Source: http://cisgw3.law.pace.edu/cases/950208g2.html
Timestamp: 2019-04-23 00:40:52+00:00

Document:
The plaintiff, an Austrian insurance company, sued the [seller], a German company, for damages owing to the breach of a sales contract. The [seller] had sold its product to the [buyer] plaintiff's client, an Austrian company, which in turn sold it to a Danish company. The Danish [customer of the buyer], after receiving and using the goods, informed the [buyer] about the non-conformity of the goods. The [buyer] did not inform the [seller], but gave notice to its insurance company, the plaintiff, for compensation. For this purpose, the [buyer] assigned to the plaintiff its purported damages claim against the [seller].
The applicable German law to the contract for the supply of goods to be produced was the CISG as both companies had their places of business in different States Parties to the CISG, i.e., Austria and Germany (article 1(1)(a) CISG). Accordingly, a possible claim for damages for the delivery of goods not conforming with the contract could be based on articles 45(1)(b) and 74 CISG. But, a possible non-conformity of the delivered goods upon examination was of no importance (articles 35, 38 and 45(1) CISG) because neither the [buyer] nor the [buyer's customer] gave notice to the [seller] specifying the lack of conformity within a reasonable time pursuant to article 39(1) CISG. The [buyer's customer] only informed the [buyer], who then informed the plaintiff. Yet, this notice was given three months after delivery of the goods and thus deemed not to have been given within a reasonable time. As a reasonable excuse for the failure to give the required notice under article 44 CISG could not be found, the appellate court dismissed the [buyer's] claim.
The Plaintiff [Insurance Company] has requested a declaratory judgment to establish the liability of the German Defendant [Seller] for damages from subrogated rights.
The Austrian [Buyer] sells an annual volume of about 12,000 tons of polypropylene plastic granulate, type Daplen MT 58, to [Buyer's Customer] in Denmark. That company uses the granulate to produce hygienic fiber products. In order to manufacture hygienic fiber of the desired characteristic, the plastic granulate needs to be of a certain quality.
According to a framework contract that provides that it is governed by German law, [Seller] produces the plastic granulate for [Buyer] at [Seller]'s factory and directly effects delivery to [Buyer's Customer] in Denmark. [Buyer] is obliged to provide granulate to its customer according to given specifications as well as to inspect it prior to effecting delivery.
- The granulate had an insufficient content of stabilizer B 501 W, which did not conform to the required specification; possibly, the granulate had been contaminated. [Buyer's Customer] alleged that the material that was delivered could not be used for proper production of the desired fiber products.
- In particular, it claimed compensation for lost profits, costs for production in vain, testing costs, material costs and cleaning costs. These were calculated at a sum of Danish krone [DK] 4,413,938.
Furthermore, [Buyer's Customer] announced that it would claim further damages which, however, could not be calculated at that time.
[Buyer] gave notice of the event causing damage to [Insurance Company] on 9 September 1993 and requested settlement. By letter dated 17 September 1993, [Insurance Company] held [Seller] liable for recourse claims provided that it was obliged to indemnify [Buyer]. [Buyer] finally assigned to [Insurance Company] all claims against [Seller] that could have accrued from the damaging event.
[Insurance Company] argued during the proceedings in the First Instance that it was the business underwriter for [Buyer] and that, provided that [Buyer] was responsible for the damages that accrued at [Buyer's Customer]'s, it would be obliged to compensate the [Buyer]. This would lead to the subrogation to [Insurance Company] of the claim for damages of [Buyer] against [Seller] in accordance with � 67 ÖVVG [*]. Since [Seller] refused to waive its right to rely on a time-bar, it had become necessary to commence an action.
[Insurance Company] requested the Court to find the [Seller] liable to [Insurance Company] for damages it suffers as business underwriter for [Buyer] due to imperfect delivery of polypropylene plastic granulate, type Daplen MT 58, charge nos. 11973 to 11979 to [Buyer's Customer] in Denmark on 4 June 1993.
[Seller] requested dismissal of the action.
- There was no contractual relation between the disputing parties. [Seller] alleged that there had not been a statutory subrogation of rights. [Seller] pleaded ignorance regarding the assertion that [Insurance Company] is the business underwriter of [Buyer] and that there had been an actual obligation of [Insurance Company] to compensate the damages suffered and claimed by [Buyer's Customer].
