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Licentiate thesis, University of Turku, Faculty of Law. Reproduced with permission of the author.

The Application and Interpretation of
the CISG in Finnish Case Law 1997-2005

Sanna Kuoppala
April 2009

   QUICK TABLE OF CONTENTS

     Abstract
     Preface
     Bibliography
     Table of cases
     Abbreviations and translations

  1. Introduction
  2. Turku Court of Appeal, S 95/1023 (18 February 1997)
  3. District Court of Kuopio, 95/3214 (5 November 1996)
  4. Turku Court of Appeal, S 97/324 (12 November 1997)
  5. Helsinki Court of Appeal, S 96/1129 (29 January 1998)
  6. Helsinki Court of Appeal, S 96/1215 (30 June 1998)
  7. Helsinki Court of Appeal, S 00/82 (26 October 2000)
  8. Turku Court of Appeal, S 97/324 (12 April 2002)
  9. Helsinki Court of Appeal, S 01/269 (31 May 2004)
  10. Turku Court of Appeal, S 04/1600 (24 May 2005)
  11. Conclusion. Supreme Court, S 2004/50 (14 October 2005)

ABSTRACT

The subject matter of this licentiate thesis is the application and the interpretation of the United Nations Convention on Contracts for the International Sale of Goods in Finnish case law between the years 1997-2005.

The CISG has been in force in Finland more than 20 years, since 1 January 1989. The core of this thesis covers nine cases tried in public courts in Finland. The analyses of the cases rendered in the Finnish legal system increases the understanding of the CISG of scholars, business practitioners, lawyers and judges alike and promotes the uniform application thereof in the future. Further, for a truly international instrument of law, it is important that the case law from even a small legal community is incorporated and discussed in the sphere of the larger community. From the practical point of view, it is not the letter of law that suffices but, in order to be well prepared for unanticipated incidents beforehand, one must understand the meaning of the letter.

In analyzing the cases, it becomes clear that the courts do not promote the international character of the CISG with the care and diligence it deserves and requires. The courts should make recourse more readily to the international scholarly writings and international case law nowadays easily available. Uniform application of an international instrument -- whether relating to the questions of substance or questions of procedure -- is essential in order to protect the confidence and reliance upon it.

Key words: International sale of goods, United Nations Convention on Contracts for the International Sale of Goods, legal praxis


    DETAILED TABLE OF CONTENTS

     PREFACE
     BIBLIOGRAPHY
     TABLE OF CASES
     ABBREVIATIONS AND TRANSLATIONS

  1. INTRODUCTION
    1.1   History and Purpose of the CISG
    1.2   CISG and the Finnish Sale of Goods Act
    1.3   Purpose of this study and methods used in the study
  2. TURKU COURT OF APPEAL, S 95/1023 (18 FEBRUARY 1997)
    2.1   Classification of the issues present
    2.2   Applicable law
            2.2.1   Facts of the case
            2.2.2   Sphere of Application of the CISG
                        2.2.2.1   Basic rules on applicability
                        2.2.2.2   CISG and the Conflict of Law Rules
                        2.2.2.3   Reservations
            2.2.3   International Sale of Goods and the Finnish Legislation
            2.2.4   CISG and the Nordic Countries
            2.2.5   Decision on the applicable law on the main issue
            2.2.6   Applicable law in relation to issues not covered by the CISG
                        2.2.6.1   Need for discussion?
                        2.2.6.2   Interpretation of the Convention
                        2.2.6.3   Rate of interest according to the CISG
                        2.2.6.4   Decision on the partial payment
                        2.2.6.5   Decision on the rate of interest
    2.3   Delivery of the Goods
            2.3.1   Facts of the case
            2.3.2   General obligations of the Seller and the Buyer
            2.3.3   Buyer's obligation to take delivery
            2.3.4   Decision on the delivery obligation
            2.3.5   Time for delivery
            2.3.6   Place of delivery of the goods
            2.3.7   Passing of risk
            2.3.8   Trade terms
            2.3.9   Decision on time and place of the delivery
    2.4   Buyer's right to declare the contract avoided
            2.4.1   Facts of the case
            2.4.2   Avoidance of the contract
            2.4.3   Fundamental breach of the contract
                        2.4.3.1   Concept of fundamental breach
                        2.4.3.2   Substantial detriment
                        2.4.3.3 Foreseeability of the breach
                        2.4.3.4   Burden of proof
            2.4.4   Reasonable time for delivery
            2.4.5   Notice of avoidance
            2.4.6   Decision on the avoidance of the contract
                        2.4.6.1   Right to avoid the contract
                        2.4.6.2   Notice of avoidance
                        2.4.6.3   Seller's right to a specific performance
  3. DISTRICT COURT OF KUOPIO, 95/3214 (5 NOVEMBER 1996)
    3.1   Classification of the issues present
    3.2   Jurisdiction
            3.2.1   Facts of the case
            3.2.2   Decision on the jurisdiction
                        3.2.2.1   Judgement of the District Court
                        3.2.2.2   Judgment of the Court of Appeal
            3.2.3   Decision on jurisdiction analysed
    3.3   Buyer's right to declare the contract avoided
            3.3.1   Facts of the case
            3.3.2   Applicable law
            3.3.3   Avoidance of the contract in case of non-delivery
            3.3.4   Decision on avoidance of the contract
    3.4   Damages
            3.4.1   Facts of the case
            3.4.2   Decision of the District Court
  4. TURKU COURT OF APPEAL, S 97/324 (12 NOVEMBER 1997)
    4.1   Classification of the issues present
    4.2   Applicable law
    4.3   Conformity of the goods
            4.3.1   Facts of the case
            4.3.2   Quality and description of the goods
                        4.3.2.1   Rules on quality
                        4.3.2.2   Agreement on quality
            4.3.3   Decision on the conformity of the goods
    4.4   Examination of the goods
            4.4.1   Facts of the case
            4.4.2   Obligation to examine the goods
            4.4.3   Method and degree of the examination
            4.4.4   Time of the examination
            4.4.5   Decision on the examination of the goods
    4.5   Notice of non-conformity
            4.5.1   Obligation to notify about the lack of conformity
            4.5.2   Nature of the lack of conformity
            4.5.3   Form of the notice
            4.5.4   Time of the notice
            4.5.5   Cut off period
            4.5.6   Limitation Convention
            4.5.7   Burden of proof
            4.5.8   Consequence of the failure to give a notice
            4.5.9   Exemption for failure to notify within reasonable time
                        4.5.10   Excuse from giving a notice
                        4.5.11   Decision on the notice of non-conformity
    4.6   Price reduction
            4.6.1   Facts of the case
            4.6.2   Right to a price reduction
            4.6.3   Cure by the seller
            4.6.4   Decision on the price reduction
    4.7   Damages for the non-conforming goods
            4.7.1   Facts of the case
            4.7.2   General clause on damages
            4.7.3   Decision on damages
  5. HELSINKI COURT OF APPEAL, S 96/1129 (29 JANUARY 1998)
    5.1   Classification of the issues present
    5.2   The nature of the transaction
            5.2.1   Facts of the case
            5.2.2   Decision on the nature of the transaction
    5.3   Applicable rules
            5.3.1   Facts of the case
            5.3.2   Decision of the District Court
            5.3.3   Decision of the Court of Appeal
    5.4   Determining the object of the sale
            5.4.1   Facts of the case
            5.4.2   Decision on the object of the sale
                        5.4.2.1   Decision of the District Court
                        5.4.2.2   Decision of the District Court analysed
                        5.4.2.3   Decision of the Court of Appeal
                        5.4.2.4   Decision of the Court of Appeal analysed
    5.5   Examination of the goods
            5.5.1   Facts of the case
            5.5.2   Seller's liability for hidden defect
            5.5.3   Applicable usages
            5.5.4   Decision on the examination of the goods
                        5.5.4.1   Decision of the District Court
                        5.5.4.2   Decision of the District Court analysed
                        5.5.4.3   Decision of the Court of Appeal
                        5.5.4.4   Decision of the Court of Appeal analysed
  6. HELSINKI COURT OF APPEAL, S 96/1215 (30 JUNE 1998)
    6.1   Classification of the issues present
    6.2   Applicable law
    6.3   Delivery of the goods
            6.3.1   Facts of the case
            6.3.2   Agreed procedure for delivery
                        6.3.2.1   Obligation to take delivery
                        6.3.2.2   Time for delivery
                        6.3.2.3   Interpretation of the contract
                        6.3.2.4   Battle of forms
            6.3.3   Decision on delivery
    6.4   Conformity of the goods
            6.4.1   Facts of the case
            6.4.2   Particular purpose of the goods
            6.4.3   Sale by sample
            6.4.4   Buyer's knowledge of the non-conformity
            6.4.5   Fundamental breach of the contract
            6.4.6   Decision on the conformity of the goods
                        6.4.6.1   District Court's reasoning
                        6.4.6.2   District Court's reasoning analysed
    6.5   Examination of the goods and notice of non-conformity
            6.5.1   Facts of the case
            6.5.2   Obligation to examine the goods
            6.5.3   Obligation to notify about the lack of conformity
            6.5.4   Exemptions from giving a notice
            6.5.5   Decision on the examination of the goods
                        6.5.5.1   District Court's reasoning
                        6.5.5.2   District Court's reasoning analysed
    6.6   Buyer's right to declare the contract avoided
            6.6.1   Facts of the case
            6.6.2   Anticipatory breach
            6.6.3   Anticipatory breach in instalment contracts
            6.6.4   Decision on the avoidance of the contract
  7. HELSINKI COURT OF APPEAL, S 00/82 (26 OCTOBER 2000)
    7.1   Classification of the issues present
    7.2   Applicable law
    7.3   Breach of contract
            7.3.1   Proceedings in the District Court
                        7.3.1.1   Buyer's claim
                        7.3.1.2   Seller's reply
            7.3.2   Decision of the District Court
                        7.3.2.1   Disputed issues
                        7.3.2.2   Relevant law
                        7.3.2.3   Court's evaluation of evidence submitted and its conclusions
            7.3.3   Proceedings in the Court of Appeal
                        7.3.3.1   Seller's Appeal
                        7.3.3.2   Buyer's reply to the Seller's appeal
            7.3.4   Decision of the Court of Appeal
            7.3.5   Dissenting opinion
            7.3.6   Formal requirements of the contract
            7.3.7   Practices and usages
                        7.3.7.1   Applicable practices and usages
                        7.3.7.2   Nature of usage
                        7.3.7.3   Gap filling
            7.3.8   Decision on breach of contract analysed
    7.4   Damages
            7.4.1   Proceedings in the District Court
                        7.4.1.1   Buyer's claim and Seller's reply
            7.4.2   Decision of the District Court
                        7.4.2.1   Relevant law
                        7.4.2.2   Conclusions
            7.4.3   Proceedings in the Court of Appeal
                        7.4.3.1   Seller's Appeal
                        7.4.3.2   Buyer's reply on the Seller's appeal
            7.4.4   Decision of the Court of Appeal
            7.4.5   Decision on damages analysed
  8. TURKU COURT OF APPEAL, S 97/324 (12 APRIL 2002)
    8.1   Classification of the issues present
    8.2   Background of the case
    8.3   Procedural issue
    8.4   CISG and warranty terms
            8.4.1   Applicable law
            8.4.2   Formation of the contract
            8.4.3   Interpretation of the warranty clause
                        8.4.3.1   Interpretation of the contract
                        8.4.3.2   Contents of the warranty
                        8.4.3.3   The extent of the warranty
                        8.4.3.4   The effect of the warranty clause
                        8.4.3.5   Notice under the warranty
                        8.4.3.6   Conciliation
            8.4.4   Conclusions
    8.5   Decision on the material issues
            8.5.1   Damages
            8.5.2   Avoidance of the contract
  9. HELSINKI COURT OF APPEAL, S 01/269 (31 MAY 2004)
    9.1   Classification of the issues present
    9.2   Applicable law
    9.3   Contents of the contract
            9.3.1   Seller's claim
            9.3.2   Buyer's reply
            9.3.3   Decision on the contents of the contract
            9.3.4   Decision on the contents of the contract analysed
    9.4   Conformity of the goods
            9.4.1   Undisputed issues
            9.4.2   Decision on the binding force of the shipping instructions
            9.4.3   Decision on the shipping instructions analysed
            9.4.4   Quality of the phenol
                        9.4.4.1   Parties' claims
                        9.4.4.2   Decision on the quality of the goods
                        9.4.4.3   Decision on the passing of the risk
                        9.4.4.4   Decision on the quality of the goods analysed
    9.5   Examination of the goods and the avoidance of the contract
            9.5.1   Seller's claim
            9.5.2   Buyer's reply
            9.5.3   Decision on the examination of the goods
            9.5.4   Decision on the avoidance of the contract
            9.5.5   Decision on examination and avoidance analysed
    9.6   Preservation of the goods
            9.6.1   Facts of the case
            9.6.2   Decision on the preservation of the goods
            9.6.3   Decision on the preservation of the goods analysed
    9.7   Damages
            9.7.1   Facts of the case
            9.7.2   Decision on damages
            9.7.3   Decision on damages analysed
    9.8   Conclusions
  10. TURKU COURT OF APPEAL, S 04/1600 (24 MAY 2005)
    10.1   Classification of the issues present
    10.2   Applicable law
    10.3   Conformity of the goods
            10.3.1   Buyer's claim in the District Court
            10.3.2   Seller's reply in the District Court
            10.3.3   Demands in the Court of Appeal
            10.3.4   Decision on the conformity of the goods
                        10.3.4.1   Contents of the contract
                        10.3.4.2   Lack of conformity of the goods
            10.3.5   Decision on the conformity of the goods analysed
    10.4   Examination of the goods and the notice of non-conformity
            10.4.1   Facts of the case
            10.4.2   Decision on the examination of the goods and the notice of non-conformity
            10.4.3   Court's decision on examination and the notice analysed
    10.5   Exemption for liability to pay damages
            10.5.1   Facts of the case
            10.5.2   Sphere of application of Article 79
            10.5.3   Conditions for exemption
            10.5.4   Decision on exemption
    10.6   Damages
            10.6.1   Buyer's claim in the District Court
            10.6.2   Seller's reply in the District Court
            10.6.3   Demands in the Court of Appeal
            10.6.4   Mitigation of the damages
            10.6.5   Decision of the District Court on damages
            10.6.6   Decision of the Court of Appeal on damages
            10.6.7   Legal costs
            10.6.8   Decision on damages analysed
                        10.6.8.1   Foreseeability of damages and mitigation
                        10.6.8.2   Conciliation
  11. CONCLUSION
    11.1   Applicable law
    11.2   Uniformity in the application of the CISG
    11.3   Supreme Court 2005:114, S 2004/50 (14 October 2005)
            11.3.1   Classification of the issues present
            11.3.2   Jurisdiction and applicable law
            11.3.3   Decision commented
    11.4   Finally

PREFACE

The work relating to this thesis started during my leave from my permanent position in work life. However, the foundations of this work were laid down during my masters studies at the University of Turku. It was then, when my supervisor Professor Tuula Ämmälä introduced me to the world of international trade and the United Nations Convention on Contracts for the International Sale of Goods. For this and for her invaluable advice and guidance, I am indebted to her.

It was also her spirit that inspired me to finish this work even after her unexpected passing away. Without her encouraging words to a draft version, this work could still be pending. The final outcome however does not nearly amount to a tribute Professor Ämmälä deserves -- I hope the tribute she deserves is achieved by other students and their work.

My gratitude for completion of this work is directed towards Professor Jukka Mähönen from the University of Turku and D.Sc. (Business Admin.) Risto Väntsi from University of Tampere. For Dr. Väntsi I am grateful that not only he found the time to review a work of an unknown student but he also gave his valuable comments and critic on the work. For Professor Mähönen, thank you for your time and patience.

I thank my employer the City of Tampere and the City Lawyer Jouko Aarnio for enabling the start of my studies by granting me a leave of absence from my permanent position when I applied for it.

Most of all, I thank Jussi for her encouragement, support, love and caring. Without Jussi I would not have a change and courage to withdraw myself from everyday work and spend a wonderful and exciting year in Los Angeles, U.S.A. Thorough Jussi's example I have learned that the academic research is not only about freedom but requires discipline. But most of all, you have to love passionately what you do.

Finally, I want express my gratitude towards the organizations that have financially supported this work. These are Hans Bang Stiftelsen r.s., Werner Hacklinin Säätiö and Suomen Lakimiesliitto - Finlands Juristförbund ry.

Equally for all of you above and for you others who had been forced to listen my nagging about this work, I rest my case(s).

Tampere, April 2009
 
Sanna Kuoppala
 


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Saarnilehto, Ari; Hemmo, Mika; Kartio, Leena (2001): Varallisuusoikeus. Juva. WSOY Lakitieto. [cited as author in Saarnilehto et a. 2001, p. ]

Schlechtriem, Peter (1986): Uniform Sales Law - The UN Convention on Contracts for the International Sale of Goods. Vienna. Manzsche Verlags- und Univesitätsbuchhandlung. Available from the WWW: <URL: http://cisgw3.law.pace.edu/cisg/biblio/schlechtriem.html>

Schlechtriem, Peter; Schwenzer, Ingeborg (2005): Commentary on the UN Convention on the International Sale of Goods (CISG). Second (English) edition. Edited by Peter Schlechtriem, Ingeborg Schwenzer. Great Britain. Oxford University Press. [cited as author in Schlechtriem & Schwenzer 2005, p.]

Sevón, Leif (1986): Obligations of the Buyer under the UN Convention on Contract for the International Sale of Goods, Chapter 6, p. 203-238, in International Sale of Goods: Dubrovnik Lectures. Edited by Petar Sarcevic, Paul Volken. Oceana Publications, Inc. New York, London, Rome.

Sisula-Tulokas, Lena (1998): Luku 5. CISG, kansainvälinen kauppakonventio, p.54-77. Luku 7. Sovellettavan lain valinta, p. 99-116, in Ulkomaankauppaoikeus. Edited by Sisula-Tulokas, Lena. Helsinki. Kauppakaari Oyj.

Tikkanen, Sirpa (2000): Takaus kansainvälisen ykstiyis- ja prosessioikeuden pyörteissä, in Kansainvälisestä kaupasta. Juhlajulkaisu Tuula Ämmälä 2.11.2000, p. 305-335. Edited by Aine, Antti; Kumpula Anne. Turku. Turun yliopiston oikeustieteellisen tiedekunnan julkaisuja.

Wilhelmsson, Thomas; Sevón, Leif; Koskelo, Pauliine (1998): Kauppalain pääkohdat. Kauppakaari Oyj. Lakimiesliiton Kustannus. Gummerus Kirjapaino Oy. Jyväskylä 1998. [cited as Wilhelmsson et al. 1998, p. ]

Articles

Baasch Andersen, Camilla (1998): Reasonable Time in Article 39(1) of the CISG - Is Article 39(1) Truly a Uniform Provision? Pace essay (1998) Pace ed., Review of the Convention on Contracts for the International Sale of Goods (CISG) 1998, Kluwer Law International (1999), p. 63-176 [cited as Baasch Andersen 1998, section no, paragraph no] Available from the WWW (revised edition of her text; processed for entry in the database): <URL: http://cisgw3.law.pace.edu/cisg/biblio/andersen.html>

Baasch Andersen, Camilla (2005): The Uniform International Sales Law and the Global Jurisconsultorium. 24 Journal of Law and Commerce (2005) 159-179. Available from the WWW: <URL: http://www.cisg.law.pace.edu/cisg/biblio/andersen3.html>

Bout, Patrick X.: Trade Usages: Article 9 o the Convention on Contracts for the International Sale of Goods (1998) Available from the WWW: <URL: http://www.cisg.law.pace.edu/cisg/biblio/bout.html>

Di Matteo, Larry A.; Dhooge, Lucien; Greene Stephanie; Maurer, Virginia; Pagnattoro, Marisa (2004): The Interpretive Turn in International Sales Law: An Analysis of Fifteen Years of CISG Jurisprudence. 34 Northwestern Journal of International Law and Business (Winter 2004), p. 299-440 [cited as Di Matteo et al. 2005 p.] Available from the WWW: <URL: http://cisgw3.law.pace.edu/cisg/biblio/dimatteo3.html#606>

Farnsworth, Allan E. (1988): Review of Standard Forms or Terms Under the Vienna Convention. 21 Cornell International Law Journal (1988), p. 439-447. [cited as Farnsworth 1988, chapter no.] Available from the WWW: <URL: http://cisgw3.law.pace.edu/cisg/biblio/farns1.html>

Ferrari, Franco (1995): Specific Topics of the CISG in the Light of Judicial Application and Scholarly Writing. 15 Journal of Law and Commerce (1995) 1-126. [cited as Ferrari 1995, II, section no., chapter no. Available from the WWW: <URL: http://cisgw3.law.pace.edu/cisg/biblio/2ferrari.html>

Ferrari, Franco (2001): Tribunale di Vigevano: Specific Aspects of the CISG Uniformly Dealt With, p. 225-239 in 20 Journal of Law and Commerce (Spring 2001). Available also from the WWW: <URL: http://cisgw3.law.pace.edu/cisg/biblio/ferrari6.html>

Ferrari, Franco (2000-2001): Burden of Proof under the CISG in Pace Review of the Convention for International Sale of Goods (CISG), p. 1-8. Kluwer Law International (2000-2001). Available also from the WWW: <URL: http://www.cisg.law.pace.edu/cisg/biblio/ferrari5.html> [cited as Ferrari 2000-2001, p.]

Franco Ferrari (2000-2001): Applying the CISG in a Truly Uniform Manner, p. 203-215 in Uniform Law Review / Revue de Droit Uniforme (2000-1) Available from the WWW: <URL: http://cisgw3.law.pace.edu/cisg/biblio/ferrari4.html> [cited as Ferrari 2000-2001, Tribunale di Vigevano, p.]

Henschel, René Franz (2004): Conformity of Goods in International Sales Governed by CISG Article 35: Caveat venditor, caveat emptor and contract law as background law and as a competing set of rules. Nordic Journal of Commercial Law (2004/1). Available from the WWW: <URL: http://www.njcl.fi/1_2004/article2.pdf> [cited as Henschel 2004, page according to the publication on above URL address]

Hillman, Robert A. (1995): Applying the United Nations Convention on Contracts for the International Sale of Goods: The Elusive Goal of Uniformity, Cornell Review of the Convention on Contracts for the International Sale of Goods (1995), p. 21-49. Available from the WWW: <URL: http://www.cisg.law.pace.edu/cisg/biblio/hillman1.html> [cited as Hillman 1995, chapter heading]

Karollus, Martin (1995): Judicial Interpretation and Application of the CISG in Germany 1988-1994. Cornell Review of the Convention on Contracts for the International Sale of Goods (1995), p. 51-94. Available from the WWW: <URL: http://cisgw3.law.pace.edu/cisg/biblio/karollus.html> [cited as Karollus 1995, section no, chapter no]

Korpinen, Ari (2004): On legal uncertainty regarding timely notification of avoidance of the sales contract. Nordic Journal of Commercial Law 2005/1. Available from the WWW: <URL: http://cisgw3.law.pace.edu/cisg/biblio/korpinen.html> [cited as Korpinen 2004, chapter no]

Lookofsky, Joseph (1999): Alive and Well in Scandinavia: CISG Part II. 18 Journal of Law and Commerce (1999), p. 289-299. Available from the WWW: <URL: http://cisgw3.law.pace.edu/cisg/biblio/lookofsky1.html>

Mazzotta, Francesco G. (2004): CISG Article 78: Endless disagreement among commentators, much less among the courts. Available from the WWW: <URL: http://cisgw3.law.pace.edu/cisg/biblio/mazzotta78.html>

Saidov, Djakhongir (2001): Methods of Limiting Damages under the Vienna Convention on Contracts for the International Sale of Goods.Available from the WWW: <URL: http://cisgw3.law.pace.edu/cisg/biblio/saidov.html> [cited as Saidov 2001, section no, paragraph no]

Saidov, Djakhongir (2003): Cases on CISG Decided in the Russian Federation. 7 Vindobona Journal of International Commercial Law and Arbitration (1/2003), p. 1-63. Available from the WWW: <URL: http://cisgw3.law.pace.edu/cisg/biblio/saidov1.html>

Sevón, Leif (1990): Obligations of the Buyer under the Vienna Convention on the International Sale of Goods. Lakimies 1990, p. 327-343.

Ziegel, Jacob; Samson, Claude (1981): Report to the Uniform Law Conference of Canada on Convention on Contracts for the International Sale of Goods. Available form the WWW: <URL: http://cisgw3.law.pace.edu/cisg/wais/db/articles/english2.html> [cited as Ziegel & Samson 1981, section no, Article no]

Others

CISG-AC Opinion no 1, Electronic Communications under CISG, 15 August 2003. Rapporteur: Professor Christina Ramberg, Gothenburg, Sweden. [cited as CISG Advisory Council Opinion No.1]

CISG-AC Opinion no 2, Examination of the Goods and Notice of Non-Conformity: Articles 38 and 39, 7 June 2004. Rapporteur: Professor Eric E. Bergsten, Emeritus, Pace University School of Law, New York. [cited as CISG Advisory Council Opinion No.2]

CISG-AC Opinion no 6, Calculation of Damages under CISG Article 74, Spring 2006. Rapporteur: Professor John Y. Gotanda, Villanova University School of Law, Villanova, Pennsylvania, USA. [cited as CISG Advisory Council Opinion No.6]

Curran, Vivian Grosswald (1997): Cross-references and editorial analyses, Article 40. Available from the WWW: <URL: http://cisgw3.law.pace.edu/cisg/text/cross/cross-40.html> [cited as Curran 1997, Editorial analyses]

Giuliano, Mario; Lagarde, Paul (1980): Report on the Convention on the law applicable to contractual obligations by Mario Giuliano, Professor, University of Milan, and Paul Lagarde, Professor, University of Paris I. Official Journal of the European Union C 282, 31/10/1980 p. 0001-0050

Limbach, Francis; Ahearn, Brandon (2000): Conformity of goods, derogation from Article 40 by the parties and conditions of Art. 40 CISG: Arbitration Institute of the Stockholm Chamber of Commerce Arbitration award of June 5th, 1998. Available from the WWW: <URL: http://cisgw3.law.pace.edu/cisg/biblio/limbach.html>

Lookofsky, Joseph (1996): Cross-references and editorial analyses, Article 44. Available from the WWW: <URL: http://cisgw3.law.pace.edu/cisg/text/cross/cross-44.html> [cited as Lookofsky 1996, Editorial analyses]

Nystén-Haarala, Soili (2004): Oikeustapauksia. Kommentteja. Turun hovioikeus 12.4.2002 nro 943, S 00/855. Irtaimen kauppaan perustuva vahingonkorvaus. Lakimies 4/2004, p. 727-738.

Saarnilehto, Ari (1996): Yleisten sopimusehtojen liittäminen sopimukseen. Oikeustieto 3/1996.

Saarnilehto, Ari (2002): Kommentoituja oikeustapauksia korkeimmasta oikeudesta. Vakioehtojen liittäminen sopimukseen. Oikeustieto 3/2002.

Schlechtriem, Peter (2001): Uniform Sales Law in the Decision of the Bundesgerichtshof in 50 Years of the Bundesgerichtshof (Federal Supreme Courts of Germany): A Celebration Anthology from the Academic Community. English translation of Schlechtriem's text by Todd J. Fox. Available from the WWW: <URL: http://www.cisg.law.pace.edu/cisg/biblio/schlechtriem3.html> [cited as Schlechtriem 2000, section no, paragraph no]

The UNCITRAL Digest of case law on the United: Nations Convention on the International Sale of Goods A/CN.9/SER.C/DIGEST/CISG/Article number (8 June 2004) Available from the WWW: <URL: http://www.uncitral.org/uncitral/en/case_law/digests/cisg.html> [cited as UNCITRAL Digest 2004, Article no, heading]

Ämmälä, Tuula (2006): Kommentoituja oikeustapauksia hovioikeuksista. Kansainvälinen kauppa. Tavaran virhe. Oikeustieto 1/2006, p. 2-8.

Legislative History of the CIGS and the Limitation Convention

Commentary on the Convention on the Limitation Period in the International Sale of Goods, done at New York, 14 June 1974 (A/CONF.63/17) (27 June 1978) Yearbook of the United Nations Commission on International Trade Law, 1979, Volume X, p. 145-173. Available from the WWW: <URL: http://www.uncitral.org/pdf/english/yearbooks/yb-1979-e/vol10-p145-173-e.pdf> [cited as Commentary on the Limitation Convention]

Secretariat Commentary. Commentary on the Draft Convention on Contracts for the International Sale of Goods, prepared by the Secretariat. Document A/CONF.95/7, O.R.14-66.

Available from the WWW: For Article-by-Article commentaries, go to Annotated Text of the CISG; click on the Article of interest: <URL: http://cisgw3.law.pace.edu/cisg/text/cisg-toc.html> [cited as Text of the Secretariat commentary on article X of the 1987 Draft (draft counterpart of CISG Article Y)].

Also available in Honnold, John O. (1998): Documentary History of the Uniform Law for International Sales: The Studies, Deliberations, and Decisions that led to the 1980 United Nations Convention with introductions and explanations/by John O. Honnold, p. 404-456. (see above)

Government Proposals (Finland)

HE 93/1986 Hallituksen esitys Eduskunnalle kauppalaiksi. (Government proposal to the parliament concerning the Sale of Goods Act) [Translation author's]

HE 198/1986 Hallituksen esitys Eduskunnalle kansainvälistä tavaran kauppaa koskevista sopimuksista tehdyn yleissopimuksen eräiden määräysten hyväksymisestä (Government proposal to the parliament concerning the acceptance of some of the provisions of the Convention on Contracts for the International Sale of Goods) [Translation author's]

HE 44/1987 Hallituksen esitys Eduskunnalle kansainvälisluontoisiin sopimuksiin sovellettavaksi laiksi (Government proposal to the parliament concerning the Law Applicable to Contracts of International Character) [Translation author's]

HE 103/1998 Hallituksen esitys Eduskunnalle Itävallan, Suomen ja Ruotsin liittymisestä sopimusvelvoitteisiin sovellettavaa lakia koskevaan yleissopimukseen sekä sen tulkintaa Euroopan yhteisöjen tuomioistuimessa koskevaan ensimmäiseen ja toiseen pöytäkirjaan tehdyn yleissopimuksen eräiden määräysten hyväksymisestä sekä eräiksi siihen liittyviksi laeiksi (Government proposal to the parliament concerning the accession of Republic of Austria, Republic of Finland and the Kingdom of Sweden to the Convention on the law applicable to contractual obligations, and the acceptance of the First and Second Protocols on the interpretation of the Convention by the Court of Justice of the European Communities, and some of the laws relating to it [Translation author's]

Websites

CISG-online.ch. Cases, Materials, Legal Texts Available from the WWW: <URL: http://www.cisg-online.ch/index.html>

Finlex database (legislative information from Finland, including translations of Finnish Acts of Parliament, mostly in English). Available from the WWW (in English): <URL: http://www.finlex.fi/en/>

Finnish Customs Available from the WWW (in English): <URL: http://www.tulli.fi/en/>

Hague Conference on Private International Law Available from the WWW: <URL: http://hcch.e-vision.nl/index_en.php?act=home.splash>

ICC Incoterms (Preambles to Incoterms 2000) <URL: http://www.iccwbo.org/incoterms/>

Pace Institute of International Commercial Law, CISG Database Available from the WWW: <URL: http://www.cisg.law.pace.edu/>

Rome-convention.org - On-line database on the Convention on the Law Applicable to Contractual Obligations (Rome 1980) Available from the WWW: <URL: http://www.rome-convention.org/>

Statistics Finland Available from the WWW (in English): <URL: http://www.tilastokeskus.fi/index_en.html>

United Nations Commission on International Trade Law (UNCITRAL) Available from the WWW: <URL: http://www.uncitral.org/>

UNILEX on CISG & UNIDROIT Principles. International Case Law and Bibliography Available from the WWW: <URL: http://www.unilex.info/>


TABLE OF CASES

Arbitration

Arbitration Court of the Chamber of Commerce and Industry of Budapest, Vb 94131 (5 December 1995) Case text (English translation) available in the WWW: <URL: http://cisgw3.law.pace.edu/cases/951205h1.html>

Arbitration Institute of the Stockholm Chambers of Commerce (5 June 1998) Case law on UNCITRAL text (CLOUT) abstract no 237 Case abstract available from the WWW: <URL: http://www.uncitral.org>

Court of Arbitration of the International Chamber of Commerce, 7331 of 1994 Case presentation available in the WWW: <URL: http://cisgw3.law.pace.edu/cases/947331i1.html>

I.C.C. International Court of Arbitration, 8786 of January 1995 Case digest (editor Daniel J. Morse) available from the WWW: <URL: <http://cisgw3.law.pace.edu/cases/978786i1.html>

I.C.C. International Court of Arbitration, 9187 (1 June 1999) Text of the decision available in the WWW: <URL: http://www.cisg-online.ch/cisg/urteile/705.htm>

I.C.C. International Court of Arbitration, 8128 of 1995 Abstract available from the WWW: <URL: http://www.unilex.info/>

Iran -United States Claims Tribunal, 370 (429-370-1) (28 July 1989) Text of the decision available in the WWW: <URL: http://www.unilex.info/>

Schiedsgericht der Börse für Landwirtschaftliche Produkte - Wien (Arbitral Court of the market for farm products-Vienna), S 2/97 (10 December 1997) Abstract available from the WWW: <URL: http://www.unilex.info/>

Tribunal of International Commercial Arbitration at the Russian Federation Chamber of Commerce and Industry, 328/1994 (10 February 1996) Case text (English translation) available from the WWW: <URL: http://cisgw3.law.pace.edu/cases/960210r1.html>

Denmark

Vestre Landsret, B-29-1998 (10 November 1999) Case abstract available in the WWW: <URL: http://www.unilex.info/>

Finland

KKO:2005:114, S 2004/50 (14 October 2005) Case history: Kouvolan hovioikeus (13 November 2003) confirmed the decision by Heinolan käräjäoikeus (27 January 2003) where the case was dismissed on the grounds for jurisdiction.

The Supreme Court returned the matter to the District Court to be retried on the matters relating to the CISG:

Decision by Kouvolan hovioikeus, S 06/737 (14 March 2007) was rendered on appeal against the decision by Heinolan käräjäoikeus, Judgement 06/425, L 05/947 (21 April 2006).

Helsingin hovioikeus, S 96/1129 (29 January 1998) Case text (English translation) available in the WWW: <URL: http://cisgw3.law.pace.edu/cases/980129f5.html> Case history: Helsingin käräjäoikeus, Judgment 17450 (18 July 1995).

Helsingin hovioikeus, S 96/1215 (30 June 1998) Case text (English translation) available in the WWW: <URL: http://cisgw3.law.pace.edu/cases/980630f5.html> Case history: Helsingin käräjäoikeus, 95/11481 (11 June 1995)

Helsingin hovioikeus, S 00/82 (26 October 2000) Case translation available in the WWW: <URL: http://cisgw3.law.pace.edu/cases/001026f5.html> Case history: Helsingin käräjäoikeus, Judgment 28966 (97/20514).

Helsingin hovioikeus, S 01/269 (31 May 2004) Case history: Espoon käräjäoikeus, S 96/7975 (3 November 2000).

Itä-Suomen hovioikeus, S 96/605 (27 March 1997) Case presentation available in the WWW: <URL: http://cisgw3.law.pace.edu/cases/970327f5.html> Case history: Kuopion käräjäoikeus, 95/3214 (5 November 1996) Case presentation available in the WWW: <URL: http://cisgw3.law.pace.edu/cases/961105f5.html>. Translation available in the WWW (UNILEX): <URL: http://www.unilex.info/case.cfm?pid=1&do=case&id=489&step=FullText>

Turun hovioikeus, S 95/1023 (18 February 1997) Case text (English translation) available in the WWW: <URL: http://cisgw3.law.pace.edu/cases/970218f5.html> Case history: Turun käräjäoikeus, S 94/4988 (16 June 1995).

Turun hovioikeus, S 97/324 (12 November 1997) Case text (English translation) available in the WWW: <URL: http://cisgw3.law.pace.edu/cases/971112f5.html> Case history: Tampereen käräjäoikeus, 95/11193 (17 January 1997); Case text (English translation) available in the WWW: <URL: http://cisgw3.law.pace.edu/cases/970117f5.html>

Turun hovioikeus, S 00/855 (12 April 2002) Case text (English translation) available in the WWW: <URL: http://cisgw3.law.pace.edu/cases/020412f5.html> Case history: Tampereen käräjäoikeus, 97/1457 (7 January 2000).

Turun hovioikeus, S 04/1600 (24 May 2005) Case history: Hämeenlinnan käräjäoikeus, S 03/2166 (19 May 2004).

France

Cour d'appel de Grenoble, 93/4126 (13 September 1995) Case law on UNCITRAL text (CLOUT) abstract no 202 Case abstract available from the WWW: <URL: http://www.uncitral.org>

Cour d'appel de Grenoble, 94/0258 (15 May 1996) Case law on UNCITRAL text (CLOUT) abstract no 204 Case abstract available from the WWW: <URL: http://www.uncitral.org>

Reversed on other grounds Cour de Cassation, P 96-19.992 (5 January 1999) Case law on UNCITRAL text (CLOUT) abstract no 241 Case abstract available from the WWW: <URL: http://www.uncitral.org>

Cour d'appel de Paris, 92-000 863 (22 April 1992) Case law on UNCITRAL text (CLOUT) abstract no 158; sustained, Cour de Cassation, 92-16.993 (4 January 1995), Case law on UNCITRAL texts (CLOUT) abstract no. 155 Case abstract available from the WWW: <URL: http://www.uncitral.org>

Cour de Cassation, 92-16.993 (4 January 1995) Case law on UNCITRAL texts (CLOUT) abstract no. 155 Case abstract available from the WWW: <URL: http://www.uncitral.org>

Tribunal de Commerce de Besançon 97 009265 (19 January 1998) Case text (English translation) available in the WWW: <URL: http://cisgw3.law.pace.edu/cases/980119f1.html>

Germany

Bundesgerichtshof (BGH) VIII ZR 306/95 (4 December 1996) Case law on UNCITRAL text (CLOUT) abstract no 229 Case abstract available from the WWW: <URL: http://www.uncitral.org>

Bundesgerichtshof (BGH) VIII ZR 259/97 (25 November 1998) Case law on UNCITRAL text (CLOUT) abstract no 270 Case abstract available from the WWW: <URL: http://www.uncitral.org>

Bundesgerichtshof (BGH) VIII ZR 121/98 (24 March 1999) Case law on UNCITRAL text (CLOUT) abstract no 271 Case abstract available from the WWW: <URL: http://www.uncitral.org>

Bundesgerichtshof (BGH) VIII ZR 304/00 (9 January 2002) Case law on UNCITRAL text (CLOUT) abstract no Case abstract available from the WWW: <URL: http://cisgw3.law.pace.edu/cases/020109g1.html>

Hanseatisches Oberlandesgericht (OLG) Hamburg, 1 U 31/99 (26 November 1999) Case law on UNCITRAL text (CLOUT) abstract no 348 Case abstract available from the WWW: <URL: http://www.uncitral.org>

Landgericht (LG) Bochum, 13 O 142/95 (24 January 1996) Case text (English translation) available from the WWW: <URL: http://cisgw3.law.pace.edu/cases/960124g1.html>

Landgericht (LG) Berlin, 99 O 123/92 (30 September 1992) Case abstract available from the WWW: <URL: http://www.unilex.info/>

Landgericht (LG) Ellwangen, 1 KfH O 32/95 (21 August 1995) Case text (English translation) available from the WWW: <URL: http://cisgw3.law.pace.edu/cases/950821g2.html>

Landgericht (LG) Flensburg, 2 O 291/98 (24 March 1999) Case law on UNCITRAL text (CLOUT) abstract no 377 Case abstract available from the WWW: <URL: http://www.uncitral.org>

Landgericht (LG) Giessen, 6 O 85/93 (5 July 1994) Case presentation available in the WWW: <URL: http://cisgw3.law.pace.edu/cases/940705g1.html>

Landgericht (LG) Köln, 86 O 119/93 (11 November 1993) Case abstract available from the WWW: <URL: http://cisgw3.law.pace.edu/cases/931111g1.html>

Landgericht (LG) Landshut, 54 O 644/94 (5 April 1995) Case text (English translation) available from the WWW: <URL: http://cisgw3.law.pace.edu/cases/950405g1.html>

Landgericht (LG) München, 17 HKO 3726/89 (3 July 1989) Case law on UNCITRAL text (CLOUT) abstract no 3 Case abstract available from the WWW: <URL: http://www.uncitral.org>

Landgericht (LG) München, 8HKO 24667/93 (8 February 1995) Case law on UNCITRAL text (CLOUT) abstract no 131 Case abstract available from the WWW: <URL: http://www.uncitral.org>

Landgericht (LG) Paderborn, 7 O 147/94 (25 January 1996) Case text (English translation) available from the WWW: <URL: http://cisgw3.law.pace.edu/cases/960625g1.html>

Landgericht (LG) Stuttgart, 3 KfH O 97/89 (31 August 1989). Case law on UNCITRAL text (CLOUT) abstract no 4 Case abstract available from the WWW: <URL: http://www.uncitral.org>

Landgericht (LG) Trier, 7 HO 78/95 (12 October 1995) Case law on UNCITRAL text (CLOUT) abstract no 170 Case abstract available from the WWW: <URL: http://www.uncitral.org>

Oberladesgericht (OLG) Celle, 3 U 246/97 (2 September 1998) Case law on UNCITRAL text (CLOUT) abstract no 318 Case abstract available from the WWW: <URL: http://www.uncitral.org>

Oberladesgericht (OLG) Düsseldorf, 17 U 82/92 (8 January 1993) Case law on UNCITRAL text (CLOUT) abstract no 48 Case abstract available from the WWW: <URL: http://www.uncitral.org>

Oberlandesgericht (OLG) Düsseldorf, 17 U 136/93 (12 March 1993) Case law on UNCITRAL text (CLOUT) abstract no 310 Case abstract available from the WWW: <URL: http://www.uncitral.org>

Oberlandesgericht (OLG) Hamburg , 1 U 167/95 (28 February 1997) Case law on UNCITRAL text (CLOUT) abstract no 277 Case abstract available from the WWW: <URL: http://www.uncitral.org>

Oberlandesgericht (OLG) Jena, 8 U 1667/97 (26 May 1998) Case law on UNCITRAL text (CLOUT) abstract no 280 Case abstract available from the WWW: <URL: http://www.uncitral.org>

Oberlandesgericht (OLG) Karlsruhe, 1 U 280/96 (25 June 1997) Case law on UNCITRAL text (CLOUT) abstract no 230; reversing Bundesgerichtshof (BGH) VIII ZR 259/97 (25 November 1998) Case law on UNCITRAL text (CLOUT) abstract no 270 Case abstract available from the WWW: <URL: http://www.uncitral.org>

Oberlandesgericht (OLG) Koblenz, 2 U 31/96 (31 January 1997) Case law on UNCITRAL text (CLOUT) abstract no 282 Case abstract available from the WWW: <URL: http://www.uncitral.org>

Oberlandesgericht (OLG) Köln, 22 U 4/96 (21 May 1995) Case law on UNCITRAL text (CLOUT) abstract no 168 Case abstract available from the WWW: <URL: http://www.uncitral.org>

Oberlandesgericht (OLG) Köln, 18 U 121/97 (21 August 1997) Case law on UNCITRAL text (CLOUT) abstract no 284 Case abstract available from the WWW: <URL: http://www.uncitral.org>

Oberlandesgericht (OLG) Köln, 16 U 45/00 (13 November 2000) Case text (English translation) available from the WWW: <URL: http://cisgw3.law.pace.edu/cases/001113g1.html>

Oberlandesgericht (OLG) München, 7 U 4419/93 (2 March 1994) Case law on UNCITRAL text (CLOUT) abstract no 83 Case abstract available from the WWW: <URL: http://www.uncitral.org>

Oberlandesgericht (OLG) Oldenburg 11 U 64/94 (1 February 1995) Case law on UNCITRAL text (CLOUT) abstract no 165 Case abstract available from the WWW: <URL: http://www.uncitral.org>

Oberlandesgericht (OLG) Saarbrücken, 1 U 69/92 (13 January 1993) Case law on UNCITRAL text (CLOUT) abstract no 292 Case abstract available from the WWW: <URL: http://www.uncitral.org>

Oberlandesgericht (OLG) Saarbrücken, 1 U 703/97-143 (3 June 1998) Case law on UNCITRAL text (CLOUT) abstract no 290 Case abstract available from the WWW: <URL: http://www.uncitral.org>

Oberlandesgericht (OLG) Stuttgart, 5 U 195/94 (21 August 1995) Case law on UNCITRAL text (CLOUT) abstract no 289 Case abstract available from the WWW: <URL: http://www.uncitral.org>

Italy

Pretura circondariale di Parma, sez. di Fidenza, 77/89 (24 November 1989) Case law on UNCITRAL text (CLOUT) abstract no 90 Case abstract available from the WWW: <URL: http://www.uncitral.org>

Tribunale di Busto Arsizio, (13 December 2001) Case abstract available in the WWW: <URL: http://www.unilex.info/>

Tribunale di Vigevano, 405 (12 July 2000) Case text (English translation) available from the WWW: <URL: http://cisgw3.law.pace.edu/cases/000712i3.html>

Netherlands

Gerechtshof's (HOF) Hertogenbosch, C9700046/HE (15 December 1997) Case abstract available in the WWW: <URL: http://www.unilex.info/>

Gerechtshof's (HOF) Arnhem, 94/305 (22 August 1995) Case comment by Marie-France Papandréou-Deterrville available from the WWW: <URL: http://www.cisg.law.pace.edu/cisg/wais/db/cases2/950822n1.html>

RB Roermond, 900336 (19 December 1991) Case law on UNCITRAL text (CLOUT) abstract no 98 Case abstract available from the WWW: <URL: http://www.uncitral.org>

Switzerland

Bezirksgericht Unterrhiental, EV. 1998.2 (1KX.1998.7) (16 September 1998) Case law on UNCITRAL text (CLOUT) abstract no 263 Case abstract available from the WWW: <URL: http://www.uncitral.org>

Handelsgericht (HG) Zürich, HG 930138. U/HG93 (9 September 1993) Case law on UNCITRAL text (CLOUT) abstract no 97 Case abstract available from the WWW: <URL: http://www.uncitral.org>

Handelsgericht (HG) Zürich, HG 920670 (26 April 1995) Case law on UNCITRAL text (CLOUT) abstract no 196 Case abstract available from the WWW: <URL: http://www.uncitral.org>

Handelsgericht (HG) Zürich, HG 960527/O (21 September 1998) Case law on UNCITRAL text (CLOUT) abstract no 252 Case abstract available from the WWW: <URL: http://www.uncitral.org>

Kantonsgericht (KG) Nidwalden, 15/96 Z (12 November/3 December 1997) Case law on UNCITRAL text (CLOUT) abstract no 220 Case abstract available from the WWW: <URL: http://www.uncitral.org>

Obergericht (OG) des Kantons Luzern, 11 95 123/375 (8 January 1997) Case law on UNCITRAL text (CLOUT) abstract no 192 Case abstract available from the WWW: <URL: http://www.uncitral.org>

Pretore della giurisdizione di Locarno Campagna, 6252 (27 April 1992) Case text (English translation) available from the WWW: <URL: http://cisgw3.law.pace.edu/cases/920427s1.html>

Tribunal Cantonal du Valais (Ile Cour Civile), CI 97 288 (29 June 1998) Case law on UNCITRAL text (CLOUT) abstract no 256 Case abstract available from the WWW: <URL: http://www.uncitral.org>

Schweizerisches Bundesgericht (BGer), 4C.179/1998/odi (28 Octobere 1998) Case law on UNCITRAL text (CLOUT) abstract no 248 Case abstract available from the WWW: <URL: http://www.uncitral.org>


ABBREVIATIONS AND TRANSLATIONS

Asetus elintarvikkeen käsittelystä ionisoivalla säteilyllä 844/1987
 
Decree on the processing of foods by ionizing radiation (Finland) (Repealed by the Government Decree 851/200 that came into force on 20 October 2000)
 
Asetus Itävallan, Suomen ja Ruotsin liittymisestä tuomioistuimen toimivaltaa sekä tuomioiden täytäntöönpanoa yksityisoikeuden alalla koskevaan yleissopimukseen sekä yleissopimuksen tulkintaa Euroopan yhteisöjen tuomioistuimessa koskevaan pöytäkirjaan tehdyn yleissopimuksen voimaansaattamisesta ja sen eräiden määräysten hyväksymisestä annetun lain voimaantulosta 26/1999
 
Implementing decree of the introductory act concerning the accession of Republic of Austria, Republic of Finland and the Kingdom of Sweden to the Convention on jurisdiction and the enforcement of judgments in civil and commercial matters and to the Protocol on its interpretation by the Court of Justice, and some of its rules [translation author's]
 
Asetus takausmiehen edesvastausvelvollisuuden tarkemmasta määräämisestä 7/1873
 
Decree on Guarantees (Finland) [translation author's]
 
Bezirksgericht
 
District Court (Switzerland)
 
Bundesgerichtshof (BGH)
 
Federal Supreme Court (Germany)
 
CISG
 
Convention on Contract for the International Sale of Goods 1980
 
CLOUT
 
Case law on UNCITRAL texts
 
Cour d'appel
 
Court of Appeal (France)
 
Cour de cassation
 
Supreme Court (France)
 
DF
 
Defensor Legis. Publication by the Finnish Bar Association; published since 1920.
 
e.g.
 
Latin exempli gratia for 'for example'
 
et al.
 
Latin et alii for 'and others'
 
Euroopan parlamentin ja neuvoston direktiivi 1999/2/EY, annettu 22 päivänä helmikuuta 1999, ionisoivalla säteilyllä käsiteltyjä elintarvikkeita ja elintarvikkeiden ainesosia koskevan jäsenvaltioiden lainsäädännön lähentämisestä
 
Directive 1999/2/EC of the European Parliament and of the Council of 22 February 1999 on the approximation of the laws of the Member States concerning foods and food ingredients treated with ionising radiation
 
Euroopan parlamentin ja neuvoston direktiivi 1999/3/EY, annettu 22 päivänä helmikuuta 1999, ionisoivalla säteilyllä käsiteltyjä elintarvikkeita ja elintarvikkeiden ainesosia koskevan yhteisön luettelon vahvistamisesta
 
Directive 1999/3/EC of the European Parliament and of the Council of 22 February 1999 on the establishment of a Community list of foods and food ingredients treated with ionising radiation
 
Gerechtshof (HOF)
 
District Appeal Court (Netherlands)
 
Handelsgericht (HG)
 
Commercial Court (Switzerland)
 
Helsingin hovioikeus
 
Helsinki Court of Appeal (Finland)
 
Hovioikeus
 
Court of Appeal (Finland)
 
ICC
 
International Chamber of Commerce
 
i.e.
 
id est (Latin = that is, in other words)
 
ipso facto
 
Latin for 'by that very fact'
 
Itä-Suomen hovioikeus
 
Eastern Finland Court of Appeal (Finland)
 
Kantonsgericht (KG)
 
District Court (Switzerland)
 
Kauppa- ja teollisuusministeriön asetus elintarvikkeen käsittelystä ionisoivalla säteilyllä 852/2000
 
Decree of the Ministry of Trade and Industry on the processing of foods by ionizing radiation (Finland)
 
Kauppakaari 31.12.1734/3
 
Commercial Code (Finland) [translation author's]
 
Kauppalaki 27.3.1987/355
 
Sale of Goods Act (Finland) [referred as Finnish Sale of Goods Act]
 
Kihlakunnanoikeus
 
Circuit Court (Finland) [District Courts were established in 1993 (Law on District Courts 28.6.1993/581). They superseded the earlier Circuit Courts and City Courts.]
 
KKO
 
Korkein oikeus, Supreme Court (Finland)
 
KL
 
Kauppalaki 27.3.1987/355, Sale of Goods Act [cited as Finnish Sale of Goods Act] Unofficial English translation by the Finnish Ministry of Justice available from the WWW: <URL: http://www.finlex.fi/fi/laki/kaannokset/1987/en19870355.pdf>
 
Korkolaki 20.8.1982/633
 
Interest Act (Finland) [translation author's]
 
Kuluttajansuojalaki 20.1.1978/38
 
Consumer Protection Act (Finland) [translation author's] Unofficial English translation by the Finnish Ministry of Justice available from the WWW: <URL: http://www.finlex.fi/fi/laki/kaannokset/1978/en19780038.pdf>
 
Käräjäoikeus
 
District Court (Finland)
 
Laki Itävallan, Suomen ja Ruotsin liittymisestä sopimusvelvoitteisiin sovellettavaa lakia koskevaan yleissopimukseen sekä sen tulkintaa Euroopan yhteisöjen tuomioistuimessa koskevaan ensimmäiseen ja toiseen pöytäkirjaan tehdyn yleissopimuksen eräiden määräysten hyväksymisestä 18.12.1998/398/1999
 
Act concerning the accession of Republic of Austria, Republic of Finland and the Kingdom of Sweden to the Convention on the law applicable to contractual obligations, and the acceptance of the First and Second Protocols on the interpretation of the Convention by the Court of Justice of the European Communities [Translation author's]
 
Laki kansainvälisluontoiseen irtainten esineiden kauppaan sovellettavasta laista 26.6.1964/387
 
Act on Law Applicable to Sale of Goods of International Character (Finland)
 
Laki kansainvälisluontoisiin sopimuksiin sovellettavasta laista 27.5.1988/466
 
Act on Law Applicable to Contracts of International Character (Finland) [translation author's]
 
Laki kansainvälistä tavaran kauppaa koskevista sopimuksista tehdyn yleissopimuksen eräiden määräysten hyväksymisestä 20.3.1987, 795/1988
 
Act concerning the acceptance of some of the provisions of the Convention on Contracts for the International Sale of Goods (Finland) [translation author's]
 
Lakimies
 
The Journal of the Finnish Lawyers' Association, published since 1903.
 
Laki takauksesta ja vierasvelkapanttauksesta 19.3.1999/361
 
Act on Guarantees and on Pledges for Outside Debts (Finland) [translation author's]
 
Laki velan vanhentumisesta 15.8.2003/728
 
Act on Statutory Limitation of Debt (Finland) [translation author's]
 
Landgericht
 
(LG) District Court (Germany)
 
Merilaki 15.7.1994/674
 
Maritime Law (Finland) [translation author's]
 
Obergericht (OG)
 
Cantonal Supreme Court, Appellate Court (Switzerland)
 
Oberlandesgericht (OLG)
 
Provincial Court of Appeal (Germany)
 
Oikeudenkäymiskaari 1.1.1734/4
 
Code of Judicial Procedure (Finland) Unofficial English translation by the Finnish Ministry of Justice available from the WWW: <URL: http://www.finlex.fi/fi/laki/kaannokset/1734/en17340004.pdf>
 
OikTL Laki varallisuusoikeudellisista oikeustoimista 13.6.1929/228,
 
Contracts Act (Finland) [cited as the Contracts Act or the Finnish Contracts Act] Unofficial English translation by the Finnish Ministry of Justice available from the WWW: <URL: http://www.finlex.fi/fi/laki/kaannokset/1929/en19290228.pdf>
 
O.R.
 
Official Record
 
Osakeyhtiö (Oy)
 
Limited Company (Finland)
 
Pacta sunt servanda
 
Latin for 'pacts must be respected'
 
Pretura circondariale
 
Court of First Instance (Italy)
 
Pretore della giurisdizione
 
District Court (Switzerland)
 
RB Arrondissementsrechtbank
 
District Court (Netherlands)
 
Schweizerisches Bundesgericht (Bger)
 
Federal Supreme Court (Switzerland)
 
Summa summarum
 
Latin for 'in the end', 'all in all', 'sum total'
 
Tribunal Cantonal Canton
 
Appellate Court (Switzerland)
 
Tribunal de commerce
 
District Court (France)
 
Tribunale
 
Circuit Court (Italy)
 
Turun hovioikeus
 
Turku Court of Appeal (Finland)
 
UNCITRAL
 
United Nations Commission on International Trade Law
 
USD
 
United States Dollar (currency of the USA)
 
Vestre Landsret
 
Western High Court Denmark
 


1. INTRODUCTION

1.1 History and Purpose of the CISG

The United Nations Convention for the International Sale of Goods (from herein the CISG or the Convention) was unanimously approved by a Diplomatic Conference of sixty-two States in Vienna, Austria on 11 April 1980. As of 4 August 2008, the United Nations Commission on International Trade Law (UNCITRAL) reports that 71 States have adopted the CISG.[1] The CISG is the uniform international sales law of countries that account for over two-thirds of all world trade.

