Data

Date:
14-02-2018
Country:
Arbitral Award
Number:
Court:
Madrid Court of Arbitration
Parties:
--

Keywords

LACK OF CONFORMITY OF THE GOODS UNDER THE CONTRACT (ART. 35 CISG) - BUYER'S DUTY TO NOTIFY DEFECTS WITHIN A REASONABLE TIME FROM DISCOVERY (ART. 39(2) CISG)

DAMAGES IN CASE OF SUBSTITUTE TRANSACTIONS (ART. 75 CISG) - NOT RECOVERABLE IF CONTRACT HAS NOT PREVIOUSLY DECLARED AS TERMINATED

ADOPTION OF MEASURES REASONABLY NECESSARY TO LIMIT LOSS (ART. 77 CISG) - RIGHT TO REIMBURSEMENT OF ASSOCIATED EXPENSES

Abstract

[CLOUT CASE n. 2181. Abstract prepared by Mauricio Rapso].

The arbitration proceedings between a Spanish party and a French party, the seat of the arbitration being in Madrid, concerned a dispute arising between a seller and a
buyer in connection with a contract for the sale of 800,000 litres of rectified alcohol. The buyer claimed avoidance of the contract, and sought damages, as a result of the
non-conformity of the goods delivered, since the product in question had a higher concentration of a substance than was permitted under the contract. The contract
stated that the alcohol to be supplied must be delivered “without having been denatured”, a requirement that the buyer alleged had not been complied with.
All of the foregoing, in the buyer’s opinion, amounted to a fundamental breach as a result of which the buyer had been forced to buy goods in replacement in order to be
able to meet its obligation to supply alcohol to third-party customers. The seller, for its part, argued that the product was in conformity and that, in any case, the buyer had
lost its right to claim the non-conformity of the goods, since (i) it had previously received samples of the alcohol to be delivered and had accepted those samples; a nd
(ii) it did not file the claim of non-conformity within a reasonable period of time.
Firstly, the tribunal determined that, although the case involved arbitration on the basis of equity, the United Nations Convention on Contracts for the International Sale
of Goods (CISG) represented a standard of fairness that could be applied in the settlement of the case. Since the case concerned a sales contract and the parties had
their places of business in Spain and France − both countries being contracting parties to the Convention − the Convention was applicable as lex specialis. Furthermore,
having considered the application of the Convention to each part, the tribunal examined the question of how the standards established in CISG represented
standards of fairness in the light of the specialist nature of the subject and international practice.

Secondly, the tribunal considered the question of the conformity of the goods in accordance with articles 35 (2) and 35 (2) of CISG. Having done so, it concluded that the goods were not in conformity, since the alcohol delivered was proven to have been denatured, contrary to the provisions of the contract. Moreover, the tribunal rejected the seller’s argument that the presence of the material in the alcohol only affected the alcohol’s quality but did not turn it into a different product, and that the buyer was
thus not prevented from performing its obligations under the contract. However, the tribunal concluded that the application of CISG rendered such an argument irrel evant
given that the quality of the goods was one of the elements of conformity under article 35 (1) of the Convention. It further concluded that the goods that were
delivered constituted a product different from the one agreed upon, since it was quality that determined the product type.

The tribunal thus concluded that a fundamental breach of contract had been committed. It also rejected the seller’s defence regarding the right to claim
non-conformity of the goods. The tribunal held that, in the case of such contracts, a reasonable time (art. 39(1) CISG) within which a lack of conformity of the goods
could be relied upon would be one month, which should be counted from the time the buyer knew of the non-conformity, not from the time of delivery. That conclusion was
reached on the basis that, given that the goods in question were alcohol, specific tests were required, as a result of which the non-conformity could not be confirmed at the
time of delivery.

Lastly, the tribunal concluded that the buyer was not entitled to avoid the contract, despite the existence of a fundamental breach, since it was impossible for the buyer
to return the alcohol it had purchased. It also refused to award damages under article 75 of CISG with respect to the additional cost of the goods bought in
replacement, since, according to that article, the buyer would have to have avoided the contract previously. However, in accordance with article 77 of CISG, the buyer
was awarded damages for, inter alia, the additional cost of acquiring denatured alcohol from another seller. It was acknowledged that the buyer had complied with its
duty to mitigate the damages, on the basis of which the buyer was entitled to compensation.

Fulltext

}}

Source

CASE LAW ON UNCITRAL TEXT (CLOUT), A/CN.9/SER.C/ABSTRACTS/CISG/2181}}