Date: 27.03.1997
Country: Finland
Number: S 96/605
Court: Court of Appeal of Eastern Finland
Parties: Unknown
A Lithuanian buyer entered into a contract for the delivery of butter with a seller company registed in the Caribbeans and with a P.O Box on Jersey Island, represented by K with his place of business in Finland. K transfered the price sum to a company in the U.S.A. When the butter was not delivered at the agreed place in Russia even after an additional time given by the buyer, it commenced action against the seller and K, who had signed the contract of sale on behalf of the seller, demanding the return of the advance payment of $45,716. Furthermore, it demanded $223,092 for interest caused to the buyer plus damages and lawful interest on arrears.

K contested the buyer's claim with reference to the fact, that according to the contract signed by him on behalf of the seller - which contract he claimed was intermediary - any dispute had to solved by arbitration. Furthermore, the claim had to be dismissed, since the Caribbean company with its place of business in the Caribbeans was the seller, and therefore the Finish court had no jurisdiction. K finally contested all the buyers claim, as there were no grounds for his liability for the buyer's financial losses and for the return of the prepaid price.

The buyer contested the claims to dismiss due to the fact that the seller through K, which was to be considered its CEO, based its operations in Finland and since the arbitration clause only covered disputes particular agreed upon or specified in the arbitration clause. Therefore, the Finish court had the jurisdiction. Furthermore, K and the seller was liable for transferring the price sum to a third party, the company in the U.S.A. and for the buyer's other financial losses.

The Court of First Instance stated that the arbitration clause only covered interpretation of the performance of the contract. As the dispute concerned the avoidance of the contract, the clause in the court's opinion did not cover the dispute at hand. Furthermore the court held, that as the true identy of the seller and the relationship of K to the company have remained unclarified in the case, K has been the seller in the case. As K's place of business is in Finland, Finnish law is applicable, and therefore also CISG is applicable as the applicable law of a Contracting State.
As the seller had still not delivered the goods after an additional period of time of reasonale lenght, Art. 47(1) CISG, the buyer had the right to avoid the contract, Art. 49(1) CISG.

According to Art. 84 CISG the seller and K jointly and severally had to refund the price and pay interest on it. Furthermore, according to Art. 74 CISG, the seller and K jointly and severally had to pay the buyer damages for lost profits and for legal fees. As to the buyers claim for interest of $223,092, the court according to Art. 74 found, that K knew that buyer had to take credit to finance the advance payment and therefore the damages also included compensation for interest loss. But, as it was not shown that K knew or should have known about the interest rates in Lithuania, namely 7% per month and 0.5% per day interest in arrears, which essentially differs from interest reates in Western Europe, the Court found, that K should have estimated a loss of about 10% of the sale price, meaning US$ 8,000. K and the seller jointly and severally had to pay this loss.
Finally, the seller and K jointly and severally had to pay interest according to Art. 78 CISG, which was determined by the interest rate of the Bank of Finland added with 7%.

K - but not the seller company - appealed the decision of the Court of First Instance. The Court of Appeal in Eastern Finland repealled the lower courts desicion and dismissed K his joint and several liability with the seller for returning the advance payment, damages and legal fees. The Appeal Court found, that the arbitration clause in the contract between buyer and K included all disputes arising out of the contract and therefore the case against K had to be solved based on the law governing Arbitration. The amounts K was made to pay, added with interest, now remained to be paid by the seller company in their totality.