Date: 11.05.2007
Country: Poland
Number: V CSK 456/06
Court: Supreme Court of Poland
Parties: Spoldzielnia Pracy
A German company (buyer) and a Polish company (seller) concluded a sales contract regarding 4400 m² of a specific type of leather which was to be supplied to a shoe manufacturer in Germany. Having received a notice from the shoe manufacturer indicating that the goods were non-conforming, the buyer informed the seller thereof, asked for a quality control certificate and required delivery of substitute goods. The German manufacturer returned the shoes to the buyer. Due to the seller’s refusal to deliver substitute goods, the buyer declared the contract avoided.

The Supreme Court held that the application of CISG was justified under Art. 1(1)(a), as both parties had their places of business in Contracting States.

As to the merits, the Court pointed out that under CISG there was no need to make a distinction between failure to perform and other types of breach of contract. Delivery of non-conforming goods amounts to breach of contract under Art. 35 CISG but only if the non-conformity amounts to a fundamental breach of contract under Art. 25 CISG is the buyer entitled to request - as it did in this case - delivery of substitute goods under Art. 46(2).

The Supreme Court also noted that under Art. 25 CISG “detriment” (namely to deprive a party of what he is entitled to expect under the contract) does not necessarily have to equal damage as damage include all actual and potential negative consequences of breach of contract. A party relying on fundamental breach of contract does not have to prove that it had suffered damage or lost profits. The criterion of “obligee’s reasonable expectations under the contract” is objective and requires full analysis of the contract, the practices established between the parties, the relevant usages and all circumstances of the case. The burden of proving the circumstances giving cause to fundamental breach of contract is on the party seeking relief under CISG (in the case at hand, the buyer).

The Court agreed with legal scholars in finding that until the substitute goods are delivered the buyer is not obliged to pay the price because if it did the seller would receive performance even though it had not performed its contractual obligations. Therefore, in the Supreme Court’s view the Appellate Court had incorrectly interpreted Art. 46(2) CISG. However, the Supreme Court stated that it did not follow from Art. 46(2) that the request for substitute goods automatically entitles the party to suspend payment since this provision governs only the buyer’s right to demand delivery of substitute goods. Nor could Art. 71 CISG directly provide the legal ground for suspending payment as it grants such a right only in case of anticipatory breach of contract. However, the Court agreed that the Appellate Court had violated the Convention by not considering whether Art. 71 might be applied by analogy or whether it might give rise to a general principle underlying the Convention to be used to fill a gap in it and grant the party deprived of what he had a right to expect under the contract, namely a general right to suspend performance. The Court added that such a general principle can also be derived from other provisions of the Convention (see Opinion No. 5 of the CISG Advisory Council) and is supported by the case law of some Contracting States as well as by the good faith principle.

Furthermore, the Court found that there was no violation of Art. 80 CISG since the failure to pay the price was not a result of the lack of mutual contractual performances but of the seller’s failure to offer goods conforming to the contract. Therefore, the necessary link between the obligor's conduct and the obligee's performance required by Art. 80 was lacking.

Conclusively, the Supreme Court held that Art. 46(2) and 71 CISG had been violated and turned the case over to the Court of Appeal for revision.