- I ACa 637/12
- Szczecin Court of Appeal
NON CONFORMITY OF GOODS - BUYER OBLIGED TO GIVE NOTICE OF LACK OF CONFORMITY "WITHIN A REASONABLE TIME" AFTER IT DISCOVERED THE DEFECTS OR OUGHT TO HAVE DISCOVERED THEM (ART. 39(1) CISG)
TERMINATION OF CONTRACT – NOTICE OF TERMINATION WITHIN A REASONABLE TIME AFTER THE BUYER KNEW OR OUGHT HAVE TO KNOW OF THE BREACH (ART. 49(2)(B)(I) CISG)
DAMAGES – LIMIT OF FORESEEABILITY OF LOSS AT THE TIME OF CONCLUSION OF CONTRACT (ART. 74)
[CLOUT Case no. 1588. Abstract prepared by Natalia Otlinger]
The Danish buyer and the Polish seller concluded a contract for the sale of pellets
(a type of biofuel made from wood) in May 2007.
Since the beginning of August of the same year, the buyer received warnings from
its customers and local authorities that the contracted pellets were made of
forbidden substances. The local Danish authorities investigated whether the pellets
contained a type of plastic which is strictly prohibited in Denmark and does not
comply with Danish environmental regulations. On 18 September 2007 the buyer
received an official confirmation from the authorities that the pellets were defective
and contained the forbidden type of plastic. However, the buyer officially informed
the seller about the defects only on 29 October. After unsuccessful attempts to
resolve the dispute amicably on 7 November 2007 the buyer declared the contract
The buyer initiated court proceedings against the seller and raised three main
claims. First, it claimed damages resulting from the breach of contract in the amount
of the purchase price. Second, it asked for reimbursement of the costs incurred
while negotiating and concluding the contract, and third, it claimed reimbursement
of the cost incurred after the non-conformity was established for the storage and
utilization of the pellets.
The Court of first instance decided that the delivery of non-conforming pellets
constituted a fundamental breach of contract for the purposes of Article 49(1)(a)
CISG. This conclusion was upheld by the Court of Appeal.
The Court of Appeal established, however, that the buyer had lost the right to rely
on a lack of conformity of the goods because it failed to inform the seller about the
defects of the goods within a reasonable time as provided for in Article 39(1) CISG.
The Court stated that the buyer received warnings of a possible non-conformity of
the goods as early as August 2007. It then received confirmation of the non-conformity from the local authorities on 18 September 2007 but waited one and
a half months to officially inform the seller. The Court made reference to established jurisprudence that a reasonable period of time would be 4-7 days and found that the buyer’s notification sent on 29 October 2007 was obviously too late.
The Court stated that the buyer did not meet the requirement of the “reasonable period of time” (Article 39(1) CISG) and therefore, it lost its right to declare the
contract avoided (Article 49(2)(b) CISG).
Furthermore, the Court of Appeal held that the buyer failed to perform its duty to
examine the goods pursuant to Article 38 CISG. According to the Court, the local
authorities’ investigation on the pellets sold by the buyer to its own customers was
not sufficient to meet the requirement of Article 38 CISG and the buyer should have
carried out its own examination of the goods.
With regard to the buyer’s claim for reimbursement of the costs incurred while
negotiating the contract, the Court of Appeal considered the costs under two categories. The first group consisted of the costs related to contract negotiation
(e.g. meetings and travels to Poland, advertisement in Denmark). The Court pointed
out that those costs would have been incurred even without any non-conformity of
the goods, thus they could not be treated as losses on the basis of Article 74 CISG.
Moreover, it was impossible for the seller to foresee the costs incurred by the
plaintiff during negotiations. On the other hand, the Court decided that the costs of
transport and unloading of goods shall be reimbursed, since the defendant could
have reasonably foreseen them.
With regard to the buyer’s third claim concerning the costs incurred to store and use
the pellets, the Court held that they shall be fully reimbursed. The lower court
initially ruled that the costs of storage should be recovered only from the date of
18 September 2007 when the non-conformity of the goods was officially confirmed.
However, the Court of Appeal extended this decision to the whole period of storage
of the goods reasoning that the goods were defective from the very beginning and
not from the date the non-conformity was determined. The Court, however, affirmed
the decision of the Court of first instance on the insurance costs of the warehouses
where the defective pellets were stored. On the basis of Article 74 CISG, the Court
stated that it cannot be assumed that the insurance of the warehouses was
foreseeable at the time of the conclusion of the contract. Therefore, such costs
cannot be reimbursed.
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