Source: http://cisgw3.law.pace.edu/cases/960321g1.html
Timestamp: 2019-04-19 15:17:34+00:00

Document:
The Hong Kong seller and the German buyer concluded a "basic agreement" for the exclusive supply of certain goods made in PR China. One of the contracts concluded under the basic agreement provided that the goods be paid for in advance before delivery (Vorkasse clause). Although the German buyer duly paid under the contract, the Hong Kong seller refused to deliver the goods unless the buyer paid certain outstanding debts under previous contracts.
The German buyer terminated the contract, whereupon the Hong Kong seller commenced arbitration proceedings under the Arbitration Rules of the Hamburg Chamber of Commerce. The German buyer filed a counterclaim for damages both under the individual contract and the basic agreement. In the partial award the arbitrators found that, while the seller's claim to the contractual price was undisputed, the buyer's counterclaim for damages caused by the seller's failure to perform under the single contract should also be [page 35] granted. They denied the counterclaim, however, with respect to the failure to perform under the basic agreement. In the final award the arbitrators held that they could grant compensation for extrajudicial costs (counsel's fees), based on a "supplemental" (ergänzender)  interpretation of the contract.
 "The claim is partly founded. The applicable law must be determined according to German private international law. A choice of German law can be inferred, according to Art. 27 of the Introductory Law to the Civil Code (EGBGB), from the agreement to refer disputes to a German arbitral tribunal.
 "The seller's claim to the contractual price according to Art. 53 CISG  is undisputed. As to the counterclaim/set-off by the buyer for damage caused by [the seller's] failure to perform after the termination of the contractual relationship, we must make a distinction between the damages for failure to perform under the individual contract and the damages under the basic agreement."
 "The buyer is entitled to set off [the claim] with the damage caused by [the seller's] failure to perform under the individual contract, based on Art. 45 in conjunction with Art. 74 CISG. Art. 45(1) CISG provides that, if the seller does not perform, the buyer can, inter alia, declare the contract avoided according to Art. 49 and claim damages according to Art. 74 CISG. According to Art. 45(2), these rights can be exercised jointly or subsequently. According to Art. 49(1)(b) CISG, the buyer may declare the contract avoided if the seller does not deliver the goods within the period of time fixed under Art. 47(1) CISG, or when he declares that he will not deliver within the period so fixed or only at certain conditions (e.g., an additional consideration) or not at all.
 "Refusal to perform is also unjustified when the seller, where prepayment has been agreed upon and after it has been made, makes delivery conditional upon the payment of outstanding debts under previous deliveries. In the absence of an agreement to the contrary, an agreement for pre-payment must generally - also in international commerce, see Art. 8 CISG  - be [page 37] understood to mean that performance is conditional upon pre-payment, with no need to pay sums due under other contracts first.
 "The consequent termination of the individual contract is therefore justified and must be seen as a case of the buyer giving notice to the seller of the declaration of avoidance of their contractual relationship under Art. 26 CISG.
 "Where, as here, the contract is terminated and damages for failure to perform are claimed under Art. 74 CISG et seq., one uniform right to damages comes into existence, which can be compared to the right to damages for nonperformance under German law and prevails over the consequences of the termination of a contract provided for in Arts. 81-84 CISG.
 "According to Art. 74 CISG, first sentence, the damages for breach of contract by one party consist of a sum equal to the loss effectively suffered by the other party as a consequence of the breach of contract, including loss of profit. The latter can be determined here on the basis of the price difference with the actual sale. The tribunal does not consider in its evaluation the further discount by the seller or transport and related costs, which would have been incurred if performance under the contract had taken place. National law, including the tribunal's power to evaluate [damages], laid down in Sect. 287 ZPO, applies to the determination of the damages.
 "Further, the arbitral tribunal assumes in its discretion (Sect. 287 ZPO) that these damages do not exceed the loss which the party in breach, the seller, foresaw or at least ought to have foreseen at the time of the conclusion of the contract, according to Art. 74 CISG, second sentence, since the parties agreed on price provisions and extensively corresponded on the supply problem. This concrete determination of the damages prevails over an abstract calculation made on the basis of market prices according to Art. 76 CISG.
