## Facts

- Multiple sellers and a British buyer entered a long-term contract for repeated deliveries of a condensate crude oil mix (“Rijn Blend”), expressly governed by the CISG (with Dutch law supplementing as needed).
- The relationship involved a supply chain in which the buyer had accepted prior shipments under the installment arrangement.
- In June 1998, tests indicated some shipments contained elevated mercury levels, which the buyer considered dangerous and non-conforming.
- Before refusing deliveries, the buyer discussed possible suspension only with a third party that was not the sellers’ agent.
- The buyer refused to accept the June 1998 installment and shortly thereafter stated it would refuse all future deliveries until the mercury issue was resolved.
- The sellers resold the refused product on the market and claimed losses reflecting discounted resale prices and related expenses.
- The sellers commenced NAI arbitration seeking damages and interest for the buyer’s refusal to take delivery; the buyer defended based on non-conformity and asserted rights to suspend/terminate under CISG installment and anticipatory breach provisions.

## Issues

1. Whether mercury levels rendered the goods non-conforming under CISG Article 35, considering the contract, course of dealing, and trade usage (CISG Arts. 8–9).
2. Whether the buyer gave timely and sufficient notice of non-conformity to the sellers under Article 39, and whether Article 40 excused any deficiency.
3. Whether the long-term arrangement was an installment contract under Article 73, and whether the buyer could refuse one installment and prospectively refuse future installments under Articles 71 and 73.
4. Whether the sellers’ resale qualified as a substitute transaction under Article 75 and how damages, mitigation (Art. 77), and interest (Art. 78) should be determined.

## Decision

- The tribunal treated the agreement as an installment contract within CISG Article 73.
- The tribunal found the buyer did not satisfy Article 39 notice requirements because communications with a non-agent third party did not constitute notice to the sellers.
- The tribunal held the buyer’s blanket refusal of all future installments was not justified under Articles 71 and 73 because the conditions for anticipatory refusal of future performance were not met.
- The tribunal awarded the sellers damages primarily measured by the contract price minus the resale price where the resale was commercially reasonable, plus certain additional losses, subject to mitigation review.
- The tribunal awarded interest under Article 78, using Dutch law to supply the rate/method of calculation, and adjusted recovery to reflect the evidentiary and contractual allocation of quality-related risk.

## Legal Principles

- Under CISG Article 39(1), the buyer must notify the seller of the alleged non-conformity; discussions with third parties who are not the seller’s agents do not satisfy the notice duty.
- Article 40 is construed narrowly; absent proof that the seller knew or could not have been unaware of the defect, Article 40 does not excuse noncompliance with Article 39.
- For installment contracts under Article 73, refusal of future installments requires a clear showing that a fundamental breach will occur with respect to future installments; quality problems in some shipments do not alone justify cancelling all future deliveries.
- Article 71 suspension and Article 73 anticipatory remedies require substantiation and communication consistent with the CISG’s remedial structure, including allowing a realistic opportunity to address performance concerns.
- Damages under Articles 74–75 may be based on a commercially reasonable substitute sale after the other party’s breach, reduced as appropriate by the duty to mitigate under Article 77.
- Interest is recoverable under Article 78; where the CISG does not specify a rate, applicable domestic law may fill the gap.

## Conclusion

The tribunal applied the CISG to an industrial commodity installment contract and held that the buyer’s failure to give proper notice to the sellers and its broad anticipatory refusal of all future deliveries were unjustified; the sellers recovered resale-based damages and interest, subject to mitigation and risk-allocation findings.


Rijn Blend Oil (Neth. Arb. Inst. Case No. 2319) (Oct. 15, 2002)