Brief Natural Gas Case, Study notes of International Business

Download Brief Natural Gas Case and more Study notes International Business in PDF only on Docsity! The Natural Gas Case Austria, Supreme Court, 1996. Case No, 518/95 Osterreichische Zeitschrift fir Rechtsvergleichung, vol. 1996, p.248 (1996). Facts Appellee (plaintiff in first instance), a German company, negotiated to buy natural gas from the appellant (defendant in first instance), an Austrian partnership. Appellee faxed the appellant offering to buy 700 to 800 metric tons of propane gas. Appellant responded that it could ship the propane from the United States to the appellee in Belgium for $376 per ton. Appellee asked the appellant to identify the place in the United States where the gas would be loaded aboard a tanker, because the appellee’s bank needed this information before it would issue a letter of credit. While this exchange of faxes was taking place, the parties were talking to each other on the telephone to order a larger quantity of propane. Appellee contacted a Dutch natural gas reseller that agreed to buy 3,000 tons of propane at $381 per ton. Appellee then increased the order by 3,060 tons. On the day of shipment, appellee sent a fax to the appellant asking to be notified of the place where the propane would be loaded. The next day the appellee sent another fax to tell the appellant that its bank would not process the letter of credit until the bank received the place of loading information. A few days later appellant informed the appellee that its United States supplier would not agree to let the propane gas be exported to Belgium, and therefore he could not deliver. Due to this, appellee had to make a substitute purchase at the Dutch natural gas reseller at a higher price and forwarded the Dutch natural gas reseller’s claim of $141,131 arising out of the substitute purchase. Appellant rejected this claim. Procedural History Appellee sued appellant in this case both to cover the $141,131 compensation due the reseller and for the loss of its own profits of $15,000. The trial court held in favor of the appellee and the court of appeals affirmed its decision. Appellant then appealed to the Supreme Court. Issue(s) 1. Whether under a contract governed by the CISG, the omission of information from one party from which derived the other party’s impossibility to meet his payment obligations may be deemed as a breach of contract since defendant did not perform its obligation under the contract.  Law - Article 9(1) CISG: “The parties are bound by any usage to which they have agreed and by any practices which they have established between themselves.” - Article 8(1) CISG: “For the purposes of this Convention statements made by and other conduct of a party are to be interpreted according to his intent where the other party knew or could not have been unaware what that intent was.” - Article 30 CISG: “The seller must deliver the goods, hand over any documents relating to them and transfer the property in the goods, as required by the contract and this Convention.” - Article 54 CISG: “The buyer’s obligation to pay the price includes taking such steps and complying with such formalities as may be required under the contract or any laws and regulations to enable payment to be made.” - Article 41 CISG: “The seller must deliver goods which are free from any right or claim of a third party, unless the buyer agreed to take the goods subject to that right or claim.  However, if such right or claim is based on industrial property or other intellectual property, the seller’s obligation is governed by article 42. - Article 80 CISG: “A party may not rely on a failure of the other party to perform, to the extent that such failure was caused by the first party’s act or omission.” Holding The omission of information from the opposing party which derived the other party’s impossibility to meet his payment obligations is not deemed as a breach of contract since the opposing party did not perform its obligation under the contract.  Explanation The plaintiff did not open a letter of credit and the plaintiff did not deliver the agreed goods (the natural gas). Article 54 CISG provides that “the buyer’s obligation to pay the price includes taking such steps and complying with such formalities as may be required under the contract or any laws and regulations to enable payment to be made.” Considering this, a buyer in a sale of goods contract who has agreed to open a letter of credit must do so in a timely manner. In the case at hand, only after the defendant had a claim against the bank was the defendant required to treat the letter of credit as open. In other words, because the buyer agreed to obtain a letter of credit, the buyer was obliged to do so before the seller was required to perform. And only after the buyer opened the letter of credit, was the buyer entitled to demand that the seller perform. However, the plaintiff did not open the letter of credit because the defendant failed to notify the place where the natural gas would be loaded, and this was so, even though the defendant had expressly promised to do so. Defendant cannot complain that the plaintiff did not fulfill its obligation as the defendant’s own obligation to notify the plaintiff as to the place where the goods were to be loaded had to happen first. As stated in CISG, Article 80, “party may not rely on a failure of the other party to perform, to the extent that such failure was caused by the first party’s act or omission.” Defendant knew that plaintiff had to know the place of loading to open the letter, and defendant failed to notify the plaintiff of the place of loading which led to the plaintiff's failure to open the letter of credit. The defendant cannot now complain that the plaintiff could have opened the letter of credit anyway, because the defendant had expressly agreed that it would notify the plaintiff of the place of loading. Furthermore, the failure of the plaintiff to open a letter of credit was not the reason for the breach of this contract. As the lower courts have held, it was the defendant’s failure to obtain the appropriate clearances needed to export the propane gas to Belgium that was the cause of the breach. According to Article 30 CISG, “the seller must deliver the goods, hand over any documents relating to them and transfer the property in the goods, as required by the contract.” The defendant's argument that it was the buyer that was obliged to obtain the appropriate authorization for the goods to be imported into Belgium is without merit. A buyer is not obliged to ask a seller if there are any unusual restrictions that may keep the seller from performing. If the seller does not inform the buyer of such restrictions, the buyer may reasonably assume that such circumstances do not exist. Article 41 CISG says that "the seller must deliver goods which are free from any right or claim of a third party” unless the buyer had agreed to accept such goods. If the seller's supplier will not allow the goods to be exported, then the goods are subject to a restriction. The buyer, of course, may agree to accept the goods anyway, but it doesn’t have to. And, if the buyer doesn’t agree to accept the goods, and the seller is then unable to deliver them because of the restriction, the seller breached the contract. 2. Whether in a possible scenario of breach of contract, the opposing party may be entitled to indemnification, including restoration for the loss of profits it would have accumulated reselling the goods to a third party. Law - Article 25 CISG: “A breach of contract committed by one of the parties is fundamental if it results in such detriment to the other party as substantially to deprive him of what he is entitled to expect under the contract, unless the party in breach did not foresee and a