CISG CASE PRESENTATION

Finland 12 November 1997 Turku Court of Appeal (Canned food case) [translation available]
[Cite as: http://cisgw3.law.pace.edu/cases/971112f5.html]

Case Table of Contents

• Case identification
• Classification of issues present
• Editorial remarks
• Citations to case abstracts, texts, and commentaries
• Case text (English translation)

• Guide to links contained in case presentations

Case identification

DATE OF DECISION: 19971112 (12 November 1997)

JURISDICTION: Finland

TRIBUNAL: Turku Court of Appeal (Turun hoveikeus)

JUDGE(S): Unavailable

CASE NUMBER/DOCKET NUMBER: S 97/324

CASE NAME: Finnish case citations do not generally identify parties to proceedings

CASE HISTORY: Tampere Court of First Instance 17 January 1997 [affirmed]

SELLER'S COUNTRY: Spain (plantiff)

BUYER'S COUNTRY: Finland (defendant)

GOODS INVOLVED: Canned food

Classification of issues present

APPLICATION OF CISG: Yes

APPLICABLE CISG PROVISIONS AND ISSUES

Key CISG provisions at issue: Articles 38(1) ; 39(1) ; 48 ; 50

Classification of issues using UNCITRAL classification code numbers:

38A [Buyer's obligation to examine goods: time for examining goods];

39A [Requirement to notify seller of lack of conformity: buyer must notify seller within reasonable time];

48A ; 48C [Cure by seller after date for delivery: seller's right to remedy any failure to perform; Request or notice under art. 48(2) or (3) effective only when received: an exception to "dispatch" rule of art. 27];

50A [Buyer's right to reduce price for non-conforming goods]

Descriptors: Examination of goods ; Lack of conformity notice, timeliness ; Cure ; Reduction of price, remedy of ; Burden of proof

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Editorial remarks

EDITOR: Sanna Kuoppala

Excerpt from "The Application and Interpretation of the CISG in Finnish Case Law 1997-2005" (April 2009)

[...]

4.1 Classification of the issues present

The case involved a sale of canned foods delivered from a Spanish Seller (the plaintiff) to a Finnish Buyer (the defendant). The questions in dispute included the proper and timely examination of the goods and the notice of non-conformity. In addition, the price reduction and damages for non-conformity were assessed by the Court. See below for English translation of this case by Jarno Vanto. The Court of Appeal confirmed the reasoning of the District Court; the amount of the price reduction was however evaluated lower by the Court of Appeal.

4.2 Applicable law

According to CISG Article 1(1)(a), the Convention applies directly if the parties to a contract of sale of goods have their places of business in different Contracting States. In Spain the Convention has been effective since 1 August 1991, in Finland since 1 January 1989. The parties were in agreeement that the law applicable to the contract was the CISG. In addition the Finnish Interest Act was applied.[157] There seemed to be no dispute on the applicable law on interest: in relation to the interest, the Court did not discuss the issue and Finnish Interest Act was referred to.

4.3 Conformity of the goods

Article 35 states the standards by which the seller's obligation to deliver goods which conform to the contract is measured. The overriding source of the conformity is naturally the contract between the parties. Only if the parties have not agreed otherwise, does paragraph (2) come into play.[158]

According to Article 35(2)(a), if the goods are ordered by general description, the seller must deliver goods that are fit for all purposes for which the goods of the same description are ordinarily used. If the buyer has not expressly or impliedly made known to the seller the special use of the goods other than for which the goods are ordinarily used at the time of the conclusion of the contract, the seller cannot be acountable to deliver goods to conform this special use. If the buyer has made known to the seller the special use at the time of the conclusion of the contract, according to Article 35(2)(b), the seller must comply with this request, unless the circumstances show that the buyer did not rely, or that it was unreasonable for him to rely on the seller's skill and judgement.

Article 35(2)(c) provides that, if the contract is negotiated on the basis of a sample or a model, the quality of the goods delivered must correspond to those presented by the sample or the model. While a sample is taken from the goods to be delivered, a model is supplied to the buyer for his examination where the goods themselves are not available. Article 35(2)(d) sets up the minimum standard for packaging the goods. It is not intended to discourage the seller from packaging the goods according to a higher standard for more security.[159]

The obligations in respect of the qualities in subparagraphs (a)-(d) are imposed on the seller because in the usual sale the buyer would legitimately expect the goods to have such qualities even if they were not explicitly stated in the contract.[160] However, if at the time of the contracting the buyer knew or could not have been unaware of the lack of conformity of the goods in reference to the second paragraph of Article 35, he cannot rely on such non-conformity. An obligation based on facts of which one "could not have been unaware" does not impose a duty to investigate; these are the facts that are before the eyes of one who can see.[161] Article 35(3) does not affect those characteristics that are explicitly required by the contract as provided for in the first paragraph of Article 35. Even if at the time of the conclusion of the contract, the buyer knows that the seller will not deliver conforming goods as required by a contract, the buyer can require full performance from the seller.[162]

4.3.2.2 Agreement on quality

Professor Honnold suggests that the role of the second paragraph of Article 35 is to aid in construing the agreement of the parties.[163] The intention of Article 35(2) is to describe in general terms descriptions of quality that would have been written into the contract if the parties had drafted a contract provision dealing with the issue.[164] The second paragraph of Article 35 stresses the importance of contractual understanding of the parties.[165]

If the parties do not agree on the meaning of the agreed quality descriptions, the problem needs to be resolved pursuant to the Convention's rules on interpretation of the contract, supplemented by the rules on practices and usages, if necessary.[166] Article 8 provides:

The basic approach in Article 8 is the subjective approach. However, in practice, most problems of interpretation will be governed by paragraph (2) which follows the objective approach as when where is a conflict it is hard determine what was the actual intent of the parties.[167] If a party, in making a statement, actually attached to it the meaning that he, in case of the dispute claims, and can also show that the other party knew that specific meaning, the meaning of the party who made the statement prevails.[168] The second paragraph of Article 8 places the burden on the one who prepares a communication or drafts a contract to communicate it clearly to a reasonable person in the same position as the other party.[169] Under the objective test the intent of the party making the statement will prevail if he can show that this would have been the understanding of a reasonable person of the same kind and in the same circumstances as the other party. A reasonable person in the same circumstances must be evaluated in the light of the kind of parties involved and their circumstances, taking into account, for example, the parties' knowledge of prior dealings and negotiations between the parties.[170] The third paragraph of Article 8 provides that all the relevant circumstances are to be given due consideration when determining the intent of a party or the understanding a reasonable person would have had. Those circumstances include negotiations, any practices and usages the parties are bound by and any subsequent conduct of the parties. The list in this paragraph is not exclusive.[171]

Article 8 applies equally to the interpretation of the unilateral acts of each party, i.e., communications in respect of the proposed contract, the offer, the acceptance, notices, as well as of the contract itself, when the contract is embodied in a single document.[172] In applying Article 8, reference is to be made to the time that the conduct had its effect, not to the time of the dispute over its interpretation. In other words, a disputed word, phrase or conduct is given the meaning attached to it by each party at the time their conduct was to have effect.[173]

Professor Bianca stresses that the description is the usual way through which the parties determine the content of their obligations. The description of the goods made by the seller in his offer is binding upon him with no need of a specific promise. If for example, the offer refers, even impliedly, to an advertisement illustrating the goods and their qualities, it is understood that the offer includes such description. The description may also be made by the buyer on his request of the goods. If the seller does not raise objections, the delivered goods must be as required by the buyer.[174]