 "In particular, the claim for damages is not excluded under Art. 79 CISG. According to Art. 79(1) CISG, the seller is not liable for a failure to perform any of his obligations if he proves that the failure was due to an impediment beyond his control and that he could not reasonably be expected to have taken the impediment into account at the time of the conclusion of the contract, or to have avoided or overcome it or its consequences. The sub-supplier (the Chinese manufacturer) could only guarantee the continuation of its activity and thereby the supply of goods to the seller on the condition of the immediate availability of a considerable amount of cash. But this is not an 'impediment beyond the control' of the seller.
 "It is true that the seller does not answer for the manufacturer or sub-supplier in the same measure as he does for a sub-contractor and his own staff under Art. 79(2) CISG. Still, the financial straits of the manufacturer and its need for cash are not an unmanageable risk or a totally exceptional event, such as force majeure, economic impossibility or excessive onerousness. Rather, the risk related to the supply is to be borne by the seller, also if the circumstances become more onerous. Further, he must guarantee his financial capability to perform, an aspect which belongs typically to the sphere of responsibility of the debtor. The seller is not freed from his responsibility as to his financial capability to perform even where he loses the necessary means because of subsequent, unforeseeable events. The same applies to the cash difficulties in the relationship with the Chinese sub-supplier, as a consequence of the withdrawal of [the sub-supplier's] State credit under pressure from the Government. Nor is it relevant whether the seller was surprised by the buyer's failure to pay the debts due under the previous deliveries, or whether the seller, who insofar as he has to submit the facts to substantiate his claim, complied with his duty to make enquiries in good time when the conclusion of the contract was being prepared. Only the apportionment of the risk in the contract is relevant here, which apportionment is made clear by the pre-payment agreement. Because of the agreement for pre-payment, the failure of the buyer to pay his previous debts [page 39] is irrelevant also as far as the question of the cause of the buyer's failure to perform according to Art. 80 CISG  is concerned"
 "The counterclaim for damages caused by failure to perform under the basic agreement, submitted by the buyer in addition to the claim for damages under the individual contract, is not founded.
 "The arbitral tribunal does not examine the question whether the basic agreement is a sales contract in the sense of Art. 4 CISG, first sentence, in the shape of a contract for the delivery of goods by instalments in the sense of Art. 73(1) CISG, which 'provides for the successive delivery of goods'. A contract for the delivery of goods by instalments connects the individual instalments and regulates the obligation to deliver the individual instalments; if not in such a concrete manner as in the case of partial deliveries in the sense of Art. 51 CISG, but anyway individual instalments of a total quantity stipulated in the contract.
 "Basic agreements must be distinguished from commercial law contracts for the delivery of goods by instalments. Basic agreements regulate, as here, a long-term cooperation, including exclusive representation, sole distribution or supply with no exact quantitative definition of the obligation, and have the nature of a long-term obligation. Thus, in the case of problems in the [page 40] performance, they can reasonably be terminated only ex nunc. Some authors see them as contracts for the delivery of goods by instalments under Art. 73 CISG, if at least a supply according to need has been agreed upon - Art. 33 CISG.
 "Further, the tribunal leaves open the question whether there were, if Art. 73 CISG applies, 'good grounds to conclude that a fundamental breach of contract will occur with respect to future instalments', which justified the buyer's termination of the basic agreement. [The tribunal does not answer this question] because, even if 'good grounds' existed, the buyer has no claim to damages because of the breach of the basic agreement. The damages caused to the buyer by the termination of the relationship with the seller did not occur 'as a consequence of the breach' by the seller in the sense of Art. 74. In order to apportion the responsibilities [between the parties], their mutual relationship must be taken into account; thus, also the unjustified withholding by the buyer of the payment of sale prices due for months. Thereby, the buyer at the least took the behavior of the seller into account at the time of the termination of the relationship. A timeous payment would have largely solved the supplier's cash problem and thus probably eliminated the imminent danger of serious personal consequence for the manufacturer's manager.
