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| Abstract | ||||||||||||||||||
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| A Chinese seller and a Luxembourg buyer concluded a contract for the sale of 500 tons of silicone and manganese alloy to be delivered in September and October 1998, CFR Rotterdam. About twenty days after the issuance of a letter of credit, the buyer notified the seller that it intended to cancel the contract and the seller objected. When the buyer requested delivery, the seller asked the buyer to extend the loading time provided on the letter of credit and the expiration time accordingly, since it was not able to make delivery within the valid period of the letter of credit. The same day of expiry of the letter of credit, the seller notified the buyer that it would not perform its contractual obligations because it considered the contract cancelled. The seller applied for arbitration alleging that the buyer had breached the contract by not extending the letter of credit. The buyer counterclaimed for damages.
The Arbitral Tribunal applied CISG as the law governing the contract because the parties were situated in different Contracting States (Art. 1(1)(a) CISG). As to the merits, the Tribunal denied that the contract had to be considered terminated as from the time of the buyer’s declaration to this effect. In the opinion of the Tribunal, by such a declaration the buyer had only expressed a desire, and not an absolute intention, to cancel the contract, all the more so because both parties had expressed an intention to resume their contractual obligations in the exchange of communications that followed between them. The Tribunal also rejected the seller’s argument that its refusal to deliver was justified by the buyer’s failure to extend the letter of credit. Indeed, at the time the seller notified the buyer that it considered the contract terminated, the letter of credit had not yet expired and since the seller declared it was not willing to perform until a dispute which had arisen under another contract between the parties had been settled, the buyer had no duty to extend the letter of credit immediately. Instead, it was the seller’s refusal to deliver the goods that amounted to a fundamental breach. Furthermore, the Tribunal dismissed the buyer’s claim for damages. First of all, it held that the buyer was not entitled to recover the difference between the contract price and the price of resale to its customers under Art. 74 CISG, since the resale price was not foreseeable at the time of contract conclusion. Nor was the buyer’s claim well founded under Art. 75 CISG since the buyer had not made a substitute transaction or under Art. 76 CISG since the current price prevailing at the place of delivery (i.e. China) was lower than the contractual price and the seller's failure to deliver prevented the buyer from suffering any loss. Finally, according to the Tribunal the buyer could not recover a penalty paid in favor of its customers as it was not foreseeable by the seller as required by Article 74. |