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CISG CASE PRESENTATION

Serbia 27 November 2002 Foreign Trade Court of Arbitration attached to the Yugoslav Chamber of Commerce (Mushroom case) [translation available]
[Cite as: http://cisgw3.law.pace.edu/cases/021127sb.html]

Primary source(s) of information for case presentation: Case text

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Case identification

DATE OF DECISION: 20021127 (27 November 2002)

JURISDICTION: Arbitration ; Yugoslavia (Serbia)

TRIBUNAL: Foreign Trade Court of Arbitration attached to the Yugoslav Chamber of Commerce

JUDGE(S): Unavailable

CASE NUMBER/DOCKET NUMBER: T-18/01

CASE NAME: Unavailable

CASE HISTORY: Unavailable

SELLER'S COUNTRY: Federal Republic of Yugoslavia / Serbia (claimant)

BUYER'S COUNTRY: Germany (respondent)

GOODS INVOLVED: Fresh chanterelles mushrooms


Classification of issues present

APPLICATION OF CISG: Yes [Article 1(1)(a)]

APPLICABLE CISG PROVISIONS AND ISSUES

Key CISG provisions at issue: Articles 7(2) ; 8(3) ; 9(2) ; 39(1) [Also relevant Article 78 ]

Classification of issues using UNCITRAL classification code numbers:

7C23 [Gap-filling by domestic law: referring to whether a notice of lack of conformity has to be in writing as a gap in the CISG, the arbitrator turned to domestic Serbian law to resolve this issue];

8C4 [Interpretation of Party's statements or other conduct: subsequent conduct of the parties confirms existence of the contract including the arbitration agreement];

9D [Usages and practices: impact on provisions of Convention];

39A ; 39C [Requirement to notify seller of lack of conformity: buyer must notify seller within reasonable time (16 days not reasonable when non-conformity relates to perishable goods) and in an unambiguous manner; Other issues: whether notification must be in writing]

Descriptors: Gap-filling ; Intent ; Usages and practices ; Lack of conformity notice, timeliness ; Lack of conformity notice, specificity

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Editorial remarks

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Citations to case abstracts, texts, and commentaries

CITATIONS TO ABSTRACTS OF DECISION

(a) UNCITRAL abstract: Unavailable

(b) Other abstracts

Unavailable

CITATIONS TO TEXT OF DECISION

Original language (Serbian): Click here for Serbian text of case

Translation (English): Text presented below

CITATIONS TO COMMENTS ON DECISION

Serbian: [2008] Vladimir Pavi, Milena Djordjevi, Primena Becke konvencije u arbitraznoj praksi Spoljnotrgovinske arbitraze pri Privrednoj komori Srbije, Pravo i privreda br. 5-8/2008, cited at pp. 583, 590, 600-602

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Case text (English translation)

Queen Mary Case Translation Programme

Foreign Trade Court of Arbitration
Attached to the Yugoslav Chamber of Commerce in Belgrade

Award of 27 November 2002 [Proceedings No. T-18/01]

Translation [*] by Marko Jovanovi, LL.M.
Edited by Dr. Vladimir Pavi, Milena Djordjevi, LL.M. [**]

Claimant (Yugoslavia) [Seller] v. Respondent (Germany) [Buyer]

The Foreign Trade Court of Arbitration attached to the Yugoslav Chamber of Commerce in Belgrade in the proceedings conducted by X as sole arbitrator between [Seller] from Yugoslavia as Claimant and [Buyer] from Germany as Respondent for the claimed sum of Deutsche Mark [DM] 36,000 renders the following

AWARD

   (1)    The [Seller]'s claim is granted and [Buyer] is ordered to pay to [Seller] the amount of EUR 18,407.73 within 15 days from the day of receipt of the Award;
 
   (2)    [Buyer] is ordered to pay to [Seller] the interest for the amount referred to in paragraph (1) supra as of 24 June 2001 until the debt is fully settled, at the 'domiciliary' interest rate, i.e., at the statutory interest rate applied in Germany in case of late payment.
 
