Source: http://cisgw3.law.pace.edu/cases/000915s2.html
Timestamp: 2019-04-22 18:08:09+00:00

Document:
"In this case, a Swiss court used language that to the common law lawyer appears to reflect a homeward trend in its mode of interpretation. The court was faced with contract for cotton to be delivered between certain dates, with payment to be made by letter of credit due 60 days after the date of customs clearance. The buyer and seller contracted for a series of cotton deliveries that, to condense the facts, did not materialize according to the times specified in the contract. The buyer sued for the costs of cover, and the seller complained that the buyer had unilaterally cancelled the contracts with no justification. One of the issues for the court was the significance of avoidance under Article 49(1). Citing commentary on the CISG, the court characterized avoidance under the CISG in this manner: "It is not an avoidance in the juridical way of the words with effects ex tunc, but a resolution which releases both parties from their contractual obligations yet to be executed and which executes itself ex nunc." The court in explaining its decision in a manner sensible to Swiss lawyers is doing so at the expense of hindering the development of uniform concepts."
a) Intervening for the [buyer], an Italian company with its registered office in Rimini, Italy, a company under Italian law, Vieffe S.r.l. (hereinafter: Vieffe), located at Milan, Italy, sent, on 15 February 1994, to [seller], a Swiss company for which Vieffe was an agent, a proposal of Order No. 28 concerning the purchase by [buyer] of four times five tonnes of cotton, goods to which the quality and place of delivery had been specified. The goods were to be delivered between 25 May and 5 June 1994, payment to be made by letter of credit due sixty days after the date of customs clearance.
b) On 27 April 1994, [seller] sent an acknowledgement by fax to [buyer] advising that the Egyptian authorities had imposed on the weaving mill of the country an increase in the price of cotton between 8.5% and 9% and that [buyer] was obliged to pay an increase of 8% in the price of sale. On 2 May, [seller] sent to [buyer] a second message asking [buyer] to accept and confirm the increase of prices decided by the contract of 2 March by 6%, which represented �IT 5,790 / kg for the cotton Ne 8/1, 12/1 and 16/1 and �IT 5,840 / kg for the cotton Ne 30/1. [Buyer] accepted the increase of 6%.
c) On 3 June 1994, [buyer] was surprised to be informed that, after the delay taken by the [seller], both the agreement of 2 March and that of 14 April 1994 would not be respected. After having explained that this had the consequence of limiting [buyer's] ability to fulfil its own contractual obligations, [buyer] invited [seller] to perform the contract as soon as possible. [Buyer] also asked to be informed exactly which goods would be delivered and reserved the possibility of legal action in case of non-performance.
Receiving no answer to this letter, [buyer] informed [seller] on 27 June 1994 that, concerning the goods of the contract of 2 March 1994, [buyer] was forced to purchase substitute goods from other suppliers at a more expensive price. Insistent especially upon the damage caused to its reputation, [buyer] valued its damages at �IT 100,000,000 and asked for compensation by [seller]. [Buyer's] written document of 27 June 1994 was not a letter of cancellation from the [buyer], but an incentive for the [seller] to execute its obligations.
On 8 July 1994, [buyer] wrote to [seller] that it had taken note that [seller] was ready to deliver during the month of July, the total quantity of the goods contained in the two contracts, and that [buyer] was happy with this result as far as the contract of 14 April 1994 was concerned. However, [buyer] stated that it could not accept the delivery of cotton contained in the contract of 2 March 1994 for the reasons explained in [buyer's] letter of 27 June 1994. [Buyer] noted that if it had waited for an answer from [seller] before purchasing substitute goods from other suppliers, the damages for which it would be asking reparation would have been more significant.
After 7 August, the parties had not established contact in relation to the delivery of cotton.
In the purchase made on 7 July 1994, of 10,197 kg of cotton at an average price of �IT 6,500 / kg, which related to the contract of 2 March, there was a difference of �IT 700 per kg in comparison with the price fixed after the increase of 6% at �IT 5,800 / kg. The increase of the cost represented �IT 7,137,900 (10,197 kg x �IT 700).
