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2008 UNCITRAL Digest of case law on the United Nations Convention on the International Sale of Goods

Digest of Article 85 case law [reproduced with permission of UNCITRAL] [*]

[Text of article
Overview
Seller's obligation to preserve goods
Seller's right to retain goods until reimbursed
     for reasonable expenses of preservation]

Article 85

If the buyer is in delay in taking delivery of the goods or, where payment of the price and delivery of the goods is to be made concurrently, if he fails to pay the price, and the seller is either in possession of the goods or otherwise able to control their disposition, the seller must take such steps as are reasonable in the circumstances to preserve them. He is entitled to retain them until he has been reimbursed his reasonable expenses by the buyer.

OVERVIEW

1. Article 85 creates both an obligation and a right, applicable to sellers that have retained possession or control of goods either because the buyer has delayed taking delivery or because the buyer has failed to make a payment due concurrently with delivery. Under the first sentence of article 85, such a seller must take such steps as are reasonable in the circumstances to preserve the goods. Under the second sentence of article 85, such a seller has the right to retain the goods until the buyer reimburses the seller's reasonable expenses of preservation. Article 85 has been cited in relatively few decisions, most of which have focused on the seller's right to reimbursement for the expenses of preserving the goods.

Seller's obligation to preserve goods

2. A small number of decisions have dealt with the seller's article 85 obligation to preserve goods. That obligation has been invoked to justify a seller's actions after a buyer demanded that a seller stop making deliveries of trucks covered by a contract for sale: an arbitral tribunal stated that, because the buyer unjustifiably refused delivery, the seller had the right to take reasonable steps toward preserving the goods, including depositing them in a warehouse.[1] In another proceeding, a buyer sought interim relief in the form of an order preventing the seller from selling a key component of industrial machinery. The seller had retained the component after the buyer failed to make full payment for the machinery, and the seller planned to transfer the machinery to another warehouse and resell it. Because the proceeding focused on interim relief, the court applied the national law of the forum rather than the CISG, holding that the seller could move the goods to a new warehouse, but (despite article 87 of the Convention) it would have to advance the warehouse expenses itself, and (despite article 88 of the Convention) it would be restrained from exporting or reselling the component.[2]

Seller's right to retain goods until reimbursed for reasonable expenses of preservation

3. A number of decisions have held breaching buyers liable for expenses that an aggrieved seller incurred to preserve the goods. These decisions usually (although not always) cite article 85 in support of the award,[3] but they frequently characterize the award as damages recoverable under article 74 of the CISG.[4] One court has stated that "when applying the CISG, the [buyer's] duty to pay damages is based on article 74, in part also on article 85."[5] The preservation costs for which sellers have successfully claimed reimbursement have generally been incurred after the buyer unjustifiably refused to take delivery,[6] although in one case they were incurred after the buyer failed to open a letter of credit required by the sales contract.[7] In several cases, an award to cover the seller's expenses for preserving the goods was made only after the tribunal expressly determined the costs were reasonable.[8] Where the seller was in breach and the buyer properly avoided the contract, however, it was found that the prerequisites for the seller to claim, under either article 74 or article 85, reimbursement for expenses of storing and reselling the goods were not met because the buyer did not breach its obligations to pay the price or take delivery; the seller's claim was therefore denied.[9] And even where a buyer was found liable for seller's costs of storing the goods in a warehouse, an arbitral tribunal denied seller's claim for damage to the goods resulting from prolonged storage, because risk of loss had not passed to the buyer under applicable rules.[10] Finally, the principle of the second sentence of article 85 that, in proper circumstances, a seller can retain goods until reimbursed for the reasonable costs of preserving them has also been invoked to support the idea that, unless otherwise agreed, a seller is not obligated to make delivery until the buyer pays the price.[11]


NOTES

* This presentation of the UNCITRAL Digest is a slightly modified version of the original UNCITRAL text at <http://www.UNCITRAL.org/pdf/english/clout/CISG_second_edition.pdf>. The following modifications were made by the Institute of International Commercial Law of the Pace University School of Law:

   -    To enhance access to contents by computer search engines, we present in html rather than pdf;
 
   -    To facilitate direct focus on aspects of the Digests of most immediate interest, we inserted linked tables of contents at the outset of most presentations;
 
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   -    To enable researchers to themselves keep the case citations provided in the Digests constantly current, we have created a series of tandem documents, UNCITRAL Digest Cases + Added Cases. The new cases and other cases that are cited in these updates are coded in accordance with UNCITRAL's Thesaurus.

