Data

Date:: 00-08-1999
Country:: Arbitral Award
Number:: 9887
Court:: ICC Court of Arbitration
Parties:: Unknown

Keywords

APPLICATION OF CISG - RECOGNITION OF CISG AS SET OF RULES REFLECTING THE EVOLUTION OF INTERNATIONAL SALES LAW IN ARBITRATION PRACTICE

LATE DELIVERY BY SELLER - BREACH OF SELLER'S OBLIGATIONS (ART. 33 CISG)- BUYER NOT AUTOMATICALLY RELEASED FROM PAYING PRICE

LACK OF CONFORMITY OF GOODS - TIMELY EXAMINATION AND NOTICE BY BUYER (ARTS. 38 AND 39 CISG)- NO DECLARATION OF AVOIDANCE BY BUYER - BUYER NOT RELEASED FROM PAYMENT

AVOIDANCE (TERMINATION) OF CONTRACT FOR NON PAYMENT - FUNDAMENTAL BREACH OF CONTRACT (ART. 25 CISG)

INSTALLMENT CONTRACTS - SELLER'S RIGHT TO AVOID THE CONTRACT ALSO IN RESPECT TO FUTURE INSTALLMENTS IF IT HAS GOOD GROUNDS TO CONCLUDE THAT A FUNDAMENTAL BREACH WILL OCCUR (ART. 73(2) CISG)

CONSEQUENCE OF AVOIDANCE (ART. 81 CISG) - PARTIES RELEASED FROM ALL OBLIGATION UNDER CONTRACT

Abstract

A Rumanian seller and a German buyer entered into a contract for the sale of a chemical substance, to be delivered in instalments over a period of several months. After receiving complaints over the poor quality of the product, the buyer rejected the delivered goods. The seller refused to take them back and the buyer refused to sell them to anyone else. The seller commenced arbitral proceedings asking for payment, while the buyer rejected such claim on grounds of late delivery, non-conformity of the goods and non delivery of further shipments.

As to the applicable law, The Arbitral Tribunal held that under the new Rules of Arbitration of the International Chamber of Commerce it was not bound to make use of any national law (including conflict of law rules) and was free to apply instead recognized international legal standards. It then held CISG applicable, considering the strong recognition of CISG in the arbitration practice "as a set of rules reflecting the evolution of international law in the field of international sale of goods". Furthermore it pointed out that CISG would be applicable to the case at hand also under general principles of international private law, since the requirements of Art. 1(1)(a) CISG were met.

As to the merits, the Arbitral Tribunal firstly held that the seller had violated its obligations under Art. 33 CISG, because it had not delivered in time, and therefore the buyer was entitled to exercise the remedies provided for in Arts. 45-52 CISG. On the other hand, the buyer was not released from paying the price of the delivered goods, because it should have fixed an additional period of time for the performance, in order to declare the contract avoided (Art. 47(1) CISG and Art. 49 CISG).

As to the alleged non conformity of the goods, the Arbitral Tribunal held that the buyer brought sufficient evidence that the goods did not comply with the contract, it examined the goods within the time provided for in Art. 38 CISG and it gave timely notice according to Art. 39 CISG, since a first notice was given 12 days after delivery to the forwarding agent and a more detailed notice was given after analysis by an assayer some twenty days later. However, the buyer did not declare the contract avoided, so that it was not released from paying for the delivered goods (Art. 49(2)(b)(i) CISG).

Moreover, the seller had the right to declare the whole contract avoided because the buyer failed to pay and the seller had good grounds to conclude that a fundamental breach of contract would occur also with respect to future installments (Art. 73(2( CISG). Though the notion of fundamental breach under Art. 25 CISG should be interpreted narrowly, in the present case the Tribunal held that the refusal to pay the price constituted fundamental breach.

Consequently, under Art. 81 (1) CISG the Arbitral Tribunal held that both parties were released from their obligations.

Fulltext

A seller and a buyer concluded a contract for the sale of goods. The contract contained a penalty clause providing for the payment of 2% of the contract price in case of non-delivery. A dispute arose when the price was paid but the goods were not delivered. The buyer started arbitral proceedings asking for damages pursuant to Arts. 45 and 74 CISG, as well as restitution of the price plus interest. The seller objected that it was not the owner of the goods at the time of conclusion of the contract and invoked force majeure. Moreover it argued that the buyer was in any case entitled not to the full amount of damages, but only to the amount fixed by the penalty clause.

The Arbitral Tribunal held that CISG was applicable pursuant to its Art. 1(1)(b), since the rules of private international law led to application of law of Germany, a Contracting State.

As to the merits, the Arbitral Tribunal dismissed the buyer's claim concerning damages, stating that the inclusion of a penalty clause for nondelivery prevented the buyer from invoking the provisions on damages laid down in Art. 74 CISG. In order to ascertain the validity of the penalty clause, since it is a matter excluded from CISG in accordance with its Art. 4, the Arbitral Tribunal referred to the domestic law otherwise applicable to the contract (i.e. German law).
However, the Tribunal held that the buyer was entitled to avoid the contract pursuant to Art.49 (1)(a) CISG, since non-delivery amounts to a fundamental breach of contract (Art. 25 CISG).

Moreover, the buyer's declaration of avoidance was validly expressed according to Art. 26 CISG by sending a fax in which the buyer asked for restitution of price.

The buyer was therefore awarded restitution of the price (Art. 81 (2) CISG), plus interest from the date the price was paid (Art. 84 CISG). As to the rate of interest, the Arbitral Tribunal, after having recalled that CISG does not contain any specific provision, applied German law as the law otherwise applicable to the contract.

However, the Arbitral Tribunal rejected the buyer's claim to obtain damages for non restitution of the price by the seller under Art. 81 (2) CISG. In carrying out its analysis, the Arbitral Tribunal pointed out that the buyer's claim was based on a wrong interpretation of Art. 45 (1) CISG according to which the buyer is entitled to claim damages if the seller fails to perform any of its obligations under the contract or the Convention (emphasis added). Indeed, Art. 45 (1) CISG, when correctly read in conjunction with Art. 30 CISG, only entitled the buyer to damages for breach of primary obligations by the seller, which are those provided for in the contract or, in the absence of any specific stipulation, those laid down in Art. 30 CISG, and not to damages for breach of secondary obligations such as the obligation of restitution laid down in Art. 81 (2) CISG.

On the other hand, the buyer was entitled to the amount set in the penalty clause plus interest, since the avoidance of the contract does not affect the validity of such a clause (Art. 81 CISG)
Finally, the Arbitral Tribunal held that the seller could not rely on Art. 79 CISG alleging that it had entrusted a supplier with the task of acquiring the requested goods and the latter failed to do so. According to the Tribunal, since the goods sold were generic goods, the seller had to bear the risk of non-delivery by its own supplier.}}

Source

Published in English (excerpt):

ICC International Court of Arbitration Bulletin, Vol. 11, n.2, Fall 2000, 109-116.}}