- Arbitral Award
- ICC Court of Arbitration
APPLICATION OF CISG - CHOICE OF LAW OF CONTRACTING STATE AS GOVERNING LAW OF THE CONTRACT (ART. 1(1)(A)CISG) - CISG APPLICABLE
INTERPRETATION OF STATEMENTS AND CONDUCT UNDERSTANDING OF REASONABLE MAN - RELEVANT CIRCUMSTANCES TO BE TAKEN INTO ACCOUNT (ART. 8(2)AND (3)CISG)
LACK OF CONFORMITY - EXAMINATION OF GOODS (ART. 38 CISG)- INCORRECT EXAMINATION BY AN INDEPENDENT INSPECTION BODY JOINTLY APPOINTED BY THE PARTIES - NOT BINDING UPON THE BUYER
NOTICE OF LACK OF CONFORMITY - FAILURE TO GIVE TIMELY NOTICE (ART. 39 (1) CISG) EXCUSED IN CASE OF INCORRECT EXAMINATION BY AN INDEPENDENT INSPECTION BODY JOINTLY APPOINTED BY THE PARTIES (ART. 44 CISG)
RIGHT TO DAMAGES(ART. 74)- LOSS OF PROFIT EXCLUDED
RIGHT TO INTEREST (ART. 78 CISG)- INTEREST RATE DETERMINED BY DOMESTIC LAW GOVERNING THE CONTRACT
A Chinese seller and a German buyer concluded a contract for the sale of a certain quantity of coke to be supplied by a third party. Upon examination at the time of arrival, the coke was found to be different in weight and quality than the description recorded in the certificate of analysis presented at the time of loading. The buyer refused to accept the coke, asking for reimbursement of the whole purchase price. The seller on its part alleged that it could not be held responsible for non-conformity, since it merely acted as an agent on behalf of the manufacturer of the coke.
The Arbitral Tribunal held CISG applicable as a part of the substantive law of a Contracting State, since the parties had chosen Swiss law as the one governing the contract (Art. 1(1)(a) CISG).
As to the merits, the Arbitral Tribunal held that the defendant had to be considered as seller, since it had never disclosed to the buyer its intention of acting merely as an agent. In order to reach this conclusion, the Arbitral Tribunal interpreted the wording of the agreement and the seller's conduct according to Art. 8 (1), (2) and (3) CISG.
Further, the Tribunal rejected the buyer's claim to reimbursement of the purchase price. In the Court's opinion, under the contract a relevant difference in weight and quality as the one occurred would have only entitled the buyer to invoke breach of contract by the seller. In reaching this conclusion, the Arbitral Tribunal interpreted the wording of the agreement and the parties' intention in accordance with Art. 8 (1) and (2) CISG.
As to the lack of conformity, the Arbitral Tribunal first of all pointed out that, since the inspection at the time of loading had been carried out by an independent body appointed jointly by both parties, the buyer was not bound by the quality determination of that body. As to the buyer's failure to give timely notice of the non-conformity to the seller, the Tribunal held that the buyer was excused pursuant to Art. 44 CISG, since it could not be held responsible for the incorrect examination of goods by the independent inspection body.
The buyer was awarded damages, yet in accordance with Art. 44 CISG loss of profits was excluded.
Finally, the buyer was granted interests (Art. 78 CISG) at the rate determined by the law governing the contract (i.e. Swiss law).
The parties agreed in Art. 14 of the Contract that "the proper law of the Contract is the law of Switzerland". The parties do not agree on whether this clause includes the United Nations Convention on Contracts for the International Sale of Goods ("CISG"); while Claimant answers this question to the positive, Defendant argues that Art. 14 of the Contract should be interpreted to mean that only Swiss domestic law, particularly the CO, applies.
As a rule, Swiss law encompasses every international convention to which Switzerland is a party. Since Switzerland is a party to the CISG, the latter, consequently, is a part of Swiss law. Therefore, should contracting parties wish to exclude the application of CISG to a contract, the parties must explicitly state that CISG does not apply to the contract, or alternatively, that only Swiss domestic law is applicable to the Contract. Leading doctrine confirms the principle that a general reference to Swiss law should not be interpreted as silent exclusion of the CISG, unless the intentions of the parties permit a different conclusion (Herber in Bucher (ed.), Wiener Kaufrecht, Bern 1991, p. 221; Herber in v. Caemmerer/Schlechtriem, Kommentar zum Einheitlichen UN-Kaufrecht, München 1995, N 16 to Art. 6 CISG; Siehr in Honsell (ed.), Kommentar zum UN-Kaufrecht, Berlin and Heidelberg 1997, N 7 to Art. 6 CISG; dissenting, but still suggesting an explicit exclusion: Honsell, Schweizerisches Obligationenrecht, Besonderer Teil, Bern 1992, p. 106).