Professor Bianca point out that Article 35 does not expressly answer a question whether the seller has an obligation to deliver goods that meet the mandatory requirements of the national law of the place where the goods are to be sold or used. A duty to deliver goods that conform with the special requirements of another county's law is a special condition that demands goods different from those of normal fitness.[175] Professor Bianca concludes that the seller's liability arises, when the goods are reasonably expected to conform with the foreign legal requirements. The seller's liability is always determined according to the circumstances of the case. The fact that the buyer makes known to the seller the country where the goods are to be used, is not sufficient to bind the seller to deliver goods which meet the administrative and statutory requirements of that country. However, it is reasonable to expect conforming goods, if the foreign legal requirements are the same as those of the seller's country or where the buyer had made clear he wanted goods fit to be used in his or in another country (provided that the buyer can rely on the seller's skill and judgement). Further, if the seller has in the recent past sold conforming goods to the buyer and thus knows or ought to have known the legal requirement, the buyer can reasonably expect conforming goods.[176]

Professor Henschel has analyzed the conformity of the goods and, moreover, their possible lack of conformity in relation to the principles of caveat emptor and caveat venditor.177 According to caveat emptor, there is an assumption that the buyer bears the risk if it appears that the goods do not conform to the contract. According to caveat venditor, there is the assumption that the seller is responsible for defects in the goods, including those based on explicit or implicit guarantees about the quality of the goods.[178] Henschel concludes that if there is a difference between the understandings of the terms in the contract, the party within whose sphere of influence the disputed factors are judged to be more closely linked ought to be liable for ensuring that the goods comply with such requirements, unless of course, the solution can be derived from the interpretation of the contract.[179] The starting point is that the seller's country shall form the basis for judging what is a customary purpose, or a particular purpose or the usual manner for containers and packaging. However, if the seller is aware of the norms which apply in the destination State of the goods, regularly makes exports there, or markets his goods for that country, the seller can be presumed to have been aware of the specific requirements. Professor Henschel further concludes that it is for the buyer to show that the seller knew or could not have been unaware of the norm in the destination State, i.e., that the relevant elements were within the seller's sphere of influence.[180]

4.3.3 Decision on the conformity of the goods

The District Court held that on 16 December 1993 the Buyer and the Seller had entered into an exclusive import agreement. In paragraph 3 of that contract, the Seller guaranteed that the products it manufactured were of good quality and fulfilled the European Union requirements set for the type of products. As to the quality of the goods, nothing else had been agreed. Canned foods had no quality classifications in Finland.

The District Court heard testimonies from the Buyer's clients reaffirming that the goods did not meet the requirements for top quality products and that the retailers had received several complaints from their customers. The Buyer was forced to compensate his customers for the non-conformity of the goods. Also, customer complaints about foreign articles in the goods had been submitted as written exhibits. The Buyer also submitted evidence that the tin content of the products had been significantly high. The Seller argued that the goods had been tested in Spain after the production and no non-conformities were found.

The District Court held that the labels gave the buyers information about the contents of the goods but a perfect correspondence between the two could not be required. Thus the correspondence of the goods with the labels had no relevance in evaluating the conformity of the goods with the contract. However, based on the submitted evidence, the District Court held that a significant amount of the products had been of a quality that could not be deemed as good in general terms. Furthermore, some of the cans had contained foreign articles and consequently had been non-conforming.

In a fax message dated 28 September 1992, the Seller had informed the Buyer that he had been in the habit of sending products that were better than Class I products under the Diamante brand. Even though the exclusive import contract did not specifically touch upon quality issues, it was apparent that a prerequisite for entering into the contract had been the good quality of the products. Based on the above-mentioned circumstances, the District Court held that the goods had not been conforming to the contract and that the Buyer was entitled to a price reduction.

The Court of Appeal did not discuss the conformity of the goods but relied on the District Court's decision. The Court of Appeal did evaluate the extent of the non-conformity differently from the District Court. This will be discussed further in relation to the amount of the price reduction.[181]

Considering the evidence submitted to the Court, it is obvious that the goods were not of the best quality. Unfortunately, the Court did not however analyze in detail what was the relevance of Seller's fax to the Buyer before the contract was concluded. The District Court concluded that, besides the contract where the Seller guaranteed that the products it manufactured were of good quality and fulfilled the European Union requirements set for the type of products, nothing had been agreed specifically on the quality of the goods. The circumstances showed, however, that the prerequisite for the contract had been the quality of the goods. In its reasoning, the Court concentrated mainly on the evaluation of whether the non-conformities amounted to defective goods.

The Seller itself had claimed that the fax dated before the contract was concluded was merely an offer. The Buyer stressed that the fax message was a response to a quality questionnaire. The Buyer had not even alleged that the fax was a contract. However, it showed what could be regarded as agreed between the parties in terms of quality and what Seller had told to Buyer about the quality.

As the contract did contain a clause on quality though not a specific one, the question arises what was the meaning of this quality clause. In order to give specific meaning to the contract clause, one must turn to the Convention's rules on interpretation of the contract as provided for in Article 8. The District Court did not refer to any rules on construction of the contract nor Article 8 of the Convention when stating that the good quality must have been a prerequisite to an exclusive import agreement.

The emphasis on evaluation of the non-conformities is linked to the buyer's obligation to examine the goods sufficiently and notify the seller within a reasonable time after the defects have been or ought to have been discovered. This issue will be discussed next.

4.4 Examination of the goods

Article 38 lays down a fundamental principle that requires the buyer to examine the goods delivered by the seller within as short period as is practicable in the circumstances.[182] Article 38 is linked to Article 39, which provides that if the buyer fails to notify the seller of the lack of conformity of the goods within a reasonable time after he has discovered it or ought to have discovered it, he loses the right to rely on it. Article 38 fixes the time when the buyer "ought to have discovered" the defect; this time, in turn, starts the running of the "reasonable time" within which the buyer must notify the seller.[183] The strict connection between Article 38 and Article 39 means that the buyer has a burden rather that a duty to examine the goods in a short time.[184]

Under the Convention, it is irrelevant whether the buyer examines the good himself, through his employees or through other person, e.g. customers.[185] The first paragraph of Article 38 provides that the buyer must examine the goods or cause them to be examined. If the quality of the goods is an essential part of the contract the parties are advised to agree on the neutral testing body.[186]

4.4.3 Method and degree of the examination

Primarily the method of examination is determined by the agreement. Article 6 provides that the parties may exclude the application of the Convention or derogate from or vary the effect of any of its provisions.[187] The parties may lay down more precise rules in relation to the examination of the goods than those provided for in Article 38. The method of examination may also follow form the usage or practice.[188] The Secretariat Commentary also stresses that the determination of the type and scope of examination required should be made in the light of international usages, because of the international nature of the transaction.[189]

Expectations that have the force of contract can be established by patterns of relationship established by the seller and the buyer.[190] A course of dealing or practice that the parties have established will often have more concrete meaning to them than the general words of the contract. In addition to practices, a usage which the parties have agreed to observe must be given effect. This approach is confirmed by Article 9(1). Article 9(2) provides further; in the absence of a contrary agreement, the parties are considered to have impliedly made applicable to their contract a usage of which the parties knew or should have known and which in international trade is widely known to and regularly observed by parties to contract of the type involved in the particular trade. The Convention gives effect to a usage only if, on an objective basis it constitutes a part of the contractual expectations of the parties.

