## Facts

- Thirteen Dutch offshore gas producers (sellers) entered twelve long-term contracts (1993–1994) to sell repeated shipments of “Rijn Blend” condensate/crude mix to an English oil company (buyer).
- The contracts described the product as Rijn Blend but did not set a mercury limit or detailed quality specifications.
- Condensate composition varied by nature, and there was no industry-wide mercury standard.
- For several years, the buyer accepted deliveries without dispute.
- In June 1998, the buyer refused the next shipment, asserting mercury levels were too high to permit further processing or resale, and announced suspension of future deliveries until a solution was found.
- No solution was reached; the buyer allowed some contracts to expire and terminated others.
- The sellers resold undelivered quantities to third parties at prices substantially below the contract prices and claimed significant losses.
- The sellers commenced NAI arbitration in 2000; the parties agreed the CISG governed.

## Issues

1. Under CISG art. 35(2)(a), did elevated mercury render the goods unfit for ordinary purposes and therefore non-conforming?
2. Did the buyer carry the burden to prove non-conformity and comply with CISG art. 39 notice requirements (and, if relevant, was any failure excused under art. 40)?
3. Could the buyer suspend performance under CISG art. 71 (and related instalment considerations under art. 73), including compliance with art. 71(3) immediate notice?
4. If the buyer breached, what damages were owed under CISG arts. 74–75, and how did mitigation under art. 77 affect recovery?

## Decision

- The tribunal largely ruled for the sellers and found the buyer liable for breach.
- For art. 35(2)(a), the tribunal adopted a “reasonable quality” standard and rejected importing either an English-law “merchantable quality” test or a civil-law “average quality” test.
- Applying that standard, the tribunal held the buyer did not prove the Rijn Blend was non-conforming, given the absence of contractual mercury specifications, the variability of condensate, lack of an industry standard, and the parties’ history of accepted performance.
- The tribunal concluded the buyer did not satisfy CISG art. 39 notice requirements for non-conformity.
- The tribunal also found the buyer’s suspension did not meet CISG art. 71 requirements, including the art. 71(3) obligation of immediate notice.
- The tribunal awarded the sellers damages under CISG art. 74, primarily measured by the contract/resale price differential consistent with CISG art. 75, subject to mitigation under art. 77.

## Legal Principles

- CISG art. 35(2)(a) “fitness for ordinary purposes” is assessed by a reasonable quality standard informed by the contract, the nature of the goods, and reasonable commercial expectations, not by domestic “merchantability” or “average quality” formulas.
- The buyer bears the burden of proving non-conformity.
- A buyer relying on lack of conformity must give timely and sufficiently specific notice under CISG art. 39; failure defeats non-conformity-based remedies absent a valid art. 40 basis.
- CISG art. 71 permits suspension only on good grounds that the other party will not perform a substantial part of its obligations, and the suspending party must give immediate notice under art. 71(3).
- In repeated-delivery relationships, suspected defects in one instalment do not automatically justify stopping all future performance; the factual basis for anticipating future non-performance matters (arts. 71, 73).
- When the buyer wrongfully refuses delivery, the seller may recover foreseeable loss under art. 74, including the contract/substitute transaction differential under art. 75, reduced as required by the duty to mitigate under art. 77.

## Conclusion

The tribunal held that the buyer’s mercury-based refusal and suspension were not justified under the CISG because non-conformity was not proven and notice and suspension requirements were not met; the sellers recovered damages largely based on their reasonable resale (cover) losses, subject to mitigation.


Netherlands Arbitration Inst. Case No. 2319 (Rotterdam, Oct. 15, 2002)