Source: http://www.cisg.law.pace.edu/cisg/wais/db/cases2/960621g1.html
Timestamp: 2019-04-26 16:06:40+00:00

Document:
The [seller], a Hong Kong company, and the [buyer], a German company, had concluded a general agreement for the exclusive delivery and distribution of Chinese goods. Under this agreement, the [seller] was responsible for the business relations with Chinese manufacturers while the [buyer] was responsible for the distribution of the goods in Europe. On this basis, the parties concluded regularly separate sale of goods contracts. Owing to financial difficulties, a Chinese manufacturer could not deliver the ordered goods to the [seller], who consequently could not fulfill its contractual obligation to the [buyer].
The [seller] demanded payment of the sum due resulting from previously delivered goods. The [buyer] set off against this claim a damage claim for lost profit owing to the termination of the business relation with the [seller] and refused to pay.
The arbitral tribunal applied the CISG as the relevant German law under article 1(1)(b) CISG. The arbitral tribunal upheld the [seller's] demand for payment. It further held that the [buyer] could set off against the [seller] a claim resulting from the breach of the relevant sales contract but not from the general distribution agreement.
With respect to the damages claim for the non-performance of the sales contract, the arbitral tribunal held that the contract could be declared void and damages could be claimed under article 45(2). It further held that a [seller] could be deemed to have unlawfully refused performance if it made delivery dependent on payment of arrears from previous sales contracts, even if the parties had agreed on cash payment in advance. The arbitral tribunal also held that the [buyer's] damage claim was not precluded under article 79 CISG since the financial difficulties of the [seller's] Chinese manufacturer were within the sphere of the [seller's] responsibility.
With respect to the general distribution agreement, the arbitral tribunal held that the damages claim was without sufficient merit since it was not a consequence of the breach of a sales contract by the [seller] in the sense of article 74 CISG.
The arbitral tribunal, in rendering its award on the costs of the proceedings, held that the [seller] could claim its attorney's fees for the arbitration proceedings as damages according to articles 61 and 74 CISG. It also held that, if the [buyer] refused to pay because it set off an alleged claim for damages, the [seller] did not have to fix an additional period of time for payment according to article 63 CISG.
 "According to Sect. 1037 of the German Code of Civil Procedure (ZPO), the arbitral tribunal may ascertain whether it has jurisdiction over the dispute and may decide the case, subject to the setting aside and enforcement according to Sects. 1041(1), nos. 1 and 2, and 1042 ZPO. The tribunal finds in favour of the compensation [for extra judicial costs] as follows: (1) from the point of view of substantive law as in its decision on costs; (2) from the point of view of law of property, as damages for the delay."
 "The arbitral tribunal can leave open the question whether a denial of judicial costs would be obviously contrary to essential principles of German law and would, therefore, be a ground for setting aside in the sense of Sect. 1041(1)(2) ZPO (ordre public). After all, the arbitral tribunal must, under German law, which is referred to by Sect. 1041(1)(2) ZPO, take into consideration the paramount legal principles laid down in Sect. 91 et seq. ZPO. Some authors maintain that, unless the parties have not specifically agreed thereon, Sect. 91 et seq. ZPO can be set aside only on very serious grounds in an individual case or exceptionally; according to Schütze, a decision directing a party unjustly sued, or a creditor sued by the debtor in arbitration, to pay costs, is 'intolerable'.
 "The arbitral tribunal does not need to decide to what extent it shares these considerations, since in the present case it can come to an adequate application of the compensation rules by a supplemental contractual interpretation. This is not contrary to the German ordre public.
 "Several Hamburg arbitral awards have recognized that, according to local usages, extrajudicial costs are not compensated or are only compensated upon a joint request by both parties. However, an arbitral tribunal of the Hamburg Friendly Arbitration applied the law of civil procedure on compensation 'as generally usual'. This arbitral tribunal follows the finding of the arbitral tribunal of the Hamburg Friendly Arbitration, which finding was based on a survey for new data, that there is no trade usage for the (non-) compensation for extrajudicial costs . The question concerning compensation, lacking a specific agreement by the parties, was answered in the affirmative in 55% of the replies and in the negative in 45%. Hence, although there is a majority, the uniform belief and practice by almost all operators in the trade, which are needed for [the existence of] a trade usage, are lacking here. The result of the survey is still reliable, as it is recent, so that no further knowledge is to be expected from a new survey. Hence, there is no trade usage which must be taken into account for a decision on costs.