   (3)    [Buyer] is ordered to pay to [Seller] compensation for the costs of proceedings in the amount of Serbian dinars [RSD] 135,014.00 within 15 days from the receipt of this Award.

STATEMENT OF REASONS

1. Jurisdiction

Pursuant to Article 15 paragraph 1 of the Rules of the Foreign Trade Court of Arbitration, the jurisdiction of arbitration in this matter was examined by the Board of the Court of Arbitration at the session held on 24 December 2001. The Board established that an arbitration agreement exists in the case at hand. The arbitration agreement appears in the form of an arbitration clause contained in the Contract for exportation concluded between [Seller] and [Buyer] on 22 June 2001.

After the jurisdiction of the arbitration was confirmed by the Board of the Court of Arbitration, [Buyer] entered into discussion on the subject-matter of the dispute and submitted an extensive Answer to the Statement of Claim, without contesting the jurisdiction. In addition, [Buyer] failed to challenge the jurisdiction of this Arbitration in its written submission dated 21 March 2002. However, [Buyer] contested the jurisdiction of this Arbitration in its written submission dated 18 April 2002, stating that [Seller] and [Buyer] never concluded any contract at all, so, consequently, no arbitration clause providing for the jurisdiction of this Arbitration could exist.

This belated plea contesting jurisdiction could not be accepted. Namely, all other arguments made by [Buyer], [Buyer]'s conduct at the moment of delivery of the goods that gave rise to the dispute at hand, subsequent partial payment of the price, the fact that [Buyer] entered into discussion on the subject-matter of the dispute without contesting the jurisdiction, as well as the [Buyer]'s statements during the proceedings held up to the point where it raised a plea contesting jurisdiction show that [Buyer] did consider itself bound by Contract for exportation of fresh chanterelles mushrooms concluded with [Seller] on 22 June 2001.

This Contract contained an arbitration clause providing for the jurisdiction of the Foreign Trade Court of Arbitration attached to the Yugoslav Chamber of Commerce, i.e., this tribunal. The Contract was concluded in writing and it contains [Buyer]'s stamp. The marks on the written sample of the Contract show that [Buyer] sent it by fax to [Seller]. Despite these facts, and three months after it had entered into discussion on the subject-matter of the dispute, [Buyer] challenged the authenticity of the Contract.

The validity of the arbitration clause was assessed independently from the question of validity of the Contract. The Board of the Court of Arbitration established that the Contract provides for the jurisdiction of this Arbitration in a way that unambiguously shows the intent of the Parties. Therefore, the plea contesting jurisdiction is rejected.

2. Appointment of arbitrator

Since the Parties failed to select the arbitrator within the time limit set by the Rules, the Chairman of the Arbitration Court, acting pursuant to Article 27(3) of the Rules, appointed X. as Sole Arbitrator.

3. Arbitral proceedings

Upon the reception of the [Buyer]'s Answer to the Statement of Claim and the written reply to that answer submitted by [Seller] on 8 February 2002, the hearing was held before the Arbitrator on 8 March 2002 in presence of counsel for both Parties.

Pursuant to the Arbitrator's decision made at the hearing, the Parties submitted written evidence and presented their additional legal standpoints in an exchange of written submission. After the submissions were exchanged, the Arbitrator concluded the phase of gathering evidence by a decision made in the written form and delivered to the Parties.

4. [Seller]'s claim and position of the Parties with respect to the facts of the case and the legal issues

In its Statement of Claim of 27 August [Seller] requested from [Buyer] the payment of the amount of DM 36,000.00 with a 6% 'domiciliary' interest on a monthly basis as of 1 July 2001 for the performance of the Contract. [Seller] also requested the reimbursement of the costs of arbitral proceedings. At the hearing held on 8 March [Seller] corrected its Statement of Claim with respect to the payment of interest. Namely, [Seller] requested the payment of the 'arbitral' instead of the 'domiciliary' interest.

[Seller] based its claim on the fact that on 22 June 2001 it concluded with [Buyer] a Contract for delivery of 3,500 kg of fresh mushrooms at the price of DM 12 per kilogram. As a proof for this statement, [Seller] submitted the written Contract. 3,000 kg of mushrooms were delivered to [Buyer] by truck and the delivery took place at the business seat of [Buyer] on 27 June 2001.The invoice for these goods, filed under number 2406/01, was sent on 24 June 2001. As a proof that the delivery actually took place, [Seller] submitted the CMR number 0011409 signed and stamped by [Buyer].

