CISG CASE PRESENTATION

Case identification

ARBITRATION: ICC International Court of Arbitration case no. 7565 of 1994

Case law on UNCITRAL texts (CLOUT) abstract no. 300

Reproduced with permission from UNCITRAL

A Dutch seller, defendant, sold four cargoes of coke breeze to a US buyer, plaintiff. The buyer claimed lack of conformity of the goods and sued the seller for damages.

The arbitral tribunal held that the parties had expressly made the contract subject to "the laws of Switzerland", which according to the arbitral tribunal included the CISG as of the date of its incorporation into Swiss law. As such, the contract was held to be governed by the CISG pursuant to article 1(1)(b) CISG.

The arbitral tribunal allowed the buyer's claim. It held that it was undisputed that the buyer provided the seller with rapid notice of lack of conformity of the goods (article 39(2) CISG). The arbitral tribunal further held that, under article 6 CISG, the parties could depart from its provisions, which meant that, in the matter of lack of conformity, they were entitled to either shorten or extend the periods, as set out in the last clause of article 39(2).

The arbitral tribunal determined that the seller's contention that the thirty-day time limitation contained in the contract's arbitral clause, "reflected the parties intention to depart from the provisions of ... article 39(2)" was not justifiable, as article 39(2) dealt with notice of lack of conformity and the time limit contained therein was not to be understood as a statute of limitation. The arbitration clause, noted the arbitral tribunal, strictly regarded the time in which any claim, whether or not concerning a dispute for lack of conformity, could be filed as a claim in arbitration. In addition, the arbitral tribunal noted that the arbitration clause had no relationship with the "contractual period of guarantee" contained in article 39(2) CISG.

Referring to the seller's obligations under articles 35(1) CISG, 35(2)(a) CISG and 35(2)(b) CISG as well as the buyer's remedies under articles 45 CISG and 74 CISG, the arbitral tribunal held that the buyer had proved that the seller had delivered to it a product which could not be considered to be coke breeze, and that therefore the seller had to indemnify the buyer for all the losses including loss of profit.

In respect of interest rates, the arbitral tribunal stated that neither article 74 CISG nor article 78 CISG contained a ruling regarding interest rates. Therefore, it referred to the general principles on which the CISG was grounded (article 7(2) CISG) and held that such general principles did not settle the matter, and, taking into account that the parties had referred to the laws of Switzerland, the interest rate had to be determined under Swiss law. The arbitral tribunal further held that the interest had to be computed from the first day of the relevant year, on the assumption that the cargoes would normally have been resold to the buyer's customers by the end of the previous year.

Editorial remarks

EDITOR: Albert H. Kritzer

CISG issues ruled upon:

Applicability; express reference to a national law. A contract between a seller from the Netherlands and a buyer from the U.S. expressly stated that it was subject to "the laws of Switzerland". At the time the contract was concluded the CISG, which was not then in effect in the Netherlands, was in effect in Switzerland as well as the United States.

Seller advocated the application of Swiss domestic law, contending that "an express designation of a national law ... by the parties shall be construed as an express reference to the provisions of that law which would apply at the domestic level ... Such interpretations should particularly apply where ... parties have clearly made choice of a neutral law, i.e., the law of a country of which neither party is a national or resident."

The tribunal disagreed, stating:

• "Swiss law, when applicable, consists of the Convention itself as of the date of its incorporation into Swiss law."
• "[T]he neutrality argument ... is satisfied [because] the Convention's objectives and contents are more than consistent with it... ."
• "Finally, the parties have themselves referred to 'the laws of Switzerland' and not to 'Swiss law'. That defeats [seller's] contention that the clause should result only in an election of the provisions of the Swiss Code of Obligations, with the exclusion of any other Swiss legal provisions."

Notice of lack of conformity vs. Statute of limitations. The CISG has an absolute cut-off for notices of lack of conformity. Buyer loses his right to remedies if he does not provide such notice no later than within a specified two-year period, "unless this time-limit is inconsistent with a contractual period of guarantee" (Article 39(2)). The contract contains an arbitration clause which specifies that a referral to arbitration must be within a specified thirty-day period.

The seller contended that "the thirty day time limitation in [the arbitration clause] reflects the parties intention to depart from the provisions of ... Article 39(2) of the Vienna Convention relating to the statute of limitation of an action based on the seller's guarantee of defects, by shortening the period of ... two years which otherwise would prevail."

The tribunal disagreed, stating:

• "Art. 39(2) ... has nothing to [do] with claims or other means of action in justice. It just deals with notice of a lack of conformity ... It leaves entirely open the matter of the time during which, after that notice, a Claimant may or may not file its claim within a Court or an Arbitral Tribunal. This matter depends on the proper law of limitation ... '[the time period recited in Article 39(2)] is not to be understood as a Statute of limitation' [citations provided]."
• [T]he arbitration clause and its time limit of thirty days have nothing to [do] with 'a contractual period of guarantee.' ... [T]he arbitration clause ... strictly regards the time in which any claim ... can be filed as a claim in arbitration."

Regarding the issue with which Article 39(2) is concerned, the tribunal stated: "[I]t is undisputed that [buyer] gave rapid notice of the contended lack of conformity of the coke breeze cargo to [seller] once it was informed of the alleged defect."

Damages. Citing a seller's obligation to deliver conforming goods [goods that conform to the contract (Article 35(1)); goods that conform to specified standards of fitness (Article 35(2))] and buyer's remedies for breach of this obligation [remedies recited in Article 45, most particularly rights under Article 74], the tribunal stated:

"[A]s [buyer] has proved that [seller] delivered him a product which, due to its intricate blend with substantial amounts of coal, cannot be considered as coke breeze (...), [seller] must be condemned to indemnify [buyer] for all the losses including lost profit [buyer] may justify."

Interest (right to, accrual of, rate of). The tribunal awarded the buyer interest, stating:

"In the Vienna Convention, nothing is said either in Article 74 (damages) nor in Article 78 (interests) about the rates nor the modus of calculation of interests where interests are due to a party in case of breach of contract by another party. According to Article 7(2) of the Convention, questions not expressly settled by it shall be determined either in accordance with the general principles on which it is grounded or by the law which shall be elected according to private international law. As the general principles do not settle the matter (...) and the parties have referred to the laws of Switzerland, it seems justified to refer to Article 73 of the Swiss Code of Obligations whereby, in the absence of a determination of the rate of interest by agreement or law or usages, that rate shall be 5% per annum.

"Interest shall be computed from January 1, 1992, on the assumption that the cargo would normally have been resold to [buyer's] customers by the end of December 1991. It shall accrue and be paid until full payment of the awarded amount."

Citations to other abstracts, case texts and commentaries

CITATIONS TO OTHER ABSTRACTS OF DECISION