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CISG CASE PRESENTATION

Austria 15 October 1998 Supreme Court (Timber case) [translation available]
[Cite as: http://cisgw3.law.pace.edu/cases/981015a3.html]

Primary source(s) for case presentation: Case text


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Case identification

DATE OF DECISION: 19981015 (15 October 1998)

JURISDICTION: Austria

TRIBUNAL: Oberster Gerichtshof [Supreme Court]

JUDGE(S): Dr. Angst (presiding judge), Dr. Niederreiter, Dr. Schinko, Dr. Tittel, Dr. Baumann

CASE NUMBER/DOCKET NUMBER: 2 Ob 191/98x

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

CASE HISTORY:1st instance Landesgericht Klagenfurt [a regional court] (GZ 26 Cg 70/95-30) 26 March 1997; 2d instance Oberlandesgericht Graz [an appellate court] (GZ 4 R 283/97/p-40) 11 March 1998

SELLER'S COUNTRY: Austria (plaintiff)

BUYER'S COUNTRY: Italy (defendant)

GOODS INVOLVED: Timber


UNCITRAL Case abstract

AUSTRIA: Supreme Court 15 October 1998

Case law on UNCITRAL texts (CLOUT) abstract no. 240

Reproduced with permission from UNCITRAL

The [seller] was involved in the wood trade and had its place of business in Austria. The Austrian [buyer] had its place of business in Italy and was also involved in the wood trade.

The [seller's] son signed a contract with the [buyer] for the purpose of taking part in the [buyer's] enterprise. The [seller] delivered wood for several years to the [buyer]. The [buyer] paid the [seller] a certain amount for the wood delivered, albeit without referring to a specific delivery or invoice. The [seller] claimed payment of the outstanding invoices as well as interest.

The Supreme Court remanded the case to the court of first instance, holding that the place of business of the parties in different Contracting States and not the citizenship of the parties was relevant for a determination as to whether the CISG applied to the case. Accordingly, the Supreme Court decided that the CISG was applicable to the case under its article 1(1)(a). Moreover, owing to differences in the time limits for notice of lack of conformity between Austrian usages in the trade in wood and the CISG, the Supreme Court held that the court of first instance should examine whether the conditions set forth in article 9(2) CISG as regards usages had been met, in particular whether they were widely known and regularly observed in the trade.

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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 1(3) ; 6 ; 7 ; 9(1) and (2) ; 27 ; 38 ; 39(1) and (2) ; 44 [Also cited: Articles 1(1) and (2) ; 4 ; 50 ; 58 ]

Classification of issues using UNCITRAL classification code numbers:

1C2 [Applicability of Convention: irrelevance of nationality of parties];

6B [Implied agreement to apply Convention: absence of exclusion];

7B1 [Materials for interpretation of Convention: international case law and scholarly studies];

9B ; 9D [Implied agreement on international usages: observance by parties of the same type (widely known and regularly observed in trade; Impact of usages and practices on provisions of Convention];

27A [Dispatch of communication by appropriate means: oral notice of lack of conformity sufficient provided it is properly transmitted and understandable to the other party];

38A [Buyer's obligation to examine goods];

39A ; 39A11 ; 39B [Requirement to notify seller of lack of conformity: buyer must notify seller within reasonable time; Degree of specificity required ; Cut-off period of two years];

44A [Excuse for failure to notify pursuant to art. 39(1)]

Descriptors: Applicability ; Choice of law ; Internationality ; Usages and practices ; Communications, risk of ; Formal requirements ; Examination of goods ; Lack of conformity notice, timeliness ; Lack of conformity notice, specificity ; Excuse

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Editorial remarks

Excerpts from analysis of Austrian case law by Willibald Posch & Thomas Petz published in the Vindobona Journal.*

         *"Austrian Cases on the UN Convention on Contracts for the International Sale of Goods", 6 Vindobona Journal of International Commercial Law and Arbitration (2002) 1-24. The ruling of 15 October 1998 of the Oberster Gerichtshof [Supreme Court] of Austria is analyzed by Posch & Petz at pages 7, 9-10 and 17 of this commentary. The commentary also contains other analyses of Austrian case law on CISG issues addressed.]

Applicability. "[T]he Austrian Supreme Court gave a clear answer to the question whether the identical citizenship of the contracting parties would affect the application of CISG to a cross-border sale. Quoting Article 1(3) CISG, the Court held that citizenship of the parties would not matter, but that all depended on whether the parties had their places of business in different countries." [page 7]

Usages and practices. "[T]he decision of 15 October 1998 concerning the 'Austrian Usages for the Trade with Timber' [Österreichische Holzhandelsusancen] is of fundamental importance.49 In this case, the Austrian Supreme Court held that trade usages to which the parties agreed, as well as practices they established between themselves, prevail over optional provisions of CISG. However, according to the Court, a party to an international sales contract has to be familiar only with those international trade usages that are commonly known and regularly observed by parties to contracts of that specific branch in the specific geographic area where the party in question has [seller] or [buyer]'s place of business. Whether the domestic 'Austrian Usages for the Trade with Lumber' constitute such a widely known and regularly observed international trade usage in cross-border sales of timber by an Austrian seller to an Italian buyer is a question of fact. In the absence of any finding of fact on this issue, the Supreme Court had to remit this case to the Court of First Instance." [pages 9-10]

         49. Cf. the obiter dicta in the Supreme Court's decision of 27 August 1999 concerning the Bavarian "Tegernsee (timber trade) Usages ("Tegernseer Gebräuche) [<http://cisgw3.law.pace.edu/cases/990827a3.html>].

