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| Abstract | ||||||||||||||||||
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| A German seller and an Austrian buyer concluded a contract for the sale of a cooling system to be specifically manufactured by the seller. According to the contract the system was to be delivered to the buyer's premises in Austria for testing, but was meant to be eventually installed in a yet to be built water plant in Germany. It was an intermediary acting on behalf of the owner of that plant which had requested the buyer to deliver and install the cooling system, and the contract between the buyer and the intermediary of the ultimate customer provided for a specific date of delivery and, in case of delay, for the payment of a substantial penalty. In its offer, the seller expressly referred to its standard terms printed on the back of its invoices. According to these standard terms, which the buyer already knew from previous dealings with the seller, the buyer was obliged to examine the goods immediately after delivery and to give written notice to the seller of any manifest non-conformity within 8 days after delivery; it was up to the seller to remedy any non-conformity by repair of the goods or by delivering substitute goods; the limitation period was 12 months; consequential damages were excluded; place of performance and place of settlement of possible disputes were at the seller's place of business; the applicable law was Germany law.
As the seller failed to meet the date for delivery, the cooling system had eventually to be delivered directly to the construction site in Germany, where the buyer was able to perform only a cursory examination. Notwithstanding that some manifest defects (corrosion, poor finish) were discovered and immediately notified to the seller. The buyer nevertheless installed the system in order to avoid the penalty provided by its contract with the intermediary. Subsequently additional technical defects appeared (lower capacity, noise level too high, and others) of which the buyer gave notice to the seller as soon as they were discovered. The seller not only did not object to such late notice, but agreed to repair the defects. When the attempts to repair proved to be unsuccessful, the buyer and the intermediary asked for the delivery of a substitute system, but the seller refused to do so. After another unsuccessful attempt to repair the system, the buyer and the constructor agreed to install temporarily the defective on the understanding that the buyer would later provide a substitute system. The seller was not involved in, nor informed about, this agreement. At the agreed date the system was remolded by the buyer and newly installed. Since than it has functioned properly. When the seller brought an action for the payment by the buyer of the invoices relating to other transactions between the two parties, the buyer refused to pay and set-off against the obligation to pay those invoices the seller´s obligation of reimbursement of the losses the buyer had suffered as a consequence of the delivery of the defective cooling system. In accordance with the appellate court the Supreme Court held that the sales contract concerning the coolin system was governed by CISG, as both parties were situated in different contracting States (Art. 1(1)(a) CISG) and the contract was a contract for the supply of goods to be manufactured (Art. 3 (1) CISG). The reference to "German law" as the applicable law did not amount to a tacit exclusion of CISG in accordance with Art.6 CISG, since CISG is part of German law. The Supreme Court also held that the seller's standard terms were binding upon the byuer, sine the seller had expressly referred to them in its offer and the buyer already knew them from previous dealings with the seller. The court further noted that the choice of the law of a contracting state does not in itself amount to an implied exclusion of CISG as part of the domestic law of the contracting States (Art. 6 CISG). As to the merits of the case, the Supreme Court held that the buyer's counter claim aganst the seller, deriving from the purchase of the cooling system was valid, though with certain limitations as to the amount of the damages claimed. As the objection by the seller that the buyer had not timely given notice of the various defects discovered, the Court held that, with respect to the defects the buyer could discover upon examniation of the goods immediately after delivery, notice was given within the required time limit of 8 days, while with respect to all latent defects which could be discovered only later the time limit for notice was a "reasonable time" after discovery in accordance with Arts. 38 and 39 CISG. In the view of the Court what is a "reasonable time" depends on the circumstances of each given case, with regard in particular to the size and structure of the buyer's firm, the characteristic features and quantity of the goods to be examined, the efforts necessary for their examination, the type of the legal remedy selected, etc. Yet even if in the case at hand the buyer should have given notice too late, the seller is prevented from invoking such defence since it has by its own conduct shown after receiving the notice - in particular by not raising the defence immediately and by expressly declaring its willingness to cure the defects - waived that right. The Court also rejected the objection by the seller that the notices given by the buyer did not always sufficiently descibe the kind of defects discovered. According to the Court, although non-conformities of the goods have to be described specifically to allow the seller to react in an appropriate way (Art. 39(2) CISG), the requirements in this regard should not be exaggerated and in any case they depend on the circumstances of each given case, with special regard to the conditions in which the buyer is able to examine the goods. As to the amount of damages claimed by the buyer, the Court held that, according to Art. 74 CISG, the aggrieved party is entiled to full compensation of the losses suffered as a result of the other party´s non-performance, including loss of profit, provided that the losses were foreseeable at the time of the conclusion of the contract. However, in the case at hand the seller´s standard terms expressly excluded the compensability of the so-called consequential damages. As a consequence the buyer was entitled to recover the expenses it had incurred in repairing the goods, but not the other losses it had suffered in its relationship with its costumer as a consequence of the seller´s non-performance. |