In the purchase concluded on 30 August 1994, for 25,000 kg of cotton at an average price of �IT 7,640 / kg, which related to the contract of 14 April 1994, there was a difference of �IT 1,492 / kg in comparison with the increased price of this contract of �IT 6,148 / kg. Therefore, [buyer] paid an extra �IT 29,840,000 in comparison with the purchase of 20 tons of cotton stipulated in the previous contract (20,000 kg x �IT 1,492).
On 5 December, [buyer] notified [seller] that it would commence a lawsuit, and, on 5 April 1995, it brought an action against [seller], claiming the payment of Sf [Swiss francs] 238,000.60 (�IT 294,925,126). [Buyer] claimed against the [seller] that [seller] had breached its contractual obligations by not delivering the cotton included in the contracts of 2 March and 14 April 1994, conduct which, first, forced the [buyer] to purchase replacement goods with an increase of �IT 127,983,126 in the price, and to indemnify [buyer's] clients, for �IT 52,800,000, and second, caused [buyer] a loss of profit of �IT 104,142,000 and commercial damage of �IT 10,000,000.
By judgment on 18 February 2000, the Appellate Court of the Canton of Geneva, ruled on an appeal made by the [seller], partly quashing the judgment of the Court of First Instance [District Court of Geneva] on 20 May 1999; it ordered [seller] to pay to [buyer] Sf 95,720 plus interest at the rate of 5% from 5 December 1994, and ordered the withdrawal.
Concerning the contract of 14 April 1994, the cantonal Appellate Court considered that, on 8 July 1994, [buyer] had noted without protest that the goods would be deliverable during the month of August 1994. Many tons of cotton Ne 16/1 and 8/1 had been unloaded in Genoa on 7 August 1994 for [seller]; nonetheless, these goods corresponded only partly to the subject matter of the contract, which required the delivery of cotton Ne 8/1, 12/1, 16/1, 20/1 and 30/1. [Seller] did not succeed in establishing an offer to [buyer] for the cotton that arrived at Genoa, nor did it ask the [buyer] to take delivery.
The cantonal Appellate Court concluded that that the [seller] had given up fulfilling its obligations and that it could not complain of the fact that [buyer] considered the contract as not being performed. The Appellate Court referring to articles 45(1), 74 and 75 CISG, noted that [buyer] had a right to claim damages for replacement purchases of substitute goods that [buyer] had made since the month of July 1994; the damage represented �IT 7,137,900 and �IT 29,840,000; thus, a total of �IT 36,977,900. Concerning the loss of profit, it was �IT 81,650,000. Nonetheless, the Appellate Court held that the [buyer] did not render proof that it had indemnified some subcontractors, or proof of loss of any clients. The damage justified was therefore �IT 118,627,900; i.e., Sf 95,720 at the exchange rate of the day of filing the [buyer's] claim.
At the same time as raising an appeal in public law, which has been rejected by judgment of that day due to its inadmissibility, [seller] lodged an appeal to the Federal Supreme Court. [Seller] pleads to the Federal Supreme Court to quash the cantonal Appellate Court judgment and, subsequently, to deny the [buyer's] claim. Additionally, the [seller] requests an application for remand of the proceedings to the cantonal Appellate Court to decide the matter in accordance with the solution given by the Federal Supreme Court.
The [buyer] pleads that the [seller's] demand be rejected and seeks the confirmation of the decision challenged.
Considering a recourse to appeal, the Federal Supreme Court must exercise its reasoning on the basis of facts contained in the judgment under appeal, except in instances where some Federal rules concerning proof have been broken, or where there are some manifest oversights (art. 63 al. 2 OJ [*]), or where it is necessary to supplement the facts noticed by the cantonal Appellate Court because it did not take notice of some fundamental proven facts (art. 64 OJ; ATF [*] 126 III 59 consid. 2a and other decisions). In the case that the [seller] presents facts, as here in ten pages, which are quite different from the facts contained in the decision under appeal without, nonetheless, satisfying any of the exceptions quoted above, the Federal Supreme Court is precluded from using such facts. [Seller] can neither present attacks against some established facts nor can he use facts or instruments of proof that are new (art. 55(1)(c) OJ).
