- Russian Federation
- Federal Arbitration Court of the North Caucasus Area, Krasnodar
SCOPE OF CISG - MIXED CONTRACT FOR SUPPLY OF GOODS AND SERVICES
BUYER'S RIGHT TO REDUCE PRICE IN CASE OF NON-CONFORMITY (ART. 50 CISG)
[CLOUT Case n. 1365; abstract prepared by A. I. Muranov, National Correspondent, D. L. Davydenko and D. D. Yalaletdinova]
A Russian buyer and a Czech seller entered into a contract for the purchase of a second-hand automated line for the production of pasta, which had undergone major repairs. The contract provided that CISG would apply to the legal relations of the parties to the contract. The parties had also concluded a contract on the supervision of the equipment installation.
The buyer lodged a claim against the seller to reduce the price of the equipment delivered under the contract. The buyer also demanded the recovery of the amount that it had overpaid the seller for the equipment, on the following grounds. According to the contract, the seller had provided a guarantee that the equipment would produce high-quality goods, provided that the relevant operating rules were observed. In addition, the parties had agreed that, if the rate of productivity indicated in the contract decreased by 10 per cent or more, the total value of the contract would be reduced proportionately. In the light of the provisions of article 36 CISG, there had been substantial violations of the requirements for the quality of the goods, even though the equipment had been installed by the seller. The expert organization engaged by the buyer had established that there were defects in the goods produced by the equipment that had been purchased.
The court of first instance allowed the claim. An expert examination commissioned by the court concluded that the equipment supplied by the seller did not comply with the guarantees that it had provided. The experts established that the shortcomings of the equipment were not connected with the operating conditions. The seller did not dispute the results of the examination.
The court of second instance upheld the decision of the court of first instance.
The Federal Arbitration Court of the North Caucasus Area -- the court of third instance -- dismissed the complaint, on the following grounds.
Given the fact that the contract related to an international transaction, since it was entered into by parties whose businesses were located in different States, the courts had rightly applied the Convention (articles 1(1) and 3(2) CISG).
The court discussed the seller's obligation to deliver goods that met the requirements of the contract and the resulting liability for any lack of conformity that occurred at the time when the risk passed to the buyer due to a breach of such obligations, including a breach of any guarantee (articles 35 and 36 CISG). The court also noted that if the seller fails to perform, the buyer can exercise the remedies provided for in articles 46 to 52 CISG and no period of grace can be granted to the seller by a court or arbitral tribunal when the buyer resorts to such remedies. Furthermore, pursuant to article 50 CISG, if the goods do not conform with the contract and whether or not the price has already been paid, the buyer may reduce the price in the same proportion as the value that the goods actually delivered had at the time of the delivery bears to the value that conforming goods would have had at that time. However, if the seller remedies any failure to perform its obligations in accordance with article 37 or article 48 CISG, or if the buyer refuses to accept performance by the seller in accordance with those articles, the buyer cannot reduce the price.
According to the conclusions of the expert report, the automated line supplied by the seller did not comply with the guarantees provided by this latter. The expert examination had been carried out within the warranty period and the findings had not been disputed. The respondent had not requested a second examination in order to establish the actual performance of the equipment and since the seller had not started to correct the defects within a reasonable period of time, the courts had rightly applied article 50 CISG.
As the claimant had paid for the equipment, the excess funds paid had been lawfully recovered from the respondent. The seller's claim that the buyer was in arrears in the payment for the goods and that, by unwarrantably claiming to find defects in the goods, it was trying to evade payment, was unfounded.
It was evident from the record of transfer and receipt and the commissioning of the equipment referred to by the seller in its complaint that the seller had mounted, installed, configured and started up the equipment. It was not clear from the actual content of this document whether the performance of the equipment had been checked for compliance with the terms of the contract after its installation. The seller had not provided evidence that its specialists had tested the performance of the equipment after its installation. The courts had therefore rightly dismissed the respondent's claim that the record of transfer and receipt was proof of the delivery of goods of the appropriate quality.
Case law on UNCITRAL texts (http://www.uncitral.org/uncitral/en/case_law.html)
Original in Russian:
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