Such an intention of the parties cannot be interpreted into the general format of the Contract, nor do subsequent transactions between the parties imply a silent exclusion. Therefore, the general reference to Swiss law in Art. 14 of the Contract must be interpreted to mean Swiss law and any of the conventions applicable in Switzerland, including the CISG.'
With respect to the Interpretation of the contract
'Neither party challenges the validity of the Contract and the parties agree that it is a contract for purchase and sale. In regard to Defendant's contractual position as well as to the meaning of Arts. 4 and 9 of the Contract, the parties are, however, of different opinions.
Therefore, the Arbitral Tribunal has to interpret the Contract in the light of Art. 8 CISG: A party's statements and its conduct are to be interpreted according to its intent where the other party knew or could not have been unaware what that intent was (subjective intent; Art. 8/1 CISG). If no such intent can be established, the party's statements and conduct must be interpreted according to the understanding that a reasonable person of the same kind as the other party would have had under the same circumstances (objective intent; Art. 8/2 CISG). In the course of the interpretation of both the subjective and the objective intent, due consideration has to be given in all relevant circumstances of the case, including the negotiations, any practices established between the parties, usage and any subsequent conduct of the parties (Art. 8/3 CISG).
While the determination of the real (subjective) intent is an issue of fact for the existence of which proof has to be submitted, the interpretation of the objective intent of a party's statements and conduct pursuant in Art. 8/2 CISG has to be done by the Arbitral Tribunal in the light of the principle of good faith and is an issue of law.
When the parties' intents in regard to contractual stipulations are in dispute, the text of the agreement forms the basis of the interpretation of the contract. In case one party is relying on the "normal" meaning of the text while the other party is claiming another meaning differing from the wording, the burden of proof that the different meaning has been agreed on by the parties lies with the party claiming said different meaning. If the parties' opinions are both deviating from the text to about the same extent or if there simply exist doubts in regard to the meaning of the contractual text, the burden of proof has to be assessed in the light of the concrete circumstances of the dispute (see Wiegand in Honsell (ed.), Kommentar zum Schweizerischen Privatrecht, Obligationenrecht I, Basel, N 16 to Art. 18 C0).
1. Parties to the Contract
In order to assess Defendant's role under the Contract the Arbitral Tribunal has to look at the text of the contractual stipulations. According to the wording of the Contract under scrutiny, Claimant is the buyer ..., [X] is the supplier ... and Defendant is the seller ... of the coke. [Y] who has not signed the Contract is mentioned as agent ... Whereas these four parties are mentioned on the cover page of the Contract its stipulations expressly contain only rights and obligations of the "Seller" and the "Buyer".
Following Claimant's protest and refusal of the cargo of coke, Defendant claimed it was not the seller but merely a foreign trade agent participating in a sales contract between Claimant as buyer and [X] as seller for the purpose of ensuring that appropriate permits and loan facilities were available. Prior in this point of time, Defendant never objected in its contractual role as seller.
Given the clear wording defining Defendant as the seller of the coke, Defendant has to prove that its intention was to enter into the Contract as trade agent rather and that this intent was either (i) known in Claimant or (ii) that Claimant ought to have known it (subjective intent; Art. 8/1 CISG). If Defendant is not able to submit sufficient proof in this respect the Arbitral Tribunal has to assess Defendant's objective intent in the sense of Art. 8/2 CISG…
The only evidence submitted by Defendant to support its allegation that it intended to enter into the Contract as foreign trade agent is the agency agreement entered into with [X] ... However, apart from the fact that it was concluded after the signing of the Contract … there is no indication that Claimant was or should have been aware of its existence. It can therefore not serve as proof, let alone sufficient proof, that Claimant knew of Defendant's alleged intent to merely conduct the business as agent or should have been aware of such intent when the Contract was concluded.