 "Yet, contrary to [the opinion in] the latter arbitral award, compensation for extrajudicial coats in the absence of an express provision or trade usage cannot be generally denied; in the present case, it can be granted on the basis of a supplemental interpretation of the arbitration agreement. An interpretation reaching this result is possible independent of the existence of the actual arbitration agreement. This is also known in foreign systems of civil procedure.
 "As held in the partial award ... we need not decide to what extent the provisions of the basic agreement, including the arbitration clause, are to be examined under the CISG or the Civil Code. Both according to Art. 8 CISG and Sect. 157 CC, a contract must be interpreted according to the principle of good faith and the prevailing practice. In the case of a gap in the express provisions, the hypothetical intent of the party (Sect. 157 CC) or the [page 45] understanding of a reasonable contractual party (Art. 8 CISG) are to be determined by weighing the interests of the parties against each other.
 "Here we have such a gap in the provisions. There is no ground to suppose a 'qualified silence' in the arbitral clause, meaning that the costs of the arbitration (for which the parties agreed that Sect. 91 et seq. ZPO applied) and the extrajudicial costs are to be apportioned differently. The course of the relationship between the parties indicates that the parties did not give much thought to such procedural details. The unilateral declaration of the defendant that he did not agree with a decision of the arbitral tribunal on the extrajudicial costs, is irrelevant; it was made after the claim was filed, when the party was probably concerned with mitigating possible negative consequences.
 "The supplemental interpretation is not superfluous in the light of Sect. 4 of the Rules, according to which the arbitral tribunal regulates the proceedings at its discretion, on the basis of Book 10 ZPO. Taking this provision into account, the arbitral tribunal sees its decision on the extrajudicial costs not as a referral to the tribunal's discretion, but as a request for a legal decision within the boundaries set by the law, including a necessary interpretation.
 "Support for a supplemental interpretation is also to be found in the widely accepted opinion that arbitral tribunals are free, in the absence of an express agreement, to apply Sect. 91 et seq. ZPO or depart from it, with the advice, though, to apply Sect. 91 et seq. ZPO in general, or to refer to [the tribunal's] discretion. The case will be the same in the future under Sect. 1057, new version. According to para. 1, second sentence, of the present draft, the arbitral tribunal apportions extrajudicial costs 'at its discretion [taking] into consideration the circumstances of the case, in particular, the results of the proceedings'.
 "(a) For instance, compensation for counsel's fees might not be necessary in arbitrations which are less juridical in nature, like quality arbitration or Schiedsgutachten, in case of arbitral tribunals comprised of non-lawyers, if only a subject matter falling under the scope of activity of the [trade] association is at issue, in cases of very little economic importance or if there is a clear intention to proceed in as simple and inexpensive a manner as possible, without counsel.
 "(b) On the contrary, the compensation for counsel's fees is indicated where the arbitral tribunal is exclusively comprised of lawyers, who decide on complicated legal issues and substantial claims. This is the case here. Apart from the chairman, who was appointed by the Chamber of Commerce, the parties also have chosen lawyers as arbitrators. The subject matter of the dispute was a series of undecided issues concerning the application of the CISG, for an amount of over DM 143,000. Defendant rightly refers to the merchant tradition of the arbitral tribunal, including the appointment of merchants as arbitrators. Still, this of point of view is of secondary importance in the present case under the above circumstances, in particular, where both parties have chosen lawyers as arbitrators.
 "Under these circumstances, it is the opinion of the arbitral tribunal that compensation for the extrajudicial costs, lacking a specific agreement thereon, is founded on the fact that, in principle, a party cannot reasonably be expected to take part in an arbitral procedure without counsel. In practice, in such cases [a party] will not readily renounce being represented by counsel. In the present case, both parties engaged counsel; also the defendant, who has his seat here [in Hamburg] and, like the claimant, has no in-house lawyer. Also, in international commerce both parties must, when agreeing on arbitration, take it for granted that the foreign party, - here, the claimant - will only be able to take part in the arbitration with the assistance of local counsel, were it only because of the distance.