In the absent of agreement or applicable practice or usage, the rules for examination must be developed from the CISG itself. Professor Lookofsky has suggested that the intensity of the examination required is a matter governed but not settled by the Convention and the matter could therefore be settled appropriately in accordance with the general principle of "reasonableness" as provided for in Article 7(2).[191] Thus, in general, the examination is reflected to what is "reasonable" in the circumstances.[192]

The buyer must examine the goods in a manner which takes account of their nature, amount, packaging and all other circumstances. For example, when the goods are too complex or too numerous, the buyer is not bound to undertake a thorough examination of every single article.[193] Where large quantities have been delivered, the buyer is not required to examine all the goods individually, but he may restrict the examination to a representative, random test.[194] Professor Lookofsky has even stated that a middle-man, who purchases goods in sealed containers, would not normally be expected to undertake or secure a laboratory analysis of the contents prior to resale; such a buyer can rely on the seller's obligation to deliver goods fit for ordinary purposes (consumption).[195] When the sales involve perishable goods, the necessity for a particularly prompt complaint precludes time-consuming methods of examination.[196]

Generally, the criterion for adequate examination is objective. However, subjective factors can be taken into account if the seller knows them or he should have been aware of them. Subjective factors include, e.g. the buyer's lack of experience and lack of infrastructure necessary for proper examination.[197] Where the buyer has the relevant experience, he must carry out an expert, thorough examination. This is also the case if there have been defects in the previous deliveries.[198] If the buyer is aware that the seller has previously had problems in manufacturing the goods he cannot examine the goods superficially relying on the fact that the seller bears the risk of the lack of conformity in any case.

The examination must be such as to disclose recognisable defects, taking into account, of course, all the circumstances of the case. The duty to examine the goods should not be too onerous to the buyer; the buyer is normally not required to make an examination which would reveal every possible defect and would involve complex technological analysis.[199] The situations which may occur in international trade are numerous and most importantly, each case should be taken with its circumstances in mind.

4.4.4 Time of the examination

The CISG requires examination "within as short a period as is practicable in the circumstances." The rule is based on the fundamental idea of reasonableness, meaning that the buyer must examine the goods as soon as reasonably possible.[200] In view of the extreme diversity of the goods that might be the subject matter of an international contract for the sale of goods, the CISG rightly chose this flexible period.

The appropriate period is hard to establish with certainty. The examination within a few days after the delivery is certainly appropriate and if the buyer follows this rule, he should be on the safe side. When determining the duration of the period, the circumstances of the individual case and the parties' reasonable opportunities must be considered.[201] In general, it may be said that goods of more sophisticated technology and those of complex composition need a longer "reasonable" time to be examined.[202] The impediments relating personally to the buyer are not relevant when determining the proper time for the examination. A delay in examining the goods may be justified only when due to general and objective impediments.[203]

According the second paragraph of Article 38, if the contract provides for carriage of goods, the period within which the goods must be examined begins to run only upon their arrival at their destination. The rule takes into account the fact that if the contract involves carriage of the goods, an examination at the time of delivery, i.e. upon the handing over the goods to the first carrier is usually impossible, but in any event, it is not reasonable to require the buyer to do so. Article 38(2) applies irrespective of which party concluded the contract for carriage.[204]

The third paragraph of Article 38 clarifies the rules on examination of the goods even further. If the goods are redirected in transit or redispatched, then in certain circumstances the period for examining the goods begins only when the goods have arrived at their new destination. Goods are redirected in transit if the goods are in transit and they are redirected another destination before reaching the originally intended destination. Goods are redispatched, if the buyer re-dispatches them after they have been received at the destination. In both cases, it is irrelevant who causes the redirection or the goods to be redispatched.[205] What really matters is whether the buyer has a reasonable opportunity to inspect the goods before re-dispatching. This depends mainly on how long the goods stay at the original destination before the re-dispatch. Other relevant circumstances to be taken into account include e.g. the way the goods are contained and packaged and whether the examination of the goods requires the removing of the trademark attesting the authenticy of the product.[206]

For there to be a postponement of the time allowed for examination, the seller must or ought to have known at the time of the conclusion of the contract of the possibility of redirection or re-dispatched. The seller must face this possibility when the buyer has expressly mentioned it or impliedly let it be known, as when the buyer is an international professional trader.[207] It should be stressed however, that it is advisable for the buyer expressly to draw to the seller's attention at the time of concluding the contract the fact that the goods may be redirected or re-dispatched, even though the buyer's intentions to re-dispatch the goods may be evident from the circumstances of the particular case.[208] If after the conclusion of the contract the buyer changes his mind as to the final place of destination, provided that the seller did not know or should not have known about the possible redirection or re-dispatch, without having a possibility to examine the goods before the re-dispatch or redirection, he faces a possibility of losing his right to rely on the lack of conformity.[209] The buyer may not defer the time of examination of the goods by giving a notice to the seller of an unexpected change of the goods' original destination.[210]

Mere resale without additional carriage does not fall under Article 38(3).[211] The fact that the goods are resold without the buyer having a sufficient opportunity to examine the goods should, however, be taken into account in the context of Article 38(1) both as regards the form of examination and, above all, the length of the period allowed for the purpose. The goods can be contained or packaged in such a way that normally their examination is brought about by the consumer. The buyer does not always have a reasonable opportunity to examine the goods before their resale, except by way of random and limited number of samples.[212]

4.4.5 Decision on the examination of the goods

The District Court stated that the goods in question were of such a nature that they were distributed among consumers in small amounts and non-conformities were detected only when the consumer begun using the product. Therefore the complaints from consumers begun to come gradually and possibly after a long period of time after the goods had been received by the importer. The Court held that the buyer had given a notice in sufficient detail and within a reasonable time after he had discovered the non-conformity.

The Court of Appeal referred to the applicable CISG Article 38(1). Considering the type of the goods sold, i.e. canned food, the Court of Appeal held that the Buyer did not have an opportunity to examine the goods and detect the non-conformity. In practical terms, an obligation to examine the goods after the delivery has more importance than the buyer's duty to notify the seller of the lack of conformity. When the buyer has detected the deficiency, he has no reason to postpone the notification.[213] However, the intensity and the time of the examination must be determined in accordance with what is reasonable. It is clear that the rules concerning the re-dispatch and redirection under Article 38(3) are not applicable to the case, but the timeliness of the examination must be determined according to Article 38(1), i.e. the buyer must examine the goods, or cause them to be examined, within as short a period as is practicable in the circumstances.

The CISG Advisory Council has assembled an overview of reported case law relating to the extent and timeliness of examination (Article 38).[214] In general, it can be concluded that the buyer's duty is a strict one as it can eventually lead to loss of the right to rely on the lack of conformity because, until the buyer is aware of the non-conformity, he cannot give a timely and proper notice of it to the seller.[215]

Taking into account the nature and the quality of the goods, it is understandable that the Buyer was not expected to examine every single article; that would have been impossible. However, no random test had been performed before the resale and the laboratory test had been carried out only after receiving complaints from the consumers. In the light of the international case law, the decision of the Finnish Court can be seen fairly "buyer friendly"; even more so when taking into account that the high quality was valued by the Buyer. On the other hand, weight can be given to the fact that the Seller was known to have delivered high quality goods. If the quality of the goods is an essential part of the contract, it is advised that the parties agree on the method and time of the examination of the goods and even further, if possible, arrange supervision of the production facilities in order to avoid future conflicts.