In addition, this presentation introduces each section of the UNCITRAL Digest with a Google search button. This is to help you access doctrine (relevant material from the over 1,200 commentaries, monographs and books on the CISG and related subjects that we present on this database) as well as the texts of the cases that UNCITRAL cites in its Digests and that we present in our updates to UNCITRAL's Digests.

1. [RUSSIA Tribunal of International Commercial Arbitration at the Russian Federation Chamber of Commerce and Industry, Russian Federation, award in case No. 142/1994 of 25 April 1995 (Trucks case)].

2. [SWITZERLAND Tribunal Cantonal Vaud 17 May 1994 (Industrial machinery case)].

3. See [GERMANY Oberlandesgericht Braunschweig 28 October 1999 (Frozen meat case)] (citing article 85 and awarding the seller's costs for cold storage of meat) (see full text of the decision); [ICC International Court of Arbitration, Award 9574 of August 1998 (Equipment and spare parts case)] (citing article 85 and awarding the seller's costs for storing and transporting equipment and spare parts); Tribunal of International Commercial Arbitration at the Russian Federation Chamber of Commerce and Industry, Russian Federation, award in case No. 142/1994 of 25 April 1995 (Trucks case)] (citing article 85 and awarding the seller's costs for storing trucks in warehouse); [ICC International Court of Arbitration, Award 7197 of 1992 (Failure to open letter of credit and penalty clause case)] (citing article 85 and awarding the seller's costs for storing goods in a warehouse). But see [RUSSIA Tribunal of International Commercial Arbitration at the Russian Federation Chamber of Commerce and Industry, Award 375/1993 of 9 September 1994] (apparently not citing article 85 when awarding seller's costs for storing goods). See also [SWITZERLAND Tribunal Cantonal Vaud 17 May 1994 (Industrial machinery case)] (citing article 85, but applying the national law of the forum to deny seller an interim order requiring the buyer to pay the costs of transporting the goods to a new warehouse) (see full text of the decision).

4. See [GERMANY Oberlandesgericht Braunschweig 28 October 1999 (Frozen meat case)] (see full text of the decision); [ICC International Court of Arbitration, Award 7197 of 1992 (Failure to open letter of credit and penalty clause case)] (see full text of the decision).

5. [GERMANY Oberlandesgericht Braunschweig 28 October 1999 (Frozen meat case)] (see full text of the decision).

6. Tribunal of International Commercial Arbitration at the Russian Federation Chamber of Commerce and Industry, Russian Federation, award in case No. 142/1994 of 25 April 1995 (Trucks case)]; [GERMANY Oberlandesgericht Braunschweig 28 October 1999 (Frozen meat case)] (see full text of the decision); [ICC International Court of Arbitration, Award 9574 of August 1998 (Equipment and spare parts case)]; [RUSSIA Tribunal of International Commercial Arbitration at the Russian Federation Chamber of Commerce and Industry, Award 375/1993 of 9 September 1994].

7. [ICC International Court of Arbitration, Award 7197 of 1992 (Failure to open letter of credit and penalty clause case)] (see full text of the decision).

8. Tribunal of International Commercial Arbitration at the Russian Federation Chamber of Commerce and Industry, Russian Federation, award in case No. 142/1994 of 25 April 1995 (Trucks case)]; [GERMANY Oberlandesgericht Braunschweig 28 October 1999 (Frozen meat case)] (see full text of the decision); [RUSSIA Tribunal of International Commercial Arbitration at the Russian Federation Chamber of Commerce and Industry, Award 375/1993 of 9 September 1994].

9. [GERMANY Arbitration-Schiedsgericht der Hamburger freundschaftlichen Arbitrage, 29 December 1998 (Cheese case)] (see full text of the decision).

10. [ICC International Court of Arbitration, Award 7197 of 1992 (Failure to open letter of credit and penalty clause case)] (see full text of the decision).

11. [SWITZERLAND Tribunal Cantonal Vaud 17 May 1994 (Industrial machinery case)] (see full text of the decision).


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