The [seller] criticizes the cantonal Appellate Court as having misapplied articles 47 and 49 CISG by considering that the [buyer], on 8 July 1994, had validly cancelled [avoided] the contract of 2 March 1994.
Italy, where the [buyer] has its headquarters, adopted the CISG on 1 January 1988. Switzerland, where the [seller] is located, has been a Contracting State to the Convention since 1 March 1991. In this case, the two contracts for the sale of goods with a commercial purpose were concluded between two companies having their headquarters in Contracting States, therefore, for correct reasons, the Appellate Court declared, in conformity with art. 1(1)(a) CISG, that this Convention was applicable to the present dispute (cf. Neumayer/Ming, Vienna Convention on International Sale of Goods: Commentary, n. 3 ad art. 2 CISG).
The application of CISG is exhaustive; it governs the entire contract, meaning the formation of the contract and rights and obligations of parties, including the consequences of non-performance. In principle, the additional application of national law is excluded (Stoffel, le droit applicable aux contrats de vente internationale de marchandise in: Publication Cedidac No. 20, Les contracts de vente international de merchandises, p. 36). CISG contains some rules directly applicable; therefore, the breach of such rules can also make possible a recourse to appeal (art. 43(1) OJ [*]; ATF [*] 124 III 382 consid. 7b p. 398).
It results from the fact that the offer made on 15 February 1994 by Vieffe in the name of the [buyer] has been solidified on 2 March 1994 by the conclusion of a contract of sale. Because this agreement did not modify the offer concerning the delivery of the goods, it must be considered that the offer made on 15 February 1994 had been accepted. Article 11 CISG establishes freedom from requirement as to form of contracts for the international sale of goods, with the results that parties are allowed, according to article 33(b) CISG, to fix, for the contract of 2 March 1994, the moment of the delivery by an interval of time determinable by two fixed dates. These dates were 25 May 1994 and 5 June 1994, a period during which the goods should have been delivered. In others words, the date 5 June 1994 represented the last day on which goods should have been delivered (Neumar/Ming, op. cit., n. 4 ad art. 33 CISG).
Concerning the contract signed on 14 April 1994, by reference to the offer of the same day on the basis of which it had been concluded, it must be accepted that it was decided that the delivery should occur by the end of August 1994 (cf. art. 33(a) CISG).
According to article 49(1) CISG, the buyer may declare the contract avoided if the failure by the seller to perform any of its obligations amounts to a fundamental breach of the contract (para. (a)), or when, in the case of non-delivery, the seller does not deliver the goods within an additional period of time that has been fixed by the buyer or if the seller declares that he will not deliver within the period so fixed (para. (b)). It is not an avoidance in the juridical way of the words with effects ex tunc, but a résiliation which releases both parties from their contractual obligations yet to be executed and which executes itself ex nunc (Neumayer/Ming, op. cit., n. 1 ad art. 81 CISG).
It must be determined if, on 8 July 1994, the [buyer], without having fixed for the [seller] the additional period to deliver goods as provided by the article 49(1)(b) CISG, was within its rights to avoid (résolution) the contract of 2 March 1994 by reason of the lack of delivery of goods by [seller].
In fact, because, on 8 July 1994, the time within which the cotton had to be delivered according to the contract had already passed by more than one month, the additional delay of reasonable time that the buyer must give to the seller according to article 47 CISG was no longer applicable. Therefore, there was no breach of the previous article, and it is not useful for the [seller].
The concept of fundamental breach as defined in article 25 CISG must be interpreted in a restrictive way and, in case of doubt, it must be considered that conditions of such breach are not fulfilled (Neumayer/Ming, op. cit., n. 2 ad art. 25 CISG). The breach must concern the essential content of the contract, the goods, or the payment of the price concerned, and it must lead to serious consequences to the economic goal pursued by the parties. The importance of the breach is not determinative; only the consequences of the breach to the damaged party are determinative. This means that a principal obligation must have been breached in such a way that the economic goal of the contract cannot be achieved; the damaged party being interested no longer in the performance of the contract. Absolute loss of all objective interests of the creditor is not required. Moreover, it does not matter whether or not the default is objectively reparable (Neumayer/Ming, op. cit., n. 3 ad art. 25 CISG).
