## Facts

- A Swiss buyer and an Austrian seller entered into an international contract for the sale of fertilizer.
- The contract did not contain a choice-of-law clause; arbitration was seated in Basel, Switzerland under ICC rules.
- The contract required the buyer to supply empty sacks to the seller’s Ukrainian producer for bagging and delivery of the fertilizer.
- The Ukrainian producer asserted the sacks were not suitable under applicable technical/production standards and could not be used in the filling process.
- Delivery was not made on the agreed schedule, and the seller refused to provide a firm new delivery date.
- The buyer procured substitute fertilizer on the market and commenced arbitration seeking avoidance, damages (including the cover purchase), and interest.

## Issues

1. Whether the CISG governed the contract absent a choice-of-law clause.
2. Whether the non-delivery and delay, tied to unusable packaging arrangements, constituted a fundamental breach permitting avoidance under CISG arts. 25 and 49(1)(a).
3. Whether responsibility for the non-conforming sacks and resulting inability to bag and deliver was attributable to the seller despite the buyer’s physical supply of the sacks.
4. Whether the buyer could recover damages based on a substitute transaction under CISG arts. 74–75.
5. How to determine an interest rate under CISG art. 78, and whether CISG art. 7(2) permits recourse to general principles reflected in transnational contract instruments.

## Decision

- The tribunal held the CISG governed the dispute because it was a sale of goods between parties in different CISG Contracting States (CISG art. 1(1)(a)).
- The tribunal found the seller’s non-performance and failure to ensure deliverable performance within a reasonable time amounted to a fundamental breach (CISG arts. 25, 49(1)(a)), entitling the buyer to avoid the contract.
- The tribunal treated the packaging failure and resulting delay as within the seller’s sphere of responsibility, notwithstanding that the buyer supplied the sacks pursuant to the contractual arrangement.
- The tribunal awarded damages consistent with the CISG remedial scheme, including the price differential from the buyer’s substitute purchase and other proven losses within the foreseeability limit (CISG arts. 74–75).
- For interest, the tribunal held CISG art. 78 grants a right to interest but does not specify a rate; applying CISG art. 7(2), it used general principles reflected in the UNIDROIT Principles and PECL and awarded interest at LIBOR plus 2%.

## Legal Principles

- Where the contract is a sale of goods between parties in different CISG Contracting States, the CISG applies by force of CISG art. 1(1)(a) absent effective exclusion.
- A buyer may avoid the contract under CISG art. 49(1)(a) only if the seller’s breach is fundamental within the meaning of CISG art. 25 (substantial deprivation that was foreseeable).
- In allocating breach responsibility, a tribunal may attribute deficiencies in performance logistics to the seller when the buyer’s acts (such as supplying packaging) are part of the seller’s delivery chain and performed pursuant to the seller’s specifications or arrangements.
- After avoidance, damages may include the difference between the contract price and a reasonable substitute transaction (CISG art. 75), plus additional foreseeable loss proven under CISG art. 74.
- CISG art. 78’s silence on the interest rate is a gap that may be filled under CISG art. 7(2) by general principles of international contract law; an international benchmark rate (such as LIBOR plus a margin) may be used to reflect short-term commercial borrowing costs.

## Conclusion

The tribunal applied the CISG as the governing law, found a fundamental breach justifying avoidance, awarded cover-based damages under CISG arts. 74–75, and filled CISG art. 78’s interest-rate gap under CISG art. 7(2) by adopting LIBOR plus 2% as a principled, internationally oriented rate.


ICC Arbitral Award No. 8128 (Int’l Ct. Arb. ICC 1995)