4.5 Notice of non-conformity

Under Article 39(1), any lack of conformity which the buyer has established or should have established upon a proper examination of the goods and any subsequent lack of conformity discovered must be notified to the seller. The reason for the lack of conformity is irrelevant.[216]

When giving the notice of lack of conformity, the buyer is not obliged to indicate at that stage which remedies he intends to assert. However, it should be noted that the right to require delivery of substitute goods or repair under Article 46(2) and (3) and the avoidance of the contract under Article 49(2)(b)(i) depend upon the buyer having informed the seller of his intention within a reasonable time after giving the notice under Article 39 or after he knew or ought to have known of the breach. Under Article 50, there is no period of time for the buyer to reduce the price.[217] The buyer is advised, when giving the notice of lack of conformity, to inform the seller of the rights which he intends to assert.[218]

4.5.2 Nature of the lack of conformity

The notice must specify the nature of the lack of conformity. This requirement is intended to place the seller in a position whereby he can comprehend the lack of conformity and take the appropriate steps.[219] Buyers are advised to be as specific as they can to avoid doubts. Generally the CISG requires notices to be framed in more detail than in general terms. Of course, a prudent seller might be expected to make inquires with the buyer after receiving a non-specific notice of lack of conformity.[220]

Professor Schwenzer proposes that when determining which requirements must be satisfied by the buyer in specifying the nature of lack of conformity, a mixed objective-subjective standard should be applied. This approach would have regard to the respective commercial situation of the buyer and the seller, to any cultural differences and above all the nature of the goods.[221] The professional buyer in a particular field of business is advised to notify the seller with sophisticated terms.[222]

It is unclear whether, when specifying the lack of non-conformity, the buyer must also indicate the extent to which the goods delivered are affected by the lack of conformity. The question whether a precise quantification of the goods affected by the lack of conformity can be insisted upon will largely depend upon the specific circumstances of the case. In view of the spirit and purpose of the duty to notify lack of conformity, where there are discrepancies in the amount of the goods delivered, only a precise indication of the missing amount can put the seller in a position to take appropriate steps, i.e. preparing for delivery of additional or substitute goods. In other cases, as far as it is possible and reasonable for the buyer to do so, an approximate indication of the extent of the goods affected should be given. If obtaining such information entails considerable effort, it will be unreasonable to require the buyer to do so.[223]

The buyer does not need to specify the defects in all detail. The CISG does not mean to locate the risk of the breach of contract with the buyer.[224] However, in general, the buyer's obligation to specify the lack of non-conformity can be a fairly onerous one.[225] The notice of lack of conformity must contain the indication of the defective goods, their approximate quantity and the result of the inspection of the goods.[226]

4.5.3 Form of the notice

Article 39 does not state any requirements as to the form of the notice of the lack of conformity. Notice given orally or by telephone suffices, although the buyer would be advised, for reasons of proof, to give written confirmation of any notice given orally or by telephone.[227]

There is no express rule in the CISG that a notice of lack of conformity must be received by the seller in order to be effective. The dispatch principle as provided for in Article 27 applies to notices of lack of conformity: the risk of loss, delay or a change in a communication is on the party whose acts have caused the need for the notice, provided that the notice is sent by means appropriate in the circumstances.[228] The appropriate dispatch of a communications satisfies the notice requirement.[229] Of course, even a communication send by inappropriate means is effective if received by the addressee.[230] The appropriateness of the means of communication is to be determined according to the circumstances of the individual case. Depending on the declaration involved, the speed of the means of communication available may also be relevant to its appropriateness.[231]

Professor Schlechtriem is of the opinion that Article 27 does not cover oral declarations made inter prasentes or on the telephone. Therefore, it is necessary for the addressee to hear a declaration made orally or by telephone, and in the event of a dispute, that must be proven by the declarer. The direct communication enables the maker of the declaration to monitor the audibility of his declaration, or at least to check it by querying whether his declaration was understood.[232]

The notice must be addressed to the seller. The question of who is authorized to receive notices of defects for the seller is not dealt with in the CISG, but has to be answered in accordance with the law applicable by virtue of the rules of private international law. If a person is not authorized under the applicable domestic law to receive notices on behalf of the seller, it must be examined whether this is still an appropriate means of communications for the purposes of Article 27. As a rule, that question should be answered in the negative, so that the buyer bears the risk if a notice brought in such a manner does not reach the seller or does not reach him on time.[233]

4.5.4 Time of the notice

The buyer must give to the seller a notice of the lack of conformity within a reasonable time after he has discovered it or ought to have discovered it. The linguistic definition of the term reasonable is one based on expectations and toleration and is largely a subjective term. In the legal context, however, a larger degree of objectivity is required of a term.[234] The subjectivity of the term "reasonable" makes it flexible enough to be applied in different circumstances and is a necessary prerequisite to fairness in legislation and practice, but at the same time, it may turn out to be too imprecise to ensure uniformity in its application.[235]

When determining the reasonableness of the period for giving a notice, the contract between the parties is of course the starting point.[236] International trade usage and usage established between the parties are to be considered also.[237] If the underlying sales contract or the usages do not resolve the problem whether the notice was given within a reasonable period, other factors can be taken into consideration.[238]

Professor Honnold states that a wide range of factors influence the determination of the reasonable period for the notice following the time when the buyer discovers or ought to have discovered the non-conformity. One of the factors to be taken into consideration is whether the goods are perishable or durable.[239] Professor Sono analyzes the reasonableness with regard to the remedy buyer is going assert because of the breach. A prompt communication is important if the buyer chooses to reject the goods as the seller might wish to make a tender of conforming goods and further the seller has an opportunity to care for the rejected goods and thus reduce the chance for loss or damage to the goods or the incurring of unnecessary expense. On the other hand, where the buyer decides to keep the defective goods, subject to a claim for damages, the above reasons for prompt notification may not be applicable.[240]

Excessive differences in interpretation are likely to occur because of the different traditions of the Contracting States. In order to promote uniformity in the application of the CISG, a rough average should be adopted. Professor Schwenzer proposes a period of one month as an appropriate starting point.[241] The problem with this approach is, of course, establishing the "typical situation" which represents the norm.[242] Despite this, the approach has already gained support among the courts.[243]

It should be stressed that that it is the factors and considerations of each individual case that determine the timeliness of a notice. The individual circumstances and considerations may reduce the period of notice to be "reasonable" for each case and in some circumstances adapt a period even longer than a "noble month".[244] Article 39(1) provides an essentially flexible period, which should remain as such in the interest of fairness.[245]

The reasonable time will be calculated from the time the buyer has actually discovered the non-conformity or ought to have discovered it as provided for in Article 38. A lack of conformity which is not recognisable upon a proper examination must be notified by the buyer within a reasonable period after he actually established it or should have done so. This does not mean that the buyer is under a duty to continuously examine the goods.[246] The buyer does however, have a burden of proving that the defect was latent and not discoverable upon the examination.[247] If the buyer has actual knowledge of the lack of conformity, the period for giving a notice runs irrespective of whether the period for examining the goods has already expired. The buyer must, for example, give notice of discrepancy in quantity established when the goods are handed over, even if the examination of the goods for defects has not yet been completed.[248]

In sales involving carriage of the goods, if it is clear from the transport documents that, when the goods were handed over to the carrier, the goods were externally not in good condition, the buyer gains awareness of the fact upon receiving those documents. Thus the period for giving notice of lack of conformity under Article 39 begins to run after the buyer has received the documents. The fact that the contract of carriage requires the carrier to examine the goods taken over as regards their external condition does not mean that the carrier is acting as an agent to the buyer in that regard. Thus, the period for giving notice of lack of conformity in regards to the goods external appearance does not start immediately but only when the buyer has reviewed the documents.[249]

The reasonable time under Article 39 must be distinguished from the time when the buyer must examine the goods, i.e. within as short period as is practicable in the circumstance as provided for in Article 38. A separation of the two periods is often purely academic, as the time when the goods are to be examined and most non-conformities ought to have been discovered is dependant upon the time of the delivery. However, these two periods should be kept separate in order to avoid taking irrelevant factors into account when determining each period.[250] A good example to illustrate the difference between the period of examination and the period for giving a notice is to take a case where a defect is easily detectable. That should influence the time when the non-conformity ought to have been discovered but not the time which it subsequently takes to give the notice.[251]

4.5.5 Cut-off period

Article 39(2) provides that, in any event, the notice must be given within a two-year period; even though a defect is discovered subsequent to that period. Notice of the lack of conformity must therefore be dispatched at the latest on a date which could enable the seller to receive the notice within the two year period if the means of the communication chosen functioned properly.[252]

The two-year time limit applies if a lack of conformity was undetectable upon a proper examination and the buyer did not subsequently establish it and ought not to have done so. It even applies in cases in which the buyer had a reasonable excuse for failing to give notice under Article 39(1) according to Article 44. It does not, however, apply if the seller was acting in bad faith for the purposes of Article 40.[253] The underlying idea of the cut-off period is to provide the seller with certainty that he does not need to reckon with the claims after a given time and that he may treat the transaction as complete.[254] The seller acting in bad faith is not entitled to benefit from this.

