## Facts

- A Turkish seller and a Swiss buyer entered three 1979 contracts for an international sale of goods on FOB terms, with delivery destination in Belgium.
- The buyer paid 90% of the price for each shipment against shipping documents, leaving 10% unpaid.
- Two consignments were accepted as conforming; the second consignment’s conformity was disputed, and inspection after arrival confirmed nonconformity with contractual specifications.
- The buyer treated the defective goods to make them saleable and resold them at a significant loss.
- The seller initiated ICC arbitration in Paris seeking payment of the remaining 10% of the contract price.
- The buyer counterclaimed for damages from nonconformity (including direct loss, financing costs, lost profits, and interest) and sought set-off against the seller’s price claim.
- The contracts contained no choice-of-law clause, requiring the tribunal to determine the applicable substantive law and the role of trade usages.

## Issues

1. What substantive law governed the sales contracts absent a choice-of-law clause under ICC conflict-of-laws methodology.
2. Whether the CISG could be used as evidence of relevant international trade usages even though it was not directly applicable as governing law.
3. Whether the buyer examined the goods and gave notice of nonconformity within a reasonable time, and whether the seller’s knowledge of defects affected any notice defense.
4. Whether the buyer’s counterclaim and set-off were admissible and could reduce or defeat the seller’s claim for the unpaid 10% price balance.

## Decision

- The tribunal selected the law of the seller’s state (Turkey) as the proper law of the contract, emphasizing the FOB term, transfer of risk in the seller’s country, and conflicts principles tied to the characteristic performance (the seller’s obligation).
- The tribunal treated CISG provisions on examination and notice (Arts. 38–40) as reflecting relevant trade usages to be taken into account under ICC Rules, despite the CISG not being directly applicable as state law.
- Applying CISG-based usage standards, the tribunal found the buyer’s inspection and notice timely; notice was given within a reasonable time after the expert report (eight days).
- The tribunal found the seller knew or could not have been unaware of the nonconformity and did not disclose it, limiting reliance on strict domestic notice rules.
- The buyer’s counterclaim and set-off were accepted in principle and were taken into account against the seller’s claim for the outstanding 10% (the public extracts do not disclose the precise net amount).

## Legal Principles

- In ICC arbitration without a governing-law clause, the tribunal applies the law designated by the conflict-of-laws rule it deems appropriate, commonly focusing on the jurisdiction most closely connected to the contract and the debtor of the characteristic performance.
- Trade usages may supplement the applicable domestic law; widely accepted international instruments may be used as persuasive formulations of such usages.
- CISG Arts. 38–39 express a usage-based standard requiring prompt examination and notice within a reasonable time after discovery or constructive discovery of nonconformity.
- A seller who knew or could not have been unaware of the nonconformity and failed to disclose it cannot rely on technical notice failures to defeat the buyer’s remedies (CISG Art. 40 as trade usage).
- Where nonconformity and timely notice are established, a buyer’s damages claim may be asserted by counterclaim and used for set-off against the seller’s claim for the unpaid price balance, subject to proof of loss.

## Conclusion

The tribunal applied the seller’s domestic law as the contract’s proper law but relied on CISG rules as relevant trade usages to evaluate inspection and notice, found the buyer preserved remedies for nonconformity (reinforced by the seller’s knowledge), and allowed the buyer’s counterclaim and set-off to affect recovery of the unpaid price.


ICC Case No. 5713, 15 Y.B. Comm. Arb. 70 (Final Award 1989)