- Arbitral Award
- ICC Court of Arbitration - Paris
APPLICATION OF CISG - RULES OF PRIVATE INTERNATIONAL LAW REFERRING TO LAW OF CONTRACTING STATE (ART. 1(1)(B) CISG)
PAYMENT OF PRICE - BUYER'S OBLIGATION TO TAKE ALL MEASURES AND COMPLY WITH ALL CONTRACTUAL AND LEGAL FORMALITIES (ART. 54 CISG) - OPENING OF DOCUMENTARY CREDIT
AVOIDANCE OF CONTRACT - SELLER'S RIGHT WHERE BUYER FAILS TO PAY WITHIN ADDITIONAL TIME (ART. 64(1) CISG) - NOTICE OF DECLARATION OF AVOIDANCE (ART 26 CISG)
FORCE MAJEURE (ART. 79 CISG) - SUSPENSION OF PAYMENT OF FOREIGN DEBTS
PENALTY CLAUSE - MATTER NOT COVERED BY CISG - RECOURSE TO DOMESTIC LAW (ART. 7(2) CISG) - AUSTRIAN LAW APPLICABLE
INTEREST (ART. 78 CISG) - INTEREST RATE DETERMINED BY LAW OF CREDITOR'S COUNTRY - AVERAGE BANK LENDING RATE
PRESERVATION OF GOODS - SELLER'S RIGHT TO RECOVER EXPENSES
PASSING OF RISK (ART. 69 CISG) - EXCLUDED IF SELLER DOES NOT DELIVER THE GOODS NOR PLACE THEM AT THE DISPOSAL OF THE BUYER
In 1990 an Austrian seller and a Bulgarian buyer concluded a contract for the sale of goods produced by the former. The parties agreed that the price had to be paid by documentary credit to be opened before a certain date and that the goods had to be delivered 'DAF' (ICC-INCOTERM 'Delivered at Frontier') at the Austrian-Hungarian border four weeks after the opening of the documentary credit. The contract contained a penalty clause whereby damages were limited to X% of the price in case of non-performance by either party.
The seller commenced arbitration proceedings against the buyer alleging that the buyer did not perform its obligation to open the documentary credit either within the time fixed in the contract or within the additional period of time granted by the seller. The seller, who had to deposit the goods in order to preserve them, claimed performance of the contract as well as damages. The buyer alleged that it could not have opened the documentary credit as the Bulgarian Government had ordered the suspension of payment of foreign debts.
The court held that the contract was governed by the CISG as both the Austrian and Bulgarian private international law rules led to the law of Austria, a contracting State (Art. 1(1)(b) CISG).
The court observed that in accordance with Art. 54 CISG the obligation of the buyer to pay the price involves the obligation to take all measures and comply with all contractual and legal formalities required for payment of the price, such as the opening of a documentary credit or a bank guarantee or even the authorization to transfer currency.
The court ordered that the buyer perform the contract (Arts. 61(1)(a) and 62 CISG). Obiter, the court observed that as the buyer had failed to perform its obligation within the additional period of time fixed by the seller, the seller would have been entitled to avoid the contract under Art. 64(1)(b) CISG only if it had declared its intention to do so and had given notice to the buyer pursuant to Art. 26 CISG.
The court awarded to the seller damages pursuant to Arts. 74 ff. CISG. It held that the suspension of payment of foreign debts ordered by the Bulgarian Government was not a case of 'force majeure' which prevented the buyer from opening the documentary credit. In fact, the buyer did not prove that the failure to open the documentary credit was a consequence of such suspension; in any case, the suspension had already been declared at the time of the conclusion of the contract and therefore the buyer could reasonably have foreseen the difficulties in opening the documentary credit (Art. 79(1) CISG).
In the court's opinion, as CISG does not contain any provision concerning penalty clauses, Austrian law had to be applied pursuant to Art. 7(2) CISG. Applying Austrian law, the court held that the seller had the right to recover all damages suffered notwithstanding the limit fixed by the penalty clause.
As CISG does not expressly specify the rate of interest payable, the court referred to Austrian law as the law of the creditor's place of business. Although the Austrian statutory rate was 5%, the court awarded additional damages in the form of interest to the seller and the interest finally awarded was 12% being the commercial bank rate in Austria.
The court pursuant to Art. 74 CISG awarded to the seller the expenses it had incurred in the deposit of the goods. Nevertheless the court held that the buyer was not liable for the damages to the goods due to the prolonged deposit period because the risk in respect of the goods had not passed to the buyer as the seller neither delivered the goods nor placed them at the disposal of the buyer (Art. 69 CISG).
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Original in German:
Published in French (trans.):
- Journal du Droit International, 1993, 1028-1037
Commented on by:
- D. Hascher, Journal du Droit International, 1993, 1037-1040}}