|The claim arose out of a contract between an Australian seller and a Malaysian buyer, where the former agreed to sell 30,000 metric tonnes of scrap metal to the latter. The seller asked for termination of the contract and damages on the grounds that the buyer had failed to establish the requested letter of credit.
The first instance Court (Supreme Court of Queensland, 17.11.2000, see abstract and full text in UNILEX) applied CISG and concluded that the buyer was in fundamental breach of its obligations under the contract by failing to establish the appropriate letter of credit as promised; damages were assessed pursuant to Arts. 74 and 75 CISG. The buyer appealed.
The appellate Court confirmed the first instance decision as to the applicability of CISG, dismissing the buyer's contention that reference to CISG rendered the trial unfair. Although domestic procedural law entered into force during the trial would require the seller to include some reference to CISG if it intended to rely on a claim thereunder, the Court, as a result of a long discussion, stated that even under the new domestic law provisions a plaintiff would not ordinarily be prevented from recovery when all essential facts were established, "merely because there was an omission to refer to a statutory provision".
According to the Court, given the facts of the case, there was no material difference between the otherwise applicable domestic law and Arts. 64(1) (a) and 25 CISG in relation to the fundamental breach by the buyer and the seller's right to avoid (terminate) the contract. The buyer had clearly breached an essential term of the contract by failing to issue the letter of credit within the agreed time.
However, with respect to the calculation of damages there would have been differences and the Court upheld the first instance decision to assess damages according to Arts. 74 and 75 CISG.
Under domestic law and under Art. 76 CISG (that is, where there is no resale) the correct measure of loss is calculated by establishing the difference between the contract price and the market value of the goods at the date of termination. Under Art. 75 CISG, however, the formula provided for assessing damages is the difference between the contract price and the resale price where there is a "substitute transaction", which results in the resale of the goods "in a reasonable manner and within a reasonable time after avoidance". In the case at hand the seller resold the 30,000 tonnes of scrap metal to two companies shortly after the termination of the original contract.
The Court was in agreement with the first instance judge as to the fact that the substitute transaction was carried out in a "reasonable manner" (Art. 75 CISG). The resale was effected at a market rate which had dropped since the termination of the original contract. In addition, the seller had to charter a new vessel for transportation. Although the charter costs for the new vessel were approximately the same as that for the old, the seller was left with the costs of the chartering of the first vessel, which was no longer of any use. The subchartering of the first vessel as soon as possible was a reasonable step by the seller to minimise the damage incurred.
The resale was also effected "within a reasonable time"(Art. 75 CISG) being within two months of the repudiation of the original contract. It was held that the seller acted as quickly as possible in seeking a market for the scrap metal.
Under Art. 74 CISG the party in breach must have forseen or ought to have forseen the loss at the time of the conclusion of the contract, as a possible consequence of the breach of contract. The Court held that the incurring of a loss of this kind was clearly foreseeable and the buyer must have known that its failure to establish a letter of credit as promised would result in the seller being left with a chartered vessel at hand which could not be used for the purpose for which it had been chartered.
The Court finally held that both resales of the scrap metal were to be considered a "substitute sale" under Art. 75 CISG (since where fungibles goods are involved a seller is able to substitute goods for the purposes of the resale so long as the sale is commercially reasonable, and since the substitute transaction may be concluded on different terms than the original one).