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| A Polish seller and a German buyer entered into a long-term framework contract for supply of metallurgical sand, an ingredient to be used in the production of roofing tiles according to a newly invented method. The goods were partially delivered when the seller notified the buyer that it would not be able to fulfill the rest of its obligations under the contract. As a result, the buyer was forced to return to a less cost-effective method of production involving cement as a substitute for metallurgical sand. Subsequently, it brought an action against the seller claiming for damages.
The Court of first instance applied Articles 74 and 75 of the CISG and held that the buyer was entitled to recover damages for the amount of lost profits resulting from the sale of tiles, produced according to the more expensive method. The Court dismissed the claim, however, because buyer had not provided evidence establishing actual loss. The Appellate Court of Krakow held that Art. 75 CISG was not applicable in the case at hand because the contract had not been effectively avoided. However, by applying Art. 74 CISG, the Court awarded the buyer damages calculated on the basis of: the quantity of cement bought in replacement, and the difference between the Polish market price for one ton of cement and the Polish market price for the same amount of metallurgical sand. In doing so, the Court found that damages ought to have been foreseen by the seller at the time of contract conclusion. Both parties appealed to the Supreme Court. The Supreme Court firstly found that, despite the fact that it was a long-term framework contract, the contract at hand was within the scope of the CISG because it required a specification of goods to be delivered in parts. In reaching this conclusion, the Court found Article 14 to be not relevant, since it only applies to offers and does not refer to the scope of the Convention itself. The Supreme Court went on to support the Appellate Court's judgment that Art. 75 CISG should not have been applied at all because the contract had not been avoided. The Supreme Court further held that, pursuant to Art. 74 CISG, damages should have been determined according to the loss that the seller foresaw, or ought to have foreseen, resulting from its breach, and that the Appellate Court had improperly awarded damages under the Article 75 standard, despite having stated that Article 75 was not applicable. The Supreme Court also added that, since the contract between the parties had been fulfilled in part, loss suffered by the buyer could only be connected with the necessity of buying the rest of the goods. Finally, the Supreme Court held that the buyer had fulfilled its obligation to mitigate damages pursuant to Art. 77 CISG, as the buyer's decision to turn back to the previously used method was completely justified. |