[Y] acted as intermediary between Claimant and Defendant for the conclusion and subsequent conduct of the business as a whole and, in particular, also for the execution of the Contract. For this purpose, an agency agreement was entered into by Defendant and [Y] ... Claimant and Defendant had not entered into direct contract negotiations; instead [Y] passed the contract document on to the parties for signature. However, the absence of a direct contact between Claimant and Defendant and even the alleged lack of any participation in contract negotiations by Defendant does by itself not support Defendant's assertion that its intent was to enter into the Contract as agent only and that Claimant was (or shouId have been) aware of this intent. An assessment of contracts … between Claimant, [X] and the parties in the same position as Defendant does not lead to another conclusion, either. As stated by Defendant itself, the general format of all three contracts is the same. Defendant's equivalents are expressly named as sellers and [X] is expressly named as supplier. There is no indication that, in contrast to this, [X] actually had been the seller and that the equivalents had acted as trade agents. Any reference to these contracts must therefore be judged as unhelpful with regard to Defendant's allegation.
Apart from the agency agreement between Defendant and [X] the documents submitted suggest that after having signed the Contract as seller, Defendant also acted in line with the expressly stipulated rights and obligation of the seller. Defendant took active part in the negotiations of amendments to the L/C issued in the frame of Art. 10 of the Contract (which at the same time resulted in an amendment of the Contract itself), in particular by suggesting different companies for inspection of the coke according to its Art. 9. lt furthermore received and accepted the purchase price as paid by the Claimant. Defendant conducted these matters always in its own name without ever referring to [X].
Since Defendant did not prove that it intended to enter into the Contract as agent, the Arbitral Tribunal could only conclude such alleged role of Defendant if a reasonable party in Claimant's position would have understood Defendant's statement as intent to be an agent only (objective intent, Art. 8/2 CISG). Given the wording of the Contract, which clearly defined the Defendant as the seller and the fact that the Defendant had signed the Contract as the "Seller" Claimant had reasonably to understand and rationally to conclude that Defendant was the seller.
2. Reduction of Purchase Price: Art. 4 of the Contract
Art. 3 of the Contract specifies quality standards regarding moisture, certain substances and the bulk size of the coke. In the case where the coke delivered to Claimant met these standards the Contract provided that Claimant would pay the price of … per mt ... Should the quality of the coke be higher or lower relative to quality stipulated in Art. 3 of the Contract, then Art. 4 provides for an increase or reduction of the purchase price (premiums or penalties).
As a result of the fact that the coke - when it arrived in ... - was of significantly lower quality than stipulated in the Contract, Claimant contends that it is entitled to reduce the purchase price pursuant in the reduction formula as set forth in Art. 4 of the Contract. This would result in a reduction to zero and, as a consequence, Defendant would have to reimburse the whole purchase price received by Claimant ... Defendant objects to such reduction which would in fact result in delivering the coke for no remuneration. Before entering into the discussion of quality determination ... the Arbitral Tribunal has, therefore, to interpret the reduction mechanism of Art. 4 of the Contract.
Claimant is apparently relying on the clear wording of Art. 4 of the Contract which does not indicate why the price reduction should be limited to a certain amount of discrepancy with the quality standards (only), pursuant to Art. 3 of the Contract. Consequently, Defendant has to prove that it intended the reduction mechanism to be limited in a certain (minor) amount of reduction instead of a reduction to zero in case of major discrepancies. Further, Defendant must provide evidence for the fact, that Claimant knew or should have known this intent when signing the Contract (Art. 8/1 CISG).
Defendant does neither bring forward substantiated allegations nor proof in this respect. Therefore, the Arbitral Tribunal has to assess whether the possibility of a reduction to zero was the common objective intent of the parties (Art, 8/2 CISG…).
Art. 4 of the Contract provides a formula for adjustment of the purchase price (in percentage) of USD … per mt in case of discrepancies of the quality of the coke delivered, as compared to the quality standards of Art. 3 of the Contract. This implies that the purpose of Art. 3 of the Contract is to set forth the seller's obligation to deliver coke of approximately the quality according to Art. 3 of the Contract and, consequently, stipulating a certain range of quality (tolerance) for contractual delivery. lt has to be concluded that these articles were included in the Contract in order to prevent further time-consuming negotiations over the desired quality of the coke versus the actual quality in case of minor discrepancies and its respective price. Such mechanisms serve both parties when the quality of the coke diverges only to a small extent. It seems unreasonable to the Arbitral Tribunal that the objective intent of the parties was to reduce the purchase price to zero in case of tremendous quality discrepancies; rather, Claimant, as buyer, could reject the delivery as non-contractual.