 "(c) Further, for the supplemental interpretation of the arbitral clause, the procedural law of the country of the arbitral tribunal, respectively its seat (lex fori), [page 47] can be applied or excluded in favour of the application of supranational law. On the one hand, the principle of the apportionment of costs following victory or defeat is not valid in all foreign systems. On the other hand, compensation for extrajudicial costs in arbitration can be a reason for choosing an arbitral tribunal with such procedural faculty on the basis of an agreement, rules or lex fori.
 "The relevant German provision is to be found, as mentioned above, in Sect. 91 et seq. ZPO. The exclusion of compensation for counsel's fees under the rules of some local arbitral tribunals, lacking an agreement to the contrary by the parties, is not an argument against compensation. In fact, arbitration rules are also used [in Germany] which provide for the compensation for counsel's fees. The DIS Rules may be taken as a general example, in so far as such an example is to be referred to for a supplemental interpretation.
 "The fact that one of the parties has its seat abroad can be considered when weighing the interests [of the parties] against each other, since compensation for extrajudicial costs is also widely applied in foreign arbitration countries, e.g., in Western or neutral countries such as France, The Netherlands, in Vienna/Austria, in Stockholm/Sweden  and in Zurich/Switzerland.
Apart from this, arbitral tribunals [in the United States] increasingly apply compensation rules in international relationships. Further, the claimant, who has his seat in the former Crown Colony of Hong Kong, falls rather under the sphere of influence of English law, where the principle applies, in court and arbitration, that judicial and extrajudicial costs follow the result of the proceedings. Even if we consider Hong Kong's vicinity to and political development towards the People's Republic of China, the result is the same: there, the extrajudicial costs sustained in arbitration are apportioned according to a certain percentage.
 "The above is confirmed by international arbitration rules. Also the UNCITRAL Model Law leaves room for an apportionment of extrajudicial costs, as do the Arbitration Rules of the International Chamber of Commerce in Paris, which are commonly applied world-wide (ICC Art. 20), and of its Comité Maritime International (CMI Art. 12).
 "The arbitral tribunal of the Hamburg Chamber of Commerce affirmed its jurisdiction to apportion extrajudical costs under Sect. 91 et seq. ZPO, with the same reasoning, in an arbitral award of 3 April 1996 (not published).
 "It should not be feared that the losing party shall be burdened with the compensation for extrajudicial costs incurred by the winning party at will. The result of the proceedings at the moment when the costs are incurred is uncertain and compensation only concerns the items and sums which are necessary under Sect. 91 ZPO."
 "Independent of the decision based on procedural law, compensation for costs is also founded on civil law as damages for delay. This claim co-exists [page 49] with the claim for the procedural compensation for the costs. This co-existence is not questioned even by those arbitral awards which refuse apportionment based on procedural law, because it is not the practice. [These awards hold that] where, other than in the present case, compensation for the costs is expressly excluded by agreement or rules, the claim for damages for delay, based (on the meaning and purpose of civil law), is also consequently excluded.
 "The claim for compensation for delay in the payment of goods is based on Art. 61(1) in connection with Art. 74 CISG.
32. "Schwab/Walter, Schiedsgerichtsbarkeit, Chapter 12 III nos. 8-9."
33. "Publication of the Council of State 211/96 of 22 March 1996."
34. "Cf. Leutheusser/Schnarrenberger, BB 1996 Annex 5 pp. 2, 3; Schmidt/Syaßen, DRiZ 1994 359, 360."
35. Sect. 91 of the German Code of Civil Procedure (ZPO) reads in relevant part: "l. The losing party bears the costs of the lawsuit ..."
36. "Schwytz BB 1974, 673, 675; Glossner/Bredow/Bühler, Das Schiedsgericht in der Praxis, 3rd ed. no. 483; Maier, Handbuch der Schiedsgerichtsbarkeit, nos. 503, 508."
37. "Schiedsgericht und Schiedsverfahren, p. 73."