Examination of goods ; Notice of lack of conformity, timeliness. "The Austrian Supreme Court had to decide whether there is any difference at all in the assessment of the periods of time provided by Article 38(1) for the examination of conformity, and by Article 39(1) CISG for the notification of non-conformity, and how these two periods interact. By referring to scholarly writings and a decision which the German Federal Supreme Court (BGH) had rendered on this issue on 8 March 1996,88 the Austrian Supreme Court held that 'as short a period [of time] as it is practicable in the circumstances' has to be distinguished from 'a reasonable [period of] time'. In conformity with the position of Magnus 89 and Piltz,90 the Court held that, as long as the individual circumstances of the case would not indicate a shorter or longer period, the overall period of time for the examination of the goods and the notification of defects should amount to 14 days approximately.91 Since this opinion was confirmed by the Austrian Supreme Court on the occasion of its [27 August 1999] decision 92 on Article 38 et seq. CISG, it can be regarded as the Court's permanent practice." [page 17]

         88. German Federal Supreme Court, 8 March 1995 [<http://cisgw3.law.pace.edu/cases/950308g3.html>].
         89. Magnus, U. in Staudinger, J. (ed.), Wiener UN-Kaufrecht (CISG) 1994 De Gruyter, Berlin.
         90. Piltz, B. UN-Kaufrecht, Comments No. 142 and 145.
         91. In contrast thereto, Wilhelm, 1999 ecolex at p. 262, regards the "splitting of the periods of time" in Articles 38 and 39 CISG as a purely scholastic exercise to distinguish a "short" time period from a "reasonable" one. However, this view ignores the requirement of Article 7(1) CISG of interpreting the Convention autonomously, and it entirely disregards that in the authentic versions of CISG this distinction is all but meaningless.
         92. Austrian Supreme Court, 27 August 1999 [<http://cisgw3.law.pace.edu/cases/990827a3.html>].

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Citations to other abstracts, case texts and commentaries

CITATIONS TO OTHER ABSTRACTS OF DECISION

English: Unilex database <http://www.unilex.info/case.cfm?pid=1&do=case&id=386&step=Abstract>

German: CISG-Austria website (headnotes) <http://www.cisg.at/2_19198xa.htm>

CITATIONS TO TEXT OF DECISION

Original language (German): CISG-Austria website <http://www.cisg.at/2_19198x.htm>; [1999] Zeitschrift für Rechtsvergleichung 63; [1999] Juristische Blätter 318-321; [1999] Österreichisches Recht der Wirtschaft (RdW) 135; Unilex database <http://www.unilex.info/case.cfm?pid=1&do=case&id=386&step=FullText>

Translation (English): Text presented below

CITATIONS TO COMMENTS ON DECISION

English: Witz, ICC International Court of Arbitration Bulletin, Vol. 11/No. 2 (Fall 2000) 19 n.30 [Article 39 issues]; Willibald Posch & Thomas Petz, an English translation of the German commentary cited below that has been published in 6 Vindobona Journal of International Commercial Law and Arbitration (2002) 1-24, at 7, 9-10, 17. [Go to this commentary in either its English or German text for an excellent comprehensive analysis of Austrian case law on the CISG.]; Bernstein & Lookofsky, Understanding the CISG in Europe, 2d ed., Kluwer (2003) §: 4-9 n.124 and n.131; 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 82, 89, 118, 119, 183; [2005] Schlechtriem & Schwenzer ed., Commentary on UN Convention on International Sale of Goods, 2d (English) ed., Oxford University Press, Art. 8 para. 54 Art. 9 paras. 5, 6, 7, 10, 12, 14, 16, 19, 20 Art. 27 para. 5 Art. 39 paras. 11, 15, 17, 33 Art. 44 para. 6

German: Karollus, [1999] Juristische Blätter (JBl) 321-323; Willibald Posch & Ulfried Terlitza, Internationales Handelsrecht (2001) 47-56, at relevant pages

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Case text (English translation)

Queen Mary Case Translation Programme

Supreme Court of Austria (Oberster Gerichtshof )

15 October 1998 [2 Ob 191/98x]

Translation [*] by Martin Eimer [**]

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

        [For an in-print adaptation of this translation accompanied by the full text of the commentary by Posch & Petz cited above, go to 6 Vindobona Journal of International Law and Arbitration (2002) 169-183. To help persons cite the case translation to either this Internet publication or the Vindobona publication, we have included paginations that accord with those of the Vindobona Journal.]

The Landgericht [Court of First Instance] Klagenfurt ruled in favor of plaintiff [seller] on 26 March 1997. On 11 March 1998 the Oberlandesgericht [Court of Appeal (Court of Second Instance)] Graz set aside the decision of the Court of First Instance to the extent it was challenged by the defendant [buyer].

The plaintiff [seller] has appealed the ruling of the Court of Second Instance.

The plaintiff [seller] is represented by Dr. Christian Tschurtschenthaler, Rechtsanwalt [attorney] from Klagenfurt [Austria]. The defendant [buyer] is represented by Dr. Dieter Stromberger, [attorney] in Villach [Austria].

The Oberster Gerichtshof [Supreme Court] is composed of the President of the Supreme Court's Senate, Dr. Angst, as the chairman and Dr. Niederreiter, Dr. Schinko, Dr. Tittel and Dr. Baumann as accompanying judges.

In this appeal, the Supreme Court has come to the following: [page 169]

DECISION

The appeal [of the seller] is rejected [and the case is remanded to the Court of First Instance for further proceedings.]

The costs of the appeal are to be treated as further costs of the proceedings.

FINDINGS

The buyer, an Austrian citizen resident in Austria, ran the timber trade firm "A." as a one-man business in B./Italy. The seller traded timber in Austria.