The purpose of the CISG is to promote uniformity in the sphere of international commerce. The private international law and the conflict of law rules do not always provide predictability and certainty needed in the international trade concerned. The predecessors of the CISG, i.e. the Uniform Law for the International Sale of Goods (ULIS) and the Uniform Law on the Formation of Contracts for the International Sale of Goods (ULF) of 1964 were not as widely adopted as the CISG. The need for unification of the international sale laws was however widely recognised. The work began in the first session of the UNCITRAL in 1968 and led to the approval of the CISG by the Diplomatic Conference in 1980.[2] Finland ratified the CISG on 20 March 1987 [3] and the CISG came into force on 1 January 1989.[4]

1.2 CISG and the Finnish Sale of Goods Act

The Finnish Sale of Goods Act (27 March 1987/355) is based on the CISG. Before the Finnish Sale of Goods Act was enacted, there was an urgent need for the rules of laws relating to the sale of goods in Finland. The general provisions relating to the rights and obligations of the buyer and the seller dated as far as 1734.[5] After the CISG was approved in 1980, the Nordic Countries (Denmark, Finland, Norway and Sweden) set up a working group to explore the possibilities to enact a uniform sales law towards the uniform international sales law. The possibility to ratify the CISG as a general sale of goods act was explored but it was discovered that even though it was important to develop domestic sales law in accordance with the international trend, the CISG was not suitable to form a national sale of goods act as such. It was also feared that the solution to adopt the CISG as a national sales law would arouse suspicion among the foreign traders that domestic traditions influence the interpretation of the CISG.[6]

The main differences between the CISG and the Finnish Sale of Goods Act relate to the sphere of application and damages. According to Article 2, the CISG does not apply to sales by auction, sales of stocks, shares, investment securities, negotiable instruments or money, sales of ships, vessels, hovercraft or aircraft or sales of electricity. In addition consumer sales are not covered by the CISG.[7] The Finnish Sale of Goods Act also excludes consumer sales from its sphere of application.[8] However, according to the Finnish Consumer Protection Act (38/1978) Section 1, the Act applies to the offering, selling and other marketing of consumer goods and services by businesses to consumers. CISG Article 2(a) on the other hand does not require that the goods bought for personal use are sold by business. In relation to damages, the CISG protects the aggrieved party better. As to the damages according to CISG Article 74, they cover all foreseeable losses, including loss of profit suffered as a consequence of the breach. In the Finnish Sale of Goods Act, damages are separated into direct and indirect losses.[9] The liability for losses is also divided into liability for losses incurred due to an impediment under the defaulting party's control and into liability for losses due to negligence attributable to the defaulting party.[10]

1.3 Purpose of this study and methods used in the study

The purpose of this study is to analyse Finnish case law based on the application of the CISG. The core of this thesis covers nine cases tried in public courts in Finland between the years 1997 and 2005. All these decisions have become final after the proceedings in the Court of Appeal. The analyses of the cases are restricted to issues relating to the CISG. In relation to issues covered by a different applicable law than the CISG, usually Finnish law, the issues are presented only briefly in order to keep the case presentations intact. The scope of the thesis does not allow the issues covered by the Finnish law to be analysed in detail.

The Decision by the Supreme Court on 14 October 2005 (KKO:2005:114, S 2004/50) that returned the matter to the District Court to be retried on its merits relating to the CISG has been chosen to be left to a lighter scrutiny. From the academic and practical point of view, the main interest of the case lies on the matters relating to jurisdiction. The Supreme Court concentrated on the issue whether the court had jurisdiction on the basis of the Brussels Convention on Jurisdiction and the Enforcement of Judgments in Civil and Commercial Matters 1968 (The Brussels Convention).[11] The brief case presentation within the conclusion also supports one of the goals of this work. The analyses of the cases rendered in the Finnish legal system increases the understanding of the CISG by scholars, business practitioners, lawyers and judges alike and promotes the uniform application thereof in the future. Further, for a truly international instrument of law, it is important that the case law from even a small legal community is incorporated and discussed in sphere of the larger community. From the practical point of view, it is not the letter of law that sufficews but in order to be well prepared for unanticipated incidents beforehand one must understand the meaning of the letter.

The commentaries by prominent scholars form the basis on which the thesis is built. English literature is nowadays easily available, not only traditionally in forms of textbooks and articles but the vast majority of the literature is now also available in electronic form through the internet. Essential help in writing this thesis has been the CISG Database maintained by the Institute of International Commercial Law at the Pace University School of Law.[12]

International case law is also nowadays ready available through the internet in the form of abstracts. The case law referred to in this theses is chosen to illustrate that the scholarly writings in the best possible way were readily available. The CISG is an international convention and it is essential that internationality is promoted in its application. As CISG Article 7 requires, in the interpretation of the Convention, regard is to be had to its international character and to the need to promote uniformity in its application. However, it should be stressed that the case presentations are based on abstracts and presented in simplified form. Further, only those details and particulars are presented relevant to the issues in question.

The cases are analysed in chronological order as rendered by the Courts of Appeals.[13] Those issues that have been discussed in relation to the cases analysed in the beginning are only referred to further on. The reader is always advised to check whether an issue of interest has been discussed earlier.

2. TURKU COURT OF APPEAL, S 95/1023 (18 FEBRUARY 1997)

2.1 Classification of the issues present

The case involved a sale of animal food packages delivered from a German Seller (the plaintiff) to a Finnish Buyer (the defendant). The questions in dispute included:

   -    Whether the delivery of the goods was delayed; and
   -    On what grounds the buyer could declare the contract avoided.

English translation is available by Professor Tuula Ämmälä in the WWW: <URL: http://cisgw3.law.pace.edu/cases/970218f5.html>. The decision of the Court of Appeal affirmed the decision of the District Court of Turku, S 94/4988 (16 June 1995).

2.2 Applicable law

2.2.1 Facts of the case

The Seller argued that the CISG should be applied to the case. The Buyer, on the other hand, argued that the Finnish Sale of Goods Act should be applied. In relation to the rate of interest, the Seller firstly referred to the Finnish Interest Act and secondly, if the Finnish Interest Act could not be applied, asserted that the interest should be awarded according to the interest rate effective in Germany. The alternative rate of interest was referred to in the general conditions of sale printed on the reverse side of the Seller's letterforms and documents used in the Seller's business.

2.2.2 Sphere of Application of the CISG

2.2.2.1 Basic rules on applicability

Article 1(1) lays down the basic rules on applicability of the CISG.

Article 1

(a) The Convention applies to contracts of sale of goods between parties whose places of business are in different States:
(a) when the States are Contracting States; or
(b) when the rules of private international law lead to the application of the law of the Contracting State.

...

The CISG applies directly if the parties to a contract for the sale of goods have their places of business in different Contracting States, independent of different solution provided by the rules of private international law.[14] In addition, the CISG is also applicable if the rules of private international law lead to the application of the CISG. Thus, even if one of the parties to the sale of goods contract has his place of business in a non-Contracting State, the CISG may be applicable if the rules of private international law lead to the application of the law of a Contracting State.[15]

Article 1(2) provides that the fact that the seller and the buyer have their "places of business in different States" must be known to both parties at any time before or at the conclusion of the contract, otherwise the contract is not governed by the CISG. This premise is supported by Article 10(a) according to which the choice between multiple places of business is to be determined with "regard to the circumstances known to or contemplated by the parties at any time before or at the conclusion of the contract."

It should be noted that subparagraphs (a) and (b) provide alternative grounds for the applicability. When the parties to a sales contract have their places of business in different Contracting states, the rules of private international law that point to the law of a non-Contracting State do not bar the applicability of the CISG.[16]

2.2.2.2 CISG and the Conflict of Law Rules

Even though the CISG is a true achievement in unifying the international sales law, it does not render the conflict of law rules irrelevant. It should be stressed that the CISG regulates the sale of goods transaction only in part.

It is evident that the importance of the conflict of law rules has lost its significance as the CISG is more widely adopted throughout the world. In addition, more and more contracts are nowadays more detailed and well drafted. However the CISG is concerned only with the sale of goods; many transactions involve also other aspects. Some issues are expressly left out of the application of the CISG, e.g. certain transactions: CISG Article 2 provides that the Convention does not apply to sales of goods bought for personal use, sales by auction or on execution or otherwise by authority of law; sales of stocks, shares, investment securities, negotiable instruments or money or sales of ships, vessels, hovercraft or aircraft nor sales of electricity.[17] Also, contracts for the supply of goods to be manufactured or produced are excluded from the sphere of application of the CISG if the party who orders the goods undertakes to supply a substantial part of the materials necessary for such manufacture or production (CISG Article 3(1)). In addition, the CISG does not apply to contracts in which the preponderant part of the obligations of the party who furnishes the goods consists in the supply of labour or other services (CISG Article 3(2)).[18] Further, the CISG does not apply to the liability of the seller for death or personal injury caused by the goods to any person (CISG Article 5).[19]

It should also be noted that one of major countries in the European Union, the United Kingdom, has not yet adopted the CISG. In the absence of the choice of law, in sales between an English buyer and a Finnish seller, it is the conflict of law rules that determine whether to apply the law of the United Kingdom or the Finnish Law, in this case the CISG. The special nature of the close connection between the Nordic countries has also influenced the adaptation of the CISG in Nordic Countries and should therefore not be forgotten.[20]

Most importantly it should be noted that, according to CISG Article 4, the CISG governs only the formation of the contract of sale and the rights and obligations of the seller and the buyer arising from such contract. In particular, except as otherwise expressly provided in the Convention, the CISG is not concerned with: a) the validity of the contract or of any of its provisions or of any usage; b) the effect which the contract may have on the property in the goods sold.

Some of the issues left outside the sphere of application of the CISG are governed by international convention such as the transportation conventions [21] but many issues such as payment arrangements fall under the applicable local law. Thus, even in the age of the CISG, the conflict of law rules still play an important role in determining the rights and obligations of the parties.

The principal law in determining the applicable law relating to the sale of goods in Finland is still the Law Applicable to Sale of Goods of International Character (26 June 1964/387) which is based on the Convention on the Law Applicable to International Sales of Goods concluded in Hague on 15 June 1955 (the 1955 Hague Convention). However, the Convention on the Law Applicable to Contractual Obligations, i.e. the 1980 Rome Convention (enforced by a blanket act on 18 December 1998, 398/1999 which came into force by a decree 26 March 1999/399 on 1 April 1999; the protocols on the interpretation came into force by the decree 9 July 2004/662 on 1 August 2004), governs many of the issues relating to the transaction of the international sale of goods. The sphere of application of the 1980 Rome Convention is more extensive than the sphere of application of the Law Applicable to the Sale of Goods of International Character which applies only to the sale of goods.[22] The 1980 Rome Convention applies to contractual obligations in any situation involving a choice between the laws of different countries (Article 1(1)) -- even where the law it designates is that of a non-Contracting State (Article 2). There are however specific restrictions as to application stated in Article 1(2).[23]

2.2.2.3 Reservations

Pursuant to Article 95, the People's Republic of China, Singapore, St.Vincent & Grenadines and the United States have declared that they will not be bound by Article 1(1)(b).[24] Where the forum is that of a State which has made a reservation under Article 95, the CISG is applied only where both parties to a sale of goods contract have their relevant place of business in different Contracting States.[25] Professor Lookofsky stresses that also courts in Contracting States which have not made an Article 95 declaration should not apply Article 1(1)(b) in respect of any Contracting State that has made an Article 95 declaration when the conflict of law rules of the forum point to the law of the declaring State.[26]

2.2.3 International Sale of Goods and the Finnish Legislation

In order to comply with the international obligations, a reference to international contracts was made when the Finnish Sale of Goods Act was drafted. The Finnish Sale of Goods Act (27 March 1987/355) Section 5 states:

5 § Certain international contracts for the sale of goods are governed by separate provisions.

If the international sale of goods contract refers simply to the Finnish law, the above provision ascertains that the applicable law is the CISG instead of the Finnish Sale of Goods Act.[27] If the parties wish to apply the Finnish Sale of Goods Act to an international contract instead of the CISG, a precise reference ought to be made to the Finnish Sale of Goods Act.

2.2.4 CISG and the Nordic countries

Finland has ratified the CISG subject to a declaration under CISG Article 92 not to be bound by Part II of the Convention: Formation of the Contract. Also Denmark, Norway and Sweden have made the same declaration under CISG Article 92. According to Government proposal HE 198/1986, the reason for this reservation was to avoid two sets of rules in force concerning the formation of the contract. Part II of the Convention has rules that differ from the applicable Finnish rules under the Finnish Contracts Act (13 June 1929/228).[28] However, this does not mean that Part II of the Convention would not be applied in Finland in some cases. As far as Part II of the Convention, Finland is not a Contracting State as provided in CISG Article 1(1)(a). However, if the conflict of law rules as provided for in CISG Article 1(1)(b) point to the law of a country which has not made a declaration provided in CISG Article 92, also the Part II of the Convention would apply.[29] In addition, if the parties to a contract have agreed that the CISG is to be applied to a contract, also Part II of the Convention is to be applied.[30] Thus, if a Finnish party wishes to apply the CISG as to the rights and obligations of the seller and the buyer arising from such a contract but not to the formation of the contract, instead of a general reference to the CISG, the parties should make an explicit statement that Part II of the Convention is not to be applied, but instead the law of e.g. Finland will apply to the formation of the contract. Professor Lookofsky has suggested that all of the Scandinavian States should withdraw their reservations to the CISG Part II, as the application of Part II is not always displaced with Scandinavian or other domestic law.[31]

Finland, together with Denmark, Norway, Sweden and Iceland has also made a declaration provided for in CISG Article 94.[32] According to this declaration, two or more Contracting States which have the same or closely related legal rules on matters governed by this Convention may at any time declare that the Convention is not to apply to contracts of sale or to their formation where the parties have their places of business in those States. CISG Article 94(2) allows the reservation to be made also in relation to the non-Contracting State. According to Article 94(3), if a non-Contracting State which was the subject of a declaration by a Contracting State under Article 94(2) subsequently becomes a Contracting State, the new State must make a positive declaration.

The purpose of this reservation is to enable States which have largely harmonized their sale of goods laws to exclude the application of the CISG in their relations with each other.[33] According to the Government proposal HE 198/1986, the solution that the CISG would be applied in the Nordic market and Finnish Sale of Goods Act in the domestic trade was against the efforts of establishing the Nordic market as a domestic market area. It was stressed that the main purpose of the harmonization of the Nordic laws was to facilitate the sales of goods between the Nordic countries. The uniform legal rules diminished the buyer's need to become acquainted with the foreign law. This was important, among others, to small businesses, whose first experiences with the foreign trade took place in a Nordic market. Small businesses do not usually have the legal expertise available that is needed to become acquainted with the foreign law.[34] Also, this reservation has raised criticism and it has been suggested that it ought to be withdrawn.[35]

2.2.5 Decision on the applicable law on the main issue

The District Court simply briefly referred to the Finnish Sale of Goods, Section 5 and the Law Applicable to the Sale of Goods of International Character when stating that the CISG should be applied. The District Court made no reference to the issues that were not governed by the CISG or to the applicable law on those issues. In relation to the issues not governed by the CISG, the Finnish law was however applied throughout the case.

The Appeal Court analysed in a more detailed way why the CISG should be applied by referring to CISG Article 1(1)(a). In Finland, the CISG came into force on 1 January 1989 and in Germany on 1 January 1991. The approach adopted by the Appeal Court is more acceptable. Even though the CISG Article 1(1)(a) seems to be straight forwarded as such, it is necessary to refer specifically to the issue. There are not so many cases published in Finland concerning the CISG and therefore it is useful to the legal praxis that the relevant issues are stated clearly.

2.2.6 Applicable law in relation to issues not covered by the CISG

2.2.6.1 Need for discussion?

Also, the Finnish conflict of law rules were referred to when discussing the applicable law on the issues not governed by the CISG. As noted above, not all aspects are covered by the CISG.[36] The Appeal Court stated that the issue whether a partial payment ought to be credited primarily as a payment of the capital or the interest is not governed by the CISG. In relation to the interest, neither the District Court nor Court of Appeal discussed the issue. Firstly, the problematic of the issues not covered by the CISG is discussed briefly in relation to the rate of interest.

2.2.6.2 Interpretation of the Convention

Some of the provisions of the CISG are vague and lack precise definition. The most evident example is the CISG Article 78.

Article 78

If a party fails to pay the price or any other sum that is in arrears, the other party is entitled to interest on it, without prejudice to any claim for damages recoverable under article 74.

Thus, Article 78 provides that the CISG awards interest on sums in arrears but does not state the amount or percentage of the interest to be applied, nor does it provide a specific formula for calculating the interest.

As CISG Article 78 does not provide the definite rate of interest, if the parties have not agreed on the rate of interest to be applied, one must look at the Convention to find an answer to the question.

Article 7

(1) In the interpretation of this Convention, regard is to be had to its international character and to the need to promote uniformity in its application and the observance of good faith in international trade.
(2) Questions concerning matters governed by this Convention which are not expressly settled in it are to be settled in conformity with the general principles on which it is based or, in the absence of such principles, in conformity with the law applicable by virtue of the rules of private international law.

The first paragraph of Article 7 requires that the Convention be interpreted in the light of its international character. Regard is also to be had to the need to promote uniformity in Convention's application. The preparatory works of the Convention are of course essential. However, the international scholarly writings and case law are now readily available and play an ever important role. The Convention also stresses the need to promote the observance of good faith in international trade. During the preliminary works of the Convention it was decided that the requirement of good faith should be restricted only to a principle for interpreting the provisions of the Convention.[37] The most important thing in the interpretation of the Convention is to avoid reading and applying the Convention in the light of domestic legal traditions and giving meaning to the Convention through meanings of domestic legal terms.

The second paragraph of Article 7 provides that unsolved questions concerning matters governed by the Convention are to be settled, in the first hand, in conformity with general principles on which the Convention is based. In the absence of such general principles, the answers must be sought from the applicable law by virtue of the rules of private international law. It is important to value the restraints Article 7 sets for the gap-filling. The reference to the applicable domestic law should not be used too hastily. If the Convention lacks specific provisions on an issue it governs, the question should be solved by analogical application of the general principles when possible. The uniformity of the Convention's application is endangered if tribunals invoke domestic law too easily.[38] The possible application of the general principles may be tested against applicable trade usages and against contract practices and modern rules of law specially designed for international transactions.[39]

2.2.6.3 Rate of interest according to the CISG

The rate of interest was one of the issues not successfully agreed upon when drafting the Convention.[40] The solutions offered by the scholars to solve the issue on the rate of interest vary from a restitutionary approach to applying the applicable national law by virtue of the rules of private international law.

In relation to the rate of interest, Professor Honnold suggests that the solution should be derived by analogy to the Convention's rules on compensation for breach of contract (CISG Article 74, 75 and 76), in accordance with CISG Article 7(2). Questions concerning matters governed by the Convention but not expressly settled in it are to be settled in conformity with the general principles on which the Convention is based. Only if such general principles cannot be identified, can one turn to the applicable national law. CISG Article 74 provides that "damages ... consist of a sum equal to the loss ... suffered ... as a consequence of the breach." If the aggrieved party has made a reasonable substitute transaction that can be identified, CISG Article 75 provides that "the party claiming damages may recover the difference between the contract price and the price in the substitute transaction." If a substitute transaction cannot be identified or such transaction has not been made, under CISG Article 76, the aggrieved party can base the damages on the current price: "the party claiming damages may ... recover the difference between the price fixed by the contract and the current price/" If the other party fails to pay the price or any other sum that is in arrears, the aggrieved party can replace those funds by borrowing. If the "substitute transaction" can be identified, the loss suffered by the aggrieved party could be measured as the cost of this substitute transaction. If a substitute loan cannot be pinpointed, the aggrieved party's loss could be measured by the "current price" of credit. The rate of interest is based on the aggrieved party's cost of borrowing.[41]

This discussion on the rate of interest applies also in relations to CISG Article 84(1).

Article 84

(1) If the seller is bound to refund the price, he must also pay interest on it, form the date on which the price was paid.
...

This Article relates to obligations of each party to return what it has received in case of avoidance of the contract.[42] Professor Honnold states that, in these cases where the seller is obliged to refund the price because of its breach of contract, it is appropriate to base the interest on the loss suffered by the aggrieved buyer rather that on a restitutionary approach to prevent unjust enrichment by the seller.[43]

Professor Bacher in the Schlechtriem & Schwenzer Commentary is more sceptical in reaching an international, uniform rule in relation to the rate of interest by a reference to general principles. The main concern opposing the adoption of the uniform rule is that the Diplomatic Conference was not able to reach a solution on the issue. The different solutions proposed by legal writers and courts should also be looked at with caution. Professor Bacher points out further that even if the uniform approach is accepted instead of the approach to applying domestic laws, in both cases there is no agreement on the rate of interest. Professor Bacher suggests that the solution is to connect the rate of interest with the currency in which the sum is to be paid and further, to the prime rate of the currency involved.[44]

There is considerable case law on the issue of the rate of interest. Francesco Mazzotta has in his article surveyed an extensive amount of cases relating to the rate of interest.[45] He concludes that the majority of authors and courts have clearly stated that interest is to be governed by the law of the country as determined by the rules of conflict of laws of the forum state. Mazzotta is of the opinion that the interest rate is within the sphere of the application of the CISG as the CISG does establish a general entitlement to interest, although the actual figure is not to be determined through the Convention or its general principles, but by resorting to the applicable domestic law. Mazzotta stresses that even if the general principles may give some guidance in determining the actual interest rate, they are not helpful in terms of assuring either certainty or uniformity. During the life of the CISG, neither the commentators nor the courts have been able to settle the issue. Mazzotta recognises that resorting to domestic rules of private international law is not the best solution, but it is still better than resorting to any other method that is expressly outside the scheme of the Convention. He, however, stresses that the domestic rules of private international law should be subject to the good faith and international character requirements set forth by Article 7(1) of the Convention. Excessive unforeseeable interest resulting in an unreasonable enrichment of one party over the other may not be awarded.[46]

Mazzotta also notes that interest as described under Article 78 is different from interest under Article 84(1). Under Article 84(1), interest is intended to compensate the creditor (buyer) for the fruits (interest) of not having benefited from the money owed by the debtor (seller) due to the avoidance of the contract. In other words, interest under Article 84(1) is based on the principle that money produces fruits, but is owed only when, as a result of the avoidance of the contract, the price must be refunded to the buyer. Moreover, interest under Article 84(1), as opposed to Article 78, must be paid from the date on which the price was paid and there is no reference to any "arrears" requirement.[47]

The parties can naturally agree on the rate of interest even prior to the conflict. The primacy of the parties' contract is the dominant theme of the Convention (CISG Article 6).

2.2.6.4 Decision on the partial payment

In Finland, the Act on the Law Applicable to the Sale of Goods of International Character determines the applicable law in relation to the international sale of goods.[48] According to Section 3, the parties may agree upon the applicable law. The agreement on the choice of law can be made expressly or impliedly. In the absence of a choice of law under Section 3, the sale shall be governed by the law of the State where the seller's business is situated (Section 4, subsection 1). However, if the buyer placed the order in the State where the buyer owns a business and the seller or his agent received the order in that State, the sale shall be governed by the law of the buyer's State (Section 4, subsection 2).

In relation to whether a partial payment refunded by Customs officials ought to be credited primarily as a payment of the capital or the interest, the Court of Appeal held that it had been proven that the Seller's agent received the order in Finland where the Buyer had his habitual residence. Therefore, the law applicable in this question is, according to the Finnish Act on the Law Applicable to the Sale of Goods of International Character, paragraph 4(2), the Finnish law, i.e. the Finnish Commercial Code.

According to the Finnish Commercial Code Chapter 9, Section 5, no payment can be credited before the interest has been paid. Chapter 9, Section 12 governs the issue on the rate of interest. Section 12 provides that if a party fails to pay any sum that is in arrears, the other party is entitled to interest on it according the Interest Act (20 August 1982/633), Section 4.[49]

2.2.6.5 Decision on the rate of interest

Neither he Court of Appeal nor the District Court discussed the rate of interest, even though the Seller did make an alternative reference to the German credit interest rate in its claim by referring to the general conditions of sale printed on the reverse side of the Seller's letterforms and documents used in the Seller's business. It can be inferred from this that the parties agreed to apply the Finnish rate of interest. Had the parties not agreed on the rate of interest, the issue whether a reference in the Seller's letterforms and other documents had become part of the contract would have to have been resolved first. The question relating to standard forms and freedom of contract under the Finnish law is discussed in more detail later in relation to the decision by the Turku Court of Appeal, S 97/324 (12 April 2002).[50]

2.3 Delivery of the Goods

2.3.1 Facts of the case

The Buyer had ordered packages for animal food from the agent of the Seller's company. The Seller argued that the goods had been delivered according to the agreed delivery time. The delivery had been delayed because of the reasons attributable to the Buyer. The Buyer had not accepted the proofs of the labels until six weeks after the request. Because of the time of the delivery was during the holiday season, the printing of the labels took six weeks and thus the delivery that took place in February 1993 had been on time.

The Buyer argued that it had expected to receive the goods some time during August or September. The Buyer had also provided the final layout for the labels far earlier than on 12 November 1992. Nevertheless, the delivery had been delayed even if it is held that the delivery could have taken place only after the 12 November 1992. The goods had been transferred to the carrier in Germany on 18 February 1993 (14 weeks after the approval of the labels) and the goods arrived in Finland on 25 February 1993 (15 weeks after the approval of the labels). In international foodstuff trade, the delivery time 'as soon as possible' means 5 to 6 weeks from the order; in trade within Europe, a maximum of 2 to 3 weeks. These delivery times include any possible printing, packaging and other related measures. Thus, the delivery had taken more than double the time that could be held acceptable in international trade. Despite this, the Seller had not requested from the Buyer whether the Buyer would still want the goods.

The Seller answered that the Buyer had agreed to accept the delivery as the parties had had negotiations in relation to the transportation of the goods. The goods were to be delivered Ex Works, which provides that the goods are delivered when placed at the buyer's disposal at the seller's premises, e.g. factory.

2.3.2 General obligations of the Seller and the Buyer

Article 30 introduces the summary of basic obligations of the seller. Article 53 introduces the parallel obligations of the buyer.

Article 30

The seller must deliver the goods, hand over any documents relating to them and transfer the property in the goods, as required by the contract and this Convention.

Article 53

The buyer must pay the price for the goods and take delivery of them as required by the contract and this Convention.

Both Articles emphasize the role of the contract in identifying the parties' obligations, a notion of freedom of contract confirmed in CISG Article 6.[51]

2.3.3 Buyer's obligation to take delivery

The buyer's obligation to take delivery consists of two separate elements. Firstly, the buyer must do all acts which can reasonably be expected of him in order to enable the seller to make delivery. Secondly, the buyer must take over the goods, i.e. physically accept them.[52]

Article 60

The buyer's obligation to take delivery consists:
(a) in doing all the acts which could be reasonably be expected of him in order to enable the seller to make delivery; and
(b) in taking over the goods.

Cooperation of the parties to an international sales transaction is essential. The first paragraph of Article 60 recognizes and enforces this requirement for successful international trade. The acts the buyer could reasonably be expected to take to enable the seller to make delivery are usually specified in the sales contract, in which case recourse to Article 60 is unnecessary.[53] However, it should be noted that these acts may also include acts to be taken by the buyer in accordance with normal commercial conduct and which are customary even though they are not specifically mentioned in the contract or the Convention nor are established practices or usages.[54]

What is part of the cooperation required from the buyer? The issue is important because it determines what remedies are available for the seller in case of the buyer's failure to perform his obligations. If the buyer has breached his obligation to take delivery, the seller may exercise the rights conferred to him in the Convention, such as to require specific performance or claim damages. Most importantly, however, according to Article 64(1)(b), the seller may declare the contract avoided without proving the fundamentality of the breach of contract if the buyer fails to take delivery within an additional time fixed by the seller in accordance with Article 63(1).

According to Article 64, the seller may declare the contract avoided if the failure by the buyer to perform any of his obligations under the contract or the Convention amounts to a fundamental breach of contract (Article 64(1)(b)). The seller is however advised to be cautious in declaring the contract avoided because of the fundamental breach of the contract. The seller may also fix an additional period of time under Article 63(1) for the buyer to perform his obligations to take delivery of the goods (Article 64(1)(b)). If the buyer has already paid the price, the seller has to declare the contract avoided in respect of late performance by the buyer, before the seller has become aware that performance has been rendered (Article 64(2)(a)) and in respect of any breach other than late performance, such as failure to take delivery, within a reasonable time after the seller knew or ought to have known of the breach or the expiration of any additional period of time fixed by the seller or after the buyer has declared that he will not perform within such an additional period (Article 64(2)(b)(i) and (ii)).

Professor Hager states that preparatory measures for the manufacture of the goods are part of the cooperation required by the buyer, since ultimately they serve to enable the seller to make delivery.[55] Also Professor Honnold recognizes that Article 60 gives the seller a right to fix an additional period under Article 63(1) for the buyer to provide the missing specifications. If the buyer fails to take action during this additional period, the seller may declare the contract avoided without proving the fundamentality of the buyer's breach.[56] Also Professor Hager concurs with the above opinion. The duty to make a specification is part of the duty to take delivery; therefore the seller has a right to declare the contract avoided under Article 64(1)(b) if the buyer fails to take action during the additional period fixed by the seller.[57]

Professor Honnold states that the refusal by the buyer to comply with this requirement of the contract would seem sufficiently serious to authorize the seller to avoid the contract even on the basis of fundamental breach of contract (Article 64(1)(a)).[58] There are however risks, as it is often hard to judge whether a breach of contract amounts to a fundamental breach. If it is unclear whether the buyer's failure to provide specifications amounts to a fundamental breach, the seller can choose a safer course and fix an additional period under Article 63 for the buyer to fulfil his obligations. According to Article 64(1)(b), the seller can declare the contract avoided without proving the fundamentality of the buyer's breach, provided that the buyer has not acted during the additional period fixed by the seller.

It should be noted that the U.N. Secretariat in its Commentary on the 1978 Draft Convention states that if the buyer fails to make specifications required by the contract, the seller has a right to fix an additional period under Article 63 for the buyer to fulfil his obligations. If the buyer fails to fulfil his obligations during the additional period, the seller has a right to declare the contract avoided without considering whether or not the breach committed by the buyer is fundamental.[59] In effect, the Secretariat acknowledges that providing specifications to the seller is part of the buyer's obligation to take delivery, as Article 64(1)(b) limits the use of avoidance of the contract because of the failure to act during the additional period only to the buyer's obligations to pay the price or take delivery of the goods.

Leif Sevón is also of the opinion that the obligation to take action reasonably expected to enable the seller to make delivery covers not only the obligations relating to transmission of the goods from the seller to the buyer but also the duty to provide information relevant to the production of the goods.[60] If the buyer is obliged to provide information relating to the production and fails to do so, the seller has a right under Article 64(1) to avoid the contract either because the breach of contract is fundamental and/or the buyer has failed to perform within the additional time fixed by the seller.[61] Sevón stresses that the extent of the obligation conferred on the buyer in Article 60 depends on the contract and further, Article 60 must be read in conjunction with Article 65.[62]

The purpose of Article 65 is to avoid a situation where the buyer could claim that there is no contract because the specifications of the goods are missing, even though it has been agreed in the contract that the specifications will be provided at a later stage.[63]

Article 65

(1) In under the contract the buyer is to specify the form, measurement or other features of the goods and he fails to make such specifications either on the date agreed upon or within a reasonable time after receipt of a request from the seller, the seller may, without prejudice to any other right he may have, make the specifications himself in accordance with the requirements of the buyer that may be known to him.
(2) If the seller makes the specifications himself, he must inform the buyer of the details thereof and must fix a reasonable time within which the buyer may make a different specification. If, after receipt of such a communication, the buyer fails to do so within the time so fixed, the specification made by the seller is binding.

Article 65 gives the seller a right to act for the buyer but does not oblige the seller to act. When the contract calls for the manufacture of goods that are unique, the seller should be cautious especially if the buyer has informed the seller that he does not want the goods. According to Article 77, a party who relies on a breach of contract must take such measures as are reasonable in the circumstances to mitigate the loss. A wasteful production might collide with this obligation.[64] It has also been argued that the obligation for the seller to make the specifications himself can exceptionally follow from the obligation of the seller to mitigate losses under Article 77.[65] In these cases, the seller would not have a right to choose whether to act or not.

Professor Maskow and Professor Enderlein do not share that view. They conclude that the obligation to take delivery does not comprise the obligation to participate in the manufacture of the goods.[66] Professor Maskow stresses that Article 60(a) -- the buyer's obligation to take the delivery consists in doing all the acts which could reasonably be expected of him in order to enable the seller to make delivery -- refers only to those acts which have an influence on the delivery itself. Accordingly, obligations of the buyer whose purpose is to enable production by the seller are not covered.[67] The buyer's obligation to provide specifications to the seller is covered by Article 65. Professor Maskow acknowledges that even though fulfilment of the obligation to provide specifications is important for the manufacture or production of the goods, it can also be decisive for delivery. He also acknowledges that when the buyer is obliged to deliver packing materials or labels, it is not clear whether the issue is covered by obligation to enable delivery or the obligation to ensure the seller's production, since the packaging may be part of the production process.[68] However, the buyer's failure to provide specifications may amount to a fundamental breach. The seller, however, has no right to avoid the contract if the buyer fails to act during the additional period of time fixed by the seller, as the obligation for specifications is not part of the obligation to take delivery of the goods. The seller can only avoid the contract if the breach of the obligation for specifications is fundamental at the moment the additional period has elapsed.[69]

Professor Knapp reaches the same conclusion, the buyer's failure solely to perform his obligation to make the specification within the additional period of time so fixed by the seller or the buyer's notification to the seller that he will not make the requested specification within this period of time will not justify avoidance of the contract by the seller. But, on the other hand, he states that providing specifications is part of the buyer's obligation to take delivery and thus a late specification constitutes a breach of contract by the buyer. If such a breach of contract is fundamental, the seller is authorized to resort to the appropriate remedies available to him.[70] However, the prominent view of the scholars seems to be that part of the buyer's obligation to take delivery covers also the preparatory measures of the production such as to make a specification.

2.3.4 Decision on the delivery obligation

The District Court held that it had been agreed on the confirmation of the order that the goods were to be delivered as soon as the labels had been printed. The printing of the labels had been subject to the Buyer's approval. Any other time for delivery had not been shown to have been agreed. The Court of Appeal confirmed the decision of the District Court. Before the proofs had been approved on 12 November 1992, the Seller had no obligation to deliver the goods.

As the Secretariat Commentary is the closest counterpart to an Official Commentary and further it seems to me that drawing the distinction between the measures relating to the production and delivery is at least in some cases artificial and theoretical, I agree with the overwhelming majority of the scholars: the enabling steps in relation to the delivery include also the obligation to provide specification agreed upon in the contract. In this particular case, the enabling steps to be performed by the Buyer included providing information relating to the printing of the labels. Thus in principal the Seller would have had a right to declare the contract avoided. Whether the Buyer's failure to provide the specifications for the labels amounted a fundamental breach would have been irrelevant had the Seller in requesting the specifications referred to an additional period authorized by CISG Article 64(1)(b) and Article 63.

2.3.5 Time for delivery

Article 33 reinforces the general rule of the Convention, the primacy of the contract. If the time for delivery is not fixed or determinable from the contract, and thus not covered by paragraphs (a) or (b), the seller must deliver within a reasonable time after the conclusion of the contract.

Article 33

The seller must deliver the goods:
(a) if a date is fixed by or determinable from the contract, on that date;
(b) if a period of time is fixed by or determinable from the contract, at any time within that period unless circumstances indicate that the buyer is to choose a date; or
(c) in any other case, within a reasonable time after the conclusion of the contract.

What is a reasonable time after the conclusion of the contract naturally depends upon the circumstances of the case.[71] Paragraph (c) is also applied if an undetermined time for delivery has been agreed upon in the contract, such as "soon as possible". This does not necessarily mean "as soon as possible" after the conclusion of the contract, but all the relevant circumstances of the case have to be taken into consideration.

The function of the rules in Article 33 is to determine the date when a buyer who has not received the goods is entitled to exercise his remedies under the Convention.[72] The notion of 'reasonable time' will be further discussed in relation to the buyer's right to avoid the contract.[73]

2.3.6 Place of delivery of the goods

Had the parties not agreed on the delivery term, the issue would have been covered by CISG Article 31.

Article 31

If the seller is not bound to deliver the goods at any other particular place, his obligation to deliver consists:
(a) if the contract of sale involves carriage of the goods - in handing the goods over to the first carrier for the transmission to the buyer;
(b) if, in cases not within the preceding paragraph, the contract relates to specific goods, or unidentified goods to be drawn from a specific stock or to be manufactured or produced, and at the time of the conclusion of the contract the parties knew that the goods were at, or were to be manufactured or produced at, a particular place - in placing the goods at the buyer's disposal at that place;
(c) in other cases - in placing the goods at the buyer's disposal at the place where the seller had his place of business at the time of the conclusion of the contract.

Article 31 states how and where the seller's obligation to deliver is fulfilled. According to subparagraph (a), where the contract of sales involves carriage of goods, the general rule is that the seller's obligation to deliver the goods consists of handing them over to the first carrier for the transmission to the buyer. If the contract explicitly or by the use of a trade term specifies the place at which the goods are to be delivered, the seller's obligation to deliver does not consist of handing the goods over the first carrier but in doing the act specified in the contract.[74]

According to subparagraph (b), if, at the time of the conclusion of the contract, the parties knew that the goods were at, or were to be manufactured or produced at, a particular place and the contract does not require or authorize the shipment of the goods, the seller's obligation to deliver the goods consists of placing the goods at the buyer's disposal at the place at which the goods were located or at the place at which they were to be manufactured or produced. Paragraph (b) covers also sales of specific goods and unidentified goods to be drawn from a specific stock. Both parties must have knowledge of the location of the specific goods, of the location of the specific stock from which the goods to be delivered are to be drawn, or of the place at which the goods are to be manufactured or to be produced. They must have actual knowledge; it does not suffice if one or the other party ought to have such knowledge but did not. Moreover, they must have this knowledge at the time of the conclusion of the contract.[75]

The Secretariat Commentary takes a view that if the goods are already in transit at the time of the conclusion of the contract, the contract of sale is not one which "involves" the carriage of goods under subparagraph (a) but is one which involves goods which are at a particular place and which are therefore subject to subparagraph (b). If the goods are already in transit, the seller cannot fulfil its obligation to deliver, i.e. hand the goods over to the first carrier.[76] Nevertheless, the seller must place the goods at the disposal of the buyer, e.g. by endorsing the bill of lading to the buyer or by informing the carrier of the assignment of the cargo.[77] Professor Huber and Professor Widmer argue that when the goods are sold in transit, that constitutes a special agreement on the place of delivery and the content of the delivery, thus the situation is not covered by paragraphs (a) to (c). However, in line with the reasoning approved by Secretariat Commentary, the seller fulfils its obligation to deliver by putting the buyer in a position whereby he can take over the goods at the place of destination.[78]

If the situation is not covered by subparagraphs (a) or (b), subparagraph (c) provides that the seller fulfils his obligation to deliver the goods in placing the goods at the buyer's disposal at the place where the seller had his place of business at the time of the conclusion of the contract. If the seller has more than one place of business, Article 10 provides that the place of business is that which has the closest relationship to the contract and its performance, having regard to the circumstances known to or contemplated by the parties at any time before or at the conclusion of the contract. The meaning of "place of business" refers to a place for the continuing conduct of business, the term excludes a temporary place such as a place rented for negotiations.[79] If a party does not have a place of business, subparagraph (b) of Article 10 provides that reference is made to his habitual residence. Subparagraph (c) of Article 31 does not override the basic rule stated in the opening phrase of Article 31. If the contract provides for delivery to be made at some particular place other than where the seller had his place of business at the time of the conclusion of the contract, the delivery is affected by handing over the goods or by placing them at the buyer's disposal at this particular place provided in the contract.[80]

2.3.7 Passing of risk

The place of delivery is especially important in relation to the passing of risk. If the parties have not agreed on the point at which risk passes from the seller to the buyer, e.g. by referring to a specified trade term such as Ex Works, CISG Articles 67 to 69 govern the issue. The general rule provided for in Article 67 provides that the risk passes to the buyer when the goods are handed over to the first carrier. Article 68 governs the sale of goods in transit. In brief, when the goods are sold in transit, the risk passes to the buyer from the time of the conclusion of the contract unless the circumstances indicate that risk is assumed by the buyer from the time the goods were handed over to the carrier. If the buyer is to come for the goods or if the seller transports the goods to the buyer in the seller's own vehicles, Article 69 provides that the risk passes to the buyer when he takes over the goods or, if he does not do so in due time, from the time when the good are placed at his disposal.

2.3.8 Trade terms

Article 31 and hence Articles 66 to 70 relating to passing of risk apply relatively seldom, as customarily the place of the delivery is agreed upon in the contract of sales. The parties frequently agree that the obligation to deliver and the place of delivery are to be governed by delivery clauses such as the Incoterms Ex Works- term. Incoterms, i.e. International Commercial Terms, are published by the International Chamber of Commerce. Incoterms are standard trade definitions most commonly used in international sales contracts. The latest edition of the Incoterms came into force on 1 January 2000. The correct reference to this latest edition is "Incoterms 2000". Also the earlier versions of Incoterms, such as Incoterms 1990, can still be incorporated into future contracts if the parties so agree. However, this course is not recommended because the latest version is designed to bring Incoterms into line with the latest developments in commercial practice.[81]

In order to have binding effect, the Incoterms must be referred to in the contract. Even where there is no express reference to the Incoterms in the contract, the parties may have impliedly made Incoterms to be part of their contract by virtue of Article 9(2).[82] Incoterms reflect generally recognized principles and practices.[83] Thus, not only are Incoterms widely known and regularly observed but also the parties engaging regularly in international trade are aware of them or at least ought to be aware of them. However, in order to avoid confusion, the parties should clearly refer to a specific edition of the Incoterms.

In majority of the trade terms, the risk passes to the buyer when the goods are at the buyer's disposal or are handed over to the first carrier, regardless that the seller may be responsible for transportation costs. This is due to practical considerations. Damage in transit is usually discovered only when the goods arrive and are unpacked. The buyer is in the better position to salvage the goods and to file a claim against the carrier or insurer.[84]

With E-terms, i.e. EXW (Ex Works), the seller's duty to deliver includes only a duty to place the goods at the disposal of the buyer at the named place, the seller's premises or another named place, such as factory or warehouse. The risk passes to the buyer immediately when the goods are at the disposal of the buyer. Under the F-terms, the seller has to arrange any necessary pre-carriage in the country of export to reach the agreed point for handing over the goods to the carrier. The seller must deliver the goods to the carrier or another person nominated by the buyer at the named place (FCA, Free CArrier) or the seller must place the goods alongside the ship (FAS, Free Alongside Ship). Under FOB, Free On Board, the risk passes to the buyer when the goods pass the ship's rail. With C-terms, the seller arranges and pays for the main carriage but does not assume the risk of the main carriage. The risk passes to the buyer when the goods pass the ship's rail (CFR, Cost and FReight; CIF, Cost, Insurance and Freight) or when the goods have been delivered to the carrier (CPT, Carriage Paid To; CIP, Cost and Insurance Paid). Only with D-terms does the seller bear the risk of the main carriage. Under D-terms the seller must make the goods available upon arrival at the agreed destination. The risk passes to the buyer when the goods have been delivered at the frontier (DAF, Delivered At Frontier), when the goods are placed at the disposal of the buyer on board the ship (DES, Delivered Ex Ship), when the goods are placed at the disposal of the buyer on the quay (DEQ, Delivered Ex Quay) or when the goods are placed at the disposal of the buyer (DDU, Delivered Duty Unpaid; DDP Delivered Duty Paid).[85]

In addition to determining the place for delivery, Incoterms also determine who is responsible for providing export and import licences and who is responsible for possible export or import taxes; issues relating directly to the seller's obligation to deliver and the buyer's obligation to take delivery. Other issues, such as transfer of property rights, exemptions and consequences of various breaches of contract, are not dealt in Incoterms.[86]

2.3.9 Decision on time and place of the delivery

Both the District Court and Court of Appeal concluded that on the basis of the evidence presented, it had been approved that the delivery of the goods should be as soon as the labels for the goods were ready. In the confirmation of order signed by the parties on 9 September 1992, the parties had agreed that the goods were to be delivered after the labels had been printed. The Buyer had approved the labels on 12 November 1992.

The District Court held that the printing of the labels and their attachment to the products had been possible to perform at the same time as the manufacture of the goods. As the printing did not considerably influence the time of the delivery (maximum effect would have been two weeks), it had no decisive influence on the evaluation of the time of delivery. The goods had arrived to Turku on 25 February 1993. The average time for delivery in cases relating to the goods in question was 3 to 4 weeks, thus the delivery was delayed.

The Court of Appeal rightfully referred to the correct interpretation of the Ex Works- trade term. Contrary to the District Court's decision, the delivery did not take place when the goods arrived in Finland but the goods were delivered by placing the goods at the buyer's disposal at the Seller's factory on 18 February 1993.Thus, the delivery of the goods took 14 weeks. Taking into consideration the delivery time observed regularly in the trade concerned, the appropriate time for delivery -- taking into account the time needed for printing the labels -- would have been a maximum of 8 weeks. Thus the Court of Appeal held that the delivery was delayed.

The Court of Appeals reference to the Ex-works terms is appropriate. As the time of delivery is one of the essential issues relating to the buyer's right to declare the contract avoided, it is important that precise and accurate interpretations are always followed, regardless whether the issue has especial significance in the given case. The reasonable time for delivery is discussed next in relation to the Buyer's right to declare the contract avoided.

2.4 Buyer's right to declare the contract avoided

2.4.1 Facts of the case

The Buyer claimed that it had a right to declare the contract avoided and in fact it had done so already in autumn 1992. The Seller argued that the Buyer had not asserted avoidance of the contract until the proceedings have been started.

2.4.2 Avoidance of the contract

Article 49 provides the general basic rule on avoidance of the contract because of the seller's breach.

Article 49

(1) the buyer may declare the contract avoided:

(a) if the failure by the seller to perform any of his obligations under the contract or this Convention amounts to a fundamental breach of contract; or
(b) in case of non-delivery, if the seller does not deliver the goods within the additional period of time fixed by the buyer in accordance with paragraph (1) of article 47 or declares that he will not deliver within the period so fixed.
(2) However, in cases where the seller has delivered the goods, the buyer loses the right to declare the contract avoided unless he does so:
(a) in respect of late delivery, within a reasonable time after he has become aware that delivery has been made;
(b) in respect of any breach other that late delivery, within a reasonable time:
(i) after he knew or ought to have known of the breach;
(ii) after the expiration of any additional period of time fixed by the buyer in accordance with paragraph (1) of article 47, or after the seller has declared that he will not perform his obligations within such an additional period; or
(iii) after the expiration of any additional period of time indicated by the seller in accordance with paragraph (2) of article 48, or after the buyer has declared that he will not accept performance.

In case of late delivery, the buyer has two choices. According to paragraph (1) of Article 49 the buyer can estimate what constitutes a fundamental breach in case of late delivery even before the goods have been delivered; if late delivery constitutes a fundamental breach, the buyer can declare the contract avoided. Under paragraph 2(a), the buyer can also wait for the delivery and after he becomes aware the delivery was made, declare the contract avoided, provided of course that the delay is a fundamental breach. If the buyer is uncertain whether a delay in delivery constitutes a fundamental breach, he can fix an additional period of time for performance by the seller of his obligations under Article 47(1). If the seller fails to perform within a reasonable period of time fixed by the buyer, the buyer may declare the contract avoided under paragraph (1)(b)(ii) of Article 49 without proof of fundamental breach.[87]

2.4.3 Fundamental breach of the contract

2.4.3.1 Concept of fundamental breach

Article 49(1)(a) provides that the general precondition of the buyer's right to avoid the contract in the event of the seller's breach is that the seller's breach of contract is fundamental within the meaning of Article 25. The seller's right to avoid the contract is similarly linked to the fundamentality of the breach (Article 64).[88] Also the buyer's right to require substitute goods under Article 46 is linked to the fundamental breach. The requirement of specific performances by way of replacement presupposes that the non-conformity of the delivered goods constitutes a fundamental breach.

Article 25

A breach of contract committed by one of the parties is fundamental if it results in such detriment to the other party as substantially to deprive him of what he is entitled to expect under the contract, unless the party in breach did not foresee and a reasonable person of the same kind in the same circumstances would not have foreseen such a result.

The basic criterion for a breach to be fundamental is that "it results in substantial detriment to the injured party." In addition, the relevant detriment is limited to what the party in breach foresaw or should have foreseen.[89]

2.4.3.2 Substantial detriment

The Secretariat Commentary states that the determination whether the injury is substantial in the reference of Article 25 must be made in the light of the circumstances of each case, e.g., the monetary value of the contract, the monetary harm caused by the breach, or the extent to which the breach interferes with other activities of the injured party.[90] Professor Magnus stresses that the benefit of the contract depends in the first place on the terms of the contract. It is not the objective weight of the breach as such that automatically counts as fundamental breach but the weight the parties have given it. For a breach to be considered a fundamental breach, it must nullify or essentially depreciate the aggrieved party's justified contract expectations. In order for an expectation to be justified, it must be supported by specific contract, eventual usages and the additional provisions of the Convention.[91] If nothing specific has been agreed upon, then the fundamentality of the breach is assessed against the standard of a reasonable person. If the aggrieved party is deprived of what a reasonable person in the same situation would have expected to be the normal benefit of the contract, there is a fundamental breach of the contract.[92]

Also Professor Schlechtriem stresses that the determination of whether the injured party has no further interest in the performance of the contract after the particular breach depends entirely on the individual terms of the contract. The amount of damages caused by a breach is not decisive, but the terms of the contract relating to the obligation breached.[93] As Professor Honnold states, temporal or physical deviations have no significance apart from the extent of the loss or detriment they cause to the other party.[94] The possibility to avoid the contract even in case of minor and unsubstantial breach would create uncertainty and risks not acceptable in the international trade.[95] It is therefore acceptable and necessary that the fundamental breach of the contract is not defined in strict and easily measurable terms but rather determined case-by-case. If a party to an international trade contract wishes to have a right to avoid the contract for a certain specific reason without worrying whether the breach of this specific obligation amounts to a fundamental breach, he ought to include a specific statement in the contract stating that the fulfilment of the specific obligation is of the essence of the contract.[96]

Professor Honnold also suggests further that the fundamentality of the breach must be determined in conjunction with the seller's rightful offer to cure. As long as the cure is feasible and can be expected, a breach cannot be considered fundamental in the sense of Article 25.[97] Professor Schlechtriem concurs with this opinion.[98]As long as the seller can deliver substitute goods, repair or remove the defects within a reasonable time in the light of the buyer's expectations, there is no fundamental breach of the contract. Under Article 25, the fundamentality of the breach must be decided in the light of all of the circumstances.

Professor Will is, however, slightly of a different opinion.[99] The general precondition of the buyer's right to avoid the contract in the event of the seller's breach is that the seller's breach of contract is fundamental. But also the buyer's right to require substitute goods under Article 46 is linked to the fundamentality of the breach. Provided that there is a possibility of rightful offer to cure, the buyer could not avoid the contract nor require substitute goods. Thus the right to require substitute goods would be limited to only those cases where the cure is impossible.[100] Professor Will points out that the seller's right to cure is protected when the fundamental breach is determined by lack of conformity only (without having regard to cure), and the existing right to avoid the contract or require substitute goods is merely suspended when a rightful offer to cure arrives.[101]

2.4.3.3 Foreseeability of the breach

Article 25 does not specify at what moment the party in breach should have foreseen the consequences of the breach, whether at the time the contract was concluded or at the time of the breach. The Secretariat Commentary leaves the issue to be resolved by the tribunal.[102] Professor Magnus is of the opinion that the relevant time must be the time of the conclusion the contract. Statements made and information given by the other party after that time cannot change the allocation of the risk as originally agreed upon.[103] Professor Schlechtriem shares this opinion. The conclusion of the contract is the relevant time for knowledge or foreseeability.[104]

Professor Honnold applies the provision more eloquently. If e.g. the seller receives information about essential factors to the other party subsequent to the contract but before his performance, he must take that information into account when evaluating whether he ought to have foreseen that the breach of contract would substantially deprive the buyer of what he was entitled to expect under the contract. However, information received too late to affect the performance seems to be outside the scope of Article 25, because the party must have an opportunity to give special attention to minor details of performance the importance of which he could not otherwise have anticipated.[105] Professor Enderlein and Professor Maskow also recognise that in exceptional cases subsequent information should be taken into account. The only prerequisite is that such information be given before the actual commencement of the preparation in view of performance so that the other party can still adapt itself to it.[106] Their view is also valued by Professor Will.[107]

Article 7 provides that in the interpretation of the Convention, regard is to be had among the other things to the observance of good faith in international trade. Literally, the requirement of the observance of good faith relates only to the interpretation of the Convention. However, if the other party would receive essential information relating to the contract and would not act upon it, even if that would be possible and would not add any cost or inconvenience to that party, it would certainly be against the notion of good faith in international trade. Of course, it is hard to imagine why a prudent business man would engage in possible wasteful production. In these cases, however, the only reasonable solution seems to be concluding that even subsequent information after the conclusion of the contract is relevant when determining whether a subsequent breach of the contract is fundamental in the scope of Article 25.

2.4.3.4 Burden of proof

The burden of proof that the other party's breach of contract was fundamental and did substantially deprive the aggrieved party of what he was entitled to expect under the contract lies on the aggrieved party.[108] For the fact that the effect of a breach was unforeseeable, the burden of proof is not expressly addressed, but the wording and the legislative history indicate that burden of proof lies on the party in breach.[109]

Even though the burden of proof is not specifically settled in the CISG, it is a matter governed by the CISG. This is supported by scholarly writings and by international case law.[110] Any party who wants to derive beneficial legal consequences from a legal provision has to prove the existence of the factual prerequisites of that provision, e.g. the party wishing to avoid the contract must prove that there indeed has been a fundamental breach of the contract.[111] On the other hand, any party claiming an exception has to prove the existence of the factual prerequisites of that exception, e.g. the party in breach does not escape liability merely by proving that he did not in fact foresee the result. He must also prove that he had no reason to foresee it.[112] Those facts that are exclusively in a party's sphere of responsibility and which therefore are, at least theoretically, better known to that party, have to be proven by that party since it is that party who exercises the control over that sphere.[113]

2.4.4 Reasonable time for delivery

A buyer claiming a remedy under the Convention, such as avoidance of the contract on the account of the seller's failure to deliver on time, generally bears the burden of proving that the seller has exceeded the fixed time for the delivery or a reasonable time for the delivery if no fixed time had been agreed. In the latter cases, the buyer must also prove the facts upon which his calculation of that time is based.[114]

The current case law indicates that as a rule, late performance does not constitute in itself a fundamental breach of the contract. Only when the time for performance is of essential importance, either if it is so contracted or if it is due to evident circumstances, e.g. in case of seasonal goods, the delay as such can amount to a fundamental breach.[115]

When the contract stipulates that time is of the essence or uses such customary terms as "fixed", "absolutely", "precisely", "at the latest", it could be considered as an agreement, where non-fulfilment of this condition will have to be regarded as a fundamental breach of contract. Professor Enderlein and Professor Maskow stress that proof that the legal prerequisites of such breach are not fulfilled is then inadmissible.[116] Professor Schlechtriem sees that if the aggrieved party, usually the buyer, has proved the existence of the circumstances that show the importance of the obligation breached, can the burden of proof lie on the party relying on the excuse, though the excuse is rarely available in those circumstances.[117] Professor Schlechtriem points out that if the parties make clear that a particular obligation is of essential importance or a party can prove that the importance of the said obligation has been discussed and brought to the other party's attention, the party in breach cannot argue that he did not foresee any detriment to the aggrieved party. Only if the importance of the particular obligation is not clear the issue whether the party in breach foresaw or should have, as a reasonable person, foresaw the detriment to the aggrieved party, is important. In these cases, the detriment must be objectively unforeseeable in order to provide an excuse for the party in breach; the lack of skills of the party in breach is not relevant. If the detriment is unforeseeable for a reasonable person in the same trade concerned, it has to be considered whether in a particular circumstances the party in breach still knew the circumstances that made a certain obligation of the essence of the contract, i.e. that the other party would suffer extensive losses if a certain obligation, though not generally so understood, would be breached.[118]

Graffi also refers to the fact that the delivery term is considered essential not only when the parties specified it in the contract, but also in the light of the circumstances, customs, usage or other relevant factors. In addition, the nature of the goods may indicate that the delivery term is essential, such as when the sale of goods involves seasonal goods.[119] A German Provincial Court of Appeal has held that Incoterm CIF by definition determines the contract to be a transaction for delivery by a fixed date (the contract provided "CIF Rotterdam, delivery in October 1994").[120] The delivery term has also been considered essential ipso facto. The Court of First Instance of Parma has held that a partial delivery two months after the conclusion of the contract was a fundamental breach. The order contained a request that the goods be delivered within the following 10 to 15 days.[121]

As Graffi points out, the essentiality of a term must be determined according to the circumstances of each case and that many different factors may be relevant.[122] Liu sums up the answer to a question in the following terms. Even if the date for delivery is of the essence, a special interest in punctual delivery must exist with the aggrieved buyer. In addition, the foreseeability must be satisfied, the seller must have known or should have known the consequences of the breach.[123] Liu's call for a special interest in every situation seems strict but it concurs with the requirements of Article 25 as to whether a breach can be considered fundamental. As Professor Schlechtriem points out, in case of delay, i.e. when the performance is still possible and the seller has not refused to deliver, the importance of the agreed delivery date depends on the circumstances of the case.[124] In situations like these, a special interest in punctual delivery must exist as in case of seasonal or perishable goods.

However, by fixing an additional time for the seller to perform his obligation to deliver under Article 47(1), the buyer can turn a non-fundamental breach of the contract into a fundamental one and avoid the contract (Article 49(1)(b)). As the burden of proof of the fundamentality of the breach lies on the aggrieved party, the buyer is advised in general to allow the seller the additional period to perform his obligations, as after the time elapses there is no need to prove the fundamentality of the delay.[125]

2.4.5 Notice of avoidance

Successful avoidance of the contract is dependant not only on the existence of a fundamental breach but also on the proper form of the notice. Because of the serious consequences of the avoidance of the contract, the CISG provides that a notice of avoidance must be communicated to the other party.

Article 26

A declaration of avoidance of the contract is effective only if made by notice to the other party.

A buyer's declaration of avoidance, to be effective under Article 26, must inform the seller that the buyer will not accept or keep the goods.[126] The notice of avoidance is effective if it is properly dispatched pursuant to Article 27. According to Article 27, "unless otherwise expressly provided ... if any notice ... is given or made by a party ... by means appropriate in the circumstances, a delay or error in the transmissions of the communications or its failure to arrive does not deprive that party of the right to rely on the communications." The transmission risk falls on the party in breach.[127]

2.4.6 Decision on the avoidance of the contract

2.4.6.1 Right to avoid the contract

In the light of the evidence, the Court of Appeal held that the delivery of the goods to the Buyer was late 6 weeks. A reasonable time for delivery, taking into account the need to print the labels, was held to be a maximum of 8 weeks after all the necessary requirements for delivery were met. The Buyer had approved the labels on 12 November 1992 and the subsequent delivery took place when the goods were delivered by placing the goods at the buyer's disposal at the Seller's factory on 18 February 1993.Thus, the delivery of the goods took 14 weeks. As noted above in relation to the delivery obligation, the decision of the Court of Appeal was more precise than the that of the District Court, but in essence the Court of Appeal confirmed in more precise terms the decision of the District Court.

