Source: http://cisgw3.law.pace.edu/cases/999083i1.html
Timestamp: 2019-04-18 10:36:27+00:00

Document:
The claimant (the seller) entered into contract with the respondent (the buyer) to print and supply books to be resold to supermarkets and cut-price bookshops. The seller delivered the books in four instalments. About thirty-three days after the fourth instalment the buyer informed the seller that it would not pay, alleging discrepancies between the quantities delivered and those agreed upon and delay in the delivery of the books and the restitution of the films used for printing. The buyer argued that it was contractually entitled to compensation from the seller, which should be used to offset against the seller's claim. The seller brought suit before the Arbitral Tribunal sitting in Vienna, which determined that Austrian law was to be applied in accordance with the printing contract.
The Tribunal held the CISG applicable to the dispute as the parties had chosen Austrian law to govern the contract and the CISG is part of Austria's legal system. The printing contract was considered a sales contract as it related to goods to be produced and delivered by the seller (Article 3).
On the substance of the dispute, the tribunal noted that pursuant to Article 38 CISG, the buyer has a duty to examine the goods, or cause them to be examined within as short a time as practicable under the circumstances. Pursuant to Article 39 CISG, the buyer also has a duty to provide notice to the seller specifying the nature of the lack of conformity within a reasonable time after he has discovered or ought to have discovered the defect. Under the circumstance, the tribunal held that the buyer did not comply with either Articles 38 or 39 CISG nor did it offer any evidence to establish a reasonable excuse pursuant to Article 44. Thus the buyer was not able to avail himself of the remedies of article 45 CISG. The tribunal commented on the Supreme Court of Austria's decision that fourteen days is a reasonable time for an overall inspection and complaint when there are no special circumstances in support of a reduction or extension. In this case, the buyer did not notify the seller of the discrepancies in quantity until 3 July 1995, more than a month after the last instalment, 31 May 1995. No special circumstances or reasonable excuses were alleged by the buyer.
The Tribunal also considered whether the buyer could benefit from article 40 CISG, which prevents the seller from relying on Articles 38 and 39 where the lack of conformity relates to facts of which the seller knew or could not have been unaware and did not disclose to the buyer. Here, for the two deliveries of March 1995 and 17 April 1995, the seller disclosed the shortages in its accompanying invoices; thus, Article 40 was inapplicable.
The Tribunal also considered whether the shipment of 27 April 1995, in which the seller made up for the deficiencies in the two prior shipments by sending more than the contracted quantity would allow the buyer to avail itself of Article 40. The issue presented was whether delivery shortages in the small proportions as here, which are made up for in later deliveries within the overall delivery period, may be deemed not to be in conformity with the contract. The Tribunal denied the non-conformity of such a temporary shortage because the contract did not contain provisions for quantity discrepancies. If the buyer wanted a literal application of the contract then it should have informed the seller of its objection upon the first insufficient or excessive delivery. Since no such complaints were made, the seller was reasonable in assuming that it had complied with the contract and the buyer has no claims for deficiency or delay. The tribunal also stated that trading practices must be taken into consideration when interpreting the contract. The tribunal noted that up to 5 per cent of discrepancies are to be tolerated by the contractual partners especially when the difference is made up within the overall delivery time by subsequent deliveries.
APPLICATION OF CISG: Yes. In choosing Austrian law the parties thereby also chose the CISG, which is part of that legal system.
Facts. This dispute arose out of a printing and supply contract. The Claimant [seller] agreed to print and supply the Defendant [buyer] with books to be resold to supermarkets and cut-price bookshops. Delivery was made, however the [buyer] refused to make payment for the goods, citing discrepancies between the quantity of goods delivered as compared with the contract amount, delay in the shipment and deficiency in the restitution of the films used for the printing. As such, [buyer] argued that it was entitled to compensation for the [seller] to offset any amount owed to the [seller] by the [purchaser].
Applicable law; Choice of law. The Arbitrator determined that Austrian substantive law is to be applied. This decision was based on Art. 6(1) of the ICC Rules of Arbitration, according to which the arbitration rules in effect at the commencement of the arbitral proceedings will apply, unless the parties agree otherwise in the contract.
With respect to the alleged discrepancies in the quantities delivered.
4.1. "The printing assignment at issue, whereby, upon [buyer]'s order, [seller] mass-produced movable goods in bulk (books) using means which it provided, should be described as a sales contract within the meaning of �377 Handelsgesetzbuch (HGB) [Austrian Commercial Code], Art. 1 CISG. There is no need to examine whether the material or labor aspect is predominant.
The Arbitrator determined that the above provision also pertains to the quantity of goods delivered, so long as the goods delivered do not so obviously differ from those ordered such that the [seller] should have known of the deficiency. Thus, the inspection must take place immediately and, if such inspection reveals a deficiency, notice must also be immediate. This notice must substantiate the deficiency and, in the case of a discrepancy in quantity, must denote the missing amount. Failure to do so results in the loss of the [buyer]'s rights to recover for the deficiency and thus all damages from same are excluded.