The cut-off period starts to run only when the goods are actually handed over to the buyer. This means the date of physical handing over the goods and not the date of the receipt of documents of title relating to the goods.[255] Thus, it is irrelevant whether the risk passed at an earlier date or whether the buyer is already the owner of the goods at that date.[256] It should be noted that the date of physical handing over the goods may be as much as several months prior to the date on which examination of the goods becomes practicable or required under Article 38. Under Article 38(3), if the goods are redispatched by the buyer without a reasonable opportunity for examination by him, the examination can be deferred, provided that the requirements stipulated are fulfilled, until after the goods have arrived at the new destination.[257] The date on which the goods were actually handed over to the buyer was chosen as the most easily ascertainable date for the calculation of the time limit.[258] The buyer bears the burden of proving whether the notice was given within the two-year period, because as a rule he is the only one able to prove the precise date on which the goods were handed over.[259]

Under Article 6, the parties are permitted to derogate from or vary the effect or provisions of the Convention, including Article 39. However, in the absence of a special provision, it would not be clear whether the obligation to give notice within two years would be affected by an express guarantee that the goods will retain specified qualities or characteristics for a specified period.[260] Accordingly, Article 39(2) provides that if the time limit is inconsistent with a contractual period of guarantee, the two-year period will not apply. The two-year time limit may be extended by a guarantee, but also shortened. The question whether a particular contractual agreement is inconsistent with Article 39(2) and how that agreement affects the operation of the two-year period are matters left to the interpretation of the agreement.[261] However, even if there is a contractual guarantee, notice of non-conformity should be given within a reasonable time after the buyer became aware or should have become aware of it, provide of course, that there is no contrary agreement by the parties.[262]

4.5.6 Limitation Convention

The two-year time limit under Article 39(2) should not be confused with the time frame within which the buyer must bring an action before the courts in order to enforce his existing claim. The Convention on the Limitation Period in the International Sale of Goods signed in New York 1974 (from herein the Limitation Convention) is an effort to replace a variety of conflicting national laws. The Limitation Convention was amended on 14 April 1980 -- the same day when the CISG was approved -- by a Protocol to the 1974 Limitation Convention (from herein the 1980 Protocol). The purpose of the 1980 Protocol was to align the provisions of the Limitation Convention with those of the CISG.[263] Both the original Convention and the Convention as amended entered into force on 1 August 1988.[264]

The basic aim is to establish a uniform time limit that prevents pressing claims at such a late date that evidence had become unreliable.[265] The Limitation Convention limits the period within which a buyer or a seller may press claims based on a contract for the international sale of goods to four years (the Limitation Convention Article 8). The four-year limitation period for a claim arising from lack of conformity commences when the goods "are actually handed over to, or their tender refused by the buyer" (the Limitation Convention Article 10(2). The limitation period ceases to run when the party begins judicial or arbitral proceedings against the other (the Limitation Convention Article 13 and Article 14). When a party making a claim is prevented by circumstances beyond his control from starting legal proceedings, he may have a one-year extension from the time when those circumstances cease to exist (the Limitation Convention Article 21). The overall limit for extension of the limitation period is ten years from the date when the period began to run (the Limitation Convention Article 23).

The buyer must bear in mind that even though under the Limitation Convention the buyer would have an opportunity to exercise his claim, in reality it might not be possible since he might not be able to give the required notice to the seller within the two-year period stipulated in the CISG. If the buyer is not able to give the required notice within the stipulated time, i.e. within a reasonable time or maximum two year's time, he cannot rely on the lack of conformity. The four-year rule under the Limitation Convention is technically distinct from the time limit as stipulated in CISG Article 39(2). Article 1(2) of the Limitation Convention provides that the Limitation Convention does not affect time-limit within which a party is required to give notice to the other party as a condition for the acquisition or exercise of his claim.[266]

If the parties do not have their places of business in Contracting States of the Limitation Convention or if the rules of private international law do not lead to the application of the law of a Contracting State of the Limitation Convention, the issue on limitation of claims is governed by the proper law of the contract as determined by the applicable rules of private international law (the Limitation Convention Article 3).

4.5.7 Burden of proof

The burden of proof as to the non-conformity of the goods and the existence of a proper notice of non-conformity lies on the aggrieved party, i.e. the buyer. Any party which wants to derive beneficial legal consequences from a legal provision has to prove the existence of the factual prerequisites of that provision.[267]

4.5.8 Consequence of the failure to give a notice

The buyer bears the consequences of a defective examination in the sense that due to the defective examination, the buyer is likely to fail to provide proper and timely notice to the seller. If the buyer fails to notify the seller within the prescribed period, he loses the right to rely on the non-conformity. Article 39 bars the full range of remedies: a claim for damages (Articles 45(1)(b) and 74-77), requiring performance by the seller (Article 46), avoidance of the contract (Article 49) and reduction of the price (Article 50). Nor would a seller's action to recover the price be subject to a set-off or counterclaim based on a defect which the buyer discovered or ought to have discovered, if the buyer fails to notify the seller within the period stated in Article 39.[268] Furthermore, if the seller delivers more than the contract provides for and the notice of lack of conformity is not given, the buyer must pay a correspondingly higher price under Article 52(2) which provides that if the buyer takes delivery of all or part of the excess quantity, he must pay for it at the contract rate. It is unclear whether there should also be an increase in the price if the goods delivered are more valuable than agreed in the contract. Professor Schwenzer suggests that an analogy with Article 52(2) would be appropriate, since otherwise it would be necessary to apply domestic remedies outside the scope of the CISG. This situation is unlikely to occur because Article 40 would preclude the seller from relying of a failure to give notice.[269]

In general, the buyer must also bear the consequences of the defective examination by a third party. However, if the parties have agreed upon a neutral third party or if the seller even insisted upon examination being effected by a particular third party, the buyer cannot bear the risk for defective examination. Nor is the buyer generally responsible for the consequences of a defective examination by official bodies; in any event, the buyer ought to have a reasonable excuse for not giving a required notice (Article 44).[270]

4.5.9 Exemption for failure to notify within reasonable time

Article 40 relieves the buyer of the examination and notice requirements when a lack of conformity relates to facts of which the seller knew or could not have been unaware. Bad faith deprives the seller from relying on a defence to which he would otherwise be entitled to.[271]

No one is to benefit from his own wrongdoing. The seller has no reasonable basis for requiring the buyer to notify him of facts he knew or which he could not have been unaware of and which he did not disclose.[272] However, the seller's awareness of the defects is not always easily proven, it is for the buyer to prove the seller's knowledge.[273]

As noted above, the two-year time-limit as provided in Article 39(2) will not apply if the non-conformity relates to facts of which the seller either knew or could not have been unaware of and which he did not disclose to the buyer.[274] Further, Article 40 can be invoked to provide relief for a partial non-compliance with Article 39; where the buyer's notice is timely but lacking the specificity required, there is no reason to deny the buyer's relief if the seller knows or cannot be unaware of the missing information. Nor is it necessary for the seller to know the exact extent of the non-conformity but it is sufficient if the seller knows the nature of the facts which ordinarily result in non-conformity.[275]

The parties may agree on the issues of examination and notice requirements in a manner different from the CISG (Article 6). Literally, Article 40 does not provide relief for contract inspection and notice requirements as it refers solely to Articles 38 and 39 requirements. However, if the manner is not dealt within the agreement, it would seem arbitrary not to deduce from Article 40 a general principle applicable to inspection and notice provisions negotiated by the parties.[276]

The seller may also waive the objection that the notice was not given in time or not correctly given. Whether there is a waiver depends on the circumstances of the case.[277] If the seller unreservedly acknowledges the defect, he waives his right to object to the timeliness or correctness of the notice. However, if the seller at the same time demands payment of the price in full, his agreement to repair the goods does not automatically mean that he is waiving his rights.[278]

4.5.10 Excuse from giving a notice

Under Article 44, the buyer who has a reasonable excuse for his failure to give the required notice as provided for in Article 39 will be afforded some limited remedies.