According to that view, the breach of an ancillary obligation can only constitute a fundamental breach if it has some repercussions on the performance of the principal obligations in a such way that the interest of the creditor in the performance of the contract is lost, without the necessity that the latter suffers some monetary damage (Neumayer/Ming, op. cit., n. 4 and 7 ad art. 25 CISG). The motivation of the creditor must be identifiable by the debtor, so the debtor could have known or it would be possible to know that the creditor considered the performance of the breached contractual clause so essential that he would have refused the contract if he had known of such future breach (Neumayer/Ming, op. cit., n. 5 ad art. 25 CISG). To judge that point, at the place and at the time of the conclusion of the contract, the determining interest of each of the parties must be identifiable by the other (Neumayer/Ming, op. cit., n. 6 ad art. 25 CISG). Finally, the damage must be foreseeable by the breaching party or by any other reasonable person of the same kind in the same circumstances at the time the breach of contract is committed. The contract determines if there existed a risk of a substantial detriment to the reasons and interests of the affected party, which had encouraged that party to conclude the contract (Neumayer/Ming, op. cit.,n. 8 ad art. 25 CISG).
A delay in the delivery of goods constitutes a fundamental breach of contract if the parties decided that the delivery must be made at a specific date, and that date was determinative from the point of view of the interest of the buyer in the performance of the contract and that the seller knew it, especially in cases concerning seasonal goods. The circumstances determine if it must be without other and also for the delivery at a certain date of goods for which the price in the market varies everyday. This is the case when it concerns an agreement with a reseller and the price goes down suddenly and considerably. In the presence of minor fluctuation in prices, the avoidance of the contract depends on the fixing of a supplementary period of a short time in accordance with article 49(1)(b) CISG. Against a considerable delay which constitutes a fundamental breach of the contract according to article 25 CISG, the buyer receives the right to immediately avoid the sale without giving a notice for a supplementary period (Neumayer/Ming, op. cit., n. 3 ad art. 49 CISG).
bb) In the present case, it must be considered that the final term decided for the cotton delivery, 5 June 1994, constituted a fixed date that was determinative for the buyer, who, on the day in question, should have received the material in order to be able to transform it and send it to its clients. In that case, the period decided for the delivery was relied on as the essential content of the contract; at the moment of the failure to deliver on the correct date, the realization of the [buyer]'s economic goal in the contract was halted and the [buyer] was obliged to buy the goods from other suppliers on less advantageous conditions. This situation had the result for the [buyer] of erasing all interest it had in the contract of 2 March 1994. Concerning the commercial sale of the untreated material, the [seller] could not have ignored that the buyer regarded the delay in the delivery as of prime consideration, as indicated by the precise period of time decided for the delivery. Moreover, in its letter of 3 June 1994, the [buyer] declared that the delay in the delivery prevented [buyer] from performing its own obligations.
Finally, at the moment of the non-observation of the additional delay expiring on 5 June, [the seller] the party in breach was able to foresee the consequences of its conduct, especially as the [buyer] stated precisely on 27 June that, in order to discharge [buyer's] obligations to third parties, [buyer] had to ask other suppliers to deliver substitute goods.
In these circumstances, the failure of the [seller] to deliver amounted to a fundamental breach of the contract. It was not necessary that [buyer], on 8 July 1994, before declaring avoidance of the contract of 2 March 1994, give an additional period to [seller] for delivery of the ordered goods, under article 49(1)(b) CISG. The argument of the [seller] is irrelevant.
The [seller] also makes an argument concerning the contract of 14 April 1994. This argument is based on the fact that [seller] had not been properly notified of the fixing of the additional period for it to perform, in breach of articles 47 and 49 CISG. If this argument were accepted, it would not be possible to have a valid avoidance of this contract.
In a way that links the Federal Supreme Court (article 63(2) OJ [*]), the Appellate Court stated that the parties did not have any contact concerning the goods ordered on 14 April 1994 after 7 August 1994, the date on which the goods loaded in Alexandria at the end of July 1994 were unloaded in Genoa. In other words, after 7 August, neither of the parties to the contract cared about those goods. It may be that this is because of the fact that this cotton corresponded only very little, in respect to quality, to the goods expected according to the contract of 14 April 1994. But that does not matter, as will be seen below.
