considerable loss (several millions of Guilders) if the milk powder was destroyed on the orders of the MOE, while [the seller] was to receive a Commission of only 2-3% on the transaction. Under those circumstances [the seller] may have asked [the buyer], as has been considered, that she would try as far as reasonably possible, and without having to incur high costs and/or run high risks, to avoid or reduce the risk of destruction for [the seller] in case the latter did not fulfil its contractual obligations. Given the absence of the MOE's permission to re-export in case of an excessive radiation level [the seller] would not require [the buyer] to bear the complete risk of destruction of the milk powder if [the seller] failed to fulfil the contractual obligation by delivering milk powder with a radiation level greater than 10 BQ/kg. Hence it is in fact [the seller] which acted contrary to reasonableness and fairness by maintaining his refusal to deliver (and to repudiate the agreements) on the grounds that the MOE had not delivered the requested permission or that [the buyer] did not take for its account the full risk of destruction, even after [the buyer] had reduced the risk of destruction considerably with her proposal of 29 May 1995. [The seller's] question in his facsimile message of 25/29 May 1995 "How are you going to solve this problem", referring to the risk that the MOE would still refuse the powder due to too high a level of radiation after [the buyer] had tested the powder and had presented it for inspection, therefore places a problem with [the buyer] that [the buyer] did not have to solve.

    4.21.3. Given the previous considerations it can be left aside whether [the buyer] (expressly) provided assurances that she would bear the risk of destruction, if she wanted to import the delivered milk powder into Singapore after having tested it in the Free Trade Zone and likewise whether [the buyer] still demanded from [the seller] that it would bear the (remaining) risk of the destruction of the milk powder, even after the last proposal dated 29 May 1995.

      4.22. [The seller] had to deliver in conformity with the conditions of the agreements. The maximum radiation level of 10 BQ/kg was agreed upon precisely because the Singapore government imposes stricter demands regarding the radiation level of foodstuffs. It is not clear to the Court why [the seller] did not ensure that he delivered in conformity with the agreements, thus excluding his risk. Knowing that the risk of destruction existed - and apparently not deeming unlikely, the possibility that he would not fulfil his contractual obligation by delivering milk powder with a radiation level of more that 10 BQ/kg - [the seller] could have requested a guarantee from his suppliers or could have had an extra test conducted by the SGS [Société Générale de Surveillance (Nederland) B.V.] in addition to the test agreed upon, as [seller] had apparently done in other cases. The Court refers to the examples, which have been introduced by [the seller] in the proceedings, of a guarantee and a testing report with respect to the radiation levels of other loads of milk powder provided respectively by a supplier (Exhibit 14 to dupl. in principal claim/reply in counterclaim) and by the Centraal orgaan voor Kwaliteitsaangelegenheden in de Zuivel (COKZ) [Central Organ for Qualitative Standards in the Dairy Industry] (Exhibit 15 to dupl. in principal claim / reply in counterclaim). Both statements deal with the requirements demanded in Singapore with respect to the import of foodstuffs.

       4.23. The Court finds that, following the proposal of [the buyer] contained in the facsimile message of 29 May 1995, [the seller] unjustifiably maintained his refusal to deliver the milk powder agreed upon and, by facsimile message of 19 July 1995 (Exhibit X to counterstatement/principal claim), wished to repudiate the agreements unjustifiably. With regard to the principal claim, the Court dissolves the sale agreement concerned and orders [the seller] to compensate [the buyer] for the damage she suffered. The Court rejects the counterclaim.


FOOTNOTES

1. Associate, Institute of International Commercial Law, Pace University School of Law.

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

2. [Translator's note: a "Procureur" is a legal agent representing parties in civil matters in one District Court only; he has a monopoly on representation in the District Court to which he is admitted.]

3. [Translator's note: a translation of Article 231 and Article 232 of the Civil Code follows:

"General Conditions
Article 231.
For the purposes of this section, the following definitions apply:
[...]
b. user of the general conditions: the party making use of the general conditions in an agreement;
c. counterparty: the party which has accepted the application of the general conditions: by signing a document or in any other manner.

"Article 232.
A counterparty is also bound by the general conditions; if, when concluding the agreement, the user understood or should have understood that the counterparty did not know their conent."] [Translation Yvonne Salmon]

4. Translator's note: The Netherlands ratified the CISG on 1 January 1992

5. Translator's note: "memories van toelichting II."

6. Translator's note: English language excerpt in original language version of judgement.

7. Translator's note: English language excerpt in original language version of judgement.

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