3. Weight and Quality Determination: Art. 9 of the Contract
Art. 9 of the Contract stipulated that the quality of the coke would be "determined by ... at the loading port at Seller's expense. The analysis so determined will be shown in a Certificate of Analysis and shall be final and binding for both, Buyer and Seller". The same applies for weight determination. Art. 9 of the Contract was validly amended by mutual agreement (Art. 29/1 CISG; see also Art. 1 CO) insofar as the inspection body was changed from … to [A].
The parties do not agree on the meaning of this clause. Claimant, on one hand, is of the opinion that Art. 9 of the Contract has to be interpreted as disclaimer of Defendant's liability and must, therefore, be construed narrowly, if applicable at all in the light of Arts. 100/199 CO. Defendant, on the other hand, contends that Art. 9 of the Contract has to apply according to its plain and ordinary meaning, i.e. that the inspection at the port of loading is to be final and binding, rendering any subsequent inspection factually and legally irrelevant.
Due in the differing understandings of Art. 9 of the Contract, the Arbitral Tribunal has to interpret said provision pursuant in Art. 8 CISG ... Defendant is referring in the wording of the contractual stipulation. Consequently, Claimant has to prove its intent of Art. 9 to have the meaning of a disclaimer when signing the Contract and that Defendant knew or should have known this intent at that time (subjective intent; Art. 8/1 CISG).
Claimant does neither bring forward allegations nor proof in this respect. Therefore, the Arbitral Tribunal has to interpret Art. 9 of the Contract in accordance with Art. 8/2 CISG by assessing how a reasonable party in Defendant's position in the Contract would have understood Art. 9 of the Contract while signing it with the very same wording in the same circumstances (objective intent). While doing so the Arbitral Tribunal has to take into account the stipulations of the CISG regarding contractual delivery and inspection of the goods:
The seller is obligated to "deliver the goods, hand over the documents relating to them and transfer the property in the goods, as required by the contract and this Convention" (Art. 30 CISG). Conformity of the goods means that the goods are of the quality, quantity and description required by the contract (Art. 35/1 CISG). The conformity is assessed at the time when the risk passes (Art. 36/1 CISG) from Seller to buyer. According to Art. 38/1 CISG, it is the buyer's duty to examine the goods after taking receipt of them, within as short a period of Time as is practicable under the circumstances. If the contract includes the carriage of the goods, the examination may be postponed until after the moment when the goods arrived at their destination (Art. 38/2 CISG). According to Art. 6 CISG the parties may derogate from the provisions of the CISG fully or partially, in particular from Art. 38 CISG (Schwenzer in Caemmerer/Schlechtriem, op. cit., N 11 and 28 to Art. 38 CISG).
lt follows from Art. 5 of the Contract, that delivery had to be effectuated "Free on Board" (FOB, Incoterms 1990), meaning that Defendant, as seller, fulfilled its obligation to deliver when coke in the quantity and quality as set forth in the Contract passed over the ship's rail at the ... port. From that point of delivery on, Claimant bore all costs, including the costs associated with risks of loss of or damage to the goods.
In line with the agreed moment in which the risk passed, the examination of the goods had to take place by [A] at the port of loading: As far as the time of the inspection is concerned, Art. 9 of the Contract has to be reasonably interpreted as the stipulation of a pre-shipment inspection in the sense of Art. 38/1 CISG. However, in regard to the party responsible for inspection, the Arbitral Tribunal finds that - in derogation from Art. 38 CISG according to which the buyer has to inspect the goods - the conformity of the coke, its quantity and quality, was to be assessed by a neutral inspection body as third party (appointed by both Claimant and Defendant) when the coke was loaded onto the vessel. Such common examination through seller and buyer is possible and common in certain businesses (Schwenzer in v. Caemmerer/Schlechtriem, op. cit., N 10 to Art. 38 CISG).
With the Arbitral Tribunal's above interpretation, Claimant's argument of Art. 9 of the Contract being a (invalid) disclaimer does not have to be discussed any further.'
With respect to the quality discrepancy
1. Actual Quality of Coke at Loading Port
... the Arbitral Tribunal concludes that the actual quality of the coke loaded onto the vessel did not conform with the terms of the Contract and that, thus, Defendant did not deliver the goods in conformity with the specifications of the Contract. [A]'s Certificate of Analysis issued based on samples during the loading was obviously incorrect.