38. "Kühl, Schiedsgerichtsbarkeit im Seehandel, p. 81; Wais in Schütze/Tscherning/Wais, Handbuch des Schiedsverfahrens, 2nd ed. no. 113."
"(1) The parties are bound by any usage to which they have agreed and by any practices which they have established between themselves.
(2) The parties are considered, unless otherwise agreed, to have impliedly made applicable to their contract or its formation a usage of which the parties knew or ought to have known and which in international trade is widely known to, and regularly observed by, parties to contracts of the type involved in the particular trade concerned."
40. "BGH 25 November 1993, VII ZR 17/93 MDR 1994, 358."
41. "Cf. Arbitral Tribunal, Association of Importers of Egg Products, award of 23 January 1959, RKS B 5 no.5; Hamburg Friendly Arbitration, award of 6 December 1978 RKS B no. 5 - reference; 3 February 1972 B 5 no. 4; 3 June 1965 B 5 no. 1; 14 March 1960 B 5 no. 6."
42. "18 November 1988, RKS B 5 no. 17."
43. "6 January 1992, RKS B 5 no. 20; cf. BGH MDR 1994, 358."
44. "OLG Düsseldorf 8 January 1981, 2 U 57/80 ZIP 1981,172; LG Hamburg 27 September 1974 11, S 69/74 MDR 1975, 143; Zöller/Geimer, ZPO 19th ed. Sect. 1034 no. 29; Schlosser in Stein/Jonas, ZPO 20th ed. Sect. 1042 no. 26, against Sect. 1025 no. 34"
45. "BGH 23 November 1972, VII ZR 178/71 NJW 1973, 191."
46. "Cf. Obergericht Zürich 23 August 1945, Schweizerische Juristen-Zeitung 1946, Vol. 42 no. 72 p. 186, 187; Baumgartner, Die Kosten des Schiedsprozesses, pp. 86 et seq."
47. "LG Hamburg MDR 1975, 143; Palandt/Heinrichs, BGB 55th ed. Sect. 157 no. 2 et seq.; Herber/Czerwenka, CISG Art. 8. no. 6."
48. "Cf. Zöller/Geimer, ZPO Sect. 1034 no. 29."
49. "Cf. Albers in Baumbach/Lauterbach/Albers/Hartmann, ZPO 54th ed. Sect. 1040 no. 3; Henn, Schiedsverfahrensrecht, pp. 199 et seq., 205; Röhl in Luchterhand, Alternativkommentar ZPO Sect. 1034 no. 15."
50. "Zöller/Geimer, ZPO Sect. 1034 no. 67; Schwab/Walter, op. cit., Chapter 33 no. 1."
51. "Arbitral Tribunal of the German Coffee Association, 14 February/3 March 1976 and 27 July 1978, RKS B 5 nos. 8, 10."
52. "LG Hamburg MDR 1975, 143; Schlosser in Stein/Jonas, ZPO Sect. 1025 no. 34."
53. "Zöller/Geimer, ZPO Sect. 1034 no. 29."
54. "Obergericht Zürich SJZ 1946, Vol. 42 no. 72 p. 186 et seq.; Arbitral Tribunal of the ICC Düsseldorf 9 June 1978, RKS B 5 no. 9; Baumgartner, op. cit., p. 87."
55. "BGH 21 November 1968, VII ZR 77/66 Wertpapier-Mitteilungen 1969, 74; Maier in Münchener Kommentar BGB, Sect. 1040 no. 12; Raeschke-Kessler/Berger/Lehne, Recht und Praxis des Schiedsverfahrens, 2nd ed. nos. 469, 474, 477, and against a 'certain animosity against counsel' of a certain Hamburg practice, Maier, Handbuch der Schiedsgerichtbarkeit nos. 503, 511."
56. "Schwytz BB 1974 673."
57. "Baumgartner, op. cit., pp. 86, 90; Zöller/Geimer, ZPO 19th ed., Sect. 1034 no. 29."
58. "Schwab/Walter, op. cit., Chapter 33 no. 1."
59. "Krause/Bozenhardt, Internationale Handelsschiedsgerichtsbarkeit, p.49;comparative law, Kühl, op. cit., p. 195."
60. "Cf. Arbitral Tribunal of the Goods Association and German Coffee Association."