The District Court and the Court of Appeal took a different approach when analyzing the fundamentality of the Seller's breach. By referring to the foreseeability of the devaluation of the Finnish mark and all the circumstances of the case, the District Court concluded that the Seller's delay could not be regarded as fundamental.

In the beginning of the 1990's, Finland was struggling in very deep depression. Among other things, the Finnish mark was devaluated in order to promote economic growth and sales. In the reasoning of its decision, the District Court stated that the devaluation of the Finnish mark was not a fact of such nature that the Seller, or a reasonable person of the same kind in the same circumstances, should have seen foreseen when making the delivery. The reasoning underlying the District Court's decision seems to be that if the Seller had foreseen or a reasonable person of the same kind in the same circumstances would have foreseen the devaluation of the Finnish mark (contrary to the Finnish banks and thousands of the Finnish entrepreneurs), the delay in delivery may have amounted to a fundamental breach because in that case the Seller would have also seen the substantial detriment the Seller's delay in delivery would have caused to the Buyer. The determination whether the breach is of such nature that is substantially deprives the other party of what he is entitled expect under the contract is made in the light of the circumstances of the case.

The Court of Appeal did not comment on the issue, as the devaluation of the Finnish mark took place before the Seller was delayed and thus had no relevance in evaluating the fundamentality of the delay.[128] Because the depression was that serious and unforeseen, it is hard to imagine how a foreign business partner should have foreseen the coming events. The Court of Appeal analyzed the fundamentality of the delay using a well accepted method. The Court of Appeal held that, taking into consideration the quality of the goods and the fact that the Buyer was a company engaged in wholesale business of daily goods, it could not be determined only on the basis of the time of the delay that the late delivery amounted to a fundamental breach. The delay had not substantially deprived the Buyer of the benefits of the contract reasonably expected by him. Nor had the Buyer provided proof that the delay had actually caused this kind of detriment to him. Thus the Buyer had no right to avoid the contract. The reasoning, though very short and simple, is well supported by the thoughts of international scholars and the current case law.

2.4.6.2 Notice of avoidance

The Buyer claimed that it had avoided the contract already before the delivery was made and confirmed the avoidance immediately after the delivery. The District Court stated in its summary of decision that the Buyer had not proven that it had given a notice of avoidance within a reasonable time after the Buyer became aware that the delivery had been made. This remark was made immediately after the Court had concluded that the delay in question could not be regarded as constituting a fundamental breach of the contract. The question arises whether the District Court was trying to tie up loose ends or did it wrongfully conclude that in case of late delivery, the buyer has a right to declare the contract avoided after the delivery as long as he does within a reasonable time after he became aware the delivery had been made? However, even in case of late delivery, Article 49(2)(a) requires that the delay amounts to a fundamental breach. The benefit for the buyer who is awaiting a delayed delivery is that he need not try to estimate when the delay is sufficient to constitute a fundamental breach, but he can estimate that when the delivery is made. If the delay amounts to a fundamental breach, the buyer needs to act within a reasonable time after he has become aware that the delivery has been made.[129]

Whether the buyer declares the contract avoided before or after the delivery, in both cases the notice of avoidance requires that there is a fundamental breach of the contract that justifies the avoidance. Accordingly, the Court of Appeal did not discuss the issue of the notice of avoidance or the timeliness of the avoidance as the Buyer had no right to declare the contract avoided. The notice of avoidance had only relevance in relation to the alleged acceptance of the notice of avoidance.

The CISG does not require the notice of avoidance to be accepted as such to be effective, it only requires that a notice is despatched by means appropriate in the circumstances. The aggrieved party need not show that the notice has in effect reached the party in breach but he needs to prove that the notice is despatched by appropriate means. In this case, there was neither written evidence to support a notice of avoidance nor reliable evidence of oral notice of avoidance. Further, Professor Schlechtriem is of opinion that in any case the dispatch rule provided for in Article 27 does not cover oral conversations made on the telephone. The direct communications which takes place in telephone declarations enables the maker of the declaration to monitor the audibility of his declaration, or at least to check it by querying whether his declaration was heard or understood. If the case involves a declaration made orally or by telephone, it is necessary for the addressee to hear a declaration and -- in the event of a dispute -- that must be proved by the party who made the declaration.[130] The burden of proof is of course hard to meet in case of telephone conversation provided that there is no recording advice in operation. Taking into account the seriousness of the avoidance of the contract, it is reasonable to expect that a prudent business person would confirm the notice of avoidance in written after the telephone conversation. In this case -- as the District Court concluded -- the avoidance was not supported by any written evidence even thought it was clear that the parties used a written form, e.g. telex, readily and frequently in their communication. Further, the CISG does not protect attempts to avoid the contract if the avoidance is not authorized by the Convention.[131] Therefore, even if the Buyer had been able to prove that it had given a notice of avoidance of the contract but -- as the Appeal Court concluded - the Buyer had no right under the Convention to declare the contract avoided; the other party could have relied on the contract.

The parties are of course free to terminate their contract by their agreement if they wish to do so.

Article 29

(1) A contract may be modified or terminated by the mere agreement of the parties
....

If the parties do not agree on the consequences of the termination of the contract, the answers must be looked at from CISG Article 81.[132]

Article 81

(1) Avoidance of the contract releases both parties from their obligations under it, subject to any damages which may be due. Avoidance does not affect any provision of the contract for the settlement of disputes or any other provision of the contract governing the rights and obligations of the parties consequent upon the avoidance of the contract.
...

Does this mean that the Seller -- by accepting the notice of avoidance without reservation - had subjected himself to a claim for damages because of non-delivery or late delivery? This supports further the conclusion of the Court of Appeal. The Court of Appeal concluded that no evidence supported the Buyer's claim that the Seller had accepted the alleged notice. It was held that the evidence presented only supported the Seller's argument that the parties tried to reach an amicable solution. Negotiations after a breach of contract do not indicate that the other party accepts an unlawful avoidance of the contract. If the Seller had accepted the notice of avoidance, it would have probably demanded assurances that it was not obliged to pay any damages because of its "breach".

Further, if the Seller had been aware of the Buyer's unlawful wish to avoid the contract, the Seller itself could have avoided the contract and demanded damages instead of delivering the goods to a party who is not clearly willing to pay for the goods according to the contract price. Article 72 protects the seller's right in this respect.

Article 72

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

Paragraph (3) shows that a party's declaration that he will not perform empowers the aggrieved party to declare the contract avoided, even though such a declaration does not make it absolutely clear that the repudiating party will not change his mind and perform by the due date.[133] If the Seller had been aware of the Buyer's intend not to honour the contract, it is hard to image why it took the risk of delivering to the Buyer.

2.4.6.3 Seller's right to specific performance

At some point during spring 1993 it must have become clear to the Seller that the Buyer had committed a fundamental breach of the contract by failing to pay for the goods delivered. However, as noted above, the avoidance of the contract releases both parties from their obligations under it, subject to any damages of course. At this point, the Seller had already delivered the goods. Provided that the cost of production or other elements influencing the overall cost of performing the seller's obligations have not risen, from the seller point of view the contract has always its best value when executed in full. According to Article 62, the seller may require the buyer to pay the price, take delivery or perform any of his other obligations.

Article 62

The seller may require the buyer to pay the price, take delivery or perform his other obligations, unless the seller has resorted to a remedy which is inconsistent with this requirement.

If the seller has resorted to any remedy which is inconsistent with the requirement for performance, the right to require specific performance expires. For example, it the seller has declared the contract avoided under Article 64, he loses his right to require the buyer to perform, as the obligation ceases to exist after avoidance of the contract.[134]

The seller's right to require specific performance -- and correspondingly the buyer's right to require specific performance under Article 46 -- is restricted by virtue of Article 28.

Article 28

If, in accordance with the provisions of this Convention, one party is entitled to require performance of any obligation by the other party, a court is not bound to enter a judgement for specific performance unless the court would do so under its own law in respect of similar contracts of sale not governed by this Convention.

Article 28 gives the court the power to refuse a decree for specific performance if under its own law it would not render such a decree in respect of similar contracts of sale. However, nothing prevents the court from entering a judgment for specific performance in cases in which formerly it refused to do so.[135]

In the civil law systems, the right to obtain specific performance of goods sold is the natural remedy in case of non-performance by a party; this right can be denied from the aggrieved party only in exceptional cases. In the common law systems, the claim for damages is the primary remedy available to the aggrieved party. Specific performance is granted only exceptionally at the court's discretion as an equitable relief.[136] Article 28 was drafted in order to avoid a situation where those States in which courts are not authorized to order certain forms of specific performance would have to alter fundamental principles of their judicial procedure in order to bring this Convention into force.[137]

In Finland, the seller has a right to require the buyer to pay the price. The seller's right are regulated in Chapter 10 of the Finnish Sale of Goods Act. Section 51 states the remedies available for the seller: If the buyer fails to pay the price when it is due or to cooperate in the seller's performance, and this is not due to an act or omission of the seller or any other reason attributable to the seller, the seller is entitled to require payment or other performance of the contract or to declare the contract avoided as well as to claim damages" (italics added here).[138] Accordingly, the Buyer was ordered to pay the Seller the unpaid purchase price. As noted above, the partial payment refunded by Customs officials was to be credited as payment of the interest.[139]

3. DISTRICT COURT OF KUOPIO, 95/3214 (5 NOVEMBER 1996)

3.1 Classification of the issues present

The case involved a sale of butter from a Seller from Turks and Caicos Islands, overseas territory of the United Kingdom (the defendant) to a Lithuanian Buyer (the plaintiff). The Seller's CEO (identified as K) was from Finland (also a defendant).[140] The questions in dispute included the Buyer's right to avoid the contract and the evaluation of damages. English translation is available by Jarno Vanto in the WWW: <URL: http://cisgw3.law.pace.edu/cases/961105f5.html>. The Court of Appeal of Eastern Finland, S 96/605 (27 March 1997) tried the case only in the relation to the joint liability of the Seller and the Seller's CEO. The District Court judgement provided for joint and several liability of the Seller and the Seller's CEO. The CISG issues were not appealed.

3.2 Jurisdiction

3.2.1 Facts of the case

In its response to the Buyer's claim, the Seller argued that the claim was inadmissible as the District Court had no jurisdiction to hear the case. The case involved a dispute relating to the interpretation and enforcement of a contract. The Seller alleged that, according to the Contract of Sale, an arbitration panel set up by the Helsinki Chamber of Commerce had jurisdiction over disputes arising out of the aforesaid circumstances. The arbitration clause excluded other fora. The contract referred to in the statement of claim by the Buyer was an interim contract and it included that arbitration clause. By signing the contract, K had become bound by it in a manner that a claim against him should also have been brought before an arbitration panel.

Seller further alleged that, in any event, this case could be admitted only in Turks and Caicos Island, the place of business of the Seller. This case could not be heard in a general court in Finland because the Seller did not do business in Finland in any locale. The signing of the contract in Kuopio was accidental. Not even the claim directed at K could be admitted anywhere else but in the forum where the company had its place of business. K was not the CEO of the Seller. He had only acted as an intermediary and he had no general authority to act on behalf of the Seller. Instead, the company gave him guidelines and an authority to act for each individual situation. K had simply brought the Buyer and the Seller together. The Seller was established according to regulations of the State where the company was registered. K was not a shareholder of the company, nor was he liable for its obligations in any other manner.

The Buyer responded that, as far as the Seller was concerned, the Finnish forum was a general court and the arbitration clause only covered disputes particularly agreed upon or specified in the arbitration clause. Because the current dispute did not concern interpretation or carrying out of the contract, the case could not be resolved by an arbitration panel.

The contract had been made by means of a fax and a phone conversation in a situation in which the Buyer was in Lithuania and the Seller was in Kuopio, Finland. The contact information of the Seller referred to Kuopio, which was the only place of business of the Seller known to the Buyer. Jersey (the place where the Seller allegedly did business) only had a P.O. Box address and the allegation concerning Jersey as a place of business cannot be taken seriously. The burden of proof over the company being administered from somewhere else than from Finland, was on defendants.

When a company bases its operations in Kuopio, it can be called as a defendant before the District Court of Kuopio, regardless of where its actual place of business is. Additionally, the Seller can be sued in Kuopio, because the lawful forum according to Chapter 10, Section 7 of Code of Procedure is Kuopio.[141] Regardless of whether K was the CEO of the Seller, by signing the contract and by acting negligently in transferring the money, he was liable for the claims.

3.2.2 Decision on the jurisdiction

3.2.2.1 Judgement of the District Court

The District Court ruled that the case could be tried in its entirety in the District Court. The statement of claim of the Buyer was based on the circumstances that the Contract of Sale into which the Buyer and the Seller had entered into on 24 February 1995, had been declared avoided. The claim of the Buyer concerned the return of the advance payment, compensation for interest expenses and damages. The performance of the sale was no longer possible. Consequently, the statement of claim did not concern the difficulty in interpreting the performance of the contract referred to in Section 8 of the contract, disputes arising out of which should have been tried by an Arbitration Panel.

The contract referred to in the statement of claim was signed on behalf of the Seller by K, who had indicated his position to be that of the CEO. The contact information of the Seller referred to Kuopio, which was also the hometown of K. The contract had been made using a fax and a phone conversation in a situation in which the Buyer had been in Lithuania and the Seller in Kuopio. On these grounds, the Court held that it was apparent that K had been the CEO of the company and that the company was doing business in Kuopio. Notwithstanding the address abroad communicated by the company and the place of registration of the company, the object of the statement of claim could be tried in this Court in its entirety.

Further, claims directed at different defendants can all be tried in the same Court where one of the defendants has been sued if the claims are brought simultaneously and they are based on essentially the same grounds. As the Court had jurisdiction over the claim directed at the company, the claim directed at K could also be tried in this Court. The Court finally held that the judgement could be appealed only in connection with the main issue.

3.2.2.2 Judgement of the Court of Appeal

The Court of Appeal tried the case only in relation to the K's appeal that the claim should be dismissed. The judgement against the Seller was not appealed.

The relevant clause of the contract, clause 8 stated:

This contract is governed by the rules of the Authorities of the International Chamber of Commerce. Both parties are relieved from liability of carrying out the duties under the Contract, if the said non-performance results from force majeure impediments, such as strikes, riots, decisions of governments or other authorities etc.

If difficulties appear in interpreting the carrying out of the contract, all parties are bound to obey the decision, which has been arrived at by using the rules of the Authorities of the International Chamber of Commerce.

If common ground is not reached, the Dispute shall be resolved under the Arbitration of the Helsinki Chamber of Commerce.

The Court of Appeal held that the wording of the contract did not indicate that only some of the disputes are handled through arbitration and some in a general court. The original claim had been objected on grounds, among others, that the defendants have not breached the contract in a manner which would have justified the avoidance of the contract and thus the dispute should had been resolved through arbitration. As K had referred to this circumstance before replying to the main claim the District Court should have dismissed the claims in relation to K. The judgment of the District Court was repealed as to K's joint and several liability with the Seller (the company) for returning the advance payment, damages and legal fees.

3.2.3 Decision on jurisdiction analysed

Freedom of contract is the fundamental idea of international sale of goods. The parties can agree upon the terms of their contract, including the forum for the disputes. This case demonstrates the fact that in doing so, all parties should act very attentively and make sure that they understand fully the consequences of the chosen wording or clause. Taking the actual wording of the arbitration clause in the contract, it is not clear how the District Court came to the conclusion that it did.

The question lies in what is meant by the clause "This contract is governed by the rules of the Authorities of the International Chamber of Commerce. ... If difficulties appear in interpreting the carrying out of the contract". The CISG issue whether the Seller had breached the contract in a way to justify the Buyer's avoidance of the contract seems to be covered by this clause. However, the identification of the parties and the responsibility of the parties involved are more of procedural issues and are not related to the sale of goods. Professor Hemmo has analysed the problem relation to arbitration clauses that restrict the jurisdiction of the arbitration panel in some respects.[142] Economic efficiency would suggest that it is not the best solution to separate issues for different process. However, this argument does not justify the arbitral tribunal extending its own jurisdiction. The parties' intention as to the meaning and purpose of their agreement is decisive, in order to extend the literal sphere of the arbitral tribunal's jurisdiction.[143]

As to the substance of the CISG issue and the decision in relation to the avoidance of the contract discussed above, it is impossible to speculate whether an arbitration would have reached a different solution.[144]

3.3 Buyer's right to declare the contract avoided

3.3.1 Facts of the case

The Buyer stated that on 24 February 1995 the Buyer had entered into a contract with the Seller for a consignment of 100,000 kilograms of butter to be delivered to Russia. The Seller was represented by K, the CEO of the Seller. The Buyer had made an advance payment of 79,800 USD on 15 March 1995 for a consignment of 40,000 kilograms of butter. The Seller had transferred the money over to the United States to C Trading Group Inc. that was supposed to deliver the butter consignment to St. Petersburg, Russia. When this consignment did not arrive in St. Petersburg, the Buyer had declared the contract avoided based on delay in delivery. The Buyer demanded that the defendants, the Seller and the Seller's CEO, should pay back the Buyer -- jointly and severally -- the advance payment. The demands for interest and other damages are discussed above.

The Seller denied the claim in its entirety. The Seller alleged that it had no duty to return the part of the sale price paid in advance because the Buyer had had no grounds to declare the contract avoided. After the delivery had been delayed, the Buyer should have accepted the Seller's offer concerning the delivery of a test consignment from the company warehouse in St. Petersburg or some other measure for fulfilling the contractual obligations.

3.3.2 Applicable law

The United Kingdom has not ratified the CISG. In Finland the CISG has been in force since 1 January 1989.

The District Court referred first to the Finnish Act on the Law Applicable to the Sale of Goods of International Character (26 June 1964/387, as amended by the Act 27 May 1988/468). According to Section 4, if the parties have not agreed on the applicable law, the law applicable to the sale is the law of that country where the seller had its place of business when he accepted the order. The true identity of the Seller and the relationship of K to the company had remained unclarified in the case. In this situation, the Court held that K had been the Seller in the sale, K's place of business had been Kuopio and thus the Finnish law was applicable.

According to CISG Article 1(1)(b), the Convention is applicable to sales contracts between parties whose places of business are in different States and when the rules of private international law lead to the application of the law of a Contracting State. On these grounds, CISG was applicable.

The approach the District Court adopted is acceptable. The CISG is applicable not only when both parties come from different Contracting States (Article 1(1)(a)) but also when the rules of private international law lead to the application of the law of a Contracting State.

3.3.3 Avoidance of the contract in case of non-delivery

Article 30 introduces the basic obligation of the seller: the seller must deliver the goods and hand over any documents relating to them as required by the contract and the Convention. According to Article 33 the seller must deliver the goods on the date fixed by or determinable from the contract. Avoidance of the contract on the buyer's behalf is regulated by Article 49:

Article 49

(1) The buyer may declare the contract avoided:

(a) if the failure by the seller to perform any of his obligations under the contract or this Convention amounts to a fundamental breach of contract; or
(b) in case of non-delivery, if the seller does not deliver the goods within the additional period of time fixed by the buyer in accordance with paragraph (1) of article 47 or declares that he will not deliver within the period so fixed.

...

Article 47 regulates the consequences of the fixed additional period:

Article 47

(1) The buyer may fix an additional period of time of reasonable length for performance by the seller of his obligations.
(2) Unless the buyer has received notice from the seller that he will not perform within the period so fixed, the buyer may not, during that period, resort to any remedy for breach of contract. However, the buyer is not deprived thereby of any right he may have to claim damages for delay in performance.

The additional period of time concept provided by Article 47 provides assurance for the buyer not sure whether the non-delivery of goods substitutes a fundamental breach of the contract.[145] The concept of fundamental breach is defined in Article 25.[146]

However, as Professor Lookofsky has pointed out, the term "reasonable" may introduce a new element of uncertainty.[147] Professor Honnold sees that within the framework of the nature and the purpose of the Convention, the choice is given to the buyer to determine what is reasonable as the buyer is the aggrieved party.[148] Professor Will also stresses that the reasonableness of the period must be determined case-by-case taking into consideration all the relevant circumstances of the case.[149]

As to the contents of the notice under Article 47, it should be specific enough for a seller to realize that this the last chance to perform. In addition, the period of additional time must be stated in specific terms, either by referring to a certain date or by referring to a specific period, such as within a month from this date.[150]

3.3.4 Decision on avoidance of the contract

According the evidence, the Buyer had on 11 April 1995, made a statement to K, the CEO of the Seller, stating that the Seller had not fulfilled its duties. The documents involved in the sale had been late for 20 days at that time and the delivery of the goods from the factory had been late for 13 days in relation to what had been agreed. However, by giving the delivery address to the Seller the Buyer could be regarded as giving up his right to declare the contract avoided at that time. No additional terms in relation to the delivery were however required. The Buyer had a general right to inspect the goods delivered. On 20 April 1995, the butter had not yet been delivered. The Buyer had declared the contract avoided for the second time on 5 May 1995 because the goods had not been delivered as agreed.

The Court held that the delivery had been late for several weeks in relation to what had been agreed on. The Buyer had not received any documents concerning the goods to be delivered. The Buyer had properly declared the contract avoided. The Buyer had declared the contract avoided with a notification delivered to the opposing party. The goods have remained undelivered and the Seller had not delivered the goods within the additional period set by the Buyer. The Buyer was entitled to recover the paid sale price.

The Seller's argument that the delivery of goods could not been carried out because the representative of the C Trading Group Inc. had denied the required inspection and thus given up the delivery was not credible. Based on the evidence presented, the real reason for non-delivery was that C Trading Group Inc. was unable to deliver the butter altogether.

It is certainly unclear whether the requirements as to the contents of the notice under Article 47 were fulfilled. Did the Buyer fix a specific, reasonable period for the performance? On the other hand, the Court seems to state that the non-delivery was substantial and thus would qualify as a fundamental breach of the contract even though the Court does not evaluate the relevant CISG provision, Article 25. When the Buyer declared the contract avoided the second time, the delay in delivery was more than a month. The evaluation of fundamentality of the delay is in line with Pretura circondariale di Parma, sez. di Fidenza, 77/89 (24 November 1989) where two months delay was considered fundamental as the contract required.[151] The reasoning of the Court is not however clear enough and more accuracy ought to be used in cases were international aspect is concerned.

3.4 Damages

3.4.1 Facts of the case

The Buyer demanded that the Seller be ordered to pay the Buyer an amount that consisted mainly of interest expenses caused to the Buyer and included also a restitution of the unreturned part of the advance payment.[152] Before the pre-payment, the Buyer had to take a loan from a bank in Lithuania. Due to the defendants' actions, the Buyer had been unable to repay the loan on time which caused more interest to occur. In addition, because this was a matter of contractual breach, the defendants had to compensate also for the Buyer's lost profit. That amounted to 20% of the sale price, totalling U.S. $15,960.

The Seller argued that there were no grounds for the defendants' liability for financing costs of the Buyer, the amount of which in itself was undisputed.[153]

3.4.2 Decision of the District Court

Firstly, the District Court referred to the CISG. According to CISG Article 74, the buyer is entitled to damages for breach of contract consisting of a sum equal to the loss, including loss of profit suffered by the buyer as a consequence of the breach. Such damages may not exceed the loss which the party in breach foresaw or ought to have foreseen at the time of the conclusion of the contract, in the light of facts of which he then knew or ought to have known, as a possible consequence of the breach of contract.[154]

The defendants had denied their duty to pay damages for interest loss caused to the Buyer. However, according to his own statement, K had known that the Buyer would take credit to finance the advance payment. Consequently, K may have anticipated that interest loss might be caused to the Buyer if, for some reason, the sale would not go through. On these grounds, damages include compensation of interest loss. It had not been shown that K had knowledge of the interest rate level of Lithuania which essentially differed from the interest rate level in Western Europe. One could not even assume that he should have had knowledge thereof. It was estimated by the Court that K should have pre-estimated that the interest loss resulting from not fulfilling the contractual obligations could be about 10% of the sale price, meaning 8,000 USD.[155] In addition, the Seller was obliged to pay 45,716 USD as a restitution of the unreturned part of the advance payment. The amount of lost profit was seen as reasonable by the Court as the butter consignment bought by the Buyer had had a buyer.[156]

The decision of the Court in relation to the damages was well reasoned and relies strongly on the evidence presented in the case. However, the interesting question of the reasonable and foreseeable amount of the interest was not discussed in detail. More detailed analyses of Article 74 would have been more appropriate.

4. TURKU COURT OF APPEAL, S 97/324 (12 NOVEMBER 1997)

4.1 Classification of the issues present

The case involved a sale of canned foods delivered from a Spanish Seller (the plaintiff) to a Finnish Buyer (the defendant). The questions in dispute included the proper and timely examination of the goods and the notice of non-conformity. In addition, the price reduction and damages for non-conformity were assessed by the Court. English translation is available by Jarno Vanto in the WWW: District Court of Tampere, 95/11193 (17 January 1997) <URL: http://cisgw3.law.pace.edu/cases/970117f5.html>, Turku Court of Appeal <URL: http://cisgw3.law.pace.edu/cases/971112f5.html>. The Court of Appeal confirmed the reasoning of the District Court; the amount of the price reduction was however evaluated lower by the Court of Appeal.

4.2 Applicable law

According to CISG Article 1(1)(a), the Convention applies directly if the parties to a contract of sale of goods have their places of business in different Contracting States. In Spain the Convention has been effective since 1 August 1991, in Finland since 1 January 1989. The parties were in agreeement that the law applicable to the contract was the CISG. In addition the Finnish Interest Act was applied.[157] There seemed to be no dispute on the applicable law on interest: in relation to the interest, the Court did not discuss the issue and Finnish Interest Act was referred to.

4.3 Conformity of the goods

4.3.1 Facts of the case

The Buyer claimed that the contracted canned foods (such as mushrooms, pears and mandarin oranges) were loaded with significant and noticeable non-conformities. The Buyer submitted that at the time of the conclusion of the contract and before that, the Seller's products were known as products of good and even quality and were regarded as top quality canned food. Based on such quality, the Buyer had been willing to sign an exclusive import contract. Further, the Buyer argued that the picture on the side of the product gave the consumers an idea of the contents of the can and therefore the contents should have resembled the label.

The goods delivered to the Buyer had not met these high requirements. The products have encountered many complains both from consumers and retailers. The cans contained many foreign objects including stones, cigarettes, snails, etc. Some of the cans have had deformities, rust and other faults. In tests carried out in a laboratory, it had become clear, that some of the contents had not been suitable for human consumption because of their tin content. The complaints and returned goods indicated that the goods have been non-conforming.

The Seller denied the non-conformity of the goods on the basis that insofar as the complaints received by the Buyer were concerned, the Buyer had not returned the goods to Spain nor had the Buyer provided samples based on which the non-conformity of the goods could had been evaluated. The Seller and the Buyer had not agreed that the products would be of Calidad Extra- quality, i.e. best quality. The fax message submitted by the Buyer, dated 28 September 1992, was not a contract but an offer that all the goods are of the same quality.

4.3.2 Quality and description of the goods

4.3.2.1 Rules on quality

Article 35 states the standards by which the seller's obligation to deliver goods which conform to the contract is measured. The overriding source of the conformity is naturally the contract between the parties. Only if the parties have not agreed otherwise, does paragraph (2) come into play.[158]

Article 35

(1) The seller must deliver goods which are of the quantity, quality and description required by the contract and which are contained or packaged in the manner required by the contract.
(2) Except where the parties have agreed otherwise, the goods do not conform with the contract unless they:

(a) are fit for the purposes for which goods of the same description would ordinarily be used;
(b) are fit for any particular purpose expressly or impliedly made known to the seller at the time of the conclusion of the contract, except where the circumstances show that the buyer did not rely, or that it was unreasonable for him to rely, on the seller's skill and judgement;
(c) possess the qualities of goods which the seller has held out to the buyer as a sample or model;
(d) are contained or packaged in the manner usual for such goods or, where there is no such manner, in a manner adequate to preserve and protect the goods.
(3) The seller is not liable under subparagraphs (a) to (d) of the preceding paragraph for any lack of conformity of the goods if at the time of the conclusion of the contract the buyer knew or could not have been unaware of such lack of conformity.

According to Article 35(2)(a), if the goods are ordered by general description, the seller must deliver goods that are fit for all purposes for which the goods of the same description are ordinarily used. If the buyer has not expressly or impliedly made known to the seller the special use of the goods other than for which the goods are ordinarily used at the time of the conclusion of the contract, the seller cannot be acountable to deliver goods to conform this special use. If the buyer has made known to the seller the special use at the time of the conclusion of the contract, according to Article 35(2)(b), the seller must comply with this request, unless the circumstances show that the buyer did not rely, or that it was unreasonable for him to rely on the seller's skill and judgement.

Article 35(2)(c) provides that, if the contract is negotiated on the basis of a sample or a model, the quality of the goods delivered must correspond to those presented by the sample or the model. While a sample is taken from the goods to be delivered, a model is supplied to the buyer for his examination where the goods themselves are not available. Article 35(2)(d) sets up the minimum standard for packaging the goods. It is not intended to discourage the seller from packaging the goods according to a higher standard for more security.[159]

The obligations in respect of the qualities in subparagraphs (a)-(d) are imposed on the seller because in the usual sale the buyer would legitimately expect the goods to have such qualities even if they were not explicitly stated in the contract.[160] However, if at the time of the contracting the buyer knew or could not have been unaware of the lack of conformity of the goods in reference to the second paragraph of Article 35, he cannot rely on such non-conformity. An obligation based on facts of which one "could not have been unaware" does not impose a duty to investigate; these are the facts that are before the eyes of one who can see.[161] Article 35(3) does not affect those characteristics that are explicitly required by the contract as provided for in the first paragraph of Article 35. Even if at the time of the conclusion of the contract, the buyer knows that the seller will not deliver conforming goods as required by a contract, the buyer can require full performance from the seller.[162]

4.3.2.2 Agreement on quality

Professor Honnold suggests that the role of the second paragraph of Article 35 is to aid in construing the agreement of the parties.[163] The intention of Article 35(2) is to describe in general terms descriptions of quality that would have been written into the contract if the parties had drafted a contract provision dealing with the issue.[164] The second paragraph of Article 35 stresses the importance of contractual understanding of the parties.[165]

If the parties do not agree on the meaning of the agreed quality descriptions, the problem needs to be resolved pursuant to the Convention's rules on interpretation of the contract, supplemented by the rules on practices and usages, if necessary.[166] Article 8 provides:

Article 8

(1) For the purposes of this Convention statements made by and other conduct of a party are to be interpreted according to his intent where the other party knew or could not have been unaware what that intent was.
(2) If the preceding paragraph in not applicable, statements made by and other conduct of a party are to be interpreted according to the understanding that a reasonable person of the same kind as the other party would have had in the same circumstances.
(3) In determining the intent of a party or the understanding a reasonable person would have had, due consideration is to be given to all relevant circumstances of the case including the negotiations, any practices which the parties have established between themselves, usages and any subsequent conduct of the parties.

The basic approach in Article 8 is the subjective approach. However, in practice, most problems of interpretation will be governed by paragraph (2) which follows the objective approach as when where is a conflict it is hard determine what was the actual intent of the parties.[167] If a party, in making a statement, actually attached to it the meaning that he, in case of the dispute claims, and can also show that the other party knew that specific meaning, the meaning of the party who made the statement prevails.[168] The second paragraph of Article 8 places the burden on the one who prepares a communication or drafts a contract to communicate it clearly to a reasonable person in the same position as the other party.[169] Under the objective test the intent of the party making the statement will prevail if he can show that this would have been the understanding of a reasonable person of the same kind and in the same circumstances as the other party. A reasonable person in the same circumstances must be evaluated in the light of the kind of parties involved and their circumstances, taking into account, for example, the parties' knowledge of prior dealings and negotiations between the parties.[170] The third paragraph of Article 8 provides that all the relevant circumstances are to be given due consideration when determining the intent of a party or the understanding a reasonable person would have had. Those circumstances include negotiations, any practices and usages the parties are bound by and any subsequent conduct of the parties. The list in this paragraph is not exclusive.[171]

Article 8 applies equally to the interpretation of the unilateral acts of each party, i.e., communications in respect of the proposed contract, the offer, the acceptance, notices, as well as of the contract itself, when the contract is embodied in a single document.[172] In applying Article 8, reference is to be made to the time that the conduct had its effect, not to the time of the dispute over its interpretation. In other words, a disputed word, phrase or conduct is given the meaning attached to it by each party at the time their conduct was to have effect.[173]

Professor Bianca stresses that the description is the usual way through which the parties determine the content of their obligations. The description of the goods made by the seller in his offer is binding upon him with no need of a specific promise. If for example, the offer refers, even impliedly, to an advertisement illustrating the goods and their qualities, it is understood that the offer includes such description. The description may also be made by the buyer on his request of the goods. If the seller does not raise objections, the delivered goods must be as required by the buyer.[174]

Professor Bianca point out that Article 35 does not expressly answer a question whether the seller has an obligation to deliver goods that meet the mandatory requirements of the national law of the place where the goods are to be sold or used. A duty to deliver goods that conform with the special requirements of another county's law is a special condition that demands goods different from those of normal fitness.[175] Professor Bianca concludes that the seller's liability arises, when the goods are reasonably expected to conform with the foreign legal requirements. The seller's liability is always determined according to the circumstances of the case. The fact that the buyer makes known to the seller the country where the goods are to be used, is not sufficient to bind the seller to deliver goods which meet the administrative and statutory requirements of that country. However, it is reasonable to expect conforming goods, if the foreign legal requirements are the same as those of the seller's country or where the buyer had made clear he wanted goods fit to be used in his or in another country (provided that the buyer can rely on the seller's skill and judgement). Further, if the seller has in the recent past sold conforming goods to the buyer and thus knows or ought to have known the legal requirement, the buyer can reasonably expect conforming goods.[176]

Professor Henschel has analyzed the conformity of the goods and, moreover, their possible lack of conformity in relation to the principles of caveat emptor and caveat venditor.177 According to caveat emptor, there is an assumption that the buyer bears the risk if it appears that the goods do not conform to the contract. According to caveat venditor, there is the assumption that the seller is responsible for defects in the goods, including those based on explicit or implicit guarantees about the quality of the goods.[178] Henschel concludes that if there is a difference between the understandings of the terms in the contract, the party within whose sphere of influence the disputed factors are judged to be more closely linked ought to be liable for ensuring that the goods comply with such requirements, unless of course, the solution can be derived from the interpretation of the contract.[179] The starting point is that the seller's country shall form the basis for judging what is a customary purpose, or a particular purpose or the usual manner for containers and packaging. However, if the seller is aware of the norms which apply in the destination State of the goods, regularly makes exports there, or markets his goods for that country, the seller can be presumed to have been aware of the specific requirements. Professor Henschel further concludes that it is for the buyer to show that the seller knew or could not have been unaware of the norm in the destination State, i.e., that the relevant elements were within the seller's sphere of influence.[180]

4.3.3 Decision on the conformity of the goods

The District Court held that on 16 December 1993 the Buyer and the Seller had entered into an exclusive import agreement. In paragraph 3 of that contract, the Seller guaranteed that the products it manufactured were of good quality and fulfilled the European Union requirements set for the type of products. As to the quality of the goods, nothing else had been agreed. Canned foods had no quality classifications in Finland.

The District Court heard testimonies from the Buyer's clients reaffirming that the goods did not meet the requirements for top quality products and that the retailers had received several complaints from their customers. The Buyer was forced to compensate his customers for the non-conformity of the goods. Also, customer complaints about foreign articles in the goods had been submitted as written exhibits. The Buyer also submitted evidence that the tin content of the products had been significantly high. The Seller argued that the goods had been tested in Spain after the production and no non-conformities were found.

The District Court held that the labels gave the buyers information about the contents of the goods but a perfect correspondence between the two could not be required. Thus the correspondence of the goods with the labels had no relevance in evaluating the conformity of the goods with the contract. However, based on the submitted evidence, the District Court held that a significant amount of the products had been of a quality that could not be deemed as good in general terms. Furthermore, some of the cans had contained foreign articles and consequently had been non-conforming.

In a fax message dated 28 September 1992, the Seller had informed the Buyer that he had been in the habit of sending products that were better than Class I products under the Diamante brand. Even though the exclusive import contract did not specifically touch upon quality issues, it was apparent that a prerequisite for entering into the contract had been the good quality of the products. Based on the above-mentioned circumstances, the District Court held that the goods had not been conforming to the contract and that the Buyer was entitled to a price reduction.

The Court of Appeal did not discuss the conformity of the goods but relied on the District Court's decision. The Court of Appeal did evaluate the extent of the non-conformity differently from the District Court. This will be discussed further in relation to the amount of the price reduction.[181]

Considering the evidence submitted to the Court, it is obvious that the goods were not of the best quality. Unfortunately, the Court did not however analyze in detail what was the relevance of Seller's fax to the Buyer before the contract was concluded. The District Court concluded that, besides the contract where the Seller guaranteed that the products it manufactured were of good quality and fulfilled the European Union requirements set for the type of products, nothing had been agreed specifically on the quality of the goods. The circumstances showed, however, that the prerequisite for the contract had been the quality of the goods. In its reasoning, the Court concentrated mainly on the evaluation of whether the non-conformities amounted to defective goods.

The Seller itself had claimed that the fax dated before the contract was concluded was merely an offer. The Buyer stressed that the fax message was a response to a quality questionnaire. The Buyer had not even alleged that the fax was a contract. However, it showed what could be regarded as agreed between the parties in terms of quality and what Seller had told to Buyer about the quality.

As the contract did contain a clause on quality though not a specific one, the question arises what was the meaning of this quality clause. In order to give specific meaning to the contract clause, one must turn to the Convention's rules on interpretation of the contract as provided for in Article 8. The District Court did not refer to any rules on construction of the contract nor Article 8 of the Convention when stating that the good quality must have been a prerequisite to an exclusive import agreement.

The emphasis on evaluation of the non-conformities is linked to the buyer's obligation to examine the goods sufficiently and notify the seller within a reasonable time after the defects have been or ought to have been discovered. This issue will be discussed next.

4.4 Examination of the goods

4.4.1 Facts of the case

The Seller argued that the Buyer had lost the right to rely on the non-conformities, since the Seller had not given a timely or detailed notice. The Seller argued that the first document that could be regarded as a notice was a letter sent to the Seller's counsel by the Buyer's counsel on 19 January 1996, two years after the conclusion of the contract.

The ground for the earlier claims had been entirely insignificant complaints. The notices of the non-conformity applied only to a small amount and consequently had no significance. Further, the Buyer did not respond to the Seller's request for samples and clarification on the non-conformities, raising doubts about the existence of any non-conformity. The Buyer had been under the duty to check the goods in order to ascertain that the goods were of the contracted quality class. In any case, the Buyer had sold the non-conforming goods, which served as additional grounds for denying the Buyer's claim for price reduction. The Buyer had not given a timely and detailed notice.

The Buyer claimed that it had contacted the Seller about the non-conformities several times by phone. In addition, the copies of the faxes send by the Buyer to the Seller proved that the Buyer had given a timely notice.

4.4.2 Obligation to examine the goods

Article 38 lays down a fundamental principle that requires the buyer to examine the goods delivered by the seller within as short period as is practicable in the circumstances.[182] Article 38 is linked to Article 39, which provides that if the buyer fails to notify the seller of the lack of conformity of the goods within a reasonable time after he has discovered it or ought to have discovered it, he loses the right to rely on it. Article 38 fixes the time when the buyer "ought to have discovered" the defect; this time, in turn, starts the running of the "reasonable time" within which the buyer must notify the seller.[183] The strict connection between Article 38 and Article 39 means that the buyer has a burden rather that a duty to examine the goods in a short time.[184]

Article 38

(1) The buyer must examine the goods, or cause them to be examined, within as short a period as is practicable in the circumstances.
(2) If the contract involves carriage of the goods, examination may be deferred until after the goods have arrived at their destination.
(3) If the goods are redirected in transit or redispatched by the buyer without a reasonable opportunity for examination by him and at the time of the conclusion of the contract the seller knew or ought to have known of the possibility of such redirection or redispatch, examination may be deferred until after the goods have arrived at the new destination.

Under the Convention, it is irrelevant whether the buyer examines the good himself, through his employees or through other person, e.g. customers.[185] The first paragraph of Article 38 provides that the buyer must examine the goods or cause them to be examined. If the quality of the goods is an essential part of the contract the parties are advised to agree on the neutral testing body.[186]

4.4.3 Method and degree of the examination

Primarily the method of examination is determined by the agreement. Article 6 provides that the parties may exclude the application of the Convention or derogate from or vary the effect of any of its provisions.[187] The parties may lay down more precise rules in relation to the examination of the goods than those provided for in Article 38. The method of examination may also follow form the usage or practice.[188] The Secretariat Commentary also stresses that the determination of the type and scope of examination required should be made in the light of international usages, because of the international nature of the transaction.[189]

Expectations that have the force of contract can be established by patterns of relationship established by the seller and the buyer.[190] A course of dealing or practice that the parties have established will often have more concrete meaning to them than the general words of the contract. In addition to practices, a usage which the parties have agreed to observe must be given effect. This approach is confirmed by Article 9(1). Article 9(2) provides further; in the absence of a contrary agreement, the parties are considered to have impliedly made applicable to their contract a usage of which the parties knew or should have known and which in international trade is widely known to and regularly observed by parties to contract of the type involved in the particular trade. The Convention gives effect to a usage only if, on an objective basis it constitutes a part of the contractual expectations of the parties.

In the absent of agreement or applicable practice or usage, the rules for examination must be developed from the CISG itself. Professor Lookofsky has suggested that the intensity of the examination required is a matter governed but not settled by the Convention and the matter could therefore be settled appropriately in accordance with the general principle of "reasonableness" as provided for in Article 7(2).[191] Thus, in general, the examination is reflected to what is "reasonable" in the circumstances.[192]

The buyer must examine the goods in a manner which takes account of their nature, amount, packaging and all other circumstances. For example, when the goods are too complex or too numerous, the buyer is not bound to undertake a thorough examination of every single article.[193] Where large quantities have been delivered, the buyer is not required to examine all the goods individually, but he may restrict the examination to a representative, random test.[194] Professor Lookofsky has even stated that a middle-man, who purchases goods in sealed containers, would not normally be expected to undertake or secure a laboratory analysis of the contents prior to resale; such a buyer can rely on the seller's obligation to deliver goods fit for ordinary purposes (consumption).[195] When the sales involve perishable goods, the necessity for a particularly prompt complaint precludes time-consuming methods of examination.[196]

Generally, the criterion for adequate examination is objective. However, subjective factors can be taken into account if the seller knows them or he should have been aware of them. Subjective factors include, e.g. the buyer's lack of experience and lack of infrastructure necessary for proper examination.[197] Where the buyer has the relevant experience, he must carry out an expert, thorough examination. This is also the case if there have been defects in the previous deliveries.[198] If the buyer is aware that the seller has previously had problems in manufacturing the goods he cannot examine the goods superficially relying on the fact that the seller bears the risk of the lack of conformity in any case.

The examination must be such as to disclose recognisable defects, taking into account, of course, all the circumstances of the case. The duty to examine the goods should not be too onerous to the buyer; the buyer is normally not required to make an examination which would reveal every possible defect and would involve complex technological analysis.[199] The situations which may occur in international trade are numerous and most importantly, each case should be taken with its circumstances in mind.

4.4.4 Time of the examination

The CISG requires examination "within as short a period as is practicable in the circumstances." The rule is based on the fundamental idea of reasonableness, meaning that the buyer must examine the goods as soon as reasonably possible.[200] In view of the extreme diversity of the goods that might be the subject matter of an international contract for the sale of goods, the CISG rightly chose this flexible period.

The appropriate period is hard to establish with certainty. The examination within a few days after the delivery is certainly appropriate and if the buyer follows this rule, he should be on the safe side. When determining the duration of the period, the circumstances of the individual case and the parties' reasonable opportunities must be considered.[201] In general, it may be said that goods of more sophisticated technology and those of complex composition need a longer "reasonable" time to be examined.[202] The impediments relating personally to the buyer are not relevant when determining the proper time for the examination. A delay in examining the goods may be justified only when due to general and objective impediments.[203]

According the second paragraph of Article 38, if the contract provides for carriage of goods, the period within which the goods must be examined begins to run only upon their arrival at their destination. The rule takes into account the fact that if the contract involves carriage of the goods, an examination at the time of delivery, i.e. upon the handing over the goods to the first carrier is usually impossible, but in any event, it is not reasonable to require the buyer to do so. Article 38(2) applies irrespective of which party concluded the contract for carriage.[204]

The third paragraph of Article 38 clarifies the rules on examination of the goods even further. If the goods are redirected in transit or redispatched, then in certain circumstances the period for examining the goods begins only when the goods have arrived at their new destination. Goods are redirected in transit if the goods are in transit and they are redirected another destination before reaching the originally intended destination. Goods are redispatched, if the buyer re-dispatches them after they have been received at the destination. In both cases, it is irrelevant who causes the redirection or the goods to be redispatched.[205] What really matters is whether the buyer has a reasonable opportunity to inspect the goods before re-dispatching. This depends mainly on how long the goods stay at the original destination before the re-dispatch. Other relevant circumstances to be taken into account include e.g. the way the goods are contained and packaged and whether the examination of the goods requires the removing of the trademark attesting the authenticy of the product.[206]

For there to be a postponement of the time allowed for examination, the seller must or ought to have known at the time of the conclusion of the contract of the possibility of redirection or re-dispatched. The seller must face this possibility when the buyer has expressly mentioned it or impliedly let it be known, as when the buyer is an international professional trader.[207] It should be stressed however, that it is advisable for the buyer expressly to draw to the seller's attention at the time of concluding the contract the fact that the goods may be redirected or re-dispatched, even though the buyer's intentions to re-dispatch the goods may be evident from the circumstances of the particular case.[208] If after the conclusion of the contract the buyer changes his mind as to the final place of destination, provided that the seller did not know or should not have known about the possible redirection or re-dispatch, without having a possibility to examine the goods before the re-dispatch or redirection, he faces a possibility of losing his right to rely on the lack of conformity.[209] The buyer may not defer the time of examination of the goods by giving a notice to the seller of an unexpected change of the goods' original destination.[210]

Mere resale without additional carriage does not fall under Article 38(3).[211] The fact that the goods are resold without the buyer having a sufficient opportunity to examine the goods should, however, be taken into account in the context of Article 38(1) both as regards the form of examination and, above all, the length of the period allowed for the purpose. The goods can be contained or packaged in such a way that normally their examination is brought about by the consumer. The buyer does not always have a reasonable opportunity to examine the goods before their resale, except by way of random and limited number of samples.[212]

4.4.5 Decision on the examination of the goods

The District Court stated that the goods in question were of such a nature that they were distributed among consumers in small amounts and non-conformities were detected only when the consumer begun using the product. Therefore the complaints from consumers begun to come gradually and possibly after a long period of time after the goods had been received by the importer. The Court held that the buyer had given a notice in sufficient detail and within a reasonable time after he had discovered the non-conformity.

The Court of Appeal referred to the applicable CISG Article 38(1). Considering the type of the goods sold, i.e. canned food, the Court of Appeal held that the Buyer did not have an opportunity to examine the goods and detect the non-conformity. In practical terms, an obligation to examine the goods after the delivery has more importance than the buyer's duty to notify the seller of the lack of conformity. When the buyer has detected the deficiency, he has no reason to postpone the notification.[213] However, the intensity and the time of the examination must be determined in accordance with what is reasonable. It is clear that the rules concerning the re-dispatch and redirection under Article 38(3) are not applicable to the case, but the timeliness of the examination must be determined according to Article 38(1), i.e. the buyer must examine the goods, or cause them to be examined, within as short a period as is practicable in the circumstances.

The CISG Advisory Council has assembled an overview of reported case law relating to the extent and timeliness of examination (Article 38).[214] In general, it can be concluded that the buyer's duty is a strict one as it can eventually lead to loss of the right to rely on the lack of conformity because, until the buyer is aware of the non-conformity, he cannot give a timely and proper notice of it to the seller.[215]

Taking into account the nature and the quality of the goods, it is understandable that the Buyer was not expected to examine every single article; that would have been impossible. However, no random test had been performed before the resale and the laboratory test had been carried out only after receiving complaints from the consumers. In the light of the international case law, the decision of the Finnish Court can be seen fairly "buyer friendly"; even more so when taking into account that the high quality was valued by the Buyer. On the other hand, weight can be given to the fact that the Seller was known to have delivered high quality goods. If the quality of the goods is an essential part of the contract, it is advised that the parties agree on the method and time of the examination of the goods and even further, if possible, arrange supervision of the production facilities in order to avoid future conflicts.

4.5 Notice of non-conformity

4.5.1 Obligation to notify about the lack of conformity

Article 38 states the period within which the buyer must examine the goods. These rules are given legal effect by Article 39, which cuts off the buyer's right if he fails to notify the seller of a non-conformity within a reasonable time after he "ought to have discovered" it. Articles 40 and 44 contain special exceptions from the general rules of Article 39.

Article 39

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

Under Article 39(1), any lack of conformity which the buyer has established or should have established upon a proper examination of the goods and any subsequent lack of conformity discovered must be notified to the seller. The reason for the lack of conformity is irrelevant.[216]

When giving the notice of lack of conformity, the buyer is not obliged to indicate at that stage which remedies he intends to assert. However, it should be noted that the right to require delivery of substitute goods or repair under Article 46(2) and (3) and the avoidance of the contract under Article 49(2)(b)(i) depend upon the buyer having informed the seller of his intention within a reasonable time after giving the notice under Article 39 or after he knew or ought to have known of the breach. Under Article 50, there is no period of time for the buyer to reduce the price.[217] The buyer is advised, when giving the notice of lack of conformity, to inform the seller of the rights which he intends to assert.[218]

4.5.2 Nature of the lack of conformity

The notice must specify the nature of the lack of conformity. This requirement is intended to place the seller in a position whereby he can comprehend the lack of conformity and take the appropriate steps.[219] Buyers are advised to be as specific as they can to avoid doubts. Generally the CISG requires notices to be framed in more detail than in general terms. Of course, a prudent seller might be expected to make inquires with the buyer after receiving a non-specific notice of lack of conformity.[220]

Professor Schwenzer proposes that when determining which requirements must be satisfied by the buyer in specifying the nature of lack of conformity, a mixed objective-subjective standard should be applied. This approach would have regard to the respective commercial situation of the buyer and the seller, to any cultural differences and above all the nature of the goods.[221] The professional buyer in a particular field of business is advised to notify the seller with sophisticated terms.[222]

It is unclear whether, when specifying the lack of non-conformity, the buyer must also indicate the extent to which the goods delivered are affected by the lack of conformity. The question whether a precise quantification of the goods affected by the lack of conformity can be insisted upon will largely depend upon the specific circumstances of the case. In view of the spirit and purpose of the duty to notify lack of conformity, where there are discrepancies in the amount of the goods delivered, only a precise indication of the missing amount can put the seller in a position to take appropriate steps, i.e. preparing for delivery of additional or substitute goods. In other cases, as far as it is possible and reasonable for the buyer to do so, an approximate indication of the extent of the goods affected should be given. If obtaining such information entails considerable effort, it will be unreasonable to require the buyer to do so.[223]

The buyer does not need to specify the defects in all detail. The CISG does not mean to locate the risk of the breach of contract with the buyer.[224] However, in general, the buyer's obligation to specify the lack of non-conformity can be a fairly onerous one.[225] The notice of lack of conformity must contain the indication of the defective goods, their approximate quantity and the result of the inspection of the goods.[226]

4.5.3 Form of the notice

Article 39 does not state any requirements as to the form of the notice of the lack of conformity. Notice given orally or by telephone suffices, although the buyer would be advised, for reasons of proof, to give written confirmation of any notice given orally or by telephone.[227]

There is no express rule in the CISG that a notice of lack of conformity must be received by the seller in order to be effective. The dispatch principle as provided for in Article 27 applies to notices of lack of conformity: the risk of loss, delay or a change in a communication is on the party whose acts have caused the need for the notice, provided that the notice is sent by means appropriate in the circumstances.[228] The appropriate dispatch of a communications satisfies the notice requirement.[229] Of course, even a communication send by inappropriate means is effective if received by the addressee.[230] The appropriateness of the means of communication is to be determined according to the circumstances of the individual case. Depending on the declaration involved, the speed of the means of communication available may also be relevant to its appropriateness.[231]

Professor Schlechtriem is of the opinion that Article 27 does not cover oral declarations made inter prasentes or on the telephone. Therefore, it is necessary for the addressee to hear a declaration made orally or by telephone, and in the event of a dispute, that must be proven by the declarer. The direct communication enables the maker of the declaration to monitor the audibility of his declaration, or at least to check it by querying whether his declaration was understood.[232]

The notice must be addressed to the seller. The question of who is authorized to receive notices of defects for the seller is not dealt with in the CISG, but has to be answered in accordance with the law applicable by virtue of the rules of private international law. If a person is not authorized under the applicable domestic law to receive notices on behalf of the seller, it must be examined whether this is still an appropriate means of communications for the purposes of Article 27. As a rule, that question should be answered in the negative, so that the buyer bears the risk if a notice brought in such a manner does not reach the seller or does not reach him on time.[233]

4.5.4 Time of the notice

The buyer must give to the seller a notice of the lack of conformity within a reasonable time after he has discovered it or ought to have discovered it. The linguistic definition of the term reasonable is one based on expectations and toleration and is largely a subjective term. In the legal context, however, a larger degree of objectivity is required of a term.[234] The subjectivity of the term "reasonable" makes it flexible enough to be applied in different circumstances and is a necessary prerequisite to fairness in legislation and practice, but at the same time, it may turn out to be too imprecise to ensure uniformity in its application.[235]

When determining the reasonableness of the period for giving a notice, the contract between the parties is of course the starting point.[236] International trade usage and usage established between the parties are to be considered also.[237] If the underlying sales contract or the usages do not resolve the problem whether the notice was given within a reasonable period, other factors can be taken into consideration.[238]

Professor Honnold states that a wide range of factors influence the determination of the reasonable period for the notice following the time when the buyer discovers or ought to have discovered the non-conformity. One of the factors to be taken into consideration is whether the goods are perishable or durable.[239] Professor Sono analyzes the reasonableness with regard to the remedy buyer is going assert because of the breach. A prompt communication is important if the buyer chooses to reject the goods as the seller might wish to make a tender of conforming goods and further the seller has an opportunity to care for the rejected goods and thus reduce the chance for loss or damage to the goods or the incurring of unnecessary expense. On the other hand, where the buyer decides to keep the defective goods, subject to a claim for damages, the above reasons for prompt notification may not be applicable.[240]

Excessive differences in interpretation are likely to occur because of the different traditions of the Contracting States. In order to promote uniformity in the application of the CISG, a rough average should be adopted. Professor Schwenzer proposes a period of one month as an appropriate starting point.[241] The problem with this approach is, of course, establishing the "typical situation" which represents the norm.[242] Despite this, the approach has already gained support among the courts.[243]

It should be stressed that that it is the factors and considerations of each individual case that determine the timeliness of a notice. The individual circumstances and considerations may reduce the period of notice to be "reasonable" for each case and in some circumstances adapt a period even longer than a "noble month".[244] Article 39(1) provides an essentially flexible period, which should remain as such in the interest of fairness.[245]

The reasonable time will be calculated from the time the buyer has actually discovered the non-conformity or ought to have discovered it as provided for in Article 38. A lack of conformity which is not recognisable upon a proper examination must be notified by the buyer within a reasonable period after he actually established it or should have done so. This does not mean that the buyer is under a duty to continuously examine the goods.[246] The buyer does however, have a burden of proving that the defect was latent and not discoverable upon the examination.[247] If the buyer has actual knowledge of the lack of conformity, the period for giving a notice runs irrespective of whether the period for examining the goods has already expired. The buyer must, for example, give notice of discrepancy in quantity established when the goods are handed over, even if the examination of the goods for defects has not yet been completed.[248]

In sales involving carriage of the goods, if it is clear from the transport documents that, when the goods were handed over to the carrier, the goods were externally not in good condition, the buyer gains awareness of the fact upon receiving those documents. Thus the period for giving notice of lack of conformity under Article 39 begins to run after the buyer has received the documents. The fact that the contract of carriage requires the carrier to examine the goods taken over as regards their external condition does not mean that the carrier is acting as an agent to the buyer in that regard. Thus, the period for giving notice of lack of conformity in regards to the goods external appearance does not start immediately but only when the buyer has reviewed the documents.[249]

The reasonable time under Article 39 must be distinguished from the time when the buyer must examine the goods, i.e. within as short period as is practicable in the circumstance as provided for in Article 38. A separation of the two periods is often purely academic, as the time when the goods are to be examined and most non-conformities ought to have been discovered is dependant upon the time of the delivery. However, these two periods should be kept separate in order to avoid taking irrelevant factors into account when determining each period.[250] A good example to illustrate the difference between the period of examination and the period for giving a notice is to take a case where a defect is easily detectable. That should influence the time when the non-conformity ought to have been discovered but not the time which it subsequently takes to give the notice.[251]

4.5.5 Cut-off period

Article 39(2) provides that, in any event, the notice must be given within a two-year period; even though a defect is discovered subsequent to that period. Notice of the lack of conformity must therefore be dispatched at the latest on a date which could enable the seller to receive the notice within the two year period if the means of the communication chosen functioned properly.[252]

The two-year time limit applies if a lack of conformity was undetectable upon a proper examination and the buyer did not subsequently establish it and ought not to have done so. It even applies in cases in which the buyer had a reasonable excuse for failing to give notice under Article 39(1) according to Article 44. It does not, however, apply if the seller was acting in bad faith for the purposes of Article 40.[253] The underlying idea of the cut-off period is to provide the seller with certainty that he does not need to reckon with the claims after a given time and that he may treat the transaction as complete.[254] The seller acting in bad faith is not entitled to benefit from this.

