Data

Date:: 16-06-2020
Country:: Japan
Number:: 2015(Wa)No.12549
Court:: Tokyo Chiho Saibansho [District Court]
Parties:: Sanko Lighting and Technology v. Hansol Technics

Keywords

RIGHT TO DAMAGES (ART. 74 CISG) - FORESEEABLE DAMAGES

Abstract

[Abstract prepared by prof. Yasutoshi Ishida, Himeji-Dokkyo University]

Between 2012 and 2013, a Korean manufacturer and a Japanese buyer entered into multiple individual sales contracts for various types of LED lighting equipment and power supplies. They also established a framework sales agreement.
The warranty period for the goods was 3 years, and the LED lights were guaranteed to last 50,000 hours. In March 2012, the buyer began reselling the goods to its customers. However, within a year of the resale, the buyer started receiving complaints from customers about the lights either failing or generating abnormal heat. From December 2012 to March 2013, the seller and its suppliers collected the goods from the buyer, reworked them, and returned them to the buyer. The framework sales contract required the seller to take "such measures as [the buyer] deemed necessary" to rectify defects, except when the defects were attributable to the buyer. It also stipulated that if either party breached the contract and failed to remedy the breach despite a written request for correction, the non-breaching party could terminate the contract without further notice. Additionally, the contract obligated the seller to compensate the buyer for all losses resulting from the defects of the goods, including the cost of replacing the goods and any damages paid to sub-purchasers.

The buyer provided a certain quantity of substitute goods for the defective items sold to its customers. For some customers, the buyer issued substitute goods for all the items sold, regardless of whether they were defective, due to the high defect rate which made individual exchanges unsatisfactory for those customers.

In February 2015, the buyer requested that the seller to examine all the goods in the buyer’s stock and address any defects. Additionally, the buyer sought compensation for the losses incurred from replacing the defective goods sold to its customers. The buyer notified the seller that if these requests were not met, the buyer would terminate the framework sales contract, and the individual sales related to the stocked goods. The seller responded that it would not comply with the buyer’s request until it had confirmed the defects.

In accordance with the framework sales agreement, the buyer declared the contract terminated and filed a lawsuit against the seller seeking restitution and damages, including the costs of replacing the goods and storage expenses. Additionally, the buyer alternatively based their claims on Articles 45(1)(b), 81(2), and 87 of the CISG, should those provisions be applied supplementary.

Referring to Article 6 of the Convention, the Tokyo District Court ruled that the framework sales contract and individual sales contracts governed the case, rather than the relevant provisions of the Convention.

The Court did not allow the buyer to terminate the contract. The Court held that it could not accept the defect rate of the sold goods as alleged by the [buyer]. Even if the defect rate of the sold goods should be high, the Court stated, “considering that the goods in the buyer’s stock have been reworked, we find that the [buyer] cannot require the [seller] to examine all the stocked goods. Therefore, the [buyer] cannot terminate the framework sales contract or the individual contracts on the grounds that the [seller] failed to comply with the request to examine all the stocked goods.”

The Court acknowledged that “some of the goods were defective because they did not meet the specified 50,000-hour duration. The defects were attributed to the condition of certain parts and the assembly process of the goods. Therefore, these defects are considered to have occurred during the production process and are not attributable to the buyer.”
The buyer submitted to the Court a list of customers who received defective goods, which the buyer had collected and replaced. The Court acknowledged, “Although the specific defects in each of the goods sold to the customers are not entirely clear, …it is recognized that there were defects in the sold goods, and considering that the [buyer] did in fact replace some of them, it is presumed that the [buyer] replaced the defective goods due to these defects.” The Court awarded damages based on this list, with adjustments to the total amount.

The buyer replaced all the goods sold to four customers, regardless of whether they were defective, because the defect rate was so high that the customers would not have been satisfied with individual exchanges for each defect. The Court awarded damages for the cost of the replaced goods. It stated, “The defect rate of the delivered goods was extraordinarily high, and the defective goods were repeatedly exchanged. As a result, the customers became dissatisfied with individual defect exchanges and requested replacements for all the goods. It was a reasonable measure for the [buyer] to replace all the sold goods to fulfill the customers' purchase expectations and protect its goodwill. Therefore, in this situation, it is reasonable to hold that the [seller] is obligated to compensate the [buyer] for the losses incurred from replacing all the goods.”
The seller objected, arguing that the need to replace all the goods was not foreseeable. The Court did not accept this objection. Although the Court did not specifically reference Article 74 of the Convention, it held that the seller "could foresee that the sub-purchasers might be dissatisfied with individual defect exchanges and that the [buyer] might be required to replace all the goods if defects were found."

Fulltext

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Source

Original In Japanese:
- available at www.cisg-online.ch

Commented on by:
- Yasutoshi Ishida, 'What Does "Foreseeable" Mean? The Scope of Damages Under CISG Articles 74–77: Reasonability Principle of Foreseeability – We Don't Need a Crystal Ball', 40(2) Journal of Law & Commerce (J.L. & Com.) (2022), 235–280, at 266 [– in English]

(Yasunori) 康紀 (Shima), 'ウィーン売買条約の日本での裁判例(5件)：日本法の事実認定論との交錯（契約の解釈）[Japan’s CISG Cases: Panorama of the five cases (2017–2023) and analysis of the “Damages of Complete Replacement” zooming in the factual findings and CISG Article 8]', 52(5) 国際商事法務 (Journal of the Japanese Institute of International Business Law) (2024年5月15日), 539–544 [– in Japanese]}}