2. Binding Character of [A]'s Certificate of Analysis
As mentioned above ...‚ the parties were - according to Art. 9 of the Contract bound in principle by the quantity and quality determination of [A] which inspected the coke as a commonly appointed neutral inspection body. However, Claimant asserts that based on the gross inaccuracy of [A]'s certification which according to the Claimant was manipulated by Defendant, it is not bound by this quality determination.
Whether this argument is of any help must be assessed in the light of the applicable legal stipulations. The Contract is silent to the applicability of its Art. 9 in case of incorrect certification through the appointed inspection body and, as a consequence it has to be referred to the CISG in order to answer this question.
In principle, the buyer has to bear the consequences of an incorrect examination in the sense of Art. 38 CISG performed by third parties; it is bound by the examination and has approved the (non-contractual) delivery (Bianca/Bonell/Bianca, Commentary on International Sales Law, Milan 1987, Para. 2.2 to Art. 38 CISG). However, this finding does not apply if the parties have jointly appointed the neutral inspection body or if the seller alone has insisted on the third party (Schwenzer in V. Caemmerer/Schlechtriem, op. cit., N 10 to Art. 38 CISG); the quality determination, if wrong, renders it non-binding to the parties. This was also concluded by the Arbitration Panel of Hamburg pursuant to which the stipulation of final quantity and quality determination through a certificate of analysis is binding upon the parties in its nature as an Arbitral certificate (Schiedsgutachten) unless it proves to be incorrect (see award in amicable arbitrage of Arbitration Panel of Hamburg of December 12, 1963, in Straatmann-Ulmer, Handelrechtliche Schiedsgerichts-Praxis, Köln 1975, E 6 b Nr. 11).
The Arbitral Tribunal is of the opinion that [A]'s certificate does not determine the actual quality of the coke, Because the inspection of the coke through a third party was mutually agreed by the parties in Art. 9 of the Contract, and not suggested by Claimant alone ..., Claimant is not bound by [A]'s quality determination. Consequently, it does not have to bear the consequences of the wrong certificate in the sense that it automatically has lost any and all of its legal remedies for non-contractual delivery of the coke after the risk passed from Defendant to Claimant.
On the other hand, it cannot be concIuded from the above that Claimant can base its claims on the quality determinations carried out in ... as if Art. 9 of the Contract had not existed The impact of the incorrect examination through [A] on Claimant's duty to give valid notice of the non-conformity of the coke still has to be assessed:
3. Notice of Non-Conformity
Pursuant to Art. 39 CISG the buyer looses its legal remedies for non-contractual delivery if it fails to give valid notice of such non-conformity to the seller within a reasonable period after the moment when such non-conformity was or should have been detected. This provision has two relevant exceptions, though: Firstly, if the lack of conformity relates to facts of which the seller knew or ought to have known and which it did not disclose to the buyer, the seller is not entitled to rely on Art. 39 CISG (Art. 40 CISG). Secondly, under Art. 44 CISG the buyer does not loose its right to claim damages (except for loss of profit), if it has a reasonable excuse for its failure to give the required notice pursuant to Art. 39 CISG.
Claimant contends that it acted in compliance with Art. 39 CISG by giving notice to [Y] that the quality of the coke jointly examined by [A] and [B] was inconsistent with [A]'s quality determination at the port of loading and, therefore, by refusing the cargo of coke. However … the Contract required in its Art. 9 that the examination took place in China and, consequently, any non-conformity should have been notified upon examination in China. Therefore, the Arbitral Tribunal finds that Claimant's notice was given too late.
As a consequence it has to be examined whether any of the above mentioned exceptions to Art. 39 CISG are applicable; i.e. if Defendant knew or ought to have known the non conformity of the coke when it was handed over to Claimant, after inspection and loading and failed to disclose this fact to Claimant (Art. 40 CISG) or whether Claimant had a reasonable excuse for not duly notifying Defendant (Art. 44 CISG). Art 40 CISG applies in case the seller was acting with intent or gross negligence (see Magnus in Honsell (ed.), Kommentar zum UN-Kaufrecht, op. cit., N 4 to Art. 40 CISG; Schwenzer in Von Caemmerer/Schlechtriem, op. cit, N 4 to Art. 40 CISG even states that gross negligence is not sufficient for the applicability of Art. 40 CISG but that the lack of conformity must be obvious). If the seller uses auxiliary people for the performance of its contractual obligations, the consequences of their knowledge or grossly negligent lack of knowledge of the non-conformity have to be borne by the seller as if it had acted itself (Art. 79/2 CISG in analogy; see Magnus in Honsell (ed.), Kommentar zum UN-Kaufrecht, op. cit. N 7 to Art. 40 CISG). The doctrine has divided opinions on which party has to prove good or bad faith of the seller, respectively its auxiliary people (Schwenzer in Von Caemmerer/Schlechtriem, op. cit. N 12 to Art. 40 CISG: buyer has to prove seller's bad faith; Magnus in Honsell (ed.), Kommentar zum UN-Kaufrecht, op. cit., N 13 to Art. 40 CISG: seller has to prove its good faith).
