- Arbitral Award
- ICC Court of Arbitration
NON-CONFORMITYOF GOODS - REMEDIES OF THE BUYER (ART. 45 CISG) - RIGHT TO REDUCE THE PRICE (ART. 50 CISG) - RIGHT TO CLAIM DAMAGES (ART. 74 CISG)
NOTICE OF LACK OF CONFORMITY - TIME OF NOTICE - NOTICE 23 DAYS AFTER DELIVERY UNREASONABLE (ART. 39 CISG) - BUYER'S FAILURE TO EXAMINE THE GOODS AT THE MOMENT OF ARRIVAL AT DESTINATION (ART. 38 CISG)
A Romanian seller and a Dutch buyer concluded a contract for the sale of chemicals. Three weeks after delivery the buyer had the goods inspected by a local authority. The goods turned out to be defective, and the seller was given notice therof some 23 days after delivery. The buyer paid only a part of the agreed price. The seller filed and arbitration suit claiming full payment.
The sole arbitrator held that the contract was governed by CISG, since both parties had their place of business in contracting States (Art. 1 (1)(a) CISG).
As to the merits of the dispute, the sole arbitrator stated that, as a general rule, when the goods delivered are not in conformity with the contract, the buyer is entitled to reduce the price and claim damages (Arts. 45, 50 and 74 CISG). However, it further held that, in the case at hand, the buyer had lost its right to rely on the lack of quality (Art. 39 CISG) as a justification for its reduction of the price since it had failed to have the goods examined when the lack of quality should have been discovered, i.e. "(a)t the moment of the arrival of the goods at destination" (Art. 38 CISG). In fact, the buyer had the goods examined only three weeks after their arrival at destination. The buyer was therefore ordered to pay the remaining part of the price.
Claimant(seller) and Respondent (purchaser) entered into a contract for the sale of chemical goods; which were to be paid within ten days of transmission of the shipping documents, failing which a penalty payment would be added to the amount due. Following delivery, Respondent refused to pay, claiming the goods to be of poor quality. Claimant objected, insisting on being paid. Respondent made a partial payment and offered a further sum which was unacceptable to Claimant. Arbitral proceedings were initiated in which the sole arbitrator was required to decide whether Respondent had breached the contract by its failure to pay the ft ill price within the deadline set, or whether its failure to pay was justified by the poor quality of the goods.
1. In order to properly frame the case, the first issue to be resolved is that of the substantive law applicable to the Contract. Such law appears to be the substantive law of Romania, with which the Contract has the closest connection. As the subject of the Contract is an international sale of [chemical compound and both the Netherlands and Romania have respectively ratified (on the 13th December, 1990) and adhered to (on the 22nd of May, 1991) the U.N. Convention on contracts for international sales of movable goods executed in Vienna on the 11th April, 1980 (Convention) which therefore has become part of the law of Romania , the Arbitrator is of the opinion that, more specifically, the Contract is governed by the above mentioned Convention.
2. As far as factual circumstances are concerned, there is no question that the Goods were delivered, while the controversial issue concerns their quality Given the non appearance of Respondent in the present proceedings, the contentions raised by same in respect of said quality appear only indirectly through the documents filed by Claimant. Among them, one should particularly refer to the fax. . . from the Expertise Bureau... It appears from same that on the 11th May. . . the experts inspected at the premises of a transport firm about 12 m. tons of the total 60 m. tons of the Goods which had arrived in Rotterdam on the 19th April... They report that part of the Goods so inspected was stone hard however the product could in our opinion (as various attempts revealed) he transformed to crystals again and that the packing of these bags was contaminated/defiled to various extent. They also inform that reportedly, during discharge of the containers no irregularities ... were found except for the above mentioned defiled bags and hard product and that, according to what they were told, the defiled bags were stowed in the containers among the others.
Furthermore, the experts indicate that the remaining approximately 48 m. tons with sound packing was transforwarded to various inland receivers and that according to information received by them also the Goods so delivered would have been hard/solid.
4. The Quality Certificates filed by Claimant indicate the appearance of the Goods to be microcrystals; however it should be noted that the originals of said certificates are dated 7'~' April... while according to the Bill of Lading the Goods had been shipped on board on the 29th March. . . On the other hand, the other documents filed with the Arbitral Tribunal do not appear to constitute conclusive evidence of the existence of a defect of the Goods (which however had to be supplied CIF Rotterdam) after their arrival and even more so, of a defect of such a gravity, as to allow one to consider Claimant to be in default according to Article 50 of the Convention, for having supplied goods not in conformity with the Contract.
As a matter of fact, there is no mention in the Contract that the [chemical compound] being sold and purchased should necessarily be in crystals and in any event the very report by the experts mentioned above appears to indicate that the part of the Goods reported to be stone hard could easily be retransformed into crystals. Besides that, even the amount of damages allegedly incurred by Respondent, but with respect whereto it should he repeated that no evidence is available, seems to point at a problem of limited size, thereby confirming the conclusion outlined above, about the lack of default by Claimant.
5. Furthermore, another reflection is appropriate.
The Convention (in particular, in its Articles 45, 50 and 74) provides that, when the goods sold are not in conformity with the contract entered into by the parties to an international sale contract, the purchaser may reduce the price accordingly and seek the redress of the damages incurred. However, the purchaser loses his right to avail himself of the fault of non conformity of the goods if he does not denounce it to the seller. . within a reasonable time from the moment when he has discovered it or should have discovered it [sic] (Article 39). Such a moment is identified by Article 38, which in its para. 1 provides that the purchaser must examine the goods, or cause them to be examined, within the shortest possible time and specifies in its para. 2 that if the contract implies the transportation of the goods, the examination can be deferred until the moment of the arrival of the goods to their destination.
There results from the foregoing that, in order to comply with the obligation so imposed by the Convention, Respondent should have inspected the Goods no later than the 19 April ... when as shown by the above mentioned fax dated the 19th May. . . from the Expertise Bureau. . . the Goods arrived in Rotterdam. The defects, if any, would have been detected on that occasion and should therefore have been denounced promptly thereafter, while Claimant appears to have been notified by [the Expertise Bureau] on the19th May with said fax or, at the most, on the 11th May during the course of the telephone conversation mentioned in same.
The number of weeks elapsed between the date when the alleged defects should have been discovered with the ordinary diligence and the date of the notice to Claimant appear to be far beyond the reasonable time provided by the Convention.
Also for this reason the Arbitral Tribunal deems that the failure by Respondent to make the payment provided by the Contract is not justified. It is also worth noting that the behavior of Respondent is even more censurable, as it should at least have paid the balance unquestionably owed after deducting the sum claimed by Respondent for the redress of the damages allegedly suffered.
6. In his request for Arbitration Claimant states that the conduct of Respondent has caused to him important damages; in addition to claiming the balance of the price due Claimant requests that Respondent be ordered to pay part of the penalty (established by item 7 of the Contract in the sum equal to 0,5 % of the contract value for each day of del2 in the amount of D.M....
Consistently with the conclusion outlined in the preceding para. 5 and in view also of the provisions laid down by the Convention in its Art. 53 (confirming the obligation by the purchaser to pay the price for the goods... under the conditions provided by the contract and in other relevant Articles concerning the default by the purchaser, the Arbitrator deems that the subject request should be granted.
The same should be said also with respect to the request by Claimant concerning the cc of Arbitration.
No claim has been submitted in respect of interests.}}
Publishedin English (excerpt):
ICC International Court of Arbitration Bulletin, Vol. 11/No. 2 - Fall 2000, 53-54}}