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| An Italian seller and an Austrian buyer entered into a contract for the design, manufacture and delivery of a machine to be used to crush and cleanse monitor and computer screen glass. After installation and use, the machine failed to work properly. Following the buyer's complaints, the seller made several attempts to remove the defects, for which it requested payment. Since after intervention by the seller’s technicians the machine was still not working, the buyer refused to pay both the outstanding purchase price and the additional service provided by the seller. The latter, arguing that the buyer had not used the machine properly and had tried to crush materials other than those for which the machine had been designed, commenced an action against the buyer to recover the sum allegedly owed to it. The buyer counterclaimed damages alleging loss of orders from its customers and costs for cleansing the machine.
The Court of First Istance dismissed the seller’s claim by applying Italian law pursuant to Art. 4 of the 1980 Rome Convention on the Law Applicable to Contractual Obligations. The Court of Appeal held – inter alia – that the first instance Court should have applied CISG to settle the dispute, because when a party ordering the goods does not supply a substantial part of the materials needed to manifacture them, contracts for supply of goods to be manufactured or produced are to be considered equivalent to contracts for the sale of goods (Art. 3(1) CISG). Therefore, also timeliness and specificity of notice of lack of conformity by the buyer were to be assessed not according to Italian law but according to the relevant provisions of CISG (Arts. 38, 39 CISG). However, since there was no case law by the Supreme Court on the question as to whether CISG would allow a general right to refuse performance, including non conformity of goods, the Appellate Court gave the seller leave to appeal to the highest instance on this particular issue. The Supreme Court left the question open as to whether CISG was applicable to the case at hand. In the Court’s view, in order to answer such a question, the first instance Court had to evaluate whether obligations typical for the law of sale were preponderant with respect to obligations alien to the law of sale, either in monetary terms or according to the intention of the parties. If the first ones were not preponderant, the Convention could not be applied (Art. 3(2) CISG). The Supreme Court further stressed that such a solution was determinant for the dispute since Italian law and CISG diverge with respect to the matters at issue. However, the Court took the scholarly view that the existence of one party’s general right to withhold performance in case of breach of contract by the other party would be among the matters governed but not expressly settled by the Convention (Art. 7(2) CISG). In accordance with the principle of simultaneous exchange of performances underlying Arts. 71, 58, 86 CISG, the buyer would then be entitled to allege that the contract had not been properly performed and to withhold its own performance until the seller were willing to perform; in the case of a contract for the sale of a future good – as in the case at hand - , the buyer requesting substitute delivery or repairs under Art. 46 CISG would be allowed to withhold payment until the seller had performed in conformity with the contract. In this perspective, the law governing defective performance under CISG would not diverge much from Italian law (Art. 1668 Italian Civil Code). On the contrary, Italian law and CISG provide for different solutions with regard to notice of lack of conformity. Whereas the Italian Civil Code requires the principal to notify the contractor of the defects within 60 days of discovery and legal action against the contractor is time-barred unless it has been brought within two years of delivery, under CISG the buyer must examine the goods within as short a period as is practicable under the circumstances (Art. 38(1)) and it loses its right to rely on lack of conformity if it does not give notice thereof to the seller within a reasonable time from when it has discovered or ought to have discovered lack of conformity or, in any event, after two years from when the goods have been handed over to the buyer (Art. 39 CISG). |