The cut-off period starts to run only when the goods are actually handed over to the buyer. This means the date of physical handing over the goods and not the date of the receipt of documents of title relating to the goods.[255] Thus, it is irrelevant whether the risk passed at an earlier date or whether the buyer is already the owner of the goods at that date.[256] It should be noted that the date of physical handing over the goods may be as much as several months prior to the date on which examination of the goods becomes practicable or required under Article 38. Under Article 38(3), if the goods are redispatched by the buyer without a reasonable opportunity for examination by him, the examination can be deferred, provided that the requirements stipulated are fulfilled, until after the goods have arrived at the new destination.[257] The date on which the goods were actually handed over to the buyer was chosen as the most easily ascertainable date for the calculation of the time limit.[258] The buyer bears the burden of proving whether the notice was given within the two-year period, because as a rule he is the only one able to prove the precise date on which the goods were handed over.[259]

Under Article 6, the parties are permitted to derogate from or vary the effect or provisions of the Convention, including Article 39. However, in the absence of a special provision, it would not be clear whether the obligation to give notice within two years would be affected by an express guarantee that the goods will retain specified qualities or characteristics for a specified period.[260] Accordingly, Article 39(2) provides that if the time limit is inconsistent with a contractual period of guarantee, the two-year period will not apply. The two-year time limit may be extended by a guarantee, but also shortened. The question whether a particular contractual agreement is inconsistent with Article 39(2) and how that agreement affects the operation of the two-year period are matters left to the interpretation of the agreement.[261] However, even if there is a contractual guarantee, notice of non-conformity should be given within a reasonable time after the buyer became aware or should have become aware of it, provide of course, that there is no contrary agreement by the parties.[262]

4.5.6 Limitation Convention

The two-year time limit under Article 39(2) should not be confused with the time frame within which the buyer must bring an action before the courts in order to enforce his existing claim. The Convention on the Limitation Period in the International Sale of Goods signed in New York 1974 (from herein the Limitation Convention) is an effort to replace a variety of conflicting national laws. The Limitation Convention was amended on 14 April 1980 -- the same day when the CISG was approved -- by a Protocol to the 1974 Limitation Convention (from herein the 1980 Protocol). The purpose of the 1980 Protocol was to align the provisions of the Limitation Convention with those of the CISG.[263] Both the original Convention and the Convention as amended entered into force on 1 August 1988.[264]

The basic aim is to establish a uniform time limit that prevents pressing claims at such a late date that evidence had become unreliable.[265] The Limitation Convention limits the period within which a buyer or a seller may press claims based on a contract for the international sale of goods to four years (the Limitation Convention Article 8). The four-year limitation period for a claim arising from lack of conformity commences when the goods "are actually handed over to, or their tender refused by the buyer" (the Limitation Convention Article 10(2). The limitation period ceases to run when the party begins judicial or arbitral proceedings against the other (the Limitation Convention Article 13 and Article 14). When a party making a claim is prevented by circumstances beyond his control from starting legal proceedings, he may have a one-year extension from the time when those circumstances cease to exist (the Limitation Convention Article 21). The overall limit for extension of the limitation period is ten years from the date when the period began to run (the Limitation Convention Article 23).

The buyer must bear in mind that even though under the Limitation Convention the buyer would have an opportunity to exercise his claim, in reality it might not be possible since he might not be able to give the required notice to the seller within the two-year period stipulated in the CISG. If the buyer is not able to give the required notice within the stipulated time, i.e. within a reasonable time or maximum two year's time, he cannot rely on the lack of conformity. The four-year rule under the Limitation Convention is technically distinct from the time limit as stipulated in CISG Article 39(2). Article 1(2) of the Limitation Convention provides that the Limitation Convention does not affect time-limit within which a party is required to give notice to the other party as a condition for the acquisition or exercise of his claim.[266]

If the parties do not have their places of business in Contracting States of the Limitation Convention or if the rules of private international law do not lead to the application of the law of a Contracting State of the Limitation Convention, the issue on limitation of claims is governed by the proper law of the contract as determined by the applicable rules of private international law (the Limitation Convention Article 3).

4.5.7 Burden of proof

The burden of proof as to the non-conformity of the goods and the existence of a proper notice of non-conformity lies on the aggrieved party, i.e. the buyer. Any party which wants to derive beneficial legal consequences from a legal provision has to prove the existence of the factual prerequisites of that provision.[267]

4.5.8 Consequence of the failure to give a notice

The buyer bears the consequences of a defective examination in the sense that due to the defective examination, the buyer is likely to fail to provide proper and timely notice to the seller. If the buyer fails to notify the seller within the prescribed period, he loses the right to rely on the non-conformity. Article 39 bars the full range of remedies: a claim for damages (Articles 45(1)(b) and 74-77), requiring performance by the seller (Article 46), avoidance of the contract (Article 49) and reduction of the price (Article 50). Nor would a seller's action to recover the price be subject to a set-off or counterclaim based on a defect which the buyer discovered or ought to have discovered, if the buyer fails to notify the seller within the period stated in Article 39.[268] Furthermore, if the seller delivers more than the contract provides for and the notice of lack of conformity is not given, the buyer must pay a correspondingly higher price under Article 52(2) which provides that if the buyer takes delivery of all or part of the excess quantity, he must pay for it at the contract rate. It is unclear whether there should also be an increase in the price if the goods delivered are more valuable than agreed in the contract. Professor Schwenzer suggests that an analogy with Article 52(2) would be appropriate, since otherwise it would be necessary to apply domestic remedies outside the scope of the CISG. This situation is unlikely to occur because Article 40 would preclude the seller from relying of a failure to give notice.[269]

In general, the buyer must also bear the consequences of the defective examination by a third party. However, if the parties have agreed upon a neutral third party or if the seller even insisted upon examination being effected by a particular third party, the buyer cannot bear the risk for defective examination. Nor is the buyer generally responsible for the consequences of a defective examination by official bodies; in any event, the buyer ought to have a reasonable excuse for not giving a required notice (Article 44).[270]

4.5.9 Exemption for failure to notify within reasonable time

Article 40 relieves the buyer of the examination and notice requirements when a lack of conformity relates to facts of which the seller knew or could not have been unaware. Bad faith deprives the seller from relying on a defence to which he would otherwise be entitled to.[271]

Article 40

The seller is not entitled to rely on the provisions of articles 38 and 39 if the lack of conformity relates to facts of which he knew or could not have been unaware and which he did not disclose to the buyer.

No one is to benefit from his own wrongdoing. The seller has no reasonable basis for requiring the buyer to notify him of facts he knew or which he could not have been unaware of and which he did not disclose.[272] However, the seller's awareness of the defects is not always easily proven, it is for the buyer to prove the seller's knowledge.[273]

As noted above, the two-year time-limit as provided in Article 39(2) will not apply if the non-conformity relates to facts of which the seller either knew or could not have been unaware of and which he did not disclose to the buyer.[274] Further, Article 40 can be invoked to provide relief for a partial non-compliance with Article 39; where the buyer's notice is timely but lacking the specificity required, there is no reason to deny the buyer's relief if the seller knows or cannot be unaware of the missing information. Nor is it necessary for the seller to know the exact extent of the non-conformity but it is sufficient if the seller knows the nature of the facts which ordinarily result in non-conformity.[275]

The parties may agree on the issues of examination and notice requirements in a manner different from the CISG (Article 6). Literally, Article 40 does not provide relief for contract inspection and notice requirements as it refers solely to Articles 38 and 39 requirements. However, if the manner is not dealt within the agreement, it would seem arbitrary not to deduce from Article 40 a general principle applicable to inspection and notice provisions negotiated by the parties.[276]

The seller may also waive the objection that the notice was not given in time or not correctly given. Whether there is a waiver depends on the circumstances of the case.[277] If the seller unreservedly acknowledges the defect, he waives his right to object to the timeliness or correctness of the notice. However, if the seller at the same time demands payment of the price in full, his agreement to repair the goods does not automatically mean that he is waiving his rights.[278]

4.5.10 Excuse from giving a notice

Under Article 44, the buyer who has a reasonable excuse for his failure to give the required notice as provided for in Article 39 will be afforded some limited remedies.

Article 44

Notwithstanding the provisions of paragraph (1) of article 39 and paragraph (1) of article 43, the buyer may reduce the price in accordance with article 50 or claim damages, except for loss of profit, if he has a reasonable excuse for his failure to give the required notice.

It has been argued that Article 44 does not add anything new to Articles 38 and 39 as the circumstances of each case are already taken into consideration and a reasonable excuse is already included in those circumstances.[279] However, it was seen as a necessary compromise in relation to the drastic outcome of Article 39 alone.[280] Although Article 44 does not refer to Article 38, the protection afforded in cases of "reasonable excuse" is extended to comprise the buyer's failure to inspect the goods on time.[281]

A buyer who allows the reasonable time laid down in Article 39 to pass without examining the goods and giving notice of a recognisable defect is always failing to act with the care required by a prudent businessman.[282] It seems difficult to justify a buyer's failure to give notice within a reasonable time after he knew of the non-conformity. Professor Huber and Professor Schwenzer have suggested that in order to establish whether or not there is an excuse for the purposes of Article 44 it is necessary to appraise the circumstances by reference to the notion of fairness. A buyer's conduct, although not in itself correct and in accordance with the required standard, is excusable if in the circumstances of the specific case it deserves to be accorded a degree of understanding and leniency.[283] When appraising the circumstances of the specific case, regard must be had to the interests of each party in so far as they merit protection, the seriousness of the buyer's breach of duty, the type of the buyer's business and the nature of the goods. In addition, the buyer's lack of experience should constitute a ground for excuse.[284]

Taking into account that Article 44 was drafted to meet the fears of the developing countries towards the drastic outcome of Article 39(1) alone, Professor Lookofsky suggests that a party residing in an area where transportation and communication systems are less than well-developed might have a reasonable excuse for the failure to discover and notify of a defect as promptly as might otherwise, elsewhere, be expected.[285] Professor Honnold also stresses that Article 44 needs to be understood and applied in the light of its legislative history. The use of the expression "a reasonable excuse" indicated the applicability of more individualised considerations than would otherwise be relevant under the main rule provided in Article 39(1).[286]

In all circumstances, the buyer should however keep in mind that the more time that has passed after the discovery of the non-conformity, the more difficult it is for the buyer to convince others that the non-conformity in question, whether apparent or not, did exist at the time when the risk passed to the buyer.[287] It should also be emphasized that the two-year cut-off rule in Article 39(2) remains unaffected by Article 44.[288] The mitigation by Article 44 of the consequences of a failure to give notice extends only to those cases where the buyer has failed to observe the time limits in Article 39(1).

The parties are free to derogate from Article 44. Even a binding usage can provide rules on notice period. However, the parties are advised to explicitly opt-out of Article 44; a specific term on notice period different from the one provided for in the CISG or a binding usage in itself does not necessarily render Article 44 inapplicable.[289] However, a significant weakening of the buyer's right under Article 44 may however, be subject to special scrutiny by the tribunal concerned, particularly if the buyer's bargaining position is weak and if the seller had drafted the clause in question.[290]

The "excuse" provision of Article 44 does not preserve all of the buyer's remedies, only the reduction of the price (Article 50) and recovery of damages other than loss of profit (Article 74). Article 44 is also subject to a further qualification, Article 77. Article 77 provides that a party who relies on a breach of contract must take such measures as are reasonable in the circumstances to mitigate the loss resulting from the breach otherwise the party in breach may claim reduction in the damages. A party not in breach may not recover damages that he could reasonably have avoided.[291] In addition, even where the late notice is excused under Article 44, the seller retains the right to cure the defect by delivering substitute goods or by repairing the defects. By doing so, the seller may avert a price reduction and the buyer's damages claim.

The seller may not however claim damages because of the buyer's failure to notify him of the lack of conformity. The "obligation" to give notice of the defect provided in Article 39 is not an obligation in legal sense, breach of which would lead to liability in damages, but a requirement which the buyer must satisfy in his own interest. Article 39(1) itself does not provide that the buyer is obliged to give notice of the defects, but merely lays down that he loses his rights if he does not do so. Article 44 limits the detrimental effects of that legal consequence.[292] Neither does Article 77 assist the seller in claiming damages because of the buyer's failure to notify him of the lack of conformity. The loss the seller suffers is his own fault. By examining the goods himself, the seller could have protected himself against his loss of rights as against his own suppliers. If he failed to do so or relied upon the buyer's examination, he must bear the consequences of this.[293]

4.5.11 Decision on the notice of non-conformity

The District Court found that the Buyer had informed the Seller about non-conformities by a fax on 18 August 1995 (foreign objects found in the cans) and 10 November 1995 (returned goods by the retailers, foreign objects in the cans, rustiness of the cans). The Buyer had also informed the Seller on the phone about the non-conformities and the decrease on quality. Two faxes dated 15 November 1995 proved that the Seller had received the notifications but the negotiations between the parties had been interrupted.

Article 27 applies to the notices of lack of conformity. The risk of loss, delay or a change in a communication is on the party whose acts have caused the need for the notice.[294] The transmission risk falls on the party in breach as long as the notice is dispatched appropriately.[295] Proof of notice by means of telephone can be provided by confirming the notice later by fax, mail or other written means. The District Court further held that the Buyer had given notice in sufficient detail.

The Court of Appeal also held, based on the witnesses heard in the District Court and the written statements submitted to the District Court, that it was apparent that the consumers and retailers begun complaining about the Diamante products during the fall of 1995 and complaints kept coming in throughout the spring of 1996. The deliveries in dispute had been invoiced 5 May 1995 and 10 October 1995. A copy of the fax message from the Buyer's CEO to the Seller's legal counsel, dated 29 November 1995, proved that the Buyer informed the Seller about the non-conformities of the goods. Considering these circumstances and the grounds of the ruling of the District Court, the Court of Appeal held that Buyer had given notice to the Seller in the manner required by the law.

The buyer must notify the seller of the lack of conformity within a reasonable time after the he has discovered it. The exact date of the discovering the non-conformity cannot be determined from the reasoning of the courts. Nor is it clear when the first customer complaint reached the Buyer. In these circumstances, the notion of noble month is difficult to apply, especially in regard to the first shipment in question invoiced on 5 May 1995. The courts seem to have adopted a fairly buyer-friendly approach. The exact time for discovering the defects as well as the exact proof of the timeliness of the notice is not presented in a clear manner, but the list of documentary evidence is however extensive (the number of items of documentary evidence was 21, several containing two separate faxes or letters). The District Court stated -- confirmed by the Court of Appeal -- that the nature of goods was such that the lack of conformity could not be discovered until the consumers used the products. In these circumstances, the reclamations of the defects came gradually and even a long time after the delivery. As a whole, the circumstances of the case and the written evidence submitted to the Court supported the Court's decision, the notice of non-conformity was given within a reasonable time after the Buyer discovered it and in sufficiently specified detail. It should, however, be noted that there is no requirement that the Buyer must start legal proceedings or in any way reserve its right to a legal proceedings in relation to the notice requirement of Article 39(1). The Court of Appeal's reference to the Buyer's letter to the Seller's legal counsel seems irrelevant, unless the reference is made in order to satisfy the specification of the lack of conformity.

4.6 Price reduction

4.6.1 Facts of the case

Taking into consideration all the non-conformities of the goods presented above, the Buyer argued that it had a right to a price reduction of 50%, equivalent to the non-conformity of the goods. The Buyer stressed that when estimating the amount of non-conforming goods, one has to keep in mind that consumers generally are not in the habit of complaining about the contents of a 5 FIM (90 cent) mushroom can but instead throw it away and refrain from buying the same product in the future. And not all retailers convey their complaints to the firms from which they buy, but simply do not buy the product anymore. The Buyer further argued that the extent of loss has been foreseeable by the Seller immediately after having acted against its contractual duties.

The Seller argued that the Buyer had no right to a price reduction, since the Buyer had sold the goods and had received the price for the goods. Therefore, complaints from individual consumers have no significance in the relation between the Seller and the Buyer. The Seller argued that no clarification had been submitted as to whether the Buyer had compensated the consumers or retailers in any manner or whether the Seller had supplied conforming goods as a replacement. The value of the delivered goods had been what the Buyer had received when the goods had been sold further.

The non-conformity of the goods was denied also on the basis that the Buyer had not returned the goods to Spain nor had the Buyer provided samples based on which the non-conformity of the goods could had been evaluated. In addition, the Seller claimed that the Buyer's claim was premature as the price reduction was largely based on future complaints.

4.6.2 Right to a price reduction

Article 50 states the requirements for a price reduction in case the goods do not conform with the contract.

Article 50

If the goods do not conform with the contract and whether or not the price has already been paid, the buyer may reduce the price in the same proportion as the value that the goods actually delivered had at the time of the delivery bears to the value that conforming goods would have had at that time. However, if the seller remedies any failure to perform his obligations in accordance with article 37 or article 48 or if the buyer refuses to accept performance by the seller in accordance with those articles, the buyer may not reduce the price.

The buyer has a right to a price reduction even though he has already paid the price; his right does not depend on the buyer's ability to withhold future sums due as long as the requirements of Article 50 are fulfilled. Furthermore, the remedy of price reduction is available for the buyer even if the seller is excused from paying damages for his failure to perform the contract by virtue of an impediment beyond his control as provided for in Article 79.[296] Thus, even though the remedy of price reduction can be seen as a form of damages for non-performance of the contract, it has special importance when damages are not available for the buyer but the buyer still needs the non-conforming goods and decides to accept and use them.[297]

The price-reduction formula is not, however, confined to where the seller is excused from paying damages. The results of applying Article 50 or Article 74 are the same in cases where the buyer does not suffer consequential damages and there are no market price fluctuations.[298] Where there are price fluctuations, the remedy of price reduction strikes a balance between the stipulated price and the value received.[299] However, if the market price of the goods has risen between the time of contract and time of the delivery, the buyer is better off claiming damages under Article 74, since this approach protects his contractual expectation interest.[300] When the price levels fall, the buyer is more likely to reject the goods.[301] If the buyer for some reason, e.g. because of the shortage of the goods in the market, needs the non-conforming, less valuable goods, the price reduction formula is in some situations more favourable than damages claimed under Article 74.[302] Further, there is no reason why the buyer could not claim price reduction under Article 50 and damages for consequential loss under Article 74, provided that the buyer does not claim double recovery based on the reduced value of the goods.[303]

The buyer's right to require substitute goods under Article 46 and to declare the contract avoided under Article 49 are subject to acting "within a reasonable time." Article 50 does not contain a similar restriction. Provided that the buyer respects the condition of Article 39 by giving a notice of lack of conformity within a reasonable time and at the latest within a two year period, Article 50 of the CISG imposes no period of time for reducing the price. It is for the domestic laws on limitation periods to determine if the seller is left in uncertainty for an excessive period of time.[304] By suing for the price, the seller can of course provoke the buyer's counterclaim for price reduction. This does not mean that the buyer could not unilaterally adapt the contract under Article 50.[305]

Finally, the right to reduce the price is not affected by the limitation to which a claim for damages is subjected under article 74, i.e. that the amount of damages may not exceed the loss which the party in breach foresaw or ought to have foreseen at the time of the conclusion of the contract as a possible consequence of the breach of the contract.[306]

4.6.3 Cure by the seller

Seller also argued that Buyer was not entitled to price reduction because the Buyer had not given the Seller an opportunity to remedy the alleged non-conformity of the goods.

The obligation to examine the goods and to notify the seller of any lack of conformity is, in particular, intended to place the seller in a position in which he may, if possible, remedy the lack of conformity by delivering a substitute or by repair, or reduce the buyer's loss in some other way.[307] The seller's responsibility is to provide goods that conform to the contract when the risk of loss passes to the buyer.[308] If the buyer notifies the seller promptly, the seller can inspect the goods to ascertain whether a claim is justified and, moreover, the seller may be able to exercise his right to cure the defect as provided for in Article 48.[309] Further, a price reduction under Article 50 is specifically subject to the seller's right to cure the defects.

CISG Article 48 defines the right of the seller to remedy a non-conformity of the goods after the date of delivery.

Article 48

(1) Subject to article 49, the seller may, even after the date for delivery, remedy at his own expense any failure to perform his obligations, if he can do so without unreasonable delay and without causing the buyer unreasonable inconvenience or uncertainty of reimbursement by the seller of expenses advanced by the buyer. However, the buyer retains any right to claim damages as provided for in this Convention.
(2) If the seller requests the buyer to make known whether he will accept performance and the buyer does not comply with the request within a reasonable time, the seller may perform within the time indicated in his request. The buyer may not, during that period of time, resort to any remedy which is inconsistent with performance by the seller.
(3) A notice by the seller that he will perform within a specified period of time is assumed to include a request, under the preceding paragraph, that the buyer make known his decision.
(4) A request or notice by the seller under paragraph (2) or (3) of this article is not effective unless received by the buyer.

Seller can cure the defect in the goods, even if the defects amount to a fundamental breach (as long as the fundamental breach was not a delay in performance) after the delivery if he can do so without such delay that would amount to a fundamental breach of contract, i.e. without unreasonable delay and without causing the buyer unreasonable inconvenience or unreasonable uncertainty of reimbursement by the seller of expenses advanced by the buyer, provided of course that the buyer had not rightfully avoided the contract prior to the offer to cure.[310] The Secretariat Commentary states that if the non-conformity of the goods does not amount to a fundamental breach of the contract, the seller's cure is limited only if the cure would cause unreasonable inconvenience to the buyer or uncertainty of reimbursement by the seller of expenses advanced by the buyer.[311] However, as Professor Will points out, the only condition is the inconvenience and delay and uncertainty of reimbursement are the two most common examples of inconvenience to the buyer.[312] The seller can choose between repairing or replacing a defective part or by substituting conforming goods for defective goods.[313]

The seller must indicate the time period within which the proposed cure will be effected. Without specific indication as to the time frame, a mere offer to cure does not oblige the buyer to respond to the offer. There is, however, no need to a request a specific answer from the buyer, a notice of the cure within a specified time is assumed to include a request whether the buyer will accept the performance. If the buyer fails to react or accepts the cure, the seller can perform within the time he indicated, the silence bars the buyer from invoking either unreasonable delay or inconvenience and the buyer may not avoid the contract nor reduce the price during the specified time.[314]

As the seller is in breach of the contract, he bears the risk of loss or error in transmission of a request or notice for cure. The reply by the buyer is however governed by the rule in Article 27, i.e. if it is given by appropriate means in the circumstances, it is effective whether or not it arrives or is delayed or contains errors in transmission.[315]

4.6.4 Decision on the price reduction

The District Court clarified that the buyer's right to a price reduction under CISG Article 50 is independent right of whether the buyer has sold the goods further and at what price or whether the buyer has been subject to complaints or demands for compensation. The District Court, however, admitted that these issues may have an effect on the amount of price reduction. When considering whether the Buyer was entitled to price reduction, it was decisive to determine whether the Buyer had received non-conforming goods. Whether claims for compensation had been presented or would be presented in the future did not bear any significance to the right to price reduction. The Buyer's claim was by no means premature.

The District Court reached a conclusion that there were numerous non-conformities. Because the Buyer had received the price also for the non-conforming goods and the compensation demands from retailers had not been many, the District Court held that a reasonable reduction of price was 30% of the invoiced consignments insofar as they applied to non-conforming goods.

The Court of Appeal stressed that the buyer had the burden of proof with regard to the extent of the non-conformity of the goods and the amount of non-conforming goods. Considering the witnesses heard in the District Court and the written evidence submitted to the District Court, the Court of Appeal estimated that the price reduction was 10% of the sales price.

It is hard to evaluate what was the decisive factor that reduced the amount of damages in the Court of Appeal. As the goods were of such nature and value that the consumers were not likely to make a complaint about them, it is very difficult to establish the extent of the non-conformity. The reasoning of the Court of Appeal does not, however, reveal on what basis it came to a different conclusion than the District Court.

As to the Seller's right to cure the defect, The Court of Appeal stressed that the Seller had not even alleged that it had afforded the Buyer an opportunity to have the non-conformities remedied by the Seller. According to Article 48(4), a request or notice concerning the seller's cure of the non-conformity is not effective unless received by the buyer. On the contrary, the Seller still argued that the goods conformed to the contract. Therefore, under these circumstances, Buyer had not lost its right to price reduction.

4.7 Damages for the non-conforming goods

4.7.1 Facts of the case

The Buyer argued that the non-conforming goods have caused significant damage to Buyer's business activities. Buyer was a company engaged in import and sales of food supplies and canned food in particular. Since 1990 Buyer has managed to create good business relations with retailers on a national level. The success of Buyer had been based on the fact that he had taken utmost care of the high quality of the goods and had been diligent in carrying out its contractual duties.

The non-conforming goods had caused losses to Buyer in various forms. Buyer had had to compensate its clients for faulty goods and had lost numerous major clients possibly for good. Many of the retail clients had quit their purchases and the profit margin of the company had been in a steady decline. The goodwill of the Buyer as a supplier of quality canned food had suffered. Consequently, the re-establishment of that goodwill would require additional effort and marketing.

The non-conformities in the goods were a direct result of the negligence of the Seller in the manufacturing process. Furthermore, the Seller had given misleading information about the products when marketing them while being fully aware that the products did not meet the quality requirements placed on high quality canned food.

The Seller argued that no grounds for the claim for damages had been submitted. No evidence was presented to support the allegation that the retailers had stopped buying products from the Buyer because of the alleged non-conformities in the Seller's products. Further, the Seller could not have foreseen the alleged consequences, since the goods had been examined in Spain and the analyses based on those examinations had not shown any non-conformity in the products.

4.7.2 General clause on damages

Article 74 sets up the basic rule for calculating damages. Articles 75 and 76 provide special rules for calculating damages when the contract is avoided. Article 75 covers damages in case of substitute transaction and Article 76 covers situations where the contract is avoided but no substitute transaction is done. Article 77 deals with the mitigation of damages and Article 79 provides the rules on exemption from liability because of an impediment to performance. Article 74 applies to damages when the contract is not avoided and even if the contract is avoided, when the damages relate to issues not covered by Articles 75 and 76.[316]

Article 74

Damages for breach of contract by one party consist of a sum equal to the loss, including loss of profit, suffered by the other party as a consequence of the breach. Such damages may not exceed the loss which the party in breach foresaw or ought to have foreseen at the time of the conclusion of the contract, in the light of the facts and matters of which he then knew or ought to have known, as a possible consequence of the breach of contract.

The basic idea is to place the injured party in the same economic position he would have been in if the contract had been performed. Article 74 does not provide any specific method for calculating the damages, but the courts and tribunals must calculate the damages in the manner best suited to the circumstances.[317]

The only limitation is that the "damages may not exceed the loss which the party in breach foresaw or ought to have foreseen at the time of the conclusion of the contract, in the light of the facts and matters which he then knew or ought to have known, as a possible consequence of the breach of contract". It is enough that the party in breach was objectively, at the time of the conclusion of the contract, in a position to foresee the loss; a party in breach will be considered as having been able to foresee the consequences of the breach even if he did not know the facts and matters enabling him to do so but objectively was in a position to know them.[318] A party to the contract could even have specifically drawn to the other party's attention a possible consequence of the breach. If so, even if the consequence is unusual in nature and exceptionally heavy, the party in breach ought to have foreseen it at the time of the conclusion of the contract. The knowledge enabling one to foresee the consequence of the breach can also flow from the experience of a merchant.[319]

The burden of proof in relation to Article 74 lies on the party who is claiming damages. The damaged buyer has the burden of proving the objective prerequisites of his claim for damages, i.e. the damage, the causal link between the breach of contract and the damage, as well as the foreseeability of the loss.[320]

4.7.3 Decision on damages

The District Court held that the witnesses' statements were credible and they established that Buyer had lost several clients because the goods had not been of the promised high quality. Furthermore, regaining the reputation and credibility and creation of new customer networks had required extra effort and expenses. Thus, the Buyer had suffered loss as a result of losing clients.

The loss caused to the Buyer had been foreseeable at the time of the conclusion of the contract. Buyer had concluded the exclusive import contract because it was assured about the quality of the products delivered by the Seller. The Seller knew that the products had been accepted to the Finnish market because of their quality and that their competitiveness was dependent on their quality. Because trading between the Seller and the Buyer was extensive and increasing, the Seller could have foreseen the economic consequences that a breach of contract would cause to Buyer. On these grounds, the District Court held that the Buyer was entitled to the damages Buyer had claimed

In addition, the District Court stated that there were no grounds for the Buyer's non-payment of the purchase price. The CISG does not contain a rule that would entitle a buyer to refrain from paying the purchase price even if he had a claim based on non-conformity of the goods. Neither was the Buyer's non-payment based on an external impediment as provided for in Article 79.

The reasoning of the District Court covers the aspects of Article 74. The District Court concluded that the loss suffered by the Buyer was due to the Seller's breach, i.e. there was causality between the breach and the loss and further, taking into consideration the facts and matters the Seller knew at the time of the conclusion of the contract, the loss suffered by the Buyer was foreseeable to the Seller. Court of Appeal confirmed the decision of the District Court on damages.

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

5.1 Classification of the issues present

The case involved a sale of steel plates delivered from a Finnish Seller (the defendant) to a Buyer from the United Arab Emirates (the plaintiff). The questions in dispute included the examination of the goods and the Seller's liability for hidden defects. English translation is available by Jarno Vanto in the WWW: <URL: http://cisgw3.law.pace.edu/cases/980129f5.html>. The decision of the Court of Appeal affirmed the decision of the District Court of Helsinki, Judgment 17450 (18 July 1995).

5.2 The nature of the transaction

5.2.1 Facts of the case

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

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

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

5.2.2 Decision on the nature of the transaction

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

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

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

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

5.3 Applicable rules

5.3.1 Facts of the case

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

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

5.3.2 Decision of the District Court

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

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

5.3.3 Decision of the Court of Appeal

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

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

5.4 Determining the object of the sale

5.4.1 Facts of the case

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

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

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

5.4.2 Decision on the object of the sale

5.4.2.1 Decision of the District Court

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

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

5.4.2.2 Decision of the District Court analysed

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

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

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

5.4.2.3 Decision of the Court of Appeal

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

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

5.4.2.4 Decision of the Court of Appeal analysed

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

5.5 Examination of the goods

5.5.1 Facts of the case

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

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

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

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

5.5.2 Seller's liability for hidden defect

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

Article 36

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

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

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

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

5.5.3 Applicable usages

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

Article 6

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

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

Article 9

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

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

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

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

5.5.4 Decision on the examination of the goods

5.5.4.1 Decision of the District Court

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

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

5.5.4.2 Decision of the District Court analysed

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

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

5.5.4.3 Decision of the Court of Appeal

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

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

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

5.5.4.4 Decision of the Court of Appeal analysed

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

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

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

6. HELSINKI COURT OF APPEAL, S 96/1215 (30 JUNE 1998)

6.1 Classification of the issues present

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

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

English translation is available by Jarno Vanto in the WWW: <URL: http://cisgw3.law.pace.edu/cases/980630f5.html>. The decision of the Court of Appeal affirmed the decision of the District Court of Helsinki, Dept. 5, No. 19067, 95/11481 (11 June 1995) The Court of Appeal saw no reason to change the judgment of the the District Court and thus the judgment of the District Court remained unchanged.

6.2 Applicable law

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

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

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

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

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

6.3 Delivery of the goods

6.3.1 Facts of the case

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

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

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

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

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

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

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

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

6.3.2 Agreed procedure for delivery

6.3.2.1 Obligation to take delivery

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

6.3.2.2 Time for delivery

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

6.3.2.3 Interpretation of the contract

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

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

Any applicable practice or usage has the same effect as a contract.[351] According to Article 9, the practices, which the parties have established between themselves and any usage to which the parties have agreed also override the provisions of the Convention. Further, the parties are considered to have impliedly made applicable to their contract a usage of which they knew or ought to have known and which in international trade is widely known to, and regularly observed by, parties to contracts of the type involved in the particular trade concerned.[352] The facts one "ought to have known" include those facts that would be disclosed by an investigation or inquiry that the party should make.[353]

6.3.2.4 Battle of forms

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

Article 19

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

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

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

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

6.3.3 Decision on delivery

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

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

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

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

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

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

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

6.4 Conformity of the goods

6.4.1 Facts of the case

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

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

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

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

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

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

6.4.2 Particular purpose of the goods

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

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

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

6.4.3 Sale by sample

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

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

6.4.4 Buyer's knowledge of the non-conformity

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

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

6.4.5 Fundamental breach of the contract

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

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

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

6.4.6 Decision on the conformity of the goods

6.4.6.1 District Court's reasoning

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

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

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

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

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

6.4.6.2 District Court's reasoning analysed

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

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

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

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

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

6.5 Examination of the goods and notice of non-conformity

6.5.1 Facts of the case

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

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

6.5.2 Obligation to examine the goods

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

Article 38

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

Under the Convention, it is irrelevant whether the buyer examines the goods himself, through his employees or through other persons, e.g. customers.[386] The first paragraph of Article 38 provides that the buyer must examine the goods, or cause them to be examined. If the quality of the goods is an essential part of the contract, the parties are advised to agree on a neutral testing body. Primarily, the method of examination is determined by the agreement. The parties may lay down more precise rules in relation to the examination of the goods than those provided for in Article 38.[387]

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

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

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

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

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

6.5.3 Obligation to notify about the lack of conformity

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

Article 39

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

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

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

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

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

6.5.4 Exemptions from giving a notice

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

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

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

6.5.5 Decision on the examination of the goods

6.5.5.1 District Court's reasoning

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

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

6.5.5.2 District Court's reasoning analysed

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

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

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

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

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

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

6.6 Buyer's right to declare the contract avoided

6.6.1 Facts of the case

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

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

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

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

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

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

6.6.2 Anticipatory breach

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

Article 72

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

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

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

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

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

6.6.3 Anticipatory breach in instalment contracts

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

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

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

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

6.6.4 Decision on the avoidance of the contract

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

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

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

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

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

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

7. HELSINKI COURT OF APPEAL, S 00/82 (26 OCTOBER 2000)

7.1 Classification of the issues present

The case involved a business relationship between the Seller, a Finnish company (the defendant) and the Buyer, a Swiss company (the plaintiff). The Buyer had bought plastic carpets from the Seller in an aim to resell them in the Swiss market. The questions in dispute included whether there was a long-term agreement between the parties containing exclusive selling rights and if so, whether the Seller had breached the contact. English translation is available by Jarno Vanto in the WWW: <URL: http://cisgw3.law.pace.edu/cases/001026f5.html>. The decision of the Court of Appeal affirmed the decision of the District Court of Helsinki, judgment 28966, 97/20514 with modifications.[428]

7.2 Applicable law

The District Court stated simply that the places of business of the parties were in different States, which are Contracting States to the CISG. According to Article 1(1)(a), the CISG applies directly if the parties to a contract of sale of goods have their places of business in different Contracting States. In Finland, the CISG came into force on 1 January 1989, in Switzerland on 1 March 1991.

The Court did not discuss the issue of the applicable law on the formation of the contract. Finland has made a declaration under Article 92 not to be bound by Part II of the Convention, Formation of the Contract.[429] However, Article 1(1)(b) provides that the CISG is also applicable, even if the parties to contract do not have their places of business in different Contracting States when the rules of private international law lead to the application of the law of a Contracting State. According to the Finnish conflict of law rules applicable to international sale of goods, the Act on the Law Applicable to the Sale of Goods of International Character (26 June 1964/387, as amended by the Act 27 May 1988/468) which is based on the 1955 Hague Convention, in the absence of a choice of law under Section 3, the sale shall be governed by the law of the State where the seller had his place of habitual residence when he received the order; if the order was received by a business owned by the seller, the sale shall be governed by the law of the State where the business is situated (Section 4, subsection 1). However, if the buyer placed the order in the State where the buyer has his habitual residence or where he owns a business and the seller or his agent received the order in said State, the sale shall be governed by the law of the buyer's State (Section 4, subsection 2). Based on the facts presented in the Court's decision, the law applicable to the contract according to the conflict of law rules in Finland would be the law of the Seller's state, i.e. Finland.

The Court of Appeal did not address the question of applicable law.

7.3 Breach of contract

7.3.1 Proceedings in the District Court

7.3.1.1 Buyer's claim

The Buyer claimed that in 1995 the Buyer and the Seller had agreed that the Seller would sell and deliver plastic products to Buyer in Switzerland. As agreed in the contract, Buyer acted as the importer of Seller's products and was granted the right to exclusively sell plastic products to wholesalers in Switzerland. In January 1996, the parties had agreed at a trade show that the imports will also encompass Powerturf- plastic carpets. The Buyer's manager had visited the Seller on 18 January 1996 and the parties had confirmed that their agreement that took place at the trade show. At that time, the Buyer's manager had also told the Seller of the Buyer's Swiss business partner, Company B. In January and February, the Buyer and the Seller had exchanged letters and phone calls and refined the details of their agreement. The parties continued their negotiations at Seller's premises in March 1996. At that time, the parties elaborated on earlier events and went through details. The parties confirmed the amount to be delivered, 4,700 square meters, and the terms of delivery. After Company B confirmed its order to the Buyer on 6 August 1996, the Buyer delivered to the Seller a written confirmation concerning the amount of 4,700 square meters. Of the sale concerning 10,000 units to be delivered in January, the Seller had only delivered the first consignment, consisting of 207 units. Regardless of the Buyer's notifications the consignment for January, consisting of 621 units, still remained undelivered in March.

The Seller had informed that the sale will not be carried out in its totality because the Seller had made an exclusive sales agreement with Company I for distributing Powerturf- in Europe in 17 European countries including Switzerland. The delayed delivery and the cancellation of the sale were in breach of the contract made with the Buyer.

7.3.1.2 Seller's reply

The Seller denied the claim in its totality. The Seller alleged that the Buyer and the Seller had never made the alleged agreement concerning sales of Powerturf-plastic carpets for the year 1997. Neither have the parties reached an agreement as to whether the Seller would commit itself to selling the Buyer a certain annual amount of this product, nor have the parties negotiated on expanding the contract.

The Seller alleged that during their business relationship, the parties had entered into individual sales transactions, the terms of which had been agreed on individually, and that the fact that the Seller had occasionally sold the Buyer its products as individual consignments did not constitute a duty of delivery on the part of the Seller as alleged in the Buyer's statement of claims. No contract whatsoever concerning the year 1997 was specified in March 1996.

The Seller had notified the Buyer already in March 1996 that after 1996 the Seller could no longer sell Powerturf- products directly to the Buyer. The Seller had entered into an exclusive sales agreement concerning Powerturf- products with a Danish distribution company (Company I). The Seller informed the Buyer in writing on 17 December 1996 about the conclusion of that agreement. Simultaneously, the Seller notified the Buyer that Powerturf- will no longer be sold directly. The products involved in the sales between the parties before that point in time had been duly delivered to the Buyer by the Seller. The order made on 9 December 1996 was a normal individual order in which no annual delivery agreement was referred to. The parties had not made any agreement as to any 621 units. Additionally, the alleged amount of 5,000 square meters was a considerably large amount for a company like the Seller.

In its statement of claims, the Buyer had introduced a term "Jahreskontrakt" referring to an annual delivery agreement. This term was single-handedly created by the Buyer. The Seller had been notified of the document unilaterally drafted and signed by the Buyer the first time on 20 March 1997. At that time, it reached the Seller through a fax message. The Seller had never accepted the said contract/offer. Neither had the Seller made an offer to the Buyer involving a term "Jahreskontrakt". The Seller had not negotiated in any manner whatsoever with the Buyer over a contract with the said content. No agreement as to the coming about or existence of this kind of contract had been reached even later. The sales that had taken place did not in any manner support the allegations of the Buyer concerning the conclusion of the contract, for example, impliedly.

7.3.2 Decision of the District Court

7.3.2.1 Disputed issues

The decision of the District Court was not written in the clearest and most consistent way in relation to what has been ordered and when. The District Court clarified that it was undisputed that the Buyer had ordered and the Seller had delivered Powerturf- products until the end of the year 1996. The deliveries had been conforming and they had been paid for. The disputed circumstances included:

   -    Whether the parties had agreed on deliveries for the year 1997; and
   -    Whether there was a long-term contract between the parties.

Further, if the contract had been concluded in a manner brought forward by the Buyer:

   -    Had the Seller breached the contract?; and
   -    What were the economic consequences to the Buyer?

7.3.2.2 Relevant law

The District Court stressed in the beginning that the freedom as to form of a contract is a principle in contract law. Contracts can also be concluded orally. It also referred to the applicable CISG Articles, Articles 8 and 9 and Articles 11 and 13.

The Court also referred to scholarly writings in relation to the widely recognised, so-called principle of loyalty. According to this principle, the parties to a contract have to act in favour of the common goal; they have to reasonably consider the interests of the other party.

Secondly, the Court referred to the scholarly writing on export trade, according to which a reseller has been referred to as an entity that buys products from the principal, e.g., the manufacturer, and sells them further to its own customers at its own risk. This definition has been formulated to differentiate a resale agreement from an agency agreement. In the latter, the agent works on behalf of the principal and in a manner binding on the principal. The Court stressed that an importer is not a legal concept as such. The types of contracts in resale agreements vary according to whether the manufacturer has agreed, for example, to grant to the reseller an exclusive selling right to a certain area, or whether the manufacturer has reserved the right to sell the products itself or to name other resellers in the area. Exclusive selling rights have been seen meaning that the manufacturer itself does not sell the products or name other sellers to a particular area.

Finally, the Court stated that exclusive selling agreements can be ended on notice. If the parties have not agreed on a notice period, the situation can be problematic where the manufacture wishes to name a new exclusive seller for a certain area. Such actions during the tenure of an exclusive selling agreement have been classified as breaches of contract.

7.3.2.3 Court's evaluation of evidence submitted and its conclusions

As a conclusion of its evaluations, the District Court held that the parties had orally agreed on Buyer's exclusive selling right in Switzerland. The duration of the contractual relationship or a period of notice had not been agreed on. In December 1996, the Seller made an agreement granting the exclusive selling rights to another company, Company I, concerning Powerturf- products. Consequently, the Buyer had lost its exclusive selling rights without notice.

Four witnesses had stated that selling and expanding a customer base takes a considerable amount of time and requires both work and financial input. Even if it had been brought forward that the Seller had notified the Buyer as to its negotiations with Company I on cooperation, it has not been established that the Seller had informed the Buyer on the ending of the exclusive selling rights before the fax message of 17 December 1996. Hence, the Buyer may have continued his selling efforts, the result of which was that the Buyer had made a contract with Company B. As a result of the contract between the Buyer and Company B, the Buyer had been able to commit himself to buying from the Seller the amount mentioned in the annual contract. Through its actions, the Seller had been in breach of contract. This conclusion could not be disregarded even though it had not been established whether the Seller was informed of the annual agreement in August 1996.

7.3.3 Proceedings in the Court of Appeal

7.3.3.1 Seller's Appeal

In its appeal, the Seller stressed that the parties had never concluded the annual agreement concerning the sale of Powerturf- products, as alleged by the Buyer. Neither had the parties made an agreement nor had they reached an understanding according to which the Seller would have committed himself to or would be under a duty to deliver a certain minimum amount of this product to the Buyer. There had been no negotiations whatsoever as to this kind of an agreement. The parties had traded amongst themselves on the basis of individual sales and no commitments had been made in relation to deliveries for the year 1997. The Buyer had no exclusive selling right for the Seller's products.

7.3.3.2 Buyer's reply to the Seller's appeal

In its answer to Seller's appeal to the Court of Appeal, the Buyer stated that, based on an oral agreement made between the Seller and the Buyer in August 1995, the Buyer had acted as an importer of Seller's products in Switzerland as an exclusive seller and at given prices. The intention of the agreement was that the Buyer would order everything Buyer was able to sell and the Seller committed itself to deliver the required products. According to international trade usage, a contractual relationship concerning imports brings about duties to the parties, even if the details had not been agreed on. This usage knows of no procedure where each delivery would be regarded as an individual sale. The manufacturer has a duty to contribute to the sales carried out by the importer. Cancelling an import agreement has to be carried out in a manner that neither of the parties has to suffer damage. Especially, liabilities to third parties have to be considered.

7.3.4 Decision of the Court of Appeal

The Court of Appeal held that it had become apparent from the statements of both parties and one of the witnesses that during negotiations on 16 August 1995 there had been discussion at least about prices and times of delivery, according to which sales were to take place and that an agreement was reached. After the negotiations, the Buyer had received a price list of the Seller's carpet products which was supposed to be used as a basis for negotiations between the parties. Based on the evidence presented, the Court of Appeals evaluated the conclusion of the contract on 16 August 1995 between Seller and the Buyer and also the issue of whether Powerturf- carpets were included in the contract later on. The contract between the parties had created duties to the Seller as a supplier in relation to the Buyer -- at least in the sense that the Seller had been under a duty to deliver the goods ordered by the Buyer -- at least to the extent that the orders had been made within the agreed framework. The Seller had been under a duty to contribute to the achievement of the goals of the contract and to support the Buyer's selling activities in Switzerland through its own actions. Because the Buyer's ability to act in conformity with the contracts the Buyer concluded with its own customers could not have been possible without the Seller's support, the Court of Appeals failed to find the Seller's statement credible; the statement being that Seller had obligations only in relation to individual deliveries and that the Seller could at will refuse orders placed by the Buyer, disregarding their terms altogether.

On grounds appearing from the judgment of the District Court, the Court of Appeals found that the Buyer had at least until further notice obtained de facto exclusive selling rights of the Seller's carpet products in Switzerland. However, the Court of Appeals held that this circumstance was of no significance because Seller's duties in relation to the Buyer resulted from the aforementioned import agreement, regardless of whether exclusive selling rights had been granted or not.

7.3.5 Dissenting opinion

The dissenting opinion evaluated the submitted evidence differently. Based on the statements of the parties and the witnesses and written evidence, according to the dissenting opinion, it was apparent that there was no enforceable contract between the parties. Nor had the Buyer agreed to deliver the alleged 5,000 square meter consignment to Company B. The decision of the District Court should have been overturned, i.e. the Seller should not have been held liable for damages to the Buyer. Rather, the Buyer should have been held liable to compensate the Seller for its legal expenses.

7.3.6 Formal requirements of the contract

Article 11 provides that a contract of sale need not be evidenced by writing and is not subject to any other requirements as to form

Article 11

A contract of sale need not to be concluded in or evidenced by writing and is not subject to any other requirements as to form. It may be proved by any means, including witnesses.

Article 13 of the CISG provides that, "for the purposes of the Convention, "writing" includes telegram and telex".

Article 11 responds to the fact that many contracts for the international sale of goods are concluded by modern means of communication which do not always involve a written contract.[430] Article 12 provides that a Contracting States can make a declaration under Article 96 to prevent the application of the rule in Article 11 (or Article 29 or Part II of the Convention) which allows a contract of sale or its modification or termination by agreement or any offer, acceptance, or other indication of intention to be made in any form other than in writing where any party has his place of business in that Contracting State.[431]

The issue of electronic communications beyond telegram and telex was not considered during the drafting of the CISG in the 1970's. However, by not prescribing any form in this article, CISG enables the parties to conclude contracts electronically.[432] In relation to the definition on writing, the CISG Advisory Council has stated that the prerequisite of "writing" is fulfilled as long as the electronic communication is able to fulfil the same functions as a paper message. These functions are the possibility to save (retrieve) the message and to understand (perceive) it.[433]

In effect, Article 11 deals with the formation of the contract even though it is not situated in Part II of the Convention, Formation of the Contract. As noted above, Finland has made a declaration provided for in Article 92 not to be bound by Part II of the Convention. Professor Honnold has raised a question whether it should be concluded that in order to give full effect to the declaration under Article 92, Article 11 should be regarded as being part of Part II of the Convention and thus not applicable in Scandinavia.[434] This is however not a problem as the Scandinavian laws relation to the formation of the contract do not conflict with the CISG.[435] According to the Finnish Contracts Act (13 June 1929/228), the contracts need not be evidenced in writing. In this respect, there is no difference between the Finnish Contracts Act and the CISG.

7.3.7 Practices and usages

7.3.7.1 Applicable practices and usages

The primary source in determining the relationship between the contracting parties is the underlying contract itself. The principle according to which the primary source of the rules governing the sales contract is party autonomy; this cannot be stressed too much. In determining the parties' rights and obligations, the first and primary source is always the contract between the parties. The primacy of the contract is promoted throughout the Convention but the most important Article in this respect is Article 6.[436] Article 6 provides:

Article 6

The parties may exclude the application of this Convention or, subject to article 12, derogate from or vary the effect of any of its provisions.[437]

An expression of party autonomy can also be found in Article 9 of the Convention. Article 9 gives direct effect to commercial usages and practices of the parties. Any applicable practice or usage has the same effect as a contract.[438] Article 9 provides:

Article 9

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

The practices which the parties have established between themselves and any usage to which the parties have agreed override the provisions of the Convention. Further, the parties are considered to have impliedly made applicable to their contract a usage of which they knew or ought to have known and which in international trade is widely known to, and regularly observed by, parties to contracts of the type involved in the particular trade concerned. Article 9 confirms the fact that established practices and usages often create expectations that are so basic that they "go without saying" in making a contract.[439]

In order for an international usage to be impliedly binding on the parties it must be widely known and regularly observed and thus, can be assumed to be a part of the expectations of the parties. The existence of a usage as such is thus not enough but the parties must have understood, at least impliedly, that a usage is a part of their contact.[440] In other words, a usage must on an objective basis be part of the contractual expectations of the parties.[441] The facts one "ought to have known" include those facts that would be disclosed by an investigation or inquiry that the party should make.[442] As for the burden of proof, based on the analyses of the case law in the UNCITRAL Digest,[443] at least as long as the legal system considers the issue as being one of fact, the party who alleges the existence of any binding usage has to prove it.

7.3.7.2 Nature of usage

According to Article 7(1), in the interpretation of the Convention regard is to be had to its international character and to the need to promote uniformity in its application and the observance of good faith in international trade.[444] Indeed, Professor Bonell stresses that the concept of usages must be determined in an autonomous and internationally uniform way.[445] He states that Article 9 refers to usages in the widest possible sense, i.e., to any practice or line of conduct regularly observed within a particular trade sector or at a particular market place, irrespective of whether, according to some national law, it would fall within a national category of a usage. The trade may be restricted to a certain product, region or set of trading partners.[446]

It has also been argued that the inherent nature of usage guarantees that the usages are reasonable as unreasonable behaviour would never develop itself to be a usage.[447] Could it be possible to use the concept of goods faith in order to specify the concept of usage even further than this? According to the literal construction, Article 7 is limited only to the interpretation of the CISG; it does not apply to the interpretation of the contract itself. It imposes only an obligation to interpret the Convention in good faith; it does not invoke good faith as a general principle applicable to the parties to a contract. However, as Professor Lookofsky has also pointed out, the distinction between good faith interpretation and good faith performance is proving to be more apparent than real, especially since matters governed by this Convention which are not expressly settled in it are to be settled in conformity with the general principles on which it is based, as provided for in Article 7(2).[448]

Certainly the need to promote uniformity in the application of the Convention must be taken as a starting point when applying the principle of good faith as required by Article 7(1).[449] The principles to be derived from the general concepts of good faith must therefore be developed using internationally recognized principles of honourable conduct as opposed to purely domestic standards.[450] In addition, the principle of good faith must be construed in the light of the special conditions and requirements of international trade.[451] The preamble of the Convention itself states that "the adoption of uniform rules which govern contracts for the international sale of goods and take into account the different social, economic and legal systems would contribute to the removal of legal barriers in international trade ...".

7.3.7.3 Gap filling

Article 7(2) is intended to avoid recourse to rules of law outside the CISG regimen in order to create and replace all existing laws in relation to the international sale of goods.[452] Questions concerning matters governed by the Convention but not expressly settled in it are to be settled in conformity with the general principles on which it is based. Only if no such general principles can be identified, does the law applicable by virtue of the rules of private international law settle the questions.[453] Those issues that are specifically ruled out of the sphere of the Convention, such as validity of the contract as provided for in Article 4, are left to the sphere of the applicable national law.[454]

There are several recognised general principles on which the Convention is based.[455] For example, the many references to reasonableness in the CISG demonstrate that the reasonableness test constitutes a general criterion for evaluating the parties' behaviour to which one may resort in the absence of any specific regulation.[456] In fact, reasonable conduct has been identified as a specific element of an even more general Convention principle which requires both CISG parties to act in good faith.[457]

Among the others, Professor Bonell also mentions the principle of good faith as a general principle of the CISG.[458] He supports the opinion that the need to promote the observance of good faith in international trade is necessarily directed to the parties to each individual contract of sale.[459] Good faith is also one of the general principles underlying the Convention as a whole and thus not limited solely to the interpretation of the Convention, notwithstanding the language used in Article 7(1).[460] Professor Schlechtriem, on the other hand, is of the opinion that the requirement to observe good faith in international trade cannot be extended to cover the conduct of the contracting parties. However, he continues that the notion of good faith may influence the understanding of the individual contract and that the 'observance of good faith' must be regarded as one of the general principles on which the Convention is based. As such, it cannot be directed at the parties but plays a role that can be used in gap-filling under Article 7(2).[461]

Professor Hillman concentrates in, among the others, for the parties' right to receive fruits for their exchange.[462] A party who enters an international sales contract expects cooperation and reasonable conduct by his counterpart in order to achieve benefits from the transaction. Justifiably, a party also anticipates being able to rely on his partner's communications and actions. Professor Hillman argues that the duty to act reasonably may be the Convention's most pervasive general principle.[463]

Several provisions of the Convention facilitate the successful completion of an exchange by discouraging breakdowns even when something goes wrong.[464] The Convention's goal of saving deals promotes important international values pertinent to the contracting process. The Convention strengthens the parties' trust and cooperation, thereby encouraging future exchanges and helping to unite the international trading community. From the parties' point of view, promoting performance also enables the parties to plan, firm in the knowledge of what they are to receive and to give up.[46]5 Also Professor Audit stresses that for both practical and legal reasons, it is more important to avoid the rescission of contract in the context of international sales than in the setting of domestic transactions.[466]

Professor Honnold points out that consummating an international sale calls for cooperation.[467] Several provisions of the Convention require the buyer and the seller to take interlocking steps in order to fulfil the contract successfully. Based on this, Professor Honnold suggests that providing needed cooperation is one of the general principles on which the Convention is based. Further, Professor Honnold suggests that in cases of doubt, a proposed application of a general principle may be tested against applicable trade usages and against contract practices and modern rules of law specially designed for international transactions.[468]

7.3.8 Decision on breach of contract analysed

In essence, the District Court and the Court of Appeal reach the same conclusion, the Seller had a contractual duty to act reasonably toward the Buyer. By failing to do so, the Seller was in breach of the contract. Based on the principle of loyalty and an applicable international usage, the Seller had a duty, regardless whether an exclusive sales contract between the parties had been concluded, to promote the common goal of the parties established by an import agreement. As the damages were predictable in the circumstances, the Seller had a duty to notify the Buyer about the termination of the business relationship in such way and in such time that the damages could be avoided.[469]

As noted above, the status of good faith as a general principle of the Convention regulating the parties behaviour is not, at least according to the literal meaning of the Convention, confirmed. In its reasoning, the Court referred to the principle of loyalty which is, as noted above, recognised in scholarly writings as one of general principles on which the Convention is based on. In essence, the principle of loyalty embodies the principle of good faith which rationally includes the requirement to act reasonably. Moreover, this principle of loyalty is supported in this case by the fact that an applicable international usage embodies the principle. In cases where the parties have equal bargaining powers, where the parties have contracted in their professional capacity in the market involving equally industrialized and developed countries with similar economic and social structure, a usage demonstrates the accepted and promoted conduct which is inherently reasonable in the market economy. The result is an applicable international usage which embodies not only the notion of good faith but also other general principles underlying the Convention, the duty to communicate with other party [470] and a duty to mitigate the loss.[471]

Even if the duty to act in good faith and specification of the general principles of the Convention can be difficult, there ought not to be any problems in relation to the established international usages applicable to the case. As long as the requirements of Article 9(2) are fulfilled, a usage has a force of contract and is part of the contractual expectations of the parties. The Court took an innovative approach. It is important that the national Courts develop the general principles of the Convention in the light internationally accepted and uniform concepts, those embodied in recognised usages.

7.4 Damages

7.4.1 Proceedings in the District Court

7.4.1.1 Buyer's claim and Seller's reply

The Buyer claimed damages because of the Seller's breach of the exclusive sales agreement, including its own lost profit, loss of good will and general expenses relating to sales and marketing. At the time of the proceedings, the Buyer's own customer, Company B had not yet initiated proceedings against the Buyer. The Seller claimed that the Buyer was never granted exclusive selling rights as an importer of the Seller's products and consequently the Seller could not have been in breach of any contract and there was no duty to pay damages.

7.4.2 Decision of the District Court

7.4.2.1 Relevant law

Firstly, the District Court referred to the applicable legislation, Article 74.

The Court also referred to the Finnish scholarly writings according to which damages are seen as compensation for positive contractual interest.[472] The aim of this is to place the contracting party in a position where he would have been if the contract had been duly performed. According to the Finnish Sale of Goods Act, damages for breach of contract consist of compensation for expenses, price differences, lost profit and other direct and indirect loss that resulted from the breach of contract. An indirect loss is a loss such as profit that has been lost because a contract with a third party has been avoided or has not been performed properly.[473]

In contract law, damages as a concept has a wider meaning than in the Finnish Sale of Goods Act. Contract law knows no general limitations as to types of loss. A contracting party's liability for damages is seen as based on negligence. Additionally, there is a presumption of negligence which requires that a contracting party claiming damages must prove the existence of a contract and the coming about of a loss.

The District Court concluded that it was apparent from a written exhibit presented by the Buyer, namely a confirmation letter to Company B on 7 August 1996, that Company B and Buyer had agreed on granting Company B exclusive selling rights in Switzerland by stating: "for our common sales goal and for fulfilment of your annual requirements we have agreed on a delivery of 5,000 square meters which is to be delivered in at least 200 square meter partial deliveries." Further, it was apparent from the statement provided by Witness N, that Company I had later sold Powerturf- carpets to Switzerland in the amount of 8,000 square meters during a period of three years.

7.4.2.2 Conclusions

Company B's claim as to lost profit had not become timely from the Buyer's point of view. On the other hand, it was apparent from the evidence presented that Company B was one of three largest carpet wholesalers in Switzerland. No clarification as to anticipated overhead in relation to the goods in question had been presented. Additionally, it was not clear whether Company B would have been able to buy these products from Company I. Consequently, no clarification as to mitigation of damages on Company B's behalf had been presented.

