- Arbitral Award
- ICC Court of Arbitration - Paris
APPLICATION OF CISG - CHOICE BY PARTIES OF THE LAW OF A CONTRACTING STATE AS GOVERNING LAW OF CONTRACT (ART. 1(1)(B) CISG)
SCOPE OF CISG - CONTRACT FOR PRODUCTION AND INSTALLATION OF MACHINERY - COVERED BY CISG (ART. 3(1) CISG)
PARTIAL AVOIDANCE (ART. 51(1) CISG) - LACK OF CONFORMITY - MUST RELATE TO AN INDEPENDENT PART OF THE GOODS - RELEVANCE OF SUBSTITUTABILITY OF THE GOODS
LACK OF CONFORMITY - NOTICE - TIME LIMIT OF TWO YEARS (ART. 39(2) CISG) - IMPLIED DEROGATION (ART. 6 CISG)
LIMITATION PERIOD (PRESCRIPTION) - MATTER NOT GOVERNED BY CISG (ART. 4 CISG) - DOMESTIC LAW APPLICABLE
REFUND OF PRICE PAID (ART. 84 CISG) - INTEREST - ACCRUAL FROM DATE OF PAYMENT - INTEREST RATE - MATTER GOVERNED BUT NOT EXPRESSLY SETTLED BY CISG (ART. 7(2) CISG) - DOMESTIC LAW APPLICABLE - CURRENCY AGREED FOR PAYMENT OF THE PRICE - EXCHANGE RATE
An Italian seller and a Czech buyer concluded a contract for the supply of a machinery (assembly line) consisting of three pieces of equipment. The parties agreed that the contract was governed by Austrian law, and that all disputes would be settled in accordance with the Rules of the ICC Court of Arbitration. The contract provided that the seller would deliver the machinery directly to a third party, the end user of the machinery. It was also agreed that the seller would install and put into operation the machinery. The contract also contained a guarantee and takeover clause, according to which the seller was bound to guarantee the functioning of the machinery for a period of 12 months after the date of signature of a 'takeover protocol' but no longer than 18 months from the date of delivery. In accordance with the provisions of the contract, the buyer paid the price partially in cash in advance and partially in promissory notes on certain dates. The seller delivered the machinery except for some parts of the equipment and some spare parts. The parties never performed the takeover test and never signed the takeover protocol provided for by the contract. Following delivery, the buyer claimed some malfunctions of one piece of equipment. The buyer filed a request for arbitral proceeding against the seller after being sued by the end user of the machinery, who had claimed damages suffered because of defects in the machinery. The buyer alleged non conformity of the machinery (as one of three pieces of equipment was defective) and claimed partial avoidance of the contract, reimbursement of the price of the non-delivered equipment and damages for breach of contract by the seller. The seller in turn contended that the buyer had started the arbitral proceeding after the expiration of the 18 month maximum contractual guarantee period (i.e. 20 months after the delivery) and therefore all the claims grounded on the guarantee clause were time-barred. The seller admitted that the claim for compensation of the price of the non-delivered equipment was well founded.
The court held that since the parties had chosen Austrian law, the contract was governed by CISG as the international sales law of Austria, a Contracting State (Art. 1(1)(b) CISG). The court expressly remarked that the applicability of the rules of international private law referred to in Art. 1(1)(b) CISG includes choice of law by the parties, and that the choice of the law of a Contracting State includes choice of CISG.
The contract was found to fall within the scope of CISG under Art. 3(1) CISG, being a contract for the production, delivery and installation of machinery.
The court noted, however, that the questions of prescription and interest rate were governed by substantive domestic Austrian law.
The court granted the buyer reimbursement of the price of the non delivered equipment, and the right to interest in compliance with Art. 84 CISG. The court stated that, according to Art. 84(1) CISG, interest for refund of the price paid by the buyer accrues from the date of payment. As to the interest rate, the court applied the Austrian statutory interest rate, since the Convention is silent on this point (Art. 7(2) CISG). With regard to the currency of the reimbursement, the court stated that the buyer was entitled to reimbursement in the same currency agreed upon by the parties for the payment of the price. The amount due was determined with reference to the exchange rate agreed upon by the parties in the contract.
As to the claim of partial avoidance of the contract (Art. 51(1) CISG), the court stated that, when the goods are machinery, partial avoidance of the contract can be granted when the lack of conformity relates to an independent part of the goods sold. This requirement was fulfilled in the case as the non-conforming part was a piece of equipment replaceable without prejudice to the workability of the machinery as a whole and to the continuation of the contract.
Regarding prescription, the court observed that the parties had fixed a maximum period of 18 months for the buyer to exercise its rights in case of non-conformity. In so doing the parties had also validly derogated from Art. 39(2) CISG, which sets forth a two year time-limit for the buyer to give notice of non conformity. The court stated, however, that Art. 39(2) CISG does not mention the prescription period within which a buyer who has given timely notice of non-conformity has to commence legal action. The court held that the prescription period is a question which falls outside the scope of CISG and is therefore governed by applicable domestic law. The court, applying Austrian law, concluded that the buyer's claims were time- barred under the contractual warranty period clause.
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- Prof. Avv. Piero Bernardini, Studio Legale Ughi & Nunziante, Rome-Milan, Italy
Published in English:
- The ICC International Court of Arbitration Bulletin Vol. 6/N. 2 - November 1995, 69-72}}