Indeed, the CISG does not provide any obligation concerning the form of the avoidance of sale contracts (Neumayer/Ming, op. cit., n. 1 ad art. 11 CISG). Therefore, it is accepted that a conclusive conduct constituted by a rejection of the goods that do not conform to the contract and a refusal to pay may, depending on the circumstances, be held as an implicit declaration of avoidance of the contract (Neumayer/Ming, op. cit. n. 1 in fine ad art. 26 CISG).
According to the freedom of form granted by CISG, some juridical effect must be given to the inaction of the parties after the 7 August 1994. This common inactivity of parties must be analyzed as the reciprocal manifestation of a tacit will to renounce the performance of the contract. The common adoption by parties of such conduct before the goods arrived in Genoa leads one to think there was a will to cancel the contract of 14 April 1994.
Accordingly, the [seller] could not complain that it was not formally informed to execute its obligations.
There is no breach of articles 47 and 49 CISG.
The [seller] argues that there was an impossibility of performance according article 79(1) and (2) CISG.
This argument is founded on a presentation of facts that are different from the facts adopted by the cantonal Appellate Court.
The determinative facts do not reveal the existence of circumstances that may constitute an unforeseeable or unavoidable impediment, or an obstacle that the [seller] could not reasonably have overcome (cf. Neumayer/Ming, op. cit., n. 2 et 4 ad art. 79 CISG). The [seller's] criticism is unfounded.
The [seller] invokes breaches of many rules to contest the principle and the amount of the damages held by the cantonal Appellate Court.
The [seller] argues that, especially, the Appellate Court violated article 8 of the Civil Code of Switzerland concerning the burden of proof by considering that the claimant [buyer] had proven its damages concerning the replacement goods.
That legal rule is not applicable even though CISG does not contain direct rules on the burden of proof and all procedural questions are outside its scope of application. When the judge examines this question, he should keep in mind the content of the material law applicable, the lex causae, which, in this case, is the CISG. The competent tribunal should not found its solution on the domestic law. Indeed, in an indirect way, CISG contributes to the repartition of the burden of proof, and the reason for this is the meaning of the wording used in the provisions of the CISG. There is the establishment of a relationship between a rule and its exception. That is why, in general, we can use the maxim "actori incumbit probation". The result is that the party who invokes a right bears the burden of proof to its establishment of that right and, on the other hand, the other party must prove any facts that exclude the invoked claim (Neumayer/Ming, op. cit., n. 13 ad art. 4 CISG).
As CISG does not contain rules directing the judge how to reach its own opinion, there is no obstacle, which does not allow the use of the jurisprudence of article 8 of the Swiss Civil Code.
According to that jurisprudence, article 8 of the Civil Code forbids a judge from considering as an established fact that which is pertinent to the use by one party to found its right, where this fact, contested by the opposite party, has no starting of proof (ATF [*] 114 II 289 consid. 2a). On the other hand, when the appreciation of proof convinces the judge of the reality of a fact, the question of the application of article 8 of the Civil Code does not exist anymore; only the element coming from the arbitrary appreciation of proof, to invoke imperatively a recourse to public law, is admissible (ATF 122 III 219 consid. 3c; 119 II 114 consid. 4c p. 117; 117 II 387 consid. 2e). Indeed, article 8 of the Civil Code does not prescribe, in the example of the CISG, how the judge must appreciate proof and on which elements he may found his decision.
In cause, the [seller] contests that the products billed by the [buyer] in relation to replacement purchases, were of same quality as the cotton ordered. The [seller] attacks the way in which the cantonal Appellate Court appreciated the proof rendered. The argument is therefore not admissible.
Invoking art. 75 CISG, the [seller] argues that replacement purchases made by the [buyer] could not have qualified as replacement purchases for the reason that a reasonable time should have passed after the avoidance of the contract before the purchase replacement goods.