[Seller] further submitted that [Buyer] started paying the contracted price by giving a bank order for the transfer of DM 18,000.00 to the account of [Seller]. However, when [Seller] requested that [Buyer] pay the total sum due, [Buyer] revoked the bank order. [Seller] pointed out that [Buyer] did not raise any objections to the quality of the goods until [Buyer] received the request for payment of the total sum due. It was not until 12 July that [Buyer] made a notice of non-conformity and sent a written specification of the lack of conformity drafted by [Buyer]'s employees. Since [Seller] performed its contractual obligation, it requests that this Arbitration Court order the [Buyer] to pay the price for the goods.

In the Answer to the Statement of Claim, [Buyer] submitted that it inspected the quality and the quantity of the goods immediately upon the delivery and it made a written notice thereof. At the same time, [Buyer] inspected the imported goods and refused to receive the goods due to the excessive lack of quality. [Buyer] further alleged that it immediately communicated the results of these inspections to [Seller] by phone and offered to return the goods at its own expense. According to [Buyer]'s statement, during the aforementioned phone conversation [Seller] insisted that the goods should be sold in Berlin. For that purpose, [Seller] contacted its business partner, Mr. Z of Berlin, but Mr. Z's intervention remained without any effect. As a result of [Buyer]'s great efforts, eventually Firm F agreed to buy the goods at the price of DM 6 per kilogram. This reduction of price was noted in the CMR. Acting as a prudent businessman, [Buyer] transferred the amount received as payment for the goods from the third party, Firm F, to [Seller]. However, when [Seller] sent an invoice for the total amount, [Buyer] revoked the order for transfer in an attempt to prevent [Seller] from concluding that, by making the intended payment, [Buyer] implicitly accepted the debt of the total sum claimed. In subsequent submissions [Buyer] denied the existence of any contractual relationship with [Seller] at all.

5. Applicable law

The Parties failed to include a choice-of-law clause in their Contract. Pursuant to Article 46(2) of the Arbitration Rules, the sole arbitrator found that the most suitable primary source of law in the case at hand is the UN Convention on Contracts for the International Sale of Goods (Vienna Convention, hereinafter: the CISG), ratified by the countries of domicile of both Parties to the Contract. Pursuant to Article 19 of the Law on Resolution of Conflicts of Laws with Regulations of Other Countries, which is in force in FR Yugoslavia, the issues falling outside the scope of the CISG shall be governed by the law of the place of seller.

6. Legal issue

It is undisputed between the Parties that [Seller] delivered to [Buyer] 3.000 kg of chanterelles mushrooms (the second delivery made by plane does not represent the subject-matter of this dispute) at the contracted price of DM 12 per kilogram. It is disputed whether the delivered goods had the standard quality or the quality provided for by the Contract and, if not, whether [Buyer] gave a notice of non-conformity in the appropriate manner, as required by law. In relation to this question, it should also be examined whether [Buyer] was obliged to pay the price or whether it became entitled to request the reduction of price, bearing in mind that it had disposed of the goods, which it proved itself by submitting the invoice it had sent to Firm F.

7. Evidence

As a proof of existence of the [Buyer]'s obligation to pay the price, [Seller] submitted the Contract concluded with [Buyer] by fax, the proof that the delivery has taken place - CMR No. 0011409, the invoice No. 2406/01 of 24 June 2001, and the statements from drivers employed at the freight forwarder, who declared that the delivery and reception of goods were performed without any relevant objections. [Seller] also submitted the documents which prove that the defects of the part of the goods sent by plane occurred during the transport. The submitted documents show that the carrier assumed responsibility for that damage.