The District Court had been presented with a sales brochure produced by Company B. Clarification in writing had also been presented in relation to ordering of samples. The claim as to the marketing expenses could thus be held as reasonably established.

Due to reasons mentioned above, the sales goal could not be used as a basis for estimating Buyer's lost profits. The Buyer's claim for general expenses could be held as credible in terms of them being accumulated in connection with sales and marketing efforts. In estimating the loss resulting from loss of good will, the District Court took into consideration the fact that the Buyer had not done business in this trade sector before the coming about of the business relationship now in question. On the other hand, even according to Buyer's own statement, it was still doing business in another trade sector in Switzerland.

Based on the above, the District Court estimated the damage caused to the Buyer on the basis of a rule laid down the Code of Judicial Procedure (Section 17).[474] As a reasonable compensation for the loss suffered by the Buyer, the District Court held the amount as being Sf 70,000.

7.4.3 Proceedings in the Court of Appeal

7.4.3.1 Seller's Appeal

In December 1996, when the Seller had notified the Buyer that, due to an exclusive selling agreement with another company, it could no longer be able to sell Powerturf- products directly to the Buyer, the Seller was not aware of Company B's alleged order. The decision of the District Court did not confirm the conclusion or the existence of the sales contract. Instead, the District Court had stated that the consignment of the alleged size had not been ordered from the Seller or the delivery was not otherwise agreed on. Therefore, the Seller could not have been in breach of the contract and the claim should be dismissed.

Additionally, the Buyer had not established that it had an order of the alleged size, the cancellation of which would have caused it damages. It was not likely, that the amount of 5,000 square meters of Powerturf- would have been sold in Switzerland in one year. It had not been established that the Buyer had paid or would have been under a duty to compensate Company B for expenses resulting from sales brochures. Moreover, it was not established that Company B's sales brochure, the subject of which was a product named Portalcleaner, dealt with Powerturf- in any way. Additionally, the damages awarded by the District Court concerning overhead were excessive.

7.4.3.2 Buyer's reply on the Seller's appeal

During contract negotiations carried out in 1996, the Buyer committed itself to deliver 5,000 square meters of Powerturf- carpet to Company B during the year 1997. Correspondingly, the Seller committed itself to deliver the said amount to the Buyer. The Seller had a duty to deliver on the basis of both the import agreement and the contract concerning the order itself. In the beginning of the year 1997, it had become apparent, however, that the Seller had no intention to fulfil its duty because Seller had granted the exclusive selling rights of the said product to another company. This had caused the Buyer more damage than the amount mentioned in the District Court because the Buyer had been unable to fulfil its own duty in relation to Company B.

In the District Court, the Seller had not denied the damage caused to Company B or the Buyer's liability for it. The method of calculating the overhead had been undisputed in the District Court. The damages for overhead were based on the actual amount of goods ordered by Company B. Consequently, it was insignificant from the point of view of the decision whether or not the said amount of Powerturf- could be sold in Switzerland. In any event, the said amount was not excessive in relation to the Swiss market.

In its response to this, the Seller demanded that Buyer's appeal be dismissed because the claims contained in Buyer's statement of claims had been mainly dismissed in the District Court. The Seller has had justified grounds to refuse to accept the claims and to refuse to take part in negotiations and the Seller should not be made to pay Buyer's legal fees.

7.4.4 Decision of the Court of Appeal

Based on correspondence submitted in the case, it was apparent that Company B had at the latest in August committed itself to buying 5,000 square meters of Powerturf-, which was to be supplied by the Buyer. Even if it remained un-established that a fax message concerning this circumstance had reached the Seller on 8 August 1996, the Court of Appeals failed to find it credible that the Seller had no knowledge of negotiations over the matter. Even if it was possible that the representatives of the Seller did not pay attention to Company B as a name, the Court of Appeal, considering the experience of the Buyer's manager, failed to believe that the Buyer's manager would have negotiated a cooperation agreement of this scale without contribution from the Seller and without informing the company of these negotiations. Thus, the Seller had to have been aware of the negotiations and their outcome. Because the Seller did not prohibit the continuation of these negotiations, the Buyer had a right, and a duty, to continue its operations according to the import agreement. Even if the Seller had told about his negotiations with another company about importing Powerturf-, this had no effect on the Buyer's right to operate because, in the manner described in the judgment of the District Court, it had not been established that the contract concluded between the Seller and Company I would lead to cancellation of the contract between the Buyer and the Seller.

The Seller had stated that because it had not been established that the Buyer had made the alleged order of 5,000 square meters before the cancellation of the contract, the Seller could not be held liable for non-delivery of ordered goods. However, the Court of Appeals held that it had no significance in the matter whether the actual order had already been made or not, because during the existence of the import agreement, the Buyer had committed itself to deliver goods to Company B and that the Seller was aware of this. The cancellation of the import agreement by the Seller had resulted in a failure to fulfil these commitments. The Court of Appeal agreed with the view of Witness P that. even though an importer by definition acts on his own behalf and at his own risk, the operations cannot be based on a risk of an abrupt ending of a contract. Consequently, the Seller, in the manner described in and on the basis of the legal considerations of the judgment of the District Court, was under a duty to pay damages to the Buyer for loss resulting from liability to a third party, Company B.

The Court of Appeal affirmed the amount of damaged awarded in the District Court.

7.4.5 Decision on damages analysed

As stated earlier, even though the burden of proof is not specifically settled in the CISG, it is a matter governed by the CISG.[475] This view is supported by scholarly writings and by international case law. Any party who wants to derive beneficial legal consequences from a legal provision has to prove the existence of the factual prerequisites of that provision, i.e. the party wishing to avoid the contract must prove that there indeed has been a fundamental breach of the contract. The District Court, however, took the stand that the burden of proof was a procedural issue and covered by the Finnish rules on procedure, i.e. the applicable Finnish rules on damages, the Code of Judicial Procedure. The Buyer had a duty to prove the existence and the amount of damages. The same conclusion could have been derived from the CISG.

According to Article 74, the damages for breach of contract consist of a sum equal to the loss, including loss of profit suffered as a consequence of the breach. A limitation is that such damages may not exceed the loss which the party in breach foresaw or ought to have foreseen at the time of the conclusion of the contract, in the light of the facts and matters of which he then knew or ought to have known, as a possible consequence of the breach of contract.[476] As so often with damages, the question relates in the end to the proof and estimation of the damages. The Courts concluded that as an experienced business partner, the Seller should have anticipated the Buyer's losses in this case.

8. TURKU COURT OF APPEAL, S 97/324 (12 APRIL 2002)

8.1 Classification of the issues present

The case involved a sale of components to be attached to forestry equipment between a German Buyer (the plaintiff) and a Finnish Seller (the defendant). The questions in dispute included the relationship between a warranty term and the provisions of the CISG. English translation is available by Jarno Vanto in the WWW: http://www.cisg.law.pace.edu/cisg/wais/db/cases2/020412f5.html.[477] Another commentary of the case is available in Finnish by Soili Nystén-Haarala in Lakimies 4/2004.[478] The decision of the Court of Appeal affirmed the decision of the District Court of Tampere, 97/1457 (7 January 2000) with modifications.

8.2 Background of the case

The Buyer was a German company specializing in selling, designing and manufacturing of forestry equipment. The Seller was a Finnish company specializing in manufacturing forestry equipment. The Seller had sold various components, including spare parts for such components, to the Buyer to be attached to the Buyer's forestry vehicles. The price and delivery terms as well as the guarantee terms of the Seller had been provided to the Buyer in connection with each delivery.

The Buyer demanded that the Seller and the Seller's owner be ordered jointly and severally to pay to the Buyer damages because of the defective forestry equipment in the amount of 314,995.45 Deutsche Mark.[479] The Buyer also demanded the avoidance of the sale of a harvester head delivered on 17 October 1994 as well as the return of the sale price, the amount of 189,382.50 Finnish Mark.[480] In addition, the Buyer demanded that the Seller be ordered to pay damages for losses caused to the Buyer as a result of losing clients, servicing the machines sold and as a result of losing the opportunity to sell more forestry equipment in those regions where the lost clients operated, in the amount of 1,000,000 Deutsche Mark.[481]

The Buyer had consistently given notice to the Seller of the defects when they appeared and the Buyer had made efforts to cooperate with the Seller for the purpose of fixing the defects. In cases where the Seller had taken upon itself to act on the notice, the Seller had asserted willingness to apply its warranty terms according to which the Seller would give a new piece of equipment to replace the defective one. However, these spare parts had been as defective as the already faulty ones.

The Seller and the Seller's owner denied the Buyer's claim on the grounds that the possible defects in the equipment had resulted from design or installation mistakes on the Buyer's side, the use and adjustment of the equipment against the guidelines of the manual, and neglect of service. In addition, the Seller denied liability based on its warranty and the limitations of liability contained in this warranty as well as on the grounds that the Buyer had not specifically given notice to the Seller, as defined in the Seller's warranty terms, in writing and within six months after having detected the defect.

8.3 Procedural issue

In relation to alleged bias of witnesses, the District Court held that the witnesses called by the Buyer, GA and IK, could be heard as witnesses. These witnesses were shareholders of the Buyer. According to the Code of Judicial Procedure -- Chapter 17, Section. 18 -- anyone but a party to the case may be heard as a witness. A conventional way of interpreting this statute had been that what constitutes a "party" includes those who, according to law or their status, have the right to represent the party at the time of the hearing. Consequently, membership on the board of a Finnish company constitutes bias, but mere ownership of shares does not. Referring to the conclusions drawn by the Preparatory Committee on the Finnish Law of Corporations, the Court stated that the GmbH status of the Buyer, was that of a limited company regulated under the under the law of limited liability companies (GmbH Gesetz 1892). Such a corporation is represented by one or more executive officers, not by the shareholders. The shareholders use their decision-making powers at the company meetings. Therefore, a shareholder cannot assume the meaning of a "party"; consequently, a shareholder could be heard as a witness in a case dealing with a company.

8.4 CISG and warranty terms

8.4.1 Applicable law

The District Court stated that because Finland (since 1 January 1989) and Germany (since 1 January 1991) were both CISG Contracting States, the contractual relationship in dispute fell within the scope of application of the Convention, with the exception of Part II of the Convention (Formation of the Contract).[482] The Court also stated that in relation to evaluating the reasonableness of the contract or the interest rate, the CISG was not applicable. The reasoning for the statement was that the CISG did not have an article enhancing reasonableness of the contract and no other relevant articles relating to interest other than Article 78.[483] According to the Act on the Law Applicable to the Sale of Goods of International Character (26 June 1964/387, as amended by the Act 27 May 1988/468), in the absence of a choice of law, the sale shall be governed by the law of the State where the seller had his place of habitual residence when he received the order. The Court also referred to Section 6 of this law, according to which a provision of a foreign law that is manifestly incompatible with public policy ('ordre public') shall not be applied in Finland. Thus, the applicable law in relation to formation of the contract, reasonableness of the contract and the rate of interest was the Finnish law.

Referring to the reasoning of the District Court, the Court of Appeal stated that the law applicable to the contract was the CISG. The Court of Appeal, however, took a modified and detailed view in relation to the relationship between the warranty clause and the CISG than the District Court, which did not specifically discuss the issue. This is further discussed in Chapter 8.4.3 Interpretation of the warranty clause.

8.4.2 Formation of the contract

As stated above, the declaration made by the Nordic Countries under CISG Article 92 not to be bound by Part II of the Convention, i.e. Formation of the Contract, means that in relation to Part II of the Convention, Finland cannot be considered as a Contracting State as provided for in CISG Article 1(1)(a). To determine the applicable law in relation to the formation of the contract, the rules of private international law have to be applied. In the absence of specific choice of law in relation to the formation of the contract, the rules of private international law shall determine the applicable law. According to the Act on the Law Applicable to the Sale of Goods of International Character, Section 4, subsection 2, it should be first determined where the seller or his agent received the order and whether this particular State is where the buyer has his habitual residence or owns a business. The District Court held that in relation to the issues not covered by the CISG the applicable law was the Finnish Law.

The District Court held that, based on the long term business relationship and established practices between the parties, the warranty terms had become part of the contract. The deliveries between the parties were based on an order concerning a single delivery and a confirmation of that order. The basis for these orders was the price list presented to the Buyer annually and the terms of warranty attached to the list. The warranty terms were also often attached to the user manuals sent with the deliveries. The warranty terms had continuously been of the same content. The negotiating individuals had been well aware of the warranty terms. Also the changes in their content, such as extending the warranty period and the compensation of work done within the context of repair under warranty, had been negotiated many times over. The Buyer has admitted that the warranty terms had been negotiated many times.

According to the Finnish law on contracts, the parties to a sale of goods have an extensive freedom of contract and the Finnish law on sales concerning the liability for non-conformity of goods renders it subject to contractual freedom.[484] Between businesses, such as the Buyer and the Seller, this contractual freedom has been emphasized. Consequently, standard terms become part of the contract if they are contained in an accepted offer. The same rule applies also in Germany.

The District Court held that it was undeniable that the Seller had specifically demanded in the negotiations that the warranty terms become part of the contract. The Buyer had not shown that it had not accepted the warranty terms becoming a part of the contract. In connection with breakage of the equipment, the Buyer had made several warranty claims to the Seller and had not, in that context or another, given notice about the warranty clause or its content. Therefore, the terms of the warranty had become part of the delivery contracts between the Buyer and the Seller. This also had a binding effect on the Buyer in relation to the warranty. The Court of Appeal confirmed the reasoning of the District Court.

According to the Finnish law, standard terms can become part of the contract in several ways: the standard terms can be part of the actual agreement signed by the parties, there may be a reference to the standard terms in the signed contract, or the application of the standard terms may be based on the practices between the parties or usage known to a certain trade.[485] Consideration is given also to the contents of the terms, the nature of the terms and the parties to the contract. The other party must have a concrete opportunity to familiarise itself with the terms. On the other hand, if the other party is familiar with the terms, he cannot argue that the terms did not become part of the contract merely with the reference, because he did not have the actual possibility to go through them or that the content of the terms was not explained to him.[486]

8.4.3 Interpretation of the warranty clause

8.4.3.1 Interpretation of the contract

In negotiating the contract, the parties may come to an understanding that some of the issues that might create disagreement are not governed by the Convention or cannot be settled in conformity with the general principles on which the Convention is based. In order to avoid the uncertainty that the rules of private international law may create as to the applicable law, the parties may wish to agree on the applicable gap-filling law needed to resolve those problems but for some reason fail to do so expressly. Of course, prudent business operators would tackle these specific issues that create concern for conflict even prior to the conclusion of the contract expressly or the very least would take the time to settle the issue on applicable law expressly.

In this case, the parties had not specifically agreed upon the applicable law, but the CISG was applicable by way of the basic criterion of CISG Article 1(1)(a). However, even in cases where the parties have expressly agreed that the CISG is applicable, the so-called 'gap-filling' law is not always discussed and decided.[487] The parties had, however, specifically agreed on the distribution of liabity in relation to defects in the goods.

The primary source in determining the relationship between the contracting parties is the underlying contract itself. Article 6 embodies the principle of freedom of contract: "The parties may exclude the application of this Convention or, subject to article 12, derogate from or vary the effect of any of its provisions."[488] The normal rules of construction of the contract apply to the question whether the parties have made a modification of the Convention. The modification does not need to be express. However, an implied modification has to be demonstrated by the parties' actual intentions. Most importantly, in determining the parties' actual intentions and the conditions that must be satisfied, regard must be had to the criteria in Article 8.[489] Article 8 provides:

Article 8

(1) For the purposes of this Convention statements made by and other conduct of a party are to be interpreted according to his intent where the other party knew or could not have been unaware what that intent was.
(2) If the preceding paragraph in not applicable, statements made by and other conduct of a party are to be interpreted according to the understanding that a reasonable person of the same kind as the other party would have had in the same circumstances.
(3) In determining the intent of a party or the understanding a reasonable person would have had, due consideration is to be given to all relevant circumstances of the case including the negotiations, any practices which the parties have established between themselves, usages and any subsequent conduct of the parties.

The basic approach in Article 8 is the subjective approach. However, in practice, most problems of interpretation will be governed by paragraph (2) which follows the objective approach as when where is a conflict it can be hard to determine what was the actual intent of the parties.[490] The second paragraph of Article 8 places the burden on the one who prepares a communication or drafts a contract to communicate it clearly to a reasonable person in the same position as the other party.[491] Paragraph (3) applies to the statements in a contract formulated by both parties. All the relevant circumstances are to be given due consideration in determining the intent of a party or the understanding a reasonable person would have had. Those circumstances include any practices and usages the parties are bound by.

Applicable practices and usages change in time and respond to new circumstances and needs. The Convention recognizes the flexibility of usages and practices. CISG Article 9 gives direct effect to commercial usages and practices of the parties. Article 9 provides:

Article 9

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

Not only are the parties bound by any usage which they have agreed on explicitly or any practice which they have established between themselves, but also by any usage of which the parties knew and which is internationally recognized. Any applicable practice or usage has the same effect as a contract.[492]

8.4.3.2 Contents of the warranty

In its warranty clause, the Seller had given a guarantee of operational quality with the maximum extent of six months from the delivery or 1,000 hours of operation. In addition, the warranty included the following terms:

   -    The Seller committed to replace the spare parts it has manufactured.
   -    The warranty did not apply to normal wear-and-tear parts and faults caused by wear and tear.
   -    The Seller limited its liability in a manner that work, travel, freight, lay day or other indirect expenses were not to be compensated.
   -    The warranty repairs were required to be made by the manufacturer or a repair person approved by the manufacture.

8.4.3.3 The extent of the warranty

The Buyer had alleged that the warranty clause had to be interpreted in a way that the terms relating to limitation of liability would assume a limited interpretation of only being applied to manufacture defects; thus, they would not concern design or structural defects. The warranty terms of the Seller stated:

"The seller will commit, in a manner stated in these terms, to repair defects either resulting from raw materials or manufacturing in the equipment delivered by the seller which have been acknowledged and accepted by the seller."

The Seller had stated that it had always interpreted the warranty terms in such a way that manufacturing included both the machine-tooling and the design. The Buyer had demanded and received a significant amount of compensation under the warranty from the Seller. In connection with these claims, the Buyer had not specified the defects that it was now calling design and construction defects. Consequently, in the Buyer's compensation claims, the Buyer had interpreted the contractual terms in a manner similar to that of the Seller. The words used in the warranty terms, namely "spare parts produced by the manufacturer" and "factory defects" supported the interpretation brought forward by the Seller.

As a conclusion, the District Court was of the opinion that the Seller's interpretation, the previous practice of the Buyer, and word-for-word interpretation of the warranty terms supported the interpretation that factory defects comprise both defects caused by machine tooling and design and, in connection with these, structural defects. The Court of Appeal confirmed the reasoning of the District Court.

8.4.3.4 The effect of the warranty clause

According to the Finnish contract law and the CISG, the parties are free to agree also on the content of the warranty and its effect on the liability for non-conformity. The content of the warranty clause and its binding effect on the Buyer resulted in circumstances that, where the Seller repaired the defect correctly, the Buyer had no claim for damages unless the damage resulted from or where the defect resulted from willfully or harshly negligent action on the Seller's side. However, the warranty clause did not exclude other forms of judicial protection, such as avoidance of the contract.

The District Court stated that the relationship between the right to repair and the right to declare the contract avoided was problematic. The goods under the contract at issue were sizable machines intended for heavy use and they wore out faster than usual. Therefore, the warranty terms were to be applied in a manner that placed the primary emphasis on the Seller's right to repair. If the Seller did not employ that right or it would cause the Buyer unreasonable nuisance or expenses, the Buyer alternatively had the right to avoid the contract based on fundamental breach.

The Court of Appeal accepted the reasoning of the District Court that the warranty terms had become part of the contract and that they should be interpreted in a way that, in addition to raw-material and manufacturing defects, the warranty included structure and design defects. As to the relationship between the warranty terms and the CISG, the Court of Appeal stated following:

According to Article 6 of the said Convention, the parties may exclude the application of this Convention, or derogate from or vary the effect of any of its provisions. The [Seller] and the [Buyer] had not agreed on such. On the other hand, the UN Sales Law (the CISG) does not contain a provision according to which a warranty clause included in the contract would exclude the possibility to refer to the legal remedies granted in law in case of lack of conformity of the goods. Thus the [Buyer] has an acceptable cause in law to claim damages from the [Seller] for alleged defects on ground of the UN Sales Law despite the warranty clause.

The [Buyer] had presented the claims of damages now at trial on ground of the UN Sales Law. the [Seller], on the other hand, has presented that all the claims relating to the alleged defects must be observed taking into account the agreement on the limitation of risk stated in the said warranty clause. As stated earlier, in this case the warranty clause does not exclude the possibility of damages for defects in the goods by virtue of the UN Sales Law. On the other hand, the claim presented by the [Buyer] based on the said law does not prevent the [Seller] from effectively appealing to the warranty clause that has become part of the contract in relation to the alleged defect that occurred during the warranty period. In relation to the burden of proof, the above mentioned means that the [Buyer] bears the burden of proving that there were defects in the goods delivered by the [Seller] that entitle, according to the UN Sales Law, the [Buyer] to damages. The [Seller], on the other hand, bears the burden of proving that the defects that occurred during the warranty period are not covered by the warranty clause.

In evaluating the claims, the District Court has based its decision on its own opinion as to the significance of the warranty clause on the [Seller]'s liability for defects. Thus the District Court has seen it essential whether the [Seller] has fulfilled its warranty obligations and whether it is also liable for the defects on other grounds. Referring to the above mentioned, in relation to the warranty clause and the UN Sales Law, and referring to the grounds for the [Buyer]'s claim, it is however essential, whether the [Buyer] proves that the said defects are of the nature meant in Article 35 and qualify the Buyer to receive damages under Article 45 from the [Seller], and whether the warranty clause has an effect, partly or in full, to limit the liability of the [Seller].

8.4.3.5 Notice under the warranty

The warranty terms contained a limitation period for warranty claims. According to it, a warranty claim would be processed only if notification was made in writing and delivered to the Seller in case of an occurrence. A warranty claim that would not reach the seller within one month after the date of the occurrence would be outdated. Furthermore, it was required that the damaged parts should be delivered to the manufacturer or its representative together with the claim.

It has been clarified during the evidentiary hearings that the Buyer had not conformed to these requirements when presenting claims, despite many requests by the Seller. The Buyer had not delivered to the Seller the broken parts in connection with the warranty claims before May 1995, when fifteen valve blocks had been delivered. Although the Buyer's actions were inconsistent with the requirements, the Buyer had been compensated in the amount of FM 425,575.00 for broken parts.

Consequently, because the Seller had to a large extent accepted the Buyer's actions, it had to be considered that the Seller could not plead to the limitation period in its warranty terms for its defence. Therefore, the Buyer was not bound by the limitation period but instead the Buyer had a duty laid down in the CISG, to notify the other party about the non-conformity as soon as possible. Additionally, the Buyer had the right to submit the warranty claim within a reasonable period of time. The Court of Appeal did not discuss this specific issue in detail.

As Soili Nystén-Haarala has pointed out in her commentary, it seems unreasonable that by giving extra service the Seller actually extended its liability for defects, even if the conclusion holds from the legal point of view.[493]In international trade, the observance of good faith is essential. Furthermore, the parties had a long business relationship and therefore it seems natural and incentive that both parties try to reach an amicable solution in case of problems.

8.4.3.6 Conciliation

The Buyer also alleged that the warranty terms had been severe and surprising.

The principle of freedom of contract is fairly strong in the commercial setting but a reference has to be made to the notion of fairness and reasonableness provided for in Section 36 of the Finnish Contracts Act.[494] In a case where a contractual term is unreasonable, conciliatory measures aim at rectifying the imbalance of the duties of the contractual parties. However, it is hard to provide circumstances where the term providing for the warranty clauses in question would be held unfair.

The District Court held, taking into consideration the content of both the Seller's and the Buyer's own contractual practices and the content of their warranty terms, the general international contractual jurisprudence, warranty terms and the negotiation between the Buyer and the Seller, that the Seller's warranty terms and the limitation of liability contained therein could not be regarded as either harsh or surprising from the point of view of the contracting parties.

The Court of Appeal confirmed the District Court's position. When considering unreasonableness at the time of the conclusion of the contract, one has to pay attention to the economic status of the parties, their actual and factual contractual freedom and their level of expertise. The Court Appeal stated further that both the Buyer and the Seller were companies manufacturing forestry equipment and that they in part also competed with one another in the area of export trade. In addition, they had a fairly long history of co-operation and the warranty had been the same all the time. The Buyer must have been in possession of reasonable expertise to evaluate the significance of the contractual terms. As a conclusion, the warranty terms had not been unreasonable, even though they had strongly limited the Seller's liability for non-conformities and thus, there was no need for conciliating the contractual terms.

One should also pay attention to the main issue whether conciliation is enforced in the CISG regimen at all. The CISG does not contain a specific provision on conciliation. However, recourse to the domestic law in this respect should be exercised with caution. The problematic is discussed in more detain in section 10.6.8.2. Conciliation in Turku Court of Appeal, S 04/1600 (24 May 2005).

8.4.4 Conclusions

In effect, the Court of Appeal therefore stated that even though the parties had agreed upon the warranty term and that they were part of the contract, the Buyer had a right to claim damages for the defects according to the CISG.

What did the parties actually intend when the warranty clause was included in the contract? The CISG itself gives guidance in relation to the interpretation of the contract in Article 8 and Article 9. However, these Articles were not discussed in the ruling. Nystén-Haarala has pointed out that an opting out from the CISG must be clear and unambiguous.[495] Also Professor Farnsworth stresses this: the drafters of a contract must give special attention as to the meaning of the words and phrases they use in order to protect special needs of their own.[496] The outcome of the case must have come as an unpleasant surprise for the Seller; by acting in accordance with good faith and by respecting the warranty terms even after their period of validity had run out the Seller had subjected itself to extended liability.

8.5 Decision on the material issues

8.5.1 Damages

Forestry machines in which the Buyer had installed equipment provided by the Seller, such as control ventilation, crane and harvester head, had had a lot of breakdowns. In particular, the equipment provided by the Seller had been subject to breakdowns.

As mentioned above, the District Court held that the limitation of liability clause contained in the warranty clause of the Seller had also been binding on the Buyer and further, the delivery contracts between the Buyer and the Seller with their warranty clauses could not be regarded as unreasonable or as necessitating conciliatory measures. Neither had the Buyer established that the Seller had not fulfilled its duties under the warranty nor that the Seller would be liable for the damages claimed by the Buyer on other grounds.

The Court of Appeal stated, on the other hand -- referring to the relationship between the warranty terms and the CISG -- that the most essential question was whether the alleged defects were of such nature as required by Article 35 that would justify the Buyer to claim damages under Article 45 and whether the warranty clause had any effect, partly or in full, on the claim on damages. After extensive evaluation of the witness heard and other evidence, confirming partly the reasoning of the District Court, the Court of Appeal accepted that the Seller was partly liable for breakage of the Buyer's clients machine (compensation amounting to 1,984.13 euros). In addition the Court of Appeal ordered the Seller to compensate the Buyer for broken valves in the amount of 27,548.70 euros. As the amount awarded to the Buyer comprised only a small part of the entire trial and claims presented, the Seller had a right to be awarded compensation for its legal costs in their entirety.

In relation to other claims, the Court of Appeal accepted the reasoning of the District Court. As to indirect loss on lost profit the Buyer failed to establish that it had the right to claim damages from the Seller.

8.5.2 Avoidance of the contract

The Buyer's claim for avoidance of the harvester package that the Seller had delivered to the Buyer on 17 October 1994 was also dismissed. This harvester package was installed to a vehicle and delivered to the Buyer's customer.

After the repair of the broken harvester, the Buyer's client had refused to receive it. According to Article 49(2)(b)(i), in cases where the seller has delivered the goods, the buyer loses the right to declare the contract avoided unless he does so within a reasonable time after he knew or ought to have known of the breach. The repair had been finished on 25 January 1996. However, the request for avoidance had been presented in a written statement of the Buyer on 31 May 1999, meaning more than three years after the Buyer received the information that its client refused to accept the repaired harvester head. The District Court held that in commercial transaction such as the one at issue, a reasonable time for notice is most often very short, at most a few months. The extension of this period would require pressing circumstances indeed. The Court also analysed whether the Buyer had actually proven that the alleged defects were the Seller's responsibility. As a conclusion, the Court stated that the Buyer had not been able to present grounds for avoidance in the harvester head sale and/or any pressing reasons for justifying the extension of the time for the notification. Because the Buyer had not notified the Seller within a reasonable time, the Buyer had lost its alleged right to avoid the contract.

In relation to the reasonable time within which the Buyer should notify about the avoidance, a distinction should be made between reasonableness in notifying about the lack of conformity under Article 39 and in notifying about avoidance under Article 49(2)(b). Of course, in both situations the reasonableness of time must be evaluated taking into consideration all the relevant circumstances of the case such as the nature of goods. In addition, as discussed earlier in relation to Turku Court of Appeal, S 97/324 (12 November 1997), reasonable time ought to be kept separated from the Article 38 time frame, as soon as possible.[497]

On the other hand, all these provisions are related to one another. The examination of the goods after delivery is a prequisite for giving notice of defect as required by Article 39. The emphasis after this is on the fact the buyer loses the right to rely on lack of conformity of the goods if he does not give notice of the defects at the latest within a period of two yars from the date on which the goods were actually handed over to buyer, subject to Article 40, i.e. the seller's knowledge of the defects renders the time limit irrelevant.[498] Professor Will argues that the seller's knowledge of the third-party claim removes the time limits with respect to avoidance of the contract.[499] Although the exemption based on the seller's knowledge of the third party claim as provided for in Article 43(2) refers only to the requirement that the buyer notify the seller of the non-conformity (as contrasted with the decision to avoid the contract), it would be inconsistent to permit such a seller to invoke the limits on avoidance stated in Article 49(2). Professor Honnold sees that Professor Will's argument relates similarly to the Buyer's knowledge of non-conformity.[500] Professor Honnold sees that there is a difference between the nature of the remedies allowed to the Buyer, i.e. damages or the drastic measure of avoidance. In addition, Professor Honnold stresses that the Convention recognises the difference between the reasonable time to give notice of the defects and notice of the avoidance as Article 44 provides a buyer who has a reasonable excuse for failing to give "the notice of defect" the possibility to reduce the price or claim damages. This excuse provision does not permit the Buyer to give notice of avoidance and avoid the contract after a reasonable time has elapsed.[501]

Thus, from the theoretical point of view, the reasonable time for giving a notice and giving a notice of avoidance are different. However, from the literal point of view, both time frames start simultaneously, i.e. when the buyer discovered or ought to have discovered the breach.[502] Does this mean that the time frames are identical? Jari Korpinen has suggested that in fact the starting points for the time frames are not identical, rather in case of the notice of avoidance, the time starts to lapse only when the buyer becomes aware of the fact that the defect, i.e. non-conformity amounts to a fundamental breach of the contract.[503] However, he also acknowledges that from the seller's point of view, the reasonable time frame must be interpreted strictly as it is in the seller's interest to ensure that the executed contract holds.[504]

In this case, the notice of the avoidance was given at least more than three years after the Buyer became aware of the defect.[505] Unfortunately, the Court did not discuss the elapsed time after delivery nor the relevance of the Article 39 time limit. The Court did conclude that there was. however, no proof that the Seller knew or he ought to have known about the defects; thus there was no malice or gross negligence on the Seller's side. The defects in the harveter head were most probably due to non-compatibility between the head and the machine and possibly the lack of maintenance and the use of the equipment. Had there been malice or gross negligence on the Seller's side, would the Court have given relevance to the two-year time-limit set out in Article 39(2)?

9. HELSINKI COURT OF APPEAL, S 01/269 (31 MAY 2004)

9.1 Classification of the issues present

The case involved a sale of phenol from the Finnish seller (the plaintiff in the District Court) to a Swiss buyer (the defendant in the District Court). The questions in dispute included:

   -    What had been agreed upon regarding the quality of the phenol?
   -    Was the delivered phenol in conformity with required contract standard?
   -    Was the Seller responsible for the alleged non-conformity of the phenol?
   -    Had the Buyer examined the goods and given notice of the non-conformity in a proper way?; and finally
   -    Did the Buyer have a right to declare the contract avoided?

The decision of the Court of Appeal affirmed the decision of the District Court of Espoo, S 96/7975 (3 November 2000) on its main conclusions. The amount the Buyer was ordered to return to the Seller from the purchase price withheld excessively was however increased. Another commentary of the case is available in Finnish by docent Tuula Ämmälä in Oikeustieto 1/2006.[506]

9.2 Applicable law

There was no dispute on the applicable law. As the parties had their places of business in different Contracting States, the CISG was the applicable law (Article 1(1)(a)). In Finland the CISG came into force on 1 January 1998 and in Switzerland 1 March 1991. However, as Finland has made a declaration as provided for in Article 92; Part II of the Convention on Formation of the Contract does not apply. Thus in relation to the formation of the contract, the Finnish Contracts Act was the applicable law. This was specifically stated in the decision of the District Court.

In addition, the parties had agreed on the Incoterms 1990 Free on Board (FOB) -term in relation to the passing of risk. It was specifically stated in the reasoning of the District Court that there was no dispute that the FOB- term was agreed by the parties. In respect of the passing of risk, the District Court also stated that Article 67(1) confirms the FOB-rule on the passing of risk. As there was no dispute whether the FOB-term was applicable, this seems unnecessary. The parties are always free to agree on the terms of their contract (Article 6).

The Court of Appeal did not make any reference to the applicable law but simply confirmed the reasoning of the District Court.

In relation to the formation of the contract, more detailed analyses would have been appropriate. The Finnish Contracts Act was simply applied. By virtue of Article 1(1)(b), Part II of the Convention could have also been applicable law. According to the Finnish conflict of law rules applicable to international sales of goods, the Act on the Law Applicable to the Sale of Goods of International Character (26 June 1964/387, as amended by the Act 27 May 1988/468), in the absence of a choice of law, the sale shall be governed by the law of the State where the seller's business is situated. As the Seller was a Finnish company, the applicable law was the Finnish law on formation of the contract. Nevertheless, a reference to the conflict of law rules ought to have been made even though the right solution was reached.[507]

9.3 Contents of the contract

9.3.1 Seller's claim

The Seller claimed that it had offered to deliver to the Buyer phenol that fulfilled the normal quality requirements, i.e. that the colour would be maximum 20 and the water contents 0.05 pct (the unit for water contents being pct i.e. percentage/0.05 pct = 500 ppm, particles in million). The written evidence "Phenol Specification" send to the Buyer on 20 April 1995 after oral negotiations had been commenced supported this. The Seller demanded that the Buyer be ordered to pay the remaining amount of the agreed purchase price, with interest and legal costs.

9.3.2 Buyer's reply

The Buyer demanded that the claim be dismissed. After the initial negotiations the Seller had sent the Buyer a specification on 20 April 1995. The Buyer had notified the Seller immediately that the quality offered did not fulfil the quality requirements the Buyer had, rather the colour of the phenol was required to be less than 5. The Seller then informed that the phenol to be delivered to the Buyer was stored in Finland and was of the best quality. The Buyer confirmed that the said phenol met the Buyer's quality requirements. Examinations were conducted and the contract was concluded on 27 April 1995. On the same day, the Buyer sent to the Seller a confirmation of the contract. In relation to the quality of the phenol, the confirmation stated that the normal quality requirements applied, i.e. that the purity grade would be more than 99.9, the colour would be less than 5, the water contents 155 ppm. In addition, the confirmation stated that it confirmed the final and binding contract. The Seller had not responded to this confirmation in any way.

The parties renewed their claims and demands in the Court of Appeal.

9.3.3 Decision on the contents of the contract

The Finnish Contracts Act was applied in relation to the formation of the contract. The District Court held that the parties had agreed on delivery of phenol in accordance with the confirmation of the contract sent on 27 April 1995, i.e. that the Buyer had required colourless phenol.

After evaluating written evidence presented to the Court and testimonies of the witnesses heard, the District Court held that the Buyer had become aware of the Buyer's intention to buy colourless phenol. Further, the Seller had given an impression that it would deliver colourless phenol to the Buyer. The Court's opinion was based on the fact that the Seller had made no objections to the confirmation of the order send on 27 April 1995, such as that the Seller could not guarantee the colourlessness of the phenol or that the colour would be under 5. Had the Seller seen any inconsistencies or flaws in the quality requirement set out in the confirmation, it would have notified the Buyer about them. This notification or reclamation was required by the Finnish Contracts Act Section 6, paragraph 2,[508] as well as by the prevailing custom in the trade concerned that was supported by the witnesses' testimonies.

When evaluating the contents of the contract and the intention of the parties and the parties' understanding of the contract, the District Court considered the Buyer's witness' statement reliable even though it had some inconsistencies in it. The said witness had represented the Buyer in the negotiations. The District Court had taken into consideration that the negotiations were held orally and that the Seller had not presented any evidence to support its claim that the Buyer ought to have understood that the colour of the phenol would possibly change fairly quickly in a short period of time; other than that the phenol was of Russian origin.

The Seller had indeed shown that phenol was a substance that could easily change colour for different reasons or even without any specific reason. In addition, phenol originating from Russia was produced in facilities where standards differed and the phenol was often stored and handled in various circumstances different from the standards in respect of western phenol. This alone, however, did not show that the Buyer ought to have understood to assume the risk that the colour of the phenol would increase when buying Russian phenol. When deliberating, the Court took into consideration that even though the parties had made several mutual contracts, this was the first time that Russian phenol was for sale. The Seller had not shown and it had not otherwise appeared that at the time of the sale the Buyer had or ought to have had such particular or empirical information about the quality of the Russian phenol that the Buyer should have understood without any additional information that the phenol it had bought would change colour within few weeks in a way that it could no longer be considered as colourless.

The witnesses heard on behalf of the Buyer had also shown that in world trade it was considered highly exceptional that phenol would change colour during long-term transportation or storage without any specific reason, even though this had occurred every now and then.

The fact that the Buyer had sold the phenol in question further on the CIF-term (Cost, Insurance and Freight) and with the same quality specifications as required by the contract between the Seller and the Buyer supported the view that the Buyer had understood it had agreed upon delivery of the colourless phenol and had no reason to question the quality of the phenol delivered to the Buyer in relation to its colour.

The Court of Appeal confirmed the decision and the reasoning of the District Court. According to the confirmation of the contract, the parties had agreed on colourless phenol on 27 April 1995.

9.3.4 Decision on the contents of the contract analysed

When determining the contents of the contract, the Court based its decision on the evidence presented and the testimonies of the witnesses heard. The applicable law in relation to the formation of the contract was held to be the Finnish Contracts Act.

No reference was made to the CISG rules on interpretation of the statements and conduct of the parties as provided for in Article 8. The reservation the Nordic countries [509] -- among them Finland -- have adopted in relation to Part II of the Convention as provided for in Article 92 means that, in relation to Part II, these countries cannot be considered as Contracting States. Only if the rules of private international law lead to the application of the law of a Contracting State, can Part II of the Convention also be applicable. As the CISG can be applicable in relation to Part II of the Convention even when the reservation under 92 is exercised, there has been understandable criticism of the adoption of the reservation.[510] Further, despite the reservation under Article 92, Article 8 is binding on the Nordic Countries as well. Finland has not made a reservation in relation to Article 8, not that it could have.[511]

Article 8 applies equally to the interpretation of the unilateral acts of each party, i.e., communications in respect of the proposed contract, the offer, the acceptance, notices, as well as of the contract itself, when the contract is embodied in a single document.[512] Thus the rules on interpretation of the offer and acceptance are also extended to the subsequent statements after the formation of the contract.[513] In effect, Article 8 excludes recourse to domestic rules of interpretation.[514]

Interpretation according to the actual intent of the party requires that the party to whom the statement or the other conduct is addressed to have knowledge of other party's intent or could not have been unaware of such intent.[515] As the standard under Article 8(1) is subjective and arouses problems as to the proof, the objective approach under Article 8(2) is said to be the principal standard of interpretation in the Convention's sphere.[516] Under the objective approach, the statements and the conduct of a party are interpreted according to a hypothetical reasonable person of the same kind as the other party.[517]

In determining the intent of the party or the understanding a reasonable person would have had, Article 8(3) makes also a reference to any practices, which the parties have established between themselves, usages and any subsequent conduct of the parties. Article 9(1) further provides that the parties are bound by any agreed usage or by any practices, which they have established between themselves. Article 9(1) in effect affirms the rule provided for in Article 8.[518] According to Article 9(2), a widely known and regularly observed usage in international trade can be applicable even impliedly.

What is the relationship between the domestic rules of interpretation and the rules of interpretation provided in the CISG? In the international sphere of the CISG, there ought to be no recourse to the domestic rules of interpretation that would endanger the uniformity of the application of the CISG. The Court specifically stated that the rules on formation of the contract as provided for in the CISG were not applicable in this particular case but did not specifically state whether it applied the domestic rules of interpretation or the rules provided for in the CISG when determining the parties' intent and understanding of the offer and acceptance. There are no written rules on interpretation in the Finnish law, but the rules on interpretation are drawn from legal practice and from legal literature. The legal principles on interpretation applicable in Finland do not differ from the rules of interpretation provided for in CISG Article 8.[519] Nevertheless, the Court ought to have given some consideration to the applicable rules in respect of interpretation.

When determining the contents of the contract, due consideration was given to the statements and conduct of the parties during the negotiations and the previous contracts between the parties. The emphases seemed to have been on the Buyer's understanding what had been agreed upon. The Buyer ought not to have understood to assume the risk of change of colour nor can the Buyer be said to have had such information that would have alerted the Buyer to the risk. Further, the Seller had in any case become aware of the Buyer's intention to buy colourless phenol. If the Court's reasoning is compared to the wording of CISG Article 8, it is seems that the Court considered the proof to be sufficient and applied the interpretation according to the intent of the parties (Article 8(1)).

The Buyer had, in its reply to the District Court, noted that the contract between the parties was not an oral contract. It was a custom that the Buyer always sent a written confirmation of the contract. The parties had concluded several written contracts before the sale in question. The Buyer further stated that if CISG Article 9 was applicable when evaluating the contract between the parties, it must be concluded that the parties had followed a practice, which they had established between themselves. The second paragraph of Article 9 applies only if the first paragraph cannot be applied. There is no such usage that is widely known to and regularly observed according to which the contracts should be oral.

As noted above the Court made no reference to Article 8. Neither was Article 9 discussed in the reasoning. What effect ded the practices established between the parties have on the formation of the contract? The silence or inactivity of a party cannot itself constitute an acceptance of an offer neither under CISG Article 18(1) nor under the Finnish Contracts Act Section 8.[520] However, the circumstances may be such that the other party is alerted to the duty to inquire.[521] The Buyer stressed that it was an established practice between the parties that the contract was confirmed by a written confirmation, thus the contract could not have been based only on the oral negotiations held between the parties. Like Article 8, which is applicable to the contents of the contract as well as to the conduct or statement of the parties, in a similar manner Article 9 is not limited to the contract's content but also applies to the formation of the contract. Practices from earlier contracts can also apply to contract formation.[522] There may also be an applicable usage according to which a contract can be based on an implied acceptance.[523] The Buyer had sent a confirmation of the contract to the Seller to which the Seller had not objected. The Court stated that had the Seller been opposed to the confirmation it should had given a notice of the alleged inconsistencies. This was supported by the Finnish Contracts Act [524] and by the prevailing usage in the trade concerned. As no reference to CISG Articles was made in this respect in the reasoning of the Court, it is not clear whether the Court even paid attention to the Buyer's reference to Article 9.

The effect of the confirmation of the contract should have been analysed in more detail. Silence as a response to confirmation may range from setting the contract terms to treating the writing as a mere means of proof or interpretation aid, especially if the binding usage is drawn on the basis of Article 9(2).[525] In the case in question, the confirmation had a contract forming effect. Furthermore, the definition of a binding usage differs in the Finnish Sale of Goods Act and the CISG. According to Section 3 of the Finnish Sale of Goods Act, the Act is subject to the terms of the contract between the parties, to any practice which has been established between them and to any other usage which is to be considered binding on the parties. Thus an applicable usage becomes binding whether or not the parties acting in a certain field of commerce were familiar with the usage.[526] Under CISG Article 9, the mere existence of a usage does not make it applicable to the contract. The actual knowledge of usage is not required under the CISG, but the usage must be widely known to and regularly observed by parties to contacts of the type involved in the particular trade concerned.[527]

Part II of the CISG can be applicable even when the reservation under Article 92 has been exercised. Because of this, there has been understandable criticism of the adoption of the reservation.[528] The relationship between General Provisions of Part I of the Convention and the Formation of the Contract increase the criticism of the reservation.

9.4 Conformity of the goods

9.4.1 Undisputed issues

The disputed issues included whether the phenol sold met the quality requirements agreed by the parties and whether there already was a defect in the goods when the risk passed to the Buyer. In addition, there was a dispute whether the Seller had delivered all the required documents referred to in the contract. The Seller claimed that it had delivered conforming goods as required by the contract at the time risk passed to the Buyer and that, according to commercial usage, the Buyer had no right to withhold the payment until the certificate of the country of the origin was delivered. The Buyer contested the Seller's claims.

The District Court stated. firstly, that the following issues were undisputed:

   -    The documents relating to the sale were the following: an invoice, a survey report by an independent examiner, a bill of lading, a certificate of the country of origin.
 
   -    Incoterms 1990 were applicable.
 
   -    The parties had agreed on the examination of the goods. The examination would be conducted in the port of dispatch by an examiner pointed by the parties. The costs would be shared.
 
   -    The appointed examiner - the SGS - had taken a sample from a tank number 16 on 25 April 1995. The colour was 5 and the water contents 155. The report was sent to the Seller and the Buyer on 25 April 1995.
 
   -    The SGS had supervised the loading and had taken a new sample from tank number 16 on 9 May 1995. The colour was 5 and the water contents 210. The report was sent to the Seller and the Buyer on 10 May 1995.
 
   -    1,202.121 tonnes of phenol were loaded on 10 May 1995.
 
   -    On 10 May 1995 the SGS took
A)  two samples from tank number 16 before the loading
B)  one sample from the end of the loading pipe at the beginning of the loading
C)  one sample from the ship's tank 2P at the beginning of the loading
D)  two samples from the ship's tanks 2P and 4S when loading was finished.

 
   -    Samples 1xA and 2xD were given to the ship superior. Other samples remained in the possession of SGS Finland.
 
   -    The Seller billed the Buyer with an invoice number 95-00174. The date of expiry was 17 May 1995 and the price 799,410.47 USD (1,202.121 tonnes of phenol, 665 USD per tonne).
 
   -    The Buyer gave reclamation on the invoice on 17 May 1995 notifying that it will not pay until the certificate of the country of origin was delivered.
 
   -    The Seller answered on 22 May 1995 demanding payment. The Seller also gave information about the certificate of the country of origin and notified that the original certificate would be delivered later. The Seller also pointed out that the Buyer could withhold 3% from the purchase price until the certificate was delivered.
 
   -    If the certificate of the country of origin is missing, the Customs will withhold 3% from the purchase price. The 3% is returned to the importer when the certificate is presented.
 
   -    The Seller delivered the certificate of the country of origin to the Buyer on 6 June 1995.
 
   -    The Buyer's representative sent a fax to the Seller on 24 May 1995 informing that SGS Antwerp had analysed the phenol and it not meet the quality requirements in relation to the colour and the water contents before the loading.
 
   -    The Buyer sold the phenol further on 3 July 1995 and received 588,793.96 USD as a sales price. The Buyer paid the Seller 335,483 USD on 9 August 1995 and 1.410 USD on 2-3 October 1995.

9.4.2 Decision on the binding force of the shipping instructions

Firstly, the District Court referred to the meaning of the FOB-term. According to the FOB-term, the seller is responsible to deliver goods conforming with the contract, an invoice and any other necessary proof required by the contract confirming that the delivery meets the requirements of the contract. The Seller is liable for any defects that occur before the goods pass over the ship's rail.

It was held that the shipping instructions were given to the Seller and that the instructions confirmed that the following documents were to be delivered to the Buyer's representative: an original bill of lading with copies, an original certificate of the country of origin drafted and signed by the Chamber of Commerce, a form drafted and signed by the Chamber of Commerce and an original survey report by an independent examiner with two copies (including a receipt of the samples taken from the goods). Based on the written evidence presented by the Buyer (Certificate of Sampling 11 May 1995 and Sampling receipt 10 May 1995), it was held undisputable that the samples were not delivered as required by the Buyer. As the sale was agreed on as FOB-term, the shipping instructions were binding on the Seller even though someone else took care of the practical matters.

Because the date of expiry was agreed to be seven days after the receipt of the documents and the form A was specifically required to be original, the Buyer had a right to withheld payment until the documents were delivered.

The Court of Appeal confirmed the decision of the District Court in relation to the obligatory nature of the shipping instructions for the Seller. The Buyer had a right to withhold the purchase price until the form A was delivered.

9.4.3 Decision on the shipping instructions analysed

According to CISG Article 30, the seller must deliver the goods, hand over any documents relating to them and transfer the property in the goods, as required by the contract and the Convention. The basic principle of freedom of contract as provided for in Article 6 also applies in this respect. As the parties had agreed on the application of Incoterms, no reference to CISG Article 30 was needed.

In relation to the Buyer's right to withhold a payment until the all the proper documents had been delivered, the Court simply confirmed that the Buyer had such right. According to CISG Article 58, if the buyer is not bound to pay the price at any other specific time, he must pay it when the seller places either the goods or documents controlling their disposition at the buyer's disposal in accordance with the contract and the Convention. The parties had agreed that the date of expiry was seven days after the receipt of the documents and the form A was specifically required to be original. The decision of the Court follows the set of rules provided for in Article 30.

9.4.4 Quality of the phenol

9.4.4.1 Parties' claims

The Buyer had argued that it was apparent that the phenol did not meet the quality requirements at the time of the loading. The Buyer had informed the Seller of its position on the matter on 29 May 1995 due to the reclamation the Buyer itself had received from its client.

The Seller, on the other hand, claimed that there were no defects in the goods. This was supported by the fact that the sample taken from the shore tank on 29 May 1995 had been of good quality even thought the phenol tested included 400 tonnes of phenol stored in the tank prior to the consignment in question. The Seller also argued that the sample taken from the shore tank on 25 April 1995 had simply identified the product. That sample did not define absolute quality requirements and thus was not to be considered a sample as required by the CISG, but the parties had agreed on the delivery of the identified consignment of phenol. The testing conducted in Finland on 24 April 1995 determined whether the goods conformed with the contract.

9.4.4.2 Decision on the quality of the goods

The test conducted on 18 July 1995 on the samples taken from the shore tank on 9 May 1995 supported the Buyer's claim. According to the test results, the colour of the phenol had been 35-40; a more specific valuation of the colour could not be provided as the colour was "off hue". The Buyer also referred to a survey report by an independent inspection company. These inspections were conducted in order to determine whether the cause for the defects was such that the insurance company would be liable for the damages. The results however showed that there was no causality between the defects in the goods and the transportation. The cause for the defects must have existed before the transportation.

The District Court held that the colour of the phenol had been 20 or more when it arrived at Antwerp. Such phenol could not be considered colourless and it could not be distributed further as colourless. It was also held that only colourless phenol could be used for all the purposes phenol was normally used. The purpose of use of the coloured phenol was more limited than that of the colourless phenol. Thus the phenol sold by the Seller did not meet the agreed quality requirements when arriving at Antwerp.

The Court of Appeal confirmed the decision of the District Court. The Court of Appeal firstly stated that, according to the test results on the samples taken before the loading, the colour of the phenol had met the requirements of the contract before the loading. However, the test results on the samples taken after the transportation showed that the colour and the water contents had changed. Further, the evidence showed that the degradation of the phenol in the tank located in Antwerp had continued in a way that by the end of June 1995 the colour was 350 and by the end of July 1995 the colour was over 500.

The Court of Appeal held that, based on the analyses made in Antwerp on 21 - 23 May 1995, it was proven that the colour of the phenol of the samples, of the phenol in the ship's tanks and of the phenol in the shore tank in Antwerp had darkened. The phenol did not fulfil the agreed requirement of colourlessness. As the phenol did not meet the agreed quality of the colour, there was a defect in the goods.

9.4.4.3 Decision on the passing of the risk

The District Court referred to the wording of the FOB-term, i.e. that the seller is liable for any defects that occur before the goods pass over the ship's rail. The Court also noted that this rule was confirmed by CISG Article 67(1).

The test results taken before the loading showed that at that time the phenol had met the quality requirements. However, the evidence supported the conclusion that the degradation of the phenol was not linked to the transportation as all the samples changed colour independently. There must have been an unknown substance in the shore tank already on 9 May 1995 that caused the phenol to change colour. It was also proven that even though phenol does change colour eventually, normally six weeks was not enough time for the colouring to occur.

The Seller bore the burden of proof that the phenol was without the defects when delivered. This burden of proof included the responsibility to prove that the loading pipe was free from defects when the loading took place. The Seller had not provided direct proof on this matter. The Buyer had, however, provided proof that there was a substance in the tank that caused the colouring relatively fast already on the shore tank and thus, the phenol did not meet the quality requirements reasonably expected by the Buyer. Thus, according to CISG Articles 35 and 36, the Seller was liable for not delivering goods that were of a quality required by the contract, as there was a defect in the goods already when the risk passed to the Buyer.

The Court of Appeal confirmed the decision of the District Court. The sale was made on FOB-term. The risk for accident or any other exterior damages transfers to the Buyer when the goods pass over the ship's rail. If the Buyer can show that there was a defect in the goods before the risk passed to the Buyer, the Buyer can rely on the defect even if it comes apparent later.

The written evidence provided no proof that the transportation conditions from Kotka to Antwerp had caused the colouring. The transportation ship had been inspected by an independent examiner and also the samples stored in Finland had changed colour, i.e. the transportation could not have caused the colouring. The Buyer had proved with sufficient certainty that the change in the colour was not due to the conditions on the ship. The evidence also supported the conclusion that the phenol had been exposed for colour changes considerably more when the phenol was at the Seller's risk rather than at the Buyer's risk. The Court of Appeal held that the Buyer had provided sufficient proof that the reasons that caused more rapid changes in the phenol than normally could be expected were in the phenol already when the phenol was at the Seller's risk. The Buyer had also a right to expect, especially when the sale was from the both parties respect an intermediate sale, that the quality of the goods would not change during the normal transportation.

9.4.4.4 Decision on the quality of the goods analysed

According to CISG Article 35, the seller must deliver goods which are of the quantity, quality and description required by the contract. The characteristics of the goods that are laid down expressly or impliedly in the contract by means of quantitative and qualitative descriptions are the starting point.[529] Whether the discrepancies in the goods have an effect on the usability or values of the goods is irrelevant when determining the conformity of the goods. These effects have only relevance in determining the fundamentally of the breach. Further, not all discrepancies constitute a lack of conformity in the goods but also the established customs of the certain trade sector must be taken in account when determining the conformity of the goods.[530]

Article 35(2) sets out a list of objective criteria to be used in order to determine the conformity of the goods in cases where the contract is silent on the issue. Firstly, the goods must be fit for the purposes for which goods of the same description would ordinarily be used (Article 35(2)(a)). However, if the particular, intended purpose is made known to the seller, the goods must posses the qualities required for this intended purpose (Article 35(2)(b)). Article 35(2)(c) provides that the goods must posses the qualities of goods which the seller has held out to the buyer as a sample or model. Paragraph (d) deals with adequate packaging.

It is not clear whether the District Court based its decision on Article 35(1), i.e. that the goods must confirm with a contractual description of the goods under Article 35(1) or to the requirements that the goods must be fit for the purposes for which goods of the same description would ordinarily be used as provided for in Article 35(2)(a). The content of the contract was clarified by using the following rules of interpretation: the parties had agreed on colourless phenol, the purity grade more than 99.9, the colour less than 5 and the water contents 155 ppm. In addition, it was held that the Seller had become aware of the Buyer's intention to buy colourless phenol. Only colourless phenol is fit for the purposes for which phenol is ordinarily used. In order to fulfil the purposes for which the goods are ordinarily used, they must be fit for commercial purposes, i.e. it must be possible to resell them in a view of a person in the trade sector concerned.[531] The Buyer had indeed provided evidence that the coloured phenol had no established market and the use of coloured phenol was very restricted. The Buyer's own customer to whom it had sold the phenol further had immediately rejected the goods. The Seller had been aware of the fact that the phenol was to be sold further by the Buyer to the end-user. However, recourse to the second paragraph of Article 35 is needed only if the contract does not contain any details or contains only insufficient details of the requirements to be satisfied by the goods for the purposes of Article 35(1).