In 1990 the buyer suggested to the seller that he or his son should take over [buyer]'s Italian enterprise. The seller and his son were interested in a cooperation and in taking over the buyer's warehouse in B. rather than the whole business. In this year, the seller started supplying timber to the buyer's enterprise in B. Originally, the [buyer] was granted an allowance for payment of 90 days after custom clearance. This allowance was later extended to 120 and 180 days after custom clearance. Deliveries in 1990 had a value of sA [Austrian schillings] 410,310.-. In 1991 the seller delivered to the buyer timber worth about sA 1,239,169.60, in 1992 sA 2,208,523.10, and in 1993 sA 473,035.50. Import excise tax for these supplies was paid by the buyer for each shipment separately. In 1993 the seller paid custom duties of sA 10,822.- for the buyer, as it was unable to and because the seller's vehicles would not have been able to pass customs otherwise. Further, the seller transported the goods for the buyer, leading to additional costs of sA 29,000.-.

The seller also sold to the buyer oak wood, which seller had bought in France and which the buyer had then transported to Italy at buyer's own cost. The first of these shipments passed customs on 21 May 1991. Because the buyer needed money to pay for freight costs and waiting time, the seller granted it a loan of sA 68,000.- for this purpose and of sA 27,000.- for various other costs. The modalities for repayment of the loan could not be precisely established; the seller only demanded repayment during the proceedings. In September 1991 the seller delivered to the buyer French oak wood worth sA 216,168.-.

It could not be established whether the buyer had passed on the timber delivered by the seller to buyer's customers and whether these customers had paid the seller directly.

On 19 December 1990 the parties, in accordance with the seller's initial interest, entered into an agreement whereby the buyer undertook to transfer his warehouse and the storage yard in B. to the seller, "when the payments have been made to the Bank in M." According to the buyer, an immediate transfer had not been possible because the warehouse was not to be paid off until mid-1993. The Bank had financed the warehouse. With the conclusion of the agreement, the buyer acknowledged receipt of sA 70,000.- for [page 170] the purpose of repaying installments. In their stipulation, the parties also determined their export cooperation. Subsequently, the buyer acknowledged receipt of various further payments, five in 1991 and the last one on 27 May 1992. [Buyer] had received from the seller a total of sA 410,000.- as well as 27 million Lire (sA 270,000.-) which were to be credited against the purchase price of the warehouse.

In light of this agreement, the seller did not demand immediate payment for invoices remaining open from its timber supplies; he estimated that the warehouse had a value of five to six million sA anyway. A dispute between the parties over the transfer of the warehouse is pending in Italy. Precise modalities for the transfer of the warehouse could not be established; according to the vague intentions of the parties, "compensation" was to be paid. The allegation that invoices for the seller's timber deliveries were to fall due only upon transfer of the warehouse could not be confirmed.

During their cooperation, the parties agreed that the buyer should be allowed to use the seller's main petrol station for its Diesel demand. Between March 1991 and May 1993, the buyer bought from the seller a total of 965 l Diesel, which was invoiced on 20 March 1994 for an amount of sA 7,112.64. It could not be established whether the buyer received the Diesel in compensation for transportation buyer undertook on behalf of the seller.

A direct set-off between the timber supplies and the purchase price for the warehouse had not been contemplated. The seller took his time sending invoices for timber supplies in view of the intended transfer of the warehouse. From 1992 on, though, seller started pressing for payments. The buyer thus paid instalments of sA 224,940 on 12 February 1993 and sA 229,830 on 4 June 1993. Equally without specifying the purpose, buyer also made payments of sA 47,182.- and sA 7,820.- to third-party businesses on behalf of the seller amounting to a total of sA 509,772.- in unspecified part payments. It could not be established whether the buyer had made payments of 44 million Lire for supplies, which actually had not taken place.

In 1992 the seller's son entered into an agreement with the buyer in which seller undertook to pay sA 1 million into the buyer's enterprise as a silent-partner-holding and to contribute [seller]'s manual and intellectual manpower. It could not be ascertained whether this agreement was ever executed.

As a result of controversies between the parties concerning the transfer of the warehouse, the timber deliveries were stopped in August 1993. The parties made one last attempt to solve the situation by a plan to sell the existing timber and thus enable the buyer to at least pay part of its timber bills. This joint line of action failed due to fixed forward delivery [page 171] dates and because of the fact that the parties were no longer able to cooperate in a reasonable manner. On 4 March 1994, a dispute emerged when the seller tried to take over goods that remained in the buyer's storage and the buyer declared that from its point of view a further cooperation was no longer reasonable. On the same day, buyer wrote a letter to the seller – its only letter to the seller throughout their whole business relationship – in which buyer outlined that it would have been better not to deliver two truck loads of (cut) timber to Italy because it had been completely wet, heavy and already foul on the inside; one or two truck loads of round wood had been abgestickt and foul so that they could not be used for the intended production of pallets; in the last two years, buyer had had to sort out the seller's supplies to avoid protests in forward deliveries; one truck load had been invoiced for 42 m³, although only 31 m³ had been received; inconsistencies in size and quality had occurred in most deliveries and had steadily been complained of. In this letter buyer also pointed to its agreement with the seller's son according to which the son was sharing 40% of the loss and profit of the business.

Upon receipt of this letter, the seller accounted for performances not yet invoiced.

