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| In December 1997, a German seller and a Greek buyer entered into a contract for the manufacture and supply of a high quantity of glass bottles to be resold to the buyer’s customers in Russia. In May 1998, the seller agreed on a buyer’s proposal to amend the contract. According to such amendment, the buyer would pay a higher purchase price, while the seller would pay a certain amount as “consulting and marketing fees” to a third company affiliated to the buyer. Besides, according to the contract, the buyer was to buy the moulds necessary for the production of the glass bottles. In order to avoid sales taxes, however, the parties agreed that the moulds would remain in the seller’s property, while the buyer would grant the seller an interest-free loan in the amount of the original purchase price, receiving a purchase option after the completion of the bottles production. After the first delivery, the buyer informed the seller that the consulting fees paid by the seller were incorrect on account of a mistake in calculation, and demanded an additional payment, which was refused by the seller. Moreover, due to the difficulties in selling bottles in Russia caused by the rouble’s decline, the buyer informed the seller of its intention to accept only the goods already produced, and in June 1999 it asked the moulds be packed in order to be transported and sold in Russia. As the seller refused, the buyer brought an action against it claiming payment of the consulting fees and repayment of the loan. The seller counterclaimed with a claim for compensation of lost profits it had allegedly suffered as a result of early termination of the contract.
Both the first Instance Court and the Court of Appeal dismissed the buyer’s claims. In particular, the Court of Appeal held that the buyer had not demonstrated that the seller knew, or could have known, that the consulting fees indicated in the contract amendment were incorrect on account of a typographical error, and a connection between the higher purchase price to be paid by the buyer and the consulting fees due by the seller could not be established. Moreover, in the Court’s view, the repayment of the loan was due only in the event of rightful termination of the contract, which had not occurred in the case at hand. The German Supreme Court reversed the lower court’s decisions. First of all, the Court held that the contract between the parties, being it one for the sale of goods to be manufactured or produced, fell within the scope of CISG according to its art. 3(1). As to the merits, the Supreme Court, by relying on Art. 8(1) CISG, found that the seller knew, or could not have been unaware, of the real purpose of the contract amendment proposed by the buyer, that is to conceal the real purchase price to its customers in Russia. In fact, this purpose had been openly revealed to the seller by buyer’s employees at the time of the contract modification’s proposal, and the real buyer’s intention - that is, to recover the purchase price increase received by the seller in full - easily resulted from the wording of the proposed amendment. Taking into account all these circumstances, together with life experience, it was reasonable to conclude that the seller was in the position to understand that the consulting fees in the contract amendment had been erroneously calculated. The Supreme Court also pointed out that the result would not change even if it had applied the German Civil Code provisions concerning mistake, which is a matter not covered by CISG (Arts. 4 CISG). Furthermore, the Supreme Court considered the buyer’s claim for repayment of the loan as founded. In the Court’s view, a final cessation of bottles production had to be assumed, since the seller raised a claim for damages in consequence of the buyer’s refusal to take delivery of the goods (Art. 53 CISG). Consequently, the contract had to be deemed terminated. The Supreme Court went on declaring the seller entitled to set-off in consideration of the fact that the buyer had not fulfilled its contractual obligations (Art. 53, 61(1)(b), 74 CISG); however, since the Court of Appeal had not quantified the amount of such damages, it could not come to a conclusion. In deferring the case to the lower judges for a new judgment, the Supreme Court noted, inter alia, that the buyer’s right to have the loan repaid could not descend from a frustration of contract due to the ruble’s exchange rate decline. According to the applicable German law, the buyer bears the risk of an unprofitable resale. Moreover, the buyer could not rely on Art. 79 CISG alleging the ruble’s exchange rate fluctuation as an impediment - and provided that it could be demonstrated that exchange rate fluctuations amount to a valid impediment-, as this provision does not give the debtor the right to terminate the contract. Finally, the seller’s failure to reimburse the higher purchase price received or to pay supplemental consulting fees could not be considered as fundamental breach, thus entitling the buyer to terminate the contract (Art. 49(1)(a) CISG). In fact, after the buyer’s declaration that it would not take delivery of the goods, the seller had rightfully suspended performance according to Art. 71(1)(b) CISG. |