According to Article 35(3), if the buyer at the time of the conclusion of the contract knew or could not have been unaware of the lack of conformity, the seller is not liable under the objective criteria provided for in paragraph (2). As Professor Honnold has noted, the case that will fall most clearly within paragraph (3) is the sale of a specific, "identified" object that the buyer inspects and then agrees to purchase.[532] The Seller did refer in its claim to fact that the sale was not a sale by sample and that the sample taken on 25 April had only identified the goods. The Courts did not make an analysis of what was the meaning of this sample taken in April. In this case, the contract description did not conflict with the result taken from this sample; the problems related to the issue: when did the defects in the goods occur and on whose responsibility these defects were. The sample taken on April simply provided support for what had been agreed between the parties and what was the content of the contract.[533]

The burden of proof in relation to the conformity of the goods is on the buyer from the time the buyer takes over the goods. If the buyer has accepted the goods without objection, it is for him to prove that defects already existed at the time when risk passed to him. However, if the buyer rejects the goods or gives immediate notice on receipt of the goods to the seller, it is for the seller to prove that the goods conformed with the contract at the time when the risk passed.[534]

Article 36(1) provides that the seller is liable in accordance with the contract and the Convention for any lack of conformity, which exists at the time when the risk passes to the buyer, even though the lack of conformity becomes apparent only after that time. Thus the seller is also liable for latent defects existing at the time risk passes to the buyer even though these latent defects come recognizable only later. This does not mean that the seller's liability is extended to those defects that become apparent only after the risk has passed but are not resulting from his sphere of risk. For example, as long as the goods are in conformity at the time when the risk passes, subsequent external influences to the goods do not confer extra rights to the buyer.[535]

According to Article 36(2), the seller is also liable for any lack of conformity which occurs after the time when the risk passes to the buyer and which is due to a breach of any guarantee that for a period of time the goods will remain fit for their ordinary purpose or for some particular purpose or will retain specified qualities or characteristics. Under Article 35, the seller is already liable for the fitness of the goods for their usual purpose or for a particular purpose made known to the seller. If the goods do not satisfy a warranty of durability given by the seller, the defects have usually existed already at the time when the risk passed to the buyer, thus already Article 35 treats the seller's liability.[536]

The decisive moment in determining the conformity of the goods is when the risk passes to the Buyer; i.e. in this case when the goods pass over the ship's rail as required by the agreed FOB-term. The District Court referred to the burden of proof on two occasions. Firstly, the District Court stated that the Seller had to prove that the loading pipe was free from defects when loading took place. Further down in its reasoning, the District Court stated that the Seller bore the burden of proof that the phenol was without the defects when delivered. The District Court continued that, while the Seller had not provided direct proof on this matter, the Buyer had provided proof that there was a substance in the tank that caused the colouring relatively fast already on the shore tank and thus that the phenol did not meet the quality requirements reasonably expected by the Buyer. The Court of Appeal stated that the Buyer had proved with sufficient certainty that the change in the colour was not due to the conditions on the ship and further, that the Buyer had provided sufficient proof that the reasons that caused more rapid changes in the phenol than normally could be expected were at the phenol already when the phenol was at the Seller's risk. The Buyer had also a right to expect, especially when the sale was from both parties respect an intermediate sale that the quality of the goods would not change during the normal transportation.

The reasoning of the Court of Appeal is more logical. The Buyer had the burden of proving that the goods did not confirm with the contract and that the defect in the goods existed already when the risk passed to the Buyer. After the Buyer had provided sufficient proof on these matters, it was for the Seller to provide counter-evidence. As the Seller was not able to provide any proof to support its claim that the goods did conform with the contract at the time risk passed to the Buyer, the issue was decided for the Buyer.

9.5 Examination of the goods and the avoidance of the contract

9.5.1 Seller's claim

The ship Crystal Amethyst left the Kotka port on 11 May 1995. The ship arrived in Antwerp where the phenol was transferred to a tank located on the shore on 21 May 1995.

The Seller admitted that the Buyer's representative had sent a fax to the Seller on 24 May 1995 stating that the laboratory in Antwerp had analysed the phenol on 23 May 1995 and that the phenol did not meet the quality requirements in relation to the colour and the water contents even before the loading. Also the Buyer had sent a fax to the Seller on 29 May 1995 stating that the phenol did not fulfil the quality requirements before the loading.

On its own behalf, the Seller stated that it had sent a fax to the Buyer on 29 May 1995 informing that the phenol did fulfil the quality requirements and demanded immediate payment from the Buyer. A corresponding message was sent to the Buyer's representative on 1 June 1995. Also in the Court of Appeal the Seller simply argued that the Buyer had examined the goods and given notice of the defects too late. The main argument to support this claim seems to have been the Seller's statement in the District Court that the Buyer's representative had informed on 24 May 1995 that he would state his legal position on 26 May 1995. However, no legal position had been presented at that time.

9.5.2 Buyer's reply

The Buyer stated that when the ship arrived in Antwerp on 21 May 1995 it was discovered that the phenol had darkened. The tests were conducted on 23 May 1995 and the Seller had been informed about the test results on 24 May 1995 and on 29 May 1995 as admitted by the Seller. The discussions on re-testing and payment of the purchase price were continued until the Buyer notified the Seller on 12 June 1995 that it had become clear that the Seller had delivered defective goods and thus had acted contrary to the contract term. The Buyer also informed that the Buyer would place the phenol at the Seller's disposal to be used in Antwerp and that the Buyer would demand damages. In effect, the Buyer made a declaration of avoidance.

Some tests on the samples taken on the loading day were conducted on 18 July 1995. The test results showed that the colour of the phenol was 30-40 and that the change of colour was "off hue", i.e. the change in the colour indicated that the phenol had had contact with non-permissible substance. Based on these test results, the Buyer's representative sent a letter to the Seller on 27 July 1995 stating that the evidence proved that at the time risk passed the phenol had not met the agreed requirements. On 29 June 1995, the Seller answered and notified that it did not see any reason to redeem the goods and that the Buyer was liable for selling the goods in order to mitigate the damages.

The Buyer saw that after informing the Seller on 12 June 1995 and on 27 June 1995 that the goods were at the Seller's disposal in Antwerp and the Buyer had in effect informed the Seller about the avoidance of the contract on 12 June 1995.

9.5.3 Decision on the examination of the goods

The District Court stated that the phenol had arrived in Antwerp on 21 May 1995. The test on the colour had commenced immediately. The Buyer had shown that it had examined the phenol as soon as it was possible. As the notice of the defects was given on 29 May 1995, it was given within a reasonable time. Based on this and as no contrary evidence was given, the Court concluded that the Buyer had given notice of the defects appropriately. The Court of Appeal confirmed the conclusions and the reasoning of the District Court.

According to Article 38, the buyer must examine the goods within as short a period as is practicable in the circumstances. This examination is a perquisite for the notice under Article 39 which must be given to the seller within a reasonable time after the buyer discovered or ought to have discovered the defect.[537] Taking into consideration that the Seller himself had acknowledged the facts, i.e. that the examination took place on 23 May 1995 (two days after the delivery) and the first notice was given on 24 May 1995 (one day after the examination) and the second on 29 May 1995 (six days after the examination) and that the examination of the chemical substance requires laboratory test to be conducted, the Seller's argument of late examination and notice thereof seems totally unfounded.

The Seller did state in its claim that that the Buyer had not informed about its legal position on the issue on 26 May 1995 even though the Buyer had so promised. According to Article 49, the buyer may declare the contract avoided within a reasonable time after he knew of ought to have known of the breach. This time limit has no relevance to the timeliness or the contents of the notification about the defects. Even after notifying about the defect, the buyer has a right to examine his possibilities.[583] Under Article 39, the notice of non-conformity must only specify the nature of the lack of conformity.

9.5.4 Decision on the avoidance of the contract

Firstly, the District Court stated that the Buyer had already on 12 June 1995 informed the Seller that the Buyer considered the situation clear: the delivered goods had not confirmed with the contract and the Seller had breached the contract. Secondly, the District Court referred to and gave a summary of the following CISG Articles: Article 49, Article 51, Article 81, Article 82 and Article 86.

As to the substance of the case, the District Court held that the Seller and the Buyer had agreed on the sale of colourless phenol. There had been a defect in the goods before the goods were handed over to the Buyer even though the defect was not noticeable at that time. It had been shown that the purposes of tge use of colourless and coloured phenol were different and that there was no demand for coloured phenol in the market. Further, the price for the coloured phenol was lower than for the colourless phenol. The defect in the goods amounted to a fundamental breach of the contract and the Buyer had a right to declare the contract avoided. The fact that the Seller did not know on what terms the Buyer had sold the phenol further had no relevance as it was customarily known that the use and the selling of coloured phenol was more restricted.

In relation to the fax sent on 12 June 1995, the District Court held that it qualified as an avoidance of the contract. The case involved a situation referred in CISG Article 82 where the buyer has received the goods but it is impossible for him to make restitution of the goods substantially in the condition in which he received them at port of loading and the impossibility is not due to his act or omission. The Buyer had informed the Seller that it would place the goods at the Seller's disposal as long as the Seller would compensate for the Buyer's damages and expenses. According to CISG Article 86, the Buyer had been entitled to retain the goods until he had been reimbursed for its reasonable expenses by the Seller. The Buyer had also had a right to withhold the payment of the purchase price. Based on the above, the District Court held that the Buyer had declared the contract avoided on 12 June 1995 by sending a fax to the Seller. The Buyer had also had a right to retain the goods, as the Seller had not reimbursed the Buyer's reasonable expenses.

The Court of Appeal confirmed the conclusions and the reasoning of the District Court.

9.5.5 Decision on examination and avoidance analysed

From the start, the Seller's claim was not clearly defined and especially not clearly and thoroughly reasoned. The reference and the summary of CISG Articles in the decision of the District Court also seem unnecessary and arbitrary as no reference to Article 25 on fundamental breach was made.

For a breach to be fundamental it must cause a substantial detriment to the injured party. In addition, the relevant detriment is limited to what the party in breach foresaw or should have foreseen. The determination whether the injury is substantial in the reference of Article 25 must be made naturally in the light of the circumstances of each case. For a breach to be considered a fundamental breach, it must nullify or essentially depreciate the aggrieved party's justified contract expectations.[539]

The Seller had become aware of the Buyer's intention to buy colourless phenol. The Seller also knew (or at least ought to have known) that the coloured phenol could not be used in as versatile a way as the colourless phenol. This was supported by the fact the price for colourless phenol was clearly higher than for coloured phenol. The reasoning of the Court applied the rules provided for in Article 25 even though no reference to Article 25 was made.

The Court also stated that though it was impossible for the Buyer to make restitution of the goods substantially in the condition in which the Buyer received them, the Buyer had not lost the right to declare the contract avoided. The situation fell under Article 82(2)(a) which provides that if the impossibility of making restitution of the goods or of making restitution substantially in the condition in which the buyer received them is not due to his act or omission, the buyer retains his right to declare the contract avoided. This exception to the basic rule that the contract may avoided only if the goods are in unimpaired condition applies in cases where the goods have deteriorated owing to a defect existing upon the delivery.[540] The defect in the goods that caused phenol to change colour rapidly was held to be in the goods already before the risk passed to the Buyer.

The only interesting question seems to be whether the Buyer had effectively declared the contract avoided on 12 June 1995 in a proper way. The Court did not make a reference to Article 26 according to which a declaration of avoidance is effective only if made by notice to the other party. As noted above, the notice of the non-conformity must be distinguished from the notice of the avoidance.[541] Avoidance of the contract is a different and much more drastic remedy. The avoidance of the contract means that the buyer will not accept or keep the goods, and that the seller has the responsibility to take over their disposition.[542] The Buyer had informed the Seller on 26 June 1995 that it had become clear that the Seller had delivered defective goods and thus had acted contrary to the contract term. The Buyer also informed that it would place the phenol at the Seller's disposal to be used in Antwerp and that the Buyer would demand damages. In effect the Buyer made a declaration of avoidance. This declaration of avoidance was seen as sufficient by the Court.

Further, and though not discussed specifically, it can be concluded that it was given within a reasonable time after the Buyer knew of the breach as required by Article 49(2)(b)(i). When determining the reasonable time, the nature of the goods, the possibilities for usage and sale of, the possible market changes in the price and such should be borne in mind.[543] The delivery took place on 21 May 1995 and the first test results indicating that the goods did not confirm with the contract came to the Buyer's awareness at the latest on 24 May 1995. The declaration of avoidance was made one month later after these events. The time frame corresponds to the international case law.[544]

9.6 Preservation of the goods

9.6.1 Facts of the case

The Buyer stated that it had been obligated to mitigate the damages caused by the Seller's breach of contract. Because the Seller had refused to accept the Buyer's declaration of avoidance and considered that it was not responsible for the phenol stored in Antwerp, the Buyer had commenced the sale of the phenol on the Seller's behalf. The Buyer tried to get the Seller's approval for the sale as the responsibility had returned to the Seller after the avoidance. The Seller had however informed that it did not consider itself responsible. Because of this, the Buyer had sold the phenol to Perstorp-Barbiers on 3 July 1995. The company was one of the few companies that were able to use coloured phenol. The buyer Perstorp-Barbiers had been able to dictate the purchase price. When the phenol was sold to Perstorp-Barbiers the colour of the phenol was already over 300. Thus the sale price was not too low.

The Seller claimed that it had constantly insisted that the goods conformed with the contract and had demanded payment. Nor had the Buyer acted reasonably in selling the phenol further. The sale of the phenol took place too late in relation to the fact that the world market price had declined at that time and the colour of the phenol had darkened continually. The effect was that the sales price was even lower.

9.6.2 Decision on the preservation of the goods

The Buyer had informed the Seller that the goods were at the Seller's disposal as long as the Buyer would be reimbursed its reasonable expenses. The Buyer had such right to retain the goods under Article 86 provided that the Buyer took reasonable steps in the circumstances to preserve them. In general this obligation means that the Buyer must store the goods and protect them against harmful influences.[545] Additional obligations of the Buyer due to the nature of the goods are related to Article 88.

Firstly, the District Court summarized CISG Article 88. On the substance of the case, the District Court held that the evidence supported the Buyer's claim that the Seller had not admitted that the contract was avoided and was not willing to co-operate. The Buyer had proven that it had thoroughly investigated possibilities to sell the coloured phenol starting from the end of June 1995. In addition, the Buyer had proved that the coloured phenol had no established price level and that one tries to get rid off it as soon as possible. The list of prices for phenol by ICIS presented by the Seller did not refer to coloured phenol and one could not draw conclusions based on those as to the price of the coloured phenol. The Seller had not presented any counter-evidence supporting the claim that the phenol could have been sold faster and for a better price than it was actually sold for in order to mitigate the damages.

Based on the above, the District Court held that the Buyer had acted reasonably in selling the phenol further. The Court of Appeal confirmed the conclusions and the reasoning of the District Court.

9.6.3 Decision on the preservation of the goods analysed

According to Article 88(1), a party who is bound to preserve the goods may sell them by any appropriate means if there has been an unreasonable delay by the other party in taking the goods back or in paying the cost of preservation, provided that reasonable notice of the intention to sell has been given to the other party. If the goods are subject to rapid deterioration the party who has possession of the goods is even obliged to sell the goods (Article 88(2)).

The unreasonable delay is determined case-by-case. A party's definite refusal to perform as agreed is to be treated in the same way as his unreasonable delay.[546] Under the right to sell as provided for in the first paragraph, the selling party must give a reasonable notice of the intention to sell to the other party. Under a duty to sell as provided for in the second paragraph, prior notice of the intention is required only if possible. The notice requirement is to ensure that the other party can still act so that the perhaps unnecessary and unprofitable sale can be avoided.[547] In case of an emergency sale under the second paragraph, the deterioration of the goods may be of such nature that there is no time to give a notice without causing even extra expenses.[548]

An emergency sale under Article 88(2) is required if the goods are subject to rapid deterioration, i.e. the sale involves perishable foodstuffs. The economic deterioration of the goods seems not to be covered by the wording of the Convention.[549] The fall of the market price may however satisfy the unreasonable delay in taking the goods back under the first paragraph more easily. Furthermore, an emergency sale is required also if the preservation of the goods involves unreasonable expenses, for example, when the storage cost becomes higher than the value of the goods.[550]

The performance of the sale is defined with flexible terms: the goods may be sold by any appropriate means. No other solution could be supported as the variety of the goods involved in international trade and the circumstances of the cases are endless. Therefore, there is no special requirement as to form but simply, the terms of the sale must be reasonable.[551]

The Court held that the Buyer had acted reasonably in selling the goods further. As the coloured phenol had no established market, the Buyer had a right to sell the goods on the best terms available. The Court held that the list prices on colourless phenol were not applicable to the case. The same conclusion could have been reached by stating that the Buyer had provided enough evidence to support the exception on the established list prices.[552]

The party who relies on a breach of contract has also a general duty to mitigate damages resulting from the breach under Article 77. The Court did not specifically make a reference to Article 77. The text of the Secretariat Commentary indeed provides that Article 77 is only one of the Articles which create a duty to the injured party towards the party in breach. Provided that the requirements of Article 88 are fulfilled, the injured party has already by means of that Article an obligation to preserve the goods and even an obligation to sell them if the second paragraph is applicable.[553] The duty to mitigate the damages does not mean that extraordinary effort is required but only reasonable measures in the circumstances must be taken. The wording and the meaning corresponds to Article 88. Under Article 88, only reasonable measures to sell the goods by appropriate means must be taken. As under Article 77, determination of the reasonable measures and appropriate means is done case-by-case -- by reference to a prudent business person in the trade concerned and by taking into account any relevant practices and usages applicable.[554]

The third paragraph of Article 88 gives the selling party the right to retain from the proceeds of sale his reasonable expenses of preserving and selling the goods. This issue is disused further below in conjunction with the damages.

9.7 Damages

9.7.1 Facts of the case

The Buyer presented written evidence to the Court to support its claim for damages. The Buyer had bought the phenol at 799,410.47 USD. The Buyer claimed that the degradation of the phenol amounted to 238,862 USD (the difference between the original purchase price and the sales price the Buyer received from the phenol) and that the additional costs amounted to 223,665 USD, i.e. altogether the damages amounted to 462,517 USD; the amount the Buyer had deducted from the purchase price demanded by the Seller.

The Seller claimed that it could respond to the Buyer's claim only after the Buyer had individualized the claim more precisely. The only proof the Buyer had presented was a one-page summary without any grounds for the damages. Nor could have the Seller foreseen all the damages caused to the Buyer at the time of the conclusion of the contract, such as the freight costs, the demand for the interest and part of the unspecified storage costs. Also the decline of the market price after the breach of contract was not foreseeable to the Seller. The Seller argued that Buyer had not acted in accordance with the CISG in order to mitigate the damages.

In addition, the Seller pointed out that the difference between the Seller's original claim for the unpaid purchase price 462,517 USD and the Buyer's original claim for damages 432,990.58 USD amounts to 29,562.42 USD. This outstanding debt of 29,562.42 USD had been acknowledged and was without question unpaid for. Despite this, the Buyer had demanded that the entire claim should be dismissed.

9.7.2 Decision on damages

Firstly, the District Court referred to CISG Article 74. The damages for breach of contract must be foreseeable at the time of the conclusion of the contract. Further, the Court stated that in relation to the effects of the avoidance, Article 84 provides that the buyer must account to the seller for all benefits which he has derived from the goods or part of them. In those cases where the goods are not returned but sold further, according to Article 88(3) a party selling the goods has the right to retain out of the proceeds of sale an amount equal to the reasonable expenses of preserving the goods and of selling them. He must account to the other party for the balance.

As to the substance of the case, the District Court held that there was no evidence that the Buyer had accounted to the Seller for the balance. The Buyer's written evidence number 29 showed that the Buyer's attorneys had presented to the Seller a statement on damages and losses on 14 March 1996, in which the amount of damages was 432,991 USD. No direct proof however had been presented in relation to the cost incurred by the Buyer. In the letter it had been admitted that the outstanding account to the Seller was 29,526.42 USD.

During the court proceedings, the Buyer had claimed that the Seller had no outstanding debts from the Buyer. The Buyer had presented a brief summary of its damages and expenses, where the damages had been estimated to be approximately 50,000 USD. Otherwise, the Buyer had referred to his written evidence number 29 and to the calculation and the invoices attached to it. It was not shown whether the invoices had been paid for or not. No receipts of payment had been presented. In relation to the storage costs, a witness had given testimony about the average costs for storage. The Seller had denied the Buyer's claim in general and in specific terms. The Seller had also demanded that the Buyer be ordered to pay certain amounts that the Buyer had unjustifiably withheld to itself.

The Buyer had not clarified the calculation on which it based the withholding of the purchase price due to a quality defect. The Seller, on the other hand, had presented sufficient evidence that the outstanding debt from the Buyer amounted to 29,526.42 USD even after the damages and lost of profit demanded by the Buyer had been deducted from the debt. Thus the District Court decided the case in favour of the Seller and held that the Buyer had unjustifiable withheld 29,526.42 USD from the purchase price payable to the Seller.

In relation to the other costs withheld by the Buyer such as the freight costs, custom duties, the financing cost and other expenses, the District Court held that the Buyer had not provided enough evidence to support its claim. In relation to the storage cost, the Court District held that the Buyer had proven that it had suffered storage costs. However, as not enough proof as to the amount of the costs had been provided, the District Court estimated the costs. The judgement of the District Court was as follows:

The purchase price claimed by the Seller amounts 29,526.42 USD more than the damages claimed by the Buyer on 14 March 1996. In addition, the Buyer had unjustifiable withheld the freight costs 2,764.88 USD, the SGS invoice 714.68 USD, the customs duties 17,173 USD, the financing costs 12,879.87 USD, the storage costs 47,414.10 USD and the interest 5,229.21 USD. Thus the Buyer had unjustifiable withheld 115,702.16 USD from the purchase price payable to the Seller.

...

The Buyer ought to have accounted to the Seller for the balance and ought to have provided clarification as to the grounds and the amount of the Seller's debt. The Buyer had presented its demand to the Seller on 14 March 1996. The Seller had specifically demanded the amounts withheld unjustifiable on 29 March 1996 and 11 April 1996. Thus the interest for the purchase price in arrears start to run from 29 April 1996 (one month after the first demand), the interest rate being the agreed 16%.

The Court of Appeal confirmed the conclusions and the reasoning of the District Court partly. In relation to the storage costs, the Court of Appeal held that the storage costs were foreseeable to the Seller and that the Buyer provided sufficient proof on the costs. The costs in question had been reasonable, justifiable and real. Due to this (among the corrections with spelling) the decision of the District Court was amended as follows:

The judgement of the District Court is amended in relation to the excessively withheld purchase price 47,414.10 USD. The Buyer is ordered to pay the Seller 68,288.06 USD as excessively withheld purchase price with interest of 16% from 29 April 1996.

In relation to the legal costs, the District Court ordered the Buyer to compensate the Seller's legal costs in relation to the plea of venue lost by the Buyer (decision given in a separate judgement not discussed herein). On the main issues, as several claims had been made in the case and some of them had been decided in favour of the Seller and some in favour of the Buyer, the District Court held that otherwise the parties were liable for their own legal costs.

The Court of Appeal held that the plea of venue had only little significance to the case and thus the Buyer was not liable for the Seller's legal costs in that respect. Otherwise, the Court of Appeal confirmed the decision of the District Court in relation to the legal cost. It also reached the same conclusion in relation to the legal cost incurred in the Court of Appeal. The Seller had won the plea in venue but the Buyer had, for the most parts, won the claims on the main issues. The parties were liable for their own legal costs.

9.7.3 Decision on damages analysed

According to Article 74, damages for breach of contract consist of a sum equal to the loss, including loss of profit, suffered by the other party as a consequence of the breach. Such damages must be foreseeable to the party in breach at the time of the conclusion of the contract.[555] Although not directely mentioned, the burden of proof as to the damages lies on the party making the claim.[556] The party claiming damages must prove that he has suffered loss and that the loss was caused by the breach. In addition, the aggraviated party must also prove the amount of loss he has suffered. Only concretely provable and definable losses may be taken into account.[557]

No reference to the foreseeability of the costs claimed by the Buyer was done except in relation to the storage costs. The Buyer's claim was dismissed on evidentiary reasons, no sufficient proof on the damages was provided by the Buyer. In Helsinki Court of Appeal, S 00/82 (26 October 2000) the District Court took the stand that the burden of proof was a procedural issue and covered by the Finnish rules on procedure [558] Whether the Court in this case applied Finnish rules on evidence or the burden of proof as defined in the CISG is unclear. The general rule that a party who wants to derive beneficial consequences from a legal provision has to prove the existence of the factual prerequisite of that provision is embodied also in the Finnish Code of Judicial Procedure Chapter 17, Section 1. Thus it can be concluded that the Court would have reached the same conclusion despite of the law it applied, i.e. that the burden of proof in relation to the existence of the damages and the amount of the damages was on the Buyer. The clarification of the issue would have, however, served not only the academics but also the uniform application of the CISG in the international arena.

Avoidance of the contract releases parties from their obligations under it, subject to any damages which may be due (Article 81(1)). As noted above, the fact that the Buyer was not able to make restitution of the goods substantially in the condition in which the Buyer received them did not preclude the Buyer from avoiding the contract as the impossibility was not due to the Buyer's act or omission (Article 82(2)(a)). As to the effects of the avoidance Article 84(2) provides that the buyer must account to the seller for all benefits which he has derived from the goods or part of them when making the restitution. The buyer must account to the seller for all the benefits also where the restitution is impossible. The impossibility of restitution of the actual goods may be caused by use of the goods or by resale of the goods. The restitution by means of monetary surrogate under Article 84(2)(b), however, requires that the resale occurred before the buyer became aware of the lack of conformity.[559] After the buyer has become aware of the lack of conformity and his right to avoid the contract because of fundamentality of the breach, he comes also aware of possible restitution.[560] After coming aware of the defects the buyer cannot claim that he sold the goods further during the normal course of business but he must simply preserve the goods as required by Article 86. The buyer's obligation to preserve the goods is limited by Article 88.[561] If the seller is unreasonably delayed in taking the goods back and is informed of the buyer's intention to sell the preserved goods, the resale is justifiable even if the goods would take a long storage time.

In these cases where the goods are sold further, according to Article 88(3) the party justifiable in selling the goods further has the right to retain out of the proceeds of sale an amount equal to the reasonable expenses of preserving the goods and of selling them. He must account to the other party for the balance. It is uncertain whether any other claims such as damages can be retained out of the proceeds of the sale.[562] In Hanseatisches Oberlandesgericht (OLG) Hamburg, 1 U 31/99 (26 November 1999)[563] the court stated that the CISG governed the issue of set-off as long as the set-off concerns claims arising under the CISG by way of a general principle within the meaning of Article 7(2). Thus the buyer would be entitled to set-off for damages under articles 45 and 74; although article 88(3) expressly mentions only a selling party's right to deduct reasonable costs of preserving and selling the goods from the sale proceeds. However, towev er, tHhe court left open the question on whether the buyer's right to keep the benefit of the resale could be directly inferred from the CISG or whether this issue was governed by the applicable German law, according to which set-off was also admissible.[564]

Had the Buyer provided sufficient evidence on its losses and expenses, it seems clear that these could have been deducted from the proceeds of the resale of phenol. Part of the expenses rejected by the Court, such as storage costs (approved by the Court of Appeal) fall within the preservation costs but also expenses and losses due to breach of contract and not directly attributable to the preservation or reselling of the goods were claimed, such as loss of profit. If it is concluded that there is no general principle of set-off in the CISG regimen and even a domestic law applicable by virtue of private international law rules would not provide any rules on set-off, the situation could become questionable.[565]

9.8 Conclusions

Whether it the complexity of the facts of the case or the composition and the reasoning of the decision, the current case is hard to hold together. The reasoning of the courts should be understood if not by a layperson but at least a practicing lawyer. An academic point of view may find problems in places where there are not any but in relation to this case I believe this fear is justifiable.[566]

10. TURKU COURT OF APPEAL, S 04/1600 (24 MAY 2005)

10.1 Classification of the issues present

The case involved a sale of powdered paprika from a Spanish Seller (the defendant) to a Finnish Buyer (the plaintiff). The questions in dispute included:

   -    Whether the delivered paprika conformed with the contract and was there a lack of conformity in the goods?:
   -    Had the Buyer given notice of the non-conformity in time?; and
   -    Was the Seller liable for damages caused to the Buyer because of the defect?

The decision of the Court of Appeal affirmed the decision of the District Court of Hämeenlinna, S 03/2166 (19 May 2004) on its conclusions. The amount of damages was however increased. Another commentary of the case is available in Finnish by docent Tuula Ämmälä in Oikeustieto 1/2006.[567]

10.2 Applicable law

Neither the District Court nor the Court of Appeal analysed the issue of applicable law as such; the CISG was applied without any question. The Buyer's claim in the District Court simply stated that as there was no reference to the applicable law in the contract between the parties, the applicable law was the international sales law. In its reply the Seller simply referred to the applicable CISG provisions. In Finland the CISG came into force on 1 January 1989 and in Spain on 1 August 1991. By way of Article 1(1)(a), the CISG was applicable to the contract of sale in question as the parties to the contract of sale had their places of business in different Contracting States.

One specific weakness lies in the actual judgements of the case. Neither the District Court nor the Court of Appeal stated anywhere in the reasoning that the Seller, Omega Spice S.r.l. was a Spanish Company and the Buyer, MP-Maustepalvelu Oy, a Finnish Company. The places of businesses of the parties are clearly revealed by the written evidence examined by the courts and attached to the rulings but all relevant information should be referred in actual ruling as well.

In addition, when summarizing the Buyer's claim, the District Court informed that from thereon the reference to the CISG was to be 'kauppalaki', i.e. sales law. This is misleading as in Finland the term 'kauppalaki' is customarily used in connection with the Finnish Sale of Goods Act. The CISG, on the other hand, is referred to as UN Sales Law or International Sales Law.[568] In its summary of claims and reply, the Court of Appeal referred to the UN Sales Law and in its reasoning more specifically to the Convention on Contracts for the International Sale of Goods, which approach is more appropriate that the one adopted by the District Court.

As to the issues not covered by the CISG, i.e. the rate of interest and the conciliation, the reasoning of the Courts did not cover the problem of applicable law. The Finnish Interest Act was applied and also the rules on conciliation were applied. In Finland, the Act on the Law Applicable to the Sale of Goods of International Character determines the applicable law in relation to international sales of goods. According to that Act, Section 4, subsection 1, in the absence of a choice of law -- express or implied -- the sale shall be governed by the law of the State where the seller's business is situated. However, if the buyer placed the order in the State where the buyer owns a business and the seller or his agent received the order in said State, the sale shall be governed by the law of the buyer's State (Section 4, subsection 2). Whether the vourts applied the Finnish law in relation to the issues not covered by the CISG by way of agreement between the parties or by way of the rule provided for in Section 4, subsection 2 is unclear. Nor is the writer aware whether the result would have differed had the Spanish law been applied.

10.3 Conformity of the goods

10.3.1 Buyer's claim in the District Court

The Buyer demanded that the Seller br ordered to pay damages based on the contract in the amount of 161,098.07 euros with interest. The Buyer and the Seller had concluded a contract on 30 November 2000 according to which the Seller committed itself to deliver to the Buyer powdered paprika the amount of 40,000 kilos between 1 December 2000 and 30 November 2001. The powdered paprika was intended for the seasoning mixes the Buyer delivered to its own customers. According to the contract, the powdered paprika was to be treated with steam, for which the Seller was responsible under the contract. During the contract period, the Seller was the only party delivering paprika to the Buyer. However, the powdered paprika that was delivered was not in conformity with the contract, but it was radiation exposed paprika powder that caused damages to the Buyer. Thus there was a lack of conformity in the goods.

The Buyer had delivered seasoning mixes including the paprika powder acquired from the Seller to several of its clients. These clients had forwarded products where seasoning mixes were used to the market. Because of insufficient markings in the trade description, the clients were forced to withdraw the products from the market. European Union Directive 1999/2/EC that came into force on 20 October 2000 requires that products that are radiated must be labelled accordingly (according to the transitional provisions food stuffs radiated in accordance with the provisions in effect earlier were allowed to be sold until 15 March 2001).

The contract between the parties had no reference to the applicable law, but the law applicable to the contractual relationship was the international sales law. According to CISG Articles 35 and 45 the seller must deliver goods which are as required by the contract and, in case of the breach of contract, the buyer, is among other things, entitled to claim damages.

10.3.2 Seller's reply in the District Court

The Seller demanded that the claim be dismissed or at least that the demands be conciliated as unreasonable.

The Seller had delivered to the Buyer 31,000 kilos of powdered paprika as required by the contract. The Buyer had returned 4,210 kilos of the delivered paprika. Before the EU directive that came into force on 15 March 2001, the Seller had delivered 12,000 kilos of paprika on 3 November 2000, 25 November 2000, 8 February 2001 and on 9 March 2001. The powdered paprika the Seller had delivered to the Buyer had been treated with steam thus it was in accordance with the contract. The paprika had not been radiated. If the product had been radiated, the Seller had not radiated it itself nor was the Seller aware of the radiation.

As the EU Directive obliged only to label the product or its ingredient as radiated, there could not have been a lack of conformity in the goods at least in relations to the products delivered before the Directive came into force.

10.3.3 Demands in the Court of Appeal

The Buyer was awarded 90,000 euros in damages in the District Court. In its appeal, the Buyer demanded that the damages should be awarded as required in the original claim. The Seller demanded in its appeal that the Buyer's claim should be dismissed, that the Seller be released from all liability for damages, and that the Buyer be ordered to compensate the Seller's legal costs. As a subsidiary claim, the Seller demanded that the amount of damages, legal costs and expenses incurred by the persons interested should be decreased.

In the Court of Appeal, the claims of the parties were based mainly on the same arguments that were presented in the District Court. The Buyer stated that the contract between the Buyer and its own clients included a term according to which the seasoning mixes were not allowed to include radiated ingredients. On the basis of this, the Buyer had been liable for damages towards its own customers. The fact whether the goods delivered by the Seller had been suitable foodstuff had no relevance in relation to the damages. The Food Agency had ordered the local authorities to supervise that the companies using the powdered paprika delivered by the Seller before 20 September 2001 or seasoning mixes including that powder label the foodstuff produced on 15 November or later with radiation information. Foodstuff produced before 15 November 2001 did not require such labelling. This exception applied only in relation to the products already on sale in the stores that were impossible to track down. The products the Buyer had compensated to his own customers were not in stores but in its customers' warehouses. The Buyer's customers could not have sold products including the said powdered paprika until 15 November 2001 without changing the labels.

The Seller stated that the original contract had no mention of radiation. Even if part of the goods delivered had been radiated in addition to the steam treatment, this did not mean that the goods did not conform with the contract. There was no lack of conformity in the goods as provided for in Article 35. Before the entry into force of the Directive, the Buyer's own customers had no objections that their products included radiated ingredients. The radiation became a problem only after the Directive was changed so that the products were to be labelled with radiation every time they included radiated ingredients.

In its reply to the Seller's appeal, the Buyer pointed out that the contract specifically required steam treatment of the powdered paprika and no other treatments were allowed. During the contract period, the Buyer had specifically required a certificate from the Seller stating that the powdered paprika was not radiated at any case. All the damages had incurred in relation to the paprika delivered after this certificate was issued.

The goods delivered by the Seller had not included a label informing about the radiation even though the Directive required that. The fact who had radiated the products had no relevance to the issue. Later, it had been revealed that the Seller had delivered powdered paprika to the Buyer that had originated from Peru and Zimbabwe even though the Seller had informed the Buyer that it had delivered powdered paprika originating from Spain. The Seller had been passive in solving the issue on damages, thus the Buyer had been forced to gather information by itself. The damages incurred had been foreseeable and not distant and unusual. The contract period had been 1 December 2000 to 30 November 2001. The contract had been avoided silently. The value of the contract or the amount paid under the contract had no relevance to the issue. The actual purchase price had been 64,777.50 euros. There was no Article in the CISG that would allow the conciliation of damages.

10.3.4 Decision on the conformity of the goods

10.3.4.1 Contents of the contract

Firstly, the District Court referred to CISG Article 35 paragraph (1). The seller must deliver goods which are of the quantity, quality and description required by the contract and which are packaged in the manner required by the contract.

On 30 November 2000, the Buyer and the Seller had agreed that the Seller would deliver to the Buyer, among the other things, 40,000 kilos of steam treated powdered paprika packed in bags of 25 kilos between 1 December 2000 and 30 November 2001. According to this contract, before 18 September 2001, the Seller had delivered to the Buyer 31,000 kilos (33,000 kilos as corrected by the Court of Appeal) of powdered paprika of which the Buyer had returned to the Seller 4,120 kilos (4,210 kilos as corrected by the Court of Appeal). The Buyer had used the powdered paprika in the seasoning mixes it had produced in accordance with its customers' recipes.

The Buyer had not argued that the powdered paprika had not been steam treated but it had argued that in addition to the steam treatment the powdered paprika had also been radiated which was contrary to the contract. Both steam treatment and radiation were used in order to extend the preservation of foodstuffs by reducing the amount of microbes. However, only radiation was regulated exhaustively. In Finland, it had been allowed to radiate mainly dried spices but the radiation had had to be mentioned on the label of the spices. This standard of procedure could have been deviated only when the radiated spice had been used as an ingredient of the foodstuff. Thus, in these cases, it had not been necessary to label the goods with radiation as long as the amount of the ingredient did not exceed 5 percent (13 November 1987/844).[569]

The European Parliament and the Council issued on 22 February 1999 a Directive 1999/2/EC on the approximation of the laws of the Member States concerning foods and food ingredients treated with ionising radiation and a Directive 1999/3/EC on the establishment of a Community list of foods and food ingredients treated with ionising radiation. Finland ratified the Directives by the Decree of the Ministry of Trade and Industry on the processing of foods by ionizing radiation 852/2000. This ratification decree provided that the Directive concerning foods and food ingredients treated with ionising radiation came into force on 20 October 2000, but according to the transitional provisions food stuffs radiated in accordance with the provisions in force earlier were allowed to be sold until 20 March 2001 (15 March 2001 as corrected by the Court of Appeal). In effect, the Directive means that the labelling of the products has tightened in a way that the radiation of any of the ingredients has to be mentioned every time in the label regardless of the amount of the said ingredient. The radiation labelling must be attached in all products and documents relating to them sold to consumers, catering, industry or retail.

The Buyer's witness (the purchase manager Ulla Valkama) told that during 1999 the Seller contacted the Buyer and parties had negotiations in relation to delivering powdered paprika. At that time, the parties were aware of the regulations required by the Directive. Because of this, the steam treatment was specifically required. Furthermore, in Finland the consumers were not willing to buy products where the label stated that they had been radiated. Thus all the Buyer's own customers had required seasoning mixes that did not include spices that had been radiated. Because of this, the Buyer's customers had demanded assurance from the Buyer that the seasoning mixes did not include such spices. For this purpose, the Buyer itself had asked its own suppliers for similar accounts (written evidence number 7-16). When asking the Seller to deliver such a statement in the spring of 2001, the Seller was unable to provide one as Seller had a supplier in Zimbabwe that was not able to provide such a statement. The Seller provided the Buyer such certificate on 11 September 2001 (written evidence number 34).

The contract between the parties did not mention radiation but included a specific demand for steam treatment. Both the Seller and the Buyer were professionals in the field and had operated a long time. Both parties were bound by the regulations provided for in the said Directive. Because the steam treatment and the radiation were meant to achieve the same results, a professional in the field had to understand, taking into consideration the regulations of the said Directive, that the Buyer would not accept radiation at any circumstances even though this was not specifically stated in the contract. This view was supported by the fact that in the spring of 2001 the Buyer requested a certificate stating that the powdered paprika was not radiated at any case.

On the basis of the above, the District Court held that it had been proven that the powdered paprika did not conform with the contract if it was radiated instead of steam treatment.

10.3.4.2 Lack of conformity of the goods

Written evidence number 4 showed the consignments of the powdered paprika delivered to the Buyer -- including their suppliers, dates of delivery and specifically added purchase number which -- according to the Buyer's witness, Quality Manager Leena Ruponen, remained the same throughout the processing so that each consignment could be traced all the way to the recipes.

Written evidence number 3 showed a summary of the samples send to the Customs laboratory including information about the supplier, dates of delivery or dates of manufacturing of the spice mix and the laboratory results. In addition to these seasoning mixes, the Buyer had given the powdered paprika delivered by the Seller to the Buyer between 9 January 2001 and 30 August 2001 to be inspected. Also those instalments included an ingredient that had been radiated. At the same time, the Buyer had inspected several other seasoning mixes and spices that did not include powdered paprika delivered by the Seller, none of which included a radiated ingredient.

According to the Buyer's witness -- Quality Manager Leena Ruponen -- the written evidence number 6 showed that the only combining factor was the powdered paprika. It showed a list of seasoning mixes that included powdered paprika delivered by the Seller and that had been found to be radiated (written evidence number 3). The witness told further that the inspections could have been conducted as the Buyer habitually took a sample from each instalment delivery for possible inspections and the last two samples were stored. Samples from the instalments delivered by the Seller on 11 June 2001 and 30 August 2001 were still usable and also two bags from 20 June 2001 and from 30 August were recovered from the storage. No inspections had been conducted on the instalment delivered on 19 June 2001. The results from the inspections showed which instalments included radiated ingredients and which did not. The testimony of the said witness was considered trustworthy.

The Seller's CEO testified that the Seller had not radiated the used paprikas or the powdered paprika. The Seller did not own equipment needed for radiation. The equipment was expensive and there was no point in radiation in addition to the steam treatment. The powdered paprika was mainly produced from the paprikas delivered from Peru where the Seller had its own supervisors and there were no middlemen in the delivery process. The Seller's CEO was convinced that the paprikas delivered from Peru were not radiated. The Seller had also received paprikas for powdering from Zimbabwe. The CEO did not consider credible that there was radiation equipment in Zimbabwe. The equipment was expensive. A middleman delivered the paprikas from Zimbabwe to the Seller.

Despite the testimony of the Seller's CEO, the District Court held that it was proven -- reference to the tracking system employed by the Buyer and the written evidence presented to the Court -- that the nine instalments of powdered paprika delivered by the Seller to the Buyer between 10 January 2001 and 30 August 2001 had included radiated powder. Thus the powdered paprika was not conforming with the contract as required by CISG Article 35 paragraph (1).

The Court of Appeal confirmed the decision of the District Court in relation to the conformity of the goods.

10.3.5 Decision on the conformity of the goods analysed

The position of the Court is well reasoned. According to CISG Article 35, the goods must conform with the quality and description required by the contract. The question lies, what had been agreed upon? As the Court stated, the parties were professionals acting in the same field of business and were aware of the requirements of the EU Directive. No specific mention was needed in relation to the radiation but both parties ought to have understood that radiation was not allowed.[570] The Court made no reference to the rules of interpretation of the statements or the conduct of the parties but the reasoning nevertheless follows all the aspects of Article 8.[571]

Further, the Buyer had proven that the goods did not confirm with the contract. The Seller, on the other hand, had not provided any evidence to support its claim that the paprika was not radiated. The Seller's arguments on the relevance of the radiation would be more fit in relation to the fundamentality of the breach. The Seller did in its appeal argue that the contract had not been avoided properly as required by Article 26. Because of this, the Seller has had a right under Article 48 to deliver substitute goods to replace the 4,210 kilos returned by the Buyer. According to Article 26, the declaration of avoidance of the contract is effective only if made by notice to the other party. In relation to this claim, the Court of Appeal pointed out that the Seller's CEO had during the court proceedings stated that after it had become clear that part of the goods had been radiated, the whole contract had been annulled. Based on this, the Court of Appeal held that the parties had in fact considered the contract avoided and the Seller's claim had no relevance to the issue. Further, the damages under Article 74 are not limited to cases of the avoidance of the contract (Article 45).

10.4 Examination of the goods and the notice of non-conformity

10.4.1 Facts of the case

In the District Court, the Buyer stated that it had given notice of the defects to the Seller by e-mail on 18 September 2001. Further, the Buyer had demanded compensation for the damages from the Seller in the letter posted on 31 December 2001.

The Seller, on the other hand, argued that the Buyer had not given a notice of the radiation within a reasonable time after the Buyer became aware of it. As the Buyer had become aware of the radiation in the summer of 2001 at the latest, the Buyer had lost its right to rely on the lack of conformity of the goods. Nor had the Buyer fulfilled its obligation under Article 38 to examine the goods. Before the Court of Appeal, the Seller argued further that the reclamation sent by the Seller on 18 September 2001 only stated that the Buyer would return 4,210 kilos of powdered paprika from its warehouse. As the reclamation did not mention other demands, the Buyer had lost its right to claim damages from the Seller.

10.4.2 Decision on the examination of the goods and the notice of non-conformity

The District Court held that the case involved a product on which the radiation could not be detected by external examination. The Buyer had a custom to take a sample from every instalment delivered. Those samples were stored so that the last two samples were kept. According to the Buyer's witness, the goods delivered to the Buyer were forwarded usually to the Buyer's warehouse LA 1 which meant that before the spices were used microbiological test were conducted to the spices. The radiation of the goods was never tested. According to the CEO of Seller, heard as the Seller's witness, the Seller did not conduct radiation tests on its products. Both parties had conducted only those tests that had guaranteed that the foodstuffs/spices were not injurious to health. The said tests could be considered sufficient examination of the goods. On these bases, the District Court concluded that the Buyer had fulfilled its obligation to examine the goods.

As to the timeliness of the notice of lack of conformity, the District Court held that the Buyer had given a notice of lack of conformity as required by Article 39. The Buyer had received a notice from its own customers on 11 September 2001 and immediately notified the Seller about radiation by phone. After the test results had been confirmed, the Buyer had notified the Seller about the defects by e-mail on 18 September 2001. The Court of Appeal confirmed the decision of the District Court.

10.4.3 Court's decision on examination and the notice analysed

The chosen treatment of the spices delivered was an essential term of the contract from the Buyer's point of view. The Court did conclude -- though not in specific terms -- that the Seller could not have been unaware of the essence of the term or that at least a reasonable person of the same kind would have interpreted the term as being essential as the goods were ruled to be non-confirming to the contract.

The question arises that if the non-radiation was that important to the Buyer, why weren't the goods examined in relation to that? Taking into consideration that the applicable EU Directive on the labelling of the radiated products did come into force during the contract period could have supported this view. The emphasis seems to have been on usages and practices of the parties in a certain field of business. The Court concluded that examination that did not reveal the radiation was sufficient as both parties did not conduct that kind of examination customarily. The Seller was ruled to be aware of the new requirements of the said Directive, thus the Seller had been liable for delivering non-conforming goods. The Buyer's obligation under Article 38 to examine the goods did not extend to too complex examination.[572]

In the light of the Court's conclusion, it is understandable that the Buyer was held to have fulfilled its obligation to give notice of the defects in time. If the Buyer had been held to not to have fulfilled its obligation to examine the goods properly within as short a period as was practicable in the circumstances the Buyer would have probably also lost its right to rely on the defects under Article 39.

10.5 Exemption for liability to pay damages

10.5.1 Facts of the case

The Seller argued that it could not be liable for -- according to Article 79 -- the factor beyond his control, i.e. for the fact that the party who delivered the goods to the Seller might have radiated the goods. The Seller renewed this argument in the Court of Appeal.

10.5.2 Sphere of application of Article 79

According to Article 79(1), a party is not liable to pay damages if he proves that a failure to perform any of his obligations was due to an impediment beyond his control and that he could not reasonably be expected to have taken the impediment into account at the time of the conclusion of the contract or to have avoided or overcome it or its consequences. Article 79(2) provides that if the party's failure is due to the failure by a third person whom he has engaged to perform the whole or a part of the contract, the exemption applies only if the party himself would be exempt under Article 79(1) and if the third party engaging in performance would also be exempt under Article 79(1). The third person referred to in Article 79(2) does not include suppliers of the goods or of raw materials to the seller.[573] If the party engaging in performance is not considered to be a third person within the meaning of Article 79(2), this party is part of the personal risk of the promisor. Because of the double standard of Article 79(2), in effect the exemption under 79(2) is even harder to acquire than the exemption under Article 79(1).[574]

Professor Honnold is of the opinion that the delivery of defective goods does not fall within the scope of Article 79. Article 79(4) requires that the non-performing party exempted under paragraphs (1) or (2) must notify the other party of the impediment and its effect on his ability to perform. In case of hidden defects, this requirement seems strange.[575] However, different opinions have also been presented, i.e. that Article 79 is also applicable in cases where the seller fails to supply conforming goods as required by Article 35.[576]

In German case law, the issue had been left open. In Bundesgerichtshof (BGH) VIII ZR 121/98 (24 March 1999) the German court confirmed the seller's liability without deciding whether or not article 79 was applicable, stating that even if it was applicable, it would not exclude the seller's liability since the defect in the vine wax in that case was not an impediment beyond the seller's control: Thus, the court left open the question of whether or not Article 79 could be raised as a defence against all kinds of non-performance, including the delivery of defective goods. The court however pointed out that the exemption provided under article 79 does not alter the allocation of risk. Liability of the seller resulted from his failure to comply with his obligation to deliver conforming goods; it made no difference whether the defect was the fault of the seller or his supplier: when the defects of the goods are caused by the seller's supplier, the seller is only exempt from liability under article 79 - if applicable at all -- if the failure to perform is due to an impediment beyond the control of the seller and the seller's supplier. Also in Bundesgerichtshof (BGH) VIII ZR 304/00 (9 January 2002), the court referred to Article 79. The court left open whether Article 79 can generally be applied to goods that do not meet the contractual requirements. However, the court further stated that in any case the seller had not shown that the causes for the inactive lipase of the powdered milk in that case were outside his sphere of influence; in effect suggesting that Article 79 might in fact apply in case of non-conforming goods.

In Tribunal de Commerce de Besançon 97 009265 (19 January 1998) a French court has applied an exemption provided for in Article 79 to a seller that delivered non-conforming goods. The case involved a sale of judo-suits between a Swiss buyer and a French seller. After receiving complaints from its own customers by reason of the excessive shrinking of the goods during washing, the buyer gave notice to the seller of the defect and eventually commenced a legal action for avoidance of the contract and damages. The court held that the buyer had given notice of the lack of conformity within the two-year limit provided for by Art. 39(2) CISG. The Court also concluded that the buyer was entitled to avoid the contract (Art. 49 CISG) and be awarded damages. In determining the amount of damages, however, the Court observed that the buyer had not proved that all goods received were defective and he had made a profit out of at least a part of the goods. It further pointed out that the seller's failure to perform was due to an impediment beyond his control since the goods had been manufactured by a third party and there was no evidence that the seller had acted in bad faith (Art. 79 CISG). The court specifically stated that the manufacture and elaboration of the fabrics were beyond seller's control. The Court ordered a reduction of the purchase price by 35% and therefore ordered the seller to reimburse the buyer accordingly. The court did not state whether the exemption was granted by Article 79(1) or by Article 79(2) If the manufacture of the goods acted as a third person as provided for in Article 79(2) the court ignored the fact that in order for the seller to be exempt under Article 79(2) also the third person must be exempt under Article 79(1). The court's reasoning in estimating the damages by conciliating them by way of referring to Article 79 is also unacceptable. When the seller is exempt under Article 79 it is true that the buyer can still recourse to any other remedies available under the CISG (Article 79(5)), including the reduction of the price under Article 50. Neither of these provisions was apparently discussed.

10.5.3 Conditions for exemption

The impediment which precludes a party from performing his obligations must be beyond his control, unforeseeable and unavoidable.[577] Thus the impediment -- such as war or natural catastrophe -- must fall outside the promisor's sphere of control.[578] If the promisor ought to have foreseen the existing impediment or likelihood of the impediment at the time of the conclusion of the contract, the promisor is not exempt under Article 79.[579] Further, if it is possible and reasonable for the promisor to overcome the effects of the impediment, the exemption does not apply.[580] A party who is under an obligation to act must do all in his power to carry out his obligation.[581] In relation to suppliers, the seller normally bears the risk that the Seller's suppliers will breach.[582]

10.5.4 Decision on exemption

The District Court stated that the sales agreement between the Seller and the Buyer bound both parties. In addition, the Seller had been aware of the regulations required by the said EU Directive, i.e. also the Seller itself was required to label the products if they had been radiated. The Seller was obligated to deliver goods that were in conformity with the contract and thus the Seller was liable for the fact that the goods were radiated. It was not a question of an impediment beyond the Seller's control as required by Article 79(1). The Court of Appeal confirmed the decision of the District Court. The Seller had not shown that the failure to perform its obligations was due to an impediment beyond its control.

The reasoning of the courts follows the rule according to which the seller normally bears the risk for his own suppliers. However, in light of the Tribunal de Commerce de Besançon 97 009265 (19 January 1998), the Seller's claim could have succeeded. Taking into consideration that the buyer seldom has a contractual relationship with the seller's supplier, the approach that the seller would not be liable for his supplier's breach seems harsh to the buyer.[583] The impediment in sense of Article 79 ought to be defined strictly to unpredictable events outside the sphere of influence of the party in breach.

Thus, it is easy to concur with the conclusion of the courts. However, the argumentations of the courts are surprisingly short and do not go deep into the problems of Article 79. The courts dismissed the Seller's claim on its merits not because the exemption under Article 79 was not applicable in case of hidden defect. Can it be concluded from this that the courts took the position that exemption under Article 79 was applicable even though the case involved a breach of contract due to Article 35. Or did the courts take a position that the exemption under Article 79 did not apply to non-conforming goods? Neither the District Court nor the Court of Appeal paid any attention to this issue.

Further, the courts did not refer to the second paragraph of Article 79(2); nor did the Seller in his claim. In case of a third person engaging in performance a double standard of impediments must be fulfilled. In this case, the Seller's supplier of the paprika should have shown that the radiation of the paprika was also beyond its control and it could not have taken the radiation into account. As a producer of the goods, providing proof on this argument would be very difficult. As the steam treatment and the radiation were both used in the market in question, the most probable reason why radiated paprika was delivered could be that the Seller and his suppliers simply did not pay any attention to the treatment of the paprika.

10.6 Damages

10.6.1 Buyer's claim in the District Court

The contract between the Buyer and its own customers required that seasoned mixes be delivered and that the powdered paprika included in them must be treaded with steam. Because of the breach of contract committed by the Seller, the Buyer had been liable under its own contracts to compensate one of its customers with 72,103.85 euros for the products withdrawn from the market and to other seven customers all together 31,302.88 euros as a compensation for the products the Buyer redeemed back. Further, the Buyer had been forced to destroy all the products in its own warehouse and book them as a deficit. The amount of damages and compensations the Buyer had been liable towards its own customers, the deficit of the Buyer's warehouse and the cost incurred when gathering the information amounted all together to 161,098.07 euros.

10.6.2 Seller's reply in the District Court

The Seller argued that the Buyer had not taken any measures to mitigate the loss. Instead of withdrawing the products from the market and destroying them, the Buyer or his clients should have labelled the products as required by the Directive. By acting in that manner, no damages would have occurred or at least the damages would have been less than caused by destroying the products. According to Article 77, the Buyer had a duty to mitigate damages. In any case, the Buyer had no right to destroy the powdered paprika or products including it that were still in his warehouse. These products could have been sold after labelling them correctly and thus the damages would have been reduced.

The Buyer had not given the Seller a chance to mitigate the damages, for example, by discussing alternative ways of dealing with the problem. Nor could the Buyer have agreed to bind the Seller to an agreement with a third party about damages exceeding that which would be provided for under the law.

In addition, the Seller argued that the damages claimed by the Buyer were from the Seller's point of view totally unforeseeable. According to Article 74, the damages may not exceed the loss which the Seller foresaw or ought to have foreseen at the time of the conclusion of the contract. The Buyer's actions, the withdrawal of the products from the market and destruction of the goods, were unforeseeable and oversized. The original purchase price had been only slightly over half of the damages claimed. The damages claimed were in any case unreasonable. Thus at least the damages ought to be conciliated.

10.6.3 Demands in the Court of Appeal

In the Court of Appeal, the Seller again argued that CISG Article 74 had been applied incorrectly. The Article does not extent the causality between the breach of contract and the damages but limits it. Not one of the Buyer's claims was related only to the products delivered by the Seller but also to the end products, where the Seller's products were used as an ingredient. The claims against the Buyer had no relevance in relation the contract of sale between the Buyer and the Seller.

The damages claimed were not foreseeable to the Seller, thus there was no liability for damages. The largest amount of damages paid by the Buyer to its own customers (72,103.85 euros) consisted of damages for ground meat steaks manufactured for deep-freezer storage. These products could have been sold and the selling could have continued even after 15 November 2001, if the products had been put for sale. The products had been manufactured already in the summer of 2001 and thus before 15 November 2001. The third largest amount of damages (31,302.88 euros) consisted of damages for products returned to the Buyer by its own customers. It had remained unclear why the products had been returned instead of selling them. The selling of the products would have reduced the damages the Buyer had paid to its own customers. The Seller had aimed to negotiate in order to agree on the issue between the Seller and the Buyer. The Buyer's liability towards its own customers was based on the breach of contract, not on damages incurred. The amount of damages could be at the most the actual purchase price 62,527.50 euros. In any case, the damages must be conciliated.

In relation to the legal costs, the Seller stated the case had been unclear in relation to the basis and the amount of damages and taking into account the circumstances that had led to the litigation, it was unreasonable if the Seller was ordered to compensate the legal costs and expenses incurred by the Buyer in full.

The Buyer insisted that it had had negotiations with the Seller and offered the Seller a chance to take part in gathering the information in relation to the problem. The Seller had had a chance to influence the amount of damages. Further, the Buyer stated that the damages incurred had been foreseeable and not distant and unusual. In addition, the contract value or the amount paid under the contract had no relevance to the issue. Nor was there an Article in the CISG that would allow the conciliation of the damages. As to the avoidance of the contract, the Buyer stated that the contract had been avoided silently.

10.6.4 Mitigation of the damages

Under Article 77, the injured party must take adequate preventive measures to mitigate his loss. These appropriate measures include the buyer obligation to remedy the hidden defects of the goods delivered to him by the seller, provided that such measures are not excessive.[584]

In the light of the case law, the buyer's proposition to reduce the price of the future sale has been a sufficient way to mitigate the losses. In I.C.C. International Court of Arbitration, 8786 of January 1995, the arbitral panel held that the seller did not offer any evidence which would suffice to hold that the buyer did not take necessary measures to mitigate damages. The evidence revealed that before the date for delivery the buyer's agent learned that the seller would have difficulty making timely delivery. Accordingly, the buyer's agent forwarded a proposal to buyer's sub-agent to accept late delivery from the seller for a reduction in price of 10%. The seller's own admission that a reduction in sale price would be warranted where seasonal goods (in this case clothes) were sold at the end of the season would seem to imply that such a proposal would have been acceptable to the seller. Thus, there was insufficient evidence that the buyer failed to take measures to mitigate damages and therefore his recovery would not be reduced pursuant to Article 77 CISG.

The fact that the buyer has not attempted to find a replacement for the defective goods outside the local region has been found not to have fulfilled the duty to mitigate. In Oberlandesgericht (OLG) Celle, 3 U 246/97 (2 September 1998) the German court found that the buyer had failed to mitigate the loss under article 77, as he had made only efforts to effect replacement purchases in his region, without taking into account other suppliers in Germany or abroad.

