German Supreme Court rules on set-off under the CISG

On 24 September 2014, the German Supreme Court (Bundesgerichtshof) rendered its decision in the Hungarian injection moulding tools case. The decision's full text, originally written in German, has been translated into English by Till Maier-Lohmann. We are very grateful for his translation which can now be accessed via the case presentation about CISG-online 2545 (below).

The German buyer ordered moulding tools from the Hungarian seller between 1998 and 2001. The goods were non-conforming, and the seller was not able to cure these non-conformities. The buyer declared the avoidance of several contracts, proceeded to repair the goods itself and put them to use in its business. 

In response to the seller’s claim for the purchase price, the German Supreme Court found this claim to exist, since the buyer could not avoid the contract due to the lack of a fundamental breach under Article 25 CISG. In this context, the Court considers it of utmost importance whether the buyer’s interest in performance has essentially ceased to exist due to the weight of the breach of contract. If he can use the object of sale permanently, albeit under restrictions, a fundamental breach of contract will often have to be denied. Since the buyer repaired the goods and used them in its business, it could use the object of sale permanently.

Yet, the buyer potentially has damages claims due to the non-conformities against the seller. On the one hand, the German Supreme Court considers the buyer to be able to claim damages for costs for repair if the seller has no right to cure under Article 48(1) CISG at the time of self-repair. On the other hand, the Court found the seller who wants to rely on its right to cure under Article 48(1) CISG to be obliged to notify the buyer of his intention to cure. Both these interpretations of the CISG have been criticized by the translator in the following publication.

Lastly, the German Supreme Court ruled on set-off under the CISG. Against the opinion of many scholars and courts, it found the CISG to contain general principles on set-off with regard to claims that stem from the same CISG contract. According to the Court, set-off can be declared impliedly or explicitly and the consequence of set-off is that the mutual monetary claims – insofar as no set-off exclusions have been agreed upon – are discharged to the extent that they correspond in amount.