Article 75 CISG deals with the calculation of the damages, which must be effected in a concrete manner in the case of avoidance of the contract. In that way, if that article provides that the buyer purchases replacement goods within a reasonable time, it is only for the reason that [buyer] can obtain an advantageous price and contribute to the reduction of the loss resulting from the breach. If the substitute transaction does not correspond to these conditions, the damage is calculated in conformity with article 74 CISG or at the market price (article 76 CISG) (cf. Neumayer/Ming, op. cit., n. 2 ad art. 75 CVIM [*]).
Therefore there is no reason why the [buyer] could not have bought substitute goods without delay, except in the case in which the seller could prove that the [buyer] was able to find other goods at a more favorable price.
Also, when the [seller] claims that the [buyer] refused the goods which arrived in Genoa on 7 August 1994, [seller] moves away from the facts recognized by the cantonal Appellate Court. The Appellate Court found that parties were not interested in what would happen to the goods that arrived in that port.
The [seller] claims that if the Federal Supreme Court should arrive at the conclusion that purchases made on 7 July 1994 constituted replacement purchases under article 75 CISG, damages should be determined, in accordance with article 77 CISG, by the difference between the price concluded by parties, with an increase of 6% and 10%, and the prices of the replacement supplier for the same goods; only this difference can be claimed by the [buyer].
Assuming that there was loss suffered, the amount of damages is a question of fact, removed from the examination of the Federal Supreme Court in the instance of appeal (ATF [*] 123 III 241 consid.3a; 122 III 61 consid. 2c/bb; 122 III 219 consid. 3b). On the other hand, it is a question of law to decide whether or not the judge missed the necessity of juridical damage or misunderstood the sense of that notion to have founded its decision on erroneous grounds or without criteria pertinent to the calculation of the damages (cf. ATF 120 II 296 consid. 3b et les références).
If the claim for damages is related to principles applied to determine the damages, the claim is nonetheless unfounded. The cantonal Appellate Court has indeed taken into account the difference of price existing between the cotton ordered from the [seller] and the cotton actually delivered, conforming to article 75 CISG. As the [seller] does not indicate the reasonable measures that the [buyer] should have taken to limit the damage, the Appellate Court correctly did not apply article 77 CISG.
d) The [seller] criticizes the Appellate Court as having held in "an arbitrary manner" that the loss of profit claimed by the [buyer] was established. The [seller] alleges that the Appellate Court founded its decision on contested elements for which facts have not been proven.
The [seller's] claim is irrelevant, because it is based on the appreciation of proof, which depends only on the cantonal Appellate Court.
To conclude, the appeal of the [seller] must be rejected even though it is admissible, the decision of the cantonal Appellate Court that is challenged by the [seller] is confirmed. Fees will be at the expense of the [seller] (art. 156 al. 1 et 159 al. 1 OJ).
1.	Transmits the present decision in copy to order the parties and to the Civil Chamber of the cantonal Appellate Court of Geneva.
* All translations should be verified by cross-checking against the original text. For purposes of this translation, FCF S.A., of Geneva, Switzerland, Defendant and Appellant is referred to as [seller]; Adriafil Commercial S.r.l., of Rimini, Italy, Plaintiff and Respondent is referred to as [buyer]. Monetary amounts in Swiss francs are indicated by [Sf]; amounts in Italian Lira are indicated by [�IT].
Translator's note on other abbreviations: ATF = ; CVIM = CISG [United Nations Convention on Contracts for the International Sale of Goods]; OG = Bundesgesetz über die Organisation der Bundesrechtspflege [Swiss Federal Code on Court Organization]; OJ = .
** Alban Renaud, of France, attends Kyushu University Graduate School of Law in Japan. The second-iteration redaction of this translation was by Dr. John Felemegas of Australia.
*** Professeur Claude Witz and Julia Eisengr�ber are collaborateurs de la Chaire de Droit priv� fran�ais, Universit� de la Sarre.

References: art. 1
 art. 2
 art. 33
 art. 33
 art. 81
 art. 25
 art. 25
 art. 25
 art. 25
 art. 25
 art. 25
 art. 49
 art. 11
in fine
 art. 26
 art. 79
 art. 4
 art. 75
 art. 75