- In any event, [Buyer's Customer] had not given timely notice of non-conformity. Moreover, the delivered granulate was neither contaminated nor affected by insufficient content of stabilizers. And [Insurance Company] itself appeared as defendant in the relationship with [Buyer's Customer] and acted contradictorily.
- Finally, [Insurance Company] lacks the required interest to request a declaratory judgment.
The Court of First Instance dismissed the action without taking evidence. That judgment of 7 March 1994 will be referred to. It was served on the parties by 20 April 1994.
[Insurance Company]'s appeal of 19 May 1994, accompanied by a memorandum submitted on 14 September 1994, seeks to overturn this judgment in the First Instance.
[Insurance Company] elaborates that the damage claimed by [Buyer's Customer] could still not be determined in total. All previous deliveries of granulate from [Seller] to [Buyer's Customer] were properly effected without problems. This suffices as prima facie evidence to establish that the granulate in question had been deficiently produced or delivered. The right of [Insurance Company] to sue followed from the assignment of claims by [Buyer].
[Insurance Company] seeks to have the judgment of the Court of First Instance overruled and to have a declaratory judgment handed down as requested by [Insurance Company] in the First Instance.
[Seller] requests dismissal of the appeal.
[Seller] continues to rely on a lack of interest for a declaratory judgment; rather, [Insurance Company] should commence an action for performance. Furthermore, [Seller] alleges that it had delivered goods that conformed to the sales contract. A scientific analysis of the delivered granulate proved that the quality is within the tolerance range given by [Buyer]. Moreover, there had already been operational disturbances at [Buyer's Customer] between April and May 1993 in the course of processing polypropylene delivered by Company X. It should therefore be assumed that the cause for any damages had accrued at that [Buyer's Customer].
Additionally, the Court refers to [Insurance Company]'s appellate submission of 14 September 1994, [Seller]'s response by memorandum dated 25 October 1994 as well as to [Insurance Company]'s submissions of 6 February 1995.
The [Insurance Company]'s appeal is admissible, yet unfounded.
There is no doubt concerning the admissibility of the appeal considering the special requirements of � 256 (1) ZPO [*].
1. [Insurance Company] asserts that a legal relationship existed towards [Seller] from which [Seller] was obliged to compensate for damages that cannot be finally determined at this time. Plaintiff [Insurance Company] does not base its claim on an expected future legal relationship, but on a relationship present at this time (cf. to that issue Baumbach/Lauterbach/Albers/Hartmann, ZPO, 53rd ed., � 256 para. 16; Zöller, ZPO, 19th ed., � 256 para. 3.a). According to BGH [*] NJW [*] 1992, 697, it is sufficient if the plaintiff substantiates the conduct causing the alleged damages as well as the further prerequisites of the provision establishing the claim; a damage needs not be finally determined if it is sufficiently likely to occur. After having complemented its submissions -- which are now also based on an assignment of claims -- [Insurance Company] has sufficiently demonstrated its right to sue. [Insurance Company] relies on a breach of contractual obligations by [Seller] that it alleges took place through the production and delivery of a deficient product. This established [Insurance Company]'s liability and, thus, pecuniary losses with sufficient likelihood. According to the Court, more than these submissions cannot be expected.
2. However, the interest to effect a declaratory judgment constitutes an actual procedural prerequisite only with regard to a successful action. In case of a non-existing legal basis for a claim -- and it will be shown that this applies to the case at hand - the request for a declaratory judgment will be denied (cf. Zöller, � 256 para 7.a)). Therefore, it can remain unanswered in the present dispute whether an interest for a declaratory judgment had to be affirmed. However, the Court holds that [Insurance Company] could not be denied its interest in seeking a declaratory judgment. That interest is particularly assumed by jurisprudence in cases where the action is initiated in order to prevent a time-bar (� 209 (1) ZPO [*]; cf. Zöller, � 256 para. 8 with further references). It is possible to request a declaratory award if damages are still about to accrue at the time of commencing the action. This holds true even if it was only possible to partially estimate the claim (Zöller, � 256 para. 7.a)). In that case, the plaintiff is not constrained to skip to an action for specific performance in the Second Instance if an estimate of the total claim has become possible (Zöller, � 256 para. 7.b); BGH [*] NJW [*] 1978, 210). In the case at hand, the Court has no doubt that, at least at the time of commencement of proceedings in December 1993, it could not have been possible to definitely consider all of the events causing damages at the [Buyer's Customer].
Nevertheless, lacking any legal basis for a claim, the action is unfounded. [Insurance Company]'s appeal is therefore denied.
