Spanish Supreme Court rules on Arts. 40, 77 and 79 CISG

On 9 July 2014, the Spanish Supreme Court (Tribunal Supremo) rendered its decision in the matter International Flavors & Fragrances Inc. v. Ramón Sabater, SA. The decision’s full text, originally in Spanish, has been translated into English by María Paula Herrera Duque, a law graduate of the Universidad Nacional de Colombia (Colombia). We are very grateful for this translation that can now be accessed via the case presentation about CISG-online 2578 (below).

The dispute underlying the decision arose from a CISG contract for the sale of red pepper powder for the production of food products concluded between a Spanish seller (Ramón Sabater, SA) and two Dutch buyers (International Flavors & Fragrances Inc. and International Flavors & Fragrances (I.F.F.) Nederland B.V.). After delivery of the red pepper powder and when food products containing the powder had already been introduced in the market, the buyers learned from one of their customers that the red pepper powder had been contaminated with a coloring (“Para Red”) not allowed in the EU. As a consequence, the buyers analyzed the remaining batches of red pepper powder delivered by the seller and found out that all of them contained “Para Red”. Hereafter, the buyers initiated legal proceedings against the seller.

In its decision the Spanish Supreme Court dismissed the seller’s argument that the buyers had not complied with Arts. 38(1) and 39 CISG by not giving timely notice of the non-conformity. It found that it was irrelevant whether the buyers had complied with Arts. 38(1) and 39 CISG because Art. 40 CISG was applicable in the case at hand. The seller acquired the powder in a market which should have generated its distrust regarding the purity of the red pepper powder and hence was not entitled to rely on the provisions of Arts. 38 and 39 under Art. 40 CISG.

Furthermore, the Spanish Supreme Court rejected the seller’s argument that the buyer had breached its obligation to mitigate losses under Art. 77 CISG. The Supreme Court held that the obligation to examine the goods and give notice of any lack of conformity cannot be invoked in order to claim a reduction of damages under Art. 77 CISG, since non-compliance leads to the specific consequences under Art. 39 CISG. In addition, the Supreme Court explained that the buyer was initially unaware of the damages and it was not required to know either, and therefore no consequences could be drawn from Art. 77 CISG.

Finally, the Supreme Court rejected the seller’s argument that it was exempt from its liability under Art. 79 CISG as the impediment had been reasonably controllable for the seller.