First, the seller demanded from the buyer payment of sA 4,836,656.84 plus 10% interest on sA 4,186,718.84 since 1 May 1994, and 4% interest on sA 649,938.- since 24 May 1994. Seller maintains that it sold and delivered to the buyer timber at an agreed and appropriate price. The buyer therefore owed [seller] long due invoice amounts for timber supplies totalling sA 4,139,784.20. Factually and legally related to them were pre-payments of sA 10,822.- for import excise taxes; sA 29,000.- for transport costs not reimbursed by the buyer; and the payment of sA 7,112.64 for Diesel the buyer had received from the seller's petrol station; amounting to a total of sA 4,186,718.84. Further, the buyer owed sA 649,938.- as 10% capitalized interest until 30 April 1994, the overall sum therefore being sA 4,836,656.84.

The buyer seeks rejection of this claim. It contests the timber deliveries, the amount of interest demanded and its capitalization. Buyer maintains to have founded the private firm "A" with its seat in B./Italy with the seller's son. Only this enterprise had cooperated with the seller. As the seat of the enterprise was not in Austria the "competent court did not have jurisdiction over the matter"; buyer also maintains that it is not the correct defendant. It was correct that the seller had delivered timber to the firm "A". The timber supplies had been made according to plan and had been paid within the time limits. Numerous deliveries, however, had not been made appropriately. Seller had delivered timber of minor quality, had accounted for higher prices than agreed, and had issued statements of account for quantities of timber which had not actually been delivered. Numerous invoices of seller had therefore been criticized as to their basis and the quantity of timber. On behalf of the seller, the firm "A" had often bought and made use of low quality timber, [page 172] which had been objected to and rejected by Italian firms. In this context, it had been agreed with the seller that the balance between the purchase price and the benefit of the sale would be set-off. The balance produced in all those "bargains" had exceeded the seller's claims and was therefore set-off. The firm "A" had made payments to the seller to an amount of 44,000,000.- Lire for timber that had never been delivered. This amount is also brought forward by buyer as a counterclaim.

The seller responded that he had set-off the buyer's unspecified payments against its earliest debts. All timber supplies had been faultless. The buyer had neither objected to the quality nor the quantity, nor had it criticized the invoices. A set off of any profit balance against its claims had never been stipulated. The firm "A" had been the buyer's private enterprise, in which seller's son had participated as a silent partner with sA 1 million.

On 23 May 1991 it had granted the buyer a loan of sA 95,000.- for a delivery of oak wood from France in order to pay for the costs of transport and customs. The seller extended his claim by this amount to sA 4,931,656.84.

The buyer subsequently maintained that it and the seller's son had founded a sub-partnership; it thus could only be held liable in relation to its share, i.e., 60%. In 1990 [buyer] had considered selling its firm "A" to the seller for reasons of age without having in mind any particular date for the transfer. The parties had agreed to cooperate in the export business and to jointly bear future risks of the business. The seller had to supply the buyer's Italian customers through buyer's Italian firm and invoice them on behalf of this firm. Payments for the timber deliveries had to be made directly to the seller by the Italian customers. Buyer also alleges that it had immediately criticized every single delivery in front of the seller or its proxy when taking over the shipment. The rejected (defective) timber was nevertheless stored and in part processed by the [buyer] in accordance with the [seller's] instructions. Until today, timber at a value of sA 1.8 million remains in storage, which the seller could take whenever he wanted. Due to the obvious deficiencies, buyer had urged the seller to change hi s business practice but the seller had responded that [buyer] would not have any disadvantages as [seller] was going to take over the firm anyway. Neither had the timber deliveries from France been intended for it nor for its firm. Buyer had not taken up a loan from the seller in this context. The seller had rather refunded the amount of sA 95,000.- which he had provided as an outlay. Neither had the seller made payments to it for import excise taxes or transport services, nor had it received any petrol for vehicles at the seller's main petrol station. The parties had agreed that the invoices were not to be paid until the transfer of the warehouse as "substitute value"; the transfer of the warehouse had been subject to its being freed of encumbrances as well as a functioning cooperation in the import and export of timber. The seller had acknowledged its notices of defect with the comment that it did not matter because the final settlement of accounts was to take [page 173] place in the context of the transfer of the warehouse where all balances were to be settled. In December 1993 it turned out that the cooperation could not continue due to too many notices of defects. The initial agreement had then been changed so that timber stored in B. and near G. was to be sold together and the profit was to be received by the seller. After that a "balancing of value" was intended. The seller did not adhere to this stipulation.

The seller maintained that the buyer had ordered all timber deliveries which are the subject of these proceedings, on its own behalf and at its own costs. Buyer had not directed seller to store the supplied timber in his warehouse and partially process it. Nor had it been agreed that seller was to take over the buyer's enterprise. According to the contract of 19 December 1990, only the purchase of the buyer's real estate in B., including the warehouse, had been agreed; the buyer had disregarded this stipulation. In its letter of 4 March 1994, the buyer had criticized delayed deliveries from September 1993 for the first time ever. The "warehouse deal" had been totally independent from the running timber trade. A balancing of values had never been agreed.

When questioned by the judge in the Court of First Instance, the buyer maintained that the seller had delivered timber to the firm "A" and invoiced this enterprise for it. The timber had been accepted by "A" in B. Defects had been noticed orally; in light of the cooperation and the fact that the seller or his son had been intended to take over the "business," a "laxer conduct had been usual practice." Buyer had "not signed" for several trainloads because the "timber had been of poor quality;" "in general," though, buyer had accepted "poor deliveries" because the seller's son was to take over everything. As long as the cooperation ran smoothly, no problems had arisen and a "balancing" of defective deliveries had not been necessary. Accordingly, notices of defect had "not been strictly necessary" initially because the seller was to get the whole business anyway. It may be that "incomplete" notices had been given in this situation. After termination of the cooperation and after it became clear that the seller was not going to get the warehouse and the enterprise, the parties should have accounted "in the normal way", i.e., the seller "should have gotten what he delivered"; in these cases a "counterclaim" should have been made. For that purpose, the actual volume of each delivery should have been examined with the result that about one-third of the total volume was either missing or defective. In addition, buyer had had further considerable costs "of one-third" for making up the seller's defective supplies and for transfer to its customers as well as further expenses, which had to be accounted for. There was also timber remaining.