[Buyer] offered to produce numerous pieces of evidence regarding the fact that the delivered goods were not of the required quality. Apart from the Protocol containing the specification of the lack of conformity, drafted by [Buyer] and submitted to [Seller] on 12 July, [Buyer] invoked the witness statements made by its employees and submitted written copies thereof. [Buyer] also suggested that other witnesses should be summoned, namely, Mr. M, the representative of [Buyer], and Mr. Z who, acting pursuant to [Buyer]'s instructions, tried to find a new buyer for non-conforming goods. [Buyer] submitted the document containing the notice of non-conformity made to [Buyer] by Firm F through its representative. Finally, [Buyer] suggested that the Arbitrator summon the witnesses who could confirm that it made a notice of non-conformity to [Seller] by phone immediately after the delivery of the goods in question took place.

The Arbitrator did not accept the suggestions to produce evidence by hearing witnesses.

The crucial question for the outcome of this dispute is whether [Buyer] made a proper notice of non-conformity. Only if the relevant notice has been made in an appropriate manner, would it be appropriate to examine whether the notice was justified, i.e., whether [Buyer]'s claims regarding the lack of quality are founded, and, in case that lack of conformity really existed, what rights has [Buyer] acquired and if it acted in compliance with these rights. It is the Arbitrator's opinion that the statements of witnesses regarding the alleged phone conversation made in their presence in a foreign language cannot represent a valid proof for establishing whether the notice of non-conformity has been properly made.

The documents submitted by both Parties -- the CMR and the Protocol containing the specification of the lack of conformity -- do not represent per se a sufficient proof of existence of a timely and proper notice of non-conformity. The Arbitrator took into consideration the fact that the correction of the price in the CMR was unilaterally made by [Buyer] upon the delivery of goods, i.e., before [Buyer] had received the notice of non-conformity made by the [Buyer]'s customer, Firm F.

The authorized representative of [Buyer] entered by his own hand a reduced price onto the CMR. That reduced price corresponded to the price that [Buyer] had accepted and started paying. However, the abovementioned unilateral act does not represent a notice of non-conformity in the sense of Article 39 CISG. The notice of non-conformity must be unambiguous and it must contain the specification of the lack of conformity. The correction of the price in the CMR does not fulfill these requirements.

As it stems from the uncontested submissions of the Parties made at the hearing for oral argument and in their written submissions, [Buyer] submitted to [Seller] the Protocol on control of quality containing the specification of the lack of conformity drafted by [Buyer]'s employees and bearing the date on which the delivery has been made only when the dispute regarding the price has already arisen between them, on 12 July 2001. This delay cannot be considered as reasonable in the sense of Article 39 CISG.

Regarding the allegations that the Parties were not in a contractual relationship at all and the suggested evidence thereof (witnesses), the Arbitrator rejected both the [Buyer]'s allegations and the [Buyer]'s suggestions for producing evidence. The allegations contradict the overall conduct of [Buyer], the fact that it received the goods, allegedly made a notice of non-conformity, resold the goods and started paying the price to [Seller]. All these facts are inconsistent with the submission that [Buyer] had no contractual relationship at all with [Seller].

The Arbitrator also rejected the submissions concerning the legal status of Mr. M, i.e., the allegation that he was neither the owner nor the authorized representative of [Buyer]. Even if these allegations were true, that would only mean that the notice of non-conformity was made by an unauthorized person, which would then entail the question of the validity of such notice. However, the submissions regarding Mr. M's alleged lack of authority are not substantiated by any other statement or evidence. The only proof thereof is the statement of the counsel for [Buyer], who was appointed by Mr. M. On the other hand, the entire correspondence containing [Buyer]'s logos and stamps clearly shows that Mr. M was the authorized representative of [Buyer].

Finally, [Buyer] presented evidence of the subsequent resale of goods at a reduced price. However, the fact that [Buyer] made subsequent arrangements with the goods does not constitute a proof of the existence of a timely and proper notice of non-conformity. Nevertheless, since the goods in question are perishable, the Arbitrator considered these proofs a potential indirect evidence of the fact that the goods were non-conforming and that the notice had been made after all. But [Buyer] failed to submit any documents which would allow to the Arbitrator to determine with certainty whether [Buyer] was forced to resell the non-conforming goods right away to the third party at a reduced price in order to mitigate the damage. [Buyer] also failed to submit evidence that it made a contract for resale, sent the invoice and received the payment of the price in the way which was specified by the contract. The invoices subsequently made by [Buyer] and submitted to this Arbitration do not contain such proofs.

