Source: http://cisgw3.law.pace.edu/cases/981126g1.html
Timestamp: 2019-04-22 18:59:40+00:00

Document:
A Swedish seller, the defendant, delivered to a German buyer, the plaintiff, a cylinder for the production of tissue paper. The parties agreed that the purchase price [was] to include loading, transport, unloading, installation, insurance until the end of installation and extra work. Soon thereafter, delivery problems occurred followed by negotiations between the parties. The buyer gave notice about defects in a detailed list.
More than two years later the buyer sued the seller for damages.
The court applied the CISG by virtue of Art. 1(1)(a). The application was not excluded by Art. 3(2) CISG. The court found that in order to decide whether the preponderant part of the obligations of the seller consisted in the supply of labour or other services a comparison of the value of each performance in question was not admitted. The court considered the purpose of the contract and the circumstances of its formation and concluded that, under the agreement, the delivery of the cylinder was essential. Additional tasks involved, which amounted to services, such as the design of the machine, were to be regarded as part of the obligation to deliver the final product. Finally, the remaining aspects of performance, namely installation, attendance, transport and other services due under the agreement were of subordinate importance.
As to limitation of action the court held German law to be applicable. The limitation period commenced, when the buyer gave notice about the lack of conformity in the detailed list of damages (Article 39 CISG). Since according to German law, the limitation period was six months the claim was time-barred. This rule applied to all remedies open to the buyer under Article 45 CISG including the claims for damages, subsequent delivery (Article 46(2) CISG) or repair (Article 46(3) CISG).
Fixed price for items 1 through 7: a total of 2,450,000.- DM [Deutsche Mark].
This amount includes the costs for loading, transport, unloading, installation and insurance until the end of installation, the waste management of the old cylinder as well as all extra work under additional agreements."
The crepe-cylinder possesses a diameter of 5.5 m x 5.95 m, a wall thickness of roughly 80 mm and weighs an overall 150 tons. The high-quality unit is responsible for drying a still-moist length of paper in only one rotation, thereby making it possible to produce a large amount of tissue paper at high speed. The one rotation reduces the moistness of the paper from 60% to 5%. To serve this purpose, the cylinder is heated up with hot steam. Therefore, the crepe-cylinder needs to be fitted with a complete condensation system to drain the condensation water. This includes a precise mechanical system of condensation collection tubes (so-called headers) as well as a rising pipe which draws off the condensation water. The further details of how the crepe-cylinder operates are set out in the briefs submitted by the parties and the accompanying attachments.
In September of 1993, the crepe-cylinder was delivered to the [buyer] by the [seller]'s employees. Only a short period afterwards (still in 1993) and from then on in regular intervals, the cylinder gave cause for complaints that led to constant negotiations between the parties (beginning at the end of 1993).
Already in November of 1993 the crepe cylinder had not run smoothly (so-called rattle-feel-effect). In December of 1993, considerably premature, the entire cylinder had had to be re-ground. In January of 1994, the defect had led to a disturbance in the cylinder top. Each of these disturbances led to a considerable loss of production (630 tons, 940 tons and 207 tons of paper). In April of 1994, it had turned out that the collection tubes, which had led to the reception of the condensation, had not been installed in the correct manner. Periodically at later times, the cylinder had failed to run smoothly and had led to stoppages of and losses of production. As a result, the parties met for negotiations at the [buyer]'s place of business on 30 August 1994. There, they had agreed that the [seller] would try to remedy the defects and that they would commission an expert report on the various non-conformities. On 11 November 1994, the report by Prof. Dr. (...) was issued.
[Buyer] submits that since the cylinder had continuously given rise to complaints, it informed the [seller] by letter of 7 December 1994 of accrued damages in the total amount of roughly 15 million DM.
Before the Court, [buyer] calculates its damages as follows. Due to loss of production, additional expenditures for staff, the purchase of a new storage case and the lower value due to the life span of the cylinder, [buyer] suffered damages in the amount of 3,270,150.09 DM. Relief is sought in this amount.
[Buyer] asks the Court to order the [seller] to pay [buyer] 3,270,150.09 DM with interest of 7% from 1 January 1995.
[Seller] asks the Court to dismiss [buyer]'s claim.