The Court of First Instance rejected the claim of lack of jurisdiction and ordered the buyer to pay to seller sA 4,837,929.84. Seller's further claim of sA 92,727.- was rejected (no decision was made on an amount of sA 1,000.- nor on the buyer's counterclaim). Apart [page 174] from the facts described already, the Court of First Instance found that it was impossible to determine whether the buyer had objected to the timber deliveries for quantity, quality or price. As regards legal findings, the Court of First Instance concluded that the buyer was the owner of a one-man business and thus personally liable. The existence of a silent partner had no effect on the seller's claims arising out of timber supplies. It was the buyer's duty to give a notice of actual defects for each delivery promptly, which it did not. The notices of defect raised during these proceedings or in its letter of 4 March 1994 came too late. The unspecified part payments had to be credited against the oldest debts and had thus been taken into account for invoices in 1990. The residual amount of sA 99,462.- had to be credited against the first invoice of 1991 at sA 149,775.-, leaving a balance of sA 50,313.-. This invoice had fallen due on 6 May 1991, i.e., more than three years before the claim was made. Therefore, the unpaid amount of this invoice as well as the resulting interest of sA 43,414.- was time-barred. The capitalized interest was to be reduced by this last figure. The loan of sA 95,000.- that was granted to the buyer by the seller had only been recalled on 14 July 1995. The witnesses brought forward to testify on the giving of notices of defect were not questioned by the Court because they were offered with the intention to delay the proceedings; the Court of First Instance concluded that it was impossible that witnesses could recall individual deliveries without any specific hints.

The Court of Second Instance [the "Appeal Court"] set aside the judgment of the Court of First Instance to the extent challenged by the buyer and passed the matter back to the Court of First Instance for new proceedings and a new ruling. It also announced that recourse to the Supreme Court was available. It ruled that, in light of the trans-boundary context of this case – the seller's contractual obligation was to be performed in Italy – the question of the applicable law, which had not been discussed in the Court of First Instance, needed elaboration. The provisions of the CISG, effective in Italy as of 1 January 1998 and in Austria as of 1 January 1989, are applicable because the transactions between the parties concerning timber supplies were international sales of goods between merchants; lacking an express or implied choice of law (para. 35(1) IPRG) [Private International Law Act of Austria] or any exclusion agreement under Article 6 CISG. The fact that the buyer had its place of residence in Austria did not affect the application because under the CISG only the place of business of the parties to the contract was relevant; i.e., the place at which – from a third person's view – a party to a trading contract performs [buyer]'s entrepreneurial activities. The parties thus had their relevant places of business in different Contracting States.

The Appeal Court held that according to Article 38(1) CISG, the buyer had to examine the goods, or cause them to be examined, within as short a period as is practicable in the circumstances. According to Article 39(1) CISG, the buyer loses the right to rely on a lack of conformity of the goods if it does not give notice to the seller specifying the nature of [page 175] the lack of conformity within a reasonable time after [buyer] had discovered it or ought to have discovered it. The notice period of Article 39(1) starts to run from the point of time at which the buyer actually realizes the lack of conformity. If the examination was delayed, the notice of defects may still have been made in time if it was given within a reasonable period from the point in time at which the examination had to be executed at the latest. In case of undiscoverable lacks of conformity, the reasonable period for a notice starts to run when those lacks became apparent. According to the predominant German case law, a period of one month has been considered reasonable for giving a notice of defect. If no notice had been given or had been given too late, the buyer loses all its rights as a result. The notice has to be so specific as to precisely describe the lack of conformity. Overall statements and general objections do not satisfy the condition on the notice's content. This duty of specification serves to protect the seller who has to be able to oversee potential claims and has to be protected from abuse such as the re-introduction of defects by the buyer. The lack of conformity is sufficiently specified where a competent buyer understood the meaning of the notice; the notice has to allow a re-examination and the commencement of steps necessary to fix the defect. The conditions for the wording of the notice of defect, however, are not to be too strict, particularly because of its severe legal effects. Where the defect was discovered in an examination in accordance with Article 38(1) CISG, the notice should reveal the relevant outcome of the examination. The declaration has to entail descriptions of which goods were defective, what the particular defect was, under which circumstances it occurred and to which extent the delivery was defective. General statements such as criticism of considerably inferior quality of the goods or an indication that it did not satisfy the buyer's notion are insufficient.

Pursuant to Article 27 CISG, the notice of defect need only be dispatched. This provision does not contain a rule for oral communication. Nevertheless, to become valid, oral notices have to be given in a way that enables the other party to perceive and understand them. As concerns the scope of application of the CISG, oral notices are valid because Article [39] CISG does not prescribe a specific form.

The buyer had particularly objected to the negative declaration of the Court of First Instance that it had not been possible to establish whether it had given notices of defect for the separate timber supplies. The decision of the Court of First Instance not to hear testimony of the witnesses named by buyer, was based on the assumption that they would be unable to recall individual deliveries without being provided with further indications. Thereby, the Appeal Court agreed, the Court of First Instance violated the prohibition of anticipatory consideration of evidence because it had considered in advance the likely lack of efficiency of this evidence. An intention to delay the proceedings could not be based on such anticipatory consideration of evidence. The buyer had introduced the witnesses at a [page 176] time when the proceedings – upon reference from the Landgericht Salzburg – had only just started. Thus one could not speak of an obvious intention to delay the proceedings.