 "The argument of the buyer that he withheld payment of the sale prices as a guarantee against risk is unconvincing. In comparison to the risk of the seller, the risk of the buyer related to the payment of the sale prices was limited. He had received the goods and further had the opportunity to test them and, if necessary, to rely on the guarantee.
 "For the rest, the apportionment of damages according to Art. 74 CISG is not to be judged differently from national law, which law can be applied [page 41] subsidiarily, under Art. 7 CISG, in the absence of more detailed supranational provisions.
 "It is true that in German private law, in the case of the termination of a long-term relationship on serious grounds, according to the legal principles of Sects. 326, 626 and 628 Civil Code, the damage caused by the termination (failure to perform) can in principle be asserted. However, this does not apply where a party failed to fulfill the contract and thereby gave the other contracting party serious grounds to terminate the relationship. It would be contrary to good faith if the non-terminating party were put in a worse position because he was ready to continue under the contract notwithstanding the contractual violation by the terminating party. The general principle of good faith also applies to international contracts for the delivery of goods by instalments.
 "Even if the above principles were not applied when apportioning the damages according to Art. 74, they would have to be considered at the latest when examining the obligation to mitigate the damage, respectively the coresponsibility or joint causing [of the damages] according to Arts. 77 and 80 CISG. Leaving that aside, damages in excess of the damages for the specific supply would presuppose a corresponding relationship for further supplies under the basic agreement. The buyer cannot rely on the fact that the contract was concluded for an indefinite a period of time, until joint termination, because this agreement violates bonos mores and good faith - Art. 7 CISG  in conjunction with Sects. 138 and 242 Civil Code - and is invalid.
2.	"BGH 21 September 1995, VII ZR 248/94 BB 1995, 2472."
3.	Art. 27 of the Introductory Law to the Civil Code reads in relevant part: "1. The contract is subject to the law chosen by the parties. The choice of law must be explicit or must be determined with sufficient certainty from the provisions of the contract or the circumstances of the case. ...."
4.	"Cf. Palandt-Heldrich, BGB 55th ed. no. 6 to Art. 27 EGBGB."
5.	"OLG Koblenz 17 September 1993, 2 U 1230/91 RIW 1993, 934; Herber in von Caemmerer/Schlechtriem, CISG 2nd ed., Art. 1 nos. 37-40; Martiny in Münchener Kommentar BGB, 2nd ed., Art. 28 EGBGB App. II no. 27; references in Will, ClSG International Bibliography, The First 150 or So Decisions, 1995."
6. Act. 53 CISG reads: "The buyer must pay the price for the goods and take delivery of than as required by the contract and this Convention."
7. "Huber in Caemmerer/Schlechtriem, CISG Art. 49 nos. 6, 22."
8. Art. 8 CISG reads: "(1) For the purposes of this Convention statements made by and other conduct of a party are to be interpreted according to his intent where the other party knew or could not have been unaware what that intent was.
9. "BGH 18 May 1995, IZR 151/93 MDR 1995, 1017 = NJ W 1995, 2917 = RIW 1995, 776."
10. Art. 26 CISG reads: "A declaration of avoidance of the contract is effective only if made by notice to the other party."
11. "Stoll in Caemmerer/Schlechtriem, CISG Art. 74 no. 3."
12. "Herber/Czerwenka, CISG Art. 74 no. 13."
13. "LG Dortmund 23 September 1981, 10 O 68/80 RIW 1981, 854 to Art. 82 EKG."
14. "Stoll in von Caemmerer/Schlechtriem, CISG Art. 76 no. 14."
15. "Stoll in von Caemmerer/Schlechtriem, CISG Art. 79 nos. 5 and 38; Herber/Czerwenka, CISG Art. 79 nos. 3, 14 and 19."
16. "Stoll, op. cit., CISG Art. 79 nos. 6, 17, 23 et seq., 30 and 39-40; Herber/Czerwenka, CISG Art. 79 no. 8."