[Seller] denies that it is responsible for the various complaints put forward by the [buyer] and the causal connection to the damage. [Seller] furthermore invokes the period of limitation. With respect to the limitation of action, [seller] submits that irrespective of the contractual agreement that German law was to govern the contract, the Convention on Contracts for the International Sale of Goods has to be applied. However, according to the relevant statute law, the period of limitation had commenced six months after the first notice of non-conformity given by the [buyer]. Therefore, the claim had been time-barred long before the [buyer] brought the action. When considering the various elements of the contract, the essential obligation consisted in the delivery of the crepe-cylinder, therefore the rules for the sale of goods have to be applied. This led to the application of the CISG as well as the specific limitation period for sales. This period also extended to other concurrent remedies under German law, because the CISG superseded the remedies given under German statutes and the relevant case law. Therefore, a recourse to the period of limitation for positive Vertragsverletzung [***] was inadmissible.
[Seller] submits a counterclaim asking the Court to issue a decree declaring that the [buyer] is not entitled to alleged further damages in the amount of 26,566,700.38 DM with respect to the delivered crepe-cylinder.
With respect to the counterclaim, the [seller] submits that the further claims for damages alleged by the [buyer] are completely unfounded. Therefore, a counterclaim requesting a declaratory judgment denying the [buyer]'s claim is both admissible and justified.
[Buyer] asks the Court to dismiss [seller]'s counterclaim.
With respect to the counterclaim, the [buyer] is declaring attornment. [Buyer] submits that it does not assert any further claims beyond the ones raised in this proceeding. [Buyer] therefore requests that the Court issue a partial decree by consent. The parties are still arguing about the costs for the acknowledged counter-claim.
With respect to the further submissions of the parties, the Court refers to the submitted briefs and the accompanying attachments.
The [buyer]'s claim is dismissed as unfounded. The [seller]'s invocation of the period of limitation is successful.
The Convention on Contracts for the International Sale of Goods forms the legal basis for the contract and therefore the basis for the decision that the claim is time-barred. The CISG is to be applied if the parties to the contract have their place of business in different Contracting States (Art. 1(1)(a) CISG). Both the Federal Republic of Germany and Sweden ratified the Convention (cf. v. Caemmerer/Schlechtriem, Kommentar zum einheitlichen UN-Kaufrecht, Attachment I, p. 801).
The contract is not excluded from the Convention by virtue of Art. 3(2) CISG. We reach this conclusion as follows.
According to Art. 3(2) CISG, the Convention does not apply to contracts in which the preponderant part of the obligations of the party who furnishes the goods consists in the supply of labor or other services. The Court therefore needs to assess whether the parties saw the preponderant part of [seller]'s obligations in the delivery of the crepe-cylinder (the sales element) or in the services accompanying the delivery (installation etc.). As it is impossible to ascertain the value of [seller]'s various obligations under the contract (cf. v. Caemmerer/Schlechtriem, a.a.O., 2nd ed., Art 3 CISG n.8 with further references), both the contractual documents and the circumstances of the formation of the contract have to be taken into account. The wording of the contract and the resulting legal proceedings make it obvious to the Court that the preponderant part of the contract was the sale and the delivery of the crepe-cylinder itself and that [seller]'s other services were of lesser importance. In the contract, the parties defined the production and delivery of the crepe-cylinder with the relevant diameter and technical equipment as the subject of the contract. Therefore, at the time of the conclusion of the contract, the parties put the emphasis of the contractual obligations on the sale and delivery of this high-quality unit. The classification as a sales contract is also not rebutted by the fact that the parties agreed that [seller] was not only obligated to manufacture and deliver the unit, but also to load, transport and install it and furthermore provide other by-services such as maintenance. The Court is aware that before the cylinder (which had been fitted for [buyer]'s individual needs) was produced and delivered, a major engineering effort as well as planning and conceptual work was required. However, these engineering efforts contributed to the production and delivery of the unit, determine its value, and therefore do not change the fact that the focus of the contract was the cylinder itself. [Seller]'s further contractual obligations (transport, installation, maintenance) are therefore accessory obligations that pale in comparison to the value of the manufactured cylinder. This assessment leads to the application of the United Nations Convention on Contracts for the International Sale of Goods (cf. v. Caemmerer/Schlechtriem, Einheitliches UN-Kaufrecht, 2nd ed., Art. 3 n.8).
