A Russian company sold to a South Korean company components of “high sensitivity” to be incorporated in final product. Upon inspection of the goods delivered, it turned out that they were to a large extent defective and did not have the characteristics necessary for their intended use. Buyer brought an action for damages; Seller acknowledged the presence of defects but accused Buyer of not having inspected them properly and in good time after delivery.
Since the contract was silent as to the governing law, the Arbitral Tribunal referred to the relevant conflict of law rules of Russian law as the law of the forum and decided that CISG was applicable as part of the law where the seller had its place of business (Art. 1(1)(b) CISG) and that questions not settled in CISG should be governed by the Civil Code of the Russian Federation.
As to the merits, the Arbitral Tribunal found that both parties had failed to take steps necessary to duly perform their obligations under the contract. In particular they had failed to set forth in the contract the exact procedure and methods of inspection of the goods, and it was above all Buyer who, as a professional manufacturer of the final product, should have made sure that the proper way in which goods were to be inspected be clearly indicated in the contract or at least agreed upon immediately after delivery. For this reason the Arbitral Tribunal, while deciding in favor of Buyer, when assessing the damages, awarded only two thirds of the amount claimed by Buyer whom it held co-responsible for the loss suffered on account of its own omissions and inadequate acts. In so deciding the Arbitral Tribunal applied not only Articles 74 and 77 CISG (dealing with damages and the duty to mitigate them by the aggrieved party) but referred also to Article 404 (1) of the Civil Code of the Russian Federation and to Article 7.4.7 of the UNIDROIT Principles which expressly provides that where the harm is due in part to an act or omission of the aggrieved party the amount of damages shall be reduced to the extent that these factors have contributed to the harm. The Arbitral Tribunal also referred to Comment 2 to Article 7.4.7 of the UNIDROIT Principles which as an example of such contributory negligence expressly mentions the case where the aggrieved parties failed to give all the necessary instructions to the manufacturer of the defective machinery.
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