The Arbitral Tribunal has no reasonable basis to assume that Defendant was aware of the bad quality of coke loaded onto the ship in ... Given Defendant's role as intermediary seller not having produced the coke itself one can hardly attribute gross negligence to its lack of knowledge of the real quality of the coke. Different from the manufacturer, an intermediary seller cannot casily be attested bad faith in regard to deficiencies which are not obvious (see Schwenzer in Von Caemmerer/Schlechtriem, op. cit., N 5 to Art. 40 CISG). Furthermore, while [A] should have discovered the non-contractual quality of the coke, such lack of knowledge cannot be attributed to Defendant; ... [A] acted on behalf of both Claimant and Defendant and was, therefore, not an auxiliary third party used by Defendant alone for contract performance. Art. 40 CISG is, as a consequence, not applicable in the present case.
In order to decide whether there was a reasonable excuse for not notifying the seller in due time (Art. 44 CISG) the Arbitral Tribunal has to consider the extent of the violation of the seller's duty, the importance of the loss of seller's legal remedies and the buyer's interest in prompt and exact information (see Magnus in Honsell (ed.), Kommentar zum UN-Kaufrecht, op. cit., N 7 to Art. 44 CISG). Schwenzer answers the existence of a reasonable excuse to the positive in cases where a national inspection body, based on which the buyer approves the goods and takes delivery, incorrectly examines them (see Schwenzer in V Caemmerer/Schlechtriem, op. cit., N 10 to Art. 38 CISG). The burden of proof in regard to the existence of circumstances for a reasonable excuse lies with the buyer (see Magnus in Honsell (ed.), op. cit., N 20 to Art. 44 CISG).
Claimant has sufficiently shown that it had in good faith relied on the accuracy of [A]'s certification; otherwise, it would hardly have effected payment of the purchase price. Despite of [sic] Art. 9 of the Contract, according to which [A]'s quality determination would be binding and final for both parties, such legal consequence is barred since [A]'s analysis was incorrect ... Taking into account that both parties had agreed on a neutral inspection body - thereby relieving Claimant from bearing the consequences of an incorrect examination alone - the Arbitral Tribunal concludes that Claimant's lack of due notice is to be reasonably excused in the sense of Art. 44 CISG.'
With respect to the legal consequences of failure in contractual delivery
'1. Fundamental Breach of Contract?
The question has been raised whether Defendant's failure to perform its obligation to deliver the coke in the agreed quality constitutes a so-called fundamental breach of contract.
A breach of contract is fundamental in the sense of the CISG if the damage it causes to the other party is so substantial that this other party is deprived of what it is or was entitled to expect under the contract. If, however, the party in breach, or any other reasonable person of the same kind in the same circumstances, could not have foreseen that result, the breach is not fundamental (Art. 25 CISG). While any breach of contract (even if not fundamental) entitles the aggrieved party to damages pursuant to Art. 74 CISG (Art. 45/1 CISG), the CISG provides special remedies for fundamental non-performance: the buyer may request specific performance (Art. 46/2 CISG) and has a repudiation right (Art. 49 CISG). Claimant has sufficiently shown to the Arbitral Tribunal that the Defendant caused a substantial detriment to Claimant's expectations under the Contract. The coke that Defendant had delivered to Claimant did not meet the quality specifications set forth in the Contract. In fact, the quality of the coke delivered was so low that the coke was rendered worthless to Claimant. This is a breach of the Contract by Defendant.