It has been argued that Article 44 does not add anything new to Articles 38 and 39 as the circumstances of each case are already taken into consideration and a reasonable excuse is already included in those circumstances.[279] However, it was seen as a necessary compromise in relation to the drastic outcome of Article 39 alone.[280] Although Article 44 does not refer to Article 38, the protection afforded in cases of "reasonable excuse" is extended to comprise the buyer's failure to inspect the goods on time.[281]

A buyer who allows the reasonable time laid down in Article 39 to pass without examining the goods and giving notice of a recognisable defect is always failing to act with the care required by a prudent businessman.[282] It seems difficult to justify a buyer's failure to give notice within a reasonable time after he knew of the non-conformity. Professor Huber and Professor Schwenzer have suggested that in order to establish whether or not there is an excuse for the purposes of Article 44 it is necessary to appraise the circumstances by reference to the notion of fairness. A buyer's conduct, although not in itself correct and in accordance with the required standard, is excusable if in the circumstances of the specific case it deserves to be accorded a degree of understanding and leniency.[283] When appraising the circumstances of the specific case, regard must be had to the interests of each party in so far as they merit protection, the seriousness of the buyer's breach of duty, the type of the buyer's business and the nature of the goods. In addition, the buyer's lack of experience should constitute a ground for excuse.[284]

Taking into account that Article 44 was drafted to meet the fears of the developing countries towards the drastic outcome of Article 39(1) alone, Professor Lookofsky suggests that a party residing in an area where transportation and communication systems are less than well-developed might have a reasonable excuse for the failure to discover and notify of a defect as promptly as might otherwise, elsewhere, be expected.[285] Professor Honnold also stresses that Article 44 needs to be understood and applied in the light of its legislative history. The use of the expression "a reasonable excuse" indicated the applicability of more individualised considerations than would otherwise be relevant under the main rule provided in Article 39(1).[286]

In all circumstances, the buyer should however keep in mind that the more time that has passed after the discovery of the non-conformity, the more difficult it is for the buyer to convince others that the non-conformity in question, whether apparent or not, did exist at the time when the risk passed to the buyer.[287] It should also be emphasized that the two-year cut-off rule in Article 39(2) remains unaffected by Article 44.[288] The mitigation by Article 44 of the consequences of a failure to give notice extends only to those cases where the buyer has failed to observe the time limits in Article 39(1).

The parties are free to derogate from Article 44. Even a binding usage can provide rules on notice period. However, the parties are advised to explicitly opt-out of Article 44; a specific term on notice period different from the one provided for in the CISG or a binding usage in itself does not necessarily render Article 44 inapplicable.[289] However, a significant weakening of the buyer's right under Article 44 may however, be subject to special scrutiny by the tribunal concerned, particularly if the buyer's bargaining position is weak and if the seller had drafted the clause in question.[290]

The "excuse" provision of Article 44 does not preserve all of the buyer's remedies, only the reduction of the price (Article 50) and recovery of damages other than loss of profit (Article 74). Article 44 is also subject to a further qualification, Article 77. Article 77 provides that a party who relies on a breach of contract must take such measures as are reasonable in the circumstances to mitigate the loss resulting from the breach otherwise the party in breach may claim reduction in the damages. A party not in breach may not recover damages that he could reasonably have avoided.[291] In addition, even where the late notice is excused under Article 44, the seller retains the right to cure the defect by delivering substitute goods or by repairing the defects. By doing so, the seller may avert a price reduction and the buyer's damages claim.

The seller may not however claim damages because of the buyer's failure to notify him of the lack of conformity. The "obligation" to give notice of the defect provided in Article 39 is not an obligation in legal sense, breach of which would lead to liability in damages, but a requirement which the buyer must satisfy in his own interest. Article 39(1) itself does not provide that the buyer is obliged to give notice of the defects, but merely lays down that he loses his rights if he does not do so. Article 44 limits the detrimental effects of that legal consequence.[292] Neither does Article 77 assist the seller in claiming damages because of the buyer's failure to notify him of the lack of conformity. The loss the seller suffers is his own fault. By examining the goods himself, the seller could have protected himself against his loss of rights as against his own suppliers. If he failed to do so or relied upon the buyer's examination, he must bear the consequences of this.[293]

4.5.11 Decision on the notice of non-conformity

The District Court found that the Buyer had informed the Seller about non-conformities by a fax on 18 August 1995 (foreign objects found in the cans) and 10 November 1995 (returned goods by the retailers, foreign objects in the cans, rustiness of the cans). The Buyer had also informed the Seller on the phone about the non-conformities and the decrease on quality. Two faxes dated 15 November 1995 proved that the Seller had received the notifications but the negotiations between the parties had been interrupted.

Article 27 applies to the notices of lack of conformity. The risk of loss, delay or a change in a communication is on the party whose acts have caused the need for the notice.[294] The transmission risk falls on the party in breach as long as the notice is dispatched appropriately.[295] Proof of notice by means of telephone can be provided by confirming the notice later by fax, mail or other written means. The District Court further held that the Buyer had given notice in sufficient detail.

The Court of Appeal also held, based on the witnesses heard in the District Court and the written statements submitted to the District Court, that it was apparent that the consumers and retailers begun complaining about the Diamante products during the fall of 1995 and complaints kept coming in throughout the spring of 1996. The deliveries in dispute had been invoiced 5 May 1995 and 10 October 1995. A copy of the fax message from the Buyer's CEO to the Seller's legal counsel, dated 29 November 1995, proved that the Buyer informed the Seller about the non-conformities of the goods. Considering these circumstances and the grounds of the ruling of the District Court, the Court of Appeal held that Buyer had given notice to the Seller in the manner required by the law.

The buyer must notify the seller of the lack of conformity within a reasonable time after the he has discovered it. The exact date of the discovering the non-conformity cannot be determined from the reasoning of the courts. Nor is it clear when the first customer complaint reached the Buyer. In these circumstances, the notion of noble month is difficult to apply, especially in regard to the first shipment in question invoiced on 5 May 1995. The courts seem to have adopted a fairly buyer-friendly approach. The exact time for discovering the defects as well as the exact proof of the timeliness of the notice is not presented in a clear manner, but the list of documentary evidence is however extensive (the number of items of documentary evidence was 21, several containing two separate faxes or letters). The District Court stated -- confirmed by the Court of Appeal -- that the nature of goods was such that the lack of conformity could not be discovered until the consumers used the products. In these circumstances, the reclamations of the defects came gradually and even a long time after the delivery. As a whole, the circumstances of the case and the written evidence submitted to the Court supported the Court's decision, the notice of non-conformity was given within a reasonable time after the Buyer discovered it and in sufficiently specified detail. It should, however, be noted that there is no requirement that the Buyer must start legal proceedings or in any way reserve its right to a legal proceedings in relation to the notice requirement of Article 39(1). The Court of Appeal's reference to the Buyer's letter to the Seller's legal counsel seems irrelevant, unless the reference is made in order to satisfy the specification of the lack of conformity.

