CISG CASE PRESENTATION

Case identification

DATE OF DECISION: 19940828 (23 August 1994)

JURISDICTION: Arbitration ; ICC

TRIBUNAL: Court of Arbitration of the International Chamber of Commerce

JUDGE(S): Case report does not identify presiding arbitrator(s)

CASE NUMBER/DOCKET NUMBER: 7660 of 1994

CASE NAME: Case report does not identify parties to proceedings

CASE HISTORY: Unavailable

SELLER'S COUNTRY: Italy (defendant)

BUYER'S COUNTRY: Czechoslovakia (claimant)

GOODS INVOLVED: Machinery and other items: the production, delivery and installation of a complete automatic assembly line for batteries

ARBITRATION: ICC International Court of Arbitration case no. 7660 of 1994

Case law on UNCITRAL texts (CLOUT) abstract no. 302

Reproduced with permission from UNCITRAL

A Czech buyer, plaintiff, and an Italian seller, defendant, concluded a contract for the production, delivery and installation of a complete automatic assembly line for batteries, which was to be delivered to a Czech company X. The buyer sued the defendant requesting partial avoidance of the contract, payment of damages arising out of undelivered spare parts and indemnification of a pending third-party claim.

The arbitral tribunal held that there was no dispute between the parties that their choice of law, Austrian law, included the application of the CISG. Citing article 3(1) CISG, the arbitral tribunal determined that the contract fell within the scope of the CISG.

The arbitral tribunal allowed the buyer's claim regarding undelivered spare parts and granted the buyer interest in the amount due under articles 78 and 84 CISG from the maturity of the first promissory notes according to article 84(1) CISG. The arbitral tribunal stated that, as the CISG was silent on the amount of interest (articles 78 CISG and 84 CISG), and, on the basis of article 7(2) CISG, Austrian law had to be applied in order to determine this issue. Given that the contract price, though valued in Lira, was due in DM at an exchange rate agreed by the parties, the arbitral tribunal held that any refund, including interest, should also be due in DM at the same rate.

The arbitral tribunal disallowed the buyer's claim for avoidance of part of the contract. The arbitral tribunal noted that article 51(1) CISG provided for a partial avoidance of the contract as declared by the buyer, and that under article 51(2) CISG such partial avoidance was the rule rather than the exception in cases of partial non-performance amounting to a non-fundamental breach of the contract (article 49(1)(a) CISG). In view thereof, the arbitral tribunal determined that a partial avoidance under article 51(1) CISG was permissible where the defective piece of machinery formed an independent part of the contracted goods as it was in the case at issue. However, the arbitral tribunal further determined that the buyer's partial avoidance was barred by the 18-month time limit contained in the contract. It further noted that according to article 6 CISG the parties by agreeing on an 18-month warranty period had also reduced the two-year time limit provided for in article 39(2) CISG to a one and half year time limit. The arbitral tribunal noted that the CISG was silent as to "prescription periods", and therefore Austrian law had to govern such issue.

The arbitral tribunal rejected the buyer's claim for indemnification of a pending claim filed by company X in the Prague court against it, as the buyer had not suffered any damage yet as required by article 74 CISG.

Editorial remarks

EDITOR: Albert H. Kritzer

The contract was entered into by a seller from Italy (a Contracting State) and a buyer from Czechoslovakia (not then a Contracting State). The tribunal stated: "According to the contract, Austrian law governs the merits of this dispute." The CISG was in effect in Austria at the time of the conclusion of the contract. The tribunal ruled that Austrian law governs the issues in dispute and that, pursuant to Article 1(1)(b), this includes the CISG.

CISG issues ruled upon:

• The scope of the CISG;
• An undisputed claim involving non-delivered spare parts: buyer's right to interest on this claim and the method of calculating such interest; exchange rates applicable to this claim;
• A defective "b-machine": buyer's right to avoid the part of the contract pertaining to it; the impact of a contract statute of limitations;
• Indemnification of a pending third-party claim as an element of damages.

Interest (right to, accrual of, rate of). In assessing the claim for non-delivered spare parts, the tribunal ruled that buyer is entitled to "interest in the amount due under applicable law (Articles 78 and 84 CISG)":

"As to the starting date, interest for reimbursement of the purchase price runs from the date of payment (see Article 84(1) CISG) . . . . [Buyer] is entitled to interest from the maturity of the first promissory notes."

"As to the amount of interest, Articles 78 and 84 CISG are silent on the matter. . . . [U]nder applicable (see Article 7(2). CISG) Austrian law, the statutory litigation interest applicable to commercial matters is 5% (see Section 352 HGB). . . ."

Exchange rates. As a remedy against currency fluctuations, "the contract price -- though valued in Lira -- was due in DM" calculated at a specified exchange rate. The tribunal stated: "[A]ny refund, including interest, should also be due in DM at the same rate. This is . . . corroborated by Article 84(1) which shows that the Convention takes the perspective of the date of payment rather than repayment."

Avoidance (avoidance of part of a contract). The tribunal stated that avoidance of part of a contract is permissible:

"Article 51(1) CISG provides for a partial withdrawal as declared by [buyer]. As Article 51(2) CISG shows, partial withdrawal is the rule rather than the exception in cases of partial non-performance amounting to a non-fundamental breach of the contract (see Article 49(1)(a) CISG). . . .

"Therefore, a partial withdrawal under Article 51(1) of the Convention is permissible where the defective piece of machinery forms an independent part of the contracted goods. Independence of the b-machine is suggested not only by the fact that the contract separately lists and values it, but also because the b-machine was replaceable by a different [manufacturer's] b-machine while continuing to use the remainder of the contracted units together with the substitute.

However, the tribunal ruled that buyer's avoidance was not timely.

Statute of limitations/Prescription periods/Freedom of contract. The contract contained a time-bar provision (an "18 month-latest" clause). Referring to this as a prescription period, the tribunal remarked that, as permitted by Article 6, this contract clause derogated from and varied the effect of the 24 month latest-notice period recited in Article 39(2). Of particular significance to this case, it served as a limitation or prescription period for the bringing of the action.

Applying Austrian law to the prescription issue (because "[t]he Convention is silent on the run of prescription periods"), the tribunal ruled that as buyer's Request for Arbitration was filed after the 18-month-latest-period ran out, relief under buyer's avoidance claim is barred.

Damages. The tribunal rejected buyer's claim for indemnification of a pending third-party claim on other grounds, stating: "Buyer's claim for damages is one for indemnification in view of XYZ's claim now pending in the Prague court. As that court has not yet ruled on [buyer's] liability to XYZ it is clear that -- as of now -- [buyer] has not suffered any damage as required by Article 74 CISG. This is also true with respect to [buyer's] further argument that the amount due to [buyer] but withheld by XYZ should be treated as damages. Indeed, also the lawsuit between [buyer] and XYZ is still pending so that . . . for that reason there is -- as of now-- no damage that [buyer] has suffered. Accordingly, the claim must be rejected. . . ."

The tribunal also took occasion to remark on the nature of a damages claim under Article 74, stating: "Damages under Article 74 CISG do not include the restitution of the contract price already paid by [buyer] to [seller].

Citations to other abstracts, case texts and commentaries