As to the foreseeability of detriment, Art. 25 CISG offers Defendant the possibility to submit proof for exoneration and convince the Arbitral Tribunal that Defendant had not foreseen such detriment and as a reasonable person could not have foreseen such a result, either. (Karollus in Honsell (ed), Kommentar zum UN-Kaufrecht, op. cit., N 33 to Art. 25 CISG). The Arbitral Tribunal is not convinced Defendant had not foreseen the detriment and as a reasonable person could not have foreseen such a result. However, Claimant neither requested avoidance of the Contract (Art. 49 CISG) nor specific performance (Art. 46/2 CISG) due to fundamental breach of contract. Since the remedies requested by Claimant (purchase price reduction or damages pursuant to Art. 74 CISG) do not require the breach of contract to have been fundamental the Arbitral Tribunal does not have to address the question of the foreseeability of detriment according to Art. 25 CISG in detail. At this stage it is sufficient to note that by delivering coke in a quality not conforming with the contractual stipulations, Defendant breached the Contract ...
Alternatively, Claimant requests damages to be awarded. Insofar as Defendant's non contractual delivery adequately caused Claimant to suffer a loss, such claim has to be considered (Art. 45 and Art. 74 CISG). However, taking into account that Claimant, albeit with a reasonable excuse, failed to duly notify Defendant of the coke's non-conformity, Claimant is only entitled to limited compensation, not for its loss of profit (Art. 44 CISG ...).
The amount of damages is determined by the size of the loss (excluding lost profits). However, according to Art. 74 CISG the damages may not exceed the loss which the party in breach foresaw, or should have foreseen, at the time of the conclusion of contract. lt is not the exact size of the damage, but only the possibility of such damage which must be foreseeable (Stoll in V Caemmerer/Schlechtriem, op. cit., N 37 to Art. 74 CISG). The foreseeable damage must be assessed in light of the facts which the party in breach knew (subjective assessment) or ought to have known (objective assessment). What is relevant is what in that sector of trade normally could have been foreseen, taking into account the information the contracting party had at its disposal. As to whether the loss was a foreseeable result of the breach of contract, the burden of proof lies with the party claiming damages (Stoll in V Caemmerer/ Schlechtriem, op. cit. N 45 to Art. 74 CISG). Based on the established circumstances, the Arbitral Tribunal has to consider whether they allow the conclusion that any reasonable person of the same kind and under the same circumstances as the seller could have foreseen the possibility of damage (Schönle in Honsell (ed.), Kommentar zum UN-Kaufrecht, op. cit., N 34 in Art. 74 CISG).
The party claiming damages has an obligation to mitigate the loss (Art. 77 CISG), else it loses its right to damages. Whether the claiming party has complied with this duty has to be considered by the Arbitral Tribunal ex officio, whereby the burden of proof for the fact that a loss could have been avoided lies with the party owing damages (Stoll in V Caemmerer/Schlechtriem, op. cit., N 12 to Art. 77 CISG).
Since the Arbitral Tribunal does not have to take into account Claimant's alleged loss of profit, the assessment of damages, its foreseeability as well as the question whether Claimant accurately mitigated its loss can be limited to the financial detriment actually occurred. These issues will be dealt with in the following Section.'
With respect to the assessment of Claimant's damages
'1. In General
Claimant apparently was planning to resell the coke purchased under the Contract. Since due to the bad quality of the coke this could not be achieved, Claimant had to find another way to dispose of the coke and decided to resell it after blending it with additionally purchased coke of higher quality. The whole transaction resulted in a loss as the costs for the purchase of the coke from Defendant plus the costs for the additionally purchased coke plus further expenses (for storage, blending, screening, and so on) exceeded the proceeds from the sale of the (blended) coke.
Defendant generally contests Claimant's damage calculation by stating that it is "entitled to strict and proper proof of all aspects of damages". True, the party claiming damages must substantiate and strictly prove the existence and exact amount of its damage. In this respect, the Swiss Federal Supreme Court has repeatedly commented that the submitted documents must contain enough information in order to conclude, with a certain persuasiveness, on the actual occurrence of damage (Decisions of the Swiss Federal Supreme Court BGE 122 III 222, 98 II 34). Documentary evidence serves as strict evidence, if the documents do not contradict themselves and (at least) allow the Arbitral Tribunal to believe that the facts to be proven, i.e. existence and amount of a loss, are true. To the extent that Claimant's damage calculation is in compliance with these principles it will be admitted by the Arbitral Tribunal ...