61. "For instance, Arbitration Rules of the German Maritime Arbitration Association - cf. Trappe, Festschrift Glossner, 459, 461, 470; Trappe, International Business Lawyer 1986, Vol. 14, no. 2, February, p. 12; further the summary by Trappe in Böckstiegel, Handelsschiedsgerichtsbarkeit in England und Deutschland, p. 77 et seq. - in particular Arbitration Rules DIS Sect. 22."
62. "Junge in von Caemmerer/Schlechtriem, CISG 2nd ed., Art. 8 no. 3."
63. "Kühl, op. cit. p. 159 et seq."
65. "Aden, Internationale Handelsschiedsgerichtsbarkeit, p. 175."
66. "Lionnet, Handbuch der internationalen und der nationalen Schiedsgerichtsbarkeit, p. 323."
68. "Cf. Strohbach, Handbuch der internationalen Handelsschiedsgerichtsbarkeit, no. 275."
69. "Kühl, op. cit., pp. 120, 185."
70. "Bühler, Zeitschrift für Vergleichende Rechtswissenschaft 1988, Vol. 87, pp. 431, 441, 443; Bülow, Journal of International Arbitration 1995, Vol. 12, no. 1, pp. 87, 91"
71. " '[T]he costs follow the event'- Benkö, Schiedsverfahren und Vollstreckung von Schiedssprüchen in England, p.127; Bühler, ZVglRWiss 1988, Vol. 87, 431, 443 fn. 47; Kühl, op. cit., p. 39; Kühn in Böckstiegel, op. cit., pp. 101, 103; Lionnet, op. cit., p. 317."
72. "Trappe, RIW 1989, 107, 112; Trappe, Arbitration International 1989, Vol. 5, pp. 173,185."
73. "Junge in von Caemmerer/Schlechtriem, C1SG 2nd ed., Art. 8 no. 3."
74. "Art. 40(2); Aden, op. cit., p. 256; Krause/Bozenhardt, op. cit., pp. 110, 119; Lionnet, op. cit., p.328."
75. "See ICC arbitral awards of 30 May 1979, nos. 2099-3100, summarized in Javin/Derains, Collection of ICC Arbitral Awards, 1986, nos. 5056, 5279; 1987, nos. 5255, 5318, 5418, 5558, summarized by Bühler, ZVglRWiss 1988, Vol. 87, 431, 443, 446, 448; Aden, op. cit., p. 123; Lau/Lau, Transportrecht, 1990, 133, 134."
v76. "Schütze, Schiedsgericht und Schiedsverfahren, p.73; BGH 9 March 1976, VI ZR 98/75 BGHZ 66,112,114 = MDR 1976, 831; Hartmann in Baumbach/Lauterbach/Albers/Hartmann, ZPO 54th ed., Sect. 91 nos. 43 et seq., 69 `Delay'; Palandt/Heinrichs, BGB 55th ed. Sect. 286 no. 7."
77. "Hamburg Friendly Arbitration, RKS B 5 nos. 1 and 6."
78. "Eberstein/Bacher in von Caemmerer/Schlechtriem, CISG 2nd ed., Art. 78 nos. 34, 36; Herber/Czerwenka, CISG Art. 78 no. 8; Reinhart, UN-Kaufrecht, Art. 78 no. 3; Rudolph, Kaufrecht der Export-und-Import-Veträge, CISG Art. 78 no. 5."
79. "According to Sect. 91 ZPO; Baumbach/Lauterbach/Albers/Hartmann, ZPO 54th ed., Sect. 91 nos. 220, 242; von Eicken in Gerold/Schmidt, BRAGO 12th ed., Sect. 52 no. 47; Riedel/Sußbauer, BRAGO 5th ed, Sect. 52 no. 29; Bork in Stein/Jonas, ZPO 21st ed., Sect. 91 no. 71b; Zöller/Herget, ZPO 19th ed., Sect. 91 no. 13 'Foreign'."

References: Art. 8
 Art. 20
 Art. 12
 Art. 61
 Art. 74
 Art. 8
 Art. 8
 Art. 8
 Art. 78
 Art. 78
 Art. 78
 Art. 78