This legal constellation leads to the application of Art. 3 Vertragsgesetz [****] in connection with Art. 45 CISG and �� 477, 478 [*]. However, �� 477, 478 BGB need to be applied correspondingly, so that the period of limitation stipulated in � 477 BGB commences on the day the buyer gives notice of a lack of conformity to the seller under Art. 39 CISG. As a result, the buyer's remedies for defective goods become time-barred six months after the notice of non-conformity is given (v. Caemmerer/Schlechtriem, Einheitliches UN-Kaufrecht, 2. Aufl., Art. 45 n. 62).
This short period of limitation also applies to the [buyer]'s claim at hand, which is based on positive Vertragsverletzung [***]. With respect the remedies provided for in Art. 45 CISG, the Convention supersedes all claims under national law. Art. 45 includes the remedies of repair, of substitute delivery and of damages. Every breach of contract with respect to the delivered goods is therefore covered by Art. 3 Vertragsgesetz [****] in connection with the CISG, irrespective of whether the cause of the resulting damage is the lower value of the goods, consequential damages or the breach of an accessory obligation. Therefore, the period of limitation for the breach of accessory obligations in international sales contracts is not thirty years as stipulated by � 195 BGB [*], but the period of limitation provided for sales contracts in � 477 BGB (cf. v. Caemmerer/Schlechtriem, Einheitliches UN-Kaufrecht, 2nd ed., Art. 3 n. 4 with references to case law).
In the case at hand, the relevant period of limitation is therefore six months, commencing on the day the notice of the lack of conformity was given.
Due to the expiry of the period of limitation, [buyer]'s claim for damages became time-barred six months after it gave notice of the non-conformity of the merchandise. After the cylinder was delivered to the [buyer] in September of 1993, the parties negotiated during the time period between 30 August 1994 and 23 March 1995. These negotiations suspended the running of the limitation period. The parties at first negotiated about the [seller]'s effort to repair the goods and commissioned an expert report analyzing the cause of the damage (the report was issued on 11 November 1994). The parties' negotiations led the [buyer] to inform the [seller] by letter of 7 December 1994 that [buyer] was considering a claim for damages and that the damages might amount to roughly 15 million DM. [Buyer] again calculated and informed [seller] of the possible overall damage in a detailed list on 23 March 1995. This itemization of damages at the latest ends the suspension of the running of the limitation period under � 639 (2) BGB. Therefore, this date at the latest has to be considered as the day on which a notification of the defect had been given.
The period of limitation thus expired at the end of September 1995 at the latest. The action brought on 21 May 1997 was therefore already time-barred. At the time the [buyer] commenced judicial proceedings, the period had expired and could therefore no longer cease to run.
In view of these facts, the Court finds that [buyer]'s claim is unjustified.
Due to the [buyer]'s attornment, the Court issues a partial decree by consent with respect to [seller]'s counterclaim. The decree is based on the [buyer]'s declarations before the Court on 10 August 1998 and on 29 October 1998 as stipulated by � 307(1) ZPO [*].
* All translations should be verified by cross-checking against the original text. For purposes of this translation, the Plaintiff of Sweden is referred to as [seller]; the Defendant of Germany is referred to as [buyer]. Amounts in German currency (Deutsche Mark) are indicated as [DM].
** Ruth M. Janal, LL.M (UNSW) is a PhD candidate at Albert-Ludwigs-Universität Freiburg.
*** Literally translated the term positive Vertragsverletzung means "positive breach of contract". It is a remedy based on case law that is available for all breaches of contract not provided for in the German Civil Code, i.e., the breach of accessory obligations and consequential damages.
**** Vertragsgesetz = German Law on the UN Convention on Contracts for the International Sale of Goods, by which the Convention was ratified. Art. 3 provides that the limitation period for defective goods under the German Civil Code (�� 477, 478 BGB) is to be applied to claims arising out of Art. 45 CISG. The period commences on the day the notice of non-conformity is given by the buyer under Art. 39 CISG.

References: Art. 1
 Art. 3
 v. 
 Art. 3
 Art. 3
 v. 
 Art 3
 v. 
 Art. 3
 Art. 3
 Art. 45
 Art. 39
 Art. 45
 Art. 45
 Art. 45
 Art. 3
 v. 
 Art. 3
 Art. 3
 Art. 45
 Art. 39