4.2. The CISG governs contracts for the sale of movable goods between parties residing in different Contracting States. In this matter, both the parties resided in States that have adopted the Convention [Contracting States]. Furthermore, Austria, the State whose law the Arbitrator determined to apply, also is a Contracting State.
Examination of goods; Lack of conformity notice, timeliness. Pursuant to Art. 38 CISG, the [buyer] is obligated to examine the goods, or cause them to be examined, within as short a time as practicable. If the contract requires carriage of the goods, such examination may be deferred until after the arrival at the destination. Further, if the goods are to be re-dispatched while in transit, the examination can be deferred until their arrival at the new destination. The [buyer] loses its rights to recover for discrepancies or deficiencies, pursuant to Art. 39 CISG if it does not give notice of the deficiency to the [seller] within a reasonable time of discovering same or when the deficiency should have been discovered. Should the [buyer] be able to establish a reasonable excuse for the lack of notice, however, Art. 44 CISG allows it to do so.
In the instant matter, the [buyer] did not comply with either Articles 38 or 39 CISG nor did it offer any evidence to establish a reasonable excuse pursuant to Art. 44 CISG. Thus, the [buyer] lost all legal remedies available to it pursuant to Art. 45 CISG, which includes all those rights included in Articles 46 to 52 CISG (performance, cancellation of the contract, price reduction) and damages pursuant to Articles 74 to 77.
4.3. In the instant matter, inspection by the [buyer] needed to be completed once the goods were deposited with the firm, which the [buyer] fully entrusted with its obligation to inspect the goods. According to the record, the auxiliary inspected the goods for quality and quantity and forwarded this to the [buyer].
Under the CISG, the "reasonable" time for inspection and complaints is longer than that of �377 HGB ("immediately"). The "reasonable" time is determined by the objective and subjective circumstances of each case, although it is specified as eight days to one month in Caemmerer/Schlechtriem (op. cit. no. 17 re Art. 39). In Schwimann (no. 4 re Art. 39), a complaint of more than six weeks is said to be too late.
"In Honsell (Kommentar zum UN-Kaufrecht, no. 21 re Art. 39), a time limit of one week is given for notification and a period of fourteen days indicated for the overall time limit for inspection and notification. The Supreme Court of Austria (15 October 1998, 2 Ob 1919/98x, RdW 1999, 139 et seq. [<http://cisgw3.law.pace.edu/cases/981015a3.html>]) has come to the same conclusion. In its view, 'an overall inspection and complaints time limit of fourteen days [is] to be considered as reasonable, when there are no special circumstances in support of a reduction or extension.'" [page 80] No such circumstances were established in this matter.
4.5. The initial complaint over the shortages in the quantities did not occur until a written document dated 3 July 1995 with attachments dated 15 June 1995. This constituted a period of 2-3 months after which a complaint could be made. The complaint did not even occur within a reasonable time of the last delivery of 31 May 1995 by which time the missing quantities had been more than made up. Thus, the complaints obligation of the [buyer] has been violated and thus it has lost its rights to claim damages due to an insufficient quantity.
Lack of conformity known to seller. Art. 40 CISG relieves the [purchaser] of the complaints obligation where the seller did not disclose to the [purchaser] a non-conformity of which it was aware or could "not have been unaware". In the deliveries of 30 March 1995 and 17 April 1995, however, the [seller] unequivocally advised the [buyer] of the discrepancy in quantities in the invoices. Thus, the complaint obligation was preserved.
4.6. It remained to be seen whether the shipment of 27 April 1995, in which the [seller] made up for the temporary deficiencies in the two prior shipments and sent more than the contracted quantity will allow the [purchaser] to avail itself of the Art. 40 CISG protection. The issue presented was whether temporary shortages which are made up in later shipments constitutes a non-conformity with the contract. The Arbitrator determined that it did not.
Intent. The contract did not provide special explicit provision regarding quantity discrepancies in partial deliveries. Nor is there any evidence that an oral or written rider to this effect was agreed upon by the parties.
The facts presented revealed that the [buyer] had accepted shipments which included both excessive and insufficient quantities of books. Nonetheless, these shipments were accepted. As such, the [seller] was entirely reasonable in determining that it was in compliance with the contract.
Usages and practices. Likewise, the Arbitrator concluded that such practice was common in the shipping industry. Shipments cannot always consist of an equal number of goods being shipped with each shipment. The ability to ship goods depends on the space available and the manner in which such goods are loaded. Where, in this case, the total shipment consists of several partial shipments, where the total number of goods balances itself out in the end, then there cannot be a claim for non-conformity. Thus, the [buyer] has no claims for deficiencies.
* Daniel J. Morse is a member of the New York Bar. He is associated with the law firm Hardin, Kundla, McKeon, Poletto & Polifroni.
** Pagination is to publication of the case text at ICC International Court of Arbitration Bulletin, Vol. 11/No. 2 (Fall 2000) 78-82.

References: Art. 6
 Art. 1
 Art. 38
 Art. 39
 Art. 44
 Art. 44
 Art. 45
 Art. 39
 Art. 39
 Art. 39
 Art. 40
 Art. 40