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| Abstract | ||||||||||||||||||
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| Several companies (from now on ‘the sellers’), active in the exploration and production of offshore gas fields in the Netherlands' continental shelf, entered into long-term contracts with a major international player in the field of refining of crude oil and distribution of oil products and gas (from now on ‘the buyer’). The contracts provided for the delivery of a condensate mixed with crude oil, called ‘Rijn Blend’, which had subsequently to be refined (on behalf of the buyer) and sold to users. Owing to verification of increased levels of mercury in Rijn Blend which had caused processing problems to a final user, the buyer informed the sellers that it would not take the next delivery of the blend (of June 1998), and it would suspend taking any other delivery of Rijn Blend until a solution to the problem had been found. As no remedial measures were taken, the buyer let the contracts expire. In the meantime the sellers had to resell the blend not taken by the buyer to third parties at a considerably lower price than that under the contract and allegedly suffered huge losses.
The sellers maintained that the Rijn Blend delivered was conforming - since no specific quality requirements had been agreed upon in the contracts - and that they could neither have been aware of the particular purpose (refinery process) for which Rijn Blend was used by the buyer, nor had been involved in problems with final customers in the past. According to the sellers, the buyer had in any case failed to give notice of non-conformity as required by Art. 39 CISG and had breached the contracts by deciding to refuse delivery and suspend performance of its obligations. The buyer alleged that the Rijn Blend was non conforming and that the sellers knew or should have known the particular purpose for which it had to be used. Parties agreed that CISG applied to the present dispute. The Arbitral Tribunal, on account of the absence of any quality specification in the contracts, excluded the applicability of Art. 35(1) CISG. Moreover, since there was no evidence that a particular purpose of Rijn Blend had been either expressly or impliedly made known to the sellers at the time of the conclusion of the contracts, the applicability of Art. 35(2)(b) CISG was excluded as well. With respect to the burden of proof, the Tribunal, making reference to scholarly opinions and international case law, found that it was not necessary to choose between the theory according to which such question is excluded by CISG and must be solved under the domestic law otherwise applicable to the contract (i.e. Dutch law), and the theory according to which CISG provides for a general principle concering the burden of proof (Art. 7(2) CISG). Under both theories, in the case at hand the buyer had to prove the lack of conformity of the goods. The Tribunal further examined the question of the exact meaning of Art. 35(2)(a) CISG. Since there are no clear-cut cases nor uniform scholarly opinions on the point, and taking the preparatory works of CISG into account, the Tribunal excluded both the English common law ‘merchantability test’ (according to which, as far as commodities are concerned, goods conform if a reasonable buyer would have concluded the contract if he had known the quality of the goods without bargaining for a price reduction), and the civil law ‘average quality rule’ (with respect to which it was unclear – as far as the present dispute was concerned - whether there was a common understanding in the refining industry what average quality for blended condensates should had been and what levels of mercury were tolerable). Both standards would fail to ensure uniformity in the interpretation and application of CISG (Art. 7(1) CISG) and moreover violate Art. 7(2) on gap-filling, since they would import into the CISG system domestic notions which are not sufficiently universal. The Tribunal found that on the contrary, the ‘reasonable quality standard’ was compatible with the preparatory works, complied with Art. 7(1) as it did not rely immediately on notions based on domestic law and was consistent with Art. 7(2) CISG, which primarily refers to general principles of CISG as possible gap fillers. Such a test would moreover apply even if domestic law were considered to be applicable by virtue of Art. 7(2) CISG. According to that standard the Tribunal denied the conformity of the Rijn Blend, as the price agreed upon by the parties could have not been obtained for cover transactions (when the mercury levels were disclosed to a number of prospective buyers) and as the late deliveries were below the quality requirements to which the buyer had become used over the years. As to the alleged breach of the duty to give notice of non-conformity regarding the June 1998 delivery, the Tribunal rejected application of 39(1) CISG because such provision assumes that delivery has been made, whereas when the buyer refused to take further deliveries, the lifting in question had not yet been delivered. Since the buyer had sufficiently proven that there was a substantial likelihood that shortcomings in quality would occur again, its right to suspend perfomance of its obligations extended to the June 1998 delivery and future ones by virtue of Art. 71(1), applicable to instalment contracts such as the one involved here, where each single instalment is to be considered severable from the others (Art. 73(2) CISG). The Tribunal held, however, that the buyer had failed to immediately notify to the sellers its intention to suspend further deliveries according to Art. 71(3). Though the buyer discussed the question with a third party (to which the sellers had given express authority regarding some commercial matters but which could not be considered neither an express nor an implied agent of the sellers) such communication did not in fact amount to a notice under Art. 71(3). Therefore, the Tribunal confirmed cancellation of the contract as regards future deliveries, but held that the sellers were entitled to damages and interest at the rate provided for by the otherwise applicable domestic law. |