- Republic of Korea
- Seoul Central District Court
BUYER'S FAILURE TO OPEN L/C- AMOUNTING TO FUNDAMENTAL BREACH OF CONTRACT (ARTS. 25, 53 & 54 CISG) - BUYER'S RIGHT TO DECLARE CONTRACT TERMINATED (AVOIDED) (ARTS. 61 & 64 CISG)
DAMAGES (ART. 74 CISG) - SUBSTITUTE TRANSACTION - DIFFERENCE BETWEEN CONTRACT PRICE AND PRICE IN THE SUBSTITUTE TRANSACTION (ART. 75 CISG)
[CLOUT abstract no. 1283; abstract prepared by Haemin Lee, National Correspondent]
The plaintiff, a Singaporean company, and the defendant, a Korean company, concluded a contract of sale on 1 March 2004 under which the former agreed to supply the defendant with crude oil in exchange for the defendant’s opening a letter of credit (L/C) by a given date. When the defendant failed to perform its obligation, the plaintiff declared the contract avoided. Soon after, it resold the oil to a third party and suffered a loss.
The court stated that the CISG was applicable since the parties had their place of business in two different contracting States to the Convention.
Referring to Articles 53 and 54 CISG, the court noted that the defendant’s failure to open a L/C constituted a fundamental breach of contract because the defendant did not comply with the obligation required under the contract. The plaintiff thus was entitled to declare the contract avoided pursuant to Articles 61(1) and 64(1) CISG.
Since the plaintiff had to resell the crude oil to another buyer at a lower price, and considering the provisions of the second contract and the storage condition inherent to crude oil, the court stated that the defendant foresaw or ought to have foreseen at the time of the conclusion of the contract that its failure to perform would lead the plaintiff to pay extra charges for the storage of the crude oil as a possible consequence (Art. 74 CISG). Therefore, the defendant must compensate the plaintiff for the difference between the contract price and the price in the substitute transaction and the extra payment for the storage (Art. 75 CISG).
The court rejected the defendant’s claim for a reduction of the damages under Article 77 of the Convention, because the defendant had failed to prove that the plaintiff had not taken any reasonable measure to mitigate the damages.
Original in Korean:
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