8. Legal opinion taken in the decision

Pursuant to Article 39 CISG, buyer loses the right to rely on a lack of conformity of the goods if he does not give notice of non-conformity to the seller without delay. The CISG does not specify the form of the notice of non-conformity, but the fact that the notice has to be sent, as well as the provisions on its content logically suggest that the notice should be in the written form. It is a standard procedure in foreign trade that objections should be made in the written form and that any oral objection should be immediately confirmed in writing. Pursuant to the Yugoslav Law on Contracts and Torts which, according to the relevant provisions of the Law on Resolution of Conflicts of Laws with Regulations of Other Countries, governs the issues falling outside the scope of the CISG, a notice specifying the nature of the lack of conformity should be sent by registered mail, by telegram or by other reliable means.

It is the arbitrator's legal opinion that [Buyer] has not made the notice of non-conformity in an appropriate and timely manner. Even if an oral notification (notice of non-conformity) made by phone was really given to [Seller], it had to be confirmed in writing within a reasonable time and it had to be accompanied by a specification of the nature of the lack of conformity and the necessary pieces of evidence. The facts of the case and the evidence gathered suggest that [Seller] and [Buyer] exchanged fax-messages regarding the delivery in question. As a professional trader, [Buyer] ought to have known that he had an obligation to act as described above. A unilateral correction of the price in the CMR is not the appropriate way of giving the notice of non-conformity because, among other reasons, it does not contain the specification of the nature of the lack of conformity. In the light of the abovementioned arguments, the Sole Arbitrator considered that the notice of non-conformity was not made in an appropriate and timely manner and that, consequently, [Buyer] lost the right to rely on the lack of conformity, including the right to request the reduction of the price.

By deciding to grant [Seller]'s main claim, the Sole Arbitrator applied the rules on compulsory conversion of Deutsch Marks (DM) into Euros (EUR), at the exchange rate of 1.9557 DM for a euro.

As far as the issue of interest is concerned, [Seller] is entitled to interest as of the day on which the obligation to pay the price became due, and that is the day on which the invoice was sent, until the final payment of the amount stated above, i.e., the 'domiciliary' and not the 'arbitral' interest.

The expenses that [Seller] incurred for its participation in the arbitral proceedings are calculated on the basis of the specification made by [Seller] on 14 November 2002. They costs consist of 87,414.00 dinars (eighty-seven thousand four hundred fourteen dinars) deposited in advance for the arbitral fee and 47,600.00 dinars (forty-seven thousand six hundred dinars) for the costs of its legal representation. In total, the expenses incurred by [Seller] amount to 135,014.00 dinars (one hundred thirty-five thousand fourteen dinars). These expenses are determined in accordance with the relevant provisions of the Rules of the Foreign Trade Court of Arbitration in Belgrade. Since [Seller]'s claim was granted, [Buyer] is ordered to reimburse the total amount of expenses incurred by [Seller].

Pursuant to Article 478 paragraph 1 of the Law on Civil Procedure an Article 54 paragraph 1 of the Rules of the Foreign Trade Court of Arbitration attached to the Yugoslav Chamber of Commerce, this award is final.

Sole Arbitrator

Signed

Belgrade, 27 November 2002


FOOTNOTES

* All translations should be verified by cross-checking against the original text. For purposes of this translation, Claimant of Yugoslavia / Serbia is referred to as [Seller] amd Respondent of Germany is referred to as [Buyer].

** Marko Jovanovic, LL.M (U. of Belgrade) is a Doctorate student at the University of Paris 1 - Panthéon Sorbonne and at the University of Belgrade. Dr. Vladimir Pavic is an Associate Professor in Private International Law and Arbitration. Milena Djordjevic, LL.M. (U. of Pittsburgh) is a Lecturer in International Commercial Law at the University of Belgrade Faculty of Law.

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Pace Law School Institute of International Commercial Law - Last updated December 21, 2009
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