The Appeal Court held that before hearing testimony, however, the Court of First Instance would have to evaluate the discrepancy between the buyer’s initial statements and the results of informative questioning taken as current statements. It also was to direct the buyer to submit a consistent statement in regard to the notices of defect.

The challenged decision did not provide reasons why the Court of First Instance had not made use of the witness evidence brought before it by the buyer in order to prove the alleged stipulations between the parties. For this reason too, the findings of the Court of First Instance could not be the result of a proper process. This factual motion of the buyer was also legally relevant. In this respect, the Court of First Instance would again have to direct the buyer to a consistent and complete statement before the supplementary taking of evidence. During the proceedings before the Court of First Instance, the buyer had maintained several inconsistent agreements. During the appellate proceedings before the Court of Second Instance, it had only maintained the allegation that the payment of the timber deliveries had been agreed to be made directly by the Italian recipients. The inconsistent and incomplete statement of facts had to be discussed with the buyer in order to establish when these agreements had been concluded and which content they had had. Article 58 CISG only determines the time at which the purchase price becomes due in the absence of any contractual stipulation. If the parties had agreed differently, their agreement was relevant in determining the maturity of the payment of the purchase price. In its statement, the buyer had denied the maturity. It depended on the content of the agreement: (a) to what extent the claims had been set-off; and (b) from which point of time the seller could demand capitalized interest for the purchase prices. Insofar the proceedings before the Court of First Instance were also to be supplemented as regards notices of defect and the principles referred to above. The Appeal Court also pointed out that compound interest could only be claimed after service of the claim on the buyer and not from submission of the claim to the Court; it could be claimed if it had been agreed or if interest was claimed that was already due.

The proceedings of the Court of First Instance were also deficient as regards determinations on the seller's timber supply from France as well as his loan to the buyer because the Court of First Instance without reason rejected the witnesses, who were offered to testify to the contrary.

Other than that, the Appeal Court held that the appeal was unjustified. During the proceedings before the Court of First Instance, the buyer never made concrete allegations that the parties had entered into a binding agreement on the take-over of the enterprise by [page 177] the seller or the formation of a partnership. Buyer imprecisely alleged to have had communicated its intention on this matter to the seller and to have had agreed with it on the cooperation in the export business as well as the future sharing of risks. Relying on the formation of a partnership in buyer's appeal violated the prohibition of introducing a new legal argument.

The buyer's allegations that the seller had responded to notices of lack of conformity with the argument that he would neither have any disadvantages nor would he or the buyer suffer damages due to the take-over of the enterprise could only be legally relevant in the context of Article 44 CISG, i.e., if it could be established that buyer had either refrained from or had given insufficient notices of defect in the light of and resulting from the seller's promises. According to Article 44, notwithstanding Article 39(1) CISG, the buyer may reduce the price in accordance with Article 50 or claim damages, except for loss of profit, if [buyer] had a reasonable excuse for its failure to give the required notice. Such a "reasonable excuse" for the failure to give a timely and complete notice of defect could be based on the seller's conduct indicating that for some specific reason he had not been interested in a precise notice of defect. If, insofar, it became necessary to seek further evidence depended on whether the buyer's allegations regarding the timeliness of notices of defect could be proved or not. In this context, it has to be born in mind that the two-year limit set by Article 39(2) CISG remains unaffected by Article 44 CISG.

The decision of the Court of First Instance not to consult an expert on the point of the applicability of the rules of the Austrian Timber Trade Usage to the parties' agreements did not cause the proceedings to be deficient because this was not a question of fact but a legal one, which had to be solved by the Court; this question had already been answered with the considerations on the applicability of the CISG.

A determination as to the value of the wood only needed be made as regards invoices no. 10/91, 6/92 and 24/92; in all other cases, the buyer had not expressly challenged the amounts, which were agreed according to the seller.

Whether the agreement between the buyer and the seller's son had ever come into effect could remain unanswered. Pursuant to Article 2551 of the Codice civile [Italian Civil Code] (as well as pursuant to para. 355(2) HGB) [Austrian Commercial Code], a silent partnership does not cause the limitation of the entrepreneur's liability for its firm's debts towards outsiders. The buyer had not claimed the formation of a partnership with the seller in the Court of First Instance. [page 178]

The Appeal Court held that the Court of First Instance would also have to consider in its new ruling that the buyer had raised counterclaims, on which it had to rule in its decision if sustaining the seller's claim.

The seller's appeal against the ruling of the Appeal Court [the Court of Second Instance] is unjustified.

In its appeal, the seller challenges the view taken by the Appeal Court on the applicability of the provisions of the CISG to this trade relationship. Seller maintains that both parties were Austrian timber traders, and that where Austrian timber traders perform timber trade, the rules of the Austrian Timber Trade Usage are customarily applicable. Thus the CISG had been impliedly excluded. Accordingly, the goods were deemed approved because within seven working days no notice of defect had been given in form of a registered letter, a telegram or a fax. Further, the buyer had no right to retain the whole purchase price even if [buyer] had given timely notices of defect. Seller maintains that the view of the Appeal Court that oral notices of defect were also valid under the CISG was wrong. It was also incorrect that a notice of defect within a month was given in reasonable time in accordance with Article 39(1) CISG. Finally, the exceptional provision of Article 44 CISG is to be interpreted strictly; therefore the take-over of the business as intended by the parties could not count as a "reasonable excuse" for the failure to give the required notice in time. The Appeal Court, insofar as it instructed the Court of First Instance to clarify the buyer's inconsistent statements, had illegitimately dealt with a deficiency of the proceedings ex officio without the required motion or complaint.