4.6 Price reduction

The buyer has a right to a price reduction even though he has already paid the price; his right does not depend on the buyer's ability to withhold future sums due as long as the requirements of Article 50 are fulfilled. Furthermore, the remedy of price reduction is available for the buyer even if the seller is excused from paying damages for his failure to perform the contract by virtue of an impediment beyond his control as provided for in Article 79.[296] Thus, even though the remedy of price reduction can be seen as a form of damages for non-performance of the contract, it has special importance when damages are not available for the buyer but the buyer still needs the non-conforming goods and decides to accept and use them.[297]

The price-reduction formula is not, however, confined to where the seller is excused from paying damages. The results of applying Article 50 or Article 74 are the same in cases where the buyer does not suffer consequential damages and there are no market price fluctuations.[298] Where there are price fluctuations, the remedy of price reduction strikes a balance between the stipulated price and the value received.[299] However, if the market price of the goods has risen between the time of contract and time of the delivery, the buyer is better off claiming damages under Article 74, since this approach protects his contractual expectation interest.[300] When the price levels fall, the buyer is more likely to reject the goods.[301] If the buyer for some reason, e.g. because of the shortage of the goods in the market, needs the non-conforming, less valuable goods, the price reduction formula is in some situations more favourable than damages claimed under Article 74.[302] Further, there is no reason why the buyer could not claim price reduction under Article 50 and damages for consequential loss under Article 74, provided that the buyer does not claim double recovery based on the reduced value of the goods.[303]

The buyer's right to require substitute goods under Article 46 and to declare the contract avoided under Article 49 are subject to acting "within a reasonable time." Article 50 does not contain a similar restriction. Provided that the buyer respects the condition of Article 39 by giving a notice of lack of conformity within a reasonable time and at the latest within a two year period, Article 50 of the CISG imposes no period of time for reducing the price. It is for the domestic laws on limitation periods to determine if the seller is left in uncertainty for an excessive period of time.[304] By suing for the price, the seller can of course provoke the buyer's counterclaim for price reduction. This does not mean that the buyer could not unilaterally adapt the contract under Article 50.[305]

Finally, the right to reduce the price is not affected by the limitation to which a claim for damages is subjected under article 74, i.e. that the amount of damages may not exceed the loss which the party in breach foresaw or ought to have foreseen at the time of the conclusion of the contract as a possible consequence of the breach of the contract.[306]

4.6.3 Cure by the seller

Seller also argued that Buyer was not entitled to price reduction because the Buyer had not given the Seller an opportunity to remedy the alleged non-conformity of the goods.

The obligation to examine the goods and to notify the seller of any lack of conformity is, in particular, intended to place the seller in a position in which he may, if possible, remedy the lack of conformity by delivering a substitute or by repair, or reduce the buyer's loss in some other way.[307] The seller's responsibility is to provide goods that conform to the contract when the risk of loss passes to the buyer.[308] If the buyer notifies the seller promptly, the seller can inspect the goods to ascertain whether a claim is justified and, moreover, the seller may be able to exercise his right to cure the defect as provided for in Article 48.[309] Further, a price reduction under Article 50 is specifically subject to the seller's right to cure the defects.

CISG Article 48 defines the right of the seller to remedy a non-conformity of the goods after the date of delivery.

Seller can cure the defect in the goods, even if the defects amount to a fundamental breach (as long as the fundamental breach was not a delay in performance) after the delivery if he can do so without such delay that would amount to a fundamental breach of contract, i.e. without unreasonable delay and without causing the buyer unreasonable inconvenience or unreasonable uncertainty of reimbursement by the seller of expenses advanced by the buyer, provided of course that the buyer had not rightfully avoided the contract prior to the offer to cure.[310] The Secretariat Commentary states that if the non-conformity of the goods does not amount to a fundamental breach of the contract, the seller's cure is limited only if the cure would cause unreasonable inconvenience to the buyer or uncertainty of reimbursement by the seller of expenses advanced by the buyer.[311] However, as Professor Will points out, the only condition is the inconvenience and delay and uncertainty of reimbursement are the two most common examples of inconvenience to the buyer.[312] The seller can choose between repairing or replacing a defective part or by substituting conforming goods for defective goods.[313]

The seller must indicate the time period within which the proposed cure will be effected. Without specific indication as to the time frame, a mere offer to cure does not oblige the buyer to respond to the offer. There is, however, no need to a request a specific answer from the buyer, a notice of the cure within a specified time is assumed to include a request whether the buyer will accept the performance. If the buyer fails to react or accepts the cure, the seller can perform within the time he indicated, the silence bars the buyer from invoking either unreasonable delay or inconvenience and the buyer may not avoid the contract nor reduce the price during the specified time.[314]

As the seller is in breach of the contract, he bears the risk of loss or error in transmission of a request or notice for cure. The reply by the buyer is however governed by the rule in Article 27, i.e. if it is given by appropriate means in the circumstances, it is effective whether or not it arrives or is delayed or contains errors in transmission.[315]

4.6.4 Decision on the price reduction

The District Court clarified that the buyer's right to a price reduction under CISG Article 50 is independent right of whether the buyer has sold the goods further and at what price or whether the buyer has been subject to complaints or demands for compensation. The District Court, however, admitted that these issues may have an effect on the amount of price reduction. When considering whether the Buyer was entitled to price reduction, it was decisive to determine whether the Buyer had received non-conforming goods. Whether claims for compensation had been presented or would be presented in the future did not bear any significance to the right to price reduction. The Buyer's claim was by no means premature.

The District Court reached a conclusion that there were numerous non-conformities. Because the Buyer had received the price also for the non-conforming goods and the compensation demands from retailers had not been many, the District Court held that a reasonable reduction of price was 30% of the invoiced consignments insofar as they applied to non-conforming goods.

The Court of Appeal stressed that the buyer had the burden of proof with regard to the extent of the non-conformity of the goods and the amount of non-conforming goods. Considering the witnesses heard in the District Court and the written evidence submitted to the District Court, the Court of Appeal estimated that the price reduction was 10% of the sales price.

It is hard to evaluate what was the decisive factor that reduced the amount of damages in the Court of Appeal. As the goods were of such nature and value that the consumers were not likely to make a complaint about them, it is very difficult to establish the extent of the non-conformity. The reasoning of the Court of Appeal does not, however, reveal on what basis it came to a different conclusion than the District Court.

As to the Seller's right to cure the defect, The Court of Appeal stressed that the Seller had not even alleged that it had afforded the Buyer an opportunity to have the non-conformities remedied by the Seller. According to Article 48(4), a request or notice concerning the seller's cure of the non-conformity is not effective unless received by the buyer. On the contrary, the Seller still argued that the goods conformed to the contract. Therefore, under these circumstances, Buyer had not lost its right to price reduction.

