Data

Date:: 24-06-2016
Country:: Republic of Korea
Number:
Court:: Seoul Central District Court
Parties:: --

Keywords

SCOPE OF CONVENTION - PROPERTY IN GOODS SOLD NOT COVERED (ART. 4(b) CISG)

TERMINATION OF CONTRACT FOR FUNDAMENTAL BREACH BY BUYER (ARTS. 64(1)(A) AND 25 CISG)

Abstract

[CLOUT case no. 2249. Abstract prepared by Haemin Lee and Seonhwa Kim, national correspondents]

The plaintiff is a public corporation established in Beijing, China. Company B, for which the defendant was appointed as custodian, is a Korean corporation established for the purpose of selling mechanical parts and components. On 27 November 2014, the plaintiff and Company B entered into a contract under which the plaintiff would sell 22,050 metric tons of prime hot rolled steel sheet in coil to Company B. Under the contract, the payment for the steel would be made by Company B’s opening of an irrevocable letter of credit for the plaintiff within three (3) business days of signing the contract.
Company B initially could not receive some of the shipment, as it was unable to open a letter of credit within the agreed time frame. When it later opened letters of credit for part of the shipment, it accordingly received and paid for some of the steel.
However, it did not open letters of credit or make payment for the remaining 11,608.44 metric tons of steel, which remained in bonded storage at the port.
On 18 September 2015, the plaintiff notified Company B that the sales contract was avoided on the ground that Company B breached its duty to make payment under the instant sales contract in exchange for the delivery of steel raw materials. Subsequently, the plaintiff initiated action seeking a judicial declaration that the ownership of the undelivered portion of the shipment belonged to the plaintiff.

The Court held that the United Nations Convention on Contracts for the International Sale of Goods (CISG) was applicable, as both the plaintiff and the defendants maintained their places of business in States that are parties to the Convention. Accordingly, the formation and validity of the contract were governed primarily by the provisions of the CISG.

The Court further observed that, in respect of matters not expressly settled by the CISG, recourse would be had to the supplementary application of the domestic law of the Republic of Korea.
The court determined as follows: (a) Company B not only failed to perform its duty to open a letter of credit under the agreed-upon conditions of the instant sales contract but also filed for the commencement of the instant rehabilitation proceedings, which further indicated its financial distress and inability to fulfill its contractual obligations;
(b) therefore, at least with respect to the portion of the shipment that had yet to be received by opening a letter of credit, Company B’s conduct constituted a fundamental breach of contract under Art. 25 of the CISG, as it substantially deprived the plaintiff of its contractual expectations; and thus, (c) the plaintiff was entitled to declare the contract avoided pursuant to the relevant articles of the CISG (arts. 64(1)(a) and 73(1)).

As to the attribution of ownership of the goods sold after the notification of contract
avoidance, the court determined as follows: (a) under article 4(b) of the CISG, the Convention only regulates the formation of the contract of sale and the rights and obligations of the seller and the buyer arising from such a contract, without regulating the effect which the contract may have on the property in the goods sold; (b) as such, the attribution of ownership of the object of contract as a result of the avoidance of the instant sales contract shall be governed by the general legal doctrines of civil law and commercial law; and (c) applying these legal doctrines, the ownership of the contractual object after the avoidance of contract belonged to the plaintiff.

Fulltext

}}

Source

CASE LAW ON UNCITRAL TEXTS (CLOUT) (http://www.uncitral.org/uncitral/en/case_law.html) A/CN.9/SER.C/ABSTRACTS/CISG/2249}}