In 1989 an Austrian company entered into an agreement with a Yugoslav company and a Yugoslav State agency. Under the agreement the Austrian company was to deliver to the Yugoslav company raw materials for processing into finished goods (brushes and brooms). The finished goods were then to be delivered back to the Austrian company by the Yugoslav State agency. Later in 1989 the Austrian company concluded a further and separate agreement with the Yugoslav State agency for the delivery by the latter of brushes. The Austrian company defaulted on the second agreement and the Yugoslav State agency sued to recover payment for the contract price plus damages. The Austrian company counterclaimed set-off with sums due by the Yugoslav parties under the first agreement.
The only issue brought to the attention of the Supreme Court was the counterclaim by the Austrian company. As to the second agreement concluded by the parties, the Court merely confirmed the lower court's decision that it was a sales contract governed by CISG (at the time of the conclusion of the contract the parties had their places of business in contracting States, Austria and former Yugoslavia (Art. 1(1)(a) CISG)), and upheld the lower court's decision insofar as it obliged the buyer to payment of the price plus interest.
As to the Austrian company's counterclaim, the Court held that the first agreement concluded by the parties was not a contract for the supply of goods to be manufactured or produced governed by CISG, since the alleged buyer, the Austrian company, undertook to supply a substantial part of the materials needed for the manufacture or production (Art. 3(1) CISG). Moreover, according to the Court, application of CISG was likewise to be excluded under Art. 3(2) CISG, since the preponderant part of the obligation of the party furnishing the goods consisted in the supply of labor or other services. Austrian law was therefore applied to determine whether the counterclaim was well- founded. |