[Ruling of the Supreme Court]

Hence it has to be considered:

The CISG of 11 April 1980 has come into effect on 1 January 1988 in Italy and on 1 January 1989 in Austria. According to Article 1(1) CISG, this Convention applies to contracts of sale of goods between parties whose places of business are in different States when the States are Contracting States or when the rules of private international law lead to the application of the law of a Contracting State; the fact that the parties have their places of business in different States is to be disregarded whenever this fact does not appear either from information disclosed by the parties at any time before or at the conclusion of the contract (Article 1(2) CISG); neither the nationality nor the civil or commercial character of the parties or of the contract is to be taken into consideration in determining the application of this Convention (Article 1(3) CISG). [page 179]

The conditions for the application of this Convention are fulfilled, i.e., the parties have their places of business in different States and this was recognizable from the circumstances at the conclusion of the contract. According to the express wording of this provision, the Austrian citizenship of both parties is irrelevant. The Convention is effective in Italy as well as in Austria.

According to paragraph 1(1), the rules of the Austrian Timber Trade Usage apply to any and all kinds of timber transactions when mentioned in the respective agreement; the last sentence of paragraph 1(1) of this Timber Trade Usage constitutes (inter alia) trade customs in the sense of paragraph 346 HGB [Austrian Commercial Code]. Such trade customs can also become effective when their rules have not been made content of the agreement, even where the parties did not know about them at all (cf. Krammer in Straube, HGB § 346 n. 14). Where the statute points to trade customs, they have indirectly been upgraded to the status of statutory law (cf. Krammer).

According to Article 4 CISG, the Convention does not concern the validity of any usage except as expressly provided otherwise. The question is therefore open to be determined by national law; Article 9 CISG is only concerned with the applicability of usages (cf. Posch in Schwimann, AGBG Art. 4 CISG n. 9; Staudinger/Magnus, BGB, Art. 9 CISG n. 20)). Pursuant to Article 9(1) CISG, the parties are bound by any usage to which they have agreed and by any practices which they have established between themselves; the parties are considered, unless otherwise agreed, to have impliedly made applicable to their contract or its formation a usage of which the parties knew or ought to have known and which in international trade is widely known to, and regularly observed by, parties to contracts of the type involved in the particular trade concerned. The usages expressly or impliedly agreed by the parties need not be internationally recognized (cf. Posch, Art. 9 CISG n. 3; Staudinger/Magnus, Art. 9 CISG n. 8). Article 9(2) CISG causes the parties to be bound by international usages when they knew or ought to have known them. Such usages must generally be applied in international trade and known and observed by parties involved in those kinds of contracts. An international usage is widely known and regularly observed if the majority of businessmen in a trade branch acknowledge it (cf. Posch, Art. 9 CISG n. 5). According to Article 9(2) CISG, apart from this objective condition, the parties must have known or ought or have known the usage (cf. Posch, Art. 9 CISG n. 6).

Widely known and observed trade usages need only be familiar to those parties who are resident in the area in which these usages are commonplace or who are continuously conducting business of the relevant kind in that area (cf. Staudinger/Magnus, Art. 9 CISG n. 25). [page 180]

According to the dispositive character of the CISG, trade usages agreed between the parties, any practices established between the parties, as well as customs generally known and observed in international trade prevail over the provisions of the CISG (cf. Posch Art. 9 CISG n. 1).

It is a question of fact whether the Austrian Timber Trade Usage and, in particular, their provisions regarding the duty to give notices of defect are effective in Austria as a matter of trade custom (cf. Krammer, § 346 HGB n. 30; RdW 1985, 370; JBl 1991, 116). It is also a question of fact whether the Austrian Timber Trade Usage is widely known and regularly observed in international sales of goods (here: between Austria and Italy) as is required for international trade usages under Article 9(2) CISG.

The established facts do not indicate whether the parties have expressly or impliedly made applicable the Austrian Timber Trade Usage to their contract. The seller did not contend this either. The Court of First Instance will have to examine, in light of the considerations made, whether they are applicable pursuant to the legal fiction of Article 9(2) CISG. If this is the case, paragraph 27 of the Usage must be applied to the duration of the time-limit for a notice of defect because the shorter periods mentioned there prevail over the dispositive provisions of the CISG. According to paragraph 27(2) of the Austrian Timber Trade Usage, the goods are deemed approved where the provisions concerning examination of goods are not complied with. The Usage does not contain an excuse for the failure to give notice similar to Article 44 CISG. Additionally, paragraph 28 of the Austrian Timber Trade Usage contains a provision on the form of the notice. The Court of First Instance will thus also have to determine the applicability of these provisions in international timber trade between Austria and Italy.

If it is determined in the further proceedings that the Austrian Trade Usage and its provisions on the duty of giving notices of defect are not applicable to this trade relationship, then those relevant provisions of the CISG must be applied which are more buyer-friendly than those of the HGB [Austrian Commercial Code]. This appeal does not affect the decision of the Appeal Court [the Court of Second Instance] that oral notices are valid and must be observed under the CISG. Article 39 CISG does not prescribe a specific form for the notice. Article 27 CISG, dealing with the validity of notices, requests and other communications, does not address oral declarations between persons present. Here, it is sufficient for their validity that they could be perceived and understood by the other party (cf. Posch Art. 27 CISG n. 12).