10.6.5 Decision of the District Court on damages

The District Court concluded that the question was whether the damages claimed by the Buyer included such damages that were so remote and exceptional that the Seller could not be held liable for them. The case involved two companies that both operated in the same field of business. Both parties were bound by the EU Directive on the radiation of the food ingredients; according to which also the Seller should have mentioned the radiation in its own packaging. The District Court held that the Seller ought to have understood that if the powdered paprika was radiated contrary to the contract, the selling of the radiated products might cause damages to the other party.

The basic principle underlying the law on damages states that the injured party should try to prevent the damage occurring and should try to mitigate the loss. In these cases, one has to consider whether it is reasonable to require certain measures for preventions. The injured party must act in a reasonably diligent manner in preventing the damage. In this particular case, one must consider whether the Buyer could have mitigated the losses by negotiating with its own customers. The District Court saw that it was plausible that the Buyer's customers were not willing to renew the packaging information at any point. The only possibility for the Buyer to mitigate the losses was therefore the possibility to sell the seasoning mixes to an outsider. The Seller did not want the seasoning mixes. The seasoning mixes were produced in accordance with the Buyer's customers' recipes. The Buyer and the Seller had had negotiations about the problem without reaching a solution.

The burden of proof in relation to the Buyer's opportunity to prevent or mitigate the loss or part of it lied on the Seller. The Seller had not actually been able to prove that the Buyer could have in some way prevented or mitigated the loss. It remains guesswork whether the Buyer and his customers who had produced minced beef patties for the freezer could have acted differently in order to mitigate the losses. The customer would have had a possibility to sell the product at least until 15 November 2001. The Buyer's own witness had given testimony that in September 2001 the Food Agency had given permission that the goods including the Buyer's seasoning mixes did not have to be withdrawn immediately from the market, but those goods could be sold until 15 November 2001 without changing the labels. Despite what had been mentioned, the District Court held that the Buyer had not acted contrary to the requirements set out in Article 77.

Finally, the District Court gave a judgement on the amount of damages. The original contract value of the powdered paprika had been 90,000 euros. Thus the damages claimed were almost the double the amount compared to the contract value. Taking into consideration that the non-conforming goods were not unsuitable to consume as foodstuffs but the non-conformity was related to the labelling of the goods, the Buyer's customers had been given more than a month's time to sell the goods despite the incorrect labelling, the consumers and foodstuff manufactures had different attitudes towards the radiation in different countries, the Seller had no opportunity to influence the contents of the contracts about the damages between the Buyer and his customers, the District Court held that the damages claimed exceeding the contract value, were unreasonable. On these grounds, the District Court awarded the Buyer 90,000 euros in damages.

10.6.6 Decision of the Court of Appeal on damages

Firstly, the Court of Appeal stated that the starting point in relation to the damages is that the injured party is to be placed on the same position he would have been had the contract been fulfilled properly. Thus, the amount of damages may exceed the contract value of the sales contract.

The Court of Appeal also acknowledged that the Seller had been aware of the fact that the Buyer had acted as an intermediate, i.e. the Buyer had sold the products delivered by the Seller further to its own customers. In these circumstances, the Seller ought to have understood already at the time of the conclusion of the contract that if the goods delivered to the Buyer did not conform with the contract the Buyer might not be able to fulfil its contractual duties towards its own customers and that this might cause damages to the Buyer. The amount of damages the Buyer claimed consisted of compensation paid by the Buyer to its customers because the goods were withdrawn from the market, compensation paid for redeemed goods, cost for destroying the powdered paprika in the Buyer's warehouse, cost for booking the powdered paprika as deficit, labour- travelling- and cargo costs incurred in investigating the matter, cost for analysing and destroying the goods. All the damages claimed by the Buyer ware of such nature that could be compensated under CISG Article 74. In relation to Article 77 and the mitigation of the damages, the Court of Appeal confirmed the decision of the District Court.

In relation to the conciliation of the damages, the Court of Appeal stated that the CISG did not include any provisions according to which the damages could be conciliated or amended for reasons of equity. However, as the proof in relation to the amount of damages suffered by the Buyer was hard to acquire, the Court had a right to estimate reasonable damages as provided for in the Finnish Code of Judicial Procedure Chapter 17, Section 6.[585] The Court of Appeal estimated that the amount of damages caused to the Buyer amounted to 150,000 euros.

10.6.7 Legal costs

Both parties claimed damages for the legal and other cost incurred. The District Court ordered the Seller to compensate the legal cost of the Buyer. The Buyer's claim was only partially upheld but the part of claim that was not upheld, i.e. the amount of damages concerned solely a matter of discretion.[586] The Court of Appeal stated that there were no grounds to change the ruling of the District Court in relation to the legal costs. In relation to the legal costs incurred in the Court of Appeal, the Court of Appeal stated that the Buyer had won on the appeal and the Seller had lost. Thus the Seller was liable for compensating the Buyer's legal costs in the Court of Appeal.

10.6.8 Decision on damages analysed

10.6.8.1 Foreseeability of damages and mitigation

Consequential losses, such as loss of profit and the loss suffered by the buyer as a result of being held liable to a third party are compensable in the light of the foreseeablity rule if the seller knew or a reasonable person in the same position and with the same knowledge ought to have known the relevant circumstances influencing the situation.[587] In Landgericht (LG) Landshut, 54 O 644/94 (5 April 1995) the seller had breached his own contractual obligations by delivering sportware that shrank disproportionately. The German court held that the buyer could claim damages -- among the others -- based on the price reduction given by the buyer to its own customers, the expenses resulting from the measures for processing the claims from the consumers, the expenses for crediting the returned goods and the cost for affecting a resale of the defective goods. The court's decision in relation to damages compensable to the Buyer follows the above ruling.

The conclusion that the Buyer had not breached its duty to mitigate the loss is however more controversial. Because of the said EU Directive, the goods that did not include a notice of radiation were not allowed to be sold. Especially in relation to the beef patties, the question arises as to the amount of damages had the labels been changed or a new market outside the European Union had been found?[588] Furthermore, as noted, for a certain period the goods could have been sold without any changes to the labels. In the light of the knowledge on the Finnish consumers and their attitude towards radiation, this would not perhaps been possible in fear of losing the good will value of the goods and the producer, but, however, this possibility and its consequences on the amount of damages ought to have been considered and evaluated.

10.6.8.2 Conciliation

There is no specific provision in the CISG on conciliation. If the parties have made no indication to the conciliation, can the Court supplement the contract or have recourse to the rules of domestic law on conciliation by way of the rules of international law?[589]

Article 7 provides that in the interpretation of this Convention regard is to be had among the others to the observance of goods faith in international trade. In addition Article 7(2) provides that the questions concerning matters governed by this Convention which are not expressly settled in it are to be settled in conformity with the general principles on which it is based on. The notion of good faith was, however, specifically left to concern only the interpretation of the Convention and it cannot be applied directly to individual contracts.[590] Further, even if a standard of good faith in international trade could be established in relation to conciliation, this does not mean that it would override clear decisions embodied in provisions of the CISG.[591] Article 74 embodies the principle of full compensation.[592] No domestic rules on conciliation are allowed to be applied.[593]

Reference should also be made to Article 8. According to Article 8 on interpretation, the determination of contract content is based on the actual, common intent of the parties. If only one party's intent is determinable, the other must be aware what the intent was. If no such intent is determinable, the objective approach is adopted and the contract is interpreted according to the understanding that a reasonable person of the same kind as the other party would have had in the same circumstances.[594] Article 8 also has a function in supplementing contacts.[595] Also in this respect it has been held that the Convention does not permit one to strike out unfair contract terms based on good faith and Article 8. Nor can the reduction of a contractual penalty on grounds of equitableness be supported by Article 8.[596]

The solution of full compensation adopted in the CISG is in itself limited by the foreseeability required by Article 74 and further by the mitigation requirements set out in Article 77.[597] The party in breach is only liable for damages he foresaw or ought to have foreseen at the time of the conclusion of the contract, in the light of the facts and matters of which he then knew or ought to have known, as a possible consequence of the breach of contract. The basic approach is that the foreseeablity of the damages is judged objectively by way of referring to a reasonable person in the same circumstances. However, if at the time of the conclusion of the contract the party that eventually is liable for the breach of contract has some special knowledge of the unusual risk, the liability may be extended.[598]

Professor Lookofsky has raised a controversial question whether the foreseeability limitation in Article 74 would function as a sufficient surrogate for other domestic law standards designed to prevent compensation for "disproportionate" loss.[599] As Professor Lookofsky has stressed, the courts ought to be cautious in taking into consideration the conceptions of the domestic law.[600] Article 7 itself requires that in interpretation of the Convention regard is be had to its international character and to the need to promote uniformity in its application. Further, it can be argued that the duty to mitigate and the references to reasonableness lead to the conclusion that conciliation of excessive damages is an issue governed by the CISG but not expressly settled in it and thus must be settled in conformity with the general principles on which it is based.

According to the Finnish Sale of Goods Act, Section 70 paragraph (1), the injured party must take reasonable measures to mitigate his loss. If he fails to do so, he must bear the corresponding part of the loss himself. Paragraph (2) provides for adjustment of damages: the amount of damages payable to the injured party may be adjusted if the amount is unreasonable taking into account the possibilities of the breaching party to foresee and prevent the loss as well as other circumstances. In conciliating the damages, all the relevant circumstances of the individual case must be taken into consideration, including the nature of the sale, the reason for the breach of contract, the extent of the damages and who the parties to the contract were. Conciliation is a clear departure from the principle of full compensation of damages and it should be applied exceptionally.[601] Most importantly, the CISG does not include a similar provision on conciliation.[602]

It seems that the District Court stumbled into a classical error. It applied the domestic law on conciliation without a blink of an eye even though the CISG was applicable. The Court of Appeal took the correct approach in this respect. As noted above, there is no rule on conciliation of damages in the CISG above the rule on foreseeability. However, as to the proof of damages, the decision of the Court of Appeal is questionable. The burden of proof in relation to Article 74 lies on the party who is claiming damages. The damaged buyer has the burden of proving the objective prerequisites of his claim for damages, i.e. the damage, the causal link between the breach of contract and the damage, as well as the foreseeability of the loss.[603] It has also been argued that in order to discharge the burden of proof the party in breach has to substantiate the amount of loss he suffered. Purely domestic rules which allow the abstract calculation of damages or presume that a loss has occurred should not be allowed when applying the CISG.[604]

11. CONCLUSION

11.1 Applicable law

The CISG had now been in force in Finland more than 18 years. Yet the decisions by the Court of Appeal are certainly rare pleasure for those operating in the field on international sales law, professionally or academically. Unfortunately this means that also the courts must tackle issues relating to the CISG only rarely.

Especially when rulings relating to the CISG by public courts are not that common in Finland it is important that the issue of applicable law is discussed thoroughly. The declaration not to be bound by Part II of the Convention also adds importance to the determination of the applicable law. In addition, as noted several times, not all issues that are dealt within the international sales are covered by the CISG. The determination of the applicable law relating to those issues is therefore also important. It seems that those residual issues are not seen that important as the main dispute naturally involves the actual sale of goods, such as delay in delivery or non-conformity of the goods.

In general, the basic rules on applicability had been applied correctly. Even when the other party's place of business was in a non-Contracting State (the United Kingdom), the Court correctly applied the CISG by virtue of conflict of law rules and Article 1(1)(b) (District Court of Kuopio, 95/3214 (5 November 1996); Chapter 3). From the nine decision under scrutiny in this theses, in only one did the District Court make a classical error and apply the Finnish Sale of Goods Act rather than the CISG (District Court of Helsinki, Judgment 17450 (18 July 1995)). Fortunately, the error was corrected by the Court of Appeal (Helsinki Court of Appeal, S96/1129, 29 January 1998; Chapter 5).

However, a more detailed and thorough analyses on the basic rules on applicability would have been in order in many cases. Furthermore, the fundamental problem lies in relation to the Courts' reasoning in relation to the law applicable to the issues not covered by the CISG. In some cases, the Court did refer to the conflict of law rules in relation to some aspects of the case while ignoring the issue in other respects (e.g. in Turku Court of Appeal, S 95/1023 (18 February 1997); Chapter 2, the Court analysed the applicable law in relation to the partial payment to be credited but not in relation the rate of interest).

The discussion in relation to the law applicable on the rate of interest would create an interesting dialogue and most importantly would clarify the sphere of application of the CISG; though not perhaps the most essential aspect of the dispute. More dialogue in relation to the sphere of application of the CISG in general is needed. From the Finnish perspective, for example, the meaning and the purpose of the declaration not to be bound by Part II of the Convention stays obscure as even the courts applying the CISG do not see the issue that important. In Helsinki Court of Appeal, S 01/269 (31 May 2004); Chapter 9, the courts had a splendid change to evaluate the relationship between the rules on interpretation and rules on the formation of the contract. Unfortunately, neither the District Court nor the Court of Appeal took this challenge.

Most importantly, the applicable law is the starting point in any dispute if the contract itself does not provide answers. International collaboration is part of the current legal realm. In order to be acquainted with and adapt to this new framework it is important to start from the basics and then more forward to the substance of the case. The sphere of application of the CISG must be clear in order to promote the uniformity in its application. Too hasty recourse to the domestic rules reflects the courts' unfamiliarity with the CISG. The CISG needs to be read and applied in an international vacuum, free from any preconceptions based on the national sales law.

11.2 Uniformity in the application of the CISG

The literal meaning of the CISG provision relating to the very core and basic questions of substance of international trade, such as conformity of the goods or examination of the goods, had been understood by the courts -- with a reservation of whether the Courts had sincerely taken into account the international nature of CISG as noted above. However, as the problems arose, no special attention had been given. For example, in relation to the burden of proof, the courts seemed to have overlooked the plain words of the CISG. Under the CISG regimen, the amount of damages is limited in the first place by the foreseeability element as provided for in Article 74. However, in Helsinki Court of Appeal, S 00/82 (26 October 2000), Helsinki Court of Appeal, S 01/269 (31 May 2004) and Turku Court of Appeal, S 04/1600 (24 May 2005) the courts took the approach that the burden of proof as to the amount of damages was a question of a procedural nature.

The recourse to the Finnish rules on procedure should not be used too hastily. Uniform application of an international instrument -- whether relating to the questions of substance or questions of proof -- is essential in order to protect the confidence and reliance upon it. When applying the CISG, national courts should avoid recourse to local concepts used in the legal system of the country of the forum. Each Article and each concept embodied in the CISG must be construed in uniformity within the international legal community, irrespective of the legal traditions and framework of the country where the court is situated.[605]

Uniformity is, however, hard to acquire as the courts do not pay attention to comprehensive case law now readily available.[606] Whether in Finland the fact that the courts seem to be careful in referring to case law in general in their reasoning influences the decisions now under scrutiny is purely a guess. However, the nature of the international case law does not need to be taken as binding but can be seen as a guide when interpreting the CISG.[607]

In addition to the international case law there are international scholarly writings readily available in written form and through the internet. Scholars are not omniscient but their detailed and comparative analyses could be used as an aid in determining the uniform application of the CISG.[608] Out of the nine decision under detailed scrutiny in this theses, only once did the Court refer to international scholarly writing (District Court of Helsinki, judgment 28966, 97/20514 affirmed in relation to the reasoning by the Helsinki Court of Appeal, S 00/82 (26 October 2000)), however not by the author and not specifically to the writing relating to the CISG. The change is however in the air.

11.3 Supreme Court 2005:114, S 2004/50 (14 October 2005)

11.3.1 Classification of the issues present

The case involved a sale of a log house kit in connection with a contract of agency. A Finnish company (the plaintiff) had sold a log house kit to a German buyer (the defendant) to be used as his and his family's home but also as a model house in connection with the agency.

The case had firstly been tried by the District Court of Heinola as early as in January 2003. The case had then been dismissed on the grounds of jurisdiction. The Court of Appeal of Kouvola confirmed the decision in November 2003. The plaintiff petitioned for and was granted leave to appeal by the Supreme Court. The Supreme Court returned the matter to the District Court to be retried on the matters relating to the CISG. The decision by the Distrcit Court of Heinola given in April 2006 was again appealed. The decision of the Court of Appeal of Kouvola in March 2007 became final.

11.3.2 Jurisdiction and applicable law

In relation to the jurisdiction, the Supreme Court had first to resolve the issue whether the buyer was a consumer. The sale of a log house kit had been concluded on the same day as the contract for agency. The negotiations for both contracts had been held simultaneously and the contracts had been signed concurrently. By referring to several judgements of the European Court of Justice (among the others mentioned C-269/95, Benincasa, Judgment 3 July 1997 and C-464/01, Gruber, Judgement 20 January 2005) the Supreme Court concluded -- contrary to the District Court and the Court of Appeal -- that the sale of the log house kit was closely connected with the Buyer's business operations and that the connection between the sale and the business operations could not be held insignificant taking into account the agreement as a whole. The Buyer could not be held to be a consumer as provided for in the Brussels Convention.

The next question related to the place of performance. According to Article 5 Paragraph 1 Subparagraph 1 of the Convention in matters relating to a contract, the action must be brought in the courts for the place of performance of the obligation in question.

In relation to this matter, the District Court had applied the 1980 Rome Convention. The reference in the agency agreement to the Finnish law did not suffice; as the parties had not made an explicit choice on applicable law, according to Article 4 of the 1980 Rome Convention, the contract is governed by the law of the country with which it is most closely connected. Article 4(2) provides that it shall be presumed that the contract is most closely connected with the country where the party who is to effect the performance which is characteristic of the contract has, at the time of conclusion of the contract, his habitual residence, or, in the case of a body corporate or unincorporate, its central administration. The Official Report on the 1980 Rome Convention provides some examples in identifying the characteristic performance of a contract. Usually in the modern contract one party's obligation takes the form of money and the other party's obligation the form of delivery of goods, the provision of a service, transport, security etc., depending on the type of the contract. It is the performance for which the payment is due which usually constitutes the characteristic performance of the contract.[609] Thus the applicable law was the Finnish law according to which a debt of money must be paid at the debtor's place and the claim in question could be tried in Finland. However, as note above, the District Court dismissed the case on the grounds that it held the Buyer to be a consumer, thus the contents of the Finnish law was not discussed further. The Court of Appeal had confirmed the District's Court's decision on the status of the Buyer.

The Supreme Court noted that according to Article 21, the application of the 1980 Rome Convention does not prejudice the application of international conventions to which a Contracting State is, or becomes, a party. Both Finland and Germany were contracting parties to the CISG and thus the CISG was the applicable law. The Supreme Court took into account CISG Article 2(a) which states that the Convention does not apply to sales of goods bought for personal, family or household use, unless the seller, at any time before or at the conclusion of the contract, neither knew nor ought to have known that the goods were bought for any such use. The Supreme Court held that taking into account the legislative history of the Convention, Article 2(a) must be interpreted to mean that the CISG is also applicable in relation to the sale of goods where the goods are bought only partly for business purposes and partly for personal use. When drafting the Article, it was considered whether the principal purpose of use ought to be given any significance in determining the scope of the Convention but this proposal was dismissed. The meaning of Article 2(a) must be interpreted restrictively so that it applies only to sales of goods for exclusively personal use.

Progressively, the Supreme Court specifically referred to Professor Schlechtriem's Commentary on the UN Convention on the International Sale of Goods (CISG), 1998, p. 32 and other commentary by Jan Ramberg and Johnny Herre, Internationella Köplagen (CISG) 2004, p. 93. Thus even though the immediate and principal purpose of the log house was to function as a home for the buyer and his family the sale had a connection to the agency business to be commenced at a later stage. In relation to the scope of application, the intended purpose of goods was decisive not the actual use (the agency had not been commenced at all due to the disagreements between the parties).

Thus the place of performance was to be determined by the rules of the CISG. According to Article 57(1)(a), if the buyer is not bound to pay the price at any other particular place, he must pay it to the seller at the seller's place of business. Thus the purchase price referred to in the claim must be paid for at the seller's place of business, in Finland. The Court has jurisdiction to examine the claim and therefore the matter was returned to the District Court.

11.3.3 Decision commented

The questions in dispute relating to the actual contract and the CISG and involved among the others the dispute on the contents of the contract, the dispute on the conformity of the goods, whether the reclamation was given within a reasonable time and whether reasonable measures where taken to mitigate the losses.

The detailed and well reasoned approach by the Supreme Court is the approach to be promoted and recommended. The fact that the case involved an EU-connection may have influenced the more liberal use of international sources of law. Unfortunately, the lower courts did not fully follow the lead. However, the core of the case in relation to the contract itself and the issues covered by the CISG had todo with evidentiary issues where CISG in essence surely sets the legal boundaries and consequences for the certain acts but does not of course determine as such what has actually happened between the parties. Nevertheless, the criticism presented earlier applies also here: in order to fully appreciate and honour the international nature of the Convention, those who apply it and interpret it ought to emphasize also international sources of law -- academic literature as well as case law - more thoroughly and openly.

11.4 Finally

It has been a pleasure analysing the published cases relating to the CISG. From the academic point of view, the CISG is captivating and raises endless questions. From the legal praxis view, these problems I have raised in this thesis do not perhaps relate to reality in every day business life. However, I have had a luxury of going through every case step by step, reflecting my views through international scholarly writings and case law. In some proportion, this would benefit not only the court clerks, judges and justices struggling with cases dealing with the CISG but also business partners, in-house lawyers and others dealing with international trade on an every day basis. The CISG is a truly uniform law readily available to all business partners regardless of background and prejudice. This change should be exploited more readily.


FOOTNOTES

1. As of March 4th, 2009, the Contracting States are: Argentina, Armenia (entry into force 1 January 2010), Australia, Austria , Belarus, Belgium, Bosnia and Herzegovina, Bulgaria, Burundi, Canada, Chile, China, Colombia, Croatia, Cuba , Cyprus, Czech Republic, Denmark, Ecuador, Egypt, El Salvador, Estonia, Finland, France, Gabon, Georgia, Germany, Ghana (no ratification), Greece, Guinea, Honduras, Hungary, Iceland, Iraq, Israel, Italy, Japan, Kyrgyzstan, Latvia, Lebanon (entry into force 1 December 2009), Lesotho, Liberia, Lithuania, Luxembourg, Mauritania, Mexico, Moldova, Mongolia, Montenegro, Netherlands, New Zealand, Norway, Paraguay, Peru, Poland, Republic of Korea, Romania, Russian Federation, Saint Vincent and the Grenadines, Serbia, Singapore. Slovakia, Slovenia, Spain, Sweden, Switzerland, Syrian Arab Republic, The former Yugoslav Republic of Macedonia, Uganda, Ukraine, United States of America, Uruguay, Venezuela (Bolivarian Republic of, no ratification), Zambia. United Nations Commission on International Trade Law (UNCITRAL), <http://www.uncitral.org/uncitral/en/index.html> - UNCITRAL Texts and Status - International Sale of Goods (CISG) - 1980-United Nations Convention on Contracts for the International Sale of Goods (CISG) - Status.

2. For a brief history of the development of the CISG see Honnold 1999, p. 5-12, Ferrari 1995, p. 2-6.

3. Act concerning the acceptance of some of the provisions of the Convention on Contracts for the International Sale of Goods 20.3.1987, 795/1988.

4. Degree 16.9.1988/796.

5. HE 93/1986, p. 4.

6. HE 198/1986, p. 5-6.

7. See further on the sphere of application Chapter 2.2.2.2 CISG and the Conflict of Law Rules.

8. Chapter2 states: "The provisions of this Act are subject to the provisions of the Consumer Protection Act (38/1978)."

9. FSGA Chapter 67: (1) Damages for breach of contract consist of compensation for expenses, price difference, lost profit and other direct or indirect loss due to the breach. (2) Indirect loss consists of the following: (1) loss due to reduction of interruption in production or turnover; (2) other loss arising because the goods cannot be used as intended; (3) loss of profit arising because a contract with a third party has been lost or breached; (4) loss due to damage to property other than the goods sold; and (5) other similar loss that is difficult to foresee. (3) Loss incurred by the injured party for mitigation of loss not covered by paragraph (2) shall, however, not be considered indirect loss. (italics added here).

10. E.g. Chapter 27 (1) provides: "The buyer is entitled to damages for losses that he suffers because of the seller's delay in delivery, unless the seller proves that the delay was due to an impediment beyond his control which he could not reasonably be expected to have taken into account at the time of the conclusion of the contract and whose consequences he could not reasonably have avoided or overcome." - Paragraph (3) continues: "Indirect losses specified in Section 67 are not recoverable under paragraphs (1) and (2) of this section." However, according to paragraph (4): "The buyer is always entitled to damages, including indirect losses, if the delay or loss is due to negligence attributable to the seller."

11. The Brussels Convention has since been replaced by the Council Regulation (EC) No 44/2001 of 22 December 2000 on jurisdiction and the recognition and enforcement of judgments in civil and commercial matters (Brussels I Regulation).

12. <http://www.cisg.law.pace.edu/>

13. Chapter 5 deals with the decision of the District Court of Kuopio, 95/3214 (5 November 1996). The Court of Appeal of Eastern Finland, S 96/605 (27 March 1997) tried the case only in the relation to the joint liability of the Seller and the Seller's CEO. The CISG issues were not appealed.

14. Ferrari 1995, p. 13; Honnold 1999, p. 35.

15. Ferrari 1995, p. 14-15.

16. Honnold 1999, p. 79-80.

17. See commentary on Article 2: e.g. Honnold 1999, p. 46-55; Schlechtriem in Schlechtriem & Schwenzer 2005, p. 41-52.

18. See commentary on Article 3: e.g. Honnold 1999, p. 56-62; Schlechtriem in Schlechtriem & Schwenzer 2005, p. 53-62.

19. See commentary on Article 5: e.g. Honnold 1999, p. 71-56; Schlechtriem in Schlechtriem & Schwenzer 2005, p. 76-81.

20. See Chapter 2.2.4 'CISG and the Nordic Countries'.

21. E.g. The Hague-Visby Rules 1968 for sea carriage, the United Nations Convention on the Carriage of Goods by Sea (The Hamburg Rules) 1978; Convention for the Unification of Certain Rules Relating to International Carriage by Air, Warsaw 1929; Convention on the Contract for the International Carriage of Goods by Road (CMR), Geneva 1956.

22. For a brief introduction on the 1980 Rome Convention in Finnish see Buure-Hägglund 1982, p. 9-42.

23. The provisions do not cover the following issues: questions involving the status or legal capacity of natural persons (subject to Article 11, which is intended to protect a party who in good faith believed himself to be contracting with a person of full capacity and who, after the contract has been entered into, is confronted by the incapacity of the other contracting party); contractual obligations relating to wills, matrimonial property rights or other family relationships; obligations arising under negotiable instruments (bills of exchange, cheques, promissory notes, etc.); arbitration agreements and agreements on the choice of court; questions governed by the law of companies and other corporate and unincorporate bodies; the question of whether an agent is able to bind a principal to a third party (or an organ to bind a company or body corporate or unincorporate); the constitution of trusts and questions relating to their organisation; evidence and procedure (without prejudice to Article 14 - Article 14(1) provides for the application of the law of the contract 'to the extent that it contains, in the law of contract, rules which raise presumptions of law or determine the burden of proof'; Article 14(2) deals with the admissibility of modes of proving acts intended to have legal effect; contracts of insurance which cover risks situated in the territories of the Member States (re-insurance contracts are covered, however).

24. United Nations Commission on International Trade Law (UNCITRAL), <http://www.uncitral.org/uncitral/en/index.html> - UNCITRAL Texts & Status - International Sale of Goods (CISG) and Related Transactions - 1980-United Nations Convention on Contracts for the International Sale of Goods (CISG) - Status. The Czechoslovak Socialist Republic had made a similar declaration. For comments on the current status of this declaration see <http://www.cisg.law.pace.edu/> - Identification of Contracting States - Table of Contracting States (http://www.cisg.law.pace.edu/cisg/countries/cntries.html) - Declarations, State interpretations, and variations in implementations - Czech Republic and Slovakia.

25. Ferrari 1995, p. 16.

26. Lookofsky 2000, p. 177.

27. HE 93/1986, p. 51. See also Routamo-Ramberg 1997, p. 48, which suggest that if the contract refers to Finnish law, the CISG is not applicable as such but it is a question of interpretation. In order to be certain of the applicable law, the parties to an international sale of goods ought to pay attention in drafting the contract.

28. On reasons for opting out of Part II of the Convention see further Lookofsky 1999, p. 291.

29. See Example 92A in Honnold 1999, p. 537. See also Illustration 2e in Lookofsky 1996, p. 16. Denmark, Finland, Norway and Sweden have not made a declaration provided in CISG Article 95. According to CISG Article 95, any state can make a reservation, which excludes the application of the Convention in cases to which Article 1(1)(b) applies, thus the courts of a reservation state have to apply the CISG only when the parties to a contract of a sale have their places of business or habitual residence in different States as provided in Article 1(1)(a). See comments on Article 95: Schlechtriem in Schlechtriem & Schwenzer 2005, p. 932-933. See also Lookofsky 1999, p. 293-294.

30. Sisula-Tulokas 1998, p. 56.

31. Lookofsky 1996, p. 128.

32. Upon ratifying the Convention, Denmark, Finland, Norway and Sweden declared, pursuant to article 94(1) and 94(2), that the Convention would not apply to contracts of sale where the parties have their places of business in Denmark, Finland, Sweden, Iceland or Norway. In a notification effected on 12 March 2003, Iceland declared, pursuant to article 94(1), that the Convention would not apply to contracts of sale or to their formation where the parties have their places of business in Denmark, Finland, Iceland, Norway or Sweden. Iceland joined the Convention more than 10 years later than the other Nordic Counties. The Convention came into force in Iceland on 1st of June 2002 (Denmark 1st of March 1990, Finland 1st of January 1989, Norway 1st of August 1989 and Sweden 1st of January 1989).

33. Schlechtriem in Schlechtriem & Schwenzer 2005, p. 929.

34. The reasoning of the adopted approach has to be read in the light of the situation in the 1980's. Its relevance has of course diminished after the European Union membership of Finland in 1995 and the dissolution of the Soviet Union. In year 2007 the exports to Russia amounted to 10,9%, to Sweden to 10,7 % and to Germany to 10,2%. In relation to imports, Germany and Russia shared the first place, imports amounting to 14,1% with both countries. In relation to imports the third place to Sweden with 9,9%. See further statistic on the Statistics Finland website, available on the WWW: <http://www.tilastokeskus.fi/tup/suoluk/suoluk_kotimaankauppa_en.html#Foreigntrade>. On the changes in exports and imports see also WWW <http://www.tulli.fi/en/> - Foreign Trade Statistics - Statistics - Country statistics.

35. Routamo-Ramberg 1997, p. 46-47; Lookofsky 2000, p. 176-177.

36. See Chapter 2.2.2.2 CISG and the Conflict of Law Rules.

37. Honnold 1999, p. 99.

38. Honnold 1999, p. 109-110.

39. Honnold 1999, p. 110. See further on Article 9 in Chapter 5.5.3 'Applicable usages' in Helsinki Court of Appeal, S 96/1129 (29 January 1998).

40. On the legislative history briefly, see Bacher in Schlechtriem & Schwenzer 2005, p. 795; Honnold 1999, p. 465-466. Mazzotta gives a more detail but yet a brief history of Article 78 in Mazzotta 2004.

41. Honnold 1999, p. 467-471.

42. CISG Article 81 states the basic consequences of avoidance: (a) avoidance releases both parties form their obligations under the contract - subject to any damages which may be due - , (b) a party who has performed the contract either wholly or in part may claim restitution from the other party. Avoidance does not affect any provisions for the settlement of disputes or any other provisions of the contract governing the rights and obligations of the parties consequent upon the avoidance of the contract.

43. Honnold 1999, p. 516-517.

44. Bacher in Schlechtriem & Schwenzer 2005, p. 800-803.

45. Mazzotta 2004.

46. Mazzotta 2004.

47. Mazzotta 2004.

48. See discussion in Chapter2.2.2.2. CISG and the Conflict of Law Rules.

49. In this respect the Court of Appeal reversed the decision of the District Court. The District Court held the amount returned to the Seller ought to be credited from the capital of the claim rather than from the interest.

50. See Chapter 8 below.

51. Honnold 1999, p. 237, Huber/Widmer in Schlechtriem & Schwenzer 2005, p. 337.

52. Hager in Schlechtriem & Schwenzer 2005, p. 649; Text of the Secretariat Commentary on article 56 of the 1987 Draft (draft counterpart of CISG Article 60).

53. Hager in Schlechtriem & Schwenzer 2005, p. 649-650

54. Enderlein & Maskow 1992, p. 231.

55. Hager in Schlechtriem & Schwenzer 2005, p. 650.

56. Honnold 1999, p. 392, footnote 3.

57. Hager in Schlechtriem & Schwenzer 2005, p. 649, p. 674-675.

58. Honnold 1999, p. 392.

59. Text of the Secretariat Commentary on article 61 of the 1978 Draft (draft counterpart of CISG Article 65).

60. Sévon 1986, p. 231, Sevón 1990, p. 337.

61. Sévon 1986, p. 235.

62. Sévon 1986, p. 230-231.

63. Text of the Secretariat Commentary on article 61 of the 1978 Draft (draft counterpart of CISG Article 65). It should be noted that the features of the goods to be specified by the buyer must be expressly described in the contract. A general clause in the contract that the buyer would specify the goods ordered would be insufficient and would have no legal effects. Knapp in Bianca & Bonell 1987, p. 477.

64 Honnold 1999, p. 392. Professor Honnold stresses that because of the commercial and legal hazards a scenario of wasteful production is unlikely to occur. See also Hager in Schlechtriem & Schwenzer 2005, p. 658. Professor Hager states that the duty to mitigate the loss does not apply to the right to require performance, unless the insistence of the performance would be against the good faith requirement under Article 7 (1).

65. Enderlein & Maskow 1992, p. 251.

66. Enderlein & Maskow 1992, p. 232.

67. Maskow in Bianca & Bonell 1987, p. 436.

68. Maskow in Bianca & Bonell 1987, p. 437.

69. Enderlein & Maskow 1992, p. 251.

70. Knapp in Bianca & Bonell 1987, p. 482.

71. Lando in Bianca & Bonell 1987, p. 263.

72. Huber/Widmer in Schlechtriem & Schwenzer 2005, p. 394.

73. See Chapter 2.4.4. 'Reasonable time for delivery'.

74. Text of the Secretariat Commentary on article 29 of the 1987 Draft (draft counterpart of CISG Article 31).

75. Text of the Secretariat Commentary on article 29 of the 1978 Draft (draft counterpart of CISG Article 31).

76. Text of the Secretariat Commentary on article 29 of the 1978 Draft (draft counterpart of CISG Article 31). See however discussion relating to the passing of risk, Chapter 2.3.7 'Passing of risk'. When the goods are sold in transit, the risk may pass to the buyer retroactively from the moment the goods were handed over to the carrier (Article 68).

77. Lando in Bianca & Bonell 1987, p. 255.

78. Huber/Widmer in Schlechtriem & Schwenzer 2005, p. 357, 369-370.

79. Honnold 1999, p. 32-33, 132.

80. Text of the Secretariat Commentary on article 29 of the 1978 Draft (draft counterpart of CISG Article 31).

81. Ramberg 1999, p. 10. See further Ramberg et al. 2000, p.8-16.

82. Huber/Widmer in Schlechtriem & Schwenzer 2005, p. 338. See further on Article 9 Chapter 5.5.3 'Applicable usages'.

83. Ramberg 1999, p. 10.

84. Honnold 1999, p. 239-240; 400-401.

85. For detailed explanations on Incoterms 2000, see Ramberg 1999.

86. Ramberg 1999, p. 11-13.

87. Honnold 1999, p. 330-331; Müller-Chen in Schlechtriem & Schwenzer 2005, p. 580-581.

88. The fundamental breach is also addressed in following Articles: Article 51(2), avoidance of an entire contract if the breach as to part of the contract amounts to a fundamental breach; Article 72(1), avoidance of the contract prior to the date for performance in case of clear anticipatory breach; Article 73(1), avoidance of the one instalment because of a fundamental breach; Article 73(2), avoidance of the contract in relation to the future instalments because of the fundamental breach. Article 70 provides that the rules on passing of risk does do not impair the remedies to the buyer on account of a fundamental breach.

89. Honnold 1999, p. 207.

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

91. Magnus in Ferrari et al. 2004, p. 601.

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

93. Schlechtriem 1986, p. 59. Schlechtriem in Schlechtriem & Schwenzer 2005, p. 287-288.

94. Honnold 1999, p. 207.

95. See further Honnold 1999, p. 206.

96. See e.g. Kritzer 1994, p.208; Honnold 1999, p. 206.

97. Honnold 1999, p. 210, 321. Also the text of Secretariat seems to suggest this approach: " In some cases the failure of the goods to operate or to operate in accordance with the contract specifications would constitute a fundamental breach only if that failure was not remedied within an appropriate period of time. Until the passage of that period of time, the buyer could not preclude the seller from remedying the non-conformity by declaring the contract avoided". Text of Secretariat Commentary on article 44 of the 1978 Draft (draft counterpart of CISG article 48).

98. Schlechtriem in Schlechtriem & Schwenzer 2005, p. 295.

99. Will in Bianca & Bonell 1987, p. 356-357.

100. Will in Bianca & Bonell 1987, p. 357. See also Will in Bianca & Bonell 1987, p. 354-356. Professor Will points out the decisive consideration in deciding between the cure and the substitute goods is the costs, provided that the seller can meet the buyer's expectations to the same degree by repairing as well as by delivering substitute goods. In choosing his remedy the buyer must observe the duty to mitigate losses (Article 77). Consequently, as long as the costs, on either side, of disposing of the goods delivered and replacing them are higher than those of repair, the buyer cannot claim substitute goods. He will have to bear the inconvenience of repair, even considerable inconvenience, if it is not unreasonable. If the seller insists on delivering substitute goods while the buyer requires repair, the key lies in Article 46(3). The buyer may require repair until and unless repair proves unreasonable under the circumstances. A serious offer to cure by replacing the non-conforming goods already delivered is a circumstance, which would render the buyer's request unreasonable.

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

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

103. Magnus in Ferrari et al. 2004, p. 324.

104. Schlechtriem 1986, p. 60.

105. Honnold 1999, p. 209.

106. Enderlein & Maskow 1992, p. 116.

107. Will in Bianca & Bonell 1987, p. 221.

108. Magnus in Ferrari et al. 2004, p. 718; Kritzer 1994, p.210; Schlechtriem in Schlechtriem & Schwenzer 2005, p. 291-292.

109. Magnus in Ferrari et al. 2004, p. 325; Will in Bianca & Bonell 1987, p.216; Honnold 1999, p. 209; Schlechtriem in Schlechtriem & Schwenzer 2005, p. 291-292.

110. Ferrari 2000-2001, p. 1-8. Saidov 2001, section II, paragraph 7. See also Knapp in Bianca & Bonell 1987, p. 541. In Tribunale di Vigevano, 405 (12 July 2000) the Italian Court examined the question of the burden of proving the lack of conformity of the goods. The Court rejected the opinion that the burden of proof is a question excluded from CISG and governed by the applicable domestic law (Art. 4, first sentence, CISG). On the contrary, it held that the burden of proof is a matter governed but not expressly settled by CISG, and which therefore has to be settled in conformity with the general principles underlying CISG (Art. 7(2) CISG). In the Court's view, it is a general principle underlying the CISG that the plaintiff should bring evidence in favour of its cause of action. Such principle may be derived inter alia from Art. 79(1) CISG which expressly states that the non performing party must prove the circumstances exempting it from liability for its failure to perform, thereby implicitly confirming that it is up to the other party to prove the fact of the failure to perform as such. Therefore, it is up to the buyer to prove the existence of a lack of conformity and the damage ensuing from it. See further Editorial remarks by Charles Sant'Elia in <http://cisgw3.law.pace.edu/cases/000712i3.html>, and Ferrari 2001. Professor Ferrari praises the decision. The Court took into account the foreign case law in a way no court had done before in order to promote uniformity. Ferrari 2001, p. 231-232. In Handelsgericht Zürich, HG 920670 (26 April 1995) a Swiss Court held that the buyer had lost its right to declare the contract avoided under article 49 CISG since the buyer had failed to notify the seller about the lack of conformity of the goods in a timely fashion (articles 39 and 49(2)(b)(i) CISG). The court also mentioned that the seller's failure to perform its obligation was probably not a fundamental breach as the damage concerned was easily repairable. However, since the buyer had lost its right under article 49(2)(b)(i) CISG, the court did not address this question fully. As regards damages, the court found that the buyer had lost its rights for failure to claim damages for the leak of the delivered containers within a reasonable time. Compensation for damages caused by the transport of the container was denied by the court because the buyer failed to prove them sufficiently (article 74 CISG).

111. Ferrari 2000-2001, p. 2. This rule is also specifically embodied in Article 79 according to which the party relying on the impediment must prove its existence and further, that he could not reasonably be expected to have taken the impediment into account at the time of the conclusion of the contract or to have avoided or overcome it or its consequences.

112. Ferrari 2000-2001, p. 2; Text of the Secretariat Commentary on article 23 of the 1978 Draft (draft counterpart of CISG Article 25), Honnold 1999, p. 209.

113. Ferrari 2000-2001, p. 2-3.

114. Huber/Widmer in Schlechtriem & Schwenzer 2005, p. 400, 402. Schlechtriem in Schlechtriem & Schwenzer 2005, p. 293.

115. Magnus in Ferrari et al. 2004, p. 602; Koch 1999, p. 236-237; Liu 2005, p. 22, chapter 5.2 (a).

116. Enderlein & Maskow 1992, p. 114

117. Schlechtriem in Schlechtriem & Schwenzer 2005, p. 292.

118. Schlechtriem in Schlechtriem & Schwenzer 2005, p. 288-290.

119. Graffi 2003, p. 341.

120. Oberlandesgericht (OLG) Hamburg; 1 U 167/95 (28 February 1997).

121. Pretura circondariale di Parma, sez. di Fidenza, 77/89 (24 November 1989).

122. Graffi 2003, p. 342.

123. Liu 2005, p. 23, chapter 5.2 (a).

124. Schlechtriem in Schlechtriem & Schwenzer 2005, p. 293.

125. See e.g. Kazimierska 2000, p. 111-113.

126. Honnold 1999, p. 214.

127. Honnold 1999, p. 215, 216-217.

128. The Finnish mark was devaluated firstly in November 1991 (the external value of the mark devaluated approximately 12%). Because the trust for the economics and the Finnish mark was not regained, in September 8th, 1992 the Finnish mark was left to float. As a result the value of the Finnish mark devaluated considerably. It took until summer 1995 that the external value of the Finnish mark nearly reached the level it had had before the floating.

129. Honnold 1999, p. 330; Will in Bianca & Bonell 1987, p. 364.

130. Schlechtriem in Schlechtriem & Schwenzer 2005, p. 308-309.

131. Honnold 1999, p. 327.

132. Schlechtriem in Schlechtriem & Schwenzer 2005, p. 331.

133. Honnold 1999, p. 438.

134. Knapp in Bianca & Bonell 1987, p. 448, 454.

135. Lando in Bianca & Bonell 1987, p. 237.

136. See further Lando in Bianca & Bonell 1987, p. 232-237.

137. Text of the Secretariat Commentary on article 26 of the 1978 Draft (draft counterpart of CISG Article 28).

138. In a similar way the buyer can require specific performance. According to Section 23 of the Finnish Sale of Goods Act, in cases of delay in delivery the buyer is entitled to hold to the contract and to require its performance. According to Section 30, in case of non-conforming goods, the buyer is entitled, provided that the defect is not due to any reason attributable to the buyer, (i) to require the seller to remedy the defect or to deliver substitute goods or (ii) to require a reduction in the contract price or (iii) to declare the contract avoided as well as (iv) to claim damages.

139. Chapter 2.2.6.4 Decision on the partial payment.

140. On of the issues in dispute was who the contracting parties were. Seller argued that the claim was directed at the wrong defendant. The contract referred to in the statement of claim was only an interim one and the aim was that the Buyer and C Trading Group Inc. to which the Seller had transferred the advance payment, would make the actual contract on the delivery of the butter. Based on this, the claim should have been directed at C Trading Group Inc. The District Court held that the Buyer and C Trading Group Inc. were not in a contractual relationship with one another. This being so, C Trading Group Inc. would not be the correct defendant in the case to whom demands resulting from the avoidance of the contract should be directed at. Based on the evidence presented and the witness's heard, the Seller and the Buyer had signed an actual contract for delivery of butter. Other contracts signed by the Buyer have not been presented to the Court. None of the documents presented in the case indicated that the Buyer had entered or would enter into a contract with C Trading Group Inc. The final nature of the contract signed on 24 February 1995 was indicated by the circumstances: based on the contract the Buyer had already made a payment to the Seller and the wiring of the money was the responsibility of the Seller. Due to the fact that the Buyer had already taken the risk involved in the sale, C Trading Company Group Inc., who had delivered the butter, had no reason to enter any further contracts.

141. Chapter 10 Section 7(1) provides that if two or more persons are parties to the same civil case and the case cannot be thoroughly heard unless they are all together at one place to respond, the action may be brought in the court of the district to which the person primarily affected by the case belongs.

142. Hemmo 2005.

143. Hemmo 2005, p. 93.

144. Other issues in dispute included the identification of the responsible parties. The Buyer claimed that K and the Seller were both personally liable for damage caused to the Buyer based on their negligent actions and breach of contract. K was negligent in transferring the prepaid sum to a third party in United States. K was negligent in handling the money given to the company led by him. K has not taken any measures in relation to returning the money from the United States. The gross negligence of K amounts to personal liability for all the damage caused. Additionally K is personally responsible for duties of the Seller, because the Seller was established in an aim to circumvent the laws concerning minimum capital of a company and thus it cannot be regarded as a corporation. Consequently, the persons acting on behalf of such entity are personally liable for its obligations.

The defendant K argued that he was not liable for the sale price or damages in relation to the Buyer. The primary defence for K was that he was not the CEO of the Seller. K had no general authority to act on behalf of the Seller. The company gave the authority and guidelines to each individual case. In this case, K has just brought together the supplier of goods and the one ordering the goods. In this position, K was not liable for the obligations of the company. Even if it was regarded that K in fact acted as the CEO of the Seller, he still was not liable for the obligations of the company. K had acted carefully and as a prudent businessman, obeying the usages of international trade. Before the contract was made between the Buyer and the Seller, K, through his attorney, conducted background research on the existence and history of C Trading Group Inc. According to the information received, the company was reliable. K did not receive the payment made by the Buyer; instead it was transferred to the account of the Seller's Finnish lawyer. The money had been wired to an account opened by C Trading Group Inc. in the United States, out of which it should have been withdrawn after the necessary freight and shipping document had been presented. For some reason, the bank in the United States had given the money to C Trading Group Inc. in violation of the terms of the account.

The District Court held that the way K acted in transferring the money was grossly negligent. The evidence presented by the Buyer indicated that making a contract with the C Trading Group Inc. could be seen as questionable. The accuracy of the evidence had not been denied.

The District Court also held that K was personally responsible for the liabilities of the Seller. K had signed the contract made with the Buyer as the CEO of his company, the position in which the witness H regarded him as being in. Also, during the preparations for this case K had represented himself as the CEO. Not earlier than during the oral preparations did he notify that he handled the butter sale based on an assignment. K's own story of the coming about of the butter sale indicated that throughout the course of the events he had acted as an independent businessman. K did not mention anything that would support his statement as to having acted on commission from the Seller.

Because the Seller had been registered on a Caribbean Island and did business from an address located on Jersey Island, there was no documentary evidence of formal authority to act on behalf of the company. K had not wanted to give clarification as to the ownership of the company. Based on the evidence presented, the actual authority to act on behalf of the Seller had been in the hands of K. The Seller could be regarded as a company established through a formal capital investment and that could be identified with the business name used by K in his business. K was liable for the Seller's obligations at least to the extent of the sale in question.

145. Text of Secretariat Commentary on article 43 of the 1978 Draft (draft counterpart of CISG article 47); Lookofsky 2000, p. 120, Will in Bianca & Bonell 1987, p. 344.

146. See further Chapter 2.4.3 Fundamental breach of the contract.

147. Lookofsky 2000, p. 120.

148. Honnold 1999, p. 315.

149. Will in Bianca & Bonell 1987, p. 345.

150. Honnold 1999, p. 315. Will in Bianca & Bonell 1987, p. 345.

151. See further Chapter 2.4.4 Reasonable time for delivery.

152. The C Trading Group Inc. had returned the Buyer 34,904 USD out 79,800 USD as a return for the advance payment.

153. K's liability for the sale price or damages is dealt in footnote 144 above.

154. See further Chapter 4.7.2 General clause on damages.

155. The Buyer's claim for interest being 223,092 USD.

156. As the Buyer's legal fees, the District Court estimated the amount to be 70,000 FIM added with the fee of the U.S. law firm, being 11,403 FIM (amounting to 81,403 FIM equals to 13,691 at present) The expenses caused to the Buyer in clarifying the matter over in the United States had been necessary in handling this case. As these measures taken have led to partial return of the advance payment, they had been for the benefit of the defendants. The specifications of the legal fees of the Buyer were however in English. The specifications did not clarify, as required by the Law of Procedure Chapter 21, of what the fee consists of. Based on this, the Court has estimated the amount of legal expenses (Chapter 21, Section 14(1) provides a claim for the compensation of legal costs shall be made before the conclusion of the hearing of the case. A breakdown of the claimed costs and their bases shall be supplied.). The Court also reduced the amount of legal fees on the grounds that the claim for interest expenses had been only partially accepted.

157. See further Chapter 2.2.6.3 Rate of interest according to the CISG.

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

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

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

161. Honnold 1999, p. 260.

162. Text of Secretariat Commentary on article 33 of the 1978 Draft (draft counterpart of CISG Article 35). It is hard to imagine why the buyer would enter into a contract where non-conformity is to be expected. In cases where the buyer knows about the non-conformities before the contract is concluded and still goes ahead and signs the contract while insisting delivery of non-conforming goods, the buyer must presume and trust that the seller has the possibility to remedy the defects. Enderlein & Maskow 1992, p. 149.

163. Honnold 1999, p. 256.

164. Honnold 1999, p. 252

165. Honnold 1999, p. 258-259.

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

167. Honnold 1999, p. 117-118.

168. Farnsworth in Bianca & Bonell 1987, p. 98.

169. Honnold 1999, p. 118.

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

171. Farnsworth in Bianca & Bonell 1987, p.100; Schmidt-Kessel in Schlechtriem 2005, p. 117. Applicable practices and usages change in time and respond to new circumstances and needs. The Convention recognizes the flexibility of usages and practices. Article 9 gives direct effect to commercial usages and practices of the parties. See further on Article 9 Chapter 5.5.3 Applicable usages.

172. Text of Secretariat Commentary on article 7 of the 1978 Draft (draft counterpart of CISG Article 8); Lookofsky 2000, p. 55; Farnsworth in Bianca & Bonell 1987, p. 95-96, 97-98.

173. Farnsworth in Bianca & Bonell 1987, p. 98.

174. Bianca in Bianca & Bonell 1987, p. 273.

175. Bianca in Bianca & Bonell 1987, p. 282.

176. Bianca &Bonell 1987, p. 282-283, (Bianca).

177. Henschel 2004.

178. Henschel 2004, p. 2.

179. Henschel 2004, p. 4.

180. Henschel 2004, p. 15.

181. See further Chapter 4.6 Price reduction.

182. Buyer's duty to examine the goods after delivery must be distinguished form the buyer's right to examine the goods before paying the price under Article 58(3) and from the examination of the sample or model under Article 35(2)(c). The basic idea of Article 58 is to establish delivery and payment as concurrent conditions. However, according to Article 58(3) the buyer is not bound to pay the price until he has had an opportunity to examine the goods, provided that this is consistent with the agreed delivery and payment arrangements. Under Article 58(3) the buyer has a right to a brief, superficial inspection, but is not obliged to examine the goods. This provision does not preclude subsequent examination and complaint in accordance with Article 38 and 39. See further Hager in Schlechtriem & Schwenzer 2005, p. 645; Maskow in Bianca & Bonell 1987, p. 425. For Article 35(2)c), see Chapter 4.3.2.1 Rules on quality. It should be noted that Article 35(3) concerning the buyer's knowledge of non-conformity is of no practical importance in the context of sale by a sample or model. Article 35(2)(c) provides that the goods are in accordance with the contract if they correspond to the sample or model, even if the buyer recognised defects when examining the sample or model or could not have been unaware of such defects. The examination of a sample or a model does not enable the buyer to rely on apparent qualities he knows in reality not be present in the goods he is going to buy. See further Schwenzer in Schlechtriem & Schwenzer 2005, p. 428; Bianca in Bianca & Bonell 1987, p. 278-279.

183. Under Article 49(2)(b)(i) the buyer loses its right to avoid the contract unless he does so within a reasonable time after it knew or ought to have known of the breach. Also in this respect Article 38 is essential in determining the proper time for examination.

184. Bianca in Bianca & Bonell 1987, p. 297; Honnold 1999, p. 272. On the contrary view, see Ferrari 1995, II, section VII, chapter 3. Professor Ferrari is of the opinion that even though the examination of the goods generally constitutes a prerequisite for the application of the notice requirement, the lack thereof does not per se lead to the loss of the buyer's rights; e.g. if the buyer does not inspect the goods and the lack of conformity cannot be discovered by examining the goods.

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

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

187. See further on Article 9 in Chapter 5.5.3 Applicable usages.

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

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

190. Honnold 1999, p. 126.

191. Further on Article 7 see Chapter 2.2.6.2 Interpretation of the Convention.

192. Lookofsky 1996, p. 60.

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

194. Schwenzer in Schlechtriem & Schwenzer 2005, p. 452.

195. The view is supported by the Supreme Court of Denmark in an international case decided under Danish domestic sales law. See Lookofsky 1996, p. 61, footnote no 82.

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

197. Schwenzer in Schlechtriem & Schwenzer 2005, p. 451; see also Text of Secretariat Commentary on article 36 of the 1978 Draft (draft counterpart of CISG Article 38), Lookofsky 1996, p. 60.

198. See decision by Landgericht (LG) Stuttgart, 3 kfH O 97/98 (31 August 1989). The German Court held that the buyer did not meet the standard of diligence required for a proper examination of the goods under Article 38. The buyer's complaints on the goods, i.e. shoes, referred to obvious defects (i.e. imperfect sewing, measurements, and loss of colour), not defects that only became evident when the shoes were worn. Because of the buyer's expert knowledge, he had to conduct a proper examination, especially since defects had been discovered in the first delivery and thus the buyer had been forewarned. A proper examination would have revealed the alleged defects.

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

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

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

202. Bianca in Bianca & Bonell 1987, p. 299. This rule is of course subject to special circumstances of each case. In Oberlandesgericht (OLG) Köln, 18 U 121/97 (21 August 1997) the German Court held that under normal circumstances, examination of the aluminium hydroxide within a period of one month would have been reasonable. However, where the delivered goods are mixed with pervious deliveries (the Buyer stored the chemicals in a silo, adding new material to that from previous deliveries), immediate inspection was said to be necessary, since the defect would have been revealed even by means of simple tests.

203. Bianca in Bianca & Bonell 1987, p. 299.

204. Bianca in Bianca & Bonell 1987, p. 299.

205. Schwenzer in Schlechtriem & Schwenzer 2005, p. 456-457.

206. Bianca in Bianca & Bonell 1987, p.300.

207. Bianca in Bianca & Bonell 1987, p. 301.

208. Schwenzer in Schlechtriem & Schwenzer 2005, p. 457.

209. Routamo & Ramberg 1997, p. 244. In Oberlandesgericht (OLG) Düsseldorf, Germany, 17 U 82/92 (8 January 1993) the Court held that the buyer had not examined the goods, i.e. canned cucumbers, within as short a period as is practicable in the circumstances. The buyer examined the goods only after the delivery, which occurred seven days after the shipment. The buyer ought to have examined the goods at the moment of loading as the partied had expressly excluded in the contract the possibility of deferred examination of the goods.

210. Bianca in Bianca & Bonell 1987, p. 301.

211. In Oberlandesgericht (OLG) Saarbrücken, Germany, 1 U 69/92 (13 January 1993) the Court held that the buyer had had an obligation to examine the goods within a period as is practicable in the circumstances. Article 38(3) would have been relevant if the reselling of the goods would have meant that the buyer had acted as pure intermediary or if the goods had been directly delivered to the ultimate customer. Article 38(3) was not applicable since it was unforeseeable, whether and when the delivered goods, which in the meanwhile had been stored in the buyer's warehouse, would be resold. Immediate examination after delivery had been necessary. The fact that the goods, i.e. doors, had been wrapped in piles on pallets and that the wrapping had to be opened to allow for the examination, made the immediate examination neither impossible nor unreasonable. Accordingly, a notice of lack of conformity given by the buyer more that two and a half months after the date of the last shipment of the doors was held to be too late.

212. Schwenzer in Schlechtriem & Schwenzer 2005, p. 452; Bianca in Bianca & Bonell 1987, p. 302-303.

213. Routamo & Ramberg 1997, p. 242.

214. CISG Advisory Council Opinion No.2.

215. In Oberlandesgericht (OLG) Köln, 16 U 45/00 (13 November 2000) the German Court held that the buyer had lost its right to rely on the non-conformities of the goods, plug couplings, because it failed to examine the goods before the resale. The buyer was not entitled to simply store the goods until resale. The buyer ought to have performed spot checks to examine the individual articles delivered, if necessary through a testing institute. There was nothing to show that the random spot checks would have required an unreasonable amount of time or expenditure. In Pretore della giurisdizione di Locarno Campagna, 6252 (27 April 1992) the Swiss Court held in regard part of the goods that the buyer was not entitled to declare the contract avoided, as it had not examined the delivered furniture and given notice of the non-conformity in accordance with Articles 38 and 39. In the opinion of the Court, as both parties were merchants, the buyer should have examined the goods upon delivery and, since the defect was apparent, it should have given immediate notice of the non-conformity, instead of doing so only following customer complaints. In RB Roermond, 900336 (19 December 1991) a Dutch Court held, with respect to the examination of the goods, that the fact that the goods in question, i.e. cheese, was frozen was not a sufficient reason for not examining the goods. A timely examination could have been achieved by defrosting a partition of the cheese. In order for the seller not rely on Articles 38 and 39 the buyer would have to prove its allegations that the seller knew or could not have been unaware that the cheese was infested at the time it was frozen, before the risk passed to the buyer (Article 40). If the buyer would be successful in proving the seller's knowledge of non-conformity the buyer would be entitled to the remedy of reduction of price according to Article 50. In Gerechtsho f's Hertogenbosch, C9700046/HE (15 December 1997) a Dutch Court held that the buyer could not rely on the lack of non-conformity as the buyer had failed to examine the goods before the goods, furs, were sent to a third party for processing. The buyer could have had the goods examined earlier because an expert could have taken a sample at the moment of delivery. Considering that the buyer could have examined the goods earlier, and taking into account the existing means of communications, the Court also held that the buyer did not have an excuse under Article 44. See further discussion on Article 44 see Chapter 4.5.10 Excuse from giving a notice.