4.7 Damages for the non-conforming goods

Article 74 sets up the basic rule for calculating damages. Articles 75 and 76 provide special rules for calculating damages when the contract is avoided. Article 75 covers damages in case of substitute transaction and Article 76 covers situations where the contract is avoided but no substitute transaction is done. Article 77 deals with the mitigation of damages and Article 79 provides the rules on exemption from liability because of an impediment to performance. Article 74 applies to damages when the contract is not avoided and even if the contract is avoided, when the damages relate to issues not covered by Articles 75 and 76.[316]

The basic idea is to place the injured party in the same economic position he would have been in if the contract had been performed. Article 74 does not provide any specific method for calculating the damages, but the courts and tribunals must calculate the damages in the manner best suited to the circumstances.[317]

The only limitation is that the "damages may not exceed the loss which the party in breach foresaw or ought to have foreseen at the time of the conclusion of the contract, in the light of the facts and matters which he then knew or ought to have known, as a possible consequence of the breach of contract". It is enough that the party in breach was objectively, at the time of the conclusion of the contract, in a position to foresee the loss; a party in breach will be considered as having been able to foresee the consequences of the breach even if he did not know the facts and matters enabling him to do so but objectively was in a position to know them.[318] A party to the contract could even have specifically drawn to the other party's attention a possible consequence of the breach. If so, even if the consequence is unusual in nature and exceptionally heavy, the party in breach ought to have foreseen it at the time of the conclusion of the contract. The knowledge enabling one to foresee the consequence of the breach can also flow from the experience of a merchant.[319]

The burden of proof in relation to Article 74 lies on the party who is claiming damages. The damaged buyer has the burden of proving the objective prerequisites of his claim for damages, i.e. the damage, the causal link between the breach of contract and the damage, as well as the foreseeability of the loss.[320]

4.7.3 Decision on damages

The District Court held that the witnesses' statements were credible and they established that Buyer had lost several clients because the goods had not been of the promised high quality. Furthermore, regaining the reputation and credibility and creation of new customer networks had required extra effort and expenses. Thus, the Buyer had suffered loss as a result of losing clients.

The loss caused to the Buyer had been foreseeable at the time of the conclusion of the contract. Buyer had concluded the exclusive import contract because it was assured about the quality of the products delivered by the Seller. The Seller knew that the products had been accepted to the Finnish market because of their quality and that their competitiveness was dependent on their quality. Because trading between the Seller and the Buyer was extensive and increasing, the Seller could have foreseen the economic consequences that a breach of contract would cause to Buyer. On these grounds, the District Court held that the Buyer was entitled to the damages Buyer had claimed

In addition, the District Court stated that there were no grounds for the Buyer's non-payment of the purchase price. The CISG does not contain a rule that would entitle a buyer to refrain from paying the purchase price even if he had a claim based on non-conformity of the goods. Neither was the Buyer's non-payment based on an external impediment as provided for in Article 79.

The reasoning of the District Court covers the aspects of Article 74. The District Court concluded that the loss suffered by the Buyer was due to the Seller's breach, i.e. there was causality between the breach and the loss and further, taking into consideration the facts and matters the Seller knew at the time of the conclusion of the contract, the loss suffered by the Buyer was foreseeable to the Seller. Court of Appeal confirmed the decision of the District Court on damages.

[...]

See entire text of Sanna Kuoppala, "The Application and Interpretation of the CISG in Finnish Case Law 1997-2005" (April 2009)

Citations to case abstracts, texts, and commentaries

CITATIONS TO ABSTRACTS OF DECISION

(a) UNCITRAL abstract: Unavailable

(b) Other abstracts

Unavailable

CITATIONS TO TEXT OF DECISION

Original language (Finnish): CISG Nordic website <http://cisgnordic.net/index.php?view=article&catid=55%3Acases-fi&id=106%3A1997-nov-12-ca&option=com_content&Itemid=96>

Translation (English): Text presented below

CITATIONS TO COMMENTS ON DECISION

English: CISG-AC advisory opinion on Examination of the Goods and Notice of Non-Conformity [7 June 2004] (this case and related cases cited in addendum to opinion)

Case text (English translation)

Queen Mary Case Translation Programme

PARTIES AND CLAIMS

JHPH SA, Spain [seller]. F Oy, Finland (buyer). Goods: canned food. Issue: Price reduction, etc.

[Seller] has stated in its appeal, that [buyer]'s claim should be dismissed and that [buyer] be made to compensate for [seller]'s legal fees both in the Court of First Instance and in the Court of Appeals. Furthermore, [seller] has requested, that the Court of Appeals carry out an oral hearing with the representatives of [buyer]'s clients as witnesses.

[Buyer] has repeated its claim that it presented in the Court of First Instance insofar as its claim was denied in that instance and has demanded compensation for its legal fees.

REASONING OF THE COURT OF APPEALS

- Examination of the goods and notice of lack of conformity

According to CISG Article 38(1), which is applicable in the case, the buyer must examine the goods or cause them to be examined within as short a period as possible as is practicable in the circumstances. Considering the type of the goods sold (canned food), [buyer] has not had the opportunity to examine the goods and detect the non-conformity.

According to CISG Article 39(1), the buyer loses the right to rely on a lack of conformity of the goods if he does not give notice to the seller specifying the nature of the lack of conformity within a reasonable time after he has discovered it or ought to have discovered it.

The invoices concerning the goods subject to the dispute were sent on 5 May 1995 and on 10 October 1995.

According to the witnesses heard in the Court of First Instance and the written statements submitted to that Court, it is apparent that consumers and retailers begun complaining about the Diamante products during the fall of 1995 and complaints kept coming in throughout the spring of 1996.

A copy of the fax message, dated 29 November 1995 from the CEO of [buyer] sent to the counsel of [seller] was submitted to the Court of First Instance. The message informs [seller] about the non-conformities of the goods.

Considering these circumstances and the grounds of the ruling of the Court of First Instance, the Court of Appeals holds, that [buyer] has given notice to the seller in the manner required by the law.

- Buyer's right to price reduction

[Seller] alleges that [buyer] is not entitled to price reduction because [buyer] has not given the [seller] an opportunity to remedy the alleged non-conformity of the goods.

CISG Article 48 defines the right of the seller to remedy a non-conformity of the goods after the date of delivery. According to article 48(4), a request or notice concerning seller's cure of a non-conformity is not effective unless received by the buyer. [Seller] has not even alleged that it would have afforded [buyer] an opportunity to have the non-conformities remedied by [seller]. [Seller] is still standing by its statement that the goods conformed to the contract.

Under these circumstances, [buyer] has not lost its right to price reduction.

- Amount of the price reduction

Article 50 of the CISG provides that if the goods do not conform with the contract, the buyer may reduce the price in the same proportion as the value that the goods actually delivered had at the time of the delivery bears to the value of the conforming goods. Consequently, the buyer has the right to reduce the price in proportion to the non-conformity of the goods. The buyer has the burden of proof with regard to the extent of the non-conformity of the goods and the amount of non-conforming goods.

Due to the above mentioned grounds and due to the grounds mentioned in the ruling of the Court of First Instance, the Court of Appeals has resolved the matter in a manner stated in the ruling below.

THE RULING

[Seller] is required to pay a price reduction of 1,226,475.50 Spanish Pesetas with regard to the first claim and 1,974,866.30 Spanish Pesetas with regard to the second claim. Consequently, [seller] has to pay [buyer] a sum total of 15,201,341.80 Spanish Pesetas as damages and price reduction, added with interest on all sums in arrears as stated in the ruling of the Court of First Instance.

FOOTNOTES

* All translations should be verified by cross-checking against the original text. For purposes of this presentation, JHPH SA of Spain is referred to as [seller] and F Oy of Finland is referred to as [buyer].

** Jarno J. Vanto holds a Bachelor of Laws-degree and a Master of Laws-degree from the University of Turku and an LL.M. degree from the New York University School of Law. He is a member of the New York Bar. Mr. Vanto has authored a number of articles on data protection law and on international commercial agreements. He is the Editor-in-Chief and co-author of the International Privacy Guide and Co-Editor and co-author of the International Contract Manual, both published by West, a Thomson-Reuters Business.