French Supreme Court reverses appellate decision for having overlooked Art. 39(2) CISG

In a decision of 17 June 2020, the French Supreme Court ruled on an appeal in a CISG case that dealt with the timeliness of a claim for damages brought by a French buyer of engines against a German seller:

In August 1999, the German seller had delivered two engines to the French buyer that both broke down in December 2001. In January 2002, the buyer had requested a report by a court-appointed expert on the technical reasons for the engine failure (so-called référé-expertise, a procedure under the French Code of Civil Procedure for preserving evidence). Only in January 2003, the buyer filed a claim for damages against the seller in the French Commercial Court of Meaux.

After the Commercial Court Meaux in 2011 had sentenced the seller to damages, the matter had gone up to the French Supreme Court (CISG-online 2742) and had been remanded to the Court of Appeal Paris, resulting in the appellate decision (CISG-online 5385) that was now once more challenged by the German seller by way of an appeal. In doing so, the seller raised two points that were both successful in the Supreme Court:

The first point concerned the suprising application of German (domestic) law provisions regarding the applicable limitation (prescription) period. Neither the applicability of German law as such to the limitation issue was disputed, nor that the limitation period in the case at hand was governed by § 438(1) No. 3 of the German Civil Code (BGB), which provides for a limitation period of two years. The decisive question was when this limitation period had started to run, given that delivery of the goods had occurred in August 1999, but that the goods' possible defect had not become apparent to the buyer before December 2001 (at the earliest).

The Court of Appeal had applied § 200 BGB in this regard and had held that the limitation period had only started to run on 11/14 December 2001. Upon appeal, the Supreme Court reversed and remanded the case, because the Court of Appeal had never indicated to the parties that it considered § 200 BGB to be applicable, and had therefore surprised the parties by doing so (para. 6 of the decision). In addition, it is submitted that the Court of Appeal's application of the German law of limitation was flawed for at least three reasons: First, the commencement of the limitation period of § 438(1) No. 3 BGB is not governed by § 200 BGB, but by § 438(2) BGB, which states that it starts to run on the moment of the goods' delivery (i.e. in August 1999 in the present case), irrespective of the goods' non-conformity being detectible or not. Second, § 200 BGB refers to the moment on which the claim "arises" (Entstehung), which is arguably the moment a defective delivery occurs, and not the moment the defect is detected by the buyer. And third, a frequently overlooked provision in the German law implementing the CISG (Art. 3 VertragsG zum CISG) provides for a modified application of § 438(3) BGB to CISG contracts, leading to a longer limitation period if the seller could not have been unaware of the non-conformity (the facts are unclear whether this may presently have been the case).

The second point was the two-year cut-off period provided for in Art. 39(2) CISG. The Court of Appeal had failed to apply Art. 39(2) CISG, although it had found in the context of the limitation period that the buyer had received the goods in August 1999, and that it for the first time had reacted to the possible defects in December 2001 (with the initiation of the référé-expertise mentioned above). The Supreme Court ruled that by doing so, the Court of Appeal had violated Art. 39(2) CISG (para. 10 of the decision), and therefore remanded the case (also) in this regard.

Interestingly, the Supreme Court in its reasoning refers to the filing of the court proceedings in January 2003 (para. 10 of the decision) – a point of reference that seems doubtful for the purposes of Art. 39(2) CISG, because this provision merely requires the buyer to "give the seller notice" of the non-conformity, without requiring court proceedings to have been initiated within the two-year period. Under the facts of the case, the earlier initiation of the référé-expertise procedure in December 2001 may therefore have been sufficient for purposes of Art. 39 CISG, if one assumes that the commencement of such a fact-finding procedure is sufficiently "specifying the nature of the lack of conformity" (see Art. 39(1) CISG), although such procedure will only on its completion determine the technical nature of the goods' (possible) deficiency. It is submitted that it should suffice under Art. 39 CISG that the initiation of a référé-expertise procedure is communicated to the seller, because this step informs him of the knowledge regarding the non-conformity that the buyer possesses at that very moment. In the present case, the outcome would in any way remain the same - as the goods had been delivered in August 1999, the two-year cut-off period of Art. 39(2) CISG had run in August 2001, well before the French buyer had communicated anything to the German seller...