216. Schwenzer in Schlechtriem & Schwenzer 2005, p. 462.

217. Will in Bianca & Bonell 1987, p. 372.

218. Schwenzer in Schlechtriem & Schwenzer 2005, p. 465.

219. Schwenzer in Schlechtriem & Schwenzer 2005, p. 462.

220. Schwenzer in Schlechtriem & Schwenzer 2005, p. 463.

221. Schwenzer in Schlechtriem & Schwenzer 2005, p. 463.

222. In Oberlandesgericht (OLG) Saarbrücken, 1 U 703/97-143 (3 June 1998), the German Court found that the buyer had not complied with the obligation to specify the lack of conformity of the flowers by commenting the "miserable" state of the flowers. The notice did not contain an exact description of the non-conformity and could have referred to the size and appearance of the flowers rather that their inferior condition. The Court also stated that where international trade in flowers is involved, the buyer could be expected to act immediately on the day of the delivery. In Landgericht (LG) Bochum, 13 O 142/95 (24 January 1996) the German Court held that a notice stating that the truffles were soft was not specific enough although the buyer claimed that most professional truffle-vendors would know that the softness implied a probable worm-infestation. In Handelsgericht Zürich, HG 960527/O (21 September 1998) the Swiss Court held that the buyer had failed to notify the seller of the lack of conformity with sufficient specificity. The case involved a sale of books and an art exhibition catalogue. Notification in general terms was not enough, although the buyer obligation should not be exaggerated. A more precise description can be expected form a specialist than form a layperson.

223. Schwenzer in Schlechtriem & Schwenzer 2005, p. 464. In Budesgerichtshof, VIII ZR 306/95 (4 December 1996) the German Court held that although notice by the buyer was given in time, it did not clearly specify whether the missing documentation was in respect of the entire printing system or merely the printer as a single apparatus. In order to fulfil the requirements of article 39(1), the buyer had to have described the lack of conformity with sufficient specificity so as to avoid any misunderstanding. The seller had understood the missing documentation as relating to the printer as a single apparatus.

224. Ferrari 1995, II, section VII, chapter 4.

225. In Landgericht (LG) München, 17 HKO 3726/89 (3 July 1989) the German Court held that the notification on various fashion goods stating "poor workmanship and improper fitting" was not specific enough. The buyer had lost the right to rely on the non-conformity of the goods since the notifications did not specify precisely the defect in the goods. In Landgericht (LG) München, 8HKO 24667/93 (8 February 1995) the German Court held that buyer could not rely on a possible lack of conformity of the standard software since he had not effectively given notice of the defect but had only asked for assistance in addressing the problems identified. In Kantonsgericht Nidwalden, 15/96 Z (12 November/3 December 1997) the Swiss Court held that the buyer could not rely on the lack of conformity of the furniture delivered because, by using expression like "wrong parts" or "full breakage" the buyer did not specify the nature of the lack of conformity.

226. Ferrari 1995, II, section VII, chapter 4.

227. Schwenzer in Schlechtriem & Schwenzer 2005, p. 476. In Handelsgericht Zürich, HG930138. U/HG93 (9 September 1993) the Swiss Court held that the it was implicit in the CISG that the buyer has to prove the existence of the defects and that he has given a notice of lack of conformity within a reasonable time. If the buyer fails to meet the burden of proof, he loses the right to rely on the lack of conformity, regardless whether the buyer ever had that right. In Landgericht (LG) Frankfurt, 3/13 O 3/94 (13 July 1994) the German Court held that in order to recognise a notice by telephone, it must be proven "when" the buyer spoke to "whom" about "what". The buyer had the burden of proof as for these requirements. See comments in Karollus 1995, section V, chapter 7; Baasch Andersen 1998, section I, paragraph 1.2.2.

228. Sisula-Tulokas 1998, p. 66.

229. Honnold 1999, p. 217.

230. Schlechtriem in Schlechtriem & Schwenzer 2005, p. 307.

231. Text of the Secretariat commentary on article 25 of the 1978 Draft (draft counterpart of CISG Article 27); Schwenzer in Schlechtriem & Schwenzer 2005, p. 310.

232. Schwenzer in Schlechtriem & Schwenzer 2005, p. 308-309.

233. Schwenzer in Schlechtriem & Schwenzer 2005, p. 466. In Landgericht (LG) Bochum, 13 O 142/95 (24 January 1996) the German Court held that where the notice of lack of conformity is not given personally to the seller, the buyer must ensure that the seller actually receives the notice.

234. See further Baasch Andersen 1998, section 1, paragraph 1.

235. Baasch Andersen 1998, section 1, paragraph 2.3.

236. In Court of Arbitration of the International Chamber of Commerce, 7331 of 1994 the Tribunal held that an agreed notice period of one month after delivery would be upheld since it was reasonable. In her abstract Baasch Andersen has rightfully wondered why the Tribunal stated it would upheld the agreed period of notice because it considered it to be in accordance with Articles 38 and 39. Even if it had not been considered reasonable, it would have had to be upheld in any event by way of Article 6, which allows parties to derogate form the Convention, or by way or general principles of pacta sunt servanda. See further Baasch Andersen 1998, section III, paragraph 1.3.1. In Landgericht (LG) Giessen, 6 O 85/93 (5 July 1994) the German Court accepted that the parties had made a binding agreement that the notice must be given within eight days of delivery. The Court specifically considered the agreement as a derogation from the period of reasonable time in Article 39, which was in accordance with Article 6, indicating that a period of eight days for examination and notice did not leave "a reasonable time" for giving a notice in the sense of Article 39(1). See further on agreed time frame in German practise Baasch Andersen 1998, section III, paragraph 1.3.1.

237. In Arbitration Court of the Chamber of Commerce and Industry of Budapest, Vb 94131 (5 December 1995) the sole arbitrator held that the parties' reliance on previous speedy negotiations and communications was a valid concern when determining the reasonableness of a communicated notice. The arbitrator concluded that 32 days was not reasonable time in the circumstances.

238. Baasch Andersen 1998, section V, paragraph 3.1. There are cases where the notice has been obviously too late. In Tribunal Cantonal du Valais (Ile Cour Civile), CI 97 288 (29 June 1998) the Swiss Court held that the notification of lack of conformity given to the seller seven to eight months after the delivery was by far too late. In Bezirksgericht Unterrhiental, EV. 1998.2 (1KX.1998.7) (16 September 1998) the Swiss Court held that the notice of lack of conformity, which was given one year after the delivery of the goods, was far too late.

239. Honnold 1999, p. 280. In RB Roermond, 900336 (19 December 1991) the Dutch Court held the reasonableness of the time of giving notice depended on the nature of the goods, cheese, involved. The buyer had notified the seller of the non-conformity of the cheese shortly after delivery. The Court held that it was a reasonable time as the cheese is perishable item.

240. Bianca &Bonell 1987, p. 309, (Sono).In Landgericht (LG) Köln, 86 O 119/93 (11 November 1993) the German District Court held that the notice of non-conformity was too late. The case involved a sale of business-catalogue space. The defect in the catalogue was discoverable within a few hours of delivery on 4 August 1992. As the buyer knew that the seller had a deadline on 4 September 1992, an examination and notification should have been carried out sooner than 21 days after the delivery. The case was reversed on appeal. but on different grounds. On 26 August 1994 the OLG Köln held that the CISG did not apply as this was neither a contract for the sale of goods (Article 1(1)), nor a contract for the production of goods (Article 3(1)).

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

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

243. In Obergericht (OG) des Kantons Luzern, 11 95 123/375 (8 January 1997) a Swiss Court held that the notice given more than three months after delivery was not given within appropriate period. A " rough average" of one month was held to be appropriate period for given a notice. Keeping in mind Article 7's obligation to promote uniformity in the interpretation of the Convention, the Court reached this solution after reviewing the restrictive German case law and the more liberal American and Dutch case law. In Oberlandesgericht (OLG) Stuttgart, 5 U 195/94 (21 August 1995) a German Court held that the buyer had failed to give notice of the lack of conformity as required by the Convention. Taking into account the different national legal traditions, "within reasonable time" would have meant about one month. Moreover, the buyer had not given notice that sufficiently specified the lack of conformity. The case involved a sale of a machine.

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

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

246. Schwenzer in Schlechtriem & Schwenzer 2005, p. 469-470. In Landgericht (LG) Paderborn, 7 O 147/94 (25 January 1996) the German Court held that he buyer had not lost its right to rely on the lack of conformity by failing to examine the PVC and give notice of the lack of conformity to the seller before receiving its own customers' complaints. The case involved a sale of PVC, in which the non-conformities could have been discovered by way of a detailed chemical analyses, which the buyer could not have been required to carry out.

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

248. Schwenzer in Schlechtriem & Schwenzer 2005, p. 469.

249. Bianca in Bianca & Bonell 1987, p. 299.

250. Baasch Andersen 1998, section II, paragraph 1.3.1.1. In Bundesgerichtshof, VIII ZR 287/98 (3 November 1999) the German Court held that the buyer had giving a notice of non-conformity within a reasonable time. The case involved a sale of a equipment for a paper machine. The buyer had given a notice to the seller of the non-conformity after seven weeks after the total loss of the machine occurred. The Court found that the part of the equipment had a hidden defect, as it was not possible for the seller to notice the defect either upon delivery or after examination of the equipment. The Court held that the "a commencement of the examination and notice under Articles 38(1) and 39(1) cannot yet be assumed at the time of the total loss". The court stated that the buyer had to be allotted a period of approximately one week on discovery of the defects for the decision as to what to do next and for the initiation of necessary measures - e.g., the selection and commissioning of an expert - followed by the two weeks assumed by the Court of Appeals for the expert's investigation (these time periods where influenced by the complex machinery involved). A "regular" one-month period for giving a notice in accordance with Article 39(1) followed, so the notice was timely. Furthermore, the court stated that, in case of defective technical equipment, a description of the symptoms should suffice in order to satisfy the requirements of article 39(1). A specification of the reasons causing the defect is not required. The buyer had forwarded to the seller customer complaints, instances in which the buyer's purchasers complained of certain symptoms indicating defects in semi-finished products manufactured with the machine parts. The buyer had complied with the requirements of Article 39(1). See further Schlechtriem 2000, section IV, paragraph 2.c, where Professor Schlechtriem critics the Court's decision in relation to the time of the examination and the timeliness of the notice.

251. Baasch Andersen 1998, section II, paragraph 1.3.1.1.

252. Schwenzer in Schlechtriem & Schwenzer 2005, p. 470.

253. See further on Chapter 4.5.9 Exemption for failure to notify within reasonable time and Chapter 4.5.10 Excuse from giving a notice.

254. Schwenzer in Schlechtriem & Schwenzer 2005, p. 470-471.

255. Sono in Bianca & Bonell 1987, p. 310; Enderlein 1996, p. 174.

256. Schwenzer in Schlechtriem & Schwenzer 2005, p. 471.

257. For there to be a postponement of the time allowed for examination, the seller must or ought to have known at the time of the conclusion of the contract of the possibility of re-dispatched.

258. Sono in Bianca & Bonell 1987, p. 310-311; Enderlein & Maskow 1992, p. 161-162. When the goods are redirected in transit, they do not reach the originally intended destination and the goods are not yet actually handed over to the buyer. The cut-off period starts to run when the goods reach their final destination.

259. Schwenzer in Schlechtriem & Schwenzer 2005, p. 476.

260. Text of the Secretariat Commentary on article 37 of the 1978 Draft (draft counterpart of CISG Article 39).

261. Sono in Bianca & Bonell 1987, p. 311; Schwenzer in Schlechtriem & Schwenzer 2005, p. 471-472. See also the Secretariat's examples on contractual guarantee clauses, Text of the Secretariat Commentary on article 37 of the 1978 Draft (draft counterpart of CISG Article 39), Examples 37B, 37C and 37D.

262. Schwenzer in Schlechtriem & Schwenzer 2005, p. 472.

263. Most importantly, the sphere of application of the Limitation Convention was assimilated to that of the CISG.

264. As of 5 January 2007, 27 states are parties to the original Convention and 19 states to the Convention as amended (not in force in each country). See further United Nations Commission on International Trade Law (UNCITRAL), <http://www.uncitral.org/uncitral/en/index.html> - UNCITRAL Texts & Status -International Sale of Goods (CISG) and Related Transactions - 1974 - Convention on the Limitation Period in the International Sale of Goods - Status.

265. See further Commentary on the Limitation Convention, p. 146-147.

266. See further Sono in Bianca & Bonell 1987, p. 306-307.

267. Ferrari 2000-2001, p. 2. Burden of proof is discussed further in Chapter 2.4.3.4 Burden of proof. In Tribunale di Vigevano, 405 (12 July 2000) the Italian Court stated that the "reasonable time" for notice under Art. 39(1) CISG depends on the circumstances of each case and on the nature of the goods. It starts running as from the time when the buyer is required to examine the goods under Art. 38(1), which as a rule is upon delivery or shortly thereafter and only exceptionally may be later, for instance when the defect is discoverable only by processing the goods. An Italian seller delivered vulcanized rubber to a German buyer for the production of shoe soles. The soles produced by the buyer were sold on to an Austrian manufacturer who produced a certain number of shoes and commercialized them in Russia. Upon receiving complaints from its Russian customer, the Austrian manufacturer turned to the buyer who commenced legal action against the seller alleging lack of conformity of the raw material. A notice given four months after delivery was not timely. Indeed, even supposing that the defects could not have been discovered at delivery, the buyer should have discovered them at the latest when processing the goods and given notice immediately thereafter, while it waited until it received complaints by its own customer. A different conclusion could be drawn only if it were proved that the alleged defects were not discoverable during processing. The burden of bringing evidence thereof falls however on the buyer, who in the case at hand failed to bring such evidence. Nor had the buyer sufficiently specified the nature of the lack of conformity. A mere statement that the goods "caused problems" or "present defects" does not enable the seller to determine his conduct regarding the alleged lack of conformity. See also Editorial remarks by Charles Sant'Elia in <http://cisgw3.law.pace.edu/cases/000712i3.html>.

268. Honnold 1999, p. 282.

269. Schwenzer in Schlechtriem & Schwenzer 2005, p. 474.

270. Schwenzer in Schlechtriem & Schwenzer 2005, p. 450. See however decision by Oberlandesgericht (OLG) Jena, 8 U 166/97 (266) (26 May 1998). The German Court held that the Buyer was not entitled to rely on the certificate of inspection issued by a veterinary surgeon in order to permit importation of the fish, but the Buyer had an obligation to examine the goods or cause them to be examined even in the case of a latent defect. It should be noted that the veterinarian's examination was conducted before the delivery. In the decision by a Finnish Court of Appeal, Helsingin Hovioikeus; S 96/1215 (30.6.1998) the court held that the Buyer had no need to conduct random tests on partial deliveries of the goods, as the test results on the samples received before the delivery were satisfactory. The buyer was not allowed to neglect the examination altogether, but was allowed to postpone it until the goods had been delivered fully. See discussion on the entire case in Chapter 6.5.5.2 District Court's reasoning analysed (Helsinki Court of Appeal, S 96/1215 (30 June 1998).

271. Ziegel & Samson 1981, section II, A, Article 40. In Landgericht (LG) Trier, 7 HO 78/95 (12 October 1995) the German Court held that the buyer had not lost its right to rely on lack of conformity of the wine even though he did not examine the wine after delivery. The buyer had refused to pay for the delivered wine arguing that that the wine was not a merchantable quality since it contained water with which the wine had been mixed. The authorities had seized the bottles and the wine had been destroyed. The Court held that the seller could not have been unaware of the non-conformity.

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

273. Baasch Andersen 1998, section II, paragraph 1.4. In RB Roermond, 900336 (19 December 1991) the Dutch Court held that if the buyer was able to meet the burden of proof that the seller knew or could not have been unaware that the delivered cheese was infested at the time it was frozen and before the risk had passed to the buyer, the buyer would be entitled to price reduction.

274. See further Chapter 4.5.5 Cut-off period.

275. Sono in Bianca & Bonell 1987, p. 314-315. In Arbitration Institute of the Stockholm Chambers of Commerce (5 June 1998) the tribunal considered whether Article 40 was applicable. An American seller sold a rail press to a Chinese buyer. The press was started on 10 January 1993. On 10 November 1995 due to the improper installation of one of the devices by the buyer, the press broke down. The seller substituted the original device with one which caused the breakdown. The substitution itself did not constitute a non-conformity but it combined with the failure to give instructions for the installation of the device made the substitution potentially dangerous and constituted non-conformity in respect of Article 35. As the defect had occurred almost three years after the delivery, the tribunal had to consider whether Article 40 was applicable. The seller argued that the parties had contractually replaced Articles 35, 38 and 39 by their own system and therefore implicitly replaced Article 40 as well. The tribunal refuted this argument; it could hardly be imagined that the buyer would also have intended to accept non-conformity of the seller's performance of which the seller would have been aware. Furthermore, the tribunal stated that in any case derogation from Article 40 would lead to a so called "internal cap" as understood y Article 7(2), more precisely in reference to the general principles. The principles of Article would nevertheless be applicable. The tribunal further stated that even if an explicit derogation was made it would probably be invalid or unforeseeable under various domestic laws or general principles in international trade. Finally the tribunal held that the conditions of Article 40 had been satisfied. The tribunal concluded that it appeared from the facts that awareness of the seller seemed more likely than unawareness. Article 39(2) did not preclude the buyer's claim. The seller was liable for the breakdown of the rail press and the damages incurred because of it. See more detailed discussion Limbach & Ahearn 2000.

276. Curran 1997, Editorial analyses; Sono in Bianca & Bonell 1987, p. 315. See also the case presentation Arbitration Institute of the Stockholm Chamber of Commerce (5 June 1998) in preceding footnote.

277. In Oberlandesgericht (OLG) Karlsruhe, 1 U 280/96 (25 June 1997) the German Court held that by negotiating over the lack of conformity, the seller did not forfeit its right to plead that the notice was given out of time. Taking into consideration the principle of good faith, such forfeiture could only be recognised if special circumstances so indicate. However, the buyer appealed further and the Supreme Court reversed the decision of the appellate court. In Bundesgerichtshof, VIII ZR 259/97 (25 November 1998) the German Court found that the seller could waive its rights not only expressly but also in an implied manner by negotiating as to the amount of damages over a period of 15 months, during which time the seller had not reserved the right to rely on Articles 38 and 39. The Court held that from the buyer's point of view, it could only be understood that the seller would not, at a later point in time, rely on Articles 38 and 39. The Court left open the issues of whether examination under article 38 of the CISG should have included a test treatment on the goods delivered (surface protected film) by the buyer and whether the buyer had had a reasonable excuse for failure to give notice within the required period of time (article 44 CISG). It also left open the issue of whether the seller had lost the right to rely on the provisions of articles 38 and 39 by means of article 40 of the CISG. Discussed briefly also in footnote 493.

278. Schwenzer in Schlechtriem & Schwenzer 2005, p. 475. In Oberlandesgericht (OLG) Düsseldorf, 17 U 136/93 (12 March 1993) the German Court found that even if there was a lack of conformity of the goods (clothes), the buyer had failed to give notice within a reasonable time, as 25 days after the delivery could not be considered a short or reasonable period. The fact that the seller had recovered the goods for examination, it had not renounced his right to rely on Article 39. By referring to the German Commercial Code, the Court held that only when there are clear circumstances, such as the seller's unconditional acceptance of the restitution of the goods by the buyer, the seller's decision not to rely on the buyer's failure to give notice of the lack of conformity within a required deadline, can be assumed. The Court held that these considerations should be taken into account when applying the CISG, as a settlement between the parties should remain a possibility in national or in international trade, even in case of the buyer's failure to give a timely notice of the lack of conformity. - The decision itself seems justified. However, the national courts should avoid using domestic concepts and considerations when interpreting the CISG.

279. Kritzer 1994, p. 329.

280. See further Sono in Bianca & Bonell 1987, p. 324-325; Honnold 1999, p. 282-283; Enderlein & Maskow 1992, p.172.

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

282. Huber/Schwenzer in Schlechtriem & Schwenzer 2005, p. 512.

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

284. Huber/Schwenzer in Schlechtriem & Schwenzer 2005, p. 514-515.

285. Lookofsky 1996, Editorial analyses.

286. Honnold 1999, p. 283.

287. Sono in Bianca & Bonell 1987, p. 327.

288. Lookofsky 2000, p. 114; Honnold 1999, p. 283.

289. Huber/Schwenzer in Schlechtriem & Schwenzer 2005, p. 518.

290. Lookofsky 1996, Editorial analyses.

291. Honnold 1999, p. 417; Sono in Bianca & Bonell 1987, p. 327.

292. Huber/Schwenzer in Schlechtriem & Schwenzer 2005, p. 517-518.

293. Huber/Schwenzer in Schlechtriem & Schwenzer 2005, p. 518.

294. Sisula-Tulokas 1998, p. 66.

295. Honnold 1999, p. 215, 216-217.

296. Text of Secretariat Commentary on article 46 of the 1978 Draft (draft counterpart of CISG article 50).

297. Honnold 1999, p. 337; Text of Secretariat Commentary on article 46 of the 1978 Draft (draft counterpart of CISG article 50).

298. Honnold 1999, p. 335-337, especially example 50A, p. 335-336,

299. Will in Bianca & Bonell 1987, p. 371.

300. Honnold 1999, p. 335-337, especially example 50B, p,. 336-337. If the market price of the goods doubles between the time of the contract and the time of delivery, the buyer is better of claiming damages. As professor Honnold states referring to example no 50B, under the contract, the buyer can expect to receive no. 1 quality goods that, because of the rises in prices, are worth double of what he has to pay, 200.000 instead of 100.000. If the seller delivers no 4 quality good, worth only 1/5 of no. 1 quality, the reduction of the price would be only from 80.000 to 20.000. By claiming damages, the amount would be 160.000, the difference of the value the buyer received compared to the value he was expected to receive.

301. Honnold 1999, p. 335-337, especially example 50C, p. 337-338. If the market price of the goods drops on half of its original price, i.e. no. 1 quality from 100.000 to 50.000 and no.4 quality from 20.000 to 10.000, the buyer is more likely to recline the goods. As professor Honnold illustrates in example 50C, if the buyer accepts the goods, under Article 50 he may reduce the price "in the same proportion as the value that the goods actually delivered had at the time of delivery bears to the value that conforming goods would have had at that time". This proportion-one fifth-would call for the buyer to pay seller 20,000 for the non-conforming goods; 10.000 more what the buyer would have to pay under a new contract.

302. Honnold 1999, p. 338. In Example 50C (look above footnote) the buyer could reduce the price from 100.000 to 20.000, a reduction of 80.000. Under Article 74, the difference between the value of conforming goods at the low price-level 50.000 and the value of the goods received 10,000 would give buyer a damage claim of 40.000. However, if the buyer has also suffered consequential loss, he may find it more advantageous after all to claim damages under Article 74.

303. Honnold 1999, p. 339.

304. Will in Bianca & Bonell 1987, p. 372. In Vestre Landsret, B-29-1998 (10 November 1999) the Danish Court held even though the buyer had lost the right to declare the contract avoided as he had not given a clear notice of avoidance within a reasonable time after the buyer discovered of should have discovered the defects the buyer was entitled to a reduction of the purchase price as the buyer had given a notice specifying the lack of conformity immediately after the delivery and a second one after few days of delivery. The case involved a sale of Christmas trees. In determining the reasonable time for the notice of avoidance, the Court took into consideration that the goods in question were seasonal goods and that the sale of such goods should have taken place within a short period of time since the trees would be without any value after December 24. The trees were delivered on 2 December; the notices of lack of conformity were sent on 2 December and 4 December, the notice of avoidance on 10 December. Similarly in Schweizerisches Bundesgericht, 4C.179/1998/odi (28 October 1998) the Swiss Court held that the buyer had a right to price reduction. The issues before the Supreme Court were whether the buyer had a right to declare the contract avoided and whether the buyer was entitled to damages for the loss of clientele, which the buyer claimed had resulted from the seller's breach of contract. The case involved a sale of frozen meat. The Court held that the difference in quality between what had been agreed and what was delivered was not significant enough to give the buyer a right to declare the contract avoided, even though the experts estimated that the decrease in value of the goods, which were too fat and too wet, amounted to 25.5 per cent. The Court stated that the CISG operates from the principle that the contract shall be avoided only in exceptional circumstances and that the right to declare a contract avoided is the buyer's most serious remedy. Whether or not this remedy is justified has to be determined by taking into account all the relevant circumstances of the particular case; such as buyer's ability to otherwise process the goods or to sell them, even at a lower price. The buyer could merely avail itself of a reduction in price of 25.5 per cent (articles 25 and 49(1)(a) CISG).

305. Will in Bianca & Bonell 1987, p. 372. In Oberlandesgericht (OLG) München, 7 U 4419/93 (2 March 1994) the German Court held that the buyer was precluded from relying on such remedy since it had never made a valid declaration to this effect. The avoidance of the contract was denied because there was no fundamental breach of the contract and further, the buyer had not given a timely declaration of the avoidance. However, in Tribunal of International Commercial Arbitration at the Russian Federation Chamber of Commerce and Industry, 328/1994 (10 February 1996) the Russian Tribunal reduced the price on its own initiative. In his counterclaim the buyer had only demanded delivery of the undelivered part of the goods by the seller and damages for the deteriorated quality of the goods. After having found that the quality of the goods did not conform to the contract, the Tribunal simply stated that it deemed it possible to reduce the price to be paid by the buyer. Djakhongir Saidov criticizes the Tribunals decision in his Article; the remedy of reduction of the price is "effectuated by the unilateral declaration of the buyer". Saidov 2003, p. 33.

306. Text of Secretariat Commentary on article 46 of the 1978 Draft (draft counterpart of CISG article 50).

307. Schwenzer in Schlechtriem & Schwenzer 2005, p. 448; Ruotamo & Ramberg 1997, p. 241-242.

308. See further Chapter 2.3.7 Passing of risk.

309. Honnold 1999, p. 272, 277-278.

310. Text of Secretariat Commentary on article 44 of the 1978 Draft (draft counterpart of CISG article 48); Honnold 1999, p. 319. See discussion on fundamental breach, Chapter 2.4.3 Fundamental breach of the contract.

311. Text of Secretariat Commentary on article 44 of the 1978 Draft (draft counterpart of CISG article 48).

312. Will in Bianca & Bonell 1987, p. 352.

313. Honnold 1999, p. 319.

314. Will in Bianca & Bonell 1987, p. 354-355.

315. Text of Secretariat Commentary on article 44 of the 1978 Draft (draft counterpart of CISG article 48).

316. Text of Secretariat Commentary on article 70 of the 1978 Draft (draft counterpart of CISG article 74); Honnold 1999, p. 446; Knapp in Bianca & Bonell 1987, p. 539.

317. Text of Secretariat Commentary on article 70 of the 1978 Draft (draft counterpart of CISG article 74); Honnold 1999, p. 445.

318. Knapp in Bianca & Bonell 1987, p. 541-542.

319. Knapp in Bianca & Bonell 1987, p. 542. In Schweizerisches Bundesgericht, 4C.179/1998/odi (28 October 1998) the Swiss Court held that the buyer's loss of clientele as a result of the breach was foreseeable, particularly since the buyer was a wholesale trader in a sensitive market and had no alternative in order to carry out its obligation in time. Under the circumstances of the present case, no specific agreement as to the seller undertaking such risk was needed (article 74 CISG). For these reasons, the Court found that the buyer was entitled to damages but referred the case back to the lower court as to the amount of the damage award. See footnote 304.

320. Ferrari 2000-2001, p. 2-3. Saidov 2001, section II, paragraph 7. See also Knapp in Bianca & Bonell 1987, p. 541; Stoll-Gruber in Schlechtriem & Schwenzer 2005, p.771-772. On burden of proof see Chapter 2.4.3.4 Burden of proof.

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

322. Honnold 1999, p. 258.

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

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

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

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

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

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

329. Honnold 199, p.77.

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

331. Honnold 1999, p. 131.

332. Ruotamo & Ramberg 1997, 36-37.

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

334. Honnold 1999, p. 260.

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

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

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

338. HE 93/1986, p. 82.

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

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

341. See further Chapter 4.4.4 Time of the examination.

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

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

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

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

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

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

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

349. Honnold 1999, p. 118.

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

351. Honnold 1999, p. 131.

352. See Chapter 5.5.3 Applicable usages.

353. Honnold 1999, p. 260.

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

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

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

357. Honnold 1999, p. 187;

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

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

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

361. See further footnote 313, p. 150.

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

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

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

365. Honnold 1999, p. 258.

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

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

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

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

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

371. Honnold 1999, p. 260.

372. Henschel 2004, p. 9-10.

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

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

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

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

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

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

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

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

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

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

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

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

385. See further Chapter 4.4 Examination of the goods.

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

387. Schwenzer in

388. Lookofsky 1996, p. 60.

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

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

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

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

393. CISG Advisory Council Opinion No.2.

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

409. Honnold 1999, p. 272.

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

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

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

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

414. See footnote 270.

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

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

417. Honnold 1999, p. 440.

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

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

420. Honnold 1999, p. 438.

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

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

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

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

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

426. See Chapter 6.6.3 Anticipatory breach in instalment contracts.

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

428. The District Court ruled that the parties will not be compensated for their legal expenses as provided by the Finnish Code of Judicial Procedure, Chapter 21. Many claims had been made during the course of the proceedings; some were decided in favour of the Buyer, some in favour of the Seller. The Court of Appeal held that the Buyer had won the case in both instances. The Buyer had been awarded about a half of what he had claimed in damages. However, the part of the claim that was not admitted was a discretionary issue that has had no bearing on the amount of legal expenses. The Court of Appeal ordered the Seller to pay for Buyer's legal expenses accrued in the District Court with interest. The Seller was also ordered to pay the Buyer's legal expenses in the Court of Appeal. Otherwise the decision of the District Court remained unchanged. See CISG Advisory Council Opinion No.6: 5. Under Article 74, the aggrieved party cannot recover expenses associated with litigation of the breach.

429. Likewise Denmark, Norway and Sweden.

430. Text of Secretariat Commentary on article 10 of the 1978 Draft (draft counterpart of CISG article 11).

431. The most prominent Contracting States where the declaration provided for in Article 96 is in force are the Russian Federation and China. See further for other countries: <URL: http://www.uncitral.org/uncitral/en/uncitral_texts/sale_goods/1980CISG_status.html>

432. CISG Advisory Council Opinion No.1.

433. CISG Advisory Council Opinion No.1.

434. Honnold 1999, p. 137.

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

436. Honnold 199, p.77.

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

438. Honnold 1999, p. 131.

439. Honnold 1999, p. 130.

440. Ruotamo & Ramberg 1997, 36-37.

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

442. Honnold 1999, p. 260.

443. UNCITRAL Digest 2004, Article 9, Binding international trade usages (Article 9(2)).

444. See also Chapter 2.2.6.2 Interpretation of the Convention.

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

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

447. Bonell in Bianca & Bonell 1987, p. 113 in reference to the legislative history of the Convention; Bout 1998, p. 4.

448. Lookofsky 2000, p. 50.

449. Bonell in Bianca & Bonell 1987, p. 87.

450. Bonell in Bianca & Bonell 1987, p. 86.

451. Bonell in Bianca & Bonell 1987, p. 87.

452. Honnold 1999, p. 102.

453. See also Chapter 2.2.6.2 Interpretation of the Convention.

454. See further Chapter 2.2.2.1 Basic rules on applicability.

455. E.g. see further Schlechtriem in Schlechtriem & Shcwenzer 2005, p. 104 ; Honnold 1999, 107-108.

456. Schlechtriem in Schlechtriem & Schwenzer 2005, p.104; Bonell in Bianca & Bonell 1987, p. 80-81.

457. Lookofsky 2000, p. 50.

458. Bonell in Bianca & Bonell 1987, p. 80.

459. Bonell in Bianca & Bonell 1987, p. 84.

460. Bonell in Bianca & Bonell 1987, p. 85.

461. Schlechtriem in Schlechtriem &Schwenzer 2005, p. 95.

462. Hillman 1995, B. Ensuring That Each Party Receives the Fruits of the Exchange.

463. Hillman 1995, B. Ensuring That Each Party Receives the Fruits of the Exchange. See also Bonell in Bianca & Bonell 1987, p. 80.

464. Hillman 1995, C. Keeping the Deal together; also Bonell in Bianca & Bonell 1987, p. 81.

465. Hillman 1995, C. Keeping the Deal together.

466. Audit 1990, p. 184.

467. Honnold 1999, p. 351; 374-375.

468. Honnold 1999, p. 110. In Cour d'appel de Grenoble, 93/4126 (13 September 1995) the French Court found the Seller liable for abrupt discontinuance of business relations between parties bound by long-standing practices. The case involved two orders of cheese placed by a French Buyer with the Italian Seller. After receiving the orders, the Seller informed the Buyer that he was not able to execute the orders unless the Buyer obtained the clearance of the factoring company to which he had assigned his receivables. The Court of Appeal ruled that the Seller had been supplying the Buyer for a long time without showing any concern for his solvency and by virtue of article 9 CISG, was liable for a breach of contract.

469. See also Di Matteo et al. 2004, p. 316-317.

470. Honnold 1999, p. 107-108; Bonell in Bianca & Bonell 1987, p. 81.

471. Honnold 1999, p. 108; Schlechtriem in Schlechtriem & Schwenzer 2005, p. 104; Bonell in Bianca & Bonell 1987, p. 81

472. See e.g. Routamo 1996, p. 208-209.

473. Section 67 of the Finnish Sale of Goods Act.

474. Chapter 17 governs the rules on evidence. Section 1(1) provides that in a civil case the plaintiff shall prove the facts that support the action. If the defendant presents a fact in his favour, also he shall prove it. According to Section 2(1) after having carefully evaluated all the facts that have been presented, the court shall decide what is to be regarded as the truth in the case. Section 6 of Chapter 17 eases the burden of proving the damages, if necessary. According to Section 6 if the issues relates to the quantum of damages and no evidence is available or if evidence can only be presented with difficulty, the court shall have the power to assess the quantum, within reason. This Section eases especially cases were the damages are purely economical in nature, such as loss of good will. See further Ruotamo 1996, p. 210.

475. See Chapter 2.4.3.4 Burden of proof.

476. See further Chapter 4.7.2 General clause on damages.

477. See however also Chapter 8.4.1 Applicable law and Chapter 8.4.3 Interpretation of the warranty clause, including reasoning of the Court of Appeal in relation to the applicable law.

478. Nystén-Haarala 2004, p. 727-738.

479. 161,054.62 euros (exchange rate 1 Deutsche Mark = 0,511292 euros)

480. 31,851.85 euros (exchange rate 1 Finnish Mark = 0.168188 euros)

481. 511,291.88 euros (exchange rate 1 Deutsche Mark = 0.511292 euros)

482. See further Chapter 2.2 Applicable law.

483. Similarly in Gerechtshof's (HOF) Arnhem, 94/305 (22 August 1995). The case involved a sale of live lambs. The buyer alleged that the penalty required by the penalty clause contained in the contract should be diminished in accordance with articles 7, 8(3), and 77 of the CISG. The penalty was inequitable, for it was not proportional to the loss incurred. The Court of Appeals held that neither article 8(3) concerning the interpretation of the declarations of the parties, nor article 77 relative to the obligation to mitigate losses resulting from the infraction of the contract, nor any other clause of the Convention can serve as a foundation for the reduction of the penalty amount. This question must therefore be settled according to the applicable law of the contract, in this case German law for which the reduction is not possible in commercial matters (§ 348, c. com. German).

484. Finnish Sale of Goods Act, Section 3, Freedom of Contract provides: The provisions of this Act are subject to the terms of the contract between the parties, to any practice which has been established between them and to any other usage which is to be considered binding on the parties.

485. Hemmo 2003, p.149-150.

486. Saarnilehto 2002, Saarnilehto 1996, Hemmo 2003, p. 153-156.

487. Ramberg 1998, p. 18.

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

489. Honnold 1999, p. 78, Schlechtriem in Schlechtriem & Schwenzer 2005, p. 88-89.

490. Honnold 1999, p. 117-118.

491. Honnold 1999, p. 118.

492. Honnold 1999, p. 131.

493. Nystén-Haarala 2004, p. 734. Similarly, in Bundesgerichtshof, VIII ZR 259/97 (25 November 1998) the German Court found that the seller could waive its rights not only expressly but also in an implied manner by negotiating as to the amount of damages over a period of 15 months, during which time the seller had not reserved the right to rely on Articles 38 and 39. The Court held that from the buyer's point of view, it could only be understood that the seller would not, at a later point in time, rely on Articles 38 and 39. Discussed also in footnote 277. See further Schmidt-Kessel in Schlechtriem 2005, p. 128.

494. Finnish Contracts Act (13.6.1929/228) Section 36 subsection 1 states: If a contract term is unfair or its application would lead to an unfair result, the term may be adjusted or set aside. In determining what is unfair, regard shall be had to the entire contents of the contract, the positions of the parties, the circumstances prevailing at and after the conclusion of the contract, and to other factors...

495. Nystén-Haarala 2004, p. 735.

496. Farnsworth 1988; see especially chapter II.

497. See Chapter 4.5.4 Time of the notice.

498. Honnold 1999, p. 332-333; Will in Bianca & Bonell 1987, p. 355-366. Similarly on third party claims Article 43.

499. Will in Bianca & Bonell 1987, p. 366.

500. Honnold 1999, p. 332.

501. Honnold 1999, p. 333.

502. Will in Bianca & Bonell 1987, p. 365; Honnold 1999, p. 331.

503. Korpinen 2004, p. In his article Korpinen presents two conflicting cases in relation to the triggering points of reasonable time. In Handelsgericht Zürich, HG920670 (26 April 1995) where the Swiss court interpreted the time frames literally, i.e. both were trigged simultaneously (this case is also discussed in relation to burden of proving the fundamental breach in footnote 110). In Tribunale di Busto Arsizio (13 December 2001) where the Italian court stressed that the time frames are different both in their starting points and their length. The avoidance of contract represents a last resort as compared to all the other remedies available to the buyer. Where the non-conformity has to be notified as soon as it is discovered or ought to have been discovered, avoidance has to be declared only after it appears that the non-conformity amounts to a fundamental breach which cannot be otherwise remedied.

504. Korpinen 2004, chapter 19, 21.

505. Also noted in Nystén-Haarala 2004, p. 736.

506. Ämmälä 2006, p. 2-8.

507. See for example Lookofsky 2000, p. 175.

508. Section 6 provides:

A reply that purports to be an acceptance but which, due to an addition, restriction or condition, does not correspond to the offer, shall be deemed a rejection constituting a new offer.

However, the provision in paragraph (1) shall not apply if the offeree has considered the reply to correspond to the offer and the offeror must have understood the same. If the offeror in that case does not wish to accept the reply, he/she shall, without undue delay, notify the offeree thereof; otherwise a contract shall be deemed concluded on the terms contained in the reply.

509. Denmark, Norway, Sweden. See further Chapter 2.2.4 CISG and the Nordic Countries.

510. Lookofsky 1996, p. 128.

511. Ämmälä in Saarnilehto et al. 2001, p. 896; Routamo, Ramberg 1997, p. 30-31.

512. Text of Secretariat Commentary on article 7 of the 1978 Draft (draft counterpart of CISG Article 8); Lookofsky 2000, p. 55; Farnsworth in Bianca & Bonell 1987, p. 95-96, 97-98.

513. Honnold 1999, p. 115-116, specifically footnote number 1.

514. Schmidt-Kessel in Schlechtriem & Schwenzer 2005, p. 112.

515. Schmidt-Kessel in Schlechtriem & Schwenzer 2005, p. 118.

516. Honnold 1999, p. 118; Schmidt-Kessel in Schlechtriem & Schwenzer 2005, p. 119; Honnold 1999, p. 118.

517. See further Schmidt-Kessel in Schlechtriem & Schwenzer 2005, p.. 120.

518. Schmidt-Kessel in Schlechtriem & Schwenzer 2005, p. 141-142.

519. Ämmälä in Saarnilehto et al. 2001, p. 896, 898.

520. Section 8 provides: "If the offeror has stated that an express acceptance is not required or if the circumstances indicate that he/she does not expect one, the offeree shall, nevertheless, upon request, let the offeror know whether he/she accepts the offer; otherwise the offer shall be deemed to have expired."

521. In relation to the CISG see further Schmidt-Kessel in Schlechtriem & Schwenzer 2005, p. 127-128.

522. Schmidt-Kessel in Schlechtriem & Schwenzer 2005, p. 142.

523. Hemmo 2003, p. 565.

524. Finnish Contracts Act Section 6, paragraph 2. See above Chapter 9.3.3.Decision of the contents of the contract.

525. Schmidt-Kessel in Schlechtriem & Schwenzer 2005, p. 151.

526. Routamo-Ramberg 1997,p. 36. Ämmälä in Saarnilehto et al. 2001, p. 846.

527. Professors Routamo and Professor Ramberg criticize the requirement that the usage ought to widely known to and regularly observed by in international trade. These requirements influence the determination whether the parties ought to have known about the usage, but if the parties in fact knew about the existence of the usage and were familiar with it, the usage should nevertheless be applicable even if not widely observed by. See further Routamo-Ramberg 1997, p. 37.

528. Lookofsky 1996, p. 128.

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

530. Schwenzer in Schlechtreim & Schwenzer 2005, p. 414.

531. Schwenzer in Schlechtriem & Schwenzer 2005, p. 416-417.

532. Honnold 1999, p. 260; Schwenzer in Schlechtriem & Schwenzer 2005, p. 427.

533. See also Schwenzer in Schlechtriem & Schwenzer 2005, p. 424.

534. Schwenzer in Schlechtriem & Schwenzer 2005, p. 432, 439. Note that in case of the guarantee, if the buyer proves that a defect has occurred within the guarantee period, the seller must show that the defect is due to a cause outside his sphere of responsibility. It has been argued that the mere notification of the defects under Article 39 does not however shift the burden of proof to the seller, but the seller must have actual possibility to examine the goods before the buyer gives notice to the seller. See further Schwenzer in Schlechtriem & Schwenzer 2005, p. 432-433.

535. Schwenzer in Schlechtriem & Schwenzer 2005. p. 435.

536. Schwenzer in Schlechtriem & Schwenzer 2005, p. 437.

537 For the examination see Chapter 4.4 Examination of the goods and for the notice Chapter 4.5 Notice of non-conformity.

538. Müller-Chen in Schlechtriem & Schwenzer 2005, p. 589.

539. The concept of fundamental breach is discussed in more detail in Chapter 2.4.3 Fundamental breach of the contract.

540. Hornung in Schlechtriem & Schwenzer 2005, p. 869, 871; Lookofsky 2000, p. 169.

541. See also Korpinen 2004. The differences between the notice of non-conformity and the notice of avoicance is discussed Chapter 8.5.2 Avoidance of the contract.

542. Honnold 1999, p. 214.

543. Müller-Chen in Schlechtriem & Schwenzer 2005, p. 86-87; Honnold 1999, p. 331.

544. See further UNCITRAL Digest 2004, Article 49, Period of time for declaration of avoidance of delivered goods (Article 49(2). In Oberlandesgericht (OLG) Koblenz, 2 U 31/96 (31 January 1997) the German court held that notice given after 8 weeks was not reasonable. A Dutch seller, plaintiff, delivered acrylic blankets to a German buyer, defendant. As to the sale being conditional upon compliance with an exclusive distributorship agreement, the court stated that, if any such condition existed, which the buyer had failed to prove, the buyer had lost its right to declare the contract avoided as he failed to do so within a reasonable time (article 49(2)(b)(i) CISG). The period of time considered reasonable must be determined in the light of the seller's interest in certainty and whether the seller has to arrange for alternative use of the goods. Even taking into account the time required for consideration, to obtain legal advice, and for negotiations between the parties, eight weeks was held to be unreasonable. These considerations also would apply to the time period within which the buyer could declare the contract avoided due to the lack of conformity of the goods. The decision was appealed to the Supreme Court. In Oberlandesgericht (OLG) Oldenburg 11 U 64/94 (1 February 1995) the German Court held that the avoidance within 5 weeks was reasonable. The Austrian seller, a furniture manufacturer, agreed to manufacture a leather seating arrangement for the German buyer. The buyer sold the furniture to one of his clients, who discovered that the furniture did not conform with the contract. The buyer required the seller to remedy the lack of conformity by repair. Yet, even after the furniture had been repaired, the buyer still found the furniture not to conform with the contract and declared the contract avoided. The seller demanded payment including interest amounting to 13%. It was held that the seller did not have a payment claim against the buyer since the repaired furniture did not conform with the contract and this amounted to a fundamental breach of the contract which gave the buyer the right to declare the contract avoided (CISG Article 49(1)(a)). In addition, the appellate court found the buyer to have declared the contract avoided within a reasonable time (article 49(2)(b) CISG), even though approximately five weeks had elapsed between the delivery of the repaired furniture and the declaration of avoidance. The seller alleged that according to his general terms and conditions of trade the buyer was obliged to declare avoidance within five days. However, the appellate court found that the seller's general terms and conditions of trade did not apply when a repair had already taken place.

545. Hornung in Schlechtriem & Schwenzer 2005, p. 906, 899.

546. Bacher in Schlechtriem & Schwenzer 2005, p. 913. In Hanseatisches Oberlandesgericht (OLG) Hamburg, 1 U 31/99 (26 November 1999) the German court authorized the sale by the buyer after the seller had refused to take the defective goods back. A Brazilian seller, the plaintiff, delivered jeans to a German buyer, the defendant. When inspecting the delivered jeans the buyer found the quantity to be incorrect. The buyer declared the contract avoided and placed the jeans at the seller's disposal. When the seller refused to take the jeans back, the buyer sold them. The case is discussed further in Chapter 9.7.3 Decision on damages analysed in relation to the set-off and damages.

547. Bacher in Schlechtriem & Schwenzer 2005, p. 911.

548. Bacher in Schlechtriem & Schwenzer 2005, p. 913; text of the Secretariat commentary on article 77 of the 1978 Draft (draft counterpart of CISG Article 88).

549. Text of the Secretariat Commentary on article 77 of the 1978 Draft (draft counterpart of CISG Article 88); Bacher in Schlechtriem & Schwenzer 2005, p. 912-913. See however Graf in Bianca & Bonell 1987, p. 630, who while in referring to the Text of the Secretariat commentary on article 77 of the 1978 Draft (draft counterpart of CISG Article 88) supports the view that by interpreting the concept of rapid deterioration broadly, Article 88(2) also applies in the case of loss.

550. Bacher in Schlechtriem & Schwenzer 2005, p. 913.

551. Bacher in Schlechtriem & Schwenzer 2005, p. 912. In Iran-United States Claims Tribunal, 370 (429-370-1) (28 July 1989) the Tribunal reached its decision based on the applicable domestic law but also referred to the CISG Article 88. The tribunal found that the seller proved he had made reasonable efforts in reselling the goods by showing that he had sought buyers all over the world and by offering a reasonable explanation for why the goods did not fetch as much as the original contract price. The seller also demonstrated that he had used his best efforts to resell the goods by showing that the part of the equipment the seller decided to scrap could not be resold. With respect to notice, the seller had informed the buyer of his intention to resell. Although he had not notified the buyer of his intention to scrap some equipment, the buyer had never responded to the sales notices and thus it was clear that the buyer was not genuinely interested in receiving delivery of the goods and had not been prejudiced.

552. See also Bacher in Schlechtriem & Schwenzer 2005, p. 912.

553. Text of the Secretariat commentary on article 73 of the 1978 Draft (draft counterpart of CISG Article 77).

554. Stoll-Gruber in Schlechtriem & Schwenzer 2005, p. 790.

555. See further Chapter 4.7.2 General clause on damages.

556. Text of Secretariat Commentary on article 70 of the 1978 Draft (draft counterpart of CISG Article 74); Stoll-Gruber in Schlechtriem & Schwenzer 2005, p. 771-772. See also UNCITRAL Digest 2004, Article 74, Burden and standard of proof.

557. Stoll-Gruber in Schlechtriem & Schwenzer 2005, p. 761.

558. Chapter 7, see especially Chapter 7.4 Damages.

559. Hornung in Schlechtriem & Schwenzer 2005, p. 892-893.

560. Hornung in Schlechtriem & Schwenzer 2005, p. 871-873.

561. Bacher in Schlechtriem & Schwenzer 2005, p. 900.

562. Bacher in Schlechtriem & Schwenzer 2005, p. 914.

563. See footnote 546.

564. See also UNCITRAL Digest 2004, Article 88, Article 88(3): disposition of the proceeds of sale; UNCITRAL Digest 2004, Article 74, Set off .

565. For example: The buyer justifiably avoids the contract because a fundamental defect in the goods. Because the goods are very easily perishable the buyer sells the goods for the best price available as provided for under Article 88. Luckily neither storage costs nor other expenses in relation to the sale were incurred. However, the buyer suffered extensive loss of profit that was foreseeable to the seller. The buyer was able to resell the defect goods for 50% of what he would have gotten had the goods confirmed with the contract, lets say 50.000 . The loss of profit however accumulated to 40.000 . Without any support for set-off, is the buyer under an obligation to account the balance of the sale under Article 88 entirely to the seller and after words claim for damages? By way of set-off the balance would amount to only 10.000 and the buyer would have simply been compensated for what he is entitled to. Of course foreseeable profit of such magnitude is unlikely to occur; if the seller was aware of extensive, possible profit at the time of the conclusion of the contract the price would have been renegotiated to reflect the situation.

566. See also Nystén-Haarala 2004. In relation to Turku Court of Appeal, S 97/324 (12 April 2002) Nystén-Haarala criticises that the reasoning of the Courts ought to be understood by anyone - not only by a specialized lawyer.

567. Ämmälä 2006, p. 2-8.

568. Confirming Ämmälä 2006, p. 3.

569. Decree on the processing of foods by ionizing radiation.

570. Similarly in Landgericht (LG) Ellwangen, 1 KfH O 32/95 (21 August 1995) the German Court held that the seller was responsible for the performance of his contractual obligations as the seller was aware of the specific requirements of food stuffs in the buyer's country. A Spanish seller and a German buyer concluded an instalment contract for the sale of paprika. After delivery of the second instalment, the buyer was officially informed by a German association of spice traders that paprika imported from Spain could contain traces of ethylen-oxyd in a quantity greater than the levels admitted by German law, a fact which was later confirmed by an examination of the paprika delivered by the seller. The buyer gave immediate notice to the seller thereof. The seller accepted to take back the goods admitting that they were non-conforming to German law on food and to deliver substitute goods within the period of time fixed by the buyer. Two weeks after the expiration of such a period, the buyer declared the contract avoided and did not pay the price. The seller commenced legal action to recover the balance of the price. In his counterclaim the buyer asked for damages. The Court found that the buyer was not bound to pay the price. In the Court's opinion the parties, also in the light of their previous commercial relationships, had impliedly agreed that the goods should comply with the standards required by the German law on food. Accordingly, the seller could not invoke lack of knowledge of such provisions. The delivery of paprika containing substances in a quantity greater than the levels admitted by German law amounted to a fundamental breach as it deprived the buyer of what he was entitled to expect from the contract (Arts. 35(1) and 25 CISG). See footnote 582.

571. See further on Article 8 Chapter 9.3.4 Decision on the contents of the contract analysed.

572. See Chapter 4.4.3. Method and degree of the examination.

573. Text of the Secretariat Commentary on article 65 of the 1978 Draft (draft counterpart of CISG Article 79); Honnold 1999. p. 488-489; Tallon in Bianca & Bonell 1987, p. 585-586.

574. Lookofsky 2000, p. 165. Stoll-Gruber in Schlechtriem & Schwenzer 2005, p. 819-822.

575. Honnold 1997, p. 477-479.

576. Stoll-Gruber in Schlechtriem & Schwenzer 2005, p. 810-111, 828. See also UNCITRAL Digest 2004, Article 79, Breaches for which an exemption is available: exemption for delivery of non-conforming goods; Tallon in Bianca & Bonell 1987, p. 577.

577. Stoll-Gruber in Schlechtriem & Schwenzer 2005, p. 812.

578. Stoll-Gruber in Schlechtriem & Schwenzer 2005, p. 814-815.

579. Stoll-Gruber in Schlechtriem & Schwenzer 2005, p. 817.

580. Stoll-Gruber in Schlechtriem & Schwenzer 2005, p. 817.

581. Text of the Secretariat Commentary on article 65 of the 1978 Draft (draft counterpart of CISG Article 79).

582. In Oberlandesgericht (OLG) Hamburg; 1 U 167/95 (28 February 1997) the German Court held that the the seller bears the risk of himself receiving delivery of the goods from his own supplier. Only if goods of an equal or similar quality were no longer available on the market would the seller be exempted from liability. Furthermore, the court held that it was incumbent upon the seller to bear the risk of increasing market prices at the time of the substitute transaction. Although the market price had risen to an amount triple the price that had been agreed at the time of the conclusion of the original contract, this did not amount to a sacrificial sale price, as the transaction was said to be highly speculative. Similarly in I.C.C. International Court of Arbitration, 8128 of 1995 the arbitration panel held that the seller was not exempted from performance pursuant to Art. 79 CISG, since the seller is responsible for non delivery caused by his supplier, as part of the seller's risk (Art. 79(2)). In Landgericht (LG) Ellwangen, 1 KfH O 32/95 (21 August 1995) the German Court held that the seller was responsible for the performance of his contractual obligations (Art. 79 CISG) independently of whether the goods (paprika) were contaminated with ethylene oxide through a treatment in the plant of the seller or in any different way. In the latter case, the seller was able to examine the goods before delivering them to the buyer. See footnote 570. But note that in Tribunal de Commerce de Besançon 97 009265 (19 January 1998) a French court has applied an exemption provided for in Article 79 to a seller that delivered non-conforming goods because the seller had acted in good faith. Discussed earlier in relation to the applicability of the Article 79 exemption in case of non-conforming goods in chapter 10.5.2 Sphere of application of Article 79. See further UNCITRAL Digest 2004, Article 79, Treatment of particular impediments: breach by suppliers.

583. See especially Honnold 1997, p. 478.

584. Knapp in Bianca & Bonell 1987, p. 560.

585. The Finnish Code of Judicial Procedure, Chapter 17, Section 6 (571/1948) provides: "If the issue relates to the quantum of damages and no evidence is available or if evidence can only be presented with difficulty, the court shall have the power to assess the quantum, within reason.

586. According to Code of Judicial Procedure, Chapter 21, Section 1 the party who loses the case shall be liable for all reasonable legal cost incurred by the necessary measures of the opposing party, unless otherwise provided by an Act. Section 3 provides that firstly that if several claims have been made in the same case and some of them are decided in favour of one party and some in favour of the other party, the parties shall be liable for their own legal costs, unless there is a special reason for rendering a party liable, in part, for the legal costs of the opposing party. If the claim that a party loses has only little significance in the case, he/she shall be entitled to full compensation for his/her legal costs. Section 3 provides further that the provisions in paragraph (1) apply correspondingly, when the claim of a party is only partially upheld. In this event, however, full compensation of the legal costs of that party may be ordered also if the part of the claim that has not been upheld concerns solely a matter of discretion which has little bearing on the amount of the legal costs.

587. Stoll-Gruber in Schlechtriem & Schwenzer 2005, p. 767-768.

588. See also Ämmälä 2006, p. 7.

589. See also discussion in Chapter 8.4.1 Applicable law, especially footnote 483.

590. Schlechtriem in Schlechtriem & Schwenzer 2005, p. 94-95.

591. Schlechtriem in Schlechtriem & Schwenzer 2005, p. 100.

592. CISG Advisory Council Opinion No.6.

593. Stoll-Gruber in Schlechtriem & Schwenzer 2005, p. 746; Lookofsky 2000, p. 154.

594. Schmidt-Kessel in Schlechtriem & Schwenzer 2005, p. 120-121.

595. Schmidt-Kessel in Schlechtriem & Schwenzer 2005, p. 117.

596. Schmidt-Kessel in Schlechtriem & Schwenzer 2005, p 124.

597. And even further, the damages are limited by the exemption available to the party in breach as provided for in Article 79.

598. Stoll-Gruber in Schlechtriem & Schwenzer 2005, p. 765.

599. Lookofsky 2000, p. 154.

600. Lookofsky 2000, 49-50, 154.

601. Ämmälä in Saarnilehto et al. 2001, p. 878-879.

602. Ämmälä in Saarnilehto et al. 2001, p. 879; Routamo-Ramberg 1997, p. 534-536.

603. Ferrari 2000-2001, p. 2-3. Saidov 2001, section II, paragraph 7. See also Knapp in Bianca & Bonell 1987, p. 541; Stoll-Gruber in Schlechtriem & Schwenzer 2005, p.771-772. Burden of proof is discussed further in Chapter 2.4.3.4 Burden of proof.

604. Stoll-Gruber in Schlechtriem & Schwenzer 2005, p. 772.

605. Text of the Secretariat Commentary on article 6 of the 1978 Draft (draft counterpart of CISG Article 7(1)).

606. Concurring Baasch Andersen 2005, p. 161-162.

607. Ferrari 2000-2001, Tribunale di Vigevano, p. 209; Enderlein & Maskow 1992, p. 55; Baasch Andersen 2005, p. 167.

608. Baasch Andersen 2005, p. 172.

609. Giuliano-Lagarde 1980, p. 20-21, reference added here.


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