Pursuant to Article 38 CISG, the buyer must examine the goods, or cause them to be examined, within as short a period as is practicable in the circumstances (Article 38(1)); if [page 181] the contract involves carriage of the goods, examination may be deferred until after the goods have arrived at their destination (Article 38(2)). Pursuant to Article 39 CISG, the buyer loses the right to rely on a lack of conformity of the goods if it 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 (Article 39(1)); in any event, the buyer loses the right to rely on a lack of conformity of the goods if it does not give the seller notice thereof at the latest within a period of two-years from the date on which the goods were actually handed over to the buyer, unless this time-limit is inconsistent with a contractual period of guarantee (Article 39(2)). The short period for the examination is particularly dependent on the size of the buyer's enterprise, the kind of goods to be examined, their complexity or perishability or seasonal character, the amount to be examined, the effort involved to do it, etc. (cf. Posch, Art. 38 CISG n. 6; Staudinger/Magnus, Art. 38 CISG n. 40 et seq.). In determining whether notice was given within a "reasonable time" as required by Article 39(1) CISG, the objective and subjective circumstances of each individual case must be taken into account; this entails the professional as well as personal situation of the buyer, the peculiarities of the goods, the size of the delivery or the kind of remedy chosen (cf. Posch, Art. 39 CISG n. 5; Staudinger/Magnus, Art. 39 CISG n. 43 et seq.). The time limits for examination and notice of defect are to be applied less strictly than under paragraph 377 HGB [Austrian Commercial Code] ("immediately") (cf. Resch, Zur Rüge bei Sachmängeln nach UN-Kaufrecht, ÖJZ 1992, 470 (473); Posch, Art. 39 n. 4). The reasonable time is not a long time. This, however, does not mean the contrary, i.e., that it must always be a short time – as in Article 38 CISG – according to which the buyer must react as quickly as possible (cf. Staudinger/Magnus, Art. 39 CISG n. 35 with further references). A "reasonable time" under Article 39 CISG is not a uniform period; it must be determined in light of the respective circumstances (cf. Staudinger/Magnus, Art. 38 CISG n. 42). According to Magnus and Piltz, an overall time for examination and notice of defect of fourteen days should be applied if no special circumstances exist which justify a shorter or longer period (Staudinger/Magnus, Art. 39 CISG n. 49; Piltz, UN-Kaufrecht, n. 142 and 145). The BGH [German Supreme Court] has indicated in this respect that, in the interest of a quick clarification of the parties' legal relations, the period must not be too long and thus commented on a period of four weeks as "very generous" (cf. BGH RIW 1995, 595). In its case comment, Karollus, mentioning Magnus' view, has taken a position against a time limit of four weeks (Karollus, JR 1996, 23). We [the competent Senate of the Supreme Court of Austria] take the view that, due to the different national legal traditions in the Contracting States, a time limit of fourteen days for examination and notice of defect is ample if no special circumstances warrant limitation or prolongation of that period. [page 182]

In the event that the CISG provisions on the lack of conformity of goods prove to be applicable, the Court of First Instance will also have to consider the objective time limit set in Article 39(2) CISG, failing which all rights in respect of the lack of conformity are lost (cf. Posch, Art. 39 CISG n. 8). This two-year time limit can only be fully applied if the buyer was either unable to examine the goods earlier or could not determine the lack of conformity earlier despite examination, or if it could not give notice earlier despite having determined the lack of conformity (cf. Posch, Art. 39 CISG n. 9).

If the CISG is applicable, Article 44 CISG must, of course, also be considered.

When Article 44 applies, the buyer may reduce the price in accordance with Article 50 CISG or claim damages, except for loss of profit, if it has a reasonable excuse for it failure to give the required notice. A "reasonable excuse" can exist where the buyer has refrained from giving notice on grounds which an average buyer in the ordinary course of business (good faith) can be excused for, and if it acted with the kind of diligence which it could subjectively be expected to apply in the circumstances (cf. Posch, Art. 44 CISG n. 4; Staudinger/Magnus, Art. 44 CISG n. 10 et seq.). This exceptional provision is to be applied strictly (cf. Posch, Art. 44 CISG n. 6; Resch, ÖJZ 1992, 470 (479)). Article 44 CISG only refers to Article 39(1) CISG; the absolute time limit of Article 39(2) must be observed. The rights must therefore be claimed within two-years after the goods were handed over. No legal error can be seen in the Appeal Court's taking the view that a reasonable excuse in the sense of this provision exists where the seller has made it clear that it was not interested in a timely notice. Such a lack of interest, however, cannot be concluded from the seller's intention to buy the buyer's warehouse.

The Appeal Court is also correct that the Court of First Instance will have to judge on the buyer's counterclaims because it has sufficiently mentioned them in its appeal; the considerations on that particular point are not final only because the Court of First Instance disregarded the counterclaim.

Insofar as the Appeal Court has reasoned its setting aside of the decision of the Court of First Instance with the necessity of considering further factual evidence, which is – according to the aforementioned – relevant for the decision, the Supreme Court cannot scrutinize this ruling as it is not a trial court. However, it cannot be decisive for the success of the recourse whether the Appeal Court's instructing the Court of First Instance to direct the buyer to amend its submissions was incorrect. This especially in light of the fact that the annulment of the first decision is upheld and both parties therefore have a new opportunity to submit statements or request the production of evidence.

The appeal is therefore rejected. Costs are allocated pursuant to paragraph 52(1) ZPO [Civil Procedure Act of Austria]. [page 183]


FOOTNOTES

* All translations should be verified by cross-checking against the original text. For purposes of this translation, the Austrian Plaintiff-Appellant is referred to as [seller], the Italian Defendant-Respondent as [buyer]. Monetary amounts in Austrian schillings are indicated as [sA].

** Martin Eimer, Associate of the Institute of International Commercial Law of the Pace University School of Law, received his LL.M. from Edinburgh University. He is currently a Research Assistant to Prof. Martin Hunter, Essex-Court Chambers, London.

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

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