Claimant is asking to recover its damage in USD based on the argument that the purchase price was paid in this currency. Defendant objects and requests, that (proven) damages should be calculated in DM as the Claimant is a German Company. In principle, damages are to be paid in the currency in which the damage occurred, unless the claiming party proves that reimbursement of this currency would not fully recover the losses suffered (Stoll in V Caemmerer/Schlechtriem, op. cit., N 10 to Art. 74 CISG). Consequently, Claimant who brings forward neither sufficient assertions nor evidence in this respect, is entitled to compensation of (proven) damage in the currency in which the specific loss occurred.
... Claimant must prove the foreseeability of the damage as a result of its non-compliance with the Contract at the time of entering into the Contract. Absent of strict proof that Defendant foresaw that the non-contractual delivery of the coke could possibly lead to a loss resulting from the transaction of selling the (blended) coke, the Arbitral Tribunal has to decide whether the damage was foreseeable taking into account the facts which Defendant knew (subjective assessment) or ought to have known (objective assessment). In the event of the objective assessment of the foreseeability it is relevant whether any reasonable person of the same kind and under the same circumstances as Defendant could have foreseen the possibility of the damage in the amount claimed.
Claimant does not prove that Defendant actually foresaw the possibility of damage. As rightly argued by Defendant, Claimant's argument that the purchase price mechanism set forth in Art. 4 of the Contract demonstrates that losses in the amount of the purchase price must have been foreseen (or foreseeable) by Defendant, is of no help, since the Contract did not provide for a reduction to zero ... However, the Arbitral Tribunal finds that Claimant has sufficiently shown that damage resulting from selling of the (blended) coke, is a foreseeable consequence of non-contractual delivery of the coke.
Even if the Arbitral Tribunal is not convinced that Defendant actually foresaw the losses claimed, the Arbitral Tribunal is of the opinion that Defendant at least ought to have foreseen them in the light of an objective assessment: Any reasonable person in Defendant's Position would have foreseen the possibility of a damage, i.e. that a loss would result from the non delivery of the coke or its disposal, respectively. (...)
3. Loss Mitigation
Defendant has to prove that Claimant failed to comply with its obligation to mitigate its loss pursuant to Art. 77 CISG… However, Defendant by just generally arguing that it does not deem appropriate the procedure of reselling the (blended) coke, without offering any evidence whatsoever in order to support this argument, fails to sufficiently substantiate, let alone prove, its allegation.
Consequently, since Defendant did not show any facts which would support that Claimant's loss could have been - partially - avoided (e.g. by reference to a less expensive way of disposing of the coke) the Arbitral Tribunal concludes that Claimant's way of disposing of the delivered coke which could not have been sold otherwise was accurate. Absent of any proof to the contrary; the Arbitral Tribunal, therefore, finds that Claimant did not violate its obligation to mitigate its damage. (...)
According to Art. 78 CISG, interest is owed if a party fails to pay the price or for any other sum that the party is in arrears with. Neither the CISG not the CO indicates whether interest is owed on damages. Legal writers are controversial, but the majority of writers answer in the affirmative and would grant the creditor of damages interest calculated from the date of occurrence of the damage (Stoll in V Caemmerer/Schlechtriem, op. cit. N 15 to Art. 78 CISG).
Damage arose when the respective payments were actually made. In principle, from those points in time (and not from the date of the payment of the purchase price as contended by Claimant) interest began to accrue. However, since Claimant fails to submit a detailed interest calculation based on the respective dates, the Arbitral Tribunal deems it appropriate to award interest as of the date when Claimant filed its Request ... This takes into consideration that, while some parts of the losses ... occurred prior to that date, other relevant payments ... had to be effected only at a later stage.
As to the rate of interest, Art. 78 CISG is silent. Therefore, national law is supplementarily applicable (Stoll in V Caemmerer/Schlechtriem, op. cit., N 21, 26 to Art. 78 CISG). Swiss law provides that if and as long as the customary bank discount exceeds 5% at the place of payment, the interest rate between business people may be charged at such higher rate (Art. 104/3 CO). The burden of proof for such higher rate during the entire period for which interest is claimed lies with the claiming party.
Claimant has made no argument for a higher rate short of a reference to exhibits. This reference is not sufficient since the documents submitted fail to prove that the customary discount for USD exceeded 5% between ... and today. As a consequence, the Arbitral Tribunal applies the legal rate of 5%.}}
Published in English (excerpt):
ICC International Court of Arbitration Bulletin, Vol.11, n.2, 2000, 93-103.}}