## Facts

- A Swiss company bought grinding equipment from a German supplier for use in a hygienic tissue-producing paper machine.
- The Swiss company used the equipment to treat semi-finished paper articles, which it sold to a German paper manufacturer for producing humid tissue paper.
- After the machine was put into operation, it suffered a total failure; the cause could have been operational error or a defect in the grinding equipment.
- The German buyer observed rust stains on finished tissue paper and brown discoloration developing in much of the delivered semi-finished articles.
- The Swiss company commissioned an expert report to investigate the problem, then asserted the supplier’s liability and assigned its claims against the supplier to the German buyer.
- The buyer (as assignee) sued the German supplier for damages based on alleged defects in the grinding equipment and resulting nonconformity of the semi-finished articles.

## Issues

1. Whether the alleged defect in the grinding equipment was a hidden defect not discoverable by customary examination under CISG Article 38(1).
2. Whether notice of lack of conformity was given within a “reasonable time” under CISG Article 39(1) where technical uncertainty required internal investigation and expert analysis.
3. Whether notice under CISG Article 39(1) must identify the technical cause of the defect, or whether describing observable symptoms is sufficient.

## Decision

- The court held the grinding equipment defect was hidden within the meaning of CISG Article 38(1) because it was not discoverable upon delivery or by normal examination.
- The court rejected the appellate court’s conclusion that notice was untimely; time for internal evaluation, expert examination, and subsequent notification could be reasonable under CISG Article 39(1) in a technically complex case.
- The court held that notice describing symptoms (e.g., rust and brown stains) satisfied CISG Article 39(1) and need not specify the technical cause.
- The judgment below was reversed in relevant part and remanded for determinations on any limitation of the supplier’s liability and the amount of damages.

## Legal Principles

- Under CISG Article 38(1), a defect is “hidden” when it cannot be discovered by customary inspection upon delivery or thereafter by a reasonable examination.
- Under CISG Article 39(1), what constitutes a “reasonable time” for notice may include a period for internal assessment and for obtaining expert analysis when the defect is technically complex and causation is uncertain.
- CISG Article 39(1) requires notice specifying the nature of the nonconformity; describing observable symptoms can be sufficient, and identification of the underlying technical cause is not required.
- When dismissal rests solely on supposed untimeliness of notice, a finding that notice was timely requires remand to address liability defenses (including contractual limitations) and damages.

## Conclusion

The court treated the machinery defect as hidden under CISG Article 38 and held that, in a complex technical setting, a staged investigation period followed by notice can satisfy CISG Article 39’s “reasonable time” requirement; notice is adequate when it reports the manifested defects without proving or specifying their technical cause, requiring remand for liability-limitation and damages findings.


Paper Manufacturer v. Grinding Equipment Supplier (CLOUT Case 319), VIII ZR 287/98 (Fed. Ct. Just. 1999)