- Tribunal Supremo
- InTraVal S.L. v. Econ Industries GmbH
SUPPLY CONTRACT FOR GOODS TO BE MANUFACTURED OR PRODUCED – BETWEEN A SPANISH SELLER AND A GERMAN BUYER - COVERED BY CISG (ART. 3(1) CISG)
LIMITATION PERIODS (PRESCRIPTION) - MATTER EXCLUDED FROM THE SCOPE OF CISG (ART. 4 CISG) - REFERENCE BY PARTY TO THE UNIDROIT PRINCIPLES AS A MEANS TO SUPPLEMENT THE CONVENTION - APPLICATION EXCLUDED BECAUSE THE UNIDROIT PRINCIPLES HAVE NO BINDING NORMATIVE FORCE AND ABSENT A CHOICE OF THE PARTIES IN THIS SENSE - DOMESTIC LAW APPLIED
A Spanish seller and a German buyer concluded a contract for the production of a thermal desorption unit to be installed at a waste treatment plant in the UK. The contract provided, inter alia, for a preliminary test to be carried out by an independent certification company, which revealed that the machinery did not satisfy the agreed performance level. As a result, the buyer filed a claim against the seller in which it sought termination of the contract, reimbursement of the price, and compensation for damages.
The Court of first instance upheld the buyer’s claim, while the Court of Appeal overturned the lower decision reasoning that the notice of lack of conformity was untimely under Art. 39 CISG and that the action was time-barred. The case was brought before the Supreme Court.
As to the applicable law, the Supreme Court found that the contract was governed by CISG because both parties had their places of business in different States that were parties to the Convention (Art. 1(1)(a) CISG), and they had not excluded its application. Furthermore, the Court found that the contract fell within the scope of Art. 3 CISG, being it a contract for goods to be manufactured or produced (Art. 3(1)), and in which the additional installation services to be provided by the seller do not constitute the preponderant part of the seller’s obligations (Art. 3(2) CISG). Also, the Court determined that, by the rules of private international law of the forum, the domestic law applicable for resolving matters outside the scope of the Convention was German law.
As the merits, the Supreme Court considered that the letter giving notice of the lack of conformity had not been sent to the seller within a reasonable time, as provided for in Art. 39(1) CISG, and therefore the buyer had lost its right to terminate the contract. In so doing, the Court recalled that, as confirmed by international case law retrievable in dedicated databases, in determining what is to be considered ‘reasonable time’, several factors had to be taken into account, like, for instance, the nature of the goods, whether the defect is apparent or hidden, trade practices established between the parties and usages.
Additionally, the Court established that the buyer waited more than one year and seven months before informing the seller of its intention to terminate the contract, even though, after the examination by the independent expert, it was able to assess whether the revealed defects constituted a ground for termination of the contract. Hence, the notice of termination was to be considered untimely under Art. 49 CISG.
Finally, the Court pointed out that, although there was no need to address the issue of whether the action was time-barred as the violation of Arts. 39 and 49 CISG was sufficient ground for the buyer’s claim to be rejected, the matter of prescription, where relevant, would have been settled under German law. Indeed, if it is true that the 1974 New York Convention on Limitation Periods governs the matter of prescription in contracts for the international sales of goods, however, this text was not applicable in the present case, since neither Spain nor Germany is a party to it. Nor could the Unidroit Principles of International Commercial Contracts apply as a means to supplement the Convention, as contended by the buyer, because the Principles are devoid of binding normative force. Therefore, the Court observed, they can only apply where the parties to the contract or the adjudicating body have so decided, and such choice is recognized or permitted by the relevant legal framework.