17. "Stoll, op. cit., CISG Art. 79 nos. 9, 28 and 30; Herber/Czerwenka, CISG Art. 79 nos. 8-9; Reimers/Zocher, Beweislastfragen im Haager und Wiener Kaufrecht, 1995, p.356."
18. "Stoll, op. cit., CISG Art. 79 no. 28."
19. "Stoll, op. cit., CISG Art. 79 nos. 20, 50 et seq."
20. "Von Caemmerer/Schlechtriem, CISG Art. 79 no. 7; Herber/Czerwenka, CISG Art. 79 no. 9."
21. Art. 80 CISG reads: "A party may not rely on a failure of the other party to perform, to the extent that such failure was caused by the first party's act or omission."
22. Art. 73(1) CISG reads: "(1) In the case of a contract for delivery of goods by instalments, if the failure of one party to perform any of his obligement constitutes a fundamental beach of contract with respect to that instalment, the other party may declare the contract avoided with respect to that instalment."
23. "Cour d'Appel Grenoble 22 February 1995, SARL BRi Production Bonaventure v. Pan African Export, Recueil Dalloz Sirey - DS - 1995, Informations Rapides - IR - 100."
24. "Lesser in von Caemmerer/Schlechtriem, CISG Art. 73 no. 9 fn.17, with reference to German law - the so-called proper contract for successive supplies, contract for successive supplies in the narrow sense or contract for instalment supplies - Leser and Westermann in Münchener/ Kommentar BGB, 2.A. Sect. 275no. 165 and Sect. 433 no. 39 et seq."
25. "BGH 6 February 1985, VIII ZR 15/84 Der Betrieb 1985, 1687, 1688 at 2 b-c; 10 December 1986 VIII ZR 39/86, Der Betrieb 1987, 881 = EwiR 1987, 241 on the EKG with note Herber; BFH 5 October 1989, IV R 126/85 BFHE 158, 404 BStBl II 1990, 155; Palandt/Heinrichs, BGB at 305 no. 26 et seq.; Leser in Münchener Kommentar BGB at Sect. 275 no. 173; Soergel/Wiedemann, BGB 12.A at Sect. 323 nos. 57, 58 et seq.; Staudinger/ Khler, BGB 12.A at Sect. 433 no. 14 et seq."
(c) in any other case, within a reasonable time after the conclusion of the contract."
27. "BGH 25 May 1988, VIII ZR 360/86 Betriebs-Berater 1988, 2201, 2205 at II; Palandt/Heinrichs, BGB Sect. 276 no. 128"
28. "BGH 11 February 1981, VIII ZR 312/79 NJW 1981,1264,1265; Staudinger/Otto, BGB Sect. 326 nos. 186-187."
29. "Herber, EWiR 1987, 241, 242."
30. Art. 7 CISG reads: "(1) In the interpretation of this Convention, regard is to be had to its international character and to the need to promote uniformity in its application and the observance of good faith in international trade.
31. "LG Oldenburg 9 November 1994, 12 O 674/93 RIW 1996, 65; Eberstein/Bacher in von Caemmerer/Schlechtriem, CISG Art. 78 no. 26"

References: Art. 27
 Art. 53
 Art. 45
 Art. 74
 Art. 45
 Art. 49
 Art. 74
 Art. 45
 Art. 49
 Art. 47
 Art. 8
 Art. 26
 Art. 74
 Art. 74
 Art. 74
 Art. 76
 Art. 79
 Art. 79
 Art. 79
 Art. 80
 Art. 4
 Art. 73
 Art. 51
 Art. 73
 Art. 33
 Art. 73
 Art. 74
 Art. 74
 Art. 7
 Art. 74
 Art. 7
	Art. 27
 Art. 27
 Art. 1
 Art. 28
 Art. 49
 Art. 8
 Art. 26
 Art. 74
 Art. 74
 Art. 82
 Art. 76
 Art. 79
 Art. 79
 Art. 79
 Art. 79
 Art. 79
 Art. 79
 Art. 79
 Art. 79
 Art. 79
 Art. 79
 Art. 80
 Art. 73
 v. 
 Art. 73
 Art. 7
 Art. 78