Date: 10.12.1997
Country: Arbitral Award
Number: S2/97
Court: Schiedsgericht der Börse für Landwirtschaftliche Produkte - Wien
Parties: P. v. P.
An Austrian seller and a Polish buyer concluded two contracts for the sale of barley. The contracts were subject to Austrian law. Following contractual specifications a certificate of quality of the goods was issued by an Austrian specialized institute. Two instalments of barley were delivered by the seller in January and February. The buyer refused to take further deliveries, alleging that the goods did not conform to the contract and relying inter alia on an expertise issued by a Polish specialized institute. After fixing an additional time for performance without results, the seller declared the contract avoided and filed arbitration proceedings asking for damages and interest. The buyer in its turn counter-claimed damages.

The Arbitral Court held that CISG was applicable since the parties had their places of business in two different contracting states at the time of conclusion of the contracts (Austria and Poland). Moreover, the parties had expressly chosen Austrian law, which includes CISG.

Before examining the evidence on the lack of conformity, the Arbitral Court addressed the question as to whether the buyer, on the grounds of the alleged lack of conformity of the first two deliveries, would have the right to declare the contracts avoided as regards future deliveries.

The Court first observed that the two separate contracts concluded by the parties were to be considered a unitary transaction from an economic point of view and represented therefore a contract for the delivery of goods in instalments according to Art. 73(2) CISG (the contracts had been concluded the same day; they provided for the delivery of the same kind of goods in instalments during the period January to June and were subject to similar terms).

In the case of a contract for delivery of goods in instalments, if one party's failure to perform with respect to any instalment gives the other party good grounds to conclude that a fundamental breach will occur with respect to future instalments, the other party may declare the contract avoided for the future (Art. 73(2) CISG). According to the Court, the term "good grounds" means a high probability of breach (and need not be as severe as the test required by Art. 72 CISG for other cases of anticipatory breach of contract).

In the case at hand a lack of conformity of the first two instalments would amount to a fundamental breach of the contract by the seller (Art. 25 CISG), rendering highly probable that such a breach would occur with respect to future instalments, in the absence of contrary declarations or measures on the part of the seller (such as for example a commitment to change producer or agent).

The Court further noted that even if the buyer fails to give timely notice of lack of conformity with regard to the delivered instalments (Art. 39 CISG), it does not lose the right to declare the contract avoided with respect to the future instalments according to Art. 73 CISG. A late notice of lack of conformity can well be used as evidence for the probability of a similar breach by the seller in the future.

After examining the evidence provided by the parties on the lack of conformity, the Arbitral Court however rejected the buyer's contention that the goods were defective and that the expert certificate issued by the Austrian specialized institute was incorrect.

Consequently, while the buyer could not rely on Art. 73(2) CISG), the seller had the right to declare the two contracts avoided according to Art. 64(1)(b) CISG because the buyer had breached its duty to take delivery of the goods (Art. 60 CISG) and had expressly refused to accept any other future delivery. The seller was further awarded damages for lost profits according to the rules of the market for farm products in Vienna expressly referred to by the parties - and interest on the sums due as damages (Arts. 78 and 74 CISG) at the rate fixed by the seller's standard terms.