## Facts

- A German seller agreed to supply a custom-specified cooling machine to an Austrian buyer for use in a water plant, for a price of 21,144.60 DEM.
- The contract incorporated the seller’s general terms, including a clause selecting German law and special rules regarding notice of non-conformity.
- The seller delivered late, requiring the machine to be shipped directly to the construction site, preventing the pre-installation testing originally planned.
- After installation, a construction defect emerged; the machine could be operated only provisionally and later had to be completely rebuilt by the buyer.
- The buyer incurred repair and rebuilding costs that substantially exceeded the contract price and declared set-off against amounts owed to the seller.
- The trial court entered judgment for the seller; the appellate court reversed under the CISG; the seller appealed to the Austrian Supreme Court.

## Issues

1. Whether the buyer examined the goods properly and within the time required by CISG Article 38.
2. Whether the buyer gave timely and sufficiently specific notice of non-conformity under CISG Article 39.
3. Whether repair/rebuilding costs could be recovered as damages under CISG Articles 45(1)(b) and 74, including when damages exceed the contract price, and whether the buyer could assert them through set-off.
4. Whether a choice-of-law clause selecting German law excluded the CISG.

## Decision

- The Supreme Court affirmed the appellate decision for the buyer and applied the CISG to the contract.
- The court held that the buyer’s examination satisfied CISG Article 38 in light of late delivery and the inability to conduct the intended pre-installation testing.
- The court held that the buyer’s notice complied with CISG Article 39 because it was given within a reasonable time and sufficiently indicated the nature of the defect.
- The court held that reasonable repair expenses were recoverable as damages under CISG Articles 45(1)(b) and 74, even if they exceeded the purchase price, and could be asserted by set-off (with domestic law governing set-off mechanics where applicable).
- The court treated the selection of German law as not excluding the CISG absent a clear contractual exclusion.

## Legal Principles

- A choice-of-law clause selecting the law of a CISG Contracting State does not, without clear language, exclude the CISG (CISG art. 6); the CISG applies as part of that state’s law.
- Under CISG Article 38, the buyer must examine goods within as short a period as practicable, assessed by the circumstances; for complex goods, a context-dependent period may include consulting experts, without requiring excessively costly examinations.
- Under CISG Article 39, the notice period generally begins after the examination period ends; notice must specify the nature of the non-conformity sufficiently to allow the seller to respond, while later-discovered details may be communicated as reasonably ascertainable.
- Damages under CISG Articles 45(1)(b) and 74 can include repair or rebuilding costs, and may exceed the contract price if the loss was foreseeable and the measures and costs were reasonable in relation to the goods’ intended use and the circumstances (including urgency and replacement time).
- Where the CISG does not regulate the procedural or technical operation of set-off (and related limitation mechanics), domestic law may supplement, while the CISG governs the substantive entitlement to damages.

## Conclusion

The Austrian Supreme Court applied the CISG to uphold the buyer’s inspection and notice as timely in the circumstances of late delivery, and allowed recovery (and set-off) of reasonable, foreseeable repair damages that substantially exceeded the cooling machine’s purchase price.


Cooling Machine Case (Ger. Seller v. Austrian Buyer), 7 Ob 301/01t (Oberster Gerichtshof Jan. 14, 2002)