There are no claims which could have directly accrued between [Insurance Company] and [Seller].
The Court of First Instance has properly held that [Insurance Company] cannot take recourse to [Seller] based on rights subrogated from [Buyer]. The prerequisites of � 67 ÖVVG [*] (cf. Art. 33(3) EGBGB [*]) are not met because it has not been substantiated that [Insurance Company] had ever indemnified [Buyer] or, indirectly, [Buyer's Customer].
Moreover, [Insurance Company] will not be able to exercise recourse claims against [Seller] from subrogated rights as corresponding claims do not exist.
a) However, an assignment of possible contractual claims would have been effected according to � 398 BGB [*]. Pursuant to Art. 33(3) EGBGB, the assignment is governed by German law: [Buyer] and [Seller] jointly submitted that they had subjected their legal relations to German law by way of a choice of law under Art. 27 EGBGB.
b) Still, the existence of claims for damages of [Buyer] against [Seller] has not been demonstrated.
For possible claims from non-performance of the contract between [Buyer] and [Seller] for the supply of goods to be produced, German law would be applicable. With reference to this type of contract (no supply of a substantial part of the necessary material by the buyer) that has been concluded between parties having their places of business in different Contracting States of the CISG, German law provides for the applicability of the United Nations Convention on Contracts for the International Sale of Goods of 11 April 1980 (BGBl [*] 1989 II, p. 588) (cf. Art. 1(1) in conjunction with Art. 3(1) CISG; von Caemmerer/Schlechtriem, Kommentar zum CISG, 2nd ed., Art. 3 para. 3).
[Buyer] and [Seller] have their places of business in Germany and Austria, which are Contracting States. It cannot be assumed that [Buyer] and [Seller], when having designated the applicable law to their contract, intended to opt only for particular provisions of German law (e.g., those of the BGB [*] or HGB [*]) in order to exclude the application of other provisions (cf. Art. 6 CISG; von Caemmerer/Schlechtriem, Art. 6 para. 16). Rather, the choice of law must be understood in a way that the relevant provisions of German law in its entirety should be applied.
Therefore, the legal basis in case of non-performance would be Art. 45(1)(b) in conjunction with Art. 74 CISG in this case. It is in dispute whether or not [Seller] had properly performed under the contract in terms of Art. 45(1) in conjunction with Art. 35 CISG.
However, a judgment is not dependent on that assessment, because [Buyer] failed to give notice of non-conformity in accordance with Art. 39(1) CISG.
Under Art. 39 CISG, notice must be given with respect to a non-conformity which the buyer discovered or ought to have discovered during examination (Art. 38 CISG) as well as to any subsequent discovery of a non-conformity (von Caemmerer/Schlechtriem, Art. 39 para. 5). In the present case, it is quite doubtful whether the notice of non-conformity given by [Buyer's Customer] only after complete processing of the delivered granulate, conformed to the requirements of the CISG. If [Seller] was able and obliged to test its products before dispatch, it could be reasonably expected that [Buyer's Customer] would undertake examinations (cf. Art. 38(1) CISG) as soon as delivery had been effected so as to give notice of any non-conformities within a reasonable time.
The circumstances of each individual case must be considered in order to determine the "reasonable time"; usually, a time frame of about eight days will be applied for non-seasonal goods (cf. von Caemmerer/Schlechtriem, Art. 39 para. 17). A purchaser like [Buyer], who leaves the examination to its customer, must accept apportionment of the latter's conduct and omission (von Caemmerer/Schlechtriem, Art. 38 para. 26).
In this dispute, it adds to this that, after having received the notice of non-conformity from the [Buyer's Customer], the [Buyer] still failed to inform [Seller] but first turned towards [Insurance Company]. According to the factual submissions, [Seller] only learned by letter dated 17 September 1993 that the shipments of granulate, delivered by the start of June 1993, were allegedly non-conforming. This means that notice was undoubtedly given too late in the relevant relation between [Buyer] and [Seller]; [Seller] is able to raise this defense also against [Insurance Company] pursuant to � 404 BGB [*].
A reasonable excuse for a failure to give the required notice in terms of Art. 44 CISG has not been substantiated.
