|A German buyer concluded two separate but substantially identical framework agreements with two Hong Kong companies (the sellers), concerning delivery of goods produced in the People's Republic of China. Further to the agreements the buyer placed several orders on behalf of its customers. Price and time of delivery varied each time, taking into account that the buyer needed the goods at short notice. Payment had to take place within 90 days of delivery but in individual cases the buyer paid in advance or on delivery.
In the course of the business relationship the buyer ordered 10,000 units of product from one of the sellers. The latter asked for advance payment; later on it informed the buyer that its own Chinese supplier was undergoing serious financial and personal difficulties, and refused to deliver the goods unless the buyer paid all outstanding debts. The buyer refused. The seller brought an action before the Arbitral Court. The buyer declared the sales contract avoided and asked for damages deriving from breach of the individual sales contract in dispute and breach of the framework agreement.
As far as the individual sales contract was concerned, the Court held that it was governed by CISG because by agreeing on a German Arbitral Court the parties had implicitly chosen the law of a contracting State (German law) as the law governing the contract (Art. 1(1)(b) CISG).
In the opinion of the Court, the buyer was entitled to avoid the sales contract pursuant to Arts. 49(1)(b) and 47(1) CISG, because the seller refused to deliver without receiving payment for all outstanding debts deriving from past deliveries to the buyer. Such a request was inconsistent with a term in the sales contract providing for advance cash payment by the buyer, which by its nature implied that delivery should not be conditioned on payment of any amount due under previous contracts (Art. 8 CISG).
Even after declaring the contract avoided according to Art. 49(2) CISG the buyer was not deprived of the right to claim damages (Art. 45(2) CISG and 74 CISG). The Court awarded the buyer damages for non-performance including lost profits for the contracts already concluded by the buyer, which were considered to be foreseeable losses.
Moreover, the seller was not exempted for non-performance under Art. 79 CISG. According to Art. 79 CISG a party is not liable for a failure to perform its obligation if it proves that the failure was due to an impediment beyond its control and that it could not reasonably be expected to have taken it into account. As a rule, difficulties in delivery due to the seller's financial problems, or to financial problems of the seller's supplier (even when connected to the act of public authority in the supplier's country) are not to be considered an impediment beyond the seller's control but belong to the seller's area of risk.
As far as the alleged breach of the framework agreement by the seller was concerned, the Court denied the buyer damages for non- performance by the seller stating that in determining whether the buyer had suffered damages as a consequence of the seller's breach, the conduct of both parties had to be taken into account. As the buyer had also breached the contract by the unjustified withholding of due payment (Art. 53), it was not entitled to damages.
Nor could the buyer rely on the agreement between the parties according to which termination of the contract should be consensual, because in the Court's opinion this clause was contrary to the principle of good faith and fair dealing under German law (applicable by virtue of Art. 7(2) CISG).
The Court awarded interest to the seller on the rest of the purchase price (Art. 78 CISG). With respect to the rate of interest, the Court held that in accordance with Art. 7(2) CISG it was to be determined by the domestic law otherwise applicable to the contract (German law).
The Court adjourned to decide about the costs of the procedure (see final Arbitral Award of 21-06-1996, Abstract und Fulltext in UNILEX).