An excuse could only be assumed under criteria of equity, for a debtor that lets the reasonable time of Art. 39 CISG elapse always infringes standards of care in commercial matters (von Caemmerer/Schlechtriem, Art. 44 paras. 4, 5). A debtor is therefore only excused if his conduct merits a sufficient understanding and lenience with consideration of the individual circumstances under aspects of equity. Relevant factors include the severity of the infringement, the type of goods, the type of deficiency and some lack of experience on the seller's side. Art. 44 CISG is especially applicable for buyers who are retail sellers, craftsmen, farmers or those who practice a liberal profession. Larger companies like the [Buyer] in this case, whose business must be prepared for swift and punctual settlement of transactions, will generally not be excused for their failure to give proper notice (cf. von Caemmerer/Schlechtriem, Art. 44 paras. 6 et seq.). Article 44 does not apply to the case at hand.
Also, there are no possible extra-contractual claims of [Buyer] against [Seller], meaning that any assignment of such claims would be equally unsuccessful.
aa) Assumed that German law applies, [Seller] neither violated any absolute rights of [Buyer] in terms of � 823 BGB [*], nor did it commit any other tort establishing a claim for damages pursuant to �� 823 et seq. BGB. Furthermore, failing violation of any object of legal protection under � 1(1) ProdHaftG [*], the German Product Liability Act does not lead to any claims. At best, [Buyer] suffered a pecuniary loss; the latter cannot rely on any damages against [Seller] that were suffered by [Buyer's Customer].
bb) Foreign law, particularly Austrian law, cannot be applied as [Buyer] and [Seller] subjected their contractual relations to German law. In the opinion of the Court, any possible tort claims that corresponded to a breach of contract will be accessorily governed by the contract statute (cf. Palandt, BGB, 54th ed., Art. 38 EGBGB [*] para. 17). Choices of law are also relevant for liability in tort; such choice can be made impliedly and can even follow from the parties' conduct during proceedings (cf. Palandt, Art. 38 EGBGB para. 13; BGH [*] NJW [*] 1981, 1606 (1607)). Furthermore, it must be considered in the present case that the preliminary question whether an incident is to be qualified as a tort must be settled under German law (Palandt, Art. 38 EGBGB para. 2).
However, even the application of Austrian law would not lead to any different result: The Austrian Product Liability Act does not allow for a claim for damages from a mere violation of contractual duties, as well (cf. � 1(1) ÖProdHaftG [*]. Furthermore, a recourse liability according to � 1 ÖProdHaftG is not applicable failing any settling of damages. The Austrian tort law's blanket clause of � 1295 ABGB [*] -- at least in case of mere pecuniary losses -- must be interpreted in a way that claims will be granted only if corresponding contract law-based prerequisites are met (cf. for competition of tort claims with the CISG von Caemmerer/Schlechtriem, Art. 45, paras. 46 et seq.).
III. The procedural auxiliary judgments are based on �� 97, 708 No. 10, 711, 546(2) ZPO [*].
* All translations should be verified by cross-checking against the original text. For purposes of this translation, Plaintiff of Austria is referred to as [Insurance Company] and Defendant of Germany is referred to as [Seller]. The Austrian buyer is referred to as [Buyer]. The Danish customer of [Buyer] is referred to as [Buyer's Customer]. Amounts in the currency of Denmark (Danish krone) are indicated as [DK].
Translator's note on other abbreviations: ABGB = Allgemeines Bürgerliches Gesetzbuch [Austrian Civil Code]; BGB = Bürgerliches Gesetzbuch [German Civil Code]; BGBl = Bundesgesetzblatt [German Federal Law Gazette]; BGH = Bundesgerichtshof [German Federal Supreme Court]; EGBGB = Einführungsgesetz zum Bürgerlichen Gesetzbuche [German Code on Private International Law]; HGB = Handelsgesetzbuch [German Commercial Code]; NJW = Neue Juristische Wochenschrift [German law journal]; ÖProdHaftG = Österreichisches Produkthaftungsgesetz [Austrian Product Liability Act]; ÖVVG = Österreichisches Versicherungsvertragsgesetz [Austrian Insurance Contracts Act]; ProdHaftG = Produkthaftungsgesetz [German Product Liability Act]; ZPO = Zivilprozessordnung [German Code on Civil Procedure].

References: Art. 33
 Art. 33
 Art. 27
 Art. 1
 Art. 3
 Art. 3
 Art. 6
 Art. 6
 Art. 45
 Art. 74
 Art. 45
 Art. 35
 Art. 39
 Art. 39
 Art. 39
 Art. 38
 Art. 39
 Art. 38
 Art. 44
 Art. 39
 Art. 44
 Art. 44
 Art. 44
 